PART I – INDIVIDUALS CORPORATIONS ESTATES & TRUSTS NOTES

tax rates Definition of Corporation: (Sec.60-66, NIRC)

The term “corporation” shall include partnerships, no *General
matter how created or organized, joint-stock companies, professional
joint accounts ​(cuentas en participacion)​, associations, or partnerships are
insurance companies, but does not include general not taxable
professional partnerships and a joint venture or because each
consortium projects or engaging in petroleum, coal, partner is taxed
geothermal and other energy operations pursuant to an as an individual.
operating or consortium agreement under a service
contract with the government. ​“General professional
partnerships”​ are partnerships formed by persons for the
sole purpose of exercising their common profession, no
part of the income of which is derived from engaging in
any trade or business. (Sec. 22B, NIRC)

CITIZEN (Sec. 24, NIRC) ALIEN DOMESTIC FOREIGN (Sec.28-29, NIRC)

RESIDENT NON-RESIDENT RESIDENT NON-RESIDENT RESIDENT NON-RESIDENT

Engaged in Not engaged

trade or in trade or
business business
(SEC.25A, (SEC.25B,
NIRC) → NIRC)
STAYS

>180DAYS

In general RT: RT: RT: RT: RT: 25% RT: 30% RT: 30% RT: 30%
0% - 35% 0% to 35% 0% to 35% 0% to 35% TB: GI from TB: NI from TB: NI from WI TB: GI from WI
(Ordinary/Regular Income TB: NI from TB: NI from WI; TB: NI from WI; TB: NI from WI WI & WO
Tax) WI & WO; Option for 8% Option for 8% FT if WI
Option for FT if <3M <3M
8% FT if <3M

Except:

1. Passive Income passive income defined:​ Passive income is income generated by taxpayer assets. It is not the income generated in the active pursuit and performance of
the corporations primary purposes.​ (Chamber of Real Estate v Executive Secretary, G.R. No. 160756, March 9, 2010)

a. Interest on RT: 20% FT RT: 20% FT RT: 20% ​FT RT: 20% FT RT: 25% FT RT: 20% FT RT: 20% FT NONE → they are
i. peso deposits TB: GI from WI TB: GI from WI TB: GI from WI TB: GI from WI not allowed to
 Except long term Except long term Except long term Except long open bank
(Sec.24B1, NIRC) (Sec.24B1, NIRC) (Sec.24B1, NIRC) term accounts in PH

ii. RT: 15% FT Exempt RT: 15% FT Exempt Exempt RT: 15% FT RT: 7.5% FT Exempt
Interest (based on Sec. 5 (based on Sec. 5 (based on
on of TRAIN) of TRAIN) Sec. 7 of
FCDU TB: GI from WI TB: GI from WI TRAIN)
Except long term Except long term
EXCEPT
Banks
(Sec.27D3)

b. Royalties (cf. RMC RT: 20% FT; 10% RT: 20% FT; RT: 20% FT; 10% RT: 20% FT; RT: 25% FT RT: 20% FT RT: 20% FT RT: 30% FT
7-2003 on Softwares) FT on books and 10% FT on FT on books and 10% FT on
other literary works books and other literary works books and
and musical other literary and musical other literary
compositions works and compositions works and
musical musical
compositions compositions

c. prizes RT: 20% FT for RT: 20% FT for RT: 20% FT for RT: 20% FT RT: 25% FT RT: 30% RT: 30%
Prizes> P10,000; Prizes> Prizes> P10,000; for Prizes> TB: NI from TB: NI from WI
schedular rate for P10,000; schedular rate for P10,000; WI & WO
Prizes​<​ P10,000; schedular rate Prizes​<​ P10,000; schedular rate
and for winnings for Prizes​< and for winnings for Prizes​<
from PCSO& Lotto P10,000; and from PCSO& Lotto P10,000; and
<​ P10,000, Exempt for winnings <​ P10,000, Exempt for winnings
from PCSO& from PCSO&
Lotto ​< Lotto ​<
P10,000, P10,000,
Exempt Exempt

2. Dividends Distinguish between Cash/Property Dividends, Stock Dividends, and Liquidating Dividends:
In the case of stock dividends, it is the amount that the corporation transfers from its surplus profit account to its capital account. It is the same amount that
can loosely be termed as the "trust fund" of the corporation. (Heirs of Gamboa v. Teves, G.R. No. 176579 (Resolution), [October 9, 2012], 696 PHIL
276-485)

A stock dividend, when declared, is merely a certificate of stock which evidences the interest of the stockholder in the increased capital of the corporation.
There is a clear distinction between a cash dividend and a stock dividend. The one is a disbursement to the stockholder of accumulated earnings, and the
corporation parts irrevocably with all interest therein; the other involves no disbursement by the corporation; the corporation parts with nothing to its
stockholder. When a cash dividend is declared and paid to stockholders, such cash becomes the absolute property of the stockholders and cannot be
reached by the creditors of corporation in the absence of fraud. The property represented by a stock dividend, however, still being the property of
corporation, and not of the stockholder, it may be reached by an execution against the corporation, and sold as a part of the property of the corporation. In
such a case, if all of the property of the corporation is sold under execution, then the stockholders certainly could not be charged with having received an
 income by virtue of the issuance of the stock dividend. If the ownership of the property represented by a stock dividend is still in the corporation and not in
the holder of such stock, certainly such stock cannot be regarded as income to the stockholder. The stockholder has received nothing but a representation
of an interest in the property of the corporation and, as a matter of fact, he may never receive anything, depending upon the final outcome of the business
of the corporation. (Fisher v. Trinidad, G.R. No. 17518, [October 30, 1922], 43 PHIL 973-1000)

"The ordinary connotation of liquidating dividend involves the distribution of assets by a corporation to its stockholders upon dissolution." (Klein, Federal
Income Taxation, 253-254.) Payments for surrendered or relinquished stock in a corporation in complete liquidation, sometimes called liquidating dividends,
are taxable income under the Income Tax Law. Act No. 2833, section 25 (a), as amended by section 4 of Act No. 3761. Payments for surrendered stock, or
so-called liquidating dividends, provided for in section 25 (a) of the former Income Tax Law were subject to both the normal and the additional tax.||| (Wise
& Co., Inc. v. Meer, G.R. No. 48231, [June 30, 1947], 78 PHIL 655-682)

a. Cash → RT: 10% FT RT: 10% FT RT: 10% FT RT: 20% FT RT: 25% FT If from a EXEMPT → a If with tax credit →
Distribution of Income domestic resident foreign 15%
corporation, corporation does
EXEMPT. not declare If no tax credit →
dividends in PH 30% (regular rate)
b. Property → RT: 10% FT RT: 10% FT RT: 10% FT RT: 20% FT RT: 25% FT
If from a because it does
Distribution of Income based on FMV based on FMV based on FMV
foreign not have See Sec.28B5b,
corporation, shareholders here NIRC → Tax
30%. Sparing provision
See also SC
Johnson case and
P&G case

c. Stock → Exempt Exempt Exempt Exempt Exempt Exempt Exempt 15% FT

Distribution of Income

d. Liquidating RT: RT: RT: RT: RT: 25% RT: 30% → RT: 30% → on the RT: 30% → on the
Dividends →​ 0% - 35% (regular 0% to 35% 0% to 35% ​(regular 0% to 35% on the net net capital gains net capital gains
Distribution of income tax) (regular income income tax) (regular income capital gains
Capital tax) tax)

Holding periods if <1y → 100% <1y → 100% <1y → 100% <1y → 100% <1y → 100%
applicable >1y → 50% >1y → 50% >1y → 50% >1y → 50% >1y → 50%
(Sec.39B, NIRC → (Sec.39B, NIRC (Sec.39B, NIRC → (Sec.39B, (Sec.39B,
applies to → applies to applies to NIRC → NIRC →
individuals only) individuals only) individuals only) applies to applies to
individuals individuals
only) only)
 Define capital asset:
The term 'capital assets' means property held by the taxpayer [whether or not connected with his trade or business], but does not include, stock in trade of
the taxpayer or other property of a kind which would properly be included, in the inventory of the taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business of a
character which is subject to the allowance for depreciation provided in subsection [f] of section thirty; or real property used in the trade or business of the
taxpayer. ​(Calasanz v. CIR, G.R. No. L-26284, October 9, 1986)

Define capital gains:

any gain resulting from the sale or exchange of an asset is a capital gain or an ordinary gain depending on the kind of asset involved in the transaction.
(Calasanz v. CIR, G.R. No. L-26284, October 9, 1986)

Define ordinary asset:

The statutory definition of capital assets is negative in nature. If the asset is not among the exceptions, it is a capital asset; conversely, assets falling within
the exceptions are ordinary assets.
Property initially classified as a capital asset may thereafter be treated as an ordinary asset if a combination of the factors indubitably tend to show that the
activity was in furtherance of or in the course of the taxpayer's trade or business. Thus, a sale of inherited real property usually gives capital gain or loss
even though the property has to be subdivided or improved or both to make it salable. However, if the inherited property is substantially improved or very
actively sold or both it may be treated as held primarily for sale to customers in the ordinary course of the heir's business. ​(Calasanz v. CIR, G.R. No.
L-26284, October 9, 1986)

3. Capital Gains from sale

of shares of stock

See RR 6-2013:
● Zonal value -
determined by
CIR, shown on
BIR website
● Market value -
determined by
assessor, shown
on tax
declarations

See also Sec.100, NIRC

as amended by TRAIN

a. not traded in RT: 15% FT RT: 15% FT RT: 15% FT RT: 15% FT RT: 15% FT RT: Not over RT: Not over RT: Not over
the stock exchange (see TB: net capital TB: net capital TB: net capital TB: net capital TB: net capital P100,000 - P100,000 - 5% FT; P100,000 - 5%
RR 6-08) gains realized gains realized gains realized gains realized gains realized 15% FT; On any amount in FT;
during the taxable during the during the taxable during the during the On any excess of On any amount in
year taxable year year taxable year taxable year amount in P100,000 - 10% excess of
(based on Sec. 5 (based on Sec. (based on Sec. 5 (based on (based on excess of TB: net capital P100,000 - 10%
 of TRAIN) 5 of TRAIN) of TRAIN) Sec. 5 of Sec. 5 of P100,000 - gains realized TB: net capital
TRAIN) TRAIN) 10% during the taxable gains realized
TB: net capital year during the taxable
gains realized year
during the
taxable year
(based on
Sec. 7 of
TRAIN)

b. traded in the RT: 0.6% RT: 0.6% RT: 0.6% RT: 0.6% RT: 0.6% RT: 0.6% RT: 0.6% RT: 0.6%
stock exchange TB: gross selling TB: gross TB: gross selling TB: gross TB: gross TB: gross TB: gross selling TB: gross selling
(Percentage Tax → see price or gross selling price or price or gross selling price selling price or selling price or price or gross price or gross
Sec.127, NIRC and RR value in money of gross value in value in money of or gross value gross value in gross value in value in money of value in money of
9-2018) the shares of stock money of the the shares of stock in money of money of the money of the the shares of stock the shares of
sold, bartered, shares of stock sold, bartered, the shares of shares of shares of sold, bartered, stock sold,
exchanged or sold, bartered, exchanged or stock sold, stock sold, stock sold, exchanged or bartered,
otherwise disposed exchanged or otherwise disposed bartered, bartered, bartered, otherwise exchanged or
which shall be paid otherwise which shall be paid exchanged or exchanged or exchanged or disposed which otherwise
by the seller or disposed which by the seller or otherwise otherwise otherwise shall be paid by disposed which
transferor shall be paid by transferor disposed disposed disposed the seller or shall be paid by
the seller or which shall be which shall be which shall be transferor the seller or
transferor paid by the paid by the paid by the transferor
seller or seller or seller or
transferor transferor transferor

4. Capital gains from sale RT: 6% FT RT: 6% FT RT: 6% FT RT: 6% FT RT: 6% FT RT: 6% FT 30% Income Tax 30% Income Tax
of real property TB: gross selling TB: gross TB: gross selling TB: gross TB: gross TB: gross
price or current fair selling price or price or current fair selling price selling price or selling price or
market value as current fair market value as or current fair current fair current fair
determined in market value as determined in market value market value market value
accordance with determined in accordance with as determined as determined or zonal
Section 6(E) of accordance Section 6(E) of in accordance in accordance value,
NIRC, whichever is with Section NIRC, whichever is with Section with Section whichever is
higher 6(E) of NIRC, higher 6(E) of NIRC, 6(E) of NIRC, higher
whichever is whichever is whichever is
higher higher higher

Except:

a. Sale of principal RT: Exempt (sale RT: Exempt RT: Exempt (sale RT: Exempt RT: Exempt
residence (See procedure or disposition of (sale or or disposition of (sale or (sale or
for claiming exemption → principal residence disposition of principal residence disposition of disposition of
RR 13-99 and 14-00) by natural persons, principal by natural persons, principal principal
 proceeds of which residence by proceeds of which residence by residence by
is fully utilized in natural is fully utilized in natural natural
acquiring or persons, acquiring or persons, persons,
constructing a new proceeds of constructing a new proceeds of proceeds of
principal residence which is fully principal residence which is fully which is fully
within 18 calendar utilized in within 18 calendar utilized in utilized in
months from date acquiring or months from date acquiring or acquiring or
of sale or constructing a of sale or constructing a constructing a
disposition) new principal disposition) new principal new principal
residence residence residence
within 18 within 18 within 18
calendar calendar calendar
months from months from months from
date of sale or date of sale or date of sale or
disposition) disposition) disposition)

5. Salaries & wages n/a n/a n/a n/a n/a

received from RHQ,
ROHQ, OBU and
Petroleum contractors and
subcontractors (see
provisions of TRAIN
vetoed by the President)

6. proprietary educational RT: 10%;

institutions 30% if GI from
unrelated
trade,
business or
other activity
>50% of total
GI

7. International carriers RT: 2 ½%

TB: gross PH
Billings

8. Offshore Banking Units RT: 10% FT

(OBU)
9. Branch Profit RT: 15%
Remittance → remitted by TB: Total profits
resident foreign applied or
corporation to its parent earmarked for
company abroad remittance without
any deduction for
the tax component
thereof

10. Regional Headquarters RT: 30% Exempt RT: 30%

(RHQ) → defined in (Sec.28A6a,
Sec.22 DD, NIRC NIRC)

11. Regional Operating RT: 30% RT: 10% RT: 30%

Headquarters (ROHQ)→ (Sec.28A6b,
defined in Sec.22 EE, NIRC)
NIRC (basically a branch
of a multinational
corporation)

12. Cinematographic firm RT: RT: RT: RT: RT: 25% RT: 30% RT: 30% RT: 25%
owner, lessor, distributor 0% - 35% 0% to 35% 0% to 35% 0% to 35% TB: GI from TB: NI from TB: NI from WI TB: GI from WI
TB: NI from TB: NI from WI; TB: NI from WI; TB: NI from WI WI & WO
WI & WO; Option for 8% Option for 8% FT if WI
Option for FT if <3M <3M
8% FT if <3M

13. Owner or lessor of RT: RT: RT: RT: RT: 25% RT: 30% RT: 30% RT: 4 ½ %
vessels chartered by 0% - 35% 0% to 35% 0% to 35% 0% to 35% TB: GI from TB: NI from TB: NI from WI TB: gross rentals,
Philippine nationals TB: NI from TB: NI from WI; TB: NI from WI; TB: NI from WI WI & WO lease, or charter
WI & WO; Option for 8% Option for 8% FT if WI fees from leases
Option for FT if <3M <3M or charters to
8% FT if <3M Filipino citizens or
corporations

14. Owner or lessor of RT: RT: RT: RT: RT: 25% RT: 30% RT: 30% RT: 7 ½ %
aircraft, machineries and 0% - 35% 0% to 35% 0% to 35% 0% to 35% TB: GI from TB: NI from TB: NI from WI TB: gross rentals
other equipment TB: NI from TB: NI from WI; TB: NI from WI; TB: NI from WI WI & WO or fees
WI & WO; Option for 8% Option for 8% FT if WI
Option for FT if <3M <3M
8% FT if <3M
15. Interest on foreign RT: RT: RT: RT: RT: 25% RT: 30% RT: 30% RT: 20% on gross
loans 0% - 35% 0% to 35% 0% to 35% 0% to 35% TB: GI from TB: NI from TB: NI from WI interest
TB: NI from TB: NI from WI; TB: NI from WI; TB: NI from WI WI & WO
WI & WO; Option for 8% Option for 8% FT if WI See Sec.27D3 cf.
Option for FT if <3M <3M See Sec.27D3 Sec.27D1
8% FT if <3M cf. Sec.27D1 See also RCBC v.
See also CIR
RCBC v. CIR

16. Fringe Benefits Tax Fringe benefit defined:

Section 33 (B) For purposes of this Section, the term “fringe benefit”means any good, service, or other benefit furnished or granted in cash or in kind by any
See RR 3-98, RR8-18, employer to an individual employee (except rank-and-file employees as defined herein) such as, but not limited to, the following:
TRAIN (1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life and health insurance and other non-life insurance premiums or other similar amounts in excess of what the law allows.

a. Rank-and-file Not taxable Not taxable Not taxable Not taxable Not taxable Not taxable Not taxable

b. Supervisory/ FT: 35% FT: 35% FT: 35% FT: 35% FT: 35% FT: 35%
Managerial
17. Improperly RT: 10% RT: 10%
Accumulated Earnings Tax

LEGEND:
Rate of Tax (RT) - ie 0%-35%, 10%, not subject/exempt; Final Tax (FT)
Tax Base (TB) – ie. Net Income (NI), Gross Income (GI), etc…
Whether taxed on income from within and/or without (WI, WO)