Kinds of

Taxpayers

Moairah Banielyn Joy B. Larita

Taxpayer – any person subject to tax
imposed by Title II of the Tax Code.
[Sec. 22(N), NIRC]
Individuals
 Individuals

Citizens Aliens Estates and Co- General

Trusts ownerships Professional
Resident Citizens Resident Alien Partnerships

Non-Resident Non-Resident
Citizens Alien (NRA)

i. NRA-ETB (engaged in trade or business)

ii. NRA-NETB (Not engaged in trade or business)

Special Class
Individual
Employees

i. Aliens employed by RHQs, ii. Aliens employed Aliens employed by petroleum

AHQs, ROHQs of MNCs by OBUs service contractors, subcontractors
1. Citizens

The following are citizens of the Philippines:

1. Those who are citizens of the Philippines at the time of the
adoption of this Constitution;
2. Those whose fathers or mothers are citizens of the Philippines;
3. Those born before January 17, 1973, of Filipino mothers, who
elect Philippine citizenship upon reaching the age of majority;
and
4. Those who are naturalized in accordance of law [Sec. 1, Art. IV,
Const.]
 Subject to income tax including overseas contract
1. Citizens workers referred to in subsection(C) of Sec. 23. [Sec.
24 (A) (1) (b)]

1. Resident Citizen – a Filipino citizen residing in the

Philippines
• taxable on all income derived from sources within
and without the Philippines. [Sec. 23(A), NIRC]
2. Non – Resident Citizen – [Sec. 22. (E) NIRC.]
• taxable only on income derived from sources within
the Philippines [Sec. 23 (B)]
1. Citizens

Non – Resident Citizen includes: [Sec. 2. RR No. 01-79]

• Immigrants
• Permanent employees (residing abroad for
employment)
• Contract Worker (OFWs)
2. Aliens

1. Resident Aliens – individual whose residence is within

the Philippines and who is not a citizen thereof [Sec.
22(F), NIRC]
2. Non – Resident Aliens – individuals whose
residence is not within the Philippines and who is
not a citizen thereof
3. Special Class Individual Employees
 2. Aliens

1. Resident Aliens [RR No. 02-40]

• No/Indefinite Intention = RESIDENT: If he lives in the Philippines and has no definite
intention as to his stay, he is a resident. A mere floating intention indefinite as to
time, to return to another country is not sufficient to constitute him a transient.
• Definite Intention = TRANSIENT: One who comes to the Philippines for a definite
purpose, which in its nature may be promptly accomplished, is a transient.
EXPN: Definite Intention but such cannot be promptly accomplished; If his purpose is of
such nature that an extended stay may be necessary for its not accomplishment, and thus
the alien makes his home temporarily in the Philippines, then he becomes a resident.
 2. Aliens

2. Non – Resident Aliens (NRA)

i. NRA-ETB (engaged in trade or business)
• Engaged in trade or business within the Philippines - If the aggregate
period of his stay in the Philippines is more than 180 days during any
calendar year. [Sec. 25(A)(1), NIRC]
• Not engaged in trade or business within the Philippines - If the
aggregate period of his stay in the Philippines does not exceed 180 days.

ii. NRA-ETB (engaged in trade or business) – [Sec. 25 (B),

NIRC.]
2. Aliens

3. Special Class Individual Employee

i. Aliens employed by RHQs, AHQs, ROHQs of MNCs
ii. Alien Individual Employed by Offshore Banking Units
iii. Aliens employed by petroleum service contractors,
subcontractors
3. Estates and Trusts
(Art. 1440, NCC)

• Estate – Refers to all the property, rights and obligations of a person

which are not extinguished by his death and those which have
accrued thereto since the opening of the succession. [Arts. 776 and
781 NCC]
• Trust – An arrangement created by will or an agreement under
which legal title to property is passed to another for conservation or
investment with the income therefrom and ultimately the corpus
(principal) to be distributed in accordance with the directions of the
creator as expressed in the governing instrument.
4. Co-ownership

There is co-ownership whenever the ownership of an

undivided thing or right belongs to different persons. [Art.
484, NCC]
• Co-ownerships are not subject to tax as a corporation if the
activities of the co-owners are limited to the preservation of the
property and the collection of the income therefrom, in which
case each co-owner is taxed individually on his distributive share
in the income of the co- ownership.
5. General Professional
Partnerships
– A partnership 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.
[Sec. 22 (B), NIRC]
[RMC No. 003-12]
• Under Sec. 26 of the NIRC, a general professional partnership as
such shall not be subject to income tax. However, persons engaging
in business as partners in a general professional partnership shall be
liable for income tax only in their separate and individual capacities
Corporations
 Domestic
Corporation

Taxable
partnership or
business
partnership
Corporations
Joint venture and
consortium Resident foreign
corporation (RFC)

Foreign Non-Resident
Corporation foreign corporation
(RFC)
 1. Domestic Corporation

Includes: [Sec. 22 (B), NIRC.]

 Partnerships (no matter how created or organized)
 Joint-stock companies
 Joint accounts (cuentas en participacion)
 Association
 Insurance companies
Does not include:
X General professional partnerships and a joint venture or consortium
formed for the purpose of undertaking construction projects or
engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating consortium agreement under a service
contract with the Government.
2. Taxable partnership or business
partnership
• The partners themselves, not the partnership, shall be
liable for income tax in their separate and individual
capacities. Each partner shall report as gross income his
distributive share, actually or constructively received, in
the net income of the partnership. [Sec. 26, NIRC]
3. Joint venture and consortium

A joint venture or consortium is treated as a corporation, except those

formed for the purpose of:
• Undertaking construction projects, or
• engaging in petroleum, coal, geothermal and other energy
operations pursuant to an operating consortium agreement under
a service contract with the Government.
 3. Joint venture and consortium
Non-taxable Joint Ventures [RR No. 010-12, Sec. 3]
• If for the undertaking of a construction project; and
• It involves 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);
• Local contractors engaged in construction business; and
• The Joint Venture is duly licensed as such by the Philippine Contractors Accreditation Board (PCAB) of the
Department of Trade and Industry (DTI)
• Joint ventures involving foreign contractors may also be treated as a non-taxable corporation

Taxable Joint Ventures

Jurisprudence provides that Tax exemptions are to be strictly construed against the taxpayer. Thus, unless
otherwise there is a law which clearly grants an exemption to joint ventures or consortium, such is taxable under
the law.
4. Foreign Corporations

• The term 'foreign’, when applied to a corporation, means a

corporation which is not domestic [Sec. 22 (D)]
• A foreign corporation, whether engaged or not in trade or business
in the Philippines, is taxable only on income derived from sources
within the Philippines. [Sec. 23 (F)]
i. Resident foreign corporations – foreign corporations engaged in
trade or business within the Philippines.
ii. Nonresident foreign corporations – foreign corporations not
engaged in trade or business within the Philippines
4. Foreign Corporations

Resident foreign corporations

• Sec. 22 (H), NIRC. The term 'resident foreign corporation' applies to
a foreign corporation engaged in trade or business within the
Philippines.
• [Sec. 3 (d), Foreign Investments Act of 1991]
 4. Foreign Corporations

Nonresident foreign corporations – foreign corporations not engaged in trade or business

within the Philippines [Sec. 22 (I), NIRC]

Includes: Excludes:
• soliciting orders, service contracts • mere investment as a shareholder in domestic
• opening offices, whether called "liaison" offices or corporations, and/or the exercise of rights as
branches such investor
• appointing representatives or distributors domiciled in • having a nominee director or officer to
the Philippines or who in any calendar year stay in the represent its interests in such corporation
country for a period totaling 180 days or more • appointing a representative or distributor
• participating in the management, supervision or control domiciled in the Philippines which transacts
of any domestic business, firm, entity or corporation in business in its own name and for its own
the Philippines. account. [RA 7042, Foreign Investments Act]
Subsidiary v. Branch of a
foreign corporation
   Subsidiary Branch
Tax Base and Dividend paid by a domestic corporation to a The branch profit is remitted by the Philippine branch to its
Rate on resident foreign corporation is not subject to foreign head office. Generally, the 15% branch profit
Dividend or income tax. remittance tax is imposed upon remittance of the branch
Profit   profit.
Remittance
The dividend must be declared by the Board of There is no board resolution necessary for the remittance
Directors of the paying corporation out of its of the branch profits to the foreign head office.
Existence of retained earnings; hence, there must be There must be a branch profit that can be remitted to the
Retained unappropriated retained earnings from which foreign head office; without such branch profit, any
Earning the dividends could be paid out before a remittance made represents return of capital.
Required corporation could declare dividends.
 
The source of dividend must be specified in the There is no similar provision with respect to branch profit
board resolution declaring the dividend; remittance. However, interests, dividends, rents, royalties,
otherwise, the law presumes that it comes and other income of the branch shall not be treated as
from the latest accumulated earnings. branch profits, unless the same are effectively connected
  with the conduct of its trade or business in the Philippines.
Source of
Thus, profits that are not effectively connected with the
Dividend
conducts of its trade or business in the Philippines are not
subject to the branch profit remittance tax.
   Subsidiary Branch
Accumulated retained earnings as of December Accumulated branch profits as of December
31,1997 of a subsidiary are not subject to 10% final 31,1997 are subject to the branch profits
Retained withholding tax when a citizen, resident alien, or to remittance tax if remitted in 1998. There is no
Earnings Before 20%, when a non-resident alien engaged in trade or provision similar to dividends that only branch
1998 business in the Philippines, receives the dividend even profits earned on or after 1998 shall be subject
in 1998 or subsequent years. to the tax.
 
A subsidiary is an entity separate and distinct from its The Philippine branch is merely an extension of
stockholders. It can deal with its foreign parent the foreign head office. Because of the single
company, provided that the transactions are at arm's entity concept, the transactions and income of
length. There would be no attribution of the income of the Philippine branch may be attributed to the
the subsidiary to the foreign parent company because foreign head office based on a formula stated in
Legal Personality of the separate entity concept. Revenue Audit Memorandum Order No. 1-95.
and Attribution Interest paid by the subsidiary on a loan granted by the Interest paid by the Philippine branch on a loan
of Income foreign parent company is deductible from the extended by the foreign head office is not
subsidiary's gross income, while the interest income deductible from the branch's gross income.
paid to the foreign parent company shall be subject to Corollarily, the interest income of the foreign
the final withholding tax. head office is not subject to Philippine
withholding tax in accordance with the tax treaty
provisions.
   Subsidiary Branch
The overhead expenses of a The overhead expenses of a foreign head office may be allocated to
regional office of a foreign its branches located worldwide, including the Philippine branch,
corporation may be allocated to the provided that the international external auditor of the foreign head
different subsidiaries and affiliatesoffice certifies to the correctness of the figures used in the
Allocation of in the Asia-Pacific Region. allocation, the deductions pro-rated to the Philippine branch do
Overhead   not include net losses of any operating unit or branch, income tax,
Expenses   capital expenditures, and expenses directly attributable to any
branch, and that the method used (gross income or net sales in the
Philippines over total gross income or total net sales worldwide) in
allocating overhead expenses among its branches worldwide is
consistent from year to year.
A subsidiary is generally not treated A Philippine branch is a permanent establishment; hence, treated
Creation of as a permanent establishment ofthe as a resident foreign corporation subject to Philippine income tax
Permanent foreign parent company, provided on net income from sources within the Philippines.
Establishment that the transactions between them
are at arm’s length.
A subsidiary is taxable on worldwide A branch is taxable on its income from sources within the
income at 30% of its net taxable Philippines at 30% of its net taxable income. There are exempt
Basis of Income
income. branches (e.g., regional area headquarters and representative
Taxation
  offices) and special branches subject to preferential tax rates of
10%.
   Subsidiary Branch
A subsidiary is entitled to income tax holiday A branch is not so entitled to income tax holiday
Entitlement to Income under the Board of Investments (BOI) law and the under the BOI and BOT laws. It is entitled to
Tax Holiday Build-Operate-Transfer (BOT) law. income tax holiday under the PEZA law and BCDA
law.
The stockholder of a subsidiary is liable only to The foreign head office is liable for the liabilities
the extent of his/its subscription in such of the Philippine branch; hence, the assets of the
Stockholder’s Extent of
corporation. Shares of stock of the corporation head office may still be reached by creditors of
Liability
are issued to ita stockholders. the Philippine branch. No shares of stock are
  issued by the Philippine branch to its head office.
There is no deposit required to be made by a The Philippine branch of a foreign corporation is
Cash or security deposit subsidiary of a foreign corporation. required to put up a deposit of Php 100,000 or
with SEC   2% of its gross sales or receipts under the
Corporation Code of the Philippines.
Being engaged in business in the Philippines, both domestic corporation and branch of a foreign
corporation in the Philippines are subject to the administrative requirements, such as: (a)
Administrative registration as a V A T or non-V A T taxpayer and withholding agent with the BIR office exercising
Requirements and jurisdiction over it; (b) secure T IN for itself, which is different from the T I N of its agent in the
Filing of Audited Philippines; (c) Register its books of accounts and other accounting records, including sales invoices
Financial Statements and receipts, with the BIR; (d) File tax returns and pay taxes; and withhold and remit taxes to the
BIR on compensation and income payments subject to income tax. Its books of accounts and
accounting records are mandated to be audited by an independent Certified Public Accountant.