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Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller
from the sale, exchange, or other disposition of capital assets located in the Philippines,
including pacto de retro sales and other forms of conditional sale
Final Capital Gains Tax for Onerous Transfer of Real Property Classified as Capital
Assets (Taxable and Exempt)
Tax Form
BIR Form 1706 Final Capital Gains Tax Return (For Onerous Transfer of Real Property
Classified as Capital Assets -Taxable and Exempt)
Taxpayers who are considered not engaged in the real estate business refer to persons other
than real estate dealers, real estate developers and/or real estate lessors.
11.) Who are considered habitually engaged in the real estate business?
Real estate dealers or real estate developers who are registered with the Housing and Land Use
Regulatory Board (HULRB) or HUDCC
12.) How can you determine whether a particular real property is a capital asset or an ordinary
asset?
a) Real properties shall be classified with respect to taxpayers engaged in the real estate
business as follows:
i) All real properties acquired by the real estate dealer shall be considered as ordinary assets.
ii) All real properties acquired by the real estate developer, whether developed or undeveloped
as of the time of acquisition, and all real properties which are held by the real estate developer
primarily for sale or for lease to customers in the ordinary course of his trade or business or
which would properly be included in the inventory of the taxpayer if on hand at the close of the
taxable year and all real properties used in the trade or business, whether in the form of land,
building, or other improvements, shall be considered as ordinary assets.
iii) All real properties of the real estate lessor, whether land, building and/or improvements,
which are for lease/rent or being offered for lease/rent, or otherwise for use or being used in the
trade or business shall likewise be considered as ordinary assets.
iv) All real properties acquired in the course of trade or business by a taxpayer habitually
engaged in the sale of real property shall be considered as ordinary assets.
Note: Registration with the HLURB or HUDCC as a real estate dealer or developer shall be
sufficient for a taxpayer to be considered as habitually engaged in the sale of real estate.
If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or developer,
he/it may nevertheless be deemed to be engaged in the real estate business through the
establishment of substantial relevant evidence (such as consummation during the preceding
year of at least six (6) taxable real estate sale transactions, regardless of amount; registration as
habitually engaged in real estate business with the Local Government Unit or the Bureau of
Internal Revenue, etc.
A property purchased for future use in the business, even though this purpose is later thwarted
by circumstances beyond the taxpayers control, does not lose its character as an ordinary
asset. Nor does a mere discontinuance of the active use of the property change its character
previously established as a business property. (Sec 3(a)(4)of RR 7-2003)
b) In the case of taxpayer not engaged in the real estate business, real properties, whether land,
building, or other improvements, which are used or being used or have been previously used in
trade or business of the taxpayer shall be considered as ordinary assets.
c) In the case of taxpayers who changed its real estate business to a non-real estate business,
real properties held by these taxpayer shall remain to be treated as ordinary assets.
d) In the case of taxpayers who originally registered to be engaged in the real estate business
but failed to subsequently operate, all real properties acquired by them shall continue to be
treated as ordinary assets.
e) Real properties formerly forming part of the stock in trade of a taxpayer engaged in the real
estate business, or formerly being used in the trade or business of a taxpayer engaged or not
engaged in the real estate business, which were later on abandoned and became idle, shall
continue to be treated as ordinary assets. Provided however, that properties classified as
ordinary assets for being used in business by a taxpayer engaged in business other than real
estate business are automatically converted into capital assets upon showing proof that the
same have not been used in business for more than two years prior to the consummation of the
taxable transactions involving said properties
f) Real properties classified as capital or ordinary asset in the hands of the seller/transferor may
change their character in the hands of the buyer/transferee. The classification of such property
in the hands of the buyer/transferee shall be determined in accordance with the following rules:
i) Real property transferred through succession or donation to the heir or donee who is not
engaged in the real estate business with respect to the real property inherited or donated, and
who does not subsequently use such property in trade or business, shall be considered as a
capital asset in the hands of the heir or donee.
ii) Real property received as dividend by the stockholders who are not engaged in the real estate
business and who do not subsequently use such property in trade or business, shall be
considered as a capital asset in the hands of the recipients even if the corporation which
declared the real property dividends is engaged in real estate business.
iii) The real property received in an exchange shall be treated as ordinary asset in the hands of
the case of a tax-free exchange by taxpayer not engaged in real estate business to a taxpayer
who is engaged in real estate business, or to a taxpayer who, even if not engaged in real estate
business, will use in business the property received in exchange.
(a.1) In the case of cash sale, the selling price shall be the total consideration per deed of sale.
(a.2) If the total consideration of the sale or disposition consists partly in money and partly in
kind, the selling price shall be sum of money and the fair market value of the property received.
(a.3) In the case of exchange, the selling price shall be the fair market value of the property
received.
(a.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater
than the amount of money and/or fair market value of the property received, the excess of the
fair market value of the shares of stock sold, bartered or exchanged over the amount of money
and the fair market value of the property, if any, received as consideration shall be deemed a gift
subject to the donor's tax under sec. 100 of the Tax Code, as amended.
(B.) Definition of "fair market value" of the Shares of Stock.
(b.1) In the case of listed shares which were sold, transferred or exchanged outside of the
trading system and/or facilities of the Local Stock Exchange, the closing price on the day when
the shares are sold, transferred, or exchanged. When no sale is made in the Local Stock
Exchange on the day when the Listed shares are sold, transferred, or exchanged, the closing
price on the day nearest to the date of sale, transfer or exchange of the shares shall be the fair
market
value.
Sec
2
of
RR
6-2013
(b.2) In the case of shares of stock not listed and traded in the local stock exchanges, the value
of the shares of stock at the time of sale shall be the fair market value. In determining the value
of the shares, the Adjusted Net Asset Method shall be used whereby all assets and liabilities are
adjusted to fair market values. The net of adjusted asset minus the liability values is the
indicated value of the equity.
The appraised value of real property at the time of sale shall be the higher of
(1)
The
fair
market
value
as
determined
by
the
Commissioner,
or
(2) The fair market value as shown in the schedule of valued fixed by the Provincial and City
Assessors,
or
(3) The fair market value as determined by Independent Appraiser.
(b.3) In the case of a unit of participation in any association, recreation or amusement club (such
as golf, polo, or similar clubs), the fair market value thereof shall be its selling price or the bid
price nearest published in any newspaper or publication of general circulation, whichever is
higher.
(C.) Determination of Gain or Loss from Sale or Disposition of Shares of Stock. The gain from
the sale or other disposition Stock. The gain from the sale or other disposition of shares of
stock shall be the excess of the amount realized therefrom over the basis or adjusted basis for
determining gain, and the loss shall be the excess of the basis or adjusted basis for determining
loss over the amount realized. The amount realized from the sale or other disposition of property
shall be the sum of money received plus the fair market value of the property (other than money)
received, if any.
16.) What are the applicable tax rates of Capital Gains Tax under the National Internal Revenue
Code of 1997?
a) Real Properties - 6 %
b) For Shares of Stocks not Traded in the Stock Exchange, on the net Capital Gains
- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%
17.) Who are required to file the Final Capital Gains Tax return?
Every person, whether natural or juridical, resident or non-resident, including estates and trusts,
who sells, transfers, exchanges or disposes real properties located in the Philippines classified
as capital assets, including pacto de retro sales and other forms of conditional sales or shares of
stocks in domestic corporations not traded through the local stock exchange classified as capital
assets.
18.) What is the procedure in the filing of Final Capital Gains Tax return?
File the Final Capital Gains Tax return in triplicate (two copies for the BIR and one copy for the
taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the seller or
transferor is registered, for shares of stocks or where the property is located, for real property. In
places where there are no AAB, the return will be filed directly with the Revenue Collection
Officer or Authorized City or Municipal Treasurer.
19.) Who/what are considered exempt from the payment of Final Capital Gains Tax?
20.) Who are conditionally exempt from the payment of Final Capital Gains Tax?
Natural persons who dispose their principal residence, provided that the following criteria are
met:
The proceeds of the sale of the principal residence have been fully
utilized in acquiring or constructing new principal residence within
eighteen (18) calendar months from the date of sale or disposition;
The historical cost or adjusted basis of the real property sold or disposed
will be carried over to the new principal residence built or acquired;
The Commissioner has been duly notified, through a prescribed return,
within thirty (30) days from the date of sale or disposition of the
persons intention to avail of the tax exemption;
Exemption was availed only once every ten (10) years; and
There is no full utilization of the proceeds of sale or disposition. The
portion of the gain presumed to have been realized from the sale or
disposition will be subject to Capital Gains Tax.
In case of sale/transfer of principal residence, the Buyer/Transferee shall
withhold from the seller and shall deduct from the agreed selling
price/consideration the 6% capital gains tax which shall be deposited in
cash or managers check in interest-bearing account with an Authorized
Agent Bank (AAB) under an Escrow Agreement between the concerned
Revenue District Officer, the Seller and the Transferee, and the AAB to
the effect that the amount so deposited, including its interest yield, shall
only be released to such Transferor upon certification by the said RDO
that the proceeds of the sale/disposition thereof has, in fact, been
utilized in the acquisition or construction of the Seller/Transferors new
principal residence within eighteen (18) calendar months from date of
the said sale or disposition. The date of sale or disposition of a property
refers to the date of notarization of the document evidencing the
transfer of said property. In general, the term Escrow means a scroll,
writing or deed, delivered by the grantor, promisor or obligor into the
hands of a third person, to be held by the latter until the happening of a
contingency or performance of a condition, and then by him delivered to
the grantee, promise or obligee.
Description
Documentary Stamp Tax is a tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto
Tax Forms
BIR Form 2000 (Documentary Stamp Tax Declaration Return);
BIR Form 2000-OT Documentary Stamp Tax Declaration Return (ONE- TIME TRANSACTIONS)
In the Authorized Agent Bank (AAB) within the territorial jurisdiction of the RDO which has
jurisdiction over the residence or principal place of business of the taxpayer or where the
property is located in case of sale of real property or where the Collection Agent is assigned. In
places where there is no Authorized Agent Bank, the return will be filed with the Revenue
Collection Officer or duly authorized City or Municipal Treasurer where the taxpayer's residence
or principal place of business is located or where the property is located in case of sale of real
property or where the Collection Agent is assigned.
3) What are the documents/papers not subject to Documentary Stamp Tax? (sec. 9, RR No. 132004)
which agreement is duly registered and approved by the Bureau of Internal Revenue
(BIR)
Loan agreements or promissory notes, the aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000), or any such amount as may be determined by
the Secretary of Finance, executed by an individual for his purchase on installment for his
personal use or that of his family and not for business or resale, barter or hire of a house,
lot, motor vehicle, appliance or furniture: Provided, however, That the amount to be set by
the Secretary of Finance shall be in accordance with a relevant price index but not to
exceed ten percent (10%) of the current amount and shall remain in force at least for
three (3) years
Sale, barter or exchange of shares of stock listed and traded through the local stock
exchange (R.A 9648)
Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or
continuance of any agreement, contract, charter, or any evidence of obligation or
indebtedness, if there is no change in the maturity date or remaining period of coverage
from that of the original instrument.
Fixed income and other securities traded in the secondary market or through an
exchange.
Derivatives: Provided, That for purposes of this exemption, repurchase agreements and
reverse repurchase agreements shall be treated similarly as derivatives
Interbranch or interdepartmental advances within the same legal entity
All forebearances arising from sales or service contracts including credit card and trade
receivables: Provided, That the exemption be limited to those executed by the seller or
service provider itself.
Bank deposit accounts without a fixed term or maturity
All contracts, deeds, documents and transactions related to the conduct of business of
the Bangko Sentral ng Pilipinas
Transfer of property pursuant to Section 40(C)(2) of the National Internal Revenue Code
of 1997, as amended
Interbank call loans with maturity of not more than seven (7) days to cover deficiency in
reserves against deposit liabilities, including those between or among banks and quasibanks
The untaxed document will not be recorded, nor will it or any copy thereof or any record
of transfer of the same be admitted or used in evidence in court until the requisite stamp
or stamps have been affixed thereto and cancelled
No notary public or other officer authorized to administer oaths will add his jurat or
acknowledgment to any document subject to Documentary Stamp Tax unless the proper
documentary stamps are affixed thereto and cancelled.
5) What is Electronic Documentary Stamp Tax (eDST) System? (sec. 5 (1), RR No. 7-2009)
The eDST is a web-based application created for taxpayers and the BIR that is capable of
affixing a secured documentary stamp on the taxable documents as defined under the
appropriate provisions under Title VII of the National Internal Revenue Code of 1997, as
amended, thru the use of a computer unit, any laser printer with at least 1200 dpi resolution, and
Internet Explorer 7.0 It is also capable of providing a 3-layer watermark on stamps for added
security.
6) Is DST Law applicable on Electronic Documents? (sec. 10, RR No. 13-2004)
The DST rates as imposed under the Code, as amended by R.A. 9243 shall be applicable on all
documents not otherwise expressly exempted by the said law, notwithstanding the fact that they
are in electronic form. As provided for by R.A. 8792, otherwise known as the Electronic
Commerce Act, electronic documents are the functional equivalent of a written document under
existing laws, and the issuance thereof is therefore tantamount to the issuance of a written
document, and therefore subject to DST.
7) What are the inclusions of a debt instrument? (sec. 5, RR No. 13-2004)
Debt Instrument shall mean instruments representing borrowing and lending transaction
including but not limited to:
debentures,
certificates of indebtedness,
due bills,
bonds,
loan agreements, including those signed abroad wherein the object of
the contract is located or used in the Philippines,
instruments and securities issued by the government or any of its
instrumentalities,
deposit substitute debt instruments,
certificates or other evidences of deposits that are drawing
instrument significantly higher than the regular savings deposit taking
into consideration the size of the deposit and the risks involved,
certificates or other evidences of deposits that are drawing interest and
having a specific maturity date,
promissory notes, whether negotiable or non-negotiable, except bank
notes issued for circulation.
8) Is any document, transaction or arrangement entered into under Financial Lease subject to
Documentary Stamp Tax? (RMC No. 46-2014)
Financial lease is akin to a debt rather than a lease. A nature of an obligation than a lease of
personal property. The mere act of extending credit is already a means of facilitating an
obligation or advancing in behalf of the lessee certain property in lieu of cash in exchange for a
definitive amortization to be paid to the lessor with profit margin included. Section 179 of the
NIRC, as amended, covers all debt instruments. Therefore, being a nature of an obligation, any
document, transaction or arrangement entered into under financial lease is subject to DST under
such Section of the NIRC, as amended.
Description
Donors Tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of property
between two or more persons who are living at the time of the transfer. It shall apply whether the
transfer is in trust or otherwise, whether the gift is direct or indirect and whether the property is
real or personal, tangible or intangible.
Tax Form
BIR Form 1800 Donors Tax Return
Frequently Asked Questions
1. Who are required to file the Donors Tax Return?
Every person, whether natural or juridical, resident or non-resident, who transfers or causes to
transfer property by gift, whether in trust or otherwise, whether the gift is direct or indirect and
whether the property is real or personal, tangible or intangible.
2. What donations are tax exempt?
A. In the Case of Gifts made by a Resident (Sec. 101 (A), NIRC as amended)
B. In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines (Sec. 101 (B),
NIRC as amended)
Gifts made to or for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit, or to
any political subdivision of the said Government
Gifts in favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, accredited non-government
organization, trust or philantrophic organization or research institution
or organization, provided not more than 30% of said gifts will be used by
such donee for administration purposes
C. Tax Credit for Donor's Taxes Paid to a Foreign Country (Sec. 101 (C), NIRC as amended)
In General. - The tax imposed by this Title upon a donor who was a
citizen or a resident at the time of donation shall be credited with the
amount of any donor's tax of any character and description imposed by
the authority of a foreign country.
Limitations on Credit. - The amount of the credit taken under this
Section shall be subject to each of the following limitations:
- The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such
country
taxable
under
this
Title
bears
to
his
entire
net
gifts;
and
- The total amount of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the donor's net gifts situated outside the Philippines taxable under
this title bears to his entire net gifts.
3. What are the bases in the valuation of property?
If the gift is made in property, the fair market value at that time will be considered the amount of
gift.
In case of real property, the taxable base is the fair market value as determined by the
Commissioner of Internal Revenue (Zonal Value) or fair market value as shown in the latest
schedule of values fixed by the provincial and city assessor (MV per Tax Declaration), whichever
is higher. (Sec. 88 and 102, NIRC as amended)
If there is no zonal value, the taxable base is the fair market value that appears in the tax
declaration at the time of the gift
4. For purposes of Donors Tax, what does the term Net Gift mean?
For purposes of the donors tax, NET GIFT shall mean the net economic benefit from the
transfer that accrues to the donee. Accordingly, if a mortgaged property is transferred as a gift,
but imposing upon the donee the obligation to pay the mortgage liability, then the net gift is
measured by deducting from the fair market value of the property the amount of mortgage
assumed. (sec. 11, RR No. 2-2003)
5. Under R.A. No. 7166, any contribution in cash or in kind to any candidate or political party or
coalition of parties for campaign purposes shall not be subject to the payment of any gift tax.
What instance will it be subject to Donors Tax?
Those contributions in cash or in kind NOT duly reported to the Commission on Elections
(COMELEC) shall not be subject to donors tax.
Section 99 (C) of the Tax Code, as amended, provides that any contribution in cash or in kind for
campaign purposes shall be governed by R.A. No. 7166 or the Election Code.
Section 13 of the R.A. No. 7166 specifically states that any provision of law to the contrary
notwithstanding any contribution in cash or kind to any candidate or political party or coalition of
parties for campaign purposes, duly reported to the Commission shall not be subject to the
payment of any gift tax (donors tax). Accordingly, the BIR can impose donors tax on
contributions of this nature. (Q-14, RMC No. 63-2009)
6. For purposes of Donors Tax, is a legally adopted child considered stranger?
A legally adopted child is entitled to all the rights and obligations provided by law to legitimate
children, and therefore, donation to him shall not be considered as donation made to stranger.
(sec. 10, RR No. 2-2003)
7. For purposes of Donors Tax, are donations between businesses considered donations made
between strangers?
Donation made between business organizations and those made between an individual and a
business organization shall be considered as donation made to a stranger. (sec. 10, RR No. 22003)
8. Are gratuitous donations to Homeowners Associations subject to Donors Tax?
Gifts, donations, and other contributions received by the Homeowners Associations
(Associations) are subject to the payment of donors tax pursuant to Section 98 and 99 of the
Tax Code, as amended. Endowment or gifts received by such associations are not exempt from
donors tax considering that gifts to Associations are not qualified for exemption under Section
101(A)(3) of the Tax Code. (II, RMC No. 53-2013)
9. Is an onerous donation or donation in exchange for goods, services or use or lease of
properties to Homeowners Association subject to Donors Tax?
Pursuant to RMC No. 9-2013, Associations are subject to the corresponding internal revenue
taxes imposed under the Tax Code of 1997 on their income of whatever kind and character. In
this regard, contributions to associations in exchange for goods, services and use of properties
constitute as other assessments/charges from activity in exchange for the performance of a
service, use of properties or delivery of an object. As such, these fees are income on the part of
the associations that are subject to income tax under Section 27 of the Tax Code, as amended.
(III, RMC No. 53-2013)
10. What is the proper treatment for transactions involving transfer of property other than real
property referred to in Section 24 (D) for less than adequate and full consideration?
Where property, other than real property referred to in Section 24 (D) of the NIRC, as amended,
is transferred for less than adequate and full consideration in money or moneys worth, then the
amount by which the fair market value of the property exceeded the value of the consideration
shall, for the purpose of Donors Tax, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year. (Sec. 100, NIRC, as amended)
11. What entities are considered exempted from Donors Tax under special laws?
The list below consists of entities considered Donors Tax exempt under special laws including,
but not limited to the following:
12. How do we determine the fair market value of the unlisted stocks?
In determining the value of the shares, the Adjusted Net Asset Method shall be
used whereby all assets and liabilities are adjusted to fair market values. The net of
adjusted asset minus the adjusted liability value is the indicated value of the equity.
For purposes of this item, the appraised value of real property at the time of sale
shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors, or
(c) The fair market value as determined by Independent Appraiser. (RR NO. 62013) (Annex U)
Description
Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her
lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by
law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on
the privilege of transmitting property upon the death of the owner. The Estate Tax is based on
the laws in force at the time of death notwithstanding the postponement of the actual possession
or enjoyment of the estate by the beneficiary.
Tax Form
BIR Form 1801 - Estate Tax Return
Frequently Asked Questions
1. Who are required to file the Estate Tax return?
a) The executor or administrator or any of the legal heirs of the decedent or non-resident of the
Philippines under any of the following situation:
- In all cases of transfer subject to Estate Tax;
- Where though exempt from Estate Tax, the gross value of the estate exceeds two hundred
thousand P 200,000.00; and
- Where regardless of the gross value, the estate consists of registered or registrable property
such as real property, motor vehicle, share of stocks or other similar property for which a
clearance from the Bureau of Internal Revenue (BIR) is required as a prerequisite for the
transfer of ownership thereof in the name of the transferee. (part II par.(1.#3) of RMC No. 342013)
b) Where there is no executor or administrator appointed, qualified and acting within the
Philippines, then any person in actual or constructive possession of any property of the
decedent must file the return.
c) The Estate Tax imposed under the Tax Code shall be paid by the executor or administrator
before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where
there are two or more executors or administrators, all of them are severally liable for the
payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue
District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute
the remaining/distributable properties/share in the inheritance to the heir or beneficiary.
d) The executor or administrator of an estate has the primary obligation to pay the estate tax but
the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which
his distributive share bears to the value of the total net estate. The extent of his liability, however,
shall in no case exceed the value of his share in the inheritance.
2. What are included in gross estate?
- Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is
located in the Philippines
- Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or
bonds have acquired a business situs in the Philippines ( i. e. they are used in the furtherance of
its business in the Philippines)
- Shares, rights in any partnership, business or industry established in the Philippines
3. What are excluded from gross estate?
The properties subject to Estate Tax shall be appraised based on its fair market value at
the time of the decedent's death.
The appraised value of the real estate shall be whichever is higher of the fair market
value, as determined by the Commissioner (zonal value) or the fair market value, as
shown in the schedule of values fixed by the Provincial or City Assessor.
If there is no zonal value, the taxable base is the fair market value that appears in the
latest tax declaration.
If there is an improvement, the value of improvement is the construction cost per building
permit or the fair market value per latest tax declaration.
(1) Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount
equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed
P200,000.
(2) Judicial expenses of the testamentary or intestate proceedings.
(3) Claims against the estate.
(4) Claims of the deceased against insolvent persons where the value of the decedents interest
therein is included in the value of the gross estate; and,
(5) Unpaid mortgages, taxes and casualty losses
B. Property previously taxed (Vanishing Deduction) (Section 86(2) of the NIRC as amended by
Republic Act No. 8424)
An amount equal to the value specified below of any property forming a part of the gross estate
situated in the Philippines of any person who died within five (5) years prior to the death of the
decedent, or transferred to the decedent by gift within five (5) years prior to his death, where
such property can be identified as having been received by the decedent from the donor by gift,
or from such prior decedent by gift, bequest, devise or inheritance, or which can be identified as
having been acquired in exchange for property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to
the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more
than two (2) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more
than three (3) years prior to the death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not
more than four (4) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not
more than five (5) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death;
These deductions shall be allowed only where a donors tax or estate tax imposed was finally
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the
case may be, and only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent, and only to the
extent that the value of such property is included in the decedents gross estate, and only if in
determining the value of the estate of the prior decedent, no Property Previously Taxed or
Vanishing Deduction was allowable in respect of the property or properties given in exchange
therefor. (Section 6 & 7 of RR 2-2003)
C. Transfers for public use
D. The family home - fair market value but not to exceed P1,000,000.00
The family home refers to the dwelling house, including the land on which it is situated, where
the husband and wife, or a head of the family, and members of their family reside, as certified to
by the Barangay Captain of the locality. The family home is deemed constituted on the house
and lot from the time it is actually occupied as a family residence and is considered as such for
as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code)
E. Standard deduction A deduction in the amount of One Million Pesos (P1,000,000.00) shall
be allowed as an additional deduction without need of substantiation.
F. Medical expenses All medical expenses (cost of medicines, hospital bills, doctors fees, etc.)
incurred (whether paid or unpaid) within one (1) year before the death of the decedent shall be
allowed as a deduction provided that the same are duly substantiated with official receipts. For
services rendered by the decedents attending physicians, invoices, statements of account duly
certified by the hospital, and such other documents in support thereof and provided, further, that
the total amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand
Pesos (P500,000).
G. Amount received by heirs under Republic Act No. 4917-Any amount received by the heirs
from the decedents employer as a consequence of the death of the decedent-employee in
accordance with Republic Act No. 4917 is allowed as a deduction provided that the amount of
the separation benefit is included as part of the gross estate of the decedent.
H. Net share of the surviving spouse in the conjugal partnership or community property
For a non-resident alien
A. Expenses, losses, indebtedness and taxes
B. Property previously taxed
7. What does the term "Judicial Expenses" include? (Sec 6 (A)(2) of RR 2-2003)
Expenses allowed as deduction under this category are those incurred in the inventory-taking of
a assets comprising the gross estate, their administration, the payment of debts of the estate, as
well as the distribution of the estate among the heirs. In short, these deductible items are
expenses incurred during the settlement of the estate but not beyond the last day prescribed by
law, or the extension thereof, for the filing of the estate tax return. Judicial expenses may
include:
(a) Fees of executor or administrator;
(b) Attorneys fees;
(c) Court fees;
(d) Accountants fees;
(e) Appraisers fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining property of the estate; and
(i) Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses claimed under Judicial
Expenses should be supported by a sworn statement of account issued and signed by the
creditor.
8. What are the requisites for deductibility of claims against the Estate? (Sec 6(A)(3) of RR 22003)
(a) The liability represents a personal obligation of the deceased existing at the time of his death
except unpaid obligations incurred incident to his death such as unpaid funeral expenses (i.e.,
expenses incurred up to the time of interment) and unpaid medical expenses which are
classified under a different category of deductions pursuant to these Regulations;
(b) The liability was contracted in good faith and for adequate and full consideration in money or
moneys worth;
(c) The claim must be a debt or claim which is valid in law and enforceable in court;
(d) The indebtedness must not have been condoned by the creditor or the action to collect from
the decedent must not have prescribed.
9. How do we determine the fair market value of the unlisted stocks? (RR NO. 62013) (Annex U)
In determining the value of the shares, the Adjusted Net Asset Method shall be
used whereby all assets and liabilities are adjusted to fair market values. The net of
adjusted asset minus the adjusted liability value is the indicated value of the
equity.
For purposes of this item, the appraised value of real property at the time of sale
shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors, or
(c) The fair market value as determined by Independent Appraiser.
Description
Income Tax is a tax on a person's income, emoluments, profits arising from property, practice
of profession, conduct of trade or business or on the pertinent items of gross income specified in
the Tax Code of 1997 (Tax Code), as amended, less the deductions and/or personal and
additional exemptions, if any, authorized for such types of income, by the Tax Code, as
amended, or other special laws.
Who Are Required To File Income Tax Returns
Individuals
Resident citizens receiving income from sources within or outside the Philippines
o employees deriving purely compensation income from 2 or more
employers, concurrently or successively at anytime during the taxable
year
o 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
o self-employed individuals receiving income from the conduct of trade or
business and/or practice of profession
Interest
Rents
Royalties
Dividends
Annuities
Pensions
Life insurance
Miscellaneous items
Expenses
Interest
Taxes
Losses
Bad Debts
Depreciation
Pension Trusts
In addition, individuals who are either earning compensation income, engaged in business or
deriving income from the practice of profession are entitled to personal and additional
exemptions as follows:
Personal Exemptions:
For single individual or married individual judicially decreed as legally separated with no
qualified dependentsP 50,000.00
For head of familyP 50,000.00
For each married individual *P 50,000.00
Note: In case of married individuals where only one of the spouses is deriving gross income,
only such spouse will be allowed to claim the personal exemption.
Additional Exemptions:
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 maximum amount of P 2,400 premium payments on health and/or hospitalization insurance
can be claimed if:
Individuals
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 employees 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.
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
d) A citizen who has been previously considered as a non-resident citizen and who arrives in the
Philippines at any time during the year to reside permanently in the Philippines will likewise be
treated as a non-resident citizen during 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.
An individual citizen of the Philippines who is working and deriving income from abroad as an
overseas Filipino worker is taxable only on income from sources within the Philippines; provided,
that a seaman who is a citizen of the Philippines and who receives compensation for services
rendered abroad as a member of the complement of a vessel engaged exclusively in
international trade will be treated as an overseas Filipino worker.
NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the
Philippine Embassy/consulate is not treated as a non-resident citizen, hence his income is
taxable.
10) What are the procedures in filing Income Tax returns (ITRs)?
For with payment ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704)
File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with the
Authorized Agent Bank (AAB) of the place where taxpayer is registered or required to be
registered. In places where there are no AABs, the return will be filed directly with the Revenue
Collection Officer or duly Authorized Treasurer of the city or municipality in which such person
has his legal residence or principal place of business in the Philippines, or if there is none, filing
of the return will be at the Office of the Commissioner.
File the return with the concerned Revenue District Office (RDO) where the taxpayer is
registered. However, "no payment" returns filed late shall be accepted by the RDO but instead
shall be filed with an Authorized Agent Bank (AAB) or Collection Officer/Deputized Municipal
Treasurer (in places where there are no AABs), for payment of necessary penalties.
11) How is Income Tax payable of individuals (resident citizens and non-resident
citizens)computed?
Gross Income
P ___________
___________
Net Income
P ___________
___________
P ___________
____________
P ___________
P____________
Through withholding
o
o
o 20% - Fees paid to directors who are not employees and 20% of
professional fees paid to non-individuals
o Other withholding tax rates
Pay the balance as you file the tax return, computed as follows:
P ___________
___________
P ___________
13) Is the Minimum Corporate Income Tax (MCIT) an addition to the regular or normal income
tax?
No, the MCIT is not an additional tax. An MCIT of 2% of the gross income as of the end of
taxable year (whether calendar or fiscal year, depending on the accounting period employed) is
imposed on a corporation taxable under Title II of the Tax Code, as amended, beginning on the
4th taxable year immediately following the taxable year in which such corporation commenced
its business operations when the MCIT is greater than the regular income tax. The MCIT is
compared with the regular income tax, which is due from a corporation. If the regular income is
higher than the MCIT, then the corporation does not pay the MCIT but the amount of the regular
income tax.
Notwithstanding the above provision, however, the computation and the payment of MCIT, shall
likewise apply at the time of filing the quarterly corporate income tax as prescribed under
Section 75 and Section 77 of the Tax Code, as amended. Thus, in the computation of the tax
due for the taxable quarter, if the computed quarterly MCIT is higher than that quarterly normal
income tax, the tax due to be paid for such taxable quarter at the time of filing the quarterly
income tax return shall be the MCIT which is two percent (2%) of the gross income as of the end
of the taxable quarter. In the payment of said quarterly MCIT, excess MCIT from the previous
taxable year/s shall not be allowed to be credited. Expanded withholding tax, quarterly
corporate income tax payments under the normal income tax, and the MCIT paid in the previous
taxable quarter/s are allowed to be applied against the quarterly MCIT due.
14) Who are covered by MCIT?
The MCIT covers domestic and resident foreign corporations which are subject to the regular
income tax. The term regular income tax refers to the regular income tax rates under the Tax
Code. Thus, corporations which are subject to a special corporate tax system do not fall within
the coverage of the MCIT.
For corporations whose operations or activities are partly covered by the regular income tax and
partly covered by the preferential rate under special law, the MCIT shall apply on operations by
the regular income tax rate. Newly established corporations or firms which are on their first 3
years of operations are not covered by the MCIT.
15) When does a corporation start to be covered by the MCIT?
A corporation starts to be covered by the MCIT on the 4th year of its business operations. The
period of reckoning which is the start of its business operations is the year when the corporation
was registered with the BIR. This rule will apply regardless of whether the corporation is using
the calendar year or fiscal year as its taxable year.
16) When is the MCIT reported and paid? Is it quarterly?
The MCIT is paid on an annual basis and quarterly basis. The rules are governed by Revenue
Regulations No. 12-2007.
17) How is MCIT computed?
The MCIT is 2% of the gross income of the corporation at the end of the year.
Gross income means gross sales less sales returns, discounts and cost of goods sold. Passive
income, which have been subject to a final tax at source do not form part of gross income for
purposes of the MCIT.
Cost of goods sold includes all business expenses directly incurred to produce the merchandise
to bring them to their present location and use.
For trading or merchandising concern, cost of goods sold means the invoice cost of goods sold,
plus import duties, freight in transporting the goods to the place where the goods are actually
sold, including insurance while the goods are in transit.
For a manufacturing concern, cost of goods manufactured and sold means all costs of
production of finished goods such as raw materials used, direct labor and manufacturing
overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials
to the factory or warehouse.
For sale of services, gross income means gross receipts less sales returns, allowances,
discounts and cost of services which cover all direct costs and expenses necessarily incurred to
provide the services required by the customers and clients including:
o
Interest Expense is not included as part of cost of service, except in the case of banks and other
financial institutions.
Gross Receipts means amounts actually or constructively received during the taxable year.
However, for taxpayers employing the accrual basis of accounting, it means amounts earned as
gross income.
18) What is the carry forward provision under the MCIT?
Any excess of the MCIT over the normal income tax may be carried forward on an annual basis
and be credited against the normal income tax for 3 immediately succeeding taxable years.
19) How would the MCIT be recorded for accounting purposes?
Any amount paid as excess minimum corporate income tax should be recorded in the
corporations books as an asset under account title Deferred charges-MCIT
20) How long can we amend our income tax return?
There is no prescription period for amending the return. When the taxpayer has been issued a
Letter of Authority, he can no longer amend the return.
21) Can a benefactor of a senior citizen claim him/her as additional dependent in addition to
his/her 3 qualified dependent children at P 25,000 each?
No, pursuant to Revenue Regulations 2-94, the benefactor of a senior citizen cannot claim the
additional exemption.
22) What is a tax treaty?
A tax treaty formally known as convention or agreement for the avoidance of double taxation
and the prevention of fiscal evasion with respect to taxes on income (and on capital) could be
defined in terms of its purpose. First, a tax treaty is intended to promote international trade and
investment in several ways, the most important of which is by allocating taxing jurisdiction
between the Contracting States so as to eliminate or mitigate double taxation of income.
Second, a tax treaty is intended to permit the Contracting States to better enforce their domestic
laws so as to reduce tax evasion. These purposes are in fact incorporated in the title and the
preamble.
23) What are the effective Philippine tax treaties?
The Philippines has thirty-seven (37) effective tax treaties. The following tax treaties and their
dates of effectivity as as follows:
Effective Philippine Tax Treaties (as of June 2010)
Country
Date of
Effectivity
1. Australia
2. Austria
3. Bahrain
4. Bangladesh
5. Belgium
6. Brazil
7. Canada
8. China
9. Czech
11. Finland
12. France
13. Germany
14. Hungary
15. India
16. Indonesia
17. Israel
18. Italy
19. Japan
20. Korea
21. Malaysia
22. Netherlands
24. Norway
25. Pakistan
26. Poland
27. Romania
28. Russia
29. Singapore
30. Spain
32. Switzerland
33. Thailand
37. Vietnam
24) What office can we inquire about the said tax treaties?
The International Tax Affairs Division (ITAD).
25) What taxes are covered by Philippine tax treaties?
Income taxes imposed by the domestic laws of the Contracting States, including substantially
similar taxes that may be imposed later, in addition to, or in place, are covered by the tax
treaties. In the Philippines, this is generally limited to Title II (Tax on Income) of the National
Internal Revenue Code of 1997, as amended.
26) How is business income treated under our tax treaties?
The business profits of a resident of a Contracting State shall not be taxable in the Philippines
unless that enterprise of a resident of a Contracting State carries on business in the Philippines
through a permanent establishment.
27) What is the concept of permanent establishment (PE) as used in tax treaties?
PE is defined as a fixed place of business through which the business of the enterprise is wholly
or partly carried on. The concept of permanent establishment is used to determine the rights of
a Contracting State to tax the business profits of enterprises of the other Contracting State.
Under this concept, profits of an enterprise of a Contracting State are not taxable by the other
Contracting State, unless the enterprise carries on business through a permanent establishment
situated in the other Contracting State.
A list of places, circumstances, and activities which constitute a permanent establishment is
provided under the different tax treaties which the Philippines has with other countries.
28) What is the Most-Favored-Nation clause (MFN)?
The appearance of the MFN clause in the tax treaty means that a Contracting State will grant to
a resident of the other Contracting State the same lower rate of tax or exemption the former has
granted to a resident of a third State.
29) What is the tax treatment on immovable property?
Income from an immovable property is taxable in the Contracting State where the property is
situated. This term is generally defined under the domestic laws of the Contracting States.
However, this is further defined in the tax treaties.
30) How are capital gains taxed under our tax treaties?
Gains from the alienation of immovable property or movable property forming part of the
business property of a permanent establishment or pertaining to a fixed base are taxed in the
Philippines if the immovable property or permanent establishment or fixed base is located here.
Description
d. Overseas dispatch, message or conversation transmitted from the Philippines, except those
transmitted by the Philippine government, any embassy
and consular offices of a foreign government, public international organizations enjoying
exemptions pursuant to an international agreement and new
messages to a bona fide correspondent furnishing general news service
e. Banks and non-bank financial intermediaries performing quasi-banking functions
f. Other non-bank financial intermediaries (including pawnshops)
g. Person, company or corporation (except purely cooperative companies or associations) doing
life insurance business
h. Fire, marine or miscellaneous agents of foreign insurance companies
I. Proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and racetracks,
including videoke bars, karaoke bars, karaoke televisions, karaoke boxes and music lounges
cockpits,
boxing exhibitions
Percentage Tax Return For Transactions Involving Shares of Stocks Listed and Traded
Through the Local Stocks Exchange or Through Initial and/or Secondary Offering
Tax Form
BIR Form 2552 - Percentage Tax Return for Transactions Involving Shares of Stocks Listed and
Traded Through the Local Stocks Exchange or Through Initial and/or Secondary Public Offering
Tax Rates
Coverage
Basis
Tax Rate
3%
3%
International Carriers:
International air/shipping carriers doing business in
the Philippines
Franchise Grantees:
Gas and water utilities
Gross Receipts
2%
3%
Gross Receipts
10%
5%
1%
0%
7%
5%
5%
1%
2%
4%
5%
Cockpits
Gross receipts
18%
Gross receipts
18%
Boxing exhibitions
Gross receipts
10%
Gross receipts
15%
Gross receipts
30%
Winnings or 'dividends'
10%
4%
10%
Sale, Barter, Exchange of Shares of Stock Listed and Trased through the Local Stock Exchange or Through Initial Public
Offering
Sale, barter, exchange or other disposition of shares Gross selling price or gross value in money
of stock listed and traded through the Local Stock
Exchange other than the sale by a dealer of
securities [Sec. 127 (A)]
of 1%
Codal Reference
Up to 25%
4%
2%
Over 33 1/3%
1%
Description
Value-Added Tax is a form of sales tax. It is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in the Philippines and on importation of
goods into the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer,
transferee or lessee of goods, properties or services.
Who are required to file vat returns?
Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if
the aggregate amount of actual gross sales or receipts exceed One Million
Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00).
Any person, whether or not made in the course of his trade or business, who
imports goods
BIR Form 2550M - Monthly Value-Added Tax Declaration (February 2007 ENCS)
c. Register the sales invoices and official receipts as VAT-invoices or VAT official receipts for use
on transactions subject to VAT. (If there are other transaction not subject to VAT, a separate set
of non-VAT invoices or non-VAT official receipts need to be registered for use on transactions not
subject to VAT);
d. Filing of the Monthly Value-added Tax Declaration on or before the 20th day following the end
of the taxable month (for manual filers)/on or before the prescribed due dates enunciated in RR
No. 16-2005 (for e-filers) using BIR Form No. 2550M and of the Quarterly VAT Return on or
before the 25th day following the end of the taxable quarter using BIR Form No. 2550Q,
reflecting therein gross receipts (for seller of service)/ gross sales (for seller of goods) and
output tax (VAT on sales); purchases of goods and services made in the course of trade or
business/exercise of profession and input tax (VAT on purchases), other allowable tax credits as
in the case of advance VAT payment and VAT withheld by government payors, and VAT payable
or excess input VAT, whichever is applicable, with the accredited agent banks (AABs) of the BIR
or Revenue Collection Officers (RCOs) of the BIR (in areas without AAB), for returns with
payment, or with the RDO/LTDO having jurisdiction over the taxpayer (home RDO/LTDO), for
returns without payment. (The monthly VAT Declaration and the Quarterly VAT Return shall
reflect the consolidated total for all the taxable lines of activity and all the establishments - head
office and branches);
e. Submit with the RDO/LTDO having jurisdiction over the taxpayer, on or before the deadline set
in the filing of the Quarterly VAT Return, the soft copy of the Quarterly Schedule of Monthly
Sales and Output Tax (if the quarterly sales exceed P2,500,000.00), and the soft copy of the
Quarterly Schedule of Monthly Domestic Purchases and Input Tax/ the soft copy of the
Schedule of Transactional/Individual Importation ( if the quarterly total purchases exceed
P1,000,000.00), reflecting therein the required data prescribed under existing revenue
issuances.
How do we determine the main or principal business of a taxpayer who is engaged in
mixed business activities?
In determining the main or principal business of a taxpayer, we apply the predominance test.
Under this test, if more than fifty (50%) of its gross sales and/or gross receipts comes from its
business/es subject to VAT, its main/principal business falls within the VAT system making its
status as a VAT person. Otherwise, he can not be considered as a VAT person eligible for the
election provided for under Section 109(2) of the Tax Code.
What is the liability of a taxpayer becoming liable to VAT and did not register as such?
Any person who becomes liable to VAT and fails to register as such shall be liable to pay the
output tax as if he is a VAT-registered person, but without the benefit of input tax credits for the
period in which he was not properly registered.
Who may opt to register as VAT and what will be his liability?
1. Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT
may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with the RDO that has
jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for
every separate and distinct establishment.
2. Any person who is VAT-registered but enters into transactions which are exempt from VAT
(mixed transactions) may opt that the VAT apply to his transactions which would have been
exempt under Section 109(1) of the Tax Code, as amended [Sec. 109(2)].
3. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business
covered by the law granting the franchise may opt for VAT registration. This option, once
exercised, shall be irrevocable. (Sec. 119, Tax Code).
4. Any person who elects to register under optional registration shall not be allowed to cancel his
registration for the next three (3) years.
The above-stated taxpayers may apply for VAT registration not later than ten (10) days before
the beginning of the calendar quarter and shall pay the registration fee unless they have already
paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for
administrative reason deny any application for registration. Once registered as a VAT person, the
taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day
of the month following registration.
What are the instances when a VAT-registered person may cancel his VAT registration?
1. If he makes a written application and can demonstrate to the commissioner's satisfaction that
his gross sales or receipts for the following twelve (12) months, other than those that are exempt
under Section 109 (A) to (U), will not exceed one million five hundred thousand pesos
(P1,500,000.00); or
2. If he has ceased to carry on his trade or business, and does not expect to recommence any
trade or business within the next twelve (12) months.
When will the cancellation for registration be effective?
The cancellation for registration will be effective from the first day of the following month the
cancellation was approved.
What is the invoicing/ receipt requirement of a VAT-registered person?
A VAT registered person shall issue :
1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. A VAT official receipt for every lease of goods or properties and for every sale, barter or
exchange of services.
May a VAT-registered person issue a single invoice/ receipt involving VAT and Non-VAT
transactions?
Yes. He may issue a single invoice/ receipt involving VAT and non-VAT transactions provided
that the invoice or receipt shall clearly indicate the break-down of the sales price between its
taxable, exempt and zero-rated components and the calculation of the Value-Added Tax on each
portion of the sale shall be shown on the invoice or receipt.
May a VAT- registered person issue separate invoices/ receipts involving VAT and NonVAT transactions?
Yes. A VAT registered person may issue separate invoices/ receipts for the taxable, exempt, and
zero-rated component of its sales provided that if the sales is exempt from value-added tax, the
term "VAT-EXEMPT SALE" shall be written or printed prominently on the invoice or receipt and if
the sale is subject to zero percent (0%) VAT, the term "ZERO-RATED SALE" shall be written or
printed prominently on the invoice or receipt.
How is the Value-Added Tax presented in the receipt/ invoice?
The amount of the tax shall be shown as a separate item in the invoice or receipt.
Sample:
Sales Price
VAT
Invoice Amount
P 100,000.00
12,000.00
112,000.00
What is the information that must be contained in the VAT invoice or VAT official receipt?
1. Name of Seller
14. Authority to Print Receipt Number at the lower left corner of the invoice or receipt.
What is the liability of a taxpayer not registered as VAT and issues a VAT invoice/ receipt?
The non-VAT registered person shall, in addition to paying the percentage tax applicable to his
transactions, be liable to VAT imposed in Section 106 or 108 of the Tax Code without the benefit
of any input tax credit plus 50% surcharge on the VAT payable (output tax). If the invoice/
receipts contain the required information, purchaser shall be allowed to recognize an input tax
credit.
What is the liability of a VAT-registered person in the issuance of a VAT invoice/ receipt
for VAT-exempt transactions?
If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt
transaction but fails to display prominently on the invoice or receipt the words "VAT-EXEMPT
SALE", the transaction shall become taxable and the issuer shall be liable to pay the VAT
thereon. The purchaser shall be entitled to claim an input tax credit on his purchase.
What is "output tax"?
Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or
services by any person registered or required to register under Section 236 of the Tax Code.
What is "input tax"?
Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local
purchase of goods, properties or services, including lease or use of property in the course of his
trade or business. It shall also include the transitional input tax determined in accordance with
Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and intangible objects, which are capable
of pecuniary estimation and shall include, among others:
a. Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade
or
business;
b. The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
c. The right or privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
d. The right or the privilege to use motion picture films, films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.
What comprises "sale or exchange of services"?
The term "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, whether in kind or in cash,
including those performed or rendered by the following:
a. Construction and service contractors;
b. Stock, real estate, commercial, customs and immigration brokers;
c. Lessors of property, whether personal or real;
d. Persons engaged in warehousing services;
e. Lessors or distributors of cinematographic films;
f. Persons engaged in milling, processing, manufacturing or repacking goods for others;
g. Proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns,
resorts, theatres, and movie houses;
h. Proprietors or operators of restaurants, refreshment parlors, cafes, and other eating places,
including clubs and caterers;
i. Dealers in securities;
j. Lending investors;
k. Transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative to their
transport of goods or cargoes;
l. Common carriers by air and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines;
m. Sales of electricity by generation, transmission, and/or distribution companies;
n. Franchise grantees of electric utilities, telephone and telegraph, radio and/or television
broadcasting and all other franchise grantees, except franchise grantees of radio and/or
television broadcasting whose annual gross receipts of the preceding year do not exceed Ten
Million Pesos (P10,000,000.00), and franchise grantees of gas and water utilities;
o. Non-life insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and
p. Similar services regardless of whether or not the performance thereof calls for the exercise of
use of the physical or mental faculties.
The phrase "sale or exchange of services" shall likewise include:
a. The lease of use of or the right or privilege to use any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
b. The lease or the use of, or the right to use of any industrial, commercial or scientific
equipment;
c. The supply of scientific, technical, industrial or commercial knowledge or information;
d. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means
of enabling the application or enjoyment of any such property, or right or any such knowledge or
information;
e. The supply of services by a nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such non-resident person;
f. The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking, venture,
project or scheme;
g. The lease of motion picture films, films, tapes and discs; and
h. The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.
The following services performed in the Philippines by VAT-registered person shall be subject to
zero percent (0%) rate:
a. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);
b. Services other than processing, manufacturing or repacking rendered to a person engaged in
business conducted outside the Philippines or to a non-resident person engaged in business
who is outside the Philippines when the services are performed, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
c. Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such
services to zero percent (0%) rate;
d. Services rendered to persons engaged in international shipping or air transport operations,
including leases of property for use thereof; Provided, however, that the services referred to
herein shall not pertain to those made to common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the Philippines to another place in
the Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax
Code starting Feb. 1, 2006;
e. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of
total annual production;
f. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a
foreign country. Gross receipts of international air carriers doing business in the Philippines and
international sea carriers doing business in the Philippines are still liable to a percentage tax of
three percent (3%) based on their gross receipts as provided for in Sec. 118 of the Tax Code but
shall not be liable to VAT; and
g. Sale of power or fuel generated through renewable sources of energy such as, but not limited
to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other shipping
sources using technologies such as fuel cells and hydrogen fuels; Provided, however that zerorating shall apply strictly to the sale of power or fuel generated through renewable sources of
energy, and shall not extend to the sale of services related to the maintenance or operation of
plants generating said power .
The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
a. Export sales
c. Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned. Consigned goods returned by the consignee within the 60-day period
are not deemed sold;
d. Retirement from or cessation of business, with respect to all goods on hand, whether capital
goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation,
whether or not the business is continued by the new owner or successor. The following
circumstances shall, among others, give rise to transactions "deemed sale";
exchange, accompanying such persons, or arriving within ninety (90) days before or after their
arrival, upon the production of evidence satisfactory to the Commissioner of Internal Revenue,
that such persons are actually coming to settle in the Philippines and that the change of
residence is bonafide;
e. Services subject to percentage tax under Title V of the Code, as amended;
f. Services by agricultural contract growers and milling for others of palay into rice, corn into
grits, and sugar cane into raw sugar;
g. Medical, dental, hospital and veterinary services except those rendered by professionals;
h. Educational services rendered by private educational institutions duly accredited by the
Department of Education (DepED), the Commission on Higher Education (CHED) and the
Technical Education and Skills Development Authority (TESDA) and those rendered by the
government educational institutions;
i. Services rendered by individuals pursuant to an employer-employee relationship;
j. Services rendered by regional or area headquarters established in the Philippines by
multinational corporations which act as supervisory, communications and coordinating centers
for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive
income from the Philippines;
k. Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws except those granted under P.D. No. 529 - Petroleum
Exploration Concessionaires under the Petroleum Act of 1949;
l. Sales by agricultural cooperatives duly registered and in good standing with the Cooperative
Development Authority (CDA) to their members, as well as of their produce, whether in its
original state or processed form, to non-members, their importation of direct farm inputs,
machineries and equipment, including spare parts thereof, to be used directly and exclusively in
the production and/or processing of their produce;
m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered
and in good standing with the Cooperative Development Authority;
n. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in
good standing with CDA; Provided, that the share capital contribution of each member does not
exceed Fifteen Thousand Pesos (P15,000.00) and regardless of the aggregate capital and net
surplus ratably distributed among the members;
commissioning, as follows: (a) for passenger and/or cargo vessel, the age limit is fifteen (15)
years old, (b) for tankers, the age limit is ten (10) year old, and (c) for high-speed passengers
crafts, the age limit is five (5) years old; Provided, finally, that exemption shall be subject to the
provisions of Section 4 of Republic Act No. 9295, otherwise known as "The Domestic Shipping
Development Act of 2004";
t. Importation of life-saving equipment, safety and rescue equipment and communication and
navigational safety equipment, steel plates and other metal plates including marine-grade
aluminum plates, used for shipping transport operations; Provided, that the exemption shall be
subject to the provisions of Section 4 of Republic Act No. 9295, otherwise known as "The
Domestic Shipping Development Act of 2004".
u. Importation of capital equipment, machinery, spare parts, life-saving and navigational
equipment, steel plates and other metal plates including marine-grade aluminum plates to be
used in the construction, repair, renovation or alteration of any merchant marine vessel operated
or to be operated in the domestic trade. Provided, that the exemption shall be subject to the
provisions of Section 19 of Republic Act No. 9295, otherwise known as the "The Domestic
Shipping Development Act of 2004".
v. Importation of fuel, goods and supplies engaged in international shipping or air transport
operations; Provided, that the said fuel, goods and supplies shall be used exclusively or shall
pertain to the transport of goods and/or passenger from a port in the Philippines directly to a
foreign port, or vice-versa, without docking or stopping at any other port in the Philippines unless
the docking or stopping at any other Philippine port is for the purpose of unloading passengers
and/or cargoes that originated form abroad, or to load passengers and/or cargoes bound for
abroad; Provided, further, that if any portion of such fuel, goods or supplies is used for purposes
other that the mentioned in the paragraph, such portion of fuel, goods and supplies shall be
subject to 12% VAT;
w. Services of banks, non-bank financial intermediaries performing quasi-banking functions,
and other non-bank financial intermediaries, such as money changers and pawnshops, subject
to percentage tax under Sections 121 and 122, respectively of the Tax Code; and
x. Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do
not exceed the amount of One Million Five Hundred Thousand Pesos (P1,500,000.00).
Provided, that not later than January 31, 2009 and every three (3) years thereafter, the amount
of P1,500,000.00 shall be adjusted to its present value after using the Consumer Price Index, as
published by the NSO.
What are the previously exempt transactions that are now subject to VAT?
Medical services
professionals;
Legal services;
Petroleum products;
such
as
dental
&
veterinary
services
rendered
by
VAT taxpayers with quarterly total purchases (net of VAT) of goods and services, including
importation exceeding One Million Pesos (P1,000,000.00) are required to submit Summary List
of Purchases.
What are the Summary Lists required to be submitted?
III. What is the treatment for Withholding of VAT on Government Money Payments?
Sections 106 and 108 of the Tax Code, deduct and withhold a Final VAT
due at the rate of five percent (5%) of the gross payment.
The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller.
The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of
goods or services to government or any of its political subdivisions, instrumentalities or agencies
including GOCCs in lieu of the actual input VAT directly attributable or ratably apportioned to
such sales. Should actual input VAT attributable to sales to government exceeds seven percent
(7%) of gross payments, the excess may form part of the sellers' expense or cost. On the other
hand, if actual input VAT attributable to sale to government is less than seven percent (7%) of
gross payment, the difference must be closed to expense or cost.
IV. In what grounds can the Commissioner of Internal Revenue suspend the business
operations of a taxpayer?
The Commissioner or his authorized representative is empowered to suspend the business
operations and temporarily close the business establishment of any person for any of the
following violations:
(a) In the case of a VAT-registered Person:
Description
Withholding Tax on Compensation is the tax withheld from income payments to individuals
arising from an employer-employee relationship.
Expanded Withholding Tax is a kind of withholding tax which is prescribed on certain income
payments and is creditable against the income tax due of the payee for the taxable quarter/year
in which the particular income was earned.
Final Withholding Tax is a kind of withholding tax which is prescribed on certain income
payments and is not creditable against the income tax due of the payee on other income subject
to regular rates of tax for the taxable year. Income Tax withheld constitutes the full and final
payment of the Income Tax due from the payee on the particular income subjected to final
withholding tax.
Withholding Tax on Government Money Payments (GMP) - Percentage Taxes - is the tax
withheld by National Government Agencies (NGAs) and instrumentalities, including governmentowned and controlled corporations (GOCCs) and local government units (LGUs), before making
any payments to non-VAT registered taxpayers/suppliers/payees
Withholding Tax on GMP - Value Added Taxes (GVAT) - is the tax withheld by National
Government Agencies (NGAs) and instrumentalities, including government-owned and
controlled corporations (GOCCs) and local government units (LGUs), before making any
payments to VAT registered taxpayers/suppliers/payees on account of their purchases of goods
and services.
Monetized unused vacation leave credits of private employees not exceeding ten (10) days
during the year;
Monetized value of vacation and sick leave credits paid to government officials and employees.
Medical cash allowance to dependents of employees, not exceeding P750.00 per employee
per semester or P125.00 per month;
Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than
P1,500;
Uniform and clothing allowance not exceeding P5,000 per annum;
Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs,
annual medical/executive check-up, maternity assistance, and routine consultations, not
exceeding P10,000 per annum;
Laundry allowance not exceeding P300.00 per month;
Employees achievement awards, e.g., for length of service or safety achievement, which must
be in the form of a tangible personal property other than cash or gift certificate, with an annual
monetary value not exceeding P10,000 received by the employee under an established written
plan which does not discriminate in favor of highly paid employees;
Gifts given during Christmas and major anniversary celebration not exceeding P5,000.00 per
employee per annum;
Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five
percent (25%) of the basic minimum wage on a per region basis;
6) What is substituted Filing of income tax returns (ITR)?
Substituted Filing of ITR is the manner by which declaration of income of individuals receiving
purely compensation income the taxes of which have been withheld correctly by their employers.
Instead of the filing of Individual Income Tax Return (BIR Form 1700), the employers annual
information return (BIR Form No. 1604-CF) duly stamped received by the BIR may be
considered as the substitute Income Tax Return (ITR) of the employee, inasmuch as the
information provided therein are exactly the same information required to be provided in his
income tax return (BIR Form No. 1700). However, said employees may still file ITR at his/her
option.
7) Who are qualified to avail of the substituted filing of ITR?
Employees who satisfies all of the following conditions:
a. Receiving purely compensation income regardless of amount;
b. Working for only one employer in the Philippines for the calendar year;
c. Tax has been withheld correctly by the employer (tax due equals tax withheld);
d. The employees spouse also complies with all three (3) conditions stated above.
e. The employer files the annual information return (BIR Form No. 1604-CF)
f. The employer issues BIR Form No. 2316 to each employee.
Note: For those employees qualified under the substituted filing, the employer
8) What income payments are subject to Expanded Withholding Tax?
a) Professional fees / talent fees for services rendered by the following:
- Those individually engaged in the practice of professions or callings such as lawyers; certified
public accountants; doctors of medicine; architects; civil, electrical, chemical, mechanical,
structural, industrial, mining, sanitary, metallurgical and geodetic engineers; marine surveyors;
doctors of veterinary science; dentist; professional appraisers; connoisseurs of tobacco;
actuaries; interior decorators, designers, real estate service practitioners (RESPs), (i. e. real
estate consultants, real estate appraisers and real estate brokers) requiring government
licensure examination given by the Real Estate Service pursuant to Republic Act No. 9646 and
all other profession requiring government licensure examinations and/or regulated by the
Professional Regulations Commission, Supreme Court, etc.
- Professional entertainers such as but not limited to actors and actresses, singers, lyricist,
composers and emcees
- Professional athletes including basketball players, pelotaris and jockeys
- Directors and producers involved in movies, stage, radio, television and musical productions
- Insurance agents and insurance adjusters
- Management and technical consultants
- Bookkeeping agents and agencies
- Other recipient of talent fees
- Fees of directors who are not employees of the company paying such fees whose duties are
confined to attendance at and participation in the meetings of the Board of Directors
b) Professional fees, talent fees, etc for services of taxable juridical persons
c) Rentals:
- Rental of real property used in business
- Rental of personal properties in excess of P 10,000 annually
- Rental of poles, satellites and transmission facilities
- Rental of billboards
d) Cinematographic film rentals and other payments
e) Income payments to certain contractors
- General engineering contractors
- General building contractors
- Specialty contractors
- Other contractors like:
1. Filling, demolition and salvage work contractors and operators of mine drilling apparatus
2. Operators of dockyards
3. Persons engaged in the installation of water system, and gas or electric light, heat or power
4. Operators of stevedoring, warehousing or forwarding establishments
5. Transportation Contractors
6. Printers, bookbinders, lithographers and publishers, except those principally engaged in the
publication or printing of any newspaper, magazine, review or bulletin which appears at regular
intervals, with fixed prices for subscription and sale
7. Advertising agencies, exclusive of payments to media
8. Messengerial, janitorial, security, private detective, credit and/or collection agenciesand other
business agencies
9. Independent producers of television, radio and stage performances or shows
10. Independent producers of "jingles"
11. Labor recruiting agencies and/or labor-only contractors
12. Persons engaged in the installation of elevators, central air conditioning units, computer
machines and other equipment and machineries and the maintenance services thereon
13. Persons engaged in the sale of computer services, computer programmers, software
developer/designer, etc.
14. Persons engaged in landscaping services
15. Persons engaged in the collection and disposal of garbage
16. TV and radio station operators on sale of TV and radio airtime, and
17. TV and radio blocktimers on sale of TV and radio commercial spots
f) Income distribution to the beneficiaries of estates and trusts
g) Gross commissions of customs, insurance, stock, immigration and commercial brokers, fees
of agents of professional entertainers and real estate service practitioners (RESPs), (i. e. real
estate consultants, real estate appraisers and real estate brokers) who failed or did not take up
the licensure examination given by and not registered with the Real Estate Service under the
Professional Regulations Commission
h) Income payments to partners of general professional partnerships
i) Payments made to medical practitioners
j) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner
for the sale, exchange or transfer of real property classified as ordinary asset
k) Additional income payments to government personnel from importers, shipping and airline
companies or their agents
l) Certain income payments made by credit card companies
m) Income payments made by the top 20,000 private corporations to their purchase of goods
and services from local/resident suppliers other than those covered by other rates of withholding
n) Income payments by government offices on their purchase of goods and services, from
local/resident suppliers other than those covered by other rates of withholding
o) Commission, rebates, discounts and other similar considerations paid/granted to independent
and exclusive distributors, medical/technical and sales representatives and marketing agents
and sub-agents of multi level marketing companies.
p) Tolling fees paid to refineries
q) Payments made by pre-need companies to funeral parlors
r) Payments made to embalmers by funeral parlors
s) Income payments made to suppliers of agricultural products (suspended per RR 3-2004)
t) Income payments on purchases of mineral, mineral products and quarry resources
u) On gross amount of refund given by MERALCO to customers with active contracts as
classified by MERALCO;
v) Interest income on the refund paid through direct payment or application against customers'
billing by other electric Distribution Utilities in accordance with the rules embodied in ERC
Resolution No. 8 series of 2008 dated June 4, 2008 governing the refund of meter deposits
which was approved and adopted by ERC in compliance with the mandate of Article 8 of the
Magna Carta for Residential Electricity Consumers and Article 3.4.2 of DSOAR exempting all
electricity consumers, whether residential or non-residential from the payment of meter deposit.
w) Income payments made by the top 5,000 individual taxpayers to their purchase of goods and
services from their local/resident suppliers other than those covered by other rates of
withholding
x) Income payments made by political parties and candidates of local and national elections of
all their campaign expenditures, and income payments made by individuals or juridical persons
for their purchases of goods and services intended to be given as campaign contribution to
political parties and candidates
y) Interest Income derived from any other debt instruments not within the coverage of deposit
substitutes and RR No. 14-2012
z) Income payments subject to Withholding Tax received by Real Estate Investment Trust (REIT)
(Sec.12 of RR No. 13-2011)
9) What income payments are subject to Final Withholding Tax?
a) Income Payments to a Citizen or to a Resident Alien Individual:
- Interest on any peso bank deposit
- Royalties
- Prizes [except prizes amounting to P10,000 or less which is subject to tax under Sec. 24(A)(1)
of the Tax Code]
- Winnings (except winnings from Philippine Charity Sweepstake Office and Lotto)
- Interest income on foreign currency deposit
- Interest income from long term deposit (except those with term of five years or more)
- Cash and/or property dividends
- Capital Gains presumed to have been realized from the sale, exchange or other disposition of
real property
- Income derived by a depository bank under the FCDU from foreign transactions with local
commercial banks
- On capital gains presumed to have been realized from the sale, exchange or other disposition
of real property located in the Philippines classified as capital assets, including pacto de retro
sales and other forms of conditional sales based on the gross selling price or fair market value
as determined in accordance with Sec. 6(E) of the NIRC, whichever is higher
f) Income Payments to a Resident Foreign Corporation
- Offshore Banking Units
- Tax on branch Profit Remittances
- Interest on any currency bank deposits and yield or any other monetary benefit from deposit
substitute and from trust funds and similar arrangements and royalties derived from sources
within the Philippines
- Interest income on FCDU
- Income derived by a depository bank under the expanded foreign currency deposits system
from foreign currency transactions with local commercial banks
g) Income Derived from all Sources Within the Philippines by a Non-Resident Foreign
Corporation
- Gross income from all sources within the Philippines such as interest, dividends, rents,
royalties, salaries, premiums (except re-insurance premiums), annuities, emoluments or other
fixed determinable annual, periodic or casual gains, profits and income or capital gains;
- Gross income from all sources within the Philippines derived by a non-resident
cinematographic film owner, lessor and distributor
- On the gross rentals, lease and charter fees derived by a non-resident owner or lessor of
vessels from leases or charters to Filipino citizens or corporations as approved by the Maritime
Industry Authority
- On the gross rentals, charter and other fees derived by a non-resident lessor of aircraft,
machineries and other equipment
- Interest on foreign loans contracted on or after August 1, 1986
h) Fringe Benefits Granted to the Employee (except Rank and File)
- Goods, services or other benefits furnished or granted in cash or in kind by an employer to an
individual employee (except rank and file) such as but not limited to the following:
- Housing
- Vehicle of any kind
- Interest on loans
- Expenses for foreign travel
- Holiday and vacation expenses
- Educational assistance to employees or his dependents
- Membership fees, dues and other expense in social and athletic clubs or other
- similar organizations
- Health insurance
i) Informers Reward
j) Cash or property dividends paid by a Real Estate Investment Trust (REIT) pursuant to Section
13 of RR 13-2011
10) Aside from the required withholding of income tax by government agencies and
instrumentalities on their payments to their suppliers of goods and services, what other tax types
must be withheld by them.
a) Value Added Tax on all income payments subject to VAT
b) Percentage Tax on all payments subject to percentage tax such as payments to the
following:
- Any person engaged in business whose gross sales or receipts do not exceed P1,919,500 (RR
3-2012) and who are not VAT-registered persons. (Persons exempt from VAT under Sec. 109V
of the Tax Code)
- Domestic carriers and keepers of garages, except owners of bancas and owners of animal
drawn two wheeled vehicle
- Operators of international carriers doing business in the Philippines.
- Franchise grantees of electric, gas or water utilities
- Franchise grantees of radio and/or television broadcasting companies whose gross annual
receipts of the preceding year do not exceed Ten Million (P10,000,000.00) Pesos and did not opt
to register as VAT Taxpayers
- Communication providers with regards to overseas dispatch, messages or conversation from
the Philippines
- Banks and non-bank financial intermediaries and finance companies
- Life insurance companies
- Agents of foreign insurance companies
- Proprietor, lessee, or operator of cockpits, cabarets, night or day clubs, videoke/karaoke bars,
karaoke television, karaoke boxes, music lounges and other similar establishments, boxing
exhibitions, professional basketball games, jai-alai and race tracks
- Winners in horse races or owner of winning race horses
- Every stock broker who effected a sale, barter, exchange or other disposition of shares of stock
listed and traded through the Local Stock Exchange (LSE) other than the sale by a dealer in
securities
- A corporate issuer/stock broker, whether domestic or foreign, engaged in the sale, barter,
exchange or other disposition through Initial Public Offering (IPO) /secondary public offering of
shares of stock in closely held corporations
11) Who is a withholding agent?
A withholding agent is any person or entity who is required to deduct and remit the taxes
withheld to the government.
12) What are the duties and obligations of the withholding agent?
The following are the duties and obligations of the withholding agent:
a) To Register - withholding agent is required to register within ten (10) days after acquiring such
status with the Revenue District office having jurisdiction over the place where the business is
located
b) To Deduct and Withhold - withholding agent is required to deduct tax from all money
payments subject to withholding tax
c) To Remit the Tax Withheld - withholding agent is required to remit tax withheld at the time
prescribed by law and regulations
d) To File Annual Return - withholding agent is required to file the corresponding Annual
Information Return at the time prescribed by law and regulations
e) To Issue Withholding Tax Certificates - withholding agent shall furnish Withholding Tax
Certificates to recipient of income payments subject to withholding
c) Annual income tax due of at least P200,000 for the preceding year;
d) Total percentage tax paid of at least P100,000 for the preceding year;
e) Gross sales of P10,000,000 and above for the preceding year;
f) Gross purchases of P5,000,000 and above for the preceding year;
g) Total excise tax payment of at least P100,000 for the preceding year.
14) What are the obligations of Top 20,000 Corporate Taxpayers?
a) In addition to the above responsibilities of a withholding agent, Top 20,000 private
corporations shall withhold the one percent (1%) creditable expanded withholding tax on the
purchase of goods and two percent (2%) on the purchase of services (other than those covered
by other withholding tax rates) from local suppliers where it regularly makes purchases.
However, casual purchase of goods shall not be subject to withholding tax unless the amount of
purchase at any one time involves P10,000 or more, in which case, it shall then be required to
withhold the tax. The same rule apply to local/resident supplier of services other than those
covered by separate rates of withholding tax. Provided, however, that for purchases involving
agricultural products in their original state, the tax required to be withheld shall only apply to
purchases in excess of the cumulative amount of P300,000 within the same taxable year. For
this purpose, agricultural products in their original state shall only include corn, coconut, copra,
palay, rice cassava, sugar cane, coffee, fruits, vegetables, marine food products, poultry and
livestocks.
b) Taxes withheld shall be remitted using BIR Form 1601-E on a monthly basis thru the use of
the Electronic Filing and Payment System (EFPS) on the dates prescribed for e-filers. Filing
shall be done on a staggered basis provided under RR 26-2002 and payment shall be made
every 15th day following the end of the month for Jan-Nov and Jan. 20 of the following year for
the month of December.
c) Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) shall be issued to the
payees within twenty (20) days following the close of such payees taxable quarter or upon
demand of the payees;
d) A list of regular supplier of goods and/or services shall be submitted on a semestral basis
through e-submission facility or as an attachment under Electronic Filing and Payment System
(EFPS). Deadline for submission of the list is not later than July 31 and January 31 of each year.
However, initial list of regular suppliers should be submitted within fifteen (15) days from actual
receipt hereof.
15) Who are considered TOP 5,000 Individual Taxpayers?
Top 5,000 Individual Taxpayers shall refer to individual taxpayers engaged in trade or business
or exercise of profession who have been determined and notified by the Bureau of Internal
Revenue (BIR) as having satisfied any of the following criteria:
a) VAT payment or payable whichever is higher, of at least P100,000 for the preceding year;
b) Annual income tax due of at least P200,000 for the preceding year;
c) Total percentage tax paid of at least P100,000 for the preceding year;
d) Gross sales of P10,000,000 and above for the preceding year;
e) Gross purchases of P5,000,000 and above for the preceding year;
f) Total excise tax payment of at least P100,000 for the preceding year.
16) What are the obligations of Top 5,000 Individual Taxpayers?
a) In addition to the obligations of a withholding agent, Top 5,000 Individual Taxpayers shall
withhold the one percent (1%) creditable expanded withholding on the purchase of goods and
two percent (2%) on the purchase of services (other than those covered by other withholding tax
rates) from local suppliers where it regularly makes purchases. However, casual purchase of
goods shall not be subject to withholding tax unless the amount of purchase at any one time
involves P10,000 or more, in which case, it shall then be required to withhold the tax. The same
rule apply to local/resident supplier of services other than those covered by separate rates of
withholding tax. Provided, however, that for purchases involving agricultural products in their
original state, the tax required to be withheld shall only apply to purchases in excess of the
cumulative amount of P300,000 within the same taxable year. For this purpose, agricultural
products in their original state shall only include corn, coconut, copra, palay, rice cassava, sugar
cane, coffee, fruits, vegetables, marine food products, poultry and livestocks.
b) Taxes withheld shall be remitted under BIR Form 1601-E on a monthly basis thru the
Electronic Filing and Payment System (EFPS) facility within the prescribed period.
c) Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) shall be issued to the
payees within twenty (20) days following the close of such payees taxable quarter or upon
demand of the payees;
d) A list of regular supplier of goods and/or services shall be submitted on a semestral basis
through e-submission facility or as an attachment under Electronic Filing and Payment System
(EFPS). Deadline for submission of the list is not later than July 31 and January 31 of each year.
However, initial list of regular suppliers should be submitted within fifteen (15) days from actual
receipt hereof.
17) Who are the responsible officials in the government offices charged with the duty to deduct,
withhold and remit withholding taxes?
The following officials are duty bound to deduct, withhold and remit taxes:
a) For Office of the Provincial Government-province- the Chief Accountant, Provincial Treasurer
and the Governor;
b) For Office of the City Government-cities- the Chief Accountant, City Treasurer and the City
Mayor;
c) For Office of the Municipal Government-municipalities- the Chief Accountant, Municipal
Treasurer and the Mayor;
d) Office of the Barangay-Barangay Treasurer and Barangay Captain
e) For NGAs, GOCCs and other Government Offices, the Chief Accountant and the Head of
Office or the Official holding the highest position.
BASIC CONCEPT:
APPLICABILITY:
Specific Tax refers to the excise tax imposed which is based on weight or volume
capacity or any other physical unit of measurement
Ad Valorem Tax refers to the excise tax which is based on selling price or other
specified value of the goods/articles
MANNER OF COMPUTATION:
Manufacturer
Producer
Owner or person having possession of articles removed from the
place of production without the payment of the tax
b. On Imported Articles
Others:
Importer
Owner
Person who is found in possession of articles which are exempt
from excise taxes other than those legally entitled to exemption
On Indigenous Petroleum
On domestic products
2014
2015
2016
2017
Remarks
2018
15%
15%
20%
20%
20%
20%
Php20
Php20
Php20
Php20.80
Php21.63
Effective
1/1/2016, the
specific tax
rate shall be
increased by
4% every
year
thereafter
proof liter
Php250
Php260
Php270.40
Php281.22
Php292.47
Php700
Php728
Php757.12
Php787.40
Php818.90
2)
Still
wines
and
carbonated wines containing
Php30.00
14% of alcohol by volume or
less
Php31.20
Php32.45
Php33.75
Php35.10
3)
Still
wines
and
carbonated wines containing
more than 14% (of alcohol Php60.00
by volume) but not more
25% of alcohol by volume
Php62.40
Php64.90
Php67.50
Php70.20
Effective
1/1/2014, the
specific tax
rate shall be
increased by
4% every
year
thereafter
Php15.00
Php17.00
Php19.00
Php21.00
Php23.50
Php20.00
Php21.00
Php22.00
Php23.00
Php23.50
NOTE:
Php29.12
Php30.28
Php31.50
Php32.76
Effective
1/1/2018, the
specific tax
rate shall be
increased by
4% every
year
thereafter
Effective
1/1/2014, the
specific tax
rate shall be
increased by
4% every
year
thereafter
B. TOBACCO PRODUCTS
PARTICULARS
2014
2015
2016
2017
Php1.82
Php1.89
Php1.97
Php2.05
Remarks
2018
onwards
Php1.75
Php1.75
Php1.82
Php1.89
Php1.97
Php2.05
Php1.75
Php1.82
Php1.89
Php1.97
Php2.05
2.
Chewing
tobacco
unsuitable for use in any other
manner
Php1.50
Php1.56
Php1.62
Php1.68
Php1.75
Effective
1/1/2014, the
specific tax
rate shall be
increased by
4% every year
thereafter
Effective
1/1/2014, the
specific tax
rate shall be
increased by
4% every year
thereafter
20%
20%
20%
20%
20%
Php5.00
Php5.20
Php5.41
Php5.62
Php5.85
Php21.00
Effective
1/1/2018, the
specific tax
Php30.00 rate shall be
increased by
4% every year
thereafter
Php12.00
Php15.00
Php18.00
2. Cigarettes packed by
machine, where the NRP
(excluding excise and VAT)
per pack is:
(a) Php11.50 and below
Php12.00 Php17.00
Php21.00
Php25.00
Php30.00
Php25.00
Php28.00
Php29.00
Php30.00
Php27.00
INSPECTION FEE - There shall be collected inspection fees on leaf tobacco, scrap, cigars,
Cigarettes and other manufactured tobacco and tobacco products as follows:
PRODUCT TYPE
INSPECTION FEE
(1) Cigars
(2) Cigarettes
C. PETROLEUM PRODUCTS
PRODUCT TYPE
TAX RATES
Lubricating oils and greases, including but not limited to base stock for
lube oils and greases, high vacuum distillates, aromatic extracts and
other similar preparations, and additives for lubricating oils and
greases, whether such additives are petroleum based or not
Processed gas
Denatured alcohol, if used for motive power [i.e. one hundred eighty
(180) proof ninety percent (90%) absolute alcohol]. Provided, that
unless otherwise provided by special laws, if the denatured alcohol is
mixed with gasoline, the excise tax which has already been paid, only
the alcohol content shall be subject to tax
Kerosene
Diesel fuel oil, and on similar fuel oils having more or less the same
generating power
Asphalt
Bunker fuel oil, and on similar fuel oils having more or less the same
generating power
TAX RATES
NOTE:
In the case of mineral concentrates not traded in commodity exchanges in the Philippines or abroad, such
as copper concentrate, the actual market value shall be the world price quotations of the refined mineral
products content thereof prevailing in the said commodity exchanges, after deducting the smelting, refining
and other charges incurred in the process of converting the mineral concentrates into refined metal traded
in those commodity exchanges.
On minerals and mineral products sold or consigned abroad, the actual cost of ocean freight and insurance
shall be deducted from the tax base.
E. AUTOMOBILES AND OTHER MOTOR VEHICLES
OVER
UP TO
RATE
P 600,000
2%
P600,000
P 1,100,000
P1,100,000
P2,100,000
P2,100,000
over
F. NON-ESSENTIAL GOODS
RMC 90-2012 Revised Tax Rates of Alcohol and Tobacco Products Under Republic Act No. 10351
RR 17-2012
Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco
Products Pursuant to the Provisions of Existing Revenue Regulations
RR 2-97
Revenue Regulations Governing Excise Taxation on Distilled Spirits, Wines and Fermented
Liquors
RR 3-2006
Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco
Products pursuant to the Provisions of Republic Act No. 9334, and Clarifying Certain
Provisions of Existing Revenue Regulations Relative Thereto
B. TOBACCO PRODUCTS
RMO 23-2013 Guidelines and Procedures for the Implementation of the Electronic Official Register Book
(eORB) System
RR 3-2013
Prescribing the Use of Electronic Official Register Book for Manufacturers of Tobacco
Products and Regulated Raw Materials
RMC 3-2013
RMC 90-2012 Revised Tax Rates of Alcohol and Tobacco Products Under Republic Act No. 10351
RR 17-2012
Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco
Products Pursuant to the Provisions of Existing Revenue Regulations
RR 3-2006
Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco
Products pursuant to the Provisions of Republic Act No. 9334, and Clarifying Certain
Provisions of Existing Revenue Regulations Relative Thereto
RR 1-97
C. Petroleum Products
RMC 50-2014 Reiteration and Clarification on the Requirement of Issuance of Withdrawal Certificate for
Every Removal of Petroleum or Petroleum Products
RR 2-2012
Tax Administration Treatment of Petroleum and Petroleum Products Imported into the
Philippines Including those Coming in Through Freeport Zones and Economic Zones and
Registration of All Storage Tanks, Facilities, Depots and Terminals
RR 8-2006
Prescribing the Implementing Guidelines on the Taxation and Monitoring of the Raw
Materials Used and the Bioethanol-Blended Gasoline (E-Gasoline) Produced under the Fuel
Bioethanol Program of the Department of Energy (DOE)
RR 8-96
An Act Restructuring the Excise Tax on Petroleum Products, Reclassifying Natural Gas and
Liquefied Natural Gas under Non-Metallic Mineral and Quarry Resources and Reducing the
Excise Tax on Indigenous Petroleum
RR 13-77
D. Miscellaneous Articles
D.1 automobiles:
RMO 21-2013 Amending the Provisions of Revenue Memorandum Order (RMO) No. 35-2002, as
Amended by RMO No. 20-2006 Prescribing the Guidelines and Procedures in the
Processing and Issuance of Authority to Release Imported Goods (ATRIG) for Excise Tax
Purposes
RMO 20-2006 Amendment to Certain Sections of RMO No. 35-2002
RMC 60-2003 Clarifying Certain Issues Raised Relative to the Implementation of Revenue Regulations
No. 25-2003 Governing the Imposition of Excise Tax on Automobiles Pursuant to Republic
Act No. 9224
RR 25-2003
RR 4-2003
RR 14-99
RR 14-97
Revenue Regulations Governing the Imposition of Excise Tax on Automobiles and Other
Motor Vehicles
RMC 17-2002 Green Cross Baby Cologne and All Other Cologne Products
RR 1-99
Rules and Regulations Implementing the Tax Incentives Provided under Section 3 (b) and
(d) of Republic Act No. 8502 Otherwise known as the Jewelry Industry Development Act of
1998
RR 8-84
E. MINERAL PRODUCTS
RR 7-2008 Taxation on the Sale to the Bangko Sentral ng Pilipinas of Gold and Other Metallic Mineral
Products Extracted or Produced by Small-scale Miners and further Amending Section 2.57.2 (t)
of Revenue Regulations No. 2-98, as amended
RR 13-94
Revenue Regulations Governing the Imposition of Excise Tax on Minerals and Mineral
Products
ALCOHOL PRODUCTS
141-143
TOBACCO PRODUCTS
144-147
PETROLEUM PRODUCTS
MISCELLANEOUS ARTICLES
MINERAL PRODUCTS
148
149-150
151