ANGELES ANABEL L

CHAPTER 10: Compensation Income

TYPES OF EMPLOYESS BENEFITS
as to FUNCTION Excess of De minimis Other FB
Managerial *do routinary or clerical jobs
*execute managerial policies
*hire, suspend....,employees FINAL
FRINGE
Supervisory *suggest maganerial actions BENEFIT TAX 35%
*independent judgement
13th month pay
Rank and File *neither of the two mentioned!! & other benefits

as to TAXABILITY Note: NO SPECIAL ALIEN IN TRAIN LAW

1. MWE *EXEMPT! for compensation + HHON Benefits!
NOTE: COLA- part of MW Income! not other benefit
GR: MW INCOME-exempt!
XP: Oher taxable Income-250K RULE! Excess-subject to WT
Public minimum wage
5K/month or 60K/year
Private < Statutory minimum wage= HIGHER OF
rate by RTWPB of DOLE
CHANGE IN STATUS
Reg to MWE (T)- Only the income earned as Regular employee!
(a) employer with MW
TRANSFER TO
(b) region with higher MW
MWE to Reg (T)- Only the income earned for the rest of T.Y
(a) employer with above MW
TRANSFER TO
(b) region with lower statutory MW
 (c) by DISQUALIFICATION
2. Regular *progressive tax
WT-Withholding Tax whether citizens/aliens!! EMPLOYER-withholding AGENT
HOW TO COMPUTE? (1) TOTAL monetary and non-monetary compensation XP: NON-TAXABLE, MANDATORY BENEFITS & SUPPLEMEN
(2) TAX BRACKET applicable for payroll period (REG. Comp - base amount)
(3) Supplemental Compensation ADD excess of reg. compensation
(4) Basic Tax ADD Incremental Tax
YEAR-END ADJUSTMENT UNDER-WITHHOLD deducted to final payroll
OVER-WITHHOLD refunded to the employee
EXEMPT TO WT!!
REMUNERATION/S (1) incidents of employment
(2) agricultural labor & $ for products of the FARM where service is performed
(3) domestic services
(4) casual labor-not business of employer --OTHER INCOME!
(5) workers of foreign institution/gov't (citizen/resident) NOT WITHHOLD!
(6) BASIC EXLUSION!!
DEADLINE!!!
Who shall File? EMPLOYER
Doc to be file
1601-C Monthly Remittance Return of Income Taxes W.O.C on/b4 10th day of month after withholding
GOV'T XP: Withhold-DEC due: JAN 15 next year
1604-CF Annual Information Return of Income Taxes W.O.C & FWT on/b4 Jan 31 following calendar year in w/c payments are made
EMPLOYEE 2316 Cert of Compensation Payment/ Income Tax Withheld on/b4 Jan 31 next year
NOTE!! Employee w/ income sucject to RIT- consolidated ITR LESS WT on compensation
SUBSTITUTED FILING OF TAX RETURN- if the employer files ITR *employee*no need to file!!
NON TAXABLE COMPENSATION
1. Mandatory Deduction- employee's contribution
2. Exempt Benefits
 EXEMPT BY NIRC & SPECIAL LAWS
Exempt de minimis benefits PUBLIC PRIVATE
Vacation Leave Regardless of T
Sick Leave # of days < 10 DAYS

Terminal Leave Pay- involuntary separation < 10 DAYS

Rice Subsidy < 2,000/month or 1sack-50kg

Uniform and Clothing < 6,000/year
Actual Medical Assistance < 10,000/year
Laundry < 300/month
employee achievement < 10,000
award (TANGBILES ONLY!)
GIFTS Xmas/Major Anniv < 5,000/year
Daily meal allowance < 25% of basic MW
(overtime, night/graveyard) per region basis
< 10,000 (TOTAL)
CBA&Productivity incentive NOTE: if exceeds- colective bargaining agre
ENTIRE AMOUNT(T)
Christmas Bonus 13th month pay 13th month & OB
Christmas Gift & other benefits De minimis
13th Month Pay &
Other Benefits < 90,000

13th Month Pay & Xmas Bonus=1month 13th =1 month salary

salary + 5k cash gift
14th, 15th, etc month pay
OFB- rank &file
Other Bonus
 Other Bonus ACA- Christmas Bonus
Addt'l Compensation
Allowance Cash gifts XP-xmas/anniv
Remunerations received by INCIDENTS OF EMPLOYMENT
1 EXEMPT retirement benefits
2 EXEMPT termination benefits
3 USVA benefits
4 SSS, Retirement gratuties, pensions and other beneifts from
FOREIGN GOV'T& OTHER INSTITUTION-public/private
5 SSS, GSIS benefits
EXEMPT UNDER TREATY OR INTERNATIONAL AGREEMENT
GR: Aliens & NRC
XP: RC XP to XP UN and its Req.
Specialized Agencies Confirmation of Tax Exemption
AUSAID Where to get?
FAO International Tax Affairs Division
WHO IF NONE
UNDP STILL TAXABLE
IOM
ISA
NECESSITY OF THE EMPLOYER'S RULE
GR: Expensed by business assumed by EMPLOYEE therefore not and income
1 Substantial Expense--amount retained by employee is now AN INCOME
2 RATA- Representation and Transportation Allowance
3 PERA- Personnel Economics Relief Allowance
4 Pre-computed RATA on daily basis while on duty reasonable amounts!!
CONVENIENCE OF THE EMPLOYER'S RULE
*ensure smooth operation
HYBRID EXPENSE 1. Business Expense reasonable amount
2. Employee Benefits unreasonable= taxable FB
REGULAR COMPENSATION
*based on payroll
*FIXED remuneration
TAKE NOTE!!
1.Basic salary 3. paid vacation and sick leaves - normally received
2. FIXED ALLOWANCES
*COLA, RATA, others
XP: Necessity of the employer's rule
subject for liquidation
variable & liquidated

in SHARES FV @ date of service

SUPLEMENTARY COMPENSATION
*performance-based 1. excess of 90k rule
*with or w/o payroll 2. HHON XP: MWE
3. Commissions
4. Fees + Director's fees if employed
5. emoluments and honoratia
6. taxable retirement & separation pay
7. value of living quarters/meals XP: Convenience rule
8. gains from exercise of stock options value of option = DISCOUNT @ EXERCISE DATE
9. profit sharing and taxable bonuses GR: all factors
XP: SOLELY FOR PRODUCTIVITY---> de minimis

PROFIT SHARING PRODUCTIVITY INCENTIVE

IF there is Profit Profit or Loss
BENEFITS & SUPPLEMENTAL
olective bargaining agreeement
Angeles, Anabel L.

FRINGE BENEFIT TAX

Fringe Benefits Labor Law all benefits other than basic pay
NIRC benefits furnished by employer to employee

Fixed FB Regular Compensation

Performance-based FB Supplementary Compensation
Incentives FB 13th month pay & OB
FB-convenience & necessity rule EXEMPT
OB Rank & file
OTHER FB
FFBT managerial & supervisory

General Categories
(a) mgmt perquisite benefits *"mgmt perks"
*non-performace based
*given to special group of employees
(b) personal expenses paid by employer *NOTE* FB even under the name of employer
HYBRID EXPENSE- ONLY THE 50% INCENTIVE of employee
(c) taxable de minimis *excess of de minimis limit
*not included in de minimis list

EXEMPT!!
1 FB under special laws (employer's share to SSS..) XP: voluntary / excess of mandatory
2 based on necessity & convenience rule
3 Employer's contribution to retirement, insurance & hospitalization benefits
4 FB of rank & file employees
5 w/in the de minimis limit

Fringe Benefit Tax (FBT) HEV-HIM-HELF

*given to managerial/supervisory (in cash / in kind)
*regardless to the taxability of employer

CHARACTERTISTICS 1. FT
2. Tax to EMPLOYEES
3. paid by EMPLOYER
3. gross-up tax (a) MV-monetary value
(b) GP %-gross up rate (100%-FB %)
(c) MV .= $GP
GP%
(d) $GP * FBT %= FBT

RULES FOR MV
in cash amount paid
in kind FV of thing
HIGHER
BV of thing
furnished 50% of rental value
*free use* IF NONE: depreciation value=

*if discontinued=stop reporting MV

SPECIAL GUIDELINES
Housing Benefits GR:

*IN CASE O

XP:

EXEMPT Housing Benefits

Expense Account GR:

Vehicles, any kind GR:

NOTE:

WHEN TO REPORT?

*ONLY THE P
MV= Amount paid by employer
*no
MV= 50% benefit
 NOTE: % not used in business is n

XP:

Household Expenses GR:

Req:

Interest on Loan GR:

at less than Market %

Membership fees, dues, GR:

& other exp borne by employer for social & athletic clubs / othe

Holiday and Vacation GR:

Expense

Educational Assistance
to the employee/dependents

Life or health Insurrance & GR:

other non-life/similar XP:
amounts in excess of what
law allows

Foreign Travels Reasonable business expenses

EXEMPT:

REQ: proof
4. due QUARTERLY for family--taxable in full
*1603Q
*on/b4 last day of month after withholding
me of employer

oluntary / excess of mandatory

spitalization benefits

presumed: net of tax Residents/ 68%-32% Old Law

rate (100%-FB %) Citizen 65%-35% TRAIN LAW
FBT %
.= $GP
NRA 75%-25%
BT
 FV of thing
BV of thing
alue Depreciation DV
eciation value= real 20 yrs 1/20
personal 5 yrs 1/5
d=stop reporting MV

INSTALLMENT BASIS!!
MV=50% of benefits (rents)
Annual Value=
*NO RENTAL VALUE*
DV Annual
Annual Value= Zonal Q
5% HIGHER VALUE
Assessed
Annual Value / 4 quarters= Quarterly Value
Quarterly Value * 50% = QMV

*IN CASE OF TRANSFER OF OWNERSHIP*

Zonal Value
MV= 100% HIGHER
Acquistion Cost

NOTE: Transfer for less than adequate consideration

FMV Consideration
MV= 100% HIGHER LESS paid by employeE
Zonal Value

Installment Basis

EXEMPT Housing Benefits

* 50 m rule (perimeter of business premises) XP: For health/safety- location is farther
* 3 month rule (temporary housing)
* housing for military officals

MV= amount paid

req: personal expense of employee

MV=50% of benefits (rents)

IN CASH/ XP: CASH is part of compensation income
IN KIND

WHEN TO REPORT? Quarter of purchase/payment

*ONLY THE PORTION IS PAID BY EMPLOYER*

MV= Amount paid by employer
*no transfer of ownership*
MV= 50% benefit
 NOTE: % not used in business is not depreciated
YATCH= NOT USED IN BUSINESS(RP)
XP: Solely for entertainment
HENCE, DV= entertainment, amusement & recreation expense
AIRCRAFT= SOLELY FOR BUSINESS
Installment Basis

MV=amount paid by employer

borne by employer for household expenses
NOTE: % not used in business is not depreciated

MV= % FORGONE by employer [12%-employer's%]

MV=amount paid by employer

er for social & athletic clubs / other similar org

MV=amount paid by employer

GR: MV=amount paid by employer

XP: exempt from FBT
Employee for convenience of employer *for business
*with contract
DEPENDENTS for competitive scheme under scholarship program of company

MV=amount paid by employer

employer's contribution to SS..
cost or premium for group insurance of employees

Reasonable business expenses

Inland travel expenses
Lodging costs average of 300/day OR LESS
Economy and business class airplane tickets
70% of first class ticket

REQ: proof
for family--taxable in full

month after each quarter

 INSTALLMENT BASIS!!
5% RP
Annual Value= acquisition cost EXCLUSIVE of interest
20% PP
Annual Value / 4 quarters= Quarterly Value
Quarterly Value * 50% = QMV

ation is farther
Angeles, Anabel L.

Dealings in Properties
GR: Ordinary Assets RIT CGTT
Capital Assets RIT XP: Domestics Stocks-DTB 15%
Real Properties-w/in 6%

How to Compute G/L OG

item of gross income
Selling Price NCG
Less: Tax basis/adjusted cost of asset disposed
G/L

RULES FOR TAX BASIS

1. BY PURCHASE
*ACQUISITION COST *DEPECIATED COST
>Capital Assets Purchase price
>non-depreciable assets Tax Assumed
>purchase in less consideration Acquisition related cost--commisions
FV @ DOP - amount paid

2. BY EXCHANGE
Gratuitous Title
2.1 Donation
FMV @ date of gift
LOWER
tax basis to last owner (acquired by purchase)

Tax Free Exchange GR: NO G/L

2.3 Share for Share 2.4 share to non-cash consideration
tax basis of shares received substituted basis=
.=tax basis of given/exchanged

1. Merger & Consolidation

GR: No G/L subject of exchange
*Solely for the stock of another corpo* 1. Property
2. Stock
MERGER VS CONSOLIDATION(2/MORE) 3. Securities
A+B=AB A+B=A,B,C XP:
 A+B+C=A,B,C,D

substantially all=at least 80% of asset FOR PERMANENCE NOT FOR HOLDING!

HOW TO GET INDICATED GAIN?

FV of received recognize gain=up to the extent of cash received
LESS: Tax basis of given up BUT IF INdicated gain<$ of cash & other properties--->r
Indicated Gain!

2. Initial Acquisition of Corporate Control property-given

GR: No G/L stocks/control-received
NOTE: $ of stocks is NOT A return of property
MAX of 4 persons + YOU

TAXABLE EXCHANGES
1. Share-share or property-share---not for merger or consolidation LOSS IS NOT RECOGN
2. transfer of properties --not result for corporate control
3. transfer of properties to related party(controlled corpo)after initial acquisition of cont

Exchange of stocks + others

GR: Merger & Consolidation--NO REALIZED G/L
XP: Received other than shares but only up to the extent of others(cash/property)

IN SHORT!!
gain from stocs---NO G/L
gain from other than stocks---REALIZED GAIN NO LOSS RECOGNIZE

REMEMBER Dealers Non-dealers

DC CG-CGT 15%
OG-RIT
FC CG-RIT w/Holding period

EFFCET OF STOCK SPLIT/DIVIDENDS DECLARATION

*TAX BASIS=ADJUSTED COST
Orig amount
.=. new $/share
orig+dividends

SP
LESS: Tax basis of shares sold
GAIN

Sales with EMOC assumed by buyer

Cash received
ADD: EMOC
ORDINARY GAIN
 STT
Via PSE 0.60%

OL
tem of gross income item of deduction
NCL

ated cost--commisions

2.2 Inheritance
FMV @ date of death

on-cash consideration *transferor*

bstituted basis= Tax basis of shares exchanged
ADD: Gain recognized
Amount treated as dividends to SHS
LESS: Cash & FV of other properties received
TAX BASIS OF THE NEW SHARES RECEIVED BY TRANSFEROR

*transferee*
Original basis in hands of transferor
ADD: Gain recognized by transferor
TAX BASIS OF THE NEW SHARES RECEIVED BY TRANSFEREE

bject of exchange
ALTERNATIVE!
FV of exchanged
LOWER
all including bonds&debenture transferor basis
Notes of whatever class/duration ADD: Cash&other properties exchanged
 TAX BASIS OF THE NEW SHARES
RECEIVED BY TRANSFEREE

t of cash received
& other properties--->recognzied gain=indicated gain the rest is unrealized

TRANSACTIONS CONSIDERED AS EXCHANGE

n LOSS IS NOT RECOGNIZED
nitial acquisition of control is taxable
ash/property)
1. Retirement of bonds, debentures, notes, certs,
and other evidence of indebtednedd
2. Short sale of properties
3. Failure to exercise a privilege or option to buy or
sell property that is a capital asset
4. Security becoming worthless
5. Receipt of liquidating dividends
6. Amount received in partnership's liquidation=
exchange of partner's interest on the parnership
7. Redemption of shares for cancellation/retirement
8. Voluntary buy-back of shares

WASH SALES ONLY FOR NON DEALERS OF SECURITIES

61 days rule
substantially identical shares

*FOREIGN SHARES
*DEBT SECURITIES(foreign/domestic)

REMEMBER!
IF REPLACED Deferred Loss to be deducted to the next sales
IF NOT Deductible Loss
Angeles, Anabel L.

Principles of Deductions
TAKE NOTE!
INDIVIDUALS
1. Pure compensation earner 250k rule Non-taxable compensation
2. Pure Business/professional earner Allowable
3. Mixed Earner Deductions .=business expenses ONLY

Personal Expense vs. Business Expense vs. Capital Expenditure

incurred for the
family expenses business/practice
of the taxpayer of profession

benefit the current benefit future

accounting period accounting period
only

deduction for current asset upon acquisition

accounting period later treated as deuction
for the future gross income

RULES FOR DEDUCTION!

Non depriable asset
Depreciable

Intangible Assets

Inventory

Prepaid Expense

SPECIAL CONSIDERATIONS
1. Property repairs and improvement
gr: capitalized if it INCREASE FV/UL BUT!! only up to the extent of aprreciated in FV, the
 IF NOT---EXPENSE! Just restore the value
new fv is not available---> repair less tax b
GR: OLD BLDG excess-- only the amount
FV net of scrap value addt'l cost of land
Demolition Cost addt'l cost of new bldg
2. Propety acquisition related costs
GR: PPE addt'l cost of PPE subject to depreciation
GOODS addt'l cost of goods expensed as part of COGS
FINACIAL ASSET IT DEPENDS SA TAXPAYER, whether outrigh expense/capitalized

3. Security Issue Cost bonds and stocks

GR: DEDUCTION against the proceeds of securities
NOT IN GROSS INCOME!

4. Manufacturing Expenses
GR: addt'l cost of goods
expenses as COGS
5. Effects if Accounting Methods on Deductions
*cash basis when paid REMEMBER!
*accrual basis when incurred BIR-mukhang pera!!
.--->Prepayments & capital expenditures a

6. Effect of VAT on Deductions

INPUT VAT--buyer's POV
VAT taxpayers tax credit
Non- VAT DEDUCTION--part of the purchase cost

General Principle of Deductions fro Gross Income

1. LOAN Principle
Legitimate *incurred for current period Ordinary *normal for business
*not capital expenditure *also paid by other in same
*incurred for business/profession
*lawful GR: Extraordinary expenses-->N
*w/receipts & other documents XP: necessity & connection to
proved by taxpayer!

GR: BOTH ordinary & necessar

XP Disallowed by BIR

2. Matching Principle
.-->Expenses incurred under gross income subject to CGT, FT & Special Tax are not matched / dedu
Non-deductible
1 exempt income
 2 income subject to special tax regime
3 business expenses of taxpayer subject to FIT
4 expenses & taxes on income subject to CGT, FIT
5 foreign business expenses of taxpayer's taxable only within
6 loss of inomce not yet recognized in gross income

3. Related Party Rule

GR: GAINS taxable Req-->occurs between related parties
LOSSES NON-DEDUCTIBLE Transfer Pricing Rule--->arm's length

Who are RP?

1 members of a family
2 xp: cases of distribution in liquidation
*under directl indirect control .-corpo by same individual
.-individual of a corporation
3 grantor and fiduciary of any trust
4 fiduciaries of trusts w/ same grantor
5 fiduciary of a trust and beneficiary of such trust
 BUSINESS sale of goods/services REMEMBER:
mpensation exercise of profession Self-employed=BUSINESS
Employment NOT BUSINESS
.=business expenses ONLY Mixed Expense incurred for both business and personal

ross income

SP-Cost
Straight Line Method Acquisition Cost-Salvage Value OR SIMPLY Depreciation % * Depreciabl
UL in years

Sum of the Years Method remaining UL OR SIMPLY (n+1)

sum of the UL n* 2

Declining Balance Method IGNORE SALVAHE VALUE! FOR DEPRECIATION EXPENSE

recognized at the eoy

amortizable lose value over time expensed LOWER OF LEGAL & EXPECTED USAGE LIFE
non-amortizable do not lose value not depriciated

deduct when used/sold

COGS/Supplies Expense

deducted in future period as they expire/used

t of aprreciated in FV, the rest is EXPENSE Replacement of old/destroyed properties


vailable---> repair less tax basis
excess-- only the amount capitalized
utrigh expense/capitalized then depreciate
ts & capital expenditures are not deducted outright
*normal for business
*also paid by other in same line of business
Extraordinary expenses-->NOT DEDUCTIBLE
necessity & connection to business/profession
proved by taxpayer!
BOTH ordinary & necessary--->DEDUCTIBLE
Disallowed by BIR
x are not matched / deducted to G.I subject to RIT
$ of destroyed---deductible loss
$ of replacement--capitalized
Necessary *reasonable & essential
Factors assessing reasonableness
TV-ING
1 Type and size of business ni TAXPAYER
2 Volume and amount of net earnings
3 Intention of taxpayer
4 nature of expenditure itself
5 general economic conditions
GR: Proof of validity & reasonableness---->taxpayer
4. Withholding Rule
withholding agents--->payor's of income
GR: NO WITHHOLDONG, NO DED
 For compensation
For Final tax
Expanded Withholding tax

Timing of Withholding'
whichever is EARLIER
ated parties payment
g Rule--->arm's length income payment is due or payable
recording income as asset/expense in boo

CLASSIFICATION OF DEDUCTION
1.Cost of sale/services
2.Regular Allowable Itemized Deducations
3. Special Allowable Itemized Deductions
4.NOLCO

MODE OF CLAIMING DEDUCTIONS FROM GROSS INCO

1. ITEMIZED
2.OPTIONAL STANDARD
ed=BUSINESS
t NOT BUSINESS
GET THE AMOUNT FOR BUSINESS ONLY! FOR THE DECDUCTIONS

Depreciation % * Depreciable Cost

if sold before fully depreciated

2/Life 200%
1.5/Life 150%

CTED USAGE LIFE

 Actual *paid for the obligation of taxpayer
LOSS--->sustained/realized with closed & completed transaction
therefore: NO RIGHT OF RECOURSE FOR REIMBURSEMENT
/ INDEMINIFICATION FROM OTHER PARTIES
ni TAXPAYER
Non-deuctible
1 Decrease in value of properties / investments
2 Estimated future loeses
3 Loss on properties covered by insurance / indemnity contracts

ableness---->taxpayer

agents--->payor's of income
NO WITHHOLDONG, NO DEDUCTION
 EXPENSE TYPE
compensation expense 1601-C .-on/b4 10th day of next
certain passive income and FB 0619-F month after withholding
OTHER INCOME PAYMENTS-RIT 0619-E efps- group deadlines

Late payment
.-still deductible

ment is due or payable

come as asset/expense in book

zed Deducations
zed Deductions

UCTIONS FROM GROSS INCOME

w/list of expenses for deductions
fixed % of gross income for deductions
SP-BV
 MBURSEMENT
HER PARTIES

demnity contracts
Angeles, Anabel L.

Regular Allowable Itemized Deductions

REMEMBER
LIT-BaDe2- ChaCoReO

1. Interest Expense .--->not directly related to business/profession

Req: valid
legally due
in writing
indebtedness of taxpayer
connected with business/profession
paid/incurred during taxable year
not between the realted taxpayers
not used for petroleum operations
not used as capital expenditure
not disallowed

non-deductible
from: personal loans Business taxes(VAT ONLY).---->buyer n
w/relaed party Surcharge or penalties on delinquent
pre-deducted/discounted
petroleum operation
redeemable preference shares
imputed interest

2. Taxes
Req: w/in taxable year
connected to business/profession

XP: Phil income taxes(FT,RT,CGT) xp: FBT not costs of earning incom
Foreign income tax,if claimed as tax credit
estate tax & donor's tax
special assessment capitalized to cost of land

Foreign Inocme Tax

either: deduction
tax credit diretso deduct sa total gross income
 ileless sa world taxable income tax due
REMEMBER: LOWER: actual foreign income tax paid
tax limit
who can claim?
RC-DC ONLY!!

REFUNDS OR CREDIT OF TAXES

*reverted back to the gross income only to the extent of tax benefit

3. LOSSES
*w/in the year
*not compensated by any insurance or indemnity contracts

REQ: Business loss

ordinary loss
actually sustained
filed w/in 45 days from the date of discovery
not used as deduction for estate return---double deduction is not allowed!

1. Loss of value of asset
2. loss on insured property
3. abandonment loss
4. Loss from wagering
transaction or passive
activities
DEDUCTIBLE IF!
acutually sustained
excess of tax basis over insurance reimbursement
w/ notice of abandonment w/ CIR BUT if resumed/reuse REVERT BACK TO G
up to the extent of gains from transaction

4. BAD DEBTS RELATED TO LOSS ON INCOME DAPAT!!!

REQ: ascertained to be worthless remember: ESTIMATED BDE.--->not deductible
charged w/in the taxable year
related to business/profession
accrual basis
not incurred w/ related party

5. DEPRECIATION
SLM SPECIAL RULES
DBM 1. Life tenancy to a property as if life tenant were the a
SOTY 2. Property held in trust Dep expense is based on th
recommended by CIR 3. Depreciation on revalued Dep expense is based on th
 property
4.Rules on Deductibility of
Depreciation on Passenger
Vehicles
.*proof of purchase
.*proof of connection to b
.* official and employee--1
.*NO DEPRECIATION (yatc

AMORTIZATION of Intangible Asset

same rule for those w/ definite useful life PRIVATE EDUCATIONAL
do not lose valu---->NO AMORTIZATION INSTITUTION

6. DEPLETION
wasting asset--> cost of acquistion/improvement of tangible property
Intangible exploration, drilling and development costs

tangible exploration &

development drilling costs

intangible costs 1. PETROLEUM

2. MINING

1. BEFORE prodcution
2. AFTER production

7. CHARITABLE & OTHER CONTRIBUTION

REQ: donee--->domestic institution
no benefit for stockholder/any individual
contribution--->tax basis of donation
taxpayer is engaged in trade or business
donee--->CERT IF DONATION
Donation < 5,000 donor should file NOTICE OF DONATION TO RDO w/in 30 days upon receipt of cer

IF NOT ACHIEVED:
non-deductible

IF ACHIEVED:
Fully deductible PTA
donee: goverment / priority activities
 political based sa NEDA
subdivision

foreign institution in lined w/ treaties, agreement

/international org or special laws

accredited domestic ACCREDITORS: DSWD

NGO DOST
Phil Sports Commission
Nat'l Counvil for Culture & Arts
CHED
NOT ACCEPTED
.--->Phil Council for NGO certification PCNC

DONATION >1M
donor: notify RDO w/in 30 days upon receipt of
cert of donation

8. CONTRIBUTION TO PENSION TRUST

DEDUCTION
Defined contribution plan amount of contribution
Defined benefit plan either or both: funding of past service cost
funding of current service cost

REQ: employer-->pension/retirement fund

soun and reasonable assumption
funded by employer
independent-->fund asset
current service cost---deduct in full
past service cost---amortized for 10 yrs

9. RESEARCH AND DEVELOPMENT COSTS' a) related to capital accounts

Research=new knolwedge .-->capitalized then depreciated
Develpment=new application of knowledge
b) not related
.--->outright expense OR
Deferred expense amortized >60 mon

10. OTHER EXPENSES

 Deductible Interest Expense
TAKE NOTE: Gross Interest Expense
(Arbitrage limit/cap) .---->GROSS interest income subject to FT (33%)
Deductible interest

for corporate taxpayer

(Arbitrage limit/cap) .--->(corpo rate -FT interest income rate)/corpo rate
1/3 of income
REMEMBER!!
Interest income-->from banks in phil XP:thrift banks
arbitrage limit.--->to all taxpayer subject to RT
AYAW NI BIR NG ADVANCE EXPENSE!!.--->pre-deducted discounts/prepayment

GR: Interest for property used in business/profession

either a)deduction
b)capital expenditure

xes(VAT ONLY).---->buyer nagbabayad kayadi mo sya expense

or penalties on delinquent taxes

other deductible expenses

from: tax delinquency
scrip dividends
% TAX
excis tax
doc stamp tax
occupational tax
not costs of earning income license tax
FBT
Local taxes xp: special assesment
capitalized to cost of land KAYA HINDI EXPENSE community taxes
municipal taxes
foreign if not claimed as tax credit

duct sa total gross income

 NOTE: MULTIPLE COUNTRIES
1. Compute for separate limit per country
Foreign taxable income 2. world income tax credit limit
world taxable income * phil income tax due

GR: Ordinary loss.--->automatic deductible

Capital loss.--->only up to the extent of capital gains

GR: Replacement/restpration of destroyed properties

TOTAL REPLACEMENT.---------> tax basis.=loss
replacement.=capitalized cost

PARTIAL REPLACEMENT.------>
restoration/replacement cost
expense up to
the extent of the tax basis

d/reuse REVERT BACK TO GROSS INCOME

not applicable to CASH BASIS!!

not deductible

as if life tenant were the absolute owner

Dep expense is based on the % of share
Dep expense is based on the acquisiton cost impairment loss--only upon disposal
 .*proof of purchase
.*proof of connection to business/profession
.* official and employee--1 land vehicle<2.4M
.*NO DEPRECIATION (yatch,airplane, helicopter and land vehicle exceding the threshold
XP: Business is related to transport operation or lease of such

Capital expenditure---> outright expense

deduction thru allowance for depreciation

subject to depreciation

1. PETROLEUM useful life

A. DIRECTLY USED SLM/DBM 10 YRS OR SHORTER
B. NOT USED DIRECTLY SLM 5 YEARS

2. MINING
useful life
< 10 yrs normal rate of depreciation
> 10 yrs depreciated between 5-10 years

1. PETROLEUM no salvage value

no depreciation

1. BEFORE prodcution capitalized cost of wasting asset

2. AFTER production non producing well/mines--->deduction agad period paid/incurred
producing well/mines---------> a) capitalized then amortize (cost depletion
b)deduction agad

30 days upon receipt of cert of donation

partially deductible(w/ limit) LOWER OF Contribution subject to limit

not in accordance to Deduction limit
 priority activities

non-accredited NGO/DC

past service cost contribution to the fund is approriated to past & current cost
current service cost 1. current service cost
2. excess from contribution & current cost--->amortized for 10 yrs

current cost + amortized cost=DEDUCTIBLE PENSION EXPENSE

o capital accounts
zed then depreciated

ht expense OR
xpense amortized >60 months starting when taxpayer realized benefits fron R&D Expense
e)/corpo rate

xp: special assesment

ot claimed as tax credit

COUNTRIES
e for separate limit per country
come tax credit limit
Total foreign taxable income *phil income tax due
world taxable income

ENTIRE AMOUNT
nt.=capitalized cost

tax basis.=loss
/replacement cost NOT ENTIRE AMOUNT
excess.=capitalized cost
of the tax basis

pon disposal
 if not achieved!
non-depreciable asset kaya no dep expense as deduction
they are considered as capital assets

EDD=25% OF Income before EDD expense

annual deductible EDD= lower of accumulated EDD & EDD Limit
IF acc. EDD<EDD LIMIT---->NO CARRY OVER
acc EDD > EDD LIMIT------>EDD CARRY OVER next year
paid/incurred
ed then amortize (cost depletion method)

tax basis of asset*(units extracted/total estimated units)

TEU--->EXTRACTED + ESTIMATED REMAINING UNITS

on subject to limit
 net income from trade/business
*
10%-INDIV
5%-CORPO

zed for 10 yrs

11. ENTERTAINMENT, AMUSMENT & RECREATION (EAR) EXPENSE

req: paid/incurred in TY
connected to trade/business
lawful
not paid by other taxpayers
proof
withholding tax paid to BIR

ceiling of deduction
sale of good/properties
sale of services
if both
0.5% of net sales
1% of net revenues
net sales/revenues
*ACTUAL EAR
total net sales & net revenue
Angeles, Anabel L.

Special Allowable Itemized Deductions

A. Under NIC & Special Laws
SOURCE DEDUCTION
Income Distribution from taxable estate or trust Income for beneficiary/heirs
Net Transfer of Reserves &Payment-Insurance non-life 40% gross premium less returns&cancellation
marine cargo risks- equivalent to the amount of premiu
Dividend Distribution of Real Estate Investment Trust 90%of distributable income as dividends
Transfer of Reserve Fund of Cooperative Appropriation
GR: Reserve Fund 10% of profit
XP: other coop funds--not deductible
related activities--EXEMPT!
Senior Citizens & Disabled Persons 20% of gross selling price
REQ: Used by the Senior PWD
sd=.sales discount Separate GSP & SD in receipt
20% GSP
Deducted on the year discount is granted
proof of transaction
B. Under Special Laws
Additional claimable expense for employees:
Senior Citizen 15% of total salaries paid to SENIOR
REQ: Employment--at least 6 months
does not exceed the poverty leve
PWD 25% of total salaries paid to PWD
REQ; proof of employment of PWD
PWD is accredited by DOLE & DO
Cost of Facilities Improvement for PWD 50% of direct cost of improvement & modification
Addt'l training expense under the jewelry industry 50% of the expenses incrred for training
development act REQ: cert of accreditation by BOI
training-approved & certified by
Adopt-A-School-Act of 1998 50 % of the contribution
REQ: Deduct on the year it was paid/incurred
Sufficient Evidence

real property,DONATED, file MOA to RDO ha

DONOR: Private entity -indiv or not
REQ: w/credible track record
existing for at least one year
not prosecuted or guilty of any illegal acts

HOW TO AVAIL?
1 Memorandun of Agreement
 file MOA with the head of the puvlic school
minimum of 2 years pre terminable only if

2 Supporting Evidence
amount
connection of expense tp program
proof or acknowledgement receipt by donee
3 Cert of Tax Incentice or Tax Exemption
apply to the National Secretariat
Req: duly authorized or approved MOA
duly notarized deed of donation
proof of transaction w/ actual amount of do
if property-Cert of Tiltle and Tax Declaratio
proof of relation to program
Expanded Breastfeeding Promotion Act of 2009 up to twice the actual amount incurred
REQ to all establishments:
Lactation Station
period: 8 hrs working period
> 40 mins interval per duty---compensable hours (to and from the working place and lact

REQ to Health Institution

Rooming in Policy
Milk Storage Facility
Milk Banks--for non profit
Free Legal Assistance LOWER 10% of gross income from actual performan
actual amount that could have been collecte
exclusve of 60-hour mandatory free legal assistance---

REQ: Certification from PAO, DOJ or association a

*indicate the # of hours actually provided

Addt'l productivity incentive bonus expense 50% of the total productivity bonus given to employee
additional 50% amount granted for local trainings and

Net Operating Loss Carry Over (NOLCO) HINDI LAHAT NG NOL AY PWEDENG ICARRY OVER
Who can claim?
all taxpayer wheter RIT / PREFERENTIAL TAX RATE
XP: EXEMEPT TAXPAYERS

Peiod to claim
3 consecutive years after NOL
 REQ; taxable on the year NOLCO was incurred
no substantial change in ownership--at leas

Instances when NOL is allowed to carry over

1 FIFO method in claiming
2 when there is net income subsequent to the NOL
3 unused after 3 years is EXPIRED

NOLCO of Mixed Earner

*separate compensation to business/profession income Deductibe in
Period to claim
NOLCO of Mining Comoanies
*5 consecutive years subsequent to NOL
REQ: NOL is obtained in the first 10 years of operation TAKE NOTE: NO NCalCO IF THER

NOLCO in Meger & Consolidation

Acquirer allowed for NOLCO as long as there is no change in ownership
Acquiree cannot get the benefit of NOLCO after change since NOLCO IS NOT TRANSFERRABLE
m less returns&cancellation deductible in the year
ent to the amount of premium it was actually paid
e as dividends

0% of profit net surplus of unrelated activities HENCE, SPECIAL DEDUCTION

s--not deductible
s--EXEMPT!

SD in receipt

e year discount is granted

loyment--at least 6 months POVERTY LEVEL above MWE-250K Rule

not exceed the poverty level of NEDA below 15% Special Deduction

f of employment of PWD
D is accredited by DOLE & DOH
vement & modification
d for training from TAXABLE INCOME
of accreditation by BOI
ing-approved & certified by TESDA

ear it was paid/incurred

amount
connection of expense tp program
proof or acknowledgement receipt by donee
ONATED, file MOA to RDO having jurisdiction over the place of donor
DONEE: any government schools
Priority: poorest provinces
ast one year low income municipalities
or guilty of any illegal acts LGU with numerous poor but w/ high performing learn

Valuation of Deduction
 he puvlic school 1 Cash-actual amount
minable only if donor is dissolved prior to the end of period 2 other than money
failure to qualify as donor Consumable Goods

Services

receipt by donee Personal Property

x Exemption Real Property

or approved MOA
eed of donation
tion w/ actual amount of donation/contribution
of Tiltle and Tax Declaration
n to program
unt incurred regular allowable deduction SAME
special allowable deduction AMOUNT

m the working place and lactation station)

come from actual performance

hat could have been collected
atory free legal assistance------INDIGENT CLIENTS ONLY

m PAO, DOJ or association accredited by Supreme Court

of hours actually provided

ty bonus given to employee XP

nted for local trainings and special sudies(rank & file)----accredited by TESDA Given during strike or lock out

WEDENG ICARRY OVER

How to compute?
REFERENTIAL TAX RATE Gross income subject to RIT
less: total deduction excluding NOLCO & Special incentive under Special Law
.=NOLCO

Treatment of NOLCO
Separate line item of deduction only up to the extent of available net income

unused NOLCO after 3 years--->EXPIRED BAWAL NA IDEDUCT!

ear NOLCO was incurred
hange in ownership--at least 75%--->NOLCO IS NOT TRANSFERRABLE

wed to carry over

ubsequent to the NOL

NOLCO VS NCalCO
net income net capital gain
3 consecutive 1 year only
years

E NOTE: NO NCalCO IF THERE IS NOLCO

SFERRABLE
MWE-250K Rule
15% Special Deduction

oor but w/ high performing learners

Valuation of Deduction
 Cash-actual amount
other than money
Consumable Goods LOWER acquisition cost
value @ date of donation
LOWER value of service fixed in MOA
actual expenses incurred
Personal Property acquisition cost
Real Property HIGHER zonal value
FV @ date of donation
assessed value
LOWER
Depreciated cost of
property

Given during strike or lock out

ecial incentive under Special Laws

he extent of available net income

WAL NA IDEDUCT!
Angeles, Anabel L.

OPTIONAL STANDARD DEDUCTION

EFFECT OF OSD
no need to have itemized deduction
WHo can claim?
any taxpayer subject to RIT / taxable net income
XP: NRA-ETB
mandated to used itemized deduction-----> Exempt
special/preferential tax rate
RCIT/RIT + Special/Preferential ta
NRA-NETB
How to claim?
signify the option to claim in the first quarter return---->IRREVOCABLE FOR THE YEAR
OTHERWISE: ITEMIZED DEDUCTION IS PRESUMED!

% OF OPTIONAL DEDUCTION
% 04tional
Indiv accrual service revenue
goods gross sales
cash service Gross receipts 40%

Corpo gross income

GR: OSD replaces all

XP: Corpo-cost of sales

INDIV
Net sales/revenues/receipts/fees
add: other taxable income from operation------->from incidental or secondary operation XP: GAINS(
not subject to FT
.=total sales/revenues/receipts/fees
multiply to 40%
.=OSD

CORPO
Net Sales/revenues/receipts/fees
Less: cost of sales or services
.=Gross income from operation
add: other taxable income, whether operaying and non-operating
multiply to 40%
.=OSD

GPP either itemized or

 OSD-->40% gross income

GR: NOLCO & OSD cannot be claimed simultaneously

NOLCO is already included in OSD

NCaLCO can be claimed simultaneously with OSD

since the former is not an itemized deduction

When to indicate the option to OSD?

INDIV Annual ITR
CORPO Quarterly ITR
decision for 1st quarter is irrevocable for the year
special/preferential tax rate CORPO
RCIT/RIT + Special/Preferential tax rate INDIV

BLE FOR THE YEAR

.= Net Sales only those contributory to income subject to RIT

.=actual amount received

secondary operation XP: GAINS(net of cots)

COST OF SERVICES
Direct cost and expenses necessary to provide the service
*salaries of those who perform the service
*cost of facilities / equipment use to provide the service + DEPRECIATION
Non-operating Income--->not included sa 40%
GAINS from dealings in properties
Distribution to GPP, exempt co-ownership and taxable estate and trust
casual active income
passive income not subject to FT
Interest income on advances to employees]
investment income subject to RT
Angeles, Anabel L.

RIT: INDIVIDUAL
Progressive tax--->All individuals XP: NETB 25%

Pure Compensation Earner

employer-->mandatorily required to deduct WT

Treatment of WT on compensation
other Source of income
1. Full payment substituted filing system
2. Tax credit /

In case if incorrect tax due filed by employer-----> file adjustment return 2316
file correct tax due by:
concurrent employment
successive employment during the year
incurrence of error by the employer---->employer file 1700 as adjustment return

In case of other taxable income----> file annual ITR or CONSOLIDATED ITR

a) casual sources
b) business/profession
not engaged to business
engaged to business(mixed earner

Pure Business and/or Professional

ITR-----> quarterly 45 days after each quarter 1701Q
annually April 15 of next year 1701A

Deduction OSD
Itemized

Tax Credits-----------> less paid in prior qtrs whether OSD/Itemized

Excess quarterly estimated tax

either: carry over option must
 tax refund be indicated
TAKE NOTE: Decision is irrevocable

tax credit or
cash

Mixed Income Earner

quarterly business/profession
annually combined income in 1701

8% Income Tax Option

*for SEP--> Self-employed and/or Professionals

Nature Annual Option

1. bundle tax in lieu of: taxpayer: NON-VAT!!
RIT PAID: Quarterly and annually
3% percentage tax

Types of Business Taxpayers

1. Exempt no VAT & Percentage tax
2. Subject to other percentage tax no VAT but w/ percentage tax of various rates
3. Vatabale either: VAT annual sales>3M or registered as V
3% General annual sales< 3M and not register
Percentage Tax
Tax Obligations of individual non-VAT taxpayer
Regular Tax Option 8% Income Tax Option
RIT 3 quarterly 1701Qs and 1 annual 1701 3 quarterly 1701Qs and 1 annual 1701A
% TAX 4 Quarterly 1551Q NONE

VAT taxpayers pay VAT & RIT

TAX BASIS
8%---->GROSS SALES/RECEIPTS subject to 3% percentage tax
plus other income subject to RIT
Pure business or professional Mixed Incom
8% multiply to income net of 250k exemption income from business/profession
compenstion income--->separate
NOTE: APPLY CLASSIFICATION RUL
Interim Transition to VAT
Non VAT to VAT registered
GR: file for registration once exceeding from 3M Threshold
due: month after taxpayer become VATABALE BUSINESS

effect: pay RIT for entire year

 VAT From the month he become VAT Taxpayer
8% option tax tax credit for RIT due
3% percentage sales/receipt received before becoming VAT Taxpayer
tax

Taxable Trust and Estate

income taxpayer otherwise
estate under judicial settlement or administration taxable to heirs
trust irrevocable trust w/ 20k personal exemption taxable to grantor-trustor

Income taxable
1. accumulated in trust
2. to be distributed by fiduciary to beneficaries and collected by guardian
3. received by estates of deceased person
4. either to be distributed / accumulated it depends to the fiduciary

Taxable Income of deceased taxpayer

.--->only up to the date of death

When & Where to pay

FILING PAYMENT Where When
EFPS Taxpayers Electronic BIR website
on/b4 april 15 next year
Non-EFPS Manual Authorize agent banks
if none: Revenue Collection Officer

NR taxpayers Office of Commisioner-RDO NO.39 Q.C

"no payment return"--->zero taxable income, exempt, tax creditable/refundable/balance payable for 2nd insta

Installment ITR---two equal installments

REQ: tax due > 2k
individuals only
first installment-->paid at the time return is filed
second installment-->on/b4 Oct 15 of the calendar year
if not achieved: whole amount of tax unpaid become due & demandable + delinquency

Who shall file the ITR?

Those with business/profession in & out GR: Employee trust fund-exempt
RC REQ;
NRC, RA, NRA
in only
Trustee, guardian, fiduciary
Mixed Income Earner
Returns of Married Taxpayer
Exempt/not required GR:
MWE XP:
earners of <250k
one employer w/ < 60k with correct WT
subject to FT Income of unmarried minors from
subject to substituted filing system GR:
XP:
Amendment
GR: ITR is deemed final
XP: amended Individual w/ PERA
period: w/in 3 years from the date required to file Contribution--->EXEMPT from inco
Req: as long as no LOA for investigation entitled to tax credit--->5% f contr
amended returns-->no surcharge but w/ interest penalties
Returns of PWD
can be filed by guardian/authorize
signature is assumed to be correc
otherwise the person who file the
 multiple employers=TAX CREDIT
REQ: 1.purely compensation
2.one employer in the Phil
3.correct tax is withheld FILE: Consolidated/
4.employee's spouse complies with the first 3 req Adjustment Return
5.employer's file annual information return
issue BIR NO. 2316 to each employee

if not achievied
employee-->file annual or final adjustment return not later tham April 15
of the folowing year and claim Form 2316 as tax credit

eturn 2316

stment return

not engaged to business 1700

engaged to business(mixed earner) 1701
and annually

ax of various rates
annual sales>3M or registered as VAT taxpayers
annual sales< 3M and not registered as VAT taxpayers

ome Tax Option

1Qs and 1 annual 1701A
NONE

Mixed Income Earner

ncome from business/profession w/o 250k exenption
compenstion income--->separate computation of tax due
NOTE: APPLY CLASSIFICATION RULE! THEN GLOBALIZATION FOR TAX DUE
g VAT Taxpayer

taxable to heirs
taxable to grantor-trustor

When
on/b4 april 15 next year

ble/balance payable for 2nd installment omly

due & demandable + delinquency penalties

GR: Employee trust fund-exempt to all income tax

made by employer w/ a purpose of distributing
cannot be used for other purpose other than employee's benefit
taxable to employee upon receipt

Returns of Married Taxpayer

file one return with total taxable income of both spouses
impractible-->file separate
 unknown income--di alam sino naka earn--->divided into two

ncome of unmarried minors from property received from parents

ITR of parents
paid donor's tax
transfer of property is exempt from donor's tax

ndividual w/ PERA
Contribution--->EXEMPT from income tax
entitled to tax credit--->5% f contributions

Returns of PWD
can be filed by guardian/authorized agent/representative
signature is assumed to be correct
otherwise the person who file the return is LIABLE
Angeles, Anabel L.

RIT: Special Corporation

GR: 30% Regular Corpo

Lower % Special Corpo
0% Exmept Corpo

Exempt Corpo
1. exempt non-proft
2. gov't agencies & instrumentalities GR: income from related activities
3. exempt GOCC XP: from unrelated activities--->RIT
4. Coop

Req: not for profit

exclusively for the benefit of the members
for governmental function
to meet expenses

Req for non-stock, non proft corpo

Organizational Test--->religous, charitable, scientific, athletic/cultural purposes/rehabilitation of veterans
only for the given purpose
Operational Test----> activities are related to the purpose
if not: considered for profit

no benefit for any member or specific person

not a brach of foreign non stock & non profit

Cert of Tax Exemption from BIR

for non profit
valid for 3 years unless revoked/cancelled

non, renewal/non filing of ITR

material changes

Coop
GR: transactions w/ members-->EXEMPT
both mem & non mem----->EXEMPT if < 10M accumulated reserves
XP: TAXABLE
> 10M accumulated reserves
1 Income Tax-full ammount allocated for the interest on capital
2 VAT-for transaction w/ non mem
3 Percentage tax-sales of goods&services for non mem
4 all other internal revenue taxes (CGT, Documentary Stamp Tax, VAT, WT)
Accumulated reserves=resetves fund
*legally required to deduct on the net surplus for stability & protection
> 10% of net surplus & >50% net surplus of the first 5 years

Reporting Requirements EXPENSES OF EXEMPT CORPO

EXEMPT CORPO If not traceable kun for related / not
w/o taxable income 1702-EX .--->allocate based on gross in
w/ taxable income
Rregular tax 1702-RT
Special rate 1702-MX

Special Domestic Corpo

1. Private Educational Institution & non-profit hospitals
10% on world income subject to pre-dominance test
w/ permit from DEPeD, CHED, TESDA

PDT--> 30% RCIT if income from unrelated activities is >50% of total gross income

OWNER Educational Institutions Hospitals

Private 10% of taxable income 30% of taxable income
Non-profit 10% of taxable income
EXEMPT
Gov't EXEMPT

2. Foreign /expanded currency deposit unit

FCDU/EFCDU--w/foreiggn currency denomination
local banks--separate TIN for regular business & its FCDU/EFCDU either:
under local banks
FCDU EFCDU OBU branch of foreign banks autho
short term long&short term
transaction transaction

division of division of division of

domestic bank domestic/ foreign bank
resident foreign
bank

FROM
RESIDENTS
(E) FCDU/ OTHER Non-
OBUs Residents Residents
Nature of Income
from FOREX transactions
*interest income from
 forex loans and rec'l 10% FIT
forex deposits EXEMPT EXEMPT
*other forex income
RCIT
from non-forex transactions RCIT RCIT

note: interest income of residents from depositary bank under FCDS/EFDS is subject to 7.5% FT -old law 15%FT
Regular Banking Unit/RBU=30% RCIT

Allocation of Costs and Expenses of Banks

whether exampt/taxable
a) Specific Identification-----------> traceable to an income
b) Pro-rata application-------------> not traceable; ratio of all income

PEZA OR BOI-REGISTERED ENTERPRISES

1. Board of Investment--10 yrs income tax holiday (tax exemption)
4 non-pioneer firm
6 pioneer firm

2.PEZA Registered
all business/enterprises operating w/in
Phil Economic Zone Authority /---> 5% of gross income
EOZONE & TIEZA in lieu of all taxes local & national except real property tax

Requirements: TIEZA= Tourism Infrastracture

Cert of Income Tax Holiday Entitlement attached to
Cert of Incentives ITR

tax incentives to ECOZONE RT Sale of scrap & other source o

1. registered operations of ECOZONE 30%RCIT gain from sale of factory & offi
2. during the periof of registration w/ PEZA

3. Special Resident Foreign Corporation

1. OBU & EFCDU
2. Regional Area Headquarters and Regional Operating Headquartes of Multinational Companies
Income Tax genrate income local taxes
RHQ exempt no
ROHQ 10% of taxable income yes EXEMPT XP: real property taxes

3. International Common Carrier

either: air
sea or shipping

GR: 2.5% of gross phil billings

XP: preferential rate or exemption on basis of reciprocity applicable tax treaty reciprocity
 Gross Phil Billings---> all revenues from air/shipping carrier originating from the Phil + uninte
Exclusions: refunded tickets
non-revenue passengers

Rule for endorsed, revalidated, exchange ticket

.-income of the carrying airline
if the passenger boards a plane or a port or point in the philippines

Foreign Currency Translation

tickets in foreign currencies
*conversion rates* HIGHER: monthly average Airline Rate in the Bank Settlement Plan (B
Bankers Association of the Philippines rate

RCIT Other income of international carriers

off-line international carriers

BOI/PEZA registered enterprises foreign corpo

*Same w/domestic corpo

Reporting Requirements
Special Corpo
*1702 MX
itemized deduction

Special NRFC
GR: 30% FT
XP: LOWER RATES FT
*cinematographic film owner, lessor, or distributor 25% Gross income
*lessor of vessels chartered by Phil Nationals 4.50%
*owner/lessor of aircraft, machineries & 7.50% rentals, charter
other equipmnet & other fees

Lessor Cinema Films Vessels Aircraft other equipment

Domestic 30% WTI 30% WTI 30% WTI 30% WTI
RFC 20% PTI 2.5%GPB 2.5%GPB 30% WTI
NRFC 25%PGI 4.5%PGI 7.5%PGI 7.5%PGI
 basta for profit-->TAXABLE AGAD regardless of disposition
XP: Non-profit education institution
reLated-EXEMPT
itation of veterans unrelated---EXEMPT if for educational purpose
ALL REVENUES & ASSET A,D,E

GOCC
GR: taxable--proprietart/commercial in nature
XP: GSIS PHIC/Philhealth
SSS Local water districts-RA 10026

LIFT exemption
RA 9337 PAGCOR
Train Law PCSO

ax, VAT, WT)

EMPT CORPO
un for related / not
locate based on gross income

local banks
h of foreign banks authorized by BSP

NOTE:
 OBU/EFDU is taxable only on the income within
offshore income is exempt

7.5% FT -old law 15%FT-TRAIN LAW

NOTE:
only traceable/reasonably allocated expenses are deductibe to RBU/FCDU for RIT

3% national
2% city/municipality where establishment is located

xcept real property tax

= Tourism Infrastracture and Enterprise Zone

f scrap & other source of iincome

rom sale of factory & office bldg

al property taxes
g from the Phil + uninterrupted filight/voyage

transshipments/interrpted fligts 48 hour rule

GPB--->transhippment occurs in the PHIL interconnecting flights
transferred to same carrier GPB of airline
if other airline-aliquot part only *stay in the phil more than 48 hr

GPB of other airline

Bank Settlement Plan (BSP) monthly sales report *transfered to other airline

ALL SOURCES W/IN whether active/passive

from Filipino residents/corpo approved by Maritime Industry Authority
for educational purpose
UES & ASSET A,D,E
interconnecting flights
GPB of airline
*stay in the phil more than 48 hrs not unless due to force majeure

GPB of other airline

*transfered to other airline
Angeles, Anabel L.

RIT: Regular Corporation

GR: 30% RCIT ITR deadline
XP: Higher of: 30% RCIT qtr 60 days after each qtr
2% tax @gross income-MCIT annual 15th day of the 4th month after
NOTE:
15% tax of gross income-DC irrevocable for 3 years
*never implemented since conditions were never met 20-40-4-.9

tax schemes for Regular Corpo

DC Gross Income or RCIT subject to MCIT
RFC RCITsubject to MCIT

Cost ratio limit .=req to be taxed on gross income

cost of sales .=< 55%
gross sales/receipts

MCIT 2% of gross income subejct to RIT APPLICABLE TO THE 4th year of operation
Minimum Corporate Income Tax
payable when:
(1) corpo w/ zero or negative taxable income
(2) MCIT>RCIT

Exemepted to MCIT
REIT
DC subject to 15% gross income tax
DC/RFC w/special tax rates
NRFC

Excess of MCIT over RCIT

.--->carry over
.-->same rule w/NOLCO deductibe for the 3 succeeding years otherwise expired
RULES:
MCIT to RCIT only
3 years rule
several carry over--FIFO BASIS

Relief from MCIT

only upon recommendation of CIR, Sec of Finance can suspend if there is sustained substantial loss
proof: prolonged labor dispute
force majeure
legitimate business resserves
IAET-10%
Improperly Acculmuated Earnings Tax *PENALTY TAX not in lieu of dividend tax
applicable only to DC whether special or regular DUE: 15 days from the end of following year
Exempt Appropriation of Earnings
1.Mandatory
2.Contractutal
3.Reasonable-----> Immediacy Test need of business
Correlation Test related to accumulation of profits
*allowance fror 100% paid up capital
*reserved for PPE, expansion project/programs, loan covenant or pre existing oblig
*earning required by law
*for subsidiary of Foreign corpo--UNDISTRIBUTED EARNINGS FRO INVESTMENT

Presumed IAET
1 Holding Companies
2 Investment Companies
3 Colesly related Companies

Taxable Income
LESS: Corporate income tax due
ADD: NOLCO
.= Earnings from RIT, net of tax
ADD: Passive income, net of tax
capitals gains, net of tax
exempt or excluded income
.= TOTAL EARNINGS
LESS: Dividends Declared
Reasonable Appropriations
.= TOTAL
ADD: RE, form prior years
LESS: Amount that may be reatained
(100% paid up capital
as of year end)
.= IAE
Multiply: 10% IAET RATE
.= IAET

IAET exempt entities

PFBIs by NIRC by nature
Publicly heald corpo taxable partnership
Finance Companies GPP
Banks taxable and non-taxable joint venture
Insurance Companies ECOZONE registered entities(PEZA, BCDA, ETC)
Branch Profit Remittance Tax
15% b ased on total profits applied/earmarked for remittance current remittance
note: active income only prior year earnings

covered: all RFC xp: PEZA-regiatered

unremitted or balance of previous year--->taxable next year or when remitted

Indirect Remittance
1 resident affiliate/Phil ROHQ of the home office
2 transfer of net profits to increase the branch assigned capital account

NOTE: LOAN of affiliates NOT A REMITTANCE

Branch capital account=HOME OFFICE

A. Assigned Capital Accounsts net investment of the home office to the branch---------------------------------->
B. Accumulated Profit/loss------> net balance of unremitted, retained or accumulated P/L
of the branch since inception of operation

A Differentiation on foreign profit remittance

Remitting entity to its head office TAX RATE
Branch of RFC 15% of branch remittance
Subsidiary of FC thru Dividend declaration 30%FT, 15% if there is tax sparing rule
Branch of DC not subject to tax
60 days after each qtr
15th day of the 4th month after the close of TY

h year of operation x+4 years

ined substantial loss

 ieu of dividend tax
e end of following year

on of profits

venant or pre existing oblig

NINGS FRO INVESTMENT

A, BCDA, ETC)
current remittance
prior year earnings

nch----------------------------------> changed by:

increase addt'l investent of home office
decrease withdrawal of home office