TAXATION

FAR EASTERN UNIVERSITY – MANILA

INDIVIDUAL INCOME TAX (1401)
A. Classification of Individual Taxpayers
1. Citizens Under the Philippine Constitution, citizens are:

1. Those who are citizens of the Philippines at the time of adoption of the constitution (on Feb. 2,
1987).
2. Those whose fathers or mothers are citizens of the Philippines.
3. Those born before January 17, 1973 of Filipino mothers who elect Philippine citizenship upon
reaching the age of majority.
4. Those who are naturalized in accordance law.

Resident Resident citizen - is a citizen of the Philippines who has a permanent or perpetual
Citizen home in the Philippines to which he plans or intends to return whenever he is away
or out of the country.
Nonresident Nonresident citizen
Citizen 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. (Sec 22(E)(1), NIRC)
2) 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. (Sec 22, (E)(2), NIRC)
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. (Sec 22 (E)(3), NIRC)
The phrase "most of the time" shall mean that the said citizen shall have stayed
abroad for at least 183 days in a taxable year. (Sec. (2)(c), Revenue Regulations
No. 1-79)
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. (Sec
22(E)(4), NIRC)
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. (Sec 22(E)(5), NIRC)

Overseas Contract Worker (OCW)/Overseas Filipino Workers (OFW)

 RR 1-2011, defines OCWs as Filipino citizens employed in foreign
countries, commonly referred to as OFWs, who are physically present in a foreign
country as a consequence of their employment thereat.
 Their salaries and wages are paid by an employer abroad and are not borne
by entities or persons in the Philippines. Hence OFWs are classified as
non-resident citizens for tax purposes.
 To be considered as an OCW or OFW, they must be duly registered as
such with the Philippine Overseas Employment Administration (POEA)
with a valid Overseas Employment Certificate (OEC).
 Seafares or seamen are Filipino citizens who receive compensation for
services rendered abroad as a member of the complement of a vessel
engaged exclusively for international trade. To be considered as an OCW
or OFW, they must be duly registered as such with the Philippine Overseas
Employment Administration (POEA) with a valid Overseas Employment
Certificate (OEC) with Seafarers Identification Record Book (SIRB) or
Seaman’s Book issued by the Maritime Industry Authority (MARINA).

2. Aliens Resident Resident alien - is an individual whose residence is within the Philippines and who
Alien is not a citizen thereof. (Sec. 22 (F), NIRC)

An expatriate may be considered a resident alien if:

14. INCOME TAX - INDIVIDUAL Page 1 of 18

 (1) he or she is not a mere transient or sojourner***

(2) he or she has no definite intention to leave, or

(3) his or her purpose is of such a nature that an extended stay may be necessary
for its accomplishment, and to that end the alien makes his or her home temporarily
in the Philippines.

(4) An alien who has acquired residence in the Philippines retains his status as such
until he abandons the same and actually departs from the Philippines.

An intention to change his residence does not change his status as a resident alien to
that of a nonresident alien. Thus an alien who has acquired a residence in the
Philippines is taxable as a resident for the remainder of his stay in the Philippines.
(Sec 6, Revenue Regulation 2-40)

Notes:
***(Resident Alien - An alien actually present in the Philippines who is not a mere
transient or sojourner is a resident of the Philippines for purposes of income tax. Whether
he is a transient (non-resident) or not is determined by his intentions with regards to
the length and nature of his stay. One who comes to the Philippines for a definite purpose, which is
promptly accomplished, is a transient (non-resident). But if his purpose is of such a
nature that an extended stay may be necessary for its accomplishment, and to that end the alien
makes his home temporarily in the Philippines, he becomes resident, though it may be his intention
at all times to return to his domicile abroad when the purpose for which he became has been
consummated or abandoned (Sec. 5, Rev. Reg. No. 2))

***(Resident Alien – Means an individual whose residence is within the Philippines and who
is not a citizen thereof. He is one who is actually present in the Philippines and who is not a mere
transient or sojourner. But residence does not mean mere physical presence. An alien is considered
a resident or a non-resident depending on his intention with regard to the length and nature of is
stay.)
Nonresident Nonresident alien - is an individual who is not a citizen of the Philippines and
Alien whose residence is not within the Philippines. (Sec. 22 (G), NIRC)

One who comes to the Philippines for a definite purpose which in its nature may
be promptly accomplished is a transient (non-resident).
1) Nonresident alien-Engaged in trade or business- a nonresident alien who has stayed in the
Philippines for an aggregate period of more than 180 days during any calendar year.

Engaged in trade or business- includes the performance of personal services on regular basis and does
not include casual or incidental transactions.

Trade or business includes the performance of the functions of a public office. (Sec. 22 (S), NIRC)

2) Nonresident alien-not engaged in trade or business- a nonresident alien who has stayed in
the Philippines for an aggregate period of not more than 180 days (180 days or less) during any
calendar year.

The following table summarizes the situs of taxable income to individual taxpayers:
Taxpayer Length of Stay Tax Base
Resident Citizen Taxable income – World
Non-resident citizen A citizen staying abroad for at least 183 days (365 Taxable income – Philippines
days/2)
Resident alien An alien staying in the Philippines for more than one year Taxable income – Philippines
Non-resident alien engaged in trade or An alien who stays in the Philippines for more than 180 days in any Taxable income – Philippines
business calendar year.
Non-resident alien not engaged in trade or An alien who stays in the Philippines for an aggregate period at least Gross income – Philippines
business 180 days in any calendar year. (360 days /2)
Taxable estate – estate under judicial settlement. Taxable income – World
Taxable trust – trust irrevocably designated by the grantor.

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