Sources of Income

Sources of income in general

1) Income derived from labor - the place where the labor is performed;

2) Income derived from the use of capital - place where the capital is employed;
and

3) Profits from the sale or exchange of capital assets - place where the sale
occurs (although it has been held that in the case of retail merchandising
operations, the situs alone, of the retail sale does not necessarily determine
the sources from which the income has derived)

Situs of sources of income

Classification

1) Income derived in full from sources within the Philippines;

2) Income derived in full from sources outside the Philippines; and

3) Income derived partly from sources within and partly from sources outside
the Philippines.

Importance

1) Citizens and residents of the Philippines and domestic corporations table

upon income derived from ALL sources

2) Non-resident alien individuals (engaged or not in the business) and foreign

corporations (resident or non-resident) – taxable only upon income from
sources within the Philippines

Gross income from sources within the Philippines

1) Interest income

a. Derived from sources within the Philippines; and

b. Interests on bonds, notes, or other interest-bearing obligations of

residents, corporate or otherwise.

2) Dividend income

a. Received from a domestic corporation; and

b. Received from a foreign corporation deemed income from without

provided more than 50% of the corporation’s worldwide income is not
derived from Phil. sources
 Phil. GI x dividend income = Dividend income from Phil. Sources

World GI

3) Compensation for personal services

a. Compensation for labor or personal services performed within the

Philippines regardless of:

i. Residence of the payor;

ii. Pace in which the contract for service was made; or

iii. Place of payment;

b. When personal service or labor is performed partly within and partly

outside the Philippines and no accurate allocation of such
compensation performed in the Philippines can be made, the amount
to be included in the income shall be derived by an apportionment on
the time basis

c. Wages received for services rendered inside the territorial limits of the
Philippines and wages of an alien seaman earned on coastwise vessel.

4) Rentals and royalties

a. from property located in the Philippines or from any interest in such

property, including-

i. the use of, or the right or privilege to use in the Philippines:

• copyright, patent, design or model, plan, secret formula or

process, goodwill trademark, trade brand or other like
property right

ii. industrial, commercial or scientific equipment

iii. supply of any assistance that is ancillary and subsidiary to, and
is furnished as means of enabling the application or enjoyment
of, any such equipment
 iv. supply of services of non-resident persons in connection with the
use of property or rights.

v. Technical advice, assistance or services rendered in connection

with technical management or administration or any scientific,
industrial or commercial undertaking, ventures, projects or
scheme

vi. The use or right to use of motion pictures, films or videos in

connection with TVs and tapes in connection with radio
broadcasting

5) Gain on sale of real property

a. Gains, profits , incentives from the sale of property located within the
Philippines

6) Gain on sale of personal property

a. Income derived from the purchase and sale of personal property within
the Philippines

7) Income derived from the ownership of farms and natural deposits

a. Income derived from any farms, mine, oil or gas well, other natural
deposits or timber located within the Philippines

b. Income from sale products within or without the Philippines

Taxation of Individuals

Kinds of Individuals

1) Resident citizen

2) Nonresident citizen = citizen of the Philippines who:

a. Establishes the facto f his physical presence abroad with definite

intention to reside therein

b. Leaves the Philippines during the taxable year to reside abroad, as

immigrant or for employment on a permanent basis

c. Works and derives income from abroad and whose employment

requires him to be physically present abroad most of the time during
the taxable year
 d. Previously considered as nonresident citizen and arrives at ny time
during the taxable year to reside permanently in the Philippines

3) Resident Alien

4) Nonresident Alien

a. Those engaged in trade or business in the Philippines who come

and stay in the Philippines for an aggregate period of more than
180 days during any calendar year

b. Those not engaged in trade or business in the Philippines, which

include non- resident aliens whose stay in the Philippines is 180
days or less
c. Aliens employed by regional or area headquarters and regional
operating headquarters of multinational companies in the
Philippines
d. Aliens employed by offshore banking units
e. Aliens employed by petroleum contractors and subcontractors

Personal Exemptions:
• Any single or married individual shall be entitle to P50,000
personal exemptions and additional personal exemption of P25,000
for each dependent child but not to exceed four.
1) Dependent = legitimate/illegitimate/legally adopted child chiefly dependent upon
& living with the taxpayer if such dependent is not > 21 years old, unmarried &
not gainfully employed OR if such dependent regardless of age is incapable of
self-support because of mental/physical defect
a. For married individuals, claimed by only 1 of the spouses
b. For legally separated spouses, claimed only by the spouse who has
custody of the children; may be claimed by both as long as they have
custody of the children but total amount claimed by both shall not exceed
the maximum allowed
2) Change of Status
a. The death of the taxpayer during the taxable year shall not affect the
amount of personal and additional exemptions his estate can claim, as if he
died at the end of such year
b. If the taxpayer got married or should have additional dependent (child
born within the year) during the taxable year, he may claim the
corresponding personal exemptions in full for such year
c. If the spouse should die or any of the dependents become twenty one years
of age, or become gainfully employed during the taxable year, the
taxpayer may still claim the same exemptions as if he/she died, or became
twenty one years old or became gainfully employed at the close of such
year.
 • Non-resident aliens engaged in trade or business (NRAETB) may be entitled to
personal exemptions subject to reciprocity:
a. Country from which he is a citizen has an income tax law; and
b. The income tax law of his country allows personal exemption to citizens
of the Philippines not residing therein but deriving income therefrom and
not to exceed the amount allowed in NIRC.
c. The personal exemption shall be equal to that allowed by the income tax
law of the country to a citizen of the Philippines not residing therein, or
the amount provided in the NIRC, whichever is LOWER.

*Nonresident aliens engaged in business cannot claim any additional

exemptions

Over Not over Tax shall be Plus Of the excess

over

-0- 10,000 Exempt 5% 0

10,000 30,000 500 10% 10,000

30,000 70,000 2,500 15% 30,000

70,000 140,000 8,500 20% 70,000

140,000 250,000 22,500 25% 140,000

250,000 500,000 50,000 30% 250,000

500,000 125,000 32% 500,00