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CLASSIFICATION OF TAXPAYERS A seaman is considered as an

Individuals OCW provided the following

a. citizens requirements are met:
(1) resident citizens (RC) 1. receives compensation for services rendered abroad
(2) non-resident citizens (NRC) as a member of the complement of a vessel; and
b. aliens 2. such vessel is engaged exclusively
(1) resident aliens (RA) in international trade.
Based on the above provisions,
(2) non-resident aliens (NRA) there are three (3) types of
(a) engaged in trade or nonresident citizens, namely: (1) immigrants; (2)
business within the Phils. employees of a foreign
(NRAETB) entity on a permanent basis; and
(b) not engaged in trade or 3) overseas contract workers.
business within the Immigrants and employees of a foreign
Philippines (NRANETB) entity on a permanent basis are
Corporations treated as nonresident citizens from
a. Domestic (DC) the time they depart from the
b. Foreign Philippines. However, overseas
(1) resident foreign corporation contract workers must be physically
(RFC) present abroad most of the time
(2) non-resident foreign during the calendar year to qualify as
corporation (NRFC) nonresident citizens.
Estates 3. Resident alien - means an individual
Trusts whose residence is within the
Partnerships Philippines and who is not a citizen
A. INDIVIDUALS thereof. [Sec.22 (F, NIRC)]
WHO ARE TAXABLE? 4. Non-resident alien engaged in
1. Resident Citizen trade or business within the
2. Non-resident Citizen Philippines. (NRAETB)
A non-resident citizen means, a A non-resident alien means an
Filipino citizen: individual whose residence is not within the Philippines
a. who establishes to the and who is not a citizen thereof. [Sec.22 (G)]
satisfaction of the Commissioner The term trade or business
the fact of his physical presence includes the performance of the
abroad with a definite intention functions of a public office. [Sec. 22
to reside therein; (S)]
b. who leaves the Philippines The term trade, business or
during the taxable year to reside profession shall not include
abroad, either as an immigrant performance of services by the
or for employment on a taxpayer as an employee. [Sec. 22
permanent basis; (CC)]
c. who works and derives income A non-resident alien individual
from abroad and whose who shall come to the Philippines
employment thereat requires and stay therein for an aggregate
him to be physically present period of more than 180 days during
abroad most of the time during any calendar year shall be deemed a
the taxable year; non-resident alien doing business in
d. who is previously considered as a the Philippines Section 22(G)
non-resident and who arrives in notwithstanding [Sec. 25(A)(1)]
the Philippines at anytime during 5. Non-resident alien not engaged in
the taxable year to reside trade or business within the
thereat permanently shall be Philippines. (NRANETB)
considered non-resident for the ONLY RESIDENT CITIZENS are taxable
taxable year in which he arrives for income derived from sources within
in the Philippines with respect to and without the Philippines. All other
his income derived from sources individual income taxpayers are taxable
abroad until the date of his only for income derived from sources
arrival [Sec.22 (E), NIRC] within the Philippines.
NOTE: An overseas contract worker
Tax Rates: Please refer to Annex A.
(OCW) is taxable only on income
derived from sources within the Check the book
Philippines. [Sec. 23 (B)(C)]
Sec. 26. A general professional partnership shall not be under Sec. 22 (DD) – not subject to
subject to income tax but persons engaging in business income tax
as partners in a GPP shall be liable for income tax only in Regional operating headquarters
their separate and individual capacity. under Sec. 22(EE) shall pay a tax of
10% of their taxable income.
Note: Ordinary partnership is taxable in the same manner ONLY DOMESTIC CORPORATIONS are
as corporations. =30% taxable for income derived from sources
within and without the Philippines. All
B. CORPORATIONS other corporate income taxpayers are
WHO ARE TAXABLE? taxable only for income derived from
1. Domestic Corporation – created or sources within the Philippines.
organized in the Phils. or under its
law [Sec. 22(C), NIRC] Tax rates of income tax on Domestic Corp
2. Resident Foreign Corporation –
An income tax of 30% is hereby imposed upon the
engaged in trade or business within
taxable income from all sources within and without the
the Philippines [Sec. 22(H), NIRC]
3. Non-resident Foreign Corporation – Phil. By every corporation.
not engaged in trade or business The Pres, upon recommendation of Secretary of Finance,
within the Philippines [Sec. 22(I),
may allow corp the option to be taxed at the rate of 15%
A Corporation Includes: after the following conditions have been satisfied:
1. Partnerships, no matter how 1) A tax effort ratio of 20% of Gross National
created or organized; Product(GNP)
2. Joint-stock companies;
2) A ratio of 40% of income tax collection to total tax
3. Joint accounts (cuentas en
participacion) revenues
4. Associations; or 3) A VAT tax effort of 4% of GNP
5. Insurance companies [Sec. 22(B), 4) .9% ratio of the consolidated Public Sector
NIRC]. Financial Position to GNP
1. General professional Gross income = gross sales-sales returns, discounts,
partnerships; allowances, and cost of good sold.
2. Joint venture or consortium
For trading or merchandising concern, cost of good
formed for the purpose of
sold shall include;
undertaking construction projects or
engaging in petroleum, coal,  the invoice cost of the goods sold
geothermal and other energy
 import duties ,
operations pursuant to an operating
or consortium agreement under a  freight in transporting the goods.

service contract with the For manufacting concern, cost of good sold shall
Government. include:
 all cost of production of finish goods
UNDER NIRC Cost of Good sold = all business expenses directly
1. Those enumerated under Sec. incurred to produce the merchandise to bring them to
their present location or use.
Exempt corporations are subject
to income tax on their income from Tax payers engaged in the sale of service.-
any of their properties, real or
personal, or from any other activities Gross income = gross receipt – sales return, allowances
conducted for profit, regardless of and discounts.
the disposition made of such income.
2. With respect to GOCCs, the Proprietary educational institutions and hospitals
general rule is that these which are non profit shall pay a tax of 10% on their
corporations are taxable as any taxable income except those covered by interest on
other corporation except: deposits,yields and any other monetary benefit. = final
a. GSIS rate of 20%. Provided that if the gross income from
b. SSS unrelated trade, business or other activity exceeds 50%
c. Philippine Healt Insurance Corp. PHIC of the total gross income derived by such educational or
d. Local Water District- LWD
hospitals from all sources, The prescribed graduated
3. Regional or Area Headquarters
income tax rate shall be imposed on the entire taxable Prima facie evidence to avoid income tax upon its
income. share holders or members

Minimum Corporate income tax on domestic corporation-  Being a mere holding company or
check the list.  Investment company
Carry forward of Excess minimum Tax- any excess of Improperly Accumulated Taxable income means
the minimum corporate income tax over the normal taxable income adjusted by:
income tax shall be carried forward and credited against
the normal income tax for the three immediately  Income exempt from tax
succeeding years.  Income excluded from gross income
 Income subject to final tax and
Relief from MCIT- suspension of such on account of  The amount of net operating loss carry-over
prolonged labor dispute or because of force majeure or deducted
because of legitimate business reverses.
Sec. 30 Exemptions from Tax on Corporations
Gross income, defined- same with the above cited
 Labor, agricultural or horticultural
Tax on non-resident Foreign Corp.=30% organization not organized principally for
Non resident; profit
 Mutual savings bank not having a capital
Cinematographic Film owner, lessor or Distributor. = stock and cooperative bank without capital
25% of its gross income from all sources within the stock
Philippines.  A beneficiary society, order or association,
operating exclusively for the benefit of its
Owner or Lessor of Vessels Chartered by Philippine
Nationals = 4 ½ %
 Cemetery company owned and operated
 gross rentals or ; exclusively for the benefit of its members
 charter fees from leases or ;  Non stock corporation or association
 charters to Filipino citizens or corporation organized and operated exclusively for
religious, charitable, scientific, athletic or
Resident Owner or Lessor of Aircraft, Machineries cultural purposes
and other Equipment = 7 ½ % of gross rentals or fees.  Civic League or organization not organized
Tax on Certain Incomes Received by a Nonresident for profit but operated exclusively for the
Foreign Corporation; promotion of social welfare
 A non stock non profit education institution
Final withholding tax rate  Government educational institution

 Interest on Foreign Loans. = 20% Nothswithstanding, the income derived from any
contracted on or after August 1, 1986 activities conducted for profit shall be subject to tax of
 Intercorporate dividends = 15% on the 30%
amount of cash or property received from
domestic corporation. A non resident is allow Computation of taxable income
a credit against the tax due from the Taxable income = pertinent items of gross income less
nonresident foreign corporation taxes allowable deductions
deemed to have been paid equivalent to 15%
 Capital gains from sale of shares of stock Gross income = all income derived from whatever
not traded in the Stock of Exchange = 15% source, including, but not limited to the following
Sec. 29 Improperly Accumulated Earning Tax =10%
Check also the list.  Compensation for services in whatever form,
including but not limited to wages, salaries,
In general, sec 29 applies only to corporation fees
Exception;  Gross income derived from the conduct of
trade or business
 Publicly held corporations  Gains derived from dealings in property
 Banks and other nonbank financial  Interests
intermediaries  Rents
 Insurance companies  Royalties
 Dividends  Household personnel, such as maid, driver
 Annuities and others
 Prizes and winnings  Membership fees, dues and other expenses
 Pension borne by the employer for employee in social
and athletic clubs or other similar
Exclusion from Gross Income (LAGCIRM) organization
 Life insurance  Expenses for foreign travel
 Amount received by Insured as Return of  Holiday and vacation expenses
Premium  Educational assistance to the employee or
 Gifts, bequests, and devises his dependents
 Compensation for Injuries or Sickness  Life or health insurance
 Income exempt under Treaty The following fringe benefits are non taxable; (FCBD)
 Retirement benefits, pensions, Gratuities
– retiring official or employee has been in the  Fringe benefits which are authorized and
service of the same employer for at least 10 exempted from tax under special laws
years and is not less than 50 years of age at  Contributions of the employer for the benefit
the time of his retirement. The benefits of the employee to retirement, insurance and
granted can be availed only once. hospitalization benefit
 Miscellaneous items-  Benefits given to the rank and file employees
1) Income derived by Foreign government -  De minimis benefit – it refers to facilities and
income derived from investments in the privileges of relatively small value
Allowable Deductions
2) Income derived by the Government or its
Political Subdivisions Sec. 34 – Deductions from Gross Income, except for
3) Prizes and Awards made primarily in taxpayers earning compensation income arising from
recognition of religious, charitable, personal services rendered under an employer- employee
scientific, artistic, literary or civic relationship.
achievement, provided the recipient was
selected without any action on his part The allowable deductions are the following;
and he is not required to render (EITLBDDCRPO)
substantial future services as a condition
 Expenses
to receiving the prize or award
4) Prizes and Awards in Sports Competiton  Interest
5) 13th month pay and other Benefits  Taxes
6) GSIS, SSS, PAGIBIG, Medicare,  Losses
contributions and union dues  Bad Debts
7) Gains from the Sale of bonds,  Depreciation
debentures, or other Certificate of  Depletion of Oil and Gas Wells and Mines
Indebtedness.  Charitable and Other Contributions
 Research and Development
Sec. 33 Special Treatment for Fringe Benefits
 Pension Trusts
A final tax of 35% on the grossed up monetary  Optional Allowable Deductions – and
value (GUMV) furnished or granted to the employee by individual, other than a nonresident alien,
the employer, whether and individual, or a corporation may elect a standard deduction in an amount
not exceeding 40% of his gross
Computation of GUMV of fringe benefit sales/receipts, as the case maybe. In the
case of domestic and resident foreign
= Actual value of fringe benefit divided by 65%
corporation, it may elect a standard deduction
Fringe benefit defined; any good, service or other benefit in an amount not exceeding 40% of its gross
furnished or granted in cash or in kind by an employer to income
and individual employee, such as , but not limited to the
following;( HEVHMEHEL)

 Housing
 Expenses account
 Vehicle of any kind