Individual Income Taxation Notes

INDIVIDUAL INCOME TAXATION
I.
TAXABLE INDIVIDUALS
A.
Resident Citizen (RC)

Section 1, Article IV, 1987 Constitution: The following are citizens of the Philippines 1. Those who are citizens of the Philippines at the time of the adoption of this Constitution;
2. Those who fathers or mothers are citizens of the Philippines;
3. Those born before January 17, 1973, of Filipino mothers, who elect Philippine citizenship upon reaching the age of majority;
and
4. Those who are naturalized in accordance with law.
You are considered as a resident of the Philippines if during the taxable year, you are domiciled in the Philippines. If you fall under
the definition of Citizen under the Constitution and if for the majority of the taxable year you are staying here in the Philippines,
then you can be considered as RC. Thus, you are taxable for your income both within and without.
B.
Income Within and Without (5% to 32% based on Net Income)
Non-resident Citizen (NRC)

Section 22(E), NIRC:
1. 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.
2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or f or
employment on a permanent basis.
3. 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.
4. A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the
taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for the taxable year in
which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the
Philippines.
5. The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently
abroad or to return to and reside in the Philippines as the case may be for purpose of this Section.
NOTE: A Filipino employed as a Philippine Embassy/Consulate service personnel of the Philippine Embassy/Consulate is not treated
as a non-resident alien, hence his income is taxable.
Income Within (5% to 32% based on Net Income)
Take note of the word immigrant. It means to say that you have decided to settle in that foreign country for good. On the other
hand, when you say employment on a permanent basis, it is not contractual but on a regular basis. Thus, seafarers in a vessel for
international transport do not fall under this classification because their employment is not on a permanent basis but rather on a
contractual basis. He may be considered as a NRC not under the second classification but under the third classification. When you
say most of the time, it does not mean it is permanent.
What is meant by the phrase most of the time? It means majority of the taxable year (i.e., 183 days or more). Meaning to say, if
you stayed abroad for 183 days or more, you can be classified as NRC. If you stayed in the Philippines for 183 days or more, you
can be classified as RC.
In the counting of the 183 days, we still follow the usual rule under the Civil Code. If the specific year and the specific name of the
month is indicated, then you will have to count the number of days per month (i.e., 28, 30 or 31). But if there is no indication of the
specific year and month, then more or less six months or more than six months.
Take note that it is 183 days or more AND NOT more than 183 days. Stated otherwise, at least 183 days.
Examples: Mr. X, a Filipino Citizen, for Year 2012:
January 1 to July 31 Philippines
July 31 Flight to HK
July 31 to December 31 HK
RC (classification for the entire taxable year) because his stay abroad is less than 183 days
Year 2013:
January 1 to December 31 Philippines
NRC (classification for the entire taxable year) because he stays abroad for the entire taxable year
Year 2014:
January 1 to May 31 HK
May 31 arrival in the Philippines
May 31 to December 31 Philippines
Apply Section 22(E)(4) hybrid classification
TAXATION 1 TRANSCRIPTIONS | EH403
NRC (taxable within) from January 1 to May 31

RC (taxable within and without) from May 31 to December 31
When you are a returning citizen, previously classified as NRC, and you want to permanently reside here in the
Philippines, during the taxable year when you return, a portion of your income earned abroad you will be treated as NRC;
while, the rest of your income earned in the Philippines, you will be considered as RC.
Question: What if he arrived in the Philippines on December 30? His classification will not be hybrid but he will be classifi ed as
NRC since he stayed abroad was for 183 days or more.
Year 2014:
January 1 to August HK
August return to the Philippines
NRC (automatic, since he stayed abroad for at least 183 days)
Do not apply Section 22(E)(4) but rather apply Section 22(E)(3)

NOTES:
Section 22(E)(4) will apply if during the return to the Philippines, he could have been classified already as RC. In other
words, if he stayed abroad for less than 183 days.
Section 22(E)(3) will apply if he stayed abroad most of the time or if his stay abroad is at least 183 days.
Year 2013:
If instead of staying in HK for the entire year, Mr. X returned to the Philippines in February
RC (classification for the entire taxable year)
You do not apply the rule under Section 22(E)(4) since he was not previously considered as NRC but rather as RC (refer
to the first example).
The counting of the 183 days is either continuous or aggregate (during the applicable taxable year).
C.
Resident Alien (RA)

Section 22(F), NIRC: A resident alien is an individual whose residence is within the Philippines and who is not a citizen thereof.
When can you say that you a resident alien? If you have a definite purpose of staying here in the Philippines and you are not yet a
citizen of Philippines.
It is important to distinguish RA from NRA because although they are both taxed for income within the Philippines, they differ on the
exemptions. The NRA do not have the same exemptions with the RA.
Some indicators that a person can be classified as RA:
Staying in the Philippines with a definite purpose (e.g., employment, business, education, if you are married to a Filipino)
Staying in the Philippines for one year or more (take note that this was used in one case and by some authors; however, this is
not a safe guideline and should not be the only factor to be considered in determining classification)
Tourist visa converted to another visa (i.e., 13-A or 13-G depending on whether you are employed or married to a Filipino)
If a foreigner is staying here in the Philippines for recreation and without a definite purpose, even if he has stayed for more than
one year, he will still be classified as NRA.
D.
Non-resident Alien (NRA)

1.
Non-resident Alien Engaged in Trade and Business (NRA-ETB)

Section 25(A)(1): A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of
more than one hundred eighty (180) days during any calendar year shall be deemed a 'nonresident alien doing business in the
Philippines', Section 22 (G) of this Code notwithstanding.
Take note that it is more than 180 days OR at least 181 days. Since an NRA has no definite purpose, there is a need to
determine the number of days he has been staying in the Philippines to verify if he can be classified as NRA-ETB. Unless he can
prove that he has a definite purpose in extending his stay in the Philippines, then that is the time you classify him as RA;
however, that is not automatic (i.e., documents should be submitted for support).
2.
Non-resident Alien Not Engaged in Trade and Business (NRA-NETB)
If your stay in the Philippines is 180 days or less and without a definite purpose, then you are classified as NRA-NETB.
Income Within (25% based on Gross Income)
E.
Special Employees
Employed by Special Corporations: Alien individuals employed as managers, supervisors or technical employees by special
corporations 1.
Regional Area Headquarters (RAHQ) of multinational corporations

Section 22(DD), NIRC: The term "regional or area headquarters" shall mean a branch established in the Philippines by
multinational companies and which headquarters do not earn or derive income from the Philippines and which act as
supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and
other foreign markets.
2.
used for supervision and to oversee the operations; it does not have its own income as it does not have its own
operations
Regional Operating Headquarters (ROHQ) of multinational corporations

Section 22(EE), NIRC: The term "regional operating headquarters" shall mean a branch established in the Philippines by
multinational companies which are engaged in any of the following services: general administration and planning; business
planning and coordination; sourcing and procurement of raw materials and components; corporate finance advisory services;
marketing control and sales promotion; training and personnel management; logistic services; research and development
services and product development; technical support and maintenance; data processing and communications; and business
development.
3.
Offshore banking units (OBU)
4.
has its own operations here in the Philippines and generates its own income
Examples: CitiBank, Standard Chartered Bank, Allied Bank
Petroleum service contractors
Examples: Chevron, Caltex

On the gross income in the Philippines of Aliens Employed by Regional Headquarters (RHQ) or Area
Headquarters and Regional Operation Headquarters (ROH), Offshore Banking Units, Petroleum Service
Contractor and Subcontractor
15%
NOTE: Filipinos can avail of the 15% special tax rate if:
They are employed in a position that is managerial AND technical; and
They can prove that no other foreign nationals qualify for such a position.
Why are these employees considered as special employees? Aside from being subjected to a special tax rate of 15%, they are
required to undergo a special registration with the SEC.
UPDATE: Revenue Regulation 11-2010
clarifies the position of the BIR in relation to Filipinos to be given the special tax rate
Filipinos employed by ROHQ and RAHQ in a managerial OR technical position shall have the option to be taxed at
either the 15% preferential tax rate or the normal income tax rates
it is the employee who has the option to avail of the 15% preferential tax rate; he must communicate his option to the
employer
Eligibility (all requisites must concur):
Position and Function Test The employee must occupy a managerial position OR technical position AND must
actually be exercising such managerial or technical functions pertaining to said position.
Compensation Threshold Test - In order to be considered a managerial or technical employee for income tax
purposes, the employee must have received, or is due to receive under a contract of employment, a gross annual
taxable compensation of at least P975,000 (whether or not this is actually received); Provided that, a change in
compensation as a consequence of which, such employee subsequently receiving less than the compensation
threshold stated shall, for the calendar year when the change becomes effective, result in the employee being
subject to the regular income tax rate.
at the beginning of the year, the employer must determine how much is the expected annual compensation of
the Filipino employed in a managerial or technical position in the ROHQ or RAHQ
NOTE: the P975,000 should have been increased as of 12/31/13 since the threshold amount is usually increased
but upon checking of the BIR website, there has been no increase provided.
Exclusivity Test - The Filipino managerial or technical employee must be exclusively working for the RHQ or ROHQ
as a regular employee and not just a consultant or contractual personnel. Exclusivity means having just one
employer at a time.
an employee who transfers employment from one ROHQ/RAHQ to another can still avail of the preferential tax
rate provided that employment with the two ROHQ/RAHQ is not simultaneous
if you are employed with an ROHQ/RAHQ and at the same time you have your own business, you cannot avail
of the 15% preferential tax rate; you need to apply the normal income tax rates and consolidate your income
Manner of computation: At the start of the year or at the start of the employee's employment, it is important to
determine whether the employee shall receive, or is due to receive under a contract of employment, a gross annual
compensation equivalent to or above P975,000. The determination should, as far as practicable, include both regular
taxable compensation income and supplementary compensation income.
compute the basic pay and the 13th month pay
The withholding tax regime applicable to employees who opted to subjected to the 15% final withholding tax rate is
different from the withholding tax on compensation imposable on regular employees.
For compensation income, it is creditable withholding tax. Thus, you will have to deduct the tax withheld from the
income tax due.
The 15% preferential tax rate is what we call as a final withholding tax. Thus, you do not need to deduct this from
the income tax due and you will need to file a separate return for this final withholding tax.
Imposition of Fringe Benefits Tax: The determinant test whether a Filipino employee has the option to avail of the
15% preferential rate as a manager or technical employee is independent of the criteria in the imposition of fringe
benefits tax under Section 33 of the Tax Code, as implemented by Revenue Regulations No. 3-98, as amended. Inasmuch
as the option to be subject to 15% preferential rate and the coverage of fringe benefits tax are independent of each
other, there would be instances where a Filipino employee shall enjoy a 15% preferential rate as a technical employee but
may not be covered by the fringe benefits tax not being a supervisory employee.
Meaning to say, if you are a technical employee of an ROHQ/RAHQ and you are receiving fringe benefits, you will not be
subjected to Fringe Benefits Tax. It will be subjected to income tax and form part of your taxable income provided it
exceeds the P30K threshold. Only those employees occupying managerial or supervisory position of an ROHQ/RAHQ will
be subjected to Fringe Benefits Tax of 15%.
Examples:
At the start of the year, Mr. A, a Filipino holding a managerial position in an RHQ, receives a monthly salary and cost of
living allowance in the amount of PhP70,000.00 and PhP7,000.00 respectively. His employment contract also states that
he may receive a performance bonus at the end of the year which amount is not presently determinable.
(P70,000 + P7,000) x 12 = P924,000
P924,000 plus P70,000 13th month pay = P994,000
Mr. A can avail of the 15% preferential tax rate

Question: Is it proper to assume that the 13th month pay is also given to managerial employees? Insofar as taxation is
concerned, we presume that managerial employees will be given 13th month pay.
Mr. X is employed by an ROHQ from January to June and is set to receive an annual salary of P1M. Mr. X resigned from
the first ROHQ and was employed by another ROHQ for the second half of the year with a salary exceeding the P975,000
threshold.
Mr. X can still avail of the 15% preferential tax rate for both first and second ROHQ.
There is no need to consolidate or annualize the gross income received from either the first ROHQ or the second
ROHQ since the annualized withholding tax method does not apply to the final withholding tax regime.
Ms. Y is employed as a secretary to a manager in an ROHQ with an annual salary of P1.5M.
Ms. Y cannot avail of the 15% preferential tax rate even though her salary exceeds the P975,000 threshold since she
is not holding a managerial or technical position.
Mr. A is employed as a manager in an ROHQ with an annual salary of P1M. He opted for the 15% preferential tax rate at
the start of the year. Subsequently, during the taxable year, the salary of Mr. X was decreased to P500K due to business
losses.
Mr. A should be taxed not using the 15% preferential tax rate but using the normal income tax rates.
An adjustment should be made at the end of the year subjecting the entire annual compensation of Mr. A to the
regular income tax rates.
Ms. A is employed as a technical employee in an ROHQ with an annual salary of P750,000. Ms. A subsequently resigned
and transferred to another ROHQ receiving an annual salary of P700,000.
Ms. A does not have the option to avail of the 15% preferential tax rate for the salary she received under both
employments. The gross income received by Ms. A shall be subject to the regular income tax rates.
The second ROHQ shall be required to annualize such regular income for purposes of making year-end adjustment
for withholding on compensation.
F.
Estates and Trusts
Estate: pertains to the properties of a deceased individual pending distribution to the heirs
Trust: pertains to the trusts in the bank wherein you have assets kept by the fiduciary for the benefit of the beneficiary (but
nevertheless, it is considered as assets of the deceased)
Note that what will be subjected to income tax will be the income of the estate and trust and not the estate or trust itself.
Example: Mr. Dico died on December 31, 2014
His estate is subject to Estate Tax.
The income earned by the estate will be subjected to income tax.
In the ITR, the estate will be the taxpayer but filed by the administrator (intestate) or executor (testate).
The estate is given a personal exemption of 20,000 with no additional exemption (reason: when the amount of personal
exemption was increased to 50,000 in RA 9504, the provision for estates and trusts was not included)
II.
INCOME TAX RATES

For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession
Amount of Net Taxable Income
Over
But Not Over
10,000
10,000
30,000
30,000
70,000
70,000
140,000
140,000
250,000
250,000
500,000
500,000
Rate
5%
P500 + 10% of the Excess over 10,000
P2,500 + 15% of the Excess over 30,000
P125,000 + 32% of the Excess over 500,000 in 2000 and onward
If your income is below 10,000, you will not be subjected to tax. But it does not necessarily mean that you dont have to file your ITR.
Even if you do not have a tax payable, especially if you have your business or you are practicing your profession, you still need to file ITR
and just indicate there that you earn income .below 10,000.
NOTE: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to b e paid at
the time the return is filed and the second installment on or before July 15 following the close of the calendar year with the Authorized
Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered. [Section 56(A)(1), NIRC]
Deadline of filing ITR for Individual taxpayers: 15th day of the fourth month following the taxable year. Thus, if your taxable year is 2014,
the deadline of filing your ITR is on April 15, 2015.
III.
INCLUSIONS (Gross Income for Individuals)

1.
Compensation Income
a.
Definition
This pertains to the income earned under and employer-employee relationship.

b.
Kinds
i.
Regular Compensation includes basic salary, fixed allowances for representation, transportation and other fixed
allowances paid by an employer to an employee
ii.
Supplemental Compensation includes payments to an employee in addition to the regular compensation such as but not
limited to the following:
Overtime Pay
Fees, including directors fees
Commission
Profit Sharing
Monetized Vacation and Sick Leave
Fringe Benefits received by rank and file employees
Hazard Pay
Taxable 13th month pay and other benefits
Other remunerations received from and employee-employer relationship
Take note that for the 13th month pay and other benefits, you have to remember the ceiling of 30K such that the first 30K
is exempted from tax but the amount in excess of the 30K ceiling will be subject to tax.
The supplemental compensation are given on top of the regular compensation. It differs from regular compensation in the
sense that the regular compensation involves a fixed amount; while, supplemental compensation does not involve a fixed
amount.
c.
Doctrine of Cash Equivalent
d.
Applicable to compensation which are being paid in kind

You need to determine the cash value of the property received
Examples of compensation in kind:
Promissory note
determine the face value of the note
if it is discounted, determine the discounted value of the note

Example: if ER pays EE with a promissory note for 10K and EE subsequently endorses or sells the
promissory note to his friend X for 9K, the discounted value of 9K will be considered instead of the 10K
face value
In determining the cash value of promissory notes, the safest rule is to determine the discounted value of
the promissory note that is the value given by the other individual to whom the promissory note was sold.
Stocks
This can be given in the form of stock options. These are options given by the employer to the employee to
become a shareholder of the corporation (i.e., that is to purchase the shares of stocks at a discounted or at a
lower price). The difference between the discounted price and the FMV of the shares of stock will be considered
as income on the part of the EE.
Since we are talking of ER-EE relationship, we dont use stock dividends, which are usually given to
stockholders.
Forgiveness of indebtedness
If due to liberality, not subject to income tax
If due to a service rendered, it will now be subject to income tax

Properties other than cash
Mode of Compensation Income Collection/Payment
The primary mode of collecting the compensation income is through withholding.

Pay the balance as you file the tax return, computed as follows:
Income Tax Due
Less: Withholding Tax
Net Income Tax Due
P___________
P___________
P___________
Take note that the Withholding Tax deducted from the Income Tax Due refers to the Creditable Withholding Tax and not the
Final Withholding Tax.
Substituted Filing of Income Tax Return (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. However, said employee may still
file ITR at his/her option.
Who can avail substituted filing? Employees who satisfy all of the following conditions:
Receiving purely compensation income regardless of amount
Working for only one employer in the Philippines for the calendar year
Tax has been withheld correctly by the employer (tax due equals tax withheld OR when the net income tax due is zero)
The employees spouse also complies with all the three conditions stated above
The employer files the annual information return (BIR Form No. 1604-CF)
The employer issues BIR Form No. 2316 to each employee
If you are a married individual taxpayer, the rule there is that you will file ITR separately (if both of you are earning income).
However, at the end of the taxable year, both your ITR will be consolidated. This is for the BIR to ascertain if the exemptions,
particularly the additional exemptions, have been correctly availed of. The additional exemption can only be availed of by one
of the spouse, generally, by the husband.
The BIR Form No. 2316 is actually a summary of the employees total earnings in the company less the exemptions and
deductions (e.g., leaves, absences, etc). It summarizes how much your is income tax payable as an individual, how much was
the income tax withheld and if ever you still have income tax due. For you to ascertain if your employer has correctly withheld
your income tax, your BIR Form No. 2316 must indicate a zero net income tax due
What if you have two employers? At the end of the taxable year, you need to consolidate your income from the two employers.
If you are earning compensation income and business income, you really need to file your ITR because you need to claim for
the deductions related to your business.
e.
Fringe Benefits
1.
Definition
Section 33(B), NIRC: any good, service or other benefit furnished or granted in cash or in kind by an employer to an
individual employee (except rank & file employees).
Take note that in the tax code, it only discusses of fringe benefits applicable to managerial and supervisory employees.
The fringe benefits discussed in the tax code do not pertain to fringe benefits to rank and file employees. This is because
for rank & file employees, the benefits that they receive usually form part of their supplemental income and other
benefits.
For fringe benefits given to rank & file employees, it forms part of the income subject to income tax, which is shouldered
by the employee. But when it comes to fringe benefits given to managerial and supervisory employees, it is subject to a
specific final tax rate known as the Fringe Benefits tax (32%) which is shouldered by the employer.
Why 32%? This is because managerial and supervisory employees are presumed to receive an annual salary exceeding
P500,000 which is taxed at 32% based on the graduated income tax schedule.
2.
Kinds of Fringe Benefits (HEVHIMEHEL)
Source: Revenue Regulation 3-98, as amended

a.
Housing
Case
Employer leases residential property for use of the
employee
Employer owns residential property which was
assigned to an officer for his user as residence
Employer purchases residential property on installment

basis and allows the employee to use the same as his
residence
Purchases residential property and transfers the
ownership to the employee
Purchases residential property and transfers ownership
thereof to his employee for the latters residential use
at a price less than the employers acquisition cost
Annual Value of
Benefit
5% of FMV of
land and
improvements
5% of acquisition
cost excluding
interest
-
Monetary Value of Benefit

(Monthly)
50% x Monthly rental paid by the
employer
50% x Monthly Value of the
Benefit *
*Monthly Value = Annual
Value/12months
50% x Monthly Value of the
Benefit
Acquisition cost or FMV
whichever is higher
FMV of CIR and FMV of Assessor,
whichever is higher minus the
cost of the employee
Exceptions:
i.
Housing privilege of officials of AFP, Philippine Navy and Philippine Air Force
Take note that the Philippine National Police is not included
ii. A housing unit which is situated inside or within the maximum fifty (50) meters from the perimeter of the
business premises or factory
In one case, the SC allowed up to 100meters because it was found out that it is hazardous to the health of
iii.
the employees if the housing unit is close to the factory.
Temporary housing for an employee who stays in a housing unit for three months or less
This is applicable to employees who travel
If the ownership of the housing unit is being transferred by the employer to the employee, 100% will be subjected to
Fringe Benefits Tax. If there is no transfer of ownership from the employer to the employee, then only 50% thereof
will be subjected to Fringe Benefits Tax.
b.
Expense account
This refers to personal expenses (e.g., groceries) or business expenses (e.g., meals) incurred by the employee which
are being shouldered by the employer. Take note that there is no maximum amount set, for as long as the expenses
are paid by the employer for the benefit of the employee, then it is subject to Fringe Benefits tax.
A managerial or supervisory employee can avoid Fringe Benefits Tax insofar as business expenses are concerned
when the following requirements are met: (1) the business expense must be in line with the trade or business or the
profession and it must be duly receipted in the name of the company or the name of the employer; and (2) it must
be subject or due for liquidation (i.e., there must be a liquidation report at the end of the engagement or at the end
of a specific period). If the two requisites are not met, the business expense will be subject to Fringe Benefits Tax.
c.
Vehicle of any kind
If the ownership of the motor vehicle is being transferred by the employer to the employee, the monetary value of
the benefit is 100%; thus, 100% will be subjected to Fringe Benefits Tax. If there is no transfer of ownership from
the employer to the employee, then the monetary value of the benefit will only be 50%; thus, only 50% will be
subjected to Fringe Benefits Tax.
The condition for this vehicle to be considered as fringe benefit is that it must be for the exclusive use of the
employee. Meaning to say, if it is being used as a carpool for other employees, then the fringe benefit will be divid ed
among the employees, although in some instances it may be exempted from Fringe Benefits tax.
Guidelines in valuation of Motor Vehicles:
Case
1
2
3
4
5
6
7
d.
Transaction
Purchases the motor vehicle in the name of the
employee
Provides the employee with cash for the purchase
of a motor vehicle in the name of the employee
Shoulders a portion of the amount of the purchase
price of a motor vehicle in the name of the
employee
Purchase the car on installment in the name of the
employee
Owns and maintains a fleet of motor vehicles for
the use of the business of the employees
Leases and maintains a fleet of motor vehicles for
the use of the business and the employees
The use of yacht whether owned and maintained
or leased by the employer
Monetary Value of Benefit

Acquisition cost
Amount of cash received by the employee
Amount shouldered by the employee
Acquisition cost (exclusive of interest) divided by
5 years
Acquisition cost of all motor vehicles not
normally used in business divided by 5 years x
50%
Amount of rental payment for motor vehicles not
normally used in business x 50%
Depreciation of yacht at an estimated useful life
of 20 years
Household personnel (e.g., maid, driver and househelp)
GR: it is subject to Fringe Benefits Tax

EXC: if the household personnel is included in the payroll of the company or the employer who employs the
managerial or supervisory employee
When it appears that the household personnel is being employed by the managerial or supervisory employee but the
one paying the salary of the household personnel is the company or employer, then it will be subjected to Fringe
Benefits Tax.
e.
Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate
granted
Example: EE is granted a loan by the ER amounting to P1M @ 5%

Determine first if the EE is a managerial/supervisory employee or a rank & file employee. If the EE is a
managerial or supervisory employee, it will be subjected to Fringe Benefits Tax. If the EE is a rank & file
employee, it will form part of his gross income subject to the graduated income tax rates.
The Fringe Benefits Tax pertains only to the difference between the market rate (12% as enunciated under
Revenue Regulation 3-98) and the interest rate granted by the ER to the EE.
FB = (12% - 5%) x P1,000,000 = P70,000
FBT = P70,000 x 32% = P22,400
Do not use the legal interest rate for forbearance of money of 6% since it is expressly stated in Revenue
Regulation 3-98 that the market rate will be 12% effective 1998 until another revenue regulation is passed
lowering the market rate.
f.
Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or
other similar organizations
g.
Expenses for foreign travel
GR: subject to Fringe Benefits Tax

EXC:
1. It must be a reasonable business expense and the purpose must be to attend business meetings or
conventions.
2. For inland travel expenses, it must not exceed the average of $300/day.
The inland travel expenses only pertains to transportation, food and beverage expenses and does not
include hotel or lodging expenses.
3. It must be duly supported by documents (e.g., program, invitation or certificate of attendance) proving the
actual occurrence of the convention or meeting.
4.
For the airfare

Commercial class: automatically exempted provided the first three requirements are met
Business class: only 70% is exempted from Fringe Benefits Tax; the remaining 30% will be subjected
to Fringe Benefits Tax
Note:
The travel expenses paid by the ER of the EEs family members who are allowed to travel by the ER with the EE
are automatically subject to Fringe Benefits Tax.
Lodging or hotel expenses are automatically subjected to Fringe Benefits Tax.

h.
Holiday and vacation expenses
i.
Educational assistance to employee or his dependents
i.
Educational assistance to the EE

EXC:
1. It must be directly related to the business or trade or the profession of the ER
2. There must be a contract between the ER and the EE for return service to be rendered by the EE
(lock-out contract or a return-service contract)
ii.
Educational assistance to the dependents of the EE

EXC:
1. There must be a scholarship program by the ER.
2. The dependent of the EE qualified for the scholarship program through competitive skills (e.g., taking
examinations or maintaining a certain grade).
j.
Life or health insurance and other non-life insurance premiums or similar accounts in excess of what the law allows
The phrase what the law allows pertains to SSS, GSIS and PhilHealth. Thus, such are not subject to Fringe Benefits
Tax.
3.
Computation of Fringe Benefits Tax

a.
b.
Burden of FBT: Employer

Grossed Up Monetary Value for:
i.
Special Employees subject to 15% Fringe Benefits Tax
ii. NRA-NETB subject to 25% Fringe Benefits Tax
Steps in the computation of Fringe Benefits Tax:

1) Compute for the Grossed Up Monetary Value
Grossed Up Monetary Value (GUMV) is the sum of the monetary value of the fringe benefit (FB) and the fringe
benefit tax (FBT). Thus, the value of the fringe benefit received by the employee is actually net already of the FBT.
This is because the law presumes that before the fringe benefit is received by the employee, the FBT has already
been paid or shouldered by the employer.
Formulas (normal employees):
GUMV (100%) = FB (68%) + FBT (32%)
GUMV = FB 68%
GUMV = FBT 32%
Formulas (special employees occupying managerial positions):
GUMV (100%) = FB (85%) + FBT (15%)
GUMV = FB 85%
GUMV = FBT 15%
Formulas (NRA-NETB):
GUMV (100%) = FB (75%) + FBT (25%)
GUMV = FB 75%
GUMV = FBT 25%
Take note that if the employee is a NRA-NETB, you do not look at the position anymore because the NRA-NETB is
subjected to a flat rate of 25%. The position and function test will only apply to special employees.
2)
Multiply the GUMV by 32%
Examples:
ER leases residential property for the use of the EE with a monthly rental of P13,600.
Monetary value of the FB is 50% of the monthly rental paid by the ER (refer to III.1.v.a).
FB = 50% x P13,600 = P6,800
GUMV = FB 68%
GUMV = P6,800 0.68 = P10,000
The P10,000 is the total benefit. However, the take home pay/benefit is only P6,800.
FBT = GUMV FB
FBT = P10,000 P6,800
FBT = P3,200
FBT = FB x 32%
FBT = P10,000 x 0.32
FBT = P3,200
OR
ER purchases a motor vehicle valued at P850,000 in the name of the special employee (i.e., there is transfer of
ownership)
Monetary value of the FB is 100% of the acquisition cost of the motor vehicle paid by the ER (refer to III.1.v.c).
FB = P850,000
GUMV = FB 85%
GUMV = P850,000 0.85 = P1,000,000
FBT = GUMV FB
FBT = P1,000,000 P850,000
FBT = P150,000
FBT = FB x 15%
FBT = P1,000,000 x 0.15
FBT = P150,000
OR
ER provides for housing benefit to NRA-NETB with transfer of ownership to the EE. The value of the house is P7.5M.
Monetary value of the FB is 100% of the value of the house (refer to III.1.v.a).
FB = P7,500,000
GUMV = FB 75%
GUMV = P7,500,000 0.75 = P10,000,000
FBT = GUMV FB
FBT = P10,000,000 P7,500,000
FBT = P2,500,000
4.
OR
FBT = FB x 25%
FBT = P10,000,000 x 0.25
FBT = P2,500,000
Exemptions from Fringe Benefit Tax

a.
De Minimis Benefits
These are facilities and privileges of relatively small value and are offered or furnished by the employer to his
employees merely as a means of promoting their health, goodwill, contentment or efficiency.
Notes:
You need to ascertain whether there exist an ER-EE relationship and whether it involves a relatively small value.
De Minimis benefits are granted to both managerial employees and rank & file employees. In the case of
managerial employees, such benefits are exempted from Fringe Benefits Tax; while, for rank & file employees,
these are exempted from income tax.
The benefits received in excess of the De Minimis benefits enumerated will be subjected to Fringe Benefits Tax
for managerial employees. In the case of rank & file employees, it will be exempt from income tax if it does not
exceed the P30,000 limit; otherwise, it will be subjected to the normal income tax rate of 5% to 32%.
The following shall be considered De Minimis benefits not subject to income tax, hence not subject to withholding
tax on compensation income of both managerial and rank & file employees:
i.
ii.
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
Note: For private employees, it only includes unused vacation leave credits not exceeding 10 days. For
government officials and employees, it includes both vacation and sick leave credits without mention of a
maximum number of days.
iii.
Medical cash allowance to dependents of employees, not exceeding P750.00 per employee per semester or
P125.00 per month;
Note: Maximum limit is P1,500 per annum / P750 per semester / P375 per quarter / P125 per month.
10
iv.
Rice subsidy of P1,500.00 or one (1) sack of 50kg. rice per month amounting to not more than P1,500.00;
Note: For rice subsidy, the maximum limit is only P1,500.

v.
Uniform and clothing allowance not exceeding P5,000 per annum;
Note: The maximum limit is set to P5,000 based on Revenue Regulation 8-2012. Usually, the uniform allowance
is provided once a year.
vi.
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;
Notes:
Maximum limit is P10K per annum / P5K per semester / P2,500 per quarter / P833.33 per month.
This is different from the medical cash allowance provided for under item iii. The medical cash allowance
under item iii is provided to the dependents of the employees; while, the actual medical assistance under
item vi is provided to the employee.
vii.
Laundry allowance not exceeding P300,00 per month;
Note: Maximum limit is P3,600 per annum / P1,800 per semester / P900 per quarter / P300 per month.
viii. 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;
Note: If the employer gives 5K or GC worth 5K to the employee as an achievement award, it will not be
considered as De Minimis benefit. The achievement award to be given to the employees must be a tangible
personal property other than cash or gift cerftificate.
ix.
x.
Gifts given during Christmas and major anniversary celebration not exceeding P5,000 per employee per annum;
Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum
wage on a per region basis.
Take note that there are two acceptable for the employee to avail of meal allowance considered as De Minimis
benefits: (1) if the employee is on overtime work; and (2) if the employee is on night/graveyard shift.
Important note: Flowers, fruits, books or similar items given to employees under special circumstances, e.g., on
account illness, marriage or birth of a baby, etc. are no longer considered as De Minimis benefits.
b.
Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefits
plan
This talks about a group plan taken by the employer for the benefit of the employees. In this case, there is no
specific employee who benefits from the contributions made by the employer. It is not subject to Fringe Benefits Tax
and there is no need to ascertain the beneficiary of the insurance.
It is only when an insurance is taken for a specific employee that you consider the assigned beneficiary to determine
if it is taxable or not.
c.
Example: Company X took an insurance policy on the life of President A.
If the beneficiary is Company X

It is not taxable on the part of President A since he is not the beneficiary; thus, there is no
inflow/income to be taxed.
It is not deductible on the part of Company X since there is no actual outflow. There is a return of the
payment made by the employer since it is the employer who is made as the beneficiary.
If the beneficiary is the estate of President A

It is taxable on the part of President A because there is an inflow on the part of the employee.
It is deductible on the part of Company X because there is an outflow on the part of the employer.
Employers convenience rule
This means that the benefit is given for the employer and not for the employee. Thus, it will not be subjected to
Fringe Benefits Tax.
If you are a managerial or supervisory employee and you are provided a housing unit by your employer, what are
the possible defenses that can be used so that you will not be subjected to Fringe Benefits Tax? (1) If it is in line
with the trade, business or profession of the employer; or (2) if it is made for the convenience of the employer and
not the employee.
11
One thing that you need to remember also under the Employers convenience rule is that your employer must have
his business, trade or profession. For example, Mr. X hires a driver and he provides lodging with a value of P3K plus
a salary of P10K. Will you add the P3K to the P10K to form part of the taxable income? It will depend on the
employer. If Mr. X has a business or is exercising profession, then you will not add the P3K. If Mr. X has no business
or is not exercising a profession, then you will have to add the P3K since you cannot apply the employers
convenience rule.
d.
2.
FB which are authorized or exempted from tax under special laws
Business or Professional Income
Discussion on deductions from business or professional income will be made when we reach the discussion on corporate taxpayers.
3.
Passive Income
Passive income is the income earned without the active participation by the person who earned the income. It is subject to Passive
Income Tax which is a final withholding tax. For passive income tax, the withholding agent is the payor or the one who paid the
income.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Types of Passive Income

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

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

On the gross amount of income derived from all sources within the Philippines
On capital gains presumed to have been realized from the exchange or other disposition of real property
located in the Phils.
On capital gains for shares of stock not traded in the stock exchange
Not over P100,000
Rate
25%
6%
5%
10%
Summary:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Passive Income
Royalties, in general
Royalties (literary works, books & musical
composition
Prizes (exceeding P10,000)
Winnings (except PCSO and lotto)
Interest, regular
Interest covered under FCDU
Interest for long-term deposits / savings /
trust
Dividends
Shares in taxable partnerships
RC
20%
10%
NRC
20%
10%
RA
20%
10%
NRA-ETB
20%
10%
NRA-NETB
25%
25%
20%
20%
20%
7.5%
-
20%
20%
20%
-
20%
20%
20%
7.5%
-
20%
20%
20%
-
25%
25%
25%
25%
10%
10%
10%
10%
10%
10%
20%
20%
25%
25%
Notes:
1. Royalties, in general
It must pertain to the royalties earned in the Philippines.
Examples:
Mr. X pays a royalty for the program created by Mr. Y.
The withholding agent is Mr. X since he paid the royalty. Thus, he will automatically withhold the 20% FBT and
will only pay the 80% net to Mr. Y.
The act of withholding the FBT by the payor is what we referred to in our previous discussion on deductible
items, i.e., the taxpayer must have withheld what is required by the law. In this case, Mr. X can deduct his
expense on royalties provided he withholds the 20% FBT on the royalties paid.
2.
Mr. X avails of a Belgian Waffle franchise. Mr. X pays a franchise or royalty to Belgian Waffle.
This case involves active income and not passive income. This is because Belgian Waffle is actively into the
franchising business. The transaction involved is not a one-time transaction but is done in the usual business of
Belgian Waffle. Thus, this will not be reported as passive income but will be reported as business income
subject to the normal income tax rates.
Mr. X is not required to withhold FBT from the royalties to be paid to Belgian Waffle.
Royalties (literary works, books & musical composition)

It must pertain to the royalties earned in the Philippines.
Why is a lower rate imposed? To encourage people to write literary works, books and musical compositions. Meaning to
say, 90% of the royalties will be paid to the composer/author.
3.
Prizes (exceeding P10,000)

For prizes amounting to P10K or less, it will not be subjected to a final tax rate for passive income but will be subjected to
the normal income tax rates indicated in the graduated income tax table (see page 5). Therefore, it will be added to your
other taxable income (e.g., compensation income or business income).
For prizes exceeding P10K, you will not add this to your compensation or business income since it will be subjected to
passive income tax and not the normal income tax rate.
4.
Winnings
Take note that only PCSO and lotto winnings are exempted from passive income tax.
Example: Ms. A goes to the US and wins in the lotto/sweepstakes. Are the winnings subject to passive income tax? No. It
will form part of her taxable income and will only be subjected to the normal income tax rates of 5% to 32% (assuming
Ms. A is a RC taxable within and without). It will be impossible to subject it to passive income tax since the payor, which
should be the withholding agent, is beyond our jurisdiction.
13
5.
Interest, regular
This refers to interest earned from your peso bank deposits or time deposits. The bank automatically withholds the tax for
the interest earned.
6.
Interest covered under Foreign Currency Deposit Unit (FCDU) or Foreign Currency Deposit System
This refers to the interest earned from foreign currency (other than peso) bank accounts. Non-resident individuals are
expressly exempted under the Tax Code. It is presumed that the interest is earned outside of the Philippines because
banks falling under the Foreign Currency Deposit System are banks having offshore units or branches outside of the
Philippines.
7.
Interest for long-term deposits/savings/trusts

Take note that the maturity should exceed five (5) years.
For NRA-NETB, they are taxed at 25% regardless if the long-term deposit/saving/trust is pre-terminated or not.
For RC/NRC/RA/NRA-ETB, they will be taxed only if they pre-terminated the deposit/saving/trust before five (5) years.
The tax rate to be applied will depend on the holding period for such deposit/saving/trust (refer to page 12). If the longterm deposit/saving/trust is not pre-terminated, it will be exempted from Passive Income Tax.
Note that the final withholding tax will only be imposed on interest which has situs in the Philippines. Thus, if you are a
RC and you earned an interest income for your bank account outside of the Philippines, the interest income will not be
subjected to passive income tax but will only form part of your taxable income subject to the normal income tax rates of
5% to 32%.
8.
Dividends
This refers to property or cash dividends given to individuals from domestic corporations regardless if the operations of
the domestic corporation is abroad.
Question: What if the dividends are received from foreign corporations? Consider the situs of taxation for dividends
received from a foreign corporation
If the income derived from the Philippines is more than 85%, it is treated as a domestic corporation. Thus, it will be
subject to passive income tax.
If the income derived from the Philippines is less than 50%, it is considered as a foreign corporation. Thus, it will not
be subject to passive income tax.
If the income derived from the Philippines is more than 50%, it will be subject to tax partly within. You need to take
into consideration the ratio. Thus, if its income derived from the Philippines is only 60%, then only 60% of the
dividends will be subjected to passive income tax.
9.
Shares in taxable partnerships

When we say taxable partnerships, this refers to partnerships other than General Professional Partnerships (GPP). The
share of the partners will be taxed similarly to dividends because the taxable partnerships are taxed similarly to
corporations.
i.
Taxation at Source
a.
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 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.
For the Final Withholding Tax, you will need to file a separate BIR form.
b.
Creditable Withholding Tax
The Creditable Withholding Tax is credited or deducted from the income tax due since it is considered as an advance
payment of the tax payable.
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.
14
ii.
4.
Withholding Tax on Government Money Payments (GMP) Percentage Taxes 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 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.
Taxation Subject to Final Withholding

a.
Income Payments to a Citizen or to a Resident Alien Individual

Interest on any peso bank
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
b.
Income Payments to a Non-Resident Alien Engaged in Trade or Business in the Philippines

On Certain Passive Income
Cash and/or property dividend
Share in the distributable net income of a partnership
Interest on any bank deposits
Royalties
Prizes (except prizes amounting to P10, 000 or less which is subject to tax under Sec. 25 (A)(1) of the Tax Code
Winnings (except from Philippine Charity Sweepstake Office and Lotto)
Interest on Long Term Deposits (except those with term of five years or more)
Capital Gains presumed to have been realized from the sale, exchange or other disposition of real property
c.
Income Derived from All Sources within the Philippines by a Non-Resident Alien Individual Not Engaged in Trade or
Business
On gross amount of income derived from all sources within the Philippines
On Capital Gains presumed to have been realized from the sale, exchange or disposition of real property located in
the Philippines.
d.
Income Derived by Alien Individual Employed by Special Corporations
e.
Fringe Benefits Granted to the Employee (except Rank and File)
f.
Informers Reward
g.
Cash or property dividends paid by a Real Estate Investment Trust (REIT) pursuant to Section 13 of RR 13-2011
Capital Gains
Take note that Capital Gains Tax is a final tax but it is not a final withholding tax.
a.
Sale of Shares of Stocks NOT listed and traded in the local exchange OR listed but NOT traded in local stocks
exchange
Dealer in Securities refers to a merchant of stocks or securities, whether an individual, partnership or corporation, with an
established place of business, regularly engaged in the purchase of securities and the resale thereof to customers; that is one,
who as merchant buys securities and re-sells them to customers with a view to the gains and profits that may be derived
therefrom. Dealer in securities means any person who buys and sells securities for his/her own account in the ordinary
course of business (Sec. 3.4, SRC).
Rule: subject to Capital Gains Tax of 5% for the first 100K and 10% for the excess based on the Net Capital Gain (selling price
less cost)
Note that if it is listed and traded in the local stock exchange, it will not be subject to Capital Gains Tax but will be subject to
percentage tax, known as the Stock Transactions Tax, of of 1% (or 0.5% or 0.005) of the Gross Selling Price.
Question: How will you know if the shares of stocks are not listed in the local stock exchange? If it is stated in the problem that
the corporation owning the shares of stocks is a closed corporation or a family corporation.
If you are a broker or underwriter of shares of stocks or dealer of securities, there will be no Capital Gains Tax because you will
be subject to ordinary income tax since you are engaged into the buying and selling of shares of stocks.
15
Example 1:
08/30/14
10/28/14
1,000 shares @ P100/share par value = P100,000 (cost)

1,000 shares @ P200/share selling price = P200,000 (selling price)
Gain = selling price less cost = P200,000 P100,000 = P100,000
Capital Gains Tax = P100,000 x 5% = P5,000
Total Capital Gains Tax for the year = P5,000 + P15,000 = P20,000
Note that for sale of shares of stocks NOT listed and traded in the local exchange OR listed but NOT traded in local stocks
exchange, 5% is imposed on the first P100,000 for the entire taxable year and 10% for the excess. Meaning to say, it will be
accumulated for the entire taxable year and not on a per transaction basis.
Example 2:
08/30/14
10/28/14

Capital Gains Tax = (P50,000 x 5%) + (P100,000 x 10%) = P2,500 + P10,000 = P12,500
Total Capital Gains Tax for the year = P2,500 + P12,500 = P15,000
b.
Sale of Real Property located in the Philippines

NOT subject to Capital Gains Tax:
i.
All real properties acquired by the real estate dealer 1 shall be considered as ordinary assets.
ii.
All real properties acquired by the real estate developer 2, whether developed or underdeveloped as of the acquisition, and
all real properties which are held by the a real estate dealer refers to any person engaged in the business of buying and
selling or exchanging real properties on his own account as a principal and holding himself out as a full or part-time dealer
in real estate. Real estate developer primarily for sale or 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 3, whether land, building, and/or improvements, which are or lease/rent or
being offered for lease/rent, or otherwise for use or being 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 4in 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 you are a RC and the real property sold is located outside of the Philippines, then the proceeds will be considered as part of
your ordinary income subject to the normal income tax rates of 5% to 32%.
A real estate dealer refers to any person engaged in the business of buying and selling or exchanging real properties on his own account as a principal and holding
himself out as a full part or part-time dealer in real estate.
1
Real estate developer refers to any person engaged in the business of developing real properties into subdivisions, or building houses on subdivided lots, or
constructing residential or commercial units, townhouses and other similar units for his own account and offering them for sale or lease.
2
Real estate lessor refers to any person engaged in the business of leasing or renting real properties on his own account as a principal and holding himself out as a
lessor of real properties being rented out or offered for rent.
3
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 or 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.
4
16
Recap: If the real property is classified as Capital Asset, it is subject to CGT of 6% of the Gross Selling Price (GSP) or Fair
Market Value (FMV) of the property at the time of sale, whichever is higher. The FMV is based on the zonal value or the FMV as
determined by the assessor.
Take note that for it to be classified as capital asset, it must not be held ordinarily for sale and it must not be used in your
business.
Examples:
Ms. A is into real estate business and she purchased real estate as part of her stock in trade. The property will be
considered as ordinary asset. If the property is subsequently sold, it will not be subject to Capital Gains Tax.
Ms. A purchased real estate property not for sale but for use in her real estate business. The real property will still be
classified as ordinary asset.
Mr. X has a real estate business and he is supposed to sell real estate properties but his business was subsequently
bankrupt and closed, what will be the classification of the remaining properties still under the name of the corporation? It
will still be classified as ordinary asset.
Mr. X is into real estate business and the business filed for rehabilitation. It was not rehabilitated and the business was
bankrupt and the creditors foreclosed the real estate properties of the business. In this case, the real properties that were
subject to involuntary sale to the creditors will still be classified as ordinary assets.
If a real estate business subsequently went bankrupt and the real estate properties were no longer used for a span of
three (3) years, what will be the classification of the properties? It will still be considered as ordinary assets. Since the
business involved is real estate business, the real estate properties will not be automatically converted to capital assets
even if it has not been used for more than two (2) years. However, if the business is other than real estate business, the
real estate properties are automatically converted into capital assets if it can be shown that such properties have not been
used for more than two (2) years.
Mr. A was initially engaged into real estate business but subsequently discontinued the real estate business and ventured
into a business other than real estate. What will be the classification of the properties that were previously used in the
real estate business? It will still be considered as ordinary assets. The properties will not be automatically converted into
capital assets even if the properties have not been used for more than two (2) years.
Ms. A has her principal residence in Samar. She wants to transfer to Cebu and sell her principal residence. What is the
classification of the principal residence? It will be classified as capital asset. Thus, it will be subjected to CGT if
subsequently sold.
Rules on Transactions Involving Real Properties:

a.
A property purchased of future use in the business, even though this purpose is later thwarted by circumstances beyond
the taxpayers control, does not lose its character as ordinary assets. 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 change 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 the business by a taxpayer engaged in business other than real estate business are
automatically converted into capital assets upon showing proof that 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 assets in the hands of the seller/transferor may change their character in
the hands of the buyer/transferee 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 the accordance with the following rule:
Real property transferred through succession or donation to the heir or done who is not engaged in the 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.
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.
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c.
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.
In the case of involuntary transfers of real properties, including expropriations or foreclosure sale, the involuntariness
of such sale shall have no effect on the classification of such real property in the hands of the involuntary seller,
either as capital asset or ordinary asset as the case may be.
Sale of other capital assets
Take note of the holding period:

50% of the capital gain is taxable if held for more than 12 months -> long-term capital gain
100% of the capital gain if held for 12 months or less -> short-term capital gain
d.
Conditionally Exempt from Payment of CGT
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
If there is no full utilization of the process 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 5 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.
The conditions set forth presuppose that the principal residence is located in the Philippines.
e.
Exempt entities from CGT
f.
5.
Dealer in securities, regularly engaged in the buying and selling of securities

An entity exempt from the payment of income tax under existing investment incentives and other special laws
An individual or non-individual exchanging real property solely for shares of stocks resulting in corporate control
A government entity or government-owned or controlled corporation selling real property
If the disposition of the real property is gratuitous in nature
Where the disposition is pursuant to the CARP law
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; (refer to requirements above)
Certificate Authorizing Registration (CAR) is a certification issued by the Commissioner or his duly authorized
representative attesting that the transfer and conveyance of land, buildings/improvements or shares of stock arising from sal e,
barter or exchange have been reported and the taxes due inclusive of the documentary stamp tax, have been fully paid.
Other Income
a.
Rent income other than royalties
For rent income, the law requires that 5% of the rental payment will be automatically withheld by the payor. Meaning to say,
only 95% of the monthly rental will be paid by the lessee to the lessor. This is one of those instances wherein for a person to
be able to claim for certain deductions, he must have complied with the statutory requirement of withholding a certain amount.
Example: Monthly rent is P100,000. The amount of P5,000 will be automatically withheld and only P95,000 will be paid to the
lessor.
b.
Interest income other than interest income on bank deposit
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 oblige.
5
18
c.
Dividend income
Determine if the source is a domestic corporation or a foreign corporation (refer to page 14).
d.
Income from other sources and this include:

i.
Bad debts recovered
Bad Debts are considered as worthless debts because they can no longer be collected despite legal actions. It is different
from Doubtful Accounts since the latter is not yet considered as bad debts. For it to be considered as bad debts, there
must be a level of certainty that you can no longer collect it.
Being an expense, bad debts are deducted from your income. Thus, you will have a lower taxable income resulting to a
lower income tax due.
Apply the Tax Benefit Rule. This means that if the bad debts recovered will only be considered as an income if the
taxpayer has been previously benefitted from the bad debts (i.e., it has caused a reduction to its income).
Examples:
(1) Year 2014
Year 2015
Income
Less: Bad debts
Taxable Income
P50,000
10,000
P40,000
The entire amount of P10,000 was recovered.
In this case, the taxable income in Year 2014 was lowered to P40,000 because of the bad debts expense; thus, the
taxpayer was benefitted from the bad debts since, understandably, the income tax due was also decreased. In the
Year 2015, the bad debts recovered will be considered as taxable applying the Tax Benefit Rule.
(2) Year 2014
Year 2015
Income
Less: Bad debts
Taxable Income
P10,000
10,000
0
In this case, the taxable income in Year 2014 was lowered to zero because of the bad debts expense; thus, the
taxpayer was benefitted from the bad debts since it resulted to a zero income tax due. In the Year 2015, the bad
debts recovered will be considered as taxable applying the same rule.
Question: Is there a specific timeline for the bad debts recovered to be considered as taxable (e.g., when the bad debts
were not immediately recovered the following year)? Under the Tax Code, there is no limit as to the period. Apply the
lifeblood doctrine; thus, BIR can still assess it as taxable even if the bad debts are not immediately recovered the
following taxable year.
(3) Year 2014
Year 2015
Income
Less: Bad debts
Taxable Income
P 50,000
100,000
0
In this case, the taxable income in Year 2014 was lowered to zero because of the bad debts expense; thus, the
taxpayer was benefitted from the bad debts. However, the benefit is only partial (i.e., up to P50K). In the Year 2015,
only P50K of the bad debts recovered will be considered as taxable since the taxpayer was benefitted only up to the
extent of P50K.
(4) Year 2014
Year 2015
Income
Less: Bad debts
Taxable Income
(P5,000)
10,000
0
In this case, there is no benefit derived in the Year 2014. The taxpayer will still not be subject to income tax, even
without considering the bad debts expense, since his income for the year was already a negative amount. In the
Year 2015, the bad debts recovered will not be considered as taxable since no benefit was derived from it.
ii.
Illegal gains derived from gambling
Income tax is source blind. This means that we do not look at the source; so long as there is income, gain, or profit, you
will subjected to tax.
19
Insofar as inflows are concerned, all inflows, whether legal or illegal, will be considered as taxable income. However, only
outflows which are considered as legal can be claimed as deductions.
iii.
Tax refunds
We still follow the Tax Benefit Rule. Meaning to say, the tax refunds will be considered as taxable income if it caused a
reduction in the income for the previous year.
Year 2014
Income
Less: Local business tax
Less: Percentage tax
Taxable Income
P 100,000
10,000
20,000
P 70,000
Year 2015
Refunds of P10K and the P5K were received for the local business tax and percentage tax, respectively.
In this case, the taxable income in Year 2014 was lowered by P30,000 because of the taxes paid and consequently, the
income tax due was also decreased. In the Year 2015, the refunds received will be considered as taxable applying the Tax
Benefit Rule.
If no deductions were made for the taxes paid in Year 2014, then the refunds received in the Year 2015 will not be
considered as taxable income since there was no benefit that was derived.
Take note that not all taxes are deductible from your income. Examples of these taxes are income tax, donors tax, estate
tax and special assessment.
iv.
Compensation for private property expropriated by the government for public use
v.
Damages
vi.
Cancellation of Indebtedness
Recap: It is not taxable if it is out of liberality. It is taxable if with consideration such as service or property.
IV.
INCOME TAX COMPUTATION

Gross Income
Less: Allowable Deductions (Itemized or Optional)
Net Income
Less: Personal and Additional Exemptions
Net Taxable Income
Multiply by Tax Rate (5% to 32%)
Income Tax Due: Tax withheld (per BIR Form 2316/2304)
Income tax payable
P___________
___________
P___________
___________
P___________
___________
P___________
P___________
Allowable deductions are available to taxpayers who are earning business or professional income and not to taxpayers who are earning
purely compensation income.
What is the difference between Itemized Deductions and Optional Standard Deduction (OSD)? For Itemized Deductions, you will have to
deduct your expenses one by one. It is necessary that there is substantiation. On the other hand, the OSD is provided under the Tax
Code as an option in lieu of the Itemized Deduction. A standard rate of 40% of your income will be deducted; thus, only 60% will be
taxable. There is no need for substantiation if the taxpayer opts for the OSD.
The option to avail of OSD is good for one taxable year. Thus, you cannot switch or change your deduction method to Itemized
Deductions during the taxable year.
Personal and additional exemptions are available to individual taxpayers earning purely compensation income and individual taxpayers
earning both compensation income and business or professional income.
V.
TAX ON NRA-NETB
VI.
EXCLUSIONS
VII.
DEDUCTIONS
A.
Pure Compensation Income Earner

1.
Personal Exemption
For single individual or married individual judicially decreed as legally separated with no qualified dependents ............. P50,000
For head of family ...... ............ ............ ............ ............ ............ ............ ............ ............ ............ ..................... P50,000
20
For each married individual ............ ..... ............ ............ ............ ............ ............ ............ ............ ..................... P50,000
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.
The amount of P50K personal exemption is considered in lieu of your personal and family expenses. Thus, you cannot make
deductions for expenses incurred.
Take note that upon the passage of the law sometime in 2008, the concept of Head of the Family is no longer applicable and
is now incorporated in the concept of single individuals having dependents.
2.
Additional Exemption
For each qualified dependent, a P25,000 additional exemption can be claimed but only up to 4 qualified dependents.
Take note that the qualified dependent refers to the dependent child and not to dependent senior citizens.
No. of
Dependents
1
2
3
4
Status of Individual Taxpayers

Single
Married
S1
M1
S2
M2
S3
M3
S4
M4
Personal
P50,000
P50,000
P50,000
P50,000
Exemptions
Additional
P25,000
P50,000
P75,000
P100,000
Total
P75,000
P100,000
P125,000
P150,000
Note that another status Z is also available. This means zero-exemption as in the case when a taxpayer is employed by two
companies, the employees status in the ITR for the income received from the second employer will now be Z.
The additional exemption can be claimed by the following:
The husband who is deemed the head of the family unless he explicitly waives his right in favor of his wife
The spouse who has custody of the child or children in case of legally separated spouses. Provided, that the total amount
of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions allowed by
the Tax Code.
The individuals considered as Head of the Family supporting a qualified dependent

a.
Dependency Tests
A dependent child can be considered as a qualified dependent child if all the following requisites are present:
i.
Filiation of the child to the taxpayer: if the child is a legitimate, illegitimate or legally adopted child.
ii.
Age of the child: must not be more than 21 years of age unless the child is incapable of self-support or gainful
employment due to physical defects or mental incapacity.
iii.
Status of the child: the child must not be married.
iv.
Income of the child: the child must not be gainfully employed.

Take note that, under the Tax Code, there is no definition on what is meant by the phrase gainfully employed.
However, some BIR rulings pegged that if you are earning an annual compensation of not more than P50K or
not more than the personal exemption, then it cannot be considered as gainful employment.
v.
Support: the taxpayer must be giving chief support to the child (i.e., 51% of the needs of the child is provided
by the taxpayer)
vi.
Residence: the child must be living with the taxpayer

Take note that this does not presuppose that the child is with the taxpayer 24/7 as temporary displacement is
allowed in case, for example, that the child is studying abroad.
Question: In the case of a common law child who is with the mother but chiefly supported by the father, who can
claim for the additional exemption? If both are working, it depends on the agreement between the father and the
mother; thus, it will be a matter of declaration. Basically, it is a question of who is chiefly supporting the child.
b.
Personal and Additional Exemptions for:

i.
ii.
NRA-ETB
NRA-NETB
(Refer to the summary in page 22.)
21
c.
Change of Status
Insofar as the change of status is concerned, it is usually interpreted in favor of the taxpayer. What is followed is the
Status at the end of the year Rule. Meaning to say, it is as if the status changed at the end of the current year, if
the effect is initially unfavorable to the taxpayer. However, if it is initially favorable to the taxpayer, then it is as if the
status changed at the end of the previous year.
Example: Mr. X has the following dependent children
A was born on August 30, 1993
A will turn 21yrs. old by August 30, 2014
additional exemption can still be claimed for the Year 2014
it is as if the child was born on December 31, 1993 or that A will turn 21yrs. old on December 31, 2014
3.
B got married on June 1, 2014
additional exemption can be claimed for the Year 2014
it is as if the child was married on December 31, 2014
C was born on August 29, 2014
it is as if the child was born on December 31, 2014
D died on September 1, 2014
it is as if the child died on December 31, 2014
E was gainfully employed on March 1, 2014
additional exemption cannot be claimed for E since it will already exceed the maximum limit of 4
dependent children
Premiums on Health and/or Hospitalization Insurance
Take note that this refers to the insurance taken by the employee or the taxpayer and not by the employer.
The maximum amount of P2,400 premium payments on health and/or hospitalization insurance can be claimed if the family
gross income yearly should not be more than P250,000.
Note that the family refers only to the immediate family (i.e., parents & siblings for single individuals and spouse & children
for married individuals) .
For married individuals, the spouse claiming the additional exemptions for the qualified dependents shall be entitled to this
deduction.
B.
Earning Business or Professional Income

1.
2.
3.
4.
Personal Exemption
Premiums on Health and/or Hospitalization Insurance
Itemized Deduction OR Optional Standard Deduction
Note that you can only choose either the Itemized Deduction or the Optional Standard Deduction but not both. The purpose of
the OSD is to facilitate the filing and audit of income tax returns.
Summary:
Exemption/Deduction
Personal Exemption
Itemized Deduction
Optional Standard Deduction (40% of gross income)
RC
NRC
RA
NRA-ETB
NRA-NETB
x
x
x
x
Take note that for NRA-ETB, this is subject to the Rule of Reciprocity. This means that if the country of the NRA-NETB individual
grants personal exemption to Filipinos in such country, then personal exemption will also be granted to the NRA-NETB here in the
Philippines. However, take note of the rule that it should be whichever is lower. For example, if the US government grants a
P100K personal exemption to Filipinos in the US, a US citizen who comes here in the Philippines will only be granted a personal
exemption of P50K and not P100K. On the other hand, if the US government grants a P20K personal exemption to Filipinos in the
US, the US citizens will only be allowed to deduct P20K as personal exemption. Stated otherwise, the maximum personal exemption
granted to NRA-ETB is only P50K.
The NRA-ETB and NRA-NETB are expressly excluded under the law to avail of the Optional Standard Deduction.
Can corporations claim for OSD? Yes but the same exception applies. Thus, non-resident foreign corporations cannot claim for OSD.
22
VIII.
INDIVIDUALS NOT REQUIRED TO FILE INCOME TAX RETURN

1.
2.
3.
4.
5.
IX.
An individual who is a minimum wage earner.

An individual whose gross income does not exceed his total personal and additional exemptions.
An individual whose compensation income derived from one employer does not exceed P60,000 and the income tax on which has
been correctly withheld.
An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the
same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational
companies, petroleum service contractors and sub-contractors and offshore-banking units, non-resident aliens not engaged in trade
or business).
Those who are qualified under substituted filing. However, substituted filing applies only if all of the following requirements are
present.
PROCEDURE FOR FILING ITR
For with payments 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.
For no payment ITRs refundable, break-even, exempt and no operation/transaction, including returns to be paid on 2nd
installment and returns paid through a Tax Debit Memo (TDM)
File the return with the concerned Revenue District Officer (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.
- END -
23

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INDIVIDUAL INCOME TAXATION

Resident Citizen (RC)

Income Within and Without (5% to 32% based on Net Income)

Non-resident Citizen (NRC)

Income Within (5% to 32% based on Net Income)

January 1 to July 31 Philippines

January 1 to December 31 Philippines

May 31 arrival in the Philippines

May 31 to December 31 Philippines

Apply Section 22(E)(4) hybrid classification

TAXATION 1 TRANSCRIPTIONS | EH403

NRC (taxable within) from January 1 to May 31

August return to the Philippines

NRC (automatic, since he stayed abroad for at least 183 days)

Do not apply Section 22(E)(4) but rather apply Section 22(E)(3)

RC (classification for the entire taxable year)

Resident Alien (RA)

Income Within (5% to 32% based on Net Income)

Non-resident Alien (NRA)

Non-resident Alien Engaged in Trade and Business (NRA-ETB)

Income Within (5% to 32% based on Net Income)

Non-resident Alien Not Engaged in Trade and Business (NRA-NETB)

Income Within (25% based on Gross Income)

TAXATION 1 TRANSCRIPTIONS | EH403

Regional Area Headquarters (RAHQ) of multinational corporations

Regional Operating Headquarters (ROHQ) of multinational corporations

Offshore banking units (OBU)

Examples: CitiBank, Standard Chartered Bank, Allied Bank

Petroleum service contractors

Examples: Chevron, Caltex

Eligibility (all requisites must concur):

TAXATION 1 TRANSCRIPTIONS | EH403

(P70,000 + P7,000) x 12 = P924,000

P924,000 plus P70,000 13th month pay = P994,000

Mr. A can avail of the 15% preferential tax rate

TAXATION 1 TRANSCRIPTIONS | EH403

Estates and Trusts

His estate is subject to Estate Tax.

The income earned by the estate will be subjected to income tax.

INCOME TAX RATES

INCLUSIONS (Gross Income for Individuals)

This pertains to the income earned under and employer-employee relationship.

TAXATION 1 TRANSCRIPTIONS | EH403

Doctrine of Cash Equivalent

Applicable to compensation which are being paid in kind

determine the face value of the note

if it is discounted, determine the discounted value of the note

If due to liberality, not subject to income tax

If due to a service rendered, it will now be subject to income tax

Mode of Compensation Income Collection/Payment

The primary mode of collecting the compensation income is through withholding.

TAXATION 1 TRANSCRIPTIONS | EH403

Kinds of Fringe Benefits (HEVHIMEHEL)

Source: Revenue Regulation 3-98, as amended

Employer purchases residential property on installment

Monetary Value of Benefit

the employees if the housing unit is close to the factory.

TAXATION 1 TRANSCRIPTIONS | EH403

Vehicle of any kind

Monetary Value of Benefit

Household personnel (e.g., maid, driver and househelp)

GR: it is subject to Fringe Benefits Tax

Example: EE is granted a loan by the ER amounting to P1M @ 5%

FB = (12% - 5%) x P1,000,000 = P70,000