BASE AND TAX RATES

TAX BASE AND TAX RATES: INDIVIDUALS

Income Source of income Tax rates Additional information
Resident Citizens and Resident Aliens
Taxable
Income
Liability for income tax
1. Resident citizenwithin and without
the Philippines
2. Non-resident citizen including OFWs
within
3. Resident alienwithin
As of January 2000, graduated rate
of 5%-32%
Husband and wife, subject to the provision of
Section 51 (D) hereof, shall compute separately
their individual income tax based on their
respective total taxable income.
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
income.
N.B: given a basket of income, if it doesn't fall
within the passive income, then it is taxable
income and the graduated rate of 5-32% will be
applied accordingly.
For example, a resident citizen derives interest
income from his bank deposit abroad. The
interest income shall be treated as regular
income. The interest income contemplated in
passive income is interest earned in bank
deposits in the Philippines.
Interests, Royalties, Prizes and other
winnings
1. Interest on any currency bank deposit,
yield or other monetary benefits from
deposit substitute, trust fund and
similar arrangement
2. Royalties in general
3. Prize exceeding P10,000
4. Other winnings except PCSO and lotto
sweepstakes
Final tax of 20%
*there is emphasis on the holding period and not
the maturity period.
Royalty from books, literary works, and
musical compositions

Final tax of 10%

Prize less than P10,000 Regular income
Interest under the expanded foreign
currency deposit system Final tax of 7 . %
There is a preference to promote the increase in
foreign exchange reserves
Dividends:
Dividend from a domestic corporation or
from a joint stock company, insurance or
mutual fund company, and regional
operating headquarters of multinational
company, or share in the distributable net
income after tax of a partnership (except a
general professional partnership), joint
stock or joint venture or consortium taxable
as a corporation
1998: 6%
1999: 8%
Current: Final tax of 10%
Dividend income from a foreign corporation doing
business in the country is considered as regular
income and would be taxed with the
corresponding graduated rate.
*Dividends don't stop with those coming from
shares of stock.
Passive Income
Capital gains on shares of stock
On sale of shares of stock of a domestic
corporation not listed and traded through a
local stock exchange, held as capital asset
On the net capital gain:
Not over P100,000---------------final
tax of 5%
On any amount in excess of
P100,000-----------------------------------------------final tax of 10%
Sale of shares of stock of a domestic corporation
through a local stock exchange or thru initial
public offering pays the stock transaction tax and
other percentage taxes, and having paid this tax,
shall not be subject to the rules on income tax

Capital gains on real property

On sale of real property in the Philippines
held as capital asset
Art. 415. The following are immovable
property:

(1) Land, buildings, roads and constructions

of all kinds adhered to the soil;
(2) Trees, plants, and growing fruits, while
they are attached to the land or form an
integral part of an immovable;
(3) Everything attached to an immovable in
a fixed manner, in such a way that it
cannot be separated therefrom without
breaking the material or deterioration of
the object;
(4) Statues, reliefs, paintings or other
objects for use or ornamentation, placed in
buildings or on lands by the owner of the
immovable in such a manner that it reveals
the intention to attach them permanently
to the tenements;
(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an industry or works which
may be carried on in a building or on a
piece of land, and which tend directly to
meet the needs of the said industry or
works;
On the gross selling price, or the
current fair market value at the
time of sale, whichever is higher--final tax of 6%
~@~
(6) Animal houses, pigeon-houses,
beehives, fish ponds or breeding
places of similar nature, in case
their owner has placed them or
preserves them with the intention
to have them permanently attached
to the land, and forming a
permanent part of it; the animals in
these places are included;
(7) Fertilizer actually used on a
piece of land;
(8) Mines, quarries, and slag
dumps, while the matter thereof
forms part of the bed, and waters
either running or stagnant;
(9) Docks and structures which,
though floating, are intended by
their nature and object to remain at
a fixed place on a river, lake, or
coast;
(10) Contracts for public works, and

servitudes and other real rights

over immovable property. (334a)
Exemptioncapital gain from the sale or
disposition of a principal residence of a natural
person, which is fully utilized in acquiring or
constructing a new principal residence, provided:
1. The proceeds of the sale or disposition is
utilized within 18 months from the date of
sale or disposition
2. The Commissioner of Internal Revenue is
notified by the taxpayer within 30 days from
the date of sale or disposition
3. Can avail of exemption once every 10 years
4. A deposit is made of the 6% capital gain tax
withheld by the buyer, in cash or managers
check, in interest bearing account with an
AAB, under an Escrow agreement between
the taxpayer and BIR that the same shall be
released to the seller when the proceeds of
the sale shall have been utilized as intended
Disposition of real property to the government:
you have option to be subjected to final tax of 6%
or graduated rate of 5-32%
Non-Resident Alien
Engaged in
trade or
business in the
Taxable incomefrom within the
Philippines
Uniform rules of 5%-32% *The 180 days for one to be considered to be
engaged in trade or business is counted with
respect to each calendar year (Section 24 and 25)

Passive income
1. Interest
2. Royalties in general
3. Prize exceeding P10,000
4. Other winnings except PCSO
5. Dividends from a domestic corporation,
or from a joint stock company,
insurance or mutual fund company,
and regional operating headquarters of
multinational company, or share in the
distributable net income after tax of a
partnership (except general
professional partnership), joint stock or
joint venture or consortium taxable as
a corporation

Final tax of 20%

6. Royalties from books, literary works
and musical compositions Final tax of 10%
7. Gross income from the Philippines
from cinematographic films and similar
works
Final tax of 25%
Philippines
8. Interest under the expanded foreign
currency deposit system
9. Interest on long-term deposit or
investment in banks (with maturity of
5 years or more)
Exempt
Not engaged in
trade or
business
Gross income from within the Philippines
Final tax of 25%
They are not allowed any personal exemptions
Special aliens 1. Alien Individual Employed by Regional
or Area Headquarters and Regional
Operating Headquarters of
Multinational Companies.
2. Alien Individual Employed by Offshore
Banking Units.
3. Alien Individual Employed by
Petroleum Service Contractor and
Subcontractor.
Final tax of 15% of such gross
income
On all taxable income5%-32% as
a non-resident alien in the
Philippines
The preferential 15% rate refers to
compensation/wages related to their employment.
Other than this compensation or wages, the
applicable rates would be the 5-32%.
There is an option available to a Filipino
occupying the same position as foreigner expat.

TAX BASE AND TAX RATES: CORPORATIONS

Domestic Corporations
Net income within and without the Philippines
In general Taxable income derived from within and
without the Philippines
Normal tax of 35%
Beginning 2009, 30%

But beginning with the 4th year of

operations, whichever is higher of
The normal tax of 35% and the
Minimum corporate income tax of
2%
The normal income tax is computed for each of
the first 3 quarters of the year. In an annual
return, the normal tax and the minimum
corporate income tax are computed.
Proprietary educational institutions and
non-profit hospitalon all taxable income
from all sources
10% If the unrelated income exceeds 50%, then this
premium wouldn't be applicable
Resident international carrieron gross
Philippine billings
2 .%
Non-resident owner or lessor of vessel
gross income from the Philippines
4 .%
Non-resident cinematographic film owner,
lessor or distributorgross income from the
Philippines
25%
Non-resident lessor of aircraft, machinery
and other equipment
7 .% on gross rentals, charges, and
other fees from Philippine sources
Regional operating headquarters of
multinational corporation
10% on taxable income
Special
corporations
GOCCs (they follow SEC registration
requirements as well)
Same rate as those engaged in
similar business, industry, or
activity
Except the GSIS, SSS, PHIC, and PCSO

Interests and royalties

Interest under the expanded foreign
currency deposit system
Interest on any currency bank deposit,
yield or other monetary benefit from
deposit substitute, trust fund and similar
arrangement, and royalties

Final tax of 7 .%
Final tax of 20%
Depositor bank deposits with another banks
FCDU and it will earn interest income. This is
exempt.
Depositary bank who holds money from
depositors and invests it to another as foreign
loans or whatnot is subject to 10%
Dividends
Dividend from domestic corporation
intercompany dividend
Exempt
Passive income
Capital gains
On sale of shares of stock of a corporation
not listed and traded through the local
stock exchange held as capital assets
On sale of land and/or building held as
capital asset
On the net capital gain
Not over P100000final tax of 5%
Over P100000final tax of 10%
On the gross selling price or current
fair market value prevailing at the
time of sale, whichever is higher
final tax of 10%
Sale of shares of stock of a domestic corporation
through a local stock exchange or thru initial
public offering pays the stock transaction tax and
other percentage taxes, and having paid this tax,
shall not be subject to the rules on income tax
Resident foreign corporationwithin the Philippines
In general 2005-200835%
2008-after30%
Has the option of being taxed with 15% gross
income tax

International carriers 2 .% on gross Philippine billings (a) International Air Carrier. - "Gross Philippine
Billings" refers to 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: Provided, That tickets revalidated,
exchanged and/or indorsed to another
international airline form part of the Gross
Philippine Billings if the passenger boards a

plane in a port or point in the Philippines:

Provided, further, That 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 Gross Philippine Billings.
(b) International Shipping. - "Gross Philippine
Billings" means 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.
Offshore banking units
Including any interest derived from foreign
currency loan granted to residents
10% of such interest income Any income of nonresidents, whether individuals
or corporations, from transactions with said
offshore banking units shall be exempt from
income tax.
Special foreign
corporations
Regional or area headquarters and
regional operating headquarters
(a) Regional or area headquarters
as defined in Section 22(DD) shall
not be subject to income tax.
(b) Regional operating headquarters
as defined in Section 22(EE) shall
pay a tax of ten percent (10%) of
their taxable income.

Any profit remitted by a branch to its head

office
15% which shall be based on the
total profits applied or earmarked
for remittance without any
deduction for the tax component
thereof (except those activities
which are registered with the
Philippine Economic Zone
Authority).
The tax shall be collected and paid in the same
manner as provided in Sections 57 and 58 of this
Code: provided, that interests, dividends, rents,
royalties, including remuneration for technical

services, salaries, wages premiums, annuities,

emoluments or other fixed or determinable
annual, periodic 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 profits unless the same are
effectively connected with the conduct of its trade
or business in the Philippines.
Interest
Interest under the expanded foreign
currency deposit system
Interest under any current bank deposit,
yield or other monetary benefit from
deposit substitute, trust fund and other
similar arrangement, royalties
Final tax of 7 . %
Final tax of 20%
Dividends
Dividend from domestic corporation
intercompany dividend
Exempt
Passive income
Capital gains
On sale of shares of stock of a domestic
corporation not listed and traded through a
local stock exchange, held as capital assets
On net capital gain
Not over P100000final tax of 5%
Over P100000final tax of 10%
Subsidiary v.
Branch of
foreign
corporation
Subsidiary
Entity separate and distinct from its
stockholders (separate entity concept)
Tax treatment is that of a domestic
corporation
32% on net income from within and
without
Stockholders are liable only to the extent of their
subscription (parent company is the sole
stockholder)
If subsidiary remits to parent, subject to the 15%
(conditional) linkparent company
Parent may not be held liable for damages filed
against subsidiary

Branch
Merely an extension of the foreign head
office (single entity concept)
Tax treatment is that of a foreign
corporation
32% on net income from within The link is between the head office and home
office
If the branch remits to the head office, it is
subject to the branch profit remittance tax
Home is liable for all liabilities of the branch
Subject to the 10% improperly accumulated
earnings
Home office Parent (NRFC)
BPRT=15% Dividend=15%
Branch Subsidiary
RFC DC
35% TI (within) 35% TI (within/without)
Non-resident foreign corporations
Within the Philippines
In general Foreign corporation not engaged in trade or
business in the Philippines
35%
Non-resident cinematographic film owner,
lessor, or distributor
25% Filipino industry would like to be protected
Non-resident owner or lessor of vessels
chartered by Philippine nationals
Special non- 4 .%
resident
Non-resident owner or lessor of aircraft,
machineries, and other equipment
7 .%
Interest on foreign loans Final tax of 20%
Dividend from domestic corporations Final tax of 15% Conditioned at showing of proof of a tax pairing
Passive income provision.
On sale of shares of stock of a domestic
corporation not listed or traded through a
local stock exchange, held as capital assets
On net capital gain
Not over P1000005%
Over P10000010%