TAXATION SIMPLIFIED (PHILIPPINE CONTEXT)

12:08 AM In-Depth 1 Comments

For those who lived in the Philippines, this is for you to know.

We are summarizing the point that it is pertain by the Bureau of Internal Revenue at their website at http://www.bir.gov.ph

And the main topic was all about calculating income tax in all cases...

First, there was a tax rate of different proportions...

Tax Rate

Amount of Net Taxable Income		Rate
Over	But Not Over
	P10,000	5%
P10,000	P30,000	P500 + 10% of the Excess over P10,000
P30,000	P70,000	P2,500 + 15% of the Excess over P30,000
P70,000	P140,000	P8,500 + 20% of the Excess over P70,000
P140,000	P250,000	P22,500 + 25% of the Excess over P140,000
P250,000	P500,000	P50,000 + 30% of the Excess over P250,000
P500,000		P125,000 + 32% of the Excess over P500,000 in 2000 and onward

	Tax Rate	Taxable Base
1. Domestic Corporations:
a. In General	30% (effective Jan. 1, 2009)	Net taxable income from all sources
b. Minimum Corporate Income Tax*	2%	Gross Income
c. Improperly Accumulated Earnings	10%	Improperly Accumulated Taxable Income
2. Proprietary Educational Institution	10%	Net taxable income provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income
3. Non-stock, Non-profit Hospitals	10%	Net taxable income provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income
4. GOCC, Agencies & Instrumentalities
a. In General	30%	Net taxable income from all sources
b. Minimum Corporate Income Tax*	2%	Gross Income
c. Improperly Accumulated Earnings	10%	Improperly Accumulated Taxable Income
5. National Gov't. & LGUs
a. In General	30%	Net taxable income from all sources
b. Minimum Corporate Income Tax*	2%	Gross Income
c. Improperly Accumulated Earnings	10%	Improperly Accumulated Taxable Income
6. Taxable Partnerships
a. In General	30%	Net taxable income from all sources
b. Minimum Corporate Income Tax*	2%	Gross Income
c. Improperly Accumulated Earnings	10%	Improperly Accumulated Taxable Income
7. Exempt Corporation
a. On Exempt Activities	0%
b. On Taxable Activities	30%	Net taxable income from all sources
8. General Professional Partnerships	0%
9. Corporation covered by Special Laws	Rate specified under the respective special laws
10. International Carriers	2.5%	Gross Philippine Billings
11. Regional Operating Head	10%	Taxable Income
12. Offshore Banking Units (OBUs)	10%	Gross Taxable Income On Foreign Currency Transaction
	30%	On Taxable Income other than Foreign Currency Transaction
13. Foreign Currency Deposit  Units (FCDU)	10%	Gross Taxable Income On Foreign Currency Transaction
	30%	On Taxable Income other than Foreign Currency Transaction

Passive Income
1. Interest from currency deposits, trust funds and deposit substitutes	20%
2. Royalties (on books as well as literary & musical composition)	10%
- In general	20%
3. Prizes (P10,000 or less )	5%
- In excess of P10,000	20%
4. Winnings (except from PCSO and lotto)	20%
5. Interest Income of Foreign Currency Deposit	7.5%
6. Cash and Property Dividends
- To individuals from Domestic Corporations	10 %
- To Domestic Corporations from Another Domestic Corporations	0%
7. On capital gains presumed to have been realized from sale, exchange or other disposition of real property (capital asset)	6%
8. On capital gains for shares of stock not traded in the stock exchange
- Not over P100,000	5%
- Any amount in excess of P100,000	10%
9. Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates Upon pretermination before the fifth year , there should be imposed on the entire income from the proceeds of the long-term deposit based on the remaining maturity thereof: Holding Period	Exempt
- Four (4) years to less than five (5) years	5%
- Three (3) years to less than four (4) years	12%
- Less than three (3) years	20%

1. Interest from currency deposits, trust funds and deposit substitutes	20%
2. Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificatesUpon pretermination before the fifth year, there should be imposed on the entire income from the proceeds of the long-term deposit based on the remaining maturity thereof:Holding Period:	Exempt
-Four (4) years to less than five (5) years	5%
-Three (3) years to less than four (4) years	12%
-Less than three (3) years	20%
3. On capital gains presumed to have been realized from the sale, exchange or other disposition of real property	6%
4. On capital gains for shares of stock not traded in the Stock Exchange
- Not over P100,000	5%
- Any amount in excess of P100,000	10%

C) For Non-Resident Aliens Not Engaged in  Trade or Business

1. On the gross amount of income derived from all sources within the Philippines	25%
2. On capital gains presumed to have been realized from the exchange or other disposition of real property located in the Phils.	6%
3. On capital gains for shares of stock not traded in the Stock Exchange
- Not  Over  P100,000	5%
- Any amount in excess of P100,000	10%

On the gross income in the Philippines of Aliens Employed by Regional Headquarters (RHQ) or Area Headquarters and Regional Operating Headquarters (ROH), Offshore Banking Units (OBUs), Petroleum Service Contractor and Subcontractor

15%

General Professional Partnerships

0%

F) Domestic Corporations

1) a. In General – on net taxable income	30%
b. Minimum Corporate Income Tax – on gross income	2%
c. Improperly Accumulated Earnings – on improperly accumulated taxable income	10%
2) Proprietary Educational Institution and Non-profit Hospitals	10%
- In general (on net taxable income)	10%
- If the gross income from unrelated trade, business or other activity exceeds 50% of the total gross income from all sources	30%
4) GOCC, Agencies & Instrumentalities
a. In General   - on net taxable income	30%
b. Minimum Corporate Income Tax – on gross income	2%
c. Improperly Accumulated Earnings – on improperly accumulated taxable income	10%
5) Taxable Partnerships
a. In General – on net taxable income	30%
b. Minimum Corporate Income Tax – on gross income	2%
c. Improperly Accumulated Earnings – on improperly accumulated taxable income	10%
6) Exempt Corporation
a. On Exempt Activities	0%
b. On Taxable Activities	30%
8) Corporation covered by Special Laws	Rate specified under the respective special laws

G) Resident Foreign Corporation

1) a. In General – on net taxable income	30%
b. Minimum Corporate Income Tax – on gross income	2%
c. Improperly Accumulated Earnings – on improperly accumulated taxable income	10%
2) International Carriers – on gross Philippine billings	2.50%
3) Regional Operating Headquarters on gross income	10%
4) Corporation Covered by Special Laws	Rate specified under the respective special laws
5) Offshore Banking Units (OBUs) on gross income	10%
6) Foreign Currency Deposit Units (FCDU)  on gross income	10%

Related: RR No. 4-95, RR No. 4-96, RR No. 5-97, RR No. 1-98, RA 9337, RR 14-2002, RR 12-2007

Reference: Sections 23-59, 67-73 and 74-77 of the National Internal Revenue Code

FAQs - Frequently Asked Questions

• - Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar item
  
  - Gross income derived from the conduct of trade or business or the exercise of profession
  
  - Gains derived from dealings in property
  
  - Interest
  
  - Rents
  
  - Royalties
  
  - Dividends
  
  - Annuities
  
  - Prizes and winnings
  
  - Pensions
  
  - Partner's distributive share from the net income of the general professional partnerships
  
  
  

• - Life insurance
  
  - Amount received by insured as return of premium
  
  - Gifts, bequests and devises
  
  - Compensation for injuries or sickness
  
  - Income exempt under treaty
  
  - Retirement benefits, pensions, gratuities, etc.
  
  - Miscellaneous items
  
  
  
  • -- income derived by foreign government
    
    -- income derived by the government or its political subdivision
    
    -- prizes and awards in sport competition
    
    -- prizes and awards which met the conditions set in the Tax Code
    
    -- 13th month pay and other benefits
    
    -- GSIS, SSS, Medicare and other contributions
    
    -- gain from the sale of bonds, debentures or other certificate of indebtedness
    
    -- gain from redemption of shares in mutual fund
    

• - Expenses
  
  - Interest
  
  - Taxes
  
  - Losses
  
  - Bad Debts
  
  - Depreciation
  
  - Depletion of Oil and Gas Wells and Mines
  
  - Charitable Contributions and Other Contributions
  
  - Research and Development
  
  - Pension Trusts
  

• - For each qualified dependent, an P25,000 additional exemption can be claimed but only up to 4 qualified dependents
  

• - The husband who is deemed the head of the family unless he explicitly waives his right in favor of his wife
  
  
  - The spouse who has custody of the child or children in case of legally separated spouses. Provided, that the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions allowed by the Tax Code.
  
  - The individuals considered as Head of the Family supporting a qualified dependent
  

• - Family gross income yearly should not be more than P 250,000
  
  - For married individuals, the spouse claiming the additional exemptions for the qualified dependents shall be entitled to this deduction
  
  
  

• - Individuals
  
  - Resident citizens receiving income from sources within or outside the Philippines
  

•       -- employees deriving purely compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year
  
        -- employees deriving purely compensation income regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return
  
        -- self-employed individuals receiving income from the conduct of trade or business and/or practice of profession
  
        -- individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession
  
        -- individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax
  
        -- individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing
  
        -- marginal income earners
  

• - Non-resident citizens receiving income from sources within the Philippines
  
  - Aliens, whether resident or not, receiving income from sources within the Philippines
  
  - Corporations no matter how created or organized including partnerships
  

•       -- domestic corporations receiving income from sources within and outside the Philippines
  
        -- foreign corporations receiving income from sources within the Philippines
  
        -- taxable partnerships
  

• - Estates and trusts engaged in trade or business

a. An individual who is a minimum wage earner
b. An individual whose gross income does not exceed his total personal and additional exemptions
c. An individual whose compensation income derived from one employer does not exceed P 60,000 and the income tax on which has been correctly withheld
d. An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies, petroleum service contractors and sub-contractors and offshore-banking units, non-resident aliens not engaged in trade or business)
e. Those who are qualified under “substituted filing”. However, substituted filing applies only if all of the following requirements are present :

• - the employee received purely compensation income (regardless of amount) during     the taxable year
• - the employee received the income from only one employer in the Philippines           during the taxable year
• - the amount of tax due from the employee at the end of the year equals the amount   of tax withheld by the employer
• - the employee’s spouse also complies with all 3 conditions stated above
•   the employer files the annual information return (BIR Form No. 1604-CF)
• - the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.

 9) Who are exempt from Income Tax?

• Non-resident citizen who is:

• Overseas Filipino Worker, including overseas seaman

     - For “with payment” ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704)

-     For “no payment” ITRs -- refundable, break-even, exempt and no 
      operation/transaction, including returns to be paid on 2nd installment and returns 
      paid through a Tax Debit Memo(TDM)

Gross Income	P ___________
Less: Allowable Deductions (Itemized or Optional)	___________
Net Income	P ___________
Less: Personal & Additional Exemptions	___________
Net Taxable Income	P ___________
Multiply by Tax Rate (5 to 32%)	____________
Income Tax Due: Tax withheld (per BIR From 2316/2304)	P ___________
Income tax payable	P____________

• - Through withholding
  

• • -- Generally 10% or 15% if the gross annual business or professional income exceeds P720,000 per year
    
    -- 20% - Fees paid to directors who are not employees and 20% of professional fees paid to non-individuals
    
    -- Other withholding tax rates
    

• - Pay the balance as you file the tax return, computed as follows:
  

Income Tax Due	P ___________
Less: Withholding Tax	___________
Net Income Tax Due	P ___________

• - Salaries and employees benefits of personnel, consultants and specialists directly rendering the service;
• 
  - Cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used;
• 
  - Cost of supplies

Country	Date of Effectivity	Date and Venue of Signature
1. Australia	January 1, 1980	May 11, 1979, Manila, Philippines
2. Austria	January 1, 1983	April 4, 1981, Vienna, Austria
3. Bahrain	January 1, 2004	November 7, 2001, Manila, Philippines
4. Bangladesh	January 1, 2004	September 8, 1997, Manila, Philippines
5. Belgium	January 1, 1981	October 2, 1976, Manila, Philippines
6. Brazil	January 1, 1992	Sept. 29, 1983, Brasilia, Brazil
7. Canada	January 1, 1977	March 11, 1976, Manila, Philippines
8. China	January 1, 2002	November 18, 1999, Beijing, China
9. Czech	January 1, 2004	November 13, 2000, Manila, Philippines
10. Denmark (Renegotiated)	January 1, 1998	June 30, 1995, Copenhagen, Denmark
11. Finland	January 1, 1982	October 13, 1978, Manila, Philippines
12. France	January 1, 1978	January 9, 1976, Kingston, Jamaica
13. Germany	January 1, 1985	July 22, 1983, Manila, Philippines
14. Hungary	January 1, 1998	June 13, 1997, Budapest, Hungary
15. India	January 1, 1995	February 12, 1990, Manila, Philippines
16. Indonesia	January 1, 1983	June 18, 1981, Manila, Philippines
17. Israel	January 1, 1997	June 9, 1992, Manila, Philippines
18. Italy	January 1, 1990	December 5, 1980, Rome, Italy
19. Japan	January 1, 1981	February 13, 1980, Tokyo, Japan
20. Korea	January 1, 1987	February 21, 1984, Seoul, Korea
21. Malaysia	January 1, 1985	April 27, 1982, Manila, Philippines
22. Netherlands	January 1, 1992	March 9, 1989, Manila, Philippines
23. New Zealand	January 1, 1981	April 29, 1980, Manila, Philippines
24. Norway	January 1, 1998	July 9, 1987, Manila, Philippines
25. Pakistan	January 1, 1979	February 22, 1980, Manila, Philippines
26. Poland	January 1, 1998	September 9, 1992, Manila, Philippines
27. Romania	January 1, 1998	May 18, 1994, Bucharest, Romania
28. Russia	January 1, 1998	April 26, 1995, Manila, Philippines
29. Singapore	January 1, 1977	August 1, 1977, Manila, Philippines
30. Spain	January 1, 1994	March 14, 1989, Manila, Philippines
31. Sweden (Renegotiated)	January 1, 2004	June 24, 1998, Manila, Philippines
32. Switzerland	January 1, 2002	June 24, 1998, Manila, Philippines
33. Thailand	January 1, 1983	July 14, 1982, Manila, Philippines
34. United Arab Emirates	January 1, 2009	September 21, 2003, Dubai, UAE
35. United Kingdom of Great Britain and Northern Ireland	January 1, 1979	June 10, 1976, London, United Kingdom
36. United States of America	January 1, 1983	October 1, 1976, Manila, Philippines
37. Vietnam	January 1, 2004	November 14, 2001, Manila, Philippines

 
Source: http://www.bir.gov.ph/

VIDEO:


It is indeed that complicated, but it is indeed helpful...

Always remember, that in any country a person lives, pay a tribute, taxes to keep the country's bureaucracy running.