Income Taxation Taxation

Income Taxation Taxation

The Taxpayer and Tax Base Income Taxation Schemes

INCOME TAXATION SCHEMES

Final income taxation

Capital gains taxation

Regular income taxation

Income Taxation Taxation
The Taxpayer and Tax Base Income Taxation Schemes

Final Income Taxation

It is manifested as a final withholding tax where the
full tax due is withheld by the income payor at source and
is not creditable against income tax due of the payee on
other income subject to regular rates of tax for the taxable
year.

Final income taxation scheme is applicable on the

following cases:
1. Certain passive income enumerated in the Tax Code
2. Certain income taxpayers specified by the Tax Code
Income Taxation Taxation
The Taxpayer and Tax Base Income Taxation Schemes

Final Income Taxation

Tax Model:
Gross Income XX,XXX

Less: Final tax (withheld by income payor)

(Gross income x applicable tax rate) XX,XXX

Net proceeds to income payee XX,XXX

Income Taxation Taxation
The Taxpayer and Tax Base Income Taxation Schemes

Capital Gains Taxation

It is imposed only on sale, exchange and other
dispositions on the following capital assets:

1. domestic stock sold directly to buyer

2. real property classified as capital asset located in the

Philippines
Income Taxation Taxation
The Taxpayer and Tax Base Income Taxation Schemes

Regular Income Taxation

It refers to the catchall coverage; general rule in
income taxation and all other income that are not exempt,
not subject to final tax and not subject to capital gains tax.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Classification of Individuals according to Situs

Citizen Alien
Resident Citizen Resident Alien

Nonresident Citizen Nonresident Alien

Engaged in Trade or Business in the Not Engaged in Trade or Business in

Philippines (ETB) the Philippines (NETB)
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Citizen
The following are citizens of the Philippines:
a. Those who are citizens of the Philippines at the time of
the adoption of the 1987 Constitution;
b. Those whose fathers or mothers are citizens of the
Philippines;
c. Those born before January 17, 1973, of Filipino
mothers, who elect Philippine Citizenship upon
reaching the age of majority; and,
d. Those who are naturalized in accordance with law.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Resident Citizen
A Filipino citizen residing in the Philippines.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Nonresident Citizen
Any of the following:
a. A citizen of the Philippines who establishes to the
satisfaction of the Commissioner the fact of his
physical presence abroad with a definite intention to
reside therein;
b. A citizen of the Philippines who leaves the Philippines
during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis;
c. A citizen of the Philippines who works and derives
income from abroad and whose employment thereat
requires him to be physically present abroad most of
the time during the taxable year; and,
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Nonresident Citizen
d. A citizen who has been previously considered as
nonresident citizen and who arrives in the Philippines
at any time during the taxable year to reside
permanently in the Philippines shall likewise be treated
as a nonresident citizen for the taxable year in which he
arrives in the Philippines with respect to his income
derived from sources abroad until the date of his arrival
in the Philippines.

In default of intention, the presence of a citizen for at least

183 days qualifies him as non-resident citizen.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Classification of Individuals according to Situs

Citizen Alien
Resident Citizen Resident Alien

Nonresident Citizen Nonresident Alien

Engaged in Trade or Business in the Not Engaged in Trade or Business in

Philippines (ETB) the Philippines (NETB)
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Resident Alien
An individual who is residing in the Philippines but is not a
citizen thereof, such as:

a. An alien who lives in the Philippines without definite

intention as to his stay; or,
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Resident Alien
b. One who comes to the Philippines for definite purpose
which in its nature would require an extended stay and
to that end make his home temporarily in the
Philippines, although it may be his intention at all times
to return to his domicile abroad;

An alien who has acquired residence in the Philippines

retain his status as such until he abandons the same or
actually departs from the Philippines.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Nonresident Alien Engaged in Trade or Business

Aliens who stayed in the Philippines for an aggregate
period of more than 180 days during the year.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

NRA Not Engaged in Trade or Business

a. Aliens who come to the Philippines for a definite
purpose which in its nature may be promptly
accomplished;
b. Aliens who shall come to the Philippines and stay
therein for an aggregate period of not more than 180
days during the year.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

General Classification Rule

Intention

Length of Stay
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Intention
THE GENERAL RULE

The intention of the taxpayer regarding the nature of

his stay within or outside the Philippines shall determine
his appropriate residency classification.

The taxpayer shall submit to the Commissioner of

Internal Revenue (CIR) documentary proofs such as visas,
work contracts and other documents indicating such
intention.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Length of Stay
THE EXCEPTION TO THE GENERAL RULE

In default of such documentary proof, the length of

stay of the taxpayer is considered.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Rule on Length of Stay

1. Citizens staying abroad for a period of at least 183
days are considered non-resident.
2. Aliens who stayed in the Philippines for more than 1
year as of the end of the taxable year are considered
resident.
3. Aliens who are staying in the Philippines for not more
than 1 year but more than 180 days are deemed non-
resident aliens engaged in business.
4. Aliens who stayed in the Philippines for not more than
180 days are considered non-resident aliens not
engaged in trade or business.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Taxability of Individual on Regular Income

1. Net taxable income, within and without the Philippines
– Resident citizen

2. Net taxable income, within the Philippines –

Nonresident citizen, resident alien, and nonresident
alien-engaged in trade or business in the Philippines

3. Gross taxable income, within the Philippines –

Nonresident alien-not engaged in trade or business in
the Philippines (using final income taxation scheme)
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Classification according to Source of Income

Compensation Income Earner

Self-Employed/Professional Income Earner

Mixed Income Earner

Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Compensation Income Earner

The compensation income of employees, except
minimum wage earners, is subject to withholding tax on
compensation. Every employer is mandatorily required to
deduct the withholding tax from the compensation income
of their employees.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Treatment of Withholding Tax on Compensation

a. DEEMED FULL PAYMENT OF INCOME TAX – if the
employee has no other income and the tax is correctly
withheld

b. CLAIMED AS TAX CREDIT – if the employee has other

taxable income or if the tax is not correctly withheld
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Employees with no Other Income

If the employee has no other taxable income, he may
avail himself of the use of the SUBSTITUTED FILING
SYSTEM.

Under this system, the withholding tax on

compensation is considered enough evidence of tax
compliance of the employee, provided that the employer
withheld the correct tax.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Conditions of the Substituted Filing System

a. The employee received purely compensation income
during the year.

b. The employee received the income from only one

employer in the Philippines during the taxable year.

c. The amount of tax due from the employee at the end of

the year equals the amount of tax withheld by the
employer.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Conditions of the Substituted Filing System

d. The employee’s spouse also complies with all 3
conditions stated above.

e. The employer files the annual information return (BIR

From No. 1604-CF)

f. The employer issues BIR Form No. 2316 to each

employee.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Additional Return needed when:

a. Correct tax is not withheld – Adjusted Return

b. Employee or his spouse has other income –

Consolidated Return
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Correct Tax is not withheld – Adjusted Return

a. Concurrent employment
b. Successive employment during the year
c. Incurrence of error by the employer

An annual return needs to be filed to adjust the tax

due to the correct amount of tax. This is referred to as an
ADJUSTMENT RETURN.

The employee shall claim Form 2316 as tax credit

and pay residual tax due or claim excess withheld amount
as tax credit or tax refund
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Employee has Other Taxable Income

If the employee has other taxable income, the
employee is mandatorily required to file an annual income
tax return to incorporate other income sources in his
return.

This is referred to as a CONSOLIDATED INCOME

TAX RETURN.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Consolidated Income Tax Return

a. BIR Form No. 1700 – if the employee is not engaged in
business or profession
b. BIR Form No. 1701 for mixed income earners – if the
employee is also engaged in business and/or
profession

The withholding tax on compensation (BIR Form 2316)

given by the employer shall be claimed as tax credit.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Classification according to Source of Income

Compensation Income Earner

Self-Employed/Professional Income Earner

Mixed Income Earner

Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Self-Employed/Professional Income Earner

Individual taxpayers engaged in business or practice
of profession shall file quarterly income tax returns and an
annual tax return:
a. 1st Quarter ITR – 1701Q – on or before May 15 of the
same calendar year
b. 2nd Quarter ITR – 1701Q – on or before August 15 of
the same calendar year
c. 3rd Quarter ITR – 1701Q – on or before November 15
of the same calendar year
d. Annual ITR – 1701A or 1701 – on or before April 15 of
the next calendar year
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Excess Quarterly Estimated Tax

The excess quarterly estimated tax payments
against the quarterly tax due may, at the option of the
taxpayer, be carried forward to quarters of the succeeding
taxable year or claimed through tax refund. The option
must be indicated in the annual adjustment return.
Once the option to carry-over is made, it becomes
irrevocable for that period. The option to refund may be in
the form of cash or through a tax credit certificate. If the
option to refund is selected, the excess refundable amount
shall not be carried over as tax credit to the succeeding
quarters of the following year.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Classification according to Source of Income

Compensation Income Earner

Self-Employed/Professional Income Earner

Mixed Income Earner

Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Mixed Income Earner

The compensation income of mixed income earners
will be subjected to the withholding tax on compensation
by their employers.
Mixed income earners would report their business or
professional income on a quarterly basis under Form
1701Q.
The compensation income shall not be reported in
the quarterly return. It shall be included only in the annual
consolidated return.
Mixed income taxpayers shall use BIR Form No.
1701.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Effective January 1, 2018 to December 31, 2022

Net Taxable Income
Rate
Over But not over
- P250,000 0%
P250,000 400,000 20% of the excess over P250,000
400,000 800,000 P30,000 + 25% of the excess over P400,000
800,000 2,000,000 P130,000 + 30% of the excess over P800,000
2,000,000 8,000,000 P490,000 + 32% of the excess over P2,000,000
8,000,000 - P2,410,000 + 35% of the excess over P8,000,000
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Effective January 1, 2023 onwards

Net Taxable Income
Rate
Over But not over
- P250,000 0%
P250,000 400,000 15% of the excess over P250,000
400,000 800,000 P22,500 + 20% of the excess over P400,000
800,000 2,000,000 P102,500 + 25% of the excess over P800,000
2,000,000 8,000,000 P402,500 + 30% of the excess over P2,000,000
8,000,000 - P2,202,500 + 35% of the excess over P8,000,000
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Regular Income Tax Model

Gross income/compensation income XXX,XXX
Less: Allowable deductions
(Itemized or optional standard) XXX,XXX
Net taxable income XXX,XXX
Use tax table 0%-35%
Income tax due XX,XXX
Less: Tax credits/withheld
(BIR Form 1701Q/2316/2307) XX,XXX
Income tax payable XX,XXX
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

8% Income Tax Option

The TRAIN law introduced a new tax scheme for
individual taxpayers – the 8% optional income tax.

The option to be taxed at 8% must be indicated in the

first quarter income tax return or in the first quarter
percentage tax return.

When the option is made, it shall be irrevocable for

the calendar year.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Nature
a. A bundled tax – in lieu of regular income tax (tax table)
and 1%/3% general percentage tax

b. An annual option

c. Paid quarterly and annually

Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Scope
a. Pure business or professional income earners

b. Mixed income earners

Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Covered Businesses
Only vatable businesses who are below the
P3,000,000 annual VAT threshold and did not register as
VAT taxpayer can opt to be taxed under the 8% income
tax.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Not Covered
a. VAT-registered business taxpayers

b. VAT-exempt business taxpayers, such as: exempt

businesses and businesses specifically subject to other
percentage taxes

c. Individual receiving income not subject to business tax.

Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Tax Base
The 8% optional income tax shall be based upon the
gross sales or gross receipt of the individual taxpayer that
is subject to 1%/3% percentage tax.

Other income subject to regular tax are added to the

tax base.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Pure Business or Professional Income Earner

The 8% income tax shall be computed from the tax
basis net of P250,000 annual income exemption.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Pure Business or Professional Income Earner

Gross sales/receipts XXX,XXX
Add: Non-operating income XXX,XXX
Gross taxable income XXX,XXX
Less: Annual income exemption 250,000
Net taxable income XXX,XXX
Multiply by: Tax Rate 8%
Income tax due XXX,XXX
Less: Tax credits/withheld XXX,XXX
Income tax payable XXX,XXX
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Mixed Income Earner

The income tax due from compensation shall be
separately determined using the income tax table while the
8% income tax for the income from business or
profession.
There will be no more P250,000 annual income
exemption allowable as deduction against the basis of the
8% income tax.
Furthermore, if the amount of compensation income
does not exceed P250,000, the unutilized deduction
cannot be deducted against business income.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Mixed Income Earner

ON COMPENSATION
Total compensation income XXX,XXX
Less: Nontaxable income XX,XXX
Exclusions from compensation XX,XXX
13th month pay & other benefits
(ceiling) 90,000 XXX,XXX
Taxable compensation income XXX,XXX
Use tax table 0%-35%
Tax due on compensation XX,XXX
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Mixed Income Earner

Tax due on compensation XX,XXX

ON BUSINESS INCOME
Gross sales/receipts XXX,XXX
Add: Non-operating income XXX,XXX
Taxable business income XXX,XXX
Multiply by: Tax rate 8%
Tax due on business income XX,XXX
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Mixed Income Earner

Tax due on compensation XX,XXX

Tax due on business income XX,XXX

Total income tax due XX,XXX
Less: Tax credits/withheld
(BIR Form 1701Q/2316/2307) XX,XXX
Income tax payable XX,XXX
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Interim Transition to the Value-Added Tax

Individuals exceeding the P3,000,000 VAT threshold
during the year are mandatorily required to change
registration from non-VAT to a VAT taxpayer before the
end of the month following the month the taxpayer
exceeded the P3,000,000 threshold.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Interim Transition to the Value-Added Tax

The taxpayer shall pay regular income tax for his
income during the entire year and pay VAT prospectively
starting the month he became a VAT taxpayer.

The 8% income tax payments shall be considered as

tax credit against the regular income tax due.

The taxpayer shall also be required to pay the 1%/3%

general percentage tax for sales or receipts generated
before becoming a VAT taxpayer.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Married Taxpayers
Taxable income of married individuals is computed
separately based on their respective income earned or
realized.

However, they are encouraged to file using a single

income tax return showing separately their respective
taxable income and tax due, unless it is impracticable for
the spouses to file a single return, then, each spouse may
file their separate tax returns.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Married Taxpayers
If any income cannot be definitely attributed to or
identified as income exclusively earned or realized by
either of the spouses, the same shall be divided equally
between the spouses for the purpose of determining their
respective taxable incomes.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Income of Unmarried Minors

The income of unmarried minors derived from
property received from a living parent shall be included in
the income tax return of the parent, except when:

a. The donor’s tax has been paid on such property.

b. The transfer of such property is exempt from donor’s

tax.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Deceased Taxpayer
In the case of the death of a taxpayer, there shall be
included in computing taxable income for the taxable
period in which falls the date of his death, amounts
accrued up to the date of his death if not otherwise
properly includible in respect of such period or a prior
period.

(See topic Accounting Periods)

Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Alien Employees of POGOs and Service Providers

Alien individuals regardless of residency and who
are employed and assigned in the Philippines, regardless
of the term and class of working or employment permit or
visa, by an offshore gaming licensee or its service
provider, shall pay a final withholding tax of twenty-five
percent (25%) on their gross income.
Provided, however, That the MINIMUM final
withholding tax due for any taxable month from said
persons shall not be lower than Twelve thousand five
hundred pesos (P12,500.00).
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Coverage of Gross Income

Gross income shall include, whether in cash or in
kind, basic salary/wages, annuities, compensation,
remuneration and other emoluments, such as honoraria
and allowances, received from such service provider or
offshore gaming licensee.
Income Taxation Taxation
The Taxpayer and Tax Base Individuals

Income from all other sources

Any income earned from all other sources within the
Philippines by the said alien employee shall be subject to
the pertinent income tax imposed under the NIRC, as
amended.
Income Taxation Taxation

EXERCISES
Income Taxation Taxation

1. Who is not allowed the option to be taxed at 8%?

a. Compensation income earner
b. Business income earner
c. Professional income earner
d. Mixed income earner
Income Taxation Taxation

2. Which will not be included in the tax bases of the

8% income tax?
a. Gross sales
b. Gross receipts
c. Gross income from operation
d. Other gross income subject to regular income
tax
Income Taxation Taxation

3. Which is incorrect regarding the 8% optional

income tax?
a. It substitutes the regular income tax and the 1%
percentage tax
b. The 8% income tax is irrevocable for the year it
is chosen
c. May be opted to if the taxpayer claimed optional
standard deduction
d. May be used even if the taxpayer is also an
employee
Income Taxation Taxation

4. An individual income taxpayer is engaged in

self-employed business rendering tutorial services
from grades 1 to 10, and because of his increased
number of tutees, she employed more tutors, and
they render tutorial services every weekend. Since
the academic year in the Philippines starts around
July or August and ends around May or June, he
decided to set his accounting period around at the
same start an academic year start, which is on July
1 to June 30 of the next year. If he is to file his 3rd
Quarterly Income Tax Return, when shall be his
deadline?
Income Taxation Taxation

SUGGESTED ANSWER:
November 15 of every year
Income Taxation Taxation

5. Which of the following scenario will still require

an adjustment return from the employee even if the
employers correctly withheld the tax on their
compensation payments?
a. Employee has concurrent employment
b. Employee had successive employment during
the year
c. The employee earned income from other
sources
d. All of these
Income Taxation Taxation

6. An adjustment return is least likely to be

required when
a. The employee receives compensation from
multiple employers
b. The employee has two successive employers
during the year
c. The employer has under-withheld the tax
d. The employer has over-withheld the tax
Income Taxation Taxation

7. The length of stay of individuals for purposes of

taxpayer classification is reckoned as of
a. December 31 of the current year
b. December 31 of the prior year
c. The day the alien individual leaves the
Philippines
d. The date individual taxpayer files his income tax
return
Income Taxation Taxation

8. In 2022, a Japanese, who failed to show his visa,

who had been residing in the Philippines since
August 17, 2022, as seen in his passport is
considered a
a. Resident citizen
b. Resident alien
c. Nonresident alien-engaged in trade or business
d. Nonresident alien-not engaged in trade or
business
Income Taxation Taxation

9. Which of the following is not a constructive

receipt of income?
a. Forgiveness of indebtedness in consideration of
service
b. Matured detachable interest coupons
c. Deposit of income to taxpayer’s bank accounts
d. Cash salary of an employee
Income Taxation Taxation

10. Which of the following is exempted from

income taxation because of the absence of ability
to pay?
a. Damages received from patent infringement suit
b. Unrealized income from investments
c. Gain on sale of goods
d. Inheritance
Income Taxation Taxation
The Taxpayer and Tax Base Individuals
Income Taxation Taxation
The Taxpayer and Tax Base Individuals
Income Taxation Taxation
The Taxpayer and Tax Base Individuals
Income Taxation Taxation
The Taxpayer and Tax Base Individuals
Income Taxation Taxation
The Taxpayer and Tax Base Individuals
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Definition according to the Tax Code

1. one-person corporations
2. partnerships, no matter how created or organized
3. joint-stock companies
4. joint accounts (cuentas en participacion)
5. associations
6. insurance companies

NOTE: A one-person corporation is a corporation with a

single stockholder; Provided, That only a natural person,
trust, or an estate may form a one-person corporation.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Not considered corporation for tax purposes

1. general professional partnerships

2. joint ventures or consortiums formed for the

purpose of undertaking construction projects

3. joint ventures or consortiums formed for the

purpose of engaging in petroleum, coal,
geothermal and other energy operations
pursuant to an operating consortium agreement
under a service contract with the Government.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Corporations

Regular Corporations Special Corporations

Domestic Corporations Domestic Corporations

Foreign Corporations Resident Foreign Corporations

Nonresident Foreign Corps.

Resident Foreign Corporations Nonresident Foreign Corporations

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Domestic Corporations
a corporation that is organized in accordance
with Philippine laws

(Effect: Taxable on their net taxable income, within

and without the Philippines)
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Foreign Corporations
a corporation that is organized, authorized or
existing under the laws of any foreign country

(Effect: Taxable on their income within the

Philippines only)
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Resident Foreign Corporations

a foreign corporation which is engaged in
trade or business within the Philippines or has a
branch or office operating in the Philippines

(Effect: Taxable on their net taxable income)

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Nonresident Foreign Corporations

a foreign corporation which is not engaged in
trade or business within the Philippines or has no
branch or office operating in the Philippines, but
nonetheless receives income from Philippine
consumers

(Effect: Taxable on their gross taxable income,

using final withholding tax scheme)
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Income Tax for Regular Corporations

Regular Corporate Income Tax (RCIT)

Minimum Corporate Income Tax (MCIT)

Branch Profit Remittance Tax (BPRT) for RFCs

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Regular Corporate Income Tax

the general rule for corporate income tax; the
tax rate is generally applicable to all kinds of
regular corporations, however, they are applied to
different tax bases
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Tax Rates for Domestic Corporations

1. until June 30, 2020 – 30%

2. July 1, 2020 onwards

a. 25% - in general
b. 20% - qualified domestic corporations only
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Requisites to avail 20% Income Tax Rate

1. The net taxable income shall not exceed P5,000,000;
AND,
2. The total assets shall not exceed P100,000,000,
excluding the land on which the particular business
entity’s office, plant and equipment are situated

NOTE: Domestic corporations shall account separately

their Annual Financial Statements (AFS) the cost of the
land on which the particular business entity’s office, plant
and equipment are situated, and shall not lump the same
in one account title nor consolidated its cost with other
fixed asset accounts.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Tax Rates for Resident Foreign Corporations

1. until June 30, 2020 – 30%

2. July 1, 2020 onwards – 25%

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Final Income Tax Scheme for NRFCs

Gross Income derived from all sources WITHIN THE
PHILIPPINES, such as interests, dividends, rents, royalties,
salaries, premiums (except reinsurance premiums),
annuities, emoluments, or other fixed or determinable
annual, periodic or casual gains, profits and income and
capital gains (except capital gains realized from sale,
exchange, disposition of shares of stock in any domestic
corporation which is subject to capital gains tax).
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Tax Rates for Nonresident Foreign Corporations

1. until December 31, 2020 – 30%

2. January 1, 2021 onwards – 25%

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Mechanics
Resident payors shall deduct and withhold the
applicable tax due and remit the same to the BIR.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Regular Corporate Income Tax Model A*

Gross income XXX,XXX
Less: Allowable deductions
(Itemized or optional) XXX,XXX
Net taxable income XXX,XXX
Multiply by: Tax Rate 30%/25%/20%
Income tax due XXX,XXX
Less: Tax credits/withheld XXX,XXX
Income tax payable XXX,XXX

*Applicable for Domestic Corporations & Resident Foreign

Corporations
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Regular Corporate Income Tax Model B**

Gross income XXX,XXX
Less: Final income tax
(Gross income x 30%/25%) XXX,XXX
Net proceeds to NRFC XXX,XXX

**Applicable for Nonresident Foreign Corporations

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Income Tax for Regular Corporations

Regular Corporate Income Tax (RCIT)

Minimum Corporate Income Tax (MCIT)

Branch Profit Remittance Tax (BPRT) for RFCs

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Minimum Corporate Income Tax

applicable to every domestic and resident
foreign corporation taxable to the regular corporate
income tax (30%, 25% or 20%) including non-profit,
exempt, and special corporations with respect to
their taxable income subject to regular corporate
income tax, but not to their income subject to
special tax rates.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

When becomes required and payable

1. The corporation has zero or negative net taxable
income; or,

2. MCIT is greater than the regular corporate

income tax (RCIT).
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Tax Rate
1. until June 30, 2020 – 2%

2. July 1, 2020 to June 30, 2023 – 1%

3. July 1, 2023 onwards – 2%

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Timing of Imposition
Imposed at the BEGINNING of the 4th taxable
year immediately following the year in which such
corporation commenced its operations.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Gross Income, Definition

1. Sale of goods – Gross sales less sales returns,
discounts, allowances and cost of goods sold,
plus non-operating income

2. Sale of service – Gross receipts less sales

returns, discounts, allowances and cost of
services*, plus non-operating income

*for banks, cost of services includes interest

expense
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Excess MCIT Carryover

the excess of the MCIT over the RCIT in any
year is considered a tax credit that is deductible
against any RCIT tax due in the immediately
succeeding three years.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Rules on Excess MCIT

1. Excess MCIT can be used only as a tax credit
against RCIT tax due in any of the three
subsequent years. Excess MCIT cannot be
deducted against MCIT tax due.

2. Credit for the Excess MCIT from prior years can

be taken up to the full amount of RCIT tax due in
the next three years. This means that the
income tax payable when credit is made can get
below the amount of MCIT for that year.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Rules on Excess MCIT

3. When there are several Excess MCITs from prior
years, tax crediting shall be made on a first in,
first out (FIFO) basis.

4. Unused Excess MCIT at the end of the three-

year period shall expire and will no longer be
used.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Relief from MCIT

upon recommendation of the Commissioner
of Internal Revenue, the Secretary of Finance may
suspend the imposition of MCIT upon submission
of proof that the corporation sustained substantial
losses on account of:
1. prolonged labor dispute
2. force majeure
3. legitimate business reverses
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Minimum Corporate Income Tax Model

Gross income XXX,XXX
Multiply by: Tax rate 2%/1%
Income tax due XXX,XXX
Less: Tax credits/withheld XXX,XXX
Income tax payable XXX,XXX
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Income Tax for Regular Corporations

Regular Corporate Income Tax (RCIT)

Minimum Corporate Income Tax (MCIT)

Branch Profit Remittance Tax (BPRT) for RFCs

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Branch Profit Remittance Tax for RFCs

Any profit remitted by a branch to its head
office abroad shall be subject to a tax of 15% based
on the total profits applied or earmarked for
remittance without any deduction for the tax
component thereof.

The 15% BPRT is a FINAL TAX which is

required to be withheld at source by the branch of a
foreign corporation.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Coverage of BPRT
Interest, dividends, rents, royalties,
renumeration for technical services, salaries,
wages, premiums, annuities, emoluments or other
fixed or determinable annual, period or casual
gains, profits, income, and capital gains received
by a foreign corporation during each taxable year
from all sources within the Philippines shall not be
treated as branch profit UNLESS the same are
effectively connected with the conduct of the
taxpayer’s trade or business in the Philippines.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Coverage of BPRT
The term “effectively connected with the
conduct of the taxpayer’s trade or business” does
not necessarily mean that the income must be
derived from the actual operation of the taxpayer-
corporation’s trade or business, it is sufficient that
the income arises from the business activity in
which the corporation is engaged.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Coverage of BPRT
The income should be an active income or an
income from sources that are effectively
connected with the conduct of the taxpayer’s trade
or business of the resident foreign corporation to
be subjected to the branch profit remittance tax.

Passive investment income and gains are

excluded.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Scope of BPRT
The tax covers the remittance of all resident
foreign corporation including ROHQs of
multinational companies, FCDUs or OBUs of
foreign banks, and international carriers, except
PEZA-registered entities.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Remittance from prior year earnings is still taxable

The NIRC used the phrase “Any profit
remitted” without limiting the same to current year
profit remittance. The branch profit remittance tax
therefore is understood to apply to remittance of
prior year earnings.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Indirect Remittance
Even without actual remittance of profits
abroad, indirect remittance such as the following
are still subject to branch profit remittance tax:
1. Remittance of profits to a resident affiliate or to
a Philippine regional operating headquarters of
the home office;
2. Transfer of net profits to increase the branch
assigned capital account.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Repealed Provisions of the NIRC

Improperly accumulated earnings tax (IAET)
and gross income tax (GIT) are repealed by RA No.
11534 or the Corporate Recovery and Tax
Incentives for Enterprises (CREATE) Act.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Corporations

Regular Corporations Special Corporations

Domestic Corporations Domestic Corporations

Foreign Corporations Resident Foreign Corporations

Nonresident Foreign Corps.

Resident Foreign Corporations Nonresident Foreign Corporations

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Domestic Corporations

1. Educational institutions and non-profit hospitals

2. Foreign currency deposit units (FCDUs) and

expanded foreign currency deposit units
(EFCDUs)

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Resident Foreign Corporations

1. Regional or area headquarters (RHQs) and
regional operating headquarters (ROHQs) of
multinational companies (MNCs)

2. International carrier

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Nonresident Foreign Corporations

1. Cinematographic film owner, lessor or
distributor

2. Lessor of vessels, chartered by Philippine

nationals

3. Owner or lessor of aircraft, machineries and

other equipment
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Domestic Corporations

1. Educational institutions and non-profit hospitals

2. Foreign currency deposit units (FCDUs) and

expanded foreign currency deposit units
(EFCDUs)

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Coverage
1. Proprietary education institutions

2. Non-profit hospitals

3. Non-stock, non-profit educational institutions

whose net income or assets accrue/inure to or
benefit any member or specific person
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Proprietary educational institutions

any private schools maintained and
administered by private individuals or groups, with
an issued permit to operate from the Department of
Education (DepED) or the Commission on Higher
Education (CHEd) or the Technical Education and
Skills Development Authority (TESDA), as the case
may be. They may either be stock corporations or
non-stock corporations.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Non-profit hospitals
any private hospitals, which are non-profit for
income tax purposes, maintained and administered
by private individuals or groups.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Non-stock, non-profit educational institutions

those institutions mentioned in the first
paragraph of Section 4(3), Article XIV of the 1987
Constitution and Section 30 (H) of the NIRC, as
amended, whose revenues and assets that are
used actually, directly and exclusively for
educational purposes shall be exempt from taxes
and duties
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Non-profit
means that no net income or asset accrues to
or benefits any member or specific persons, with
all the net income or assets devoted to the
institution’s purposes and all its activities
conducted not for profit.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Treatment of grant of per diems

Grant of per diems such as transportation
allowance in attendance of meetings,
compensation and/or endowments for services
rendered, or any other similar emoluments to the
Board of Trustees, officers, employees, or any
members of the covered institutions shall not be
prohibited and shall not necessarily be considered
a private instrument that would negate the status
of the institutions as non-profit.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Treatment of grant of per diems

Provided, that such per diems, compensation
or emoluments are subject to proper liquidation or
reimbursement procedures, and commensurate to
the functions and services rendered.

The principles of deductions should be

complied.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Tax base
net taxable income on all sources
(within and without)
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Tax rates
1. Before July 1, 2020 – 10%

2. July 1, 2020 to June 30, 2023 – 1%

3. July 1, 2023, onwards – 10%,

subject to the PRE-DOMINANCE TEST.

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Pre-dominance test
If the gross income from “unrelated trade,
business or other activity” exceeds 50% of the total
gross income derived by such educational
institutions or hospitals from all sources, the tax
prescribed for domestic corporations (25%) shall
be imposed on the entire taxable income.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Unrelated trade, business or other activity

Any trade, business, or other activity, the
conduct of which is not substantially related to the
exercise or performance by such educational
institution or hospital of its primary purpose or
function.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Domestic Corporations

1. Educational institutions and non-profit hospitals

2. Foreign currency deposit units (FCDUs) and

expanded foreign currency deposit units
(EFCDUs)

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

FCDUs and EFCDUs

a unit or department of a local bank or a local
branch of a foreign bank authorized by the BSP to
engage in foreign currency-denominated
transactions pursuant to RA 6426, as amended.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Local bank
a commercial bank, universal bank, and a
thrift bank organized under the laws of the
Philippines. The bank shall secure a Taxpayer
Identification Number (TIN) for its EFCDU or FCDU
separate from the TIN of its regular business unit
(RBU).
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Authorized transactions of FCDUs

FCDUs are limited under their license to short-
term foreign currency-denominated transactions.
They are authorized to accept deposits and trusts
accounts, borrow on short-term maturity, and
invest in short-term maturity deposits, readily
marketable debt securities, and short-term foreign
currency loans.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Authorized transactions of FCDUs

They are also authorized to enter into
currency swap with the BSP, other FCDUs/EFCDUs
or OBUs, enter into security lending activities as
lender, and engage in repurchase agreement on
foreign currency denominated securities.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Authorized transactions of EFCDUs

The same transactions allowed to FCDUs plus
authorization to enter into foreign exchange trading, issue
letters of credit for non-resident foreign exporters, accept
or negotiate drafts or bills of exchange drawn under letters
of credits or make payments to the order of a non-resident
exporter upon request of their foreign correspondent bank,
purchase export bills of resident exporters, enter into
securities lending activities and repurchase agreements
involving foreign currency denominated securities.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Income tax on FCDUs and EFCDUs

FROM
Residents:
(E)FCDUs Other Non-
NATURE OF INCOME or OBUs Residents Residents
Income from forex transactions
Interest income from:
- Forex loans & receivables exempt 10% FIT exempt
- Forex deposits exempt - exempt
Other forex income exempt RCIT exempt

Income from non-forex

transactions RCIT RCIT RCIT
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Allocation of Expenses
Based on Revenue Regulation No. 4-2011,
expenses and costs incurred by banks shall be
allocated using either specific allocation or pro-
rata allocation based on the gross income subject
to preferential tax, regular tax and exempt from
income tax, respectively. However, the Supreme
Court declared the said revenue regulation null and
void, noting that the Tax Code allows taxpayers to
self-determine the accounting method most
applicable to them.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Domestic Corporations

1. Educational institutions and non-profit hospitals

2. Foreign currency deposit units (FCDUs) and

expanded foreign currency deposit units
(EFCDUs)

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Offshore Gaming Licensees

the offshore gaming operator, whether
organized abroad or in the Philippines, duly
licensed and authorized, through a gaming license,
by the Philippine Amusement and Gaming
Corporation (PAGCOR) or any special economic
zone authority or freeport authority to conduct
offshore gaming operations, including the
acceptance of bets from offshore customers, as
provided for on their respective charters.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Accredited Service Providers to OGLs

a juridical person that is duly created or organized
within or outside the Philippines or a natural person,
regardless of citizenship or residence, which provides
ancillary services to an offshore gaming licensee or to any
gaming licensee or operator with licenses from other
jurisdictions (countries). Such ancillary services may
include, but shall not be limited to, customer and technical
relations and support, information technology, gaming
software, data provision, payment solutions and live studio
streaming services
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Tax base and tax rate

The NON-GAMING REVENUES derived during
each taxable year from all sources within and
without the Philippines shall be taxable at twenty-
five percent (25%)
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Taxability of Gaming Revenues

Subject to specific percentage tax only

(See Business Taxation)

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Taxability of Accredited Service Providers

Taxed as regular domestic corporation
subject to regular corporate income tax and/or
minimum corporate income tax, as applicable.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Domestic Corporations

1. Educational institutions and non-profit hospitals

2. Foreign currency deposit units (FCDUs) and

expanded foreign currency deposit units
(EFCDUs)

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Resident Foreign Corporations

1. Regional or area headquarters (RHQs) and
regional operating headquarters (ROHQs) of
multinational companies (MNCs)

2. International carrier

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Regional or area headquarters (RHQ)

a branch established in the Philippines by
multinational companies which headquarters do
not earn or derive income from the Philippines and
which acts as a supervisory, communication and
coordinating center for their affiliates, subsidiaries,
or branches in the Asia Pacific Regional and other
foreign markets.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Regional operating headquarters (ROHQ)

a branch established in the Philippines by
multinational companies which are engaged in any of the
following services: general administration and planning;
business planning and coordination; sourcing and
procurement of raw materials and components; corporate
finance advisory services; marketing control and sales
promotion; training and personnel management; logistic
services; research and development services and product
development; technical support and maintenance; data
processing and communications; and business
development.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Taxation of RHQs
exempt from income tax – since they do not
earn income
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Taxation of ROHQs before CREATE

subject to income tax at 10% of net taxable
income from sources within.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Taxation of ROHQs after CREATE

effective January 1, 2022, ROHQs are taxed as
resident foreign corporation (25% of net taxable
income from sources within, subject to 1% or 2%
MCIT of gross income).
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Exemption of RHQs and ROHQs

Both RHQs and ROHQs are exempt from all
kinds of LOCAL TAXES, FEES or CHARGES
imposed by a LOCAL GOVERNMENT UNIT, except
real property tax on land improvements and
equipment.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Resident Foreign Corporations

1. Regional or area headquarters (RHQs) and
regional operating headquarters (ROHQs) of
multinational companies (MNCs)

2. International carrier

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

International carrier
The term international carrier, also called
international common carrier, refers to entities that
transport passengers, mails and excess cargoes or
baggage from the Philippines to any destination
abroad and vice versa. They consist of
international air carrier and international sea or
shipping carrier.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Income tax rates of international carriers

General Rule: 2 ½% of the Gross Philippine Billings

Exception: Preferential rate or exemption on the

basis of applicable tax treaty or reciprocity
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Gross Philippine Billings, Meaning

International air carriers
the amount of gross revenue derived from
carriage of persons, excess baggage, cargo and
mail originating from the Philippines in a
continuous and uninterrupted flight, irrespective of
the place of sale or issue and the place of payment
of the ticket or passage document.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Gross Philippine Billings, Meaning

International shipping carriers
gross revenue, whether for passenger, cargo
or mail originating from the Philippines up to final
destination, regardless of the place of sale or
payments of the passage or freight documents.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Continuous and uninterrupted flight or voyage

means a flight or voyage from the Philippines
up to the point of final destination of the
passenger, excess baggage, cargo, and/or mails.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Rule on revalidated, exchanged or endorsed tickets

Tickets revalidated, exchanged and/or
endorsed to another international airline form part
of the Gross Philippine Billings of the carrying
airline if the passenger boards a plane or a port or
point in the Philippines.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Exclusion in Gross Philippine Billings

1. Non-revenue passengers – those passengers
qualifying under the free mileage programs of
the air carriers

2. Refunded tickets
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Transshipments or interrupted flights or voyage

For a flight which originates from the
Philippines, but transshipment of passenger takes
place at any port outside the Philippines on another
airline, only the aliquot portion of the cost of the
ticket corresponding to the leg flown from the
Philippines to the point of transshipment shall form
part of the Gross Philippine Billings.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

The “48-hour” rule on transient passengers

Flights or voyages of passengers, mails, or excess
baggage commencing from foreign countries which will be
interconnected in the Philippines for continuance of the
flight or voyage to a foreign destination by the same
international carrier shall not be considered originating
from the Philippines if the actual departure is made within
48 hours from embarkation in the country, except only
when delayed by force majeure. As such, the portion of the
ticket pertaining to the outgoing flight or voyage shall be
excluded from the Gross Philippine Billings.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

The “48-hour” rule on transient passengers

However, if continuation of the flight or
voyage to a foreign destination is made by another
airline company or international sea carrier, the
cost of the outgoing flight or voyage shall be
included in the Gross Philippine Billings of that
airline or carrier regardless of the intervening
period of time between the arrival and departure
from the Philippines.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Foreign currency translation

In the computation of the Gross Philippine
Billings, tickets in foreign currencies are translated
at whichever is HIGHER of the following conversion
rates:
1. Monthly average Airline Rate in the Bank
Settlement Plan (BSP) Monthly sales report
2. Bankers Association of the Philippines (BAP)
rate
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Treaty or reciprocity consideration

tax on the basis of applicable tax treaty or
international agreement to which the Philippines is
a signatory or on the basis of reciprocity such that
an international carrier whose home country
exempts Philippine carriers shall likewise be
exempt from income tax in the Philippines.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Treatment of other income

The other income of international carriers,
other than income from international transports, is
subject to the appropriate type of income tax.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Off-line international carriers

Those without flights or voyage starting from
or passing through any point in the Philippines. The
branch or sales agent in the Philippines of off-line
international carriers which sells passage
documents for compensation or commission to
cover off-line flights or voyages of its head office
or other airline or sea carriers covering flight or
voyages originating from Philippine ports or off-
line flights or voyages is subject to the regular
corporate income tax.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Resident Foreign Corporations

1. Regional or area headquarters (RHQs) and
regional operating headquarters (ROHQs) of
multinational companies (MNCs)

2. International carrier

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Offshore Gaming Licensees

The same tax rules with domestic offshore
gaming licensees (25% rate) except that the tax
base shall only be the non-gaming revenues
derived within the Philippines.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Changes introduced by CREATE Law

Effective April 11, 2021 (effectivity date of the
CREATE Law), Offshore Banking Units (OBUs) shall
now be taxed as resident foreign corporation (25%
of net taxable income from sources within subject
to 1% or 2% MCIT of gross income)
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Income tax on OBUs before CREATE

FROM
Residents:
(E)FCDUs Other Non-
NATURE OF INCOME or OBUs Residents Residents
Income from forex transactions
Interest income from:
- Forex loans & receivables exempt 10% FIT exempt
- Forex deposits exempt - exempt
Other forex income exempt RCIT exempt

Income from non-forex

transactions RCIT RCIT EXEMPT
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Income tax on OBUs upon effectivity of CREATE

FROM
Residents:
(E)FCDUs Other Non-
NATURE OF INCOME or OBUs Residents Residents
Income from forex transactions
Interest income from:
- Forex loans & receivables exempt RCIT exempt
- Forex deposits exempt - exempt
Other forex income exempt RCIT exempt

Income from non-forex

transactions RCIT RCIT EXEMPT
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Resident Foreign Corporations

1. Regional or area headquarters (RHQs) and
regional operating headquarters (ROHQs) of
multinational companies (MNCs)

2. International carrier

3. Offshore gaming licensees

Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Nonresident Foreign Corporations

1. Cinematographic film owner, lessor or
distributor

2. Lessor of vessels, chartered by Philippine

nationals

3. Owner or lessor of aircraft, machineries and

other equipment
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Cinematographic Film
Cinematographic film includes motion picture
films, films, tapes, discs and such other similar or
related products.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Tax rate and tax base

25% Final Tax on Gross Income from All
Sources within the Philippines.

“All Sources Within” encompasses any taxable

income, passive or active, other than those arising
from rentals of cinematographic films.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Nonresident Foreign Corporations

1. Cinematographic film owner, lessor or
distributor

2. Lessor of vessels, chartered by Philippine

nationals

3. Owner or lessor of aircraft, machineries and

other equipment
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Lessor of vessels, chartered by Philippine nationals

Tax rate and tax base – 4 ½% Final Tax on
Gross rentals, lease, or charter fees from leases or
charters to Filipino residents or corporations as
approved by the Maritime Industry Authority.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Special Nonresident Foreign Corporations

1. Cinematographic film owner, lessor or
distributor

2. Lessor of vessels, chartered by Philippine

nationals

3. Owner or lessor of aircraft, machineries and

other equipment
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Owner/lessor of aircraft, machineries & other equipment

Tax rate and tax base – 7 ½% Final Tax on
Rentals, charters, and other fees.
Income Taxation Taxation
The Taxpayer and Tax Base Corporations

Corporations

Regular Corporations Special Corporations

Domestic Corporations Domestic Corporations

Foreign Corporations Resident Foreign Corporations

Nonresident Foreign Corps.

Resident Foreign Corporations Nonresident Foreign Corporations

Income Taxation Taxation
The Taxpayer and Tax Base Corporations
Income Taxation Taxation
The Taxpayer and Tax Base Corporations
Income Taxation Taxation
The Taxpayer and Tax Base Corporations
Income Taxation Taxation
The Taxpayer and Tax Base Corporations
Income Taxation Taxation
The Taxpayer and Tax Base Corporations
Income Taxation Taxation
The Taxpayer and Tax Base Corporations
Income Taxation Taxation
The Taxpayer and Tax Base Corporations
Income Taxation Taxation
The Taxpayer and Tax Base Partnerships

PARTNERSHIPS

General Professional
Taxable Partnerships
Partnerships
Income Taxation Taxation
The Taxpayer and Tax Base Partnerships

General Professional Partnerships

partnerships formed by persons for the sole
purpose of exercising their common profession, no
part of the income of which is derived from
engaging in any trade or business
Income Taxation Taxation
The Taxpayer and Tax Base Partnerships

Taxability of GPPs
A general professional partnership shall not
be subject to income tax.

Persons engaging in business as partners in a

general professional partnership shall be liable for
income tax only in their separate and individual
capacities.
Income Taxation Taxation
The Taxpayer and Tax Base Partnerships

Tax liability of partners in a GPP

For purposes of computing the distributive
share of the partners, the net income of the
partnership shall be computed in the same manner
as a corporation.

Each partner shall report as gross income his

distributive share, actually or constructively
received, in the net income of the GPP.
Income Taxation Taxation
The Taxpayer and Tax Base Partnerships

Returns of GPPs
Every general professional partnership shall
file, in duplicate, a return of its income, except
those income exempt from income tax, setting
forth the items of gross income and deductions
allowed by the Tax Code, and the names, Taxpayer
Identification Numbers (TINs), addresses and
shares of each of the partners.
Income Taxation Taxation
The Taxpayer and Tax Base Partnerships

PARTNERSHIPS

General Professional
Taxable Partnerships
Partnerships
Income Taxation Taxation
The Taxpayer and Tax Base Partnerships

Taxable Partnerships
any other partnership, no matter how created
or organized, other than general professional
partnerships
Income Taxation Taxation
The Taxpayer and Tax Base Partnerships

Taxability of Partnerships other than GPPs

Partnerships, other than GPPs, are taxed as
corporations using corporate income tax and
minimum corporate income tax.

(See topic Corporations)

Income Taxation Taxation
The Taxpayer and Tax Base Partnerships

Partner’s distributive share in partnership income

Partners’ distributive share in taxable
partnership’s income, actually or constructively
received, is treated in the same manner as
corporate dividends subject to final withholding
tax.
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

JOINT VENTURES

Exempt Joint Ventures Taxable Joint Ventures

Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Joint Ventures not taxable as corporations

a joint venture or consortium formed for the
purpose of undertaking construction projects not
considered as corporation, should be:
a. for the undertaking of a construction project;
and
b. should involve joining or pooling of resources by
licensed local contracts; that is, licensed as
general contractor by the Philippine Contractors
Accreditation Board (PCAB) of the Department
of Trade and Industry (DTI);
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Joint Ventures not taxable as corporations

c. these local contractors are engaged in
construction business; and,

d. the Joint Venture itself must likewise be duly

licensed as such by the Philippine Contractors
Accreditation Board (PCAB) of the Department
of Trade and Industry (DTI).
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Joint Ventures involving Foreign Contractors

may also be treated as a non-taxable corporation
only if the member foreign contractor is covered by a
special license as contractor by the PCAB of the DTI; and
the construction is certified by the appropriate tendering
agency (government office) that the project is a foreign
finance/internationally-funded project and that the
international bidding is allowed under the bilateral
agreement entered into by and between the Philippine
Government and the foreign/international financing
institution pursuant to IRR of RA No. 4556 otherwise
known as ‘Contractor’s License Law.’
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Joint Ventures involving Foreign Contractors

Absent any one of the aforesaid requirements,
the joint venture or consortium formed for the
purpose of undertaking construction projects shall
be considered as taxable corporations.
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Not considered tax-exempt joint venture or consortium

not included as tax-exempt joint venture or
consortium are those who are merely suppliers of
goods, services or capital to a construction project.
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Liability of members of Tax-exempt joint ventures

The member to a Joint Venture not taxable as
corporation shall each be responsible in reporting
and paying appropriate income taxes on their
respective share to the joint ventures profit.
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Return of Tax-Exempt Joint Ventures

Each tax-exempt joint venture shall file a
return of its income, except those income exempt
from income tax, setting forth the items of gross
income and deductions allowed by the Tax Code,
and the names, Taxpayer Identification Numbers
(TINs), addresses and shares of members.
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

JOINT VENTURES

Exempt Joint Ventures Taxable Joint Ventures

Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Taxable Joint Ventures

any other joint ventures and those joint
ventures who failed to qualify as tax-exempt joint
ventures.
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Taxability
they are taxable as corporations

(See topic Corporations)

Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

Member’s distributive share in JV’s profit

members’ distributive share in joint venture’s
income, actually or constructively received, is
treated in the same manner as corporate dividends
subject to final withholding tax.
Income Taxation Taxation
The Taxpayer and Tax Base Joint Ventures

JOINT VENTURES

Exempt Joint Ventures Taxable Joint Ventures

Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Estate
The inheritance includes all the property,
rights and obligations of a person which are not
extinguished by his death.

(Article 774, New Civil Code of the Philippines)

Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Trust
A person who establishes a trust is called the
trustor; one in whom confidence is reposed as
regards property for the benefit of another person
is known as the trustee; and the person for whose
benefit the trust has been created is referred to as
the beneficiary.

(Article 1440, New Civil Code of the Philippines)

Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

ESTATES AND TRUSTS

Taxable Nontaxable
Taxable Estates Nontaxable Estates

Taxable Trusts Nontaxable Trusts

Employee Trust Funds

Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Income taxable to an estate or trust under the NIRC

a. Income accumulated in trust for the benefit of
unborn or unascertained person or persons with
contingent interests, and income accumulated
or held for future distribution under the terms of
the will or trust;

b. Income which is to be distributed currently by

the fiduciary to the beneficiaries, and income
collected by a guardian of an infant which is to
be held or distributed as the court may direct;
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Income taxable to an estate or trust under the NIRC

c. Income received by estates of deceased
persons during the period of administration or
settlement of the estate; and,

d. Income which, in the discretion of the fiduciary,

may be either distributed to the beneficiaries or
accumulated.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

ESTATES AND TRUSTS

Taxable Nontaxable
Taxable Estates Nontaxable Estates

Taxable Trusts Nontaxable Trusts

Employee Trust Funds

Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Taxable Estates
An estate is an income taxpayer under judicial
settlement or administration. The executor or
administrator of an estate under judicial settlement
shall secure a Taxpayer Identification Number
(TIN) in the name of the estate of the deceased.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Taxability of Taxable Estate

Taxable estates are treated as individual
taxpayer whose taxable income under regular tax is
subject to graduated income tax rate.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Income distributions to heirs

any income from the estate currently
distributed by the executor or administrator to the
heirs are reported as deduction in computing the
taxable income of the estate. Income distribution
from the estate shall reported as gross income
subject to income tax by the heirs in their
respective income tax returns
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

ESTATES AND TRUSTS

Taxable Nontaxable
Taxable Estates Nontaxable Estates

Taxable Trusts Nontaxable Trusts

Employee Trust Funds

Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Taxable Trusts
An irrevocable trust is a separate and distinct
entity. The grantor or the trustee of an irrevocable
trust shall secure a Taxpayer Identification Number
(TIN) in the name of the trust.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Taxability of Irrevocable Trusts

Irrevocable trusts are treated as individual
taxpayer whose taxable income under regular tax is
subject to graduated income tax rate.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Income distributions to beneficiaries

any income from the trust currently
distributed by the trustee to the beneficiaries are
reported as deduction in computing the taxable
income of the trust. Income distribution from the
estate shall be reported as gross income subject to
regular tax by the beneficiaries in their respective
income tax returns.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Exception to the deduction of income distributions

in the case of a trust administered in a foreign
country, the distributions mentioned shall not be
allowed, and the same shall not be included in
computing the taxable income of the beneficiaries.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Consolidation of two or more trusts

Multiple irrevocable trusts designated by the
same grantor for the benefit of the same
beneficiary shall be consolidated for purposes of
income tax.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

ESTATES AND TRUSTS

Taxable Nontaxable
Taxable Estates Nontaxable Estates

Taxable Trusts Nontaxable Trusts

Employee Trust Funds

Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Nontaxable Estates
An estate under extra-judicial settlement is
not a taxpayer. The income of the estate under
extra-judicial settlement is taxable to the heirs.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Nontaxable Trusts
Revocable trust is not a taxpayer and is
treated as a pass-through entity whose income is
taxable to the grantor-trustor.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Employee Trust Funds

an employees’ trust which forms part of a
pension, stock bonus or profit-sharing plan of an
employer for the benefit of some or all of his
employees is exempt from all kinds of income
taxes under the tax code.
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Requisites for exemption of employee’s trust funds

a. if contributions are made to the trust by such
employer, or employees, or both for the purpose
of distributing to such employees the earnings
and principal of the fund accumulated by the
trust in accordance with such plan
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Requisites for exemption of employee’s trust funds

b. if under the trust instrument it is impossible, at
any time prior to the satisfaction of all liabilities
with respect to employees under the trust, for
any part of the corpus or income to be (within
the taxable year or thereafter) used for, or
diverted to, purposes other than for the
exclusive benefit of his employees
Income Taxation Taxation
The Taxpayer and Tax Base Estates and Trusts

Requisites for exemption of employee’s trust funds

c. any amount actually distributed to any employee
or distributee shall be taxable to him in the year
in which so distributed to the extent that it
exceeds the amount contributed by such
employee or distributee.
Income Taxation Taxation
The Taxpayer and Tax Base Co-Ownerships

Co-Ownerships
There is co-ownership whenever the
ownership of an undivided thing or right belongs to
different persons.

(Article 484, New Civil Code of the Philippines)

Income Taxation Taxation
The Taxpayer and Tax Base Co-Ownerships

CO-OWNERSHIPS

Nontaxable
Taxable Co-ownerships
Co-ownerships
Income Taxation Taxation
The Taxpayer and Tax Base Co-Ownerships

Nontaxable Co-ownerships
GENERAL RULE: Co-ownerships are not
subject to income tax because the activities of the
co-owners are usually limited to the preservation of
the property owned in common and collection of
the income therefrom.
Income Taxation Taxation
The Taxpayer and Tax Base Co-Ownerships

Liability of the Co-Owners

Co-owners shall report in their respective
income tax returns their shares of the income of
the co-ownership subject to regular income tax.
Income Taxation Taxation
The Taxpayer and Tax Base Co-Ownerships

CO-OWNERSHIPS

Nontaxable Co-
Taxable Co-ownerships
ownerships
Income Taxation Taxation
The Taxpayer and Tax Base Co-Ownerships

Taxable Co-Ownerships
The following are the instances when the co-
ownership may become an unregistered general co-
partnership and therefore becomes a taxable corporation:

1. Co-owners appoint an administrator who manages the

affairs of the co-ownership by making investments
therein from which profits are realized. This applies
even if there is already a partition ordered by the court
should the joint management be given to the one of the
co-owners.
Income Taxation Taxation
The Taxpayer and Tax Base Co-Ownerships

Taxable Co-Ownerships
2. The co-owners used the common properties
and/or income derived therefrom as a common
fund with intent to make profits

3. When the property remained undivided for more

than ten (10) years and no attempt was made to
divide the same among the co-heirs, nor was the
property under administration proceedings nor
held in trust
Income Taxation Taxation
The Taxpayer and Tax Base Co-Ownerships

Taxable Co-Ownerships
4. In all other instances when the co-ownership
activities are already beyond mere preservation
of the co-owned property
Income Taxation Taxation
The Taxpayer and Tax Base Co-Ownerships

CO-OWNERSHIPS

Nontaxable Co-
Taxable Co-ownerships
ownerships
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

TAX EXEMPT INDIVIDUALS AND ORGANIZATIONS

1. Exempt Individuals
2. Exempt Organizations
a. Exempt domestic non-profit corporations
under the NIRC
b. Government agencies and instrumentalities
c. Certain Government-owned and/or controlled
corporations (GOCCs)
d. Cooperatives
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

TAX EXEMPT INDIVIDUALS AND ORGANIZATIONS

1. Exempt Individuals
2. Exempt Organizations
a. Exempt domestic non-profit corporations
under the NIRC
b. Government agencies and instrumentalities
c. Certain Government-owned and/or controlled
corporations (GOCCs)
d. Cooperatives
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Exempt Individuals
1. Compensation income earners, self-employed
and professional taxpayers (SEPs) whose annual
taxable incomes are P250,000 or loess

2. Regular income of Barangay Micro-business

Enterprises (BMBEs)

3. Minimum wage earners on certain

compensation income
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

TAX EXEMPT INDIVIDUALS AND ORGANIZATIONS

1. Exempt Individuals
2. Exempt Organizations
a. Exempt domestic non-profit corporations
under the NIRC
b. Government agencies and instrumentalities
c. Certain Government-owned and/or controlled
corporations (GOCCs)
d. Cooperatives
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Exempt domestic non-profit corporations

1. Labor, agricultural or horticultural organization
not organized principally for profit

2. Mutual savings bank not having a capital stock

represented by shares, and cooperative bank
without capital stock organized and operated for
mutual purposes and without profit
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Exempt domestic non-profit corporations

3. A beneficiary society, order or association,
operating for the exclusive benefit of the
members such as a fraternal organization
operating under the lodge system, or mutual aid
association or a nonstock corporation organized
by employees providing for the payment of life,
sickness, accident, or other benefits exclusively
to the members of such society, order, or
association, or nonstock corporation or their
dependents
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Exempt domestic non-profit corporations

4. Cemetery company owned and operated
exclusively for the benefit of its members

5. Nonstock corporation or association organized

and operated exclusively for religious,
charitable, scientific, athletic, or cultural
purposes, or for the rehabilitation of veterans,
no part of its net income or asset shall belong to
or inure to the benefit of any member, organizer,
officer or any specific person
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Exempt domestic non-profit corporations

6. Business league chamber of commerce, or
board of trade, not organized for profit and no
part of the net income of which inures to the
benefit of any private stock-holder, or individual

7. Civic league or organization not organized for

profit but operated exclusively for the promotion
of social welfare
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Exempt domestic non-profit corporations

8. A nonstock and nonprofit educational institution

9. Government educational institution

Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Exempt domestic non-profit corporations

10.Farmers' or other mutual typhoon or fire
insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone
company, or like organization of a purely local
character, the income of which consists solely
of assessments, dues, and fees collected from
members for the sole purpose of meeting its
expenses; and
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Exempt domestic non-profit corporations

11.Farmers', fruit growers', or like association
organized and operated as a sales agent for the
purpose of marketing the products of its
members and turning back to them the proceeds
of sales, less the necessary selling expenses on
the basis of the quantity of produce finished by
them
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Qualification of tax exemption

THE CLASSIFICATION RULE

Since exemption applies only to income from

related activities, the income of exempt
corporations is classified into income from related
activities and income from unrelated activities. The
income from unrelated activities is subjected to
regular income tax.
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Requisites from exemption

1. It must be a non-stock corporation or
association organized and operated exclusively
for religious, charitable, scientific, athletic, or
cultural purposes, or for the rehabilitation of
veterans.
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Requisites from exemption

2. It should meet the following tests:
a. Organizational test – Its constitutive
documents exclusively limit its purposes to
one or more of the purposes mentioned
above.

b. Operational test – The regular activities of the

corporation or association must be
exclusively devoted to the accomplishment of
the aforementioned purposes.
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Requisites from exemption

3. All net income or assets of the corporation must
be devoted to its purposes and no part of its net
income or asset accrues to or benefits any
member or specific person.

4. It must not be a branch of a foreign non-stock,

non-profit corporation.
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Exception to the Classification rule

Non-stock, non-profit educational institutions
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Certificate of tax exemption ruling

Non-profit corporations or associations must
secure a Tax Exemption Ruling from the BIR to
enjoy the tax exemption. The ruling shall be valid
for a period of 3 years, unless sooner revoked or
cancelled.
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

TAX EXEMPT INDIVIDUALS AND ORGANIZATIONS

1. Exempt Individuals
2. Exempt Organizations
a. Exempt domestic non-profit corporations
under the NIRC
b. Government agencies and instrumentalities
c. Certain Government-owned and/or controlled
corporations (GOCCs)
d. Cooperatives
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Government agencies and instrumentalities

Classification rule applies
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

TAX EXEMPT INDIVIDUALS AND ORGANIZATIONS

1. Exempt Individuals
2. Exempt Organizations
a. Exempt domestic non-profit corporations
under the NIRC
b. Government agencies and instrumentalities
c. Certain Government-owned and/or controlled
corporations (GOCCs)
d. Cooperatives
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Certain GOCCs
GOCCs are generally proprietary or
commercial in nature and are subject to regular
corporate income tax, except the following exempt
GOCCs:
a. Government Service Insurance System (GSIS)
b. Social Security System (SSS)
c. Home Development Mutual Fund (HDMF)
d. Philippine Health and Insurance Corporation
(PHIC)
e. Local water districts
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

TAX EXEMPT INDIVIDUALS AND ORGANIZATIONS

1. Exempt Individuals
2. Exempt Organizations
a. Exempt domestic non-profit corporations
under the NIRC
b. Government agencies and instrumentalities
c. Certain Government-owned and/or controlled
corporations (GOCCs)
d. Cooperatives
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Cooperatives
an autonomous association of persons who
voluntarily joint together to achieve their social,
economic, and cultural needs and aspirations by
making equitable contributions to the capital
required, patronizing their products and services,
and accepting a fair share of risks and benefits of
the undertaking.
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Classification of cooperatives for tax purposes

Cooperatives which
Cooperatives which
transact business with
transact business only
both members and non-
with members
members
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Cooperatives which transacts only with members

not subject to any taxes and fees under the
NIRC and other tax laws
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Cooperatives which transacts business to anyone

1. Those with not more than P10M accumulated
reserve and undivided net savings – exempt
from taxes

2. Those with more than P10M accumulated

reserve and undivided net savings – subject to
the following taxes at full rate:
a. Income tax on the full amount allocated for
interest on capital
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Cooperatives which transacts business to anyone

b. Value Added Tax (VAT) on transactions with
non-members

c. Percentage Tax on all sales of goods or

services rendered to non-members

d. All other internal revenue taxes unless

otherwise provided by the law
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Taxability of cooperatives to internal revenue tax

All cooperatives regardless of classification
are subject to the following:
1. The applicable income tax on unrelated income

2. Capital gains tax

3. Documentary stamp tax

Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

Taxability of cooperatives to internal revenue tax

4. VAT on purposes of goods or services except
VAT exempt transactions

5. Withholding tax on wages except for minimum

wage earners

6. All other taxes for which cooperatives are

directly liable and not otherwise expressly
exempted by any law
Income Taxation Taxation
The Taxpayer and Tax Base Tax Exempt Individuals and Organizations

TAX EXEMPT INDIVIDUALS AND ORGANIZATIONS

1. Exempt Individuals
2. Exempt Organizations
a. Exempt domestic non-profit corporations
under the NIRC
b. Government agencies and instrumentalities
c. Certain Government-owned and/or controlled
corporations (GOCCs)
d. Cooperatives
Income Taxation Taxation
The Taxpayer and Tax Base
Income Taxation Taxation
The Taxpayer and Tax Base