MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

DEPARTMENT OF ACCOUNTANCY

ACT103: FUNDAMENTALS OF INCOME TAXATION

Individual Taxation

LESSON OBJECTIVES
At the end of this module, you will be able to:
1. Identify and know the individual income taxpayers
2. Define the individual taxpayers and know the related terms used.
3. Determine the different classification of individual taxpayers.

OVERVIEW
In dealing with taxation especially for individuals, it is very important to know its classification
because each individual may differ as to situs of income, manners of computing tax, treatment
to certain incomes, allowable deductions and references to the tax code.

ACTIVITY
Classify each individual whether he/she is a resident citizen, non-resident citizen, resident alien,
or a non-resident alien.
1. Alas, a native of General Santos City is working as overseas contract worker in
Saudi Arabia.
2. Bambina, Korean singer, residing in Seoul. She was invited to hold a three-day
concert at Araneta Coliseum in September of the current year.
3. Caipas, Filipino, now residing in Vancouver, Canada.
4. Dabiana, American married to a Filipino. She has been living in the Philippines
since 1977.
5. Ellias, Spanish citizen, a resident of Madrid, Spain, spent a one-week vacation in
Boracay and another week in El Nido Resort Palawan.
6. Fujiko, a Japanese engineer, stayed in the Philippines for seven (7) months
during the current year to manage the rehabilitation of the railroad track going to
Bicol.

ABSTRACTION
Definition
Individual Taxpayers are natural persons with income derived from within territorial jurisdiction
of a taxing authority. They are classified as follows:

1. Resident Citizen
Under section 1, Article III of the Constitution, a Filipino Citizen is a natural person who is/has:
1) Born (by birth) with father and/or mother as Filipino Citizens;
2) Born before January 17, 1973 of Filipino mother who elects Philippine citizenship upon
reaching the age of maturity;
3) Acquired Philippine citizenship after birth (naturalized) in accordance with Philippine
Laws.

A Resident Citizen is a Filipino citizen who permanently resides in the Philippines.

2. Non-resident Citizen
Sec. .22 (E) of the NIRC describes a non-resident citizen as a citizen who:
1) Establishes, to the satisfaction of the Commissioner of Internal Revenue, the fact of his
physical presence abroad with a definite intention to reside therein;
2) Leave the Philippines during the taxable year to reside abroad

1
 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

 As an immigrant; or
 For employment on a permanent basis; or
 For work and derives income from abroad and whose employment there at
requires him to be physically abroad most of the time during the taxable year.

3) A citizen of the Philippines who shall have stayed outside the country for 183 days or
more by the end of the year (aggregate)

NOTE: A non-resident citizen who arrives in the Philippines at any time during the taxable
year to reside permanently in the Philippines shall be considered a nonresident citizen for
the taxable year in which he arrives in the Philippines with respect to income derived from
sources abroad until the date of his arrival in the Philippines. (Same rules apply for Resident
Citizens who leaves the Philippines.)

3. Resident Alien
An individual whose residence is within the Philippines and who is not a citizen thereof. An
alien who lives in the Philippines with no definite intention as to stay is also classified as
resident alien.

4. Non-resident Alien
The term non-resident alien under the Tax code means an individual whose residence is not
in the Philippines and who is not a citizen thereof. They are aliens who come to the
Philippines for a definite purpose.

Alien who stayed in the Philippines for an aggregate period of more than 180 days during
the taxable year and/or alien who have business income in the Philippines are considered
non-resident alien engaged in trade/business.

In contrast, if an alien stays in the Philippines for less than 180 days and does not derive
income within, he/she is classified as non-resident alien not engaged in trade/business.

5. Overseas Contract Worker (OCW)/ Overseas Filipino Worker (OFW)

OCW refers to Filipino Citizens employed in foreign countries, commonly referred to as
OFWs who are physically present in foreign country as a consequence of their employment
thereat.

To be considered as an OCW/OFW they must be duly registered as such with the POEA
and with valid Overseas Employment Certificate (OEC), with a valid Seafarers Identification
Record Book (SIRB) or Seaman’s Book issued by Maritime Industry Authority. (MARINA)

Source of Income
It is important to know the source of income for tax purposes because as resident citizens are
taxable based on their worldwide income while others are taxable only on their income derived
from sources within the Philippines

Individual Taxpayer Source Tax Base

2
 MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

RC WITHIN & WITHOUT NET INCOME

NRC, RA, NRA-ETB WITHIN ONLY NET INCOME
NRA-NETB WITHIN ONLY GROSS INCOME

ALIEN Summary
NRA-NETB – with purpose, with definite period (stay 0-180 days)

NRA-ETB – with purpose, like employed (stay 181 – 1 year)

RA – with purpose, with no definite intention to stay (more than a year in the Philippines)

REFERENCES
BIBLIOGRAPHY Tabag, E. D. (2019). INCOME TAXATION. Manila: Info Page.
Valencia, E. G. (2017). Income Taxation. Baguio City: Valencia Educational Supply.
Ballada, W. (2013): Income and Business Taxation; Manila: DomDane Publisher.

Quiz
Instruction: Read carefully and identify the classification of individual taxpayers.

CASES
1. An Indian computer expert was hired by a Philippine corporation to assist in its computer
system installation for which he had to stay in the Philippines for 6 months. Is he a
resident alien?
2. What if case number 1 is required for an extended stay in the Philippines with the
intention to return home. Is he a resident alien or non-resident alien. Defend your
answer.
3. A Chinese cultural performer was engaged to perform in the Philippines for two weeks
after which she has to return to her country. Is she a resident alien?
4. An alien owns shares of stock in the Philippines. Is he considered as engaged in
business or trade in the Philippines?
5. An alien temporarily serves as executive manager of an airline in Manila. Is he
considered engaged in trade or business in the Philippines?
6. A resident alien left the Philippines and abandoned his residency thereof without any
intention of returning. May he still be considered a resident alien?
7. A resident alien left the Philippines with a re-entry permit. Is he still a resident alien?
8. A non-resident citizen went to Manila under the Balikbayan Program. Does his return to
Manila interrupt his residence abroad?