Вы находитесь на странице: 1из 274

A POWERPOINT

PRESENTATION
OF PHILIPPINE
INDIVIDUAL
D
INCOME TAXATION
USING
ALL INCOME
FROM WHATEVER
SUBMITTED SOURCE IN THE
FOR COMPUTATION OF
COPYRIGHT TAX Date
BY Completed:
September
MARIA TERESA-MAPUE - 29, 2019,
CORRALES & ANNE Tanza, Cavite
LORENZE THERESE Philippines
CORRALES
General
Principles of
Income Taxation
in the Philippines
Sec. 23. General
Principles of Income Taxation in the
Philippines. – Except when otherwise
provided in this Code:
(A)A citizen of the Philippines residing
therein is taxable on all income
derived from sources within and
without the Philippines;
(B)A non-resident citizen is taxable
only on income derived from
sources within the Philippines
C) An individual citizen of the Philippines
who is working and deriving income from
abroad as an overseas contract worker is
taxable only on income derived from
sources within the Philippines: Provided,
That a seaman who is a citizen of the
Philippines and who receives
compensation for services rendered
abroad as a member of the complement of
a vessel engaged exclusively in
international trade shall be treated as an
overseas contract worker;
(D) An alien individual,
whether a resident or not
of the Philippines, is
taxable only on income
derived from sources
within the Philippines.
INDIVIDUAL TAXPAYER

CITIZEN ALIEN

Non- Resident Non- Resident


resident Citizen resident Alien
Citizen Alien

Not engaged in trade/business engaged in trade/business

Special Aliens Ordinary Aliens


Foreign Petroleum Service Contractor or Sub-
contractor engaged in Petroleum Operations in the
Philippines under a contract with the government

Offshore Banking Units

Regional Operating Headquarters of Multi-national


corporations

Regional Area Headquarters of Multi-national


corporations

Special Aliens
What is an offshore banking unit?

is a branch, subsidiary or
affiliate of a foreign banking
corporation which is duly
authorized by the BSP to
transact offshore banking
business in the Philippines
What is a Regional Operating
Headquarter of a Multinational
Corporation-?
Regional Operating Headquarters shall mean a branch
established in the Philippines by multinational
companies which are engaged in any of the following
services: general administration and planning; business
planning and coordination; sourcing and procurement
of raw materials, and components; corporate finance
advisory services; marketing control and sales
promotion; training and personnel management; logistic
services; research and development services and
product development; technical supportand
maintenance; data processing and communication; and
business development.
What is a Regional /Area
Headquarter of a Multinational
Corporation-?

Regional area headquarters shall mean a


branch established in the Philippines by
multinational companies and which
headquarters do not earn or derive income
from the Philippines and which act as
supervisory, communications and coordinating
center for their affiliates, subsidiaries, or
branches in the Asia-Pacific Region and other
foreign markets. Regional/Area headquarters
as such shall not be subject to income tax.
WHO ARE
CITIZENS OF
THE
PHILIPPINES?
Section 1, Article IV of the 1987 Constitution,
provides:
“The following are citizens of the Philippines:
(1) Those who are citizens of the Philippines at
the time of the adoption of this Constitution;
(2) Those whose fathers or mothers are citizens
of the Philippines;
(3) Those born before January 17, 1973, of
Filipino mothers, who elect Philippine
citizenship upon reaching the age of majority;
and
(4) Those who are naturalized in accordance
with law.”
WHO ARE
RESIDENTS?
A person who is living or dwelling
in a certain place permanently or
for a considerable length of time.
The place where a man makes his
home, or where he dwells
permanently or for an extended
period of time is said to be a
resident of that place.
WHO ARE
NON
RESIDENT
CITIZENS
(1)
A citizen of the Philippines who
works and derives income from
abroad and whose employment
thereat requires him to be physically
present abroad most of the time
during the taxable year shall be
considered a non-resident citizen.
(2)
An overseas contract worker as
well as a Filipino seaman who
receives compensation for
services rendered abroad as a
member of the complement of a
vessel engaged exclusively in
international trade, are
considered non-resident citizens.
WHO IS AN OCW?
REVENUE REGULATIONS NO. 1-2011 OCW OR OFW is a “Filipino citizen
employed outside the Philippines and is physically present in that
country or territory in order to perform work”. His wages and
salaries are paid by an employer based abroad and are not borne
by any entity or employer in the Philippines.
To be officially recognized as an OFW, the Filipino must be duly
registered as such with the Philippine Overseas Employment
Administration (POEA) and must possess a valid Overseas
Employment Certificate (OEC).
WHO ARE SEAMEN CONSIDERED AS
OCW/OFW

REVENUE REGULATIONS NO. 1-2011 Seafarersor seamen are Filipino


citizens who receive compensation for services rendered abroad
as members of the complement of a vessel engaged exclusively
in international trade. To be considered as OCWs or OFW s they
must be duly registered as such with the Philippine Overseas
Employment Administration (POEA) with a valid Overseas
Employment Certificate (OEC) with a valid Seafarers Identification
Record Book (SIRB) or Seaman's Book issued by the Maritime
Industry Authority (MARINA).
(3)
A citizen who has been previously
considered as a nonresident citizen and
who arrives in the Philippines at any time
during the taxable year to reside
permanently in the Philippines shall
likewise be treated as a nonresident
citizen for the taxable year in which he
arrives in the Philippines with respect to
his income derived from sources abroad
until the date of his arrival in the
Philippines.
Who are Aliens?

Aliens are persons who


are not citizens of the
country where they live.
Who is a Non Resident Alien
Engaged in Trade or Business
(NRAETB)?
A nonresident alien individual who shall come to
the Philippines and stay therein for an aggregate
period of more than one hundred eighty (180)
days during any calendar year shall be deemed
as nonresident alien engaged in business in the
Philippines.
THE GENERAL
FORMULA FOR THE
COMPUTATION OF
INCOME TAX
ALL Income Exclusions
from whatever from Gross
source whether Income
legal or illegal

= GROSS INCOME
Exclusions
from Gross
Income

= GROSS INCOME
HOW ARE ILLEGAL
INCOME TAXED
WHEN THEY ARE
NOT FILED WITH
THE BIR?
Illegal Income
are taxed using
NET WORTH
METHOD
WHAT IS
NET WORTH
METHOD?
In the net worth method, the taxpayer’s net
worth is determined both at the beginning
and at the end of the same taxable year .
The increase or decrease in net worth is
adjusted by adding all non-deductible
expenses and subtracting therefrom non-
taxable receipts, as determined under the
prevailing tax rules. The resultant figure is the
BIR’s computed taxable income before
allowable personal and additional exemptions
for individual taxpayer.
The computed taxable income will be
compared to the taxpayer’s declared income
as per based on the Income Tax Return filed
for that year. If it appears that the declared
income is lower than the BIR’s computed
amount based on the net worth method, then
the taxpayer should explain the difference to
the BIR. Any unexplained increase in net
worth will be presumed to be derived from
taxable sources, and hence, will be assessed
for deficiency taxes.
WHAT IS THE LEGAL BASIS
FOR THE USE OF THE NET
WORTH METHOD IN
COMPUTING THE TAXABLE
INCOME OF THE INDIVIDUAL
TAXPAYER?
The use of the net worth method is founded on the
1997 Tax Code, as amended. Under Section 43 thereof,
the "taxable income shall be computed upon the basis of
the taxpayer’s annual accounting period in accordance
with the method of accounting regularly employed in
keeping the books of such taxpayer; but if no such
method of accounting has been employed, or if the
method employed does not clearly reflect the income,
the computation shall be made in accordance with such
method as in the opinion of the Commissioner reflects
the income." Moreover, under Section 6 of the said Tax
Code, when there is reason to believe that the return
filed by the taxpayers is false, incomplete, or erroneous,
the Commissioner shall assess the proper tax on the
best evidence obtainable.
Gross Income
from whatever Exclusions
source whether – from Gross
legal or illegal
Income

= GROSS INCOME
WHAT IS AN
EXCLUSION FROM
GROSS INCOME
An exclusion is not the same as a
deduction. A deduction is a
subtraction from gross income to
arrive at taxable income. An
exclusion does not even count as
gross income therefore it cannot
become part of taxable income
although it may seem that an
exclusion increases wealth.
WHAT ARE THE
EXCLUSIONS
FROM GROSS
INCOME?
EXCLUSIONS FROM GROSS INCOME

(1) Life Insurance. - The proceeds of life


insurance policies paid to the heirs or
beneficiaries upon the death of the
insured, whether in a single sum or
otherwise, but if such amounts are held
by the insurer under an agreement to pay
interest thereon, the interest payments
shall be included in gross income.
EXCLUSIONS FROM GROSS INCOME

(2) Amount Received by Insured as Return


of Premium. - The amount received by the
insured, as a return of premiums paid by
him under life insurance, endowment, or
annuity contracts, either during the term
or at the maturity of the term mentioned
in the contract or upon surrender of the
contract.
EXCLUSIONS FROM GROSS INCOME

(3) Gifts, Bequests, and Devises. _ The value


of property acquired by gift, bequest, devise,
or descent: Provided, however, That income
from such property, as well as gift, bequest,
devise or descent of income from any
property, in cases of transfers of divided
interest, shall be included in gross income.
EXCLUSIONS FROM GROSS INCOME

(4) Compensation for Injuries or Sickness.


- amounts received, through Accident or
Health Insurance or under Workmen's
Compensation Acts, as compensation for
personal injuries or sickness, plus the
amounts of any damages received,
whether by suit or agreement, on account
of such injuries or sickness.
EXCLUSIONS FROM GROSS INCOME

(5) Income Exempt under


Treaty. - Income of any kind, to
the extent required by any
treaty obligation binding upon
the Government of the
Philippines.
EXCLUSIONS FROM GROSS INCOME

(6) Retirement Benefits, Pensions,


Gratuities, etc.-
(a) Retirement benefits received under
Republic Act No. 7641 and those
received by officials and employees of
private firms, whether individual or
corporate, in accordance with a
reasonable private benefit plan
maintained by the employer
EXCLUSIONS FROM GROSS INCOME
(6) Retirement Benefits, Pensions, Gratuities, etc.-
For purposes of this Subsection, the term 'reasonable private
benefit plan’' means a pension, gratuity, stock bonus or profit-
sharing plan maintained by an employer for the benefit of
some or all of his officials or employees,
wherein contributions are made by such employer for the
officials or employees, or both,
for the purpose of distributing to such officials and employees
the earnings and principal of the fund thus accumulated, and
wherein
it is provided in said plan that at no time shall any part of the
corpus or income of the fund be used for, or be diverted to,
any purpose other than for the exclusive benefit of the said
officials and employees
EXCLUSIONS FROM GROSS INCOME

(6) Retirement Benefits, Pensions, Gratuities, etc.-


Provided, That the retiring official or employee

has been in the service of the same employer for at least ten
(10) years and

is not less than fifty (50) years of age at the time of his
retirement: Provided, further, That the

benefits granted under this subparagraph shall be availed of by


an official or employee only once..
EXCLUSIONS FROM GROSS INCOME
(6) Retirement Benefits, Pensions,
Gratuities, etc.- (b) Any amount received by
an official or employee or by his heirs from
the employer as a consequence of
separation of such official or employee from
the service of the employer because of
death sickness or other physical disability or
for any cause beyond the control of the said
official or employee.
EXCLUSIONS FROM GROSS INCOME
(6) Retirement Benefits, Pensions, Gratuities,
etc.-
(c) The provisions of any existing law to the
contrary notwithstanding, social security
benefits, retirement gratuities, pensions and
other similar benefits received by resident or
nonresident citizens of the Philippines or aliens
who come to reside permanently in the
Philippines from foreign government agencies
and other institutions, private or public.
EXCLUSIONS FROM GROSS INCOME

(6) Retirement Benefits, Pensions,


Gratuities, etc.-
(d) Payments of benefits due or to become
due to any person residing in the
Philippines under the laws of the United
States administered by the United States
Veterans Administration.
EXCLUSIONS FROM GROSS INCOME

(6) Retirement Benefits, Pensions,


Gratuities, etc.-
(e) Benefits received from or enjoyed
under the Social Security System in
accordance with the provisions of
Republic Act No. 8282.
EXCLUSIONS FROM GROSS INCOME

(6) Retirement Benefits, Pensions,


Gratuities, etc.-
(f) Benefits received from the GSIS
under Republic Act No. 8291,
including retirement gratuity received
by government officials and
employees.
EXCLUSIONS FROM GROSS INCOME
(7)Miscellaneous Items. -

(a) Income Derived by Foreign Government. - Income


derived from investments in the Philippines in loans,
stocks, bonds or other domestic securities, or from
interest on deposits in banks in the Philippines by (i)
foreign governments, (ii) financing institutions owned,
controlled, or enjoying refinancing from foreign
governments, and (iii) international or regional
financial institutions established by foreign
governments.
EXCLUSIONS FROM GROSS INCOME

(7)Miscellaneous Items. -

(b) Income Derived by the Government or


its Political Subdivisions. - Income derived
from any public utility or from the exercise
of any essential governmental function
accruing to the Government of the
Philippines or to any political subdivision
thereof.
EXCLUSIONS FROM GROSS INCOME

(7)Miscellaneous Items. -
(c) Prizes and Awards. - Prizes and
awards made primarily in
recognition of religious,
charitable, scientific, educational,
artistic, literary, or civic
achievement but only if:
EXCLUSIONS FROM GROSS INCOME
(7)Miscellaneous Items. –
(c)
(i) The recipient was selected without
any action on his part to enter the
contest or proceeding; and
(ii) The recipient is not required to
render substantial future services as
a condition to receiving the prize or
award.
EXCLUSIONS FROM GROSS INCOME

(7)Miscellaneous Items. -
(d) Prizes and Awards in sports
Competition. - All prizes and awards
granted to athletes in local and
international sports competitions and
tournaments whether held in the
Philippines or abroad and sanctioned
by their national sports associations.
EXCLUSIONS FROM GROSS INCOME

(7)Miscellaneous Items. -
(e) 13th Month Pay and Other
Benefits. - Gross benefits received by
officials and employees of public and
private entities: Provided, however,
That the total exclusion under this
subparagraph shall not exceed Eighty
Two Thousand pesos (P82,000) *
which shall cover:
EXCLUSIONS FROM GROSS INCOME
(7)Miscellaneous Items. -
(i) Benefits received by officials and
employees of the national and local
government pursuant to Republic Act No.
6686;
(ii) Benefits received by employees
pursuant to Presidential Decree No. 851,
as amended by Memorandum Order No.
28, dated August 13, 1986;
EXCLUSIONS FROM GROSS INCOME

(7)Miscellaneous Items. -

(f) GSIS, SSS, Medicare and Other


Contributions. - GSIS, SSS, Medicare
and Pag-ibig contributions, and union
dues of individuals.
EXCLUSIONS FROM GROSS INCOME

(7)Miscellaneous Items. -
(g) Gains from the Sale of Bonds,
Debentures or other Certificate of
Indebtedness. - Gains realized from the
same or exchange or retirement of
bonds, debentures or other certificate
of indebtedness with a maturity of more
than five (5) years.
EXCLUSIONS FROM GROSS INCOME

(7)Miscellaneous Items. -
(h) Gains from Redemption of
Shares in Mutual Fund. - Gains
realized by the investor upon
redemption of shares of stock in a
mutual fund company
EXCLUSIONS FROM GROSS INCOME
8. Fringe Benefits Not Taxable.
The following fringe benefits are not taxable under this
Section:
(1) fringe benefits which are authorized and exempted
from tax under special laws;
(2) Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization
benefit plans;
(3) Benefits given to the rank and file employees,
whether granted under a collective bargaining
agreement or not; and
(4) De minimis benefits as defined in the rules and
regulations to be promulgated by the Secretary of
Finance,
EXCLUSIONS FROM GROSS INCOME

8. (4 )De Minimis Benefits

The De Minimis benefits are


those benefits of relatively small values
given by employers to their employee on top
of the compensation and these
benefits are not subject to withholding (tax
exempt) The BIR sets a limit on the value of
tax-exempt de minimis benefits
EXCLUSIONS FROM GROSS INCOME

8. (4 ) De Minimis Benefits

a. Monetized unused vacation leave


credits of employees of private
offices not exceeding ten (10) days
during the year; (RR No. 5-2011)
EXCLUSIONS FROM GROSS INCOME
8. (4 ) De Minimis Benefits
b. Monetized value of vacation
and sick leave credits paid to
government officials and
employees; (RR No. 5-2011)
Then President Joseph E. Estrada in Executive
Order 291 granted the exemption from income
tax of monetized leave credits of government
officials and employees.
EXCLUSIONS FROM GROSS INCOME

8. (4 ) De Minimis Benefits

c. Uniform and Clothing


allowance not exceeding
P5,000 per annum; (RR No. 8-
2012))
EXCLUSIONS FROM GROSS INCOME

8. (4 ) De Minimis Benefits

d. Laundry allowance not


exceeding P300 per month; (RR
No. 5-2011)
EXCLUSIONS FROM GROSS INCOME
8. (4 ) De Minimis Benefits

e. Medical cash allowance to


dependents of employees, not
exceeding P750 per employee
per semester or P125 per
month; (RR No. 5-2011)
EXCLUSIONS FROM GROSS INCOME

8. (4 ) De Minimis Benefits

f. Rice subsidy of P1,500 or


one (1) sack of 50 kg. rice per
month amounting to not more
than P1,500; (RR No. 5-2011)
EXCLUSIONS FROM GROSS INCOME
8. (4 ) De Minimis Benefits

g. Actual medical assistance, e.g.


medical allowance to cover medical and
healthcare needs, annual
medical/executive check-up, maternity
assistance, and routine consultations,
not exceeding P10,000.00 per annum;
(RR No. 5-2011)
EXCLUSIONS FROM GROSS INCOME

8. (4 ) De Minimis Benefits
h. Employees achievement awards, e.g., for
length of service or safety achievement, which
must be in the form of a tangible personal
property other than cash or gift certificate, with
an annual monetary value not exceeding
P10,000 received by the employee under an
established written plan which does not
discriminate in favor of highly paid employees;
(RR No. 5-2011)
EXCLUSIONS FROM GROSS INCOME

8. (4 ) De Minimis Benefits

i. Gifts given during Christmas and


major anniversary celebrations not
exceeding P5,000 per employee
per annum; (RR No. 5-2011)
EXCLUSIONS FROM GROSS INCOME

8. (4 ) De Minimis Benefits

j. Daily meal allowance for overtime


work and night/graveyard shift not
exceeding twenty-five percent (25%)
of the basic minimum wage on a per
region basis; (RR No. 5-2011
EXCLUSIONS FROM GROSS INCOME
8. (4 ) De Minimis Benefits
k. Benefits received by an employee by
virtue of a collective bargaining agreement
(CBA) and productivity incentive schemes
provided that the total monetary value
received from both CBA and productivity
incentive schemes combined do not
exceed P10,000.00 per employee per
taxable year. (RR No 1-2015)
Gross Income Exclusions
from whatever from Gross
source whether
legal or illegal
– Income

= GROSS INCOME
Gross income means all
income derived from whatever source. It
includes, but is not limited to, Compensation for
services, in whatever form paid; Gross income
derived from the conduct of trade or business or
the exercise of profession; Gains derived from
dealings in property; Interest; Rents; Royalties;
Dividends; Annuities; Prizes and winnings;
Pensions; and Partner’s distributive share from
the net income of the general professional
partnerships.
INCOME TAX FORMULA
VARIES ACCORDING TO
THE KIND OF INCOME
THUS GROSS INCOME
SHOULD FIRST BE
CLASSIFIED INTO
COMPENSATION BUSINESS
INCOME INCOME

GROSS INCOME
PASSIVE
INCOME
COMPENSATION BUSINESS
INCOME INCOME

GROSS INCOME
PASSIVE
INCOME
COMPENSATION BUSINESS
INCOME INCOME

GROSS INCOME
PASSIVE
INCOME
COMPENSATION
INCOME

Refers to all kinds of items of


remunerations/ emoluments
earned or received in return for
services rendered in an employer-
employee relationship
BUSINESS
INCOME
These are earnings resulting or derived
from its main line of commercial business
activity, such as gross profit from sales of
goods and services

This refers to the income, profit or gain


earned and derived from the conduct or
pursuit of trade, business or the exercise
of a profession
Means, gains or income items
obtained from activities in which
the taxpayer does not participate
on a regular and continuing basis

PASSIVE
INCOME
COMPENSATION
INCOME
COMPENSATION
INCOME

COMPUTATION
OF INCOME TAX
Compensation
Computation of Tax Payable ( Refundable ) COMPENSATION INCOME Income

GROSS INCOME XXX

LESS: EXEMPTIONS and HIPP


PERSONAL EXEMPTIONS 50,000.00
ADDITIONAL EXEMPTIONS 100,000.00
HEALTH INSURANACE PREMIUM PAYMENTS 2,400.00 152,400.00

TAXABLE NET INCOME XXX

TAX RATES ( 0-32% ) 0-32%

TAX DUE XXX

LESS: TAX CREDITS

WITHHOLDING TAX ( FORM 2306 ) XXX


TAX STILL PAYABLE OR (REFUNDABLE) XXX

==
What is GROSS COMPENSATION INCOME?

Gross compensation is the


amount an employee receives before any
deductions or adjustments. Unlike gross
salary, which is the earned hourly or
annual wages before deductions, total
gross compensation includes tips,
bonuses and other benefits employers
give employees during the period being
reported. This information gives
government agencies an accurate picture
of the employee's taxable income.
EXEMPTIONS AND
OTHER
DEDUCTIONS FROM
COMPENSATION
INCOME
RULE ON PERSONAL
EXEMPTION
In general, each individual taxpayer shall be
permitted to claim the basic allowed personal
exemption amounting to 50,000, regardless,
of his civil status whether single, married or
legally separated, whether a resident citizen,
resident alien, non-resident alien engaged in
business * in Philippines.
RULE ON ADDITIONAL
EXEMPTION
Each individual taxpayer shall be permitted to claim the
additional allowed personal exemption amounting to
25,000, for each qualified dependent child, but not
to exceed four (4) children, whether such taxpayer is a head
of a family, married or legally
separated, whether a resident citizen, resident alien, non-
resident alien engaged in business *in the Philippines.

*non resident alien engaged in trade or business however


receives exemption benefits subject to the reciprocity rule
WHO IS A QUALIFIED DEPENDENT CHILD?
A qualified dependent child is a:
legitimate, illegitimate , acknowledged
natural or legally adopted, child below 21
years of age*, unmarried , not gainfully
employed, living with and wholly dependent
upon the taxpayer for
chief support .
*still qualified if more than 21 years of age but incapable
of self-support because of mental or physical defect.
Health Insurance Premiums
The taxpayer is allowed to claim an exemption for health
hospitalization insurance premium subject to the following conditions
and limitations.

a) Said family (the husband and wife, in case of married couple)


has a gross income of not more than two hundred fifty thousand
Pesos (250,000) for the taxable year.

b) There must be an actual health hospitalization insurance


premium payment during the month/year.
c) The claimable amount of health hospitalization
insurance premium shall be lower amount between the
actual HHIP payment or the limit HHIP amount prescribed
by law which shall not exceed two thousand four hundred
pesos (2,400) per year or two hundred pesos per month.

d) In the case of married couple, only the spouse


claiming the additional allowed personal exemption for
their children dependents shall be entitled to such
exemption
APPLY TAX RATES
ON INCOME FROM BUSINESS
AND COMPENSATION

The basic income tax due shall


be computed based on the
unified graduated/progressive
income tax rates as follows:
IF THE TAXABLE INCOME IS:
To summarize, the following tax rules may
apply to all income received by an
employee:
Salaries & Wages (Basic Compensation) 0-32%

De Minimis Benefits 0 if within the limit excess to be


added to other benefits (82,000)
Other Benefits that include Excess of De Minimis 0 if within the limit of P82,000
(Add with 13thMonthPay and Bonuses =
P82,000.00)
Benefits & Bonuses in Excess of P82,000.00 Excess over 82,000 x 0-32%
Rank-And-File Employee
Managerial and Supervisory
ILLUSTRATION:
Mr. Teddy Plata received the following compensation and benefits during the year
while working as a bookkeeper.

Annual Basic Salary P250,000


13th Month Pay and Bonuses 72,000
Rice Subsidy 30,000
Uniform Allowance 8,000

basic De Other benefits Tax


minimis exempt taxable
250,000 250,000
72,000 72,000 (10,000)*
30,000 18,000 12,000
8,000 5,000 3,000
total tax exemption 105,000
Total taxable Compensation 255,000
* 82,000 - 72,000 = P10,000
ANNUAL CERTIFICATE
OF COMPENSATION
PAYMENT /TAX
WITHHELD ISSUED BY
THE EMPLOYER TO THE
EMPLOYEE AT THE END
OF THE YEAR

ATTACHMENT TO 1700 IF
REFUNDABLE /PAYABLE
What is
WITHHOLDING
TAX?
Withholding tax is NOT a tax,
it is a system of collecting in
advance a particular kind of
tax. If there is no withholding
tax system all the taxes can
only be collected at the time
they are due based on the
provisions of the law that
imposes the said tax.
What are the
two kinds of
withholding
tax system?
There are 2 Kinds of
Withholding Tax System

The Final Withholding Tax


and the
Creditable Withholding Tax
What is a final
withholding
tax and what
is a
creditable
withholding
tax system?
The FINAL WITHHOLDING TAX is a
withholding tax system where the
tax so withheld is complete
satisfaction of the tax due and there
is no need to file an annual tax
return to declare the income. THE
CREDITABLE WITHHOLDING TAX on
the other hand is a withholding tax
system where the tax so withheld
can be deducted from the tax due in
the computation of the annual tax
due for the calendar/fiscal year the
tax was withheld. There are two
kinds of creditable withholding tax
system, the Creditable Tax on
Compensation and the Expanded
Withholding tax
What are the
two kinds of
Creditable
Withholding
Tax System?
The two kinds of Creditable
Withholding Tax System:

THE ORIGINAL or first withholding


tax system that covers the
compensation and the subsequent
withholding system called the
EXPANDED WITHHOLDING TAX
System which covers income tax
on business and other business
taxes such as VAT and Percentage
Taxes
According to Section 79 of the National Internal
Revenue Code (Republic Act No. 8424), as further
amended by RA 9504, “except in the case of a
minimum wage earner as defined in Sec. 22(HH) of
this code, every employer making payment of
wages shall deduct and withhold upon such wages
a tax determined in accordance with the rules and
regulations to be prescribed by the Secretary of
Finance, upon recommendation of the
Commissioner.” This means that employees and
workers who earn minimum wages are not subject
to withholding tax.
Methods of computing tax withheld on compensation

1. Use of withholding tax table. In general, every


employer making payment of compensation shall
deduct and withhold from such compensation a tax
determined in accordance with the prescribed Revised
Withholding Tax Tables which shall be used starting
January 1, 2009. Below are the four withholding tax
tables prescribed in these regulations:
a. Monthly tax table – to be used by employers using
the monthly payroll period;
b. Semi-monthly tax table – to be used by employers
using the semi-monthly payroll period;
c. Weekly tax table – to be used by employers using
the weekly payroll period;
d. Daily tax table – to be used by employers using the
daily payroll period.
USE TABLE A FOR SINGLE/MARRIED
EMPLOYEES WITH NO QUALIFIED DEPENDENT

1. Married Employee (Husband or Wife) whose spouse is unemployed.


2. Married Employee (Husband or Wife) whose spouse is non-resident
citizen receiving income from foreign sources.
3. Married Employee (Husband or Wife) whose spouse is engaged in
business.
4. Single with dependent father/mother/brother/sister/senior citizen.
5. Single
6. Zero Exemption for Employees with multiple employers for the
2nd,3rd…employers (main employer claims personal & additional
exemption)
7. Zero Exemption for those who failed to file Application for
Registration
USE TABLE B FOR THE FOLLOWING
SINGLE/MARRIED EMPLOYEES WITH QUALIFIED
DEPENDENT CHILDREN
1. Employed husband and husband claims
exemptions of children
2. Employed wife whose husband is also
employed or engaged in business;
husband waived claim for dependent
children in favor of the employed wife.
3. Single with qualified dependent
children.
A

A
TABLE A

TABLE B
Steps in computing amount of tax to be withheld

Step1. Determine the total monetary and non-


monetary compensation paid to an employee for the
payroll period, segregating gross benefits which
include 13th month pay, productivity incentives,
Christmas bonus, other benefits, received by the
employee per payroll period, and employees’
contribution (employees’ contribution only and not
the employers’ contribution) to SSS, GSIS, HDMF,
PHIC, and union dues. Gross benefits which are
received by officials and employees of both public and
private entities in the amount of P82,000 or less shall
be exempted from income and withholding taxes.
Step2. Segregate the taxable from the non-
taxable compensation income paid to the
employee for the payroll period. The taxable
income refers to all remuneration paid to an
employee not otherwise exempted by law from
income tax and consequently from withholding
tax. The non-taxable income are those which
are specifically exempted from income tax by
the Code or by other special laws as listed in
Sec.2.78.1(B) hereof (e.g. benefits not
exceeding P82,000, non-taxable retirement
benefits and separation pay).
Step 3. Segregate the taxable compensation income
as determined in Step 2 into regular taxable
compensation income and supplementary
compensation income. Regular compensation
includes basic salary, fixed allowances for
representation, transportation and other
allowances paid to an employee per payroll period.
Supplementary compensation includes payments to
an employee in addition to the regular
compensation such as commission, overtime pay,
taxable retirement pay, taxable bonus and other
taxable benefit, with or without regard to a payroll
period.
Step 4. Use the appropriate tables mentioned under
Section 2.79 (B)(1) for the payroll period: monthly,
semi-monthly, weekly or daily, as the case may be.
Step 5. Fix the compensation level as follows:
(a) Determine the line (horizontal) corresponding to
the status and number of qualified dependent
children using the appropriate symbol for the
taxpayer’s status.(b) Determine the column to be
used by taking into account only the total amount of
taxable regular compensation income. The
compensation level is the amount indicated in the line
and column to which the regular compensation
income is equal to or in excess, but not to exceed the
amount in the next column of the same line.
Step 6. Compute the withholding tax due
by adding the tax predetermined in the
compensation level indicated at the top of
the column, to the tax on the excess of the
total regular and supplementary
compensation over the compensation
level, which is computed by multiplying
the excess by the rate also indicated at the
top of the same column/compensation
level.
Sample Computations Using the Withholding Tax
Tables
The following are sample computations of
Withholding tax on compensation using the
withholding tax tables:
Example 1: Single with no dependent receiving
monthly compensation
Juan Santos, single with no dependent, receives
P18,000 (net of SSS/GSIS,PHIC,HDMF employee
share only) as monthly regular compensation and P
7,000 as supplementary compensation for January
2011 or a total of P25,000. How much is the
withholding tax for January 2011 for Juan?
Computation:
By using the monthly withholding tax table,
the withholding tax for January 2011 is
computed by referring to Table A line 2 S
(single) of column 6 (fix compensation level
taking into account only the regular
compensation income of P18,000 which
shows a tax of P1,875 on P15,833 plus 25%
of the excess of P 2,167 (P18,000-15,833)
plus P7,000 supplementary compensation.
Regular compensation: P 18,000
Less: compensation level
(line A-2 column 6) 15,833
Excess P 2,167
Add: Supplementary compensation 7,000
Total P 9,167

Tax on P15,833 P1,875.00


Tax on excess (P9,167 x 25%) 2,291.75
Withholding tax for January 2011 P 4,166.75
Example 2: Married with qualified dependent
children receiving semi-monthly compensation
Jose Cruz, married with three (4) qualified dependent
children receives P14,000 (net of
SSS/GSIS,PHIC,HDMF employee share only) as
regular semi-monthly compensation. His wife is also
employed but he did not waive his right in favor of
the wife to claim for the additional exemptions.
Computation: Using the semi-monthly withholding
tax tables, the withholding tax due is computed by
referring to Table B line 4 ME4 of column 6 which
shows a tax of P937.5 on P12,083 plus 25% of the
excess (P 14,000 – 12,083 = P1,917).
Total taxable compensation P 14,000
Less: compensation level
(line B-4 Column 6) 12,083
Excess P 1,917

Tax on P12,083 P 937.50


Tax on excess (P1,917 x 25%) 479.25
Semi-monthly withholding tax P1,416.75
ANNUAL CERTIFICATE
OF COMPENSATION
PAYMENTS/TAX
WITHHELD IS ISS

ATTACHMENT TO 1700 IF
REFUNDABLE /PAYABLE
BACK TO THE COMPUTATION OF INCOME TAX
INCOME TAX
RETURN TO BE
FILED ON OR
BEFORE APRIL 15
OF THE
SUCCEEDING YEAR
BUSINESS
INCOME
BUSINESS
INCOME
COMPUTATION
OF INCOME TAX
INCOME FROM BUSINESS
MAY BE TAXED USING:

1.OPTIONAL STANDARD
DEDUCTION , OR

2.ITEMIZED DEDUCTIONS
FORMULA FOR INCOME TAX
USING OPTIONAL STANDARD DEDUCTION
Computation of Tax Payable ( Refundable ) Using OPTIONAL STANDARD DEDUCTIONS Business Income

GROSS INCOME XXX

LESS: ALLOWABLE DEDUCTIONS

OPTIONAL STANDARD DEDUCTIONS - Sec. 34(L) 40%

NET INCOME XXX

LESS: ALLOWABLE DEDUCTIONS

PERSONAL EXEMPTIONS - Sec. 35 (A) 50,000.00

ADDITIONAL EXEMPTIONS – Sec. 35(B) 100,000.00

HEALTH INSURANACE PREMIUM PAYMENTS - Sec.34(M) 2,400.00 152,400.00

TAXABLE NET INCOME XXX

TAX RATES ( 0-32% ) 0-32%

TAX DUE XXX

LESS: TAX CREDITS

QUARTERLY INCOME TAX PAYMENTS XXX

CREDITABLE WITHHOLDING TAX XXX XXX

XXX
Computation of Tax Payable ( Refundable ) Using ITEMIZED DEDUCTIONS Business Income

GROSS INCOME XXX


LESS: ITEMIZED BUSINESS EXPENSES
INTEREST EXPENSE - Sec. 34 (B) XXX
TAXES EXPENSE - Sec. 34 (C) XXX
LOSSES - Sec. 34 (D) XXX
BAD DEBTS EXPENSE - Sec. 34 (E) XXX
DEPRECIATION EXPENSE - Sec. 34 (F) XXX
DEPLETION EXPENSE - Sec. 34 (G) XXX
CHARITABLE CONTRIBUTION - Sec. 34 (H) XXX
RESEARCH AND DEVELOPMENT COST - Sec. 34 (I) XXX
PENSION TRUST CONTRIBUTIONS - Sec. 34 (J) XXX
OTHER BUSINESS EXPENSES IN GENERAL - Sec. 34(A) XXX XXX
NET INCOME XXX
LESS: ALLOWABLE DEDUCTIONS
PERSONAL EXEMPTIONS 50,000.00
ADDITIONAL EXEMPTIONS 100,000.00
HEALTH INSURANACE PREMIUM PAYMENTS 2,400.00 152,400.00
TAXABLE NET INCOME XXX
TAX RATES ( 0-32% ) 0-32%
TAX DUE XXX
LESS: TAX CREDITS
QUARTERLY INCOME TAX PAYMENTS XXX
CREDITABLE WITHHOLDING TAX XXX XXX
TAX STILL PAYABLE OR (REFUNDABLE) XXX
WHAT ARE THE
ITEMIZED OR
ALLOWABLE
DEDUCTIONS?
Itemized or
Allowable Deduction is
any item or
expenditure
subtracted from gross
income to reduce the
amount of income
subject to income tax.
Interest Expense
The amount of interest paid or incurred
INTEREST EXPENSE
within a taxable year on indebtedness in
connection with the taxpayer’s
profession, trade or business shall be
allowed as deduction from gross income:
Provide, however that, the taxpayer’s
otherwise allowable deduction for
interest expense shall be reduced by an
amount equal to thirty-three percent
(33%) of the earned interest subjected to
final income tax
Interest
Expense
Limitation
Interest Expense
limitation shall apply regardless of
whether or not a tax arbitrage scheme
was entered into by the taxpayer for
as long as, during the taxable year,
there is an interest expense incurred
on one side and an interest income
earned on the other side, which
interest income had been subjected to
final withholding tax.
Interest Expense
REQUISITES FOR DEDUCTIBILITY OF
INTEREST EXPENSE (rr 31-09)
There must be an indebtedness;
There should be an interest expense paid or
incurred upon such indebtedness;
The indebtedness must be that of the
taxpayer’
The indebtedness must be connected with
the taxpayer’s trade, business or exercise of
profession
The interest expense must have been paid or
incurred during the taxable year;
Interest Expense
The interest must have been stipulated in
writing;
The interest must be legally due;
The interest payment arrangement must not be
between related taxpayers as mandated in Sec.
34(B) (2) (b), in relation to Sec. 36(B), both of
the Tax Code of 1997.
The interest must not be incurred to finance
petroleum operations; and
In case of interest incurred to acquire property
used in trade, business or exercise of
profession, the same was not treated as a
capital expenditure.
Interest Expense
RULES ON THE DEDUCTIBILITY OF INTEREST
EXPENSE
The general rule is that the amount of interest
expense paid or incurred within a taxable year on
indebtedness in connection with the taxpayer’s trade,
business or exercise of profession shall be allowed as
deduction from the taxpayer’s gross income. (rr 31-
09)
However, the amount of interest expense paid or
incurred by a taxpayer in connection with his trade
business or exercise of a profession from an existing
indebtedness shall be reduced by an amount equal to
the percentage of the interest income earned which
has been subjected to final withholding tax
depending on the year when the interest income was
earned. (rr 31-09)
Interest Expense
Based on the regulation, the deduction from
interest expense is equal to 33% of interest
income subjected to final tax, and the that
portion of the said expense will be non-
deductible in income tax computation.
ILLUSTRATION:
Normal Corporate Income Tax
Rate 30%
Less: Final Tax Rate 20%
(NCIT Rate less FT Rate divided by NCIT Rate)
10%/30% NCIT = 33.33%
Interest Expense – (Interest income (gross) x
33.33%) = Deductible Interest Expense
Interest Expense
Example: Bulutonggoy deposited with the bank 1m
and he borrowed money from ABC Company 2M @6%
per annum, how much is the interest income and
interest expense of Bulutonggoy? Interest income is
1Mx12%x80%=96,000.00, Interest expense is
2Mx6%=120,000.00
How much interest expense can Bulutonggoy claim
as deduction from his business income? Can he
claim 120,000.00? No, the interest allowable to
Bulutonggoy is only 80,400 computed as follows:
Interest Expense-33%of gross interest income=
120,000-33% of 120,000= 120,000-39,600=80,400
TAXES EXPENSE
Taxes whether
INTEREST local, national
EXPENSE
or foreign, paid or incurred
within the taxable year in
connection with the taxpayer’s
profession, trade or business,
shall be allowed as deduction
form his/her gross income
TAXES EXPENSE
Examples of Taxes that are Deductible:
1. Percentage taxes
2. Excise taxes
3. Documentary stamp taxes
4. Local business taxes
5. Import duties
6. BIR Registration fees
7. Registration fees of your autos that are related to
business
8. Occupation tax or professional license fees
9. Community Tax

Note: The taxes above should be related to your business


or practice of profession to be claimed as deductions.
TAXES EXPENSE
Examples of Taxes that are Non-deductible:
1. The Philippines income tax
2. Income taxes imposed by authority of any foreign country; but
this deduction shall be allowed in the case of a taxpayer who does
not signify in his return his desire to have to any extent the
benefits of credit against tax for taxes of foreign countries
3. Estate taxes
4. Donor’s taxes
5. VAT
6. Foreign income tax, if claimed as tax credit
7. Surcharge and compromise on tax penalties
8. Interest on unpaid taxes (this is considered as Interest expense
and not tax expense)
9. Taxes assessed against local benefits of a kind tending to
increase the value of the property assessed.
10. Taxes that are not related to your business or practice of
profession
LOSSES
Losses on property
INTEREST EXPENSEactually
sustained as a result of
natural calamities or human
intervention during the
taxable year and not
compensated for by insurance
or other forms of indemnity
BAD DEBT EXPENSE
Debts due to taxpayer actually
INTEREST EXPENSE
ascertained to be worthless and
charged off within the taxable
year are deductible, except those
not connected with the exercise
of profession, trade or business
and those sustained in a
transaction entered into between
‘related taxpayers
DEPRECIATION EXPENSE
There shall be
INTEREST EXPENSEallowed as a
depreciation deduction a
reasonable allowance for the
exhaustion, wear and tear
(including reasonable allowance
for obsolescence) of property
used in the trade or business
DEPLETION EXPENSE
INTEREST
In the case of oilEXPENSE
and gas wells and
mines, a reasonable allowance for
depletion or amortization computed in
accordance with the cost-depletion
method shall be granted under rules and
regulations to be prescribed by the
Secretary of Finance, upon
recommendation of BIR Commissioner
CHARITABLE CONTRIBUTIONS

INTERESTorEXPENSE
Donations contributions
made by taxpayers shall be
categorized either as fully
non-deductible, fully
deductible but subject to
limitation.
RESEARCH AND DEVELOPMENT COST/EXPENSE

AINTEREST
taxpayer mayEXPENSE
treat research or
development expenditures which are
paid or incurred by him during the
taxable year in connection with his
trade, business or profession as
ordinary and necessary expenses
which are not chargeable to capital
account
PENSION TRUST CONTRIBUTION

INTEREST EXPENSE
An employer or maintaining
a pension trust to provide
for the payment reasonable
pensions to his employees.
OTHER BUSINESS EXPENSES IN GENERAL

There shall be allowed as deduction


INTEREST EXPENSE
from gross income all the ordinary
and necessary expenses paid or
incurred during the taxable year in
carrying on or which are directly
attributable to, the development,
management, operation and/or
conduct of the trade, business or
exercise of a profession.
OTHER DEDUCTIONS
HEALTH & HOSPITALIZATION INSURANCE
PREMIUM PAYMENTS
RULE ON PERSONAL
EXEMPTION
In general, each individual taxpayer shall be
permitted to claim the basic allowed personal
exemption amounting to 50,000, regardless,
of civil status whether single, married , head
of the family or legally separated, whether a
resident citizen, resident alien, non-resident
alien engaged in business * in Philippines.
RULE ON ADDITIONAL
EXEMPTION
Each individual taxpayer shall be permitted to claim the
additional allowed personal exemption amounting to
25,000, for each qualified dependent child, but not
to exceed four (4) children, whether such taxpayer is single
a head of a family, married, legally
separated, whether a resident citizen, resident alien, non-
resident alien engaged in business *in the Philippines.

*non resident alien engaged in trade or business however


receives exemption benefits subject to the reciprocity rule
WHO IS A QUALIFIED DEPENDENT
CHILD?

A qualified dependent child is a:


legitimate, illegitimate or legally adopted,
child below 21 years of age*, unmarried ,
not gainfully employed, living with and
wholly dependent upon the taxpayer for
chief support .
*still qualified if more than 21 years of age but incapable
of self-support because of mental or physical defect.
HEALTH INSURANCE PREMIUMS
The taxpayer is allowed to claim an exemption for health
hospitalization insurance premium subject to the following conditions
and limitations.

a) Said family (the husband and wife, in case of married couple)


has a gross income of not more than two hundred fifty thousand
Pesos (250,000) for the taxable year.

b) There must be an actual health hospitalization insurance


premium payment during the month/year.
c) The claimable amount of health hospitalization
insurance premium shall be lower amount between the
actual HHIP payment or the limit HHIP amount prescribed
by law which shall not exceed two thousand four hundred
pesos (2,400) per year or two hundred pesos per month.

d) In the case of married couple, only the spouse


claiming the additional allowed personal exemption for
their children dependents shall be entitled to such
exemption
Apply Tax Rates
APPLY TAX RATES
ON INCOME FROM BUSINESS
AND COMPENSATION

The basic income tax due shall


be computed based on the
unified graduated/progressive
income tax rates as follows:
IF THE TAXABLE INCOME IS:
xxx

xxx
BUSINESS INCOME OR
PROFESSIONAL INCOME ARE
FILED QUARTERLY AND INCOME
TAXES THEREFOR ARE PAID AT
THE TIME OF FILING ANY INCOME
PAID DURING THE QUARTER
SHALL BE DEDUCTED FROM THE
ANNUAL INCOME TAX DUE

COMPUTATION
OF THE
QUARTERLY
INCOME TAX
IS
CUMMULATIVE
INCOME SUBJECT TO EXPANDED
WITHHOLDING TAX ARE
RECEIVED NET OF
CORRESPONDING WITHHOLDING
TAX, THE TAXES SO WITHHELD
ARE INDICATED IN THIS
CERTIFICATE ISSUED BY THE
PERSON PAYING THE INCOME

NOT ALL
INCOME
ARE
COVERED
BY THE
EWT

INCOME TAX
RETURNS FILED BY
THE INDIVIDUALS
EARNING BUSINESS
OR PROFESSIONAL
INCOME AND THE
BIR FORMS
REQUIRED TO BE
ATTACHED AS PROOF
OF TAX CREDITS
PASSIVE
INCOME
COMPUTATION
OF INCOME TAX

PASSIVE INCOME
Computation of Passive
Income Tax

tax
Gross Amount rate tax due

xxx % xxx
Note that there are
no deductions
allowed on passive
income
Tax Rates
On Passive Income
(Individuals)
assive Income Rate
Interest from currency deposits, trust funds and deposit substitutes 20%
Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment
anagement accounts and other investments evidenced by certificates
pon pretermination before the fifth year , there should be imposed on the entire income from the proceeds of the long-term deposit based on the remaining Exempt
aturity thereof:
olding Period
our (4) years to less than five (5) years 5%
hree (3) years to less than four (4) years 12%
ess than three (3) years 20%
Interest Income of Foreign Currency Deposit 7.5%
Cash and Property Dividends
o individuals from Domestic Corporations 10 %
o Domestic Corporations from Another Domestic Corporations 0%
On capital gains presumed to have been realized from sale, exchange or other disposition of real property (capital asset) 6%
On capital gains for shares of stock not traded in the stock exchange
Not over P100,000 5%
ny amount in excess of P100,000 10%
Royalties (on books as well as literary & musical composition) 10%
n general 20%
Prizes (P10,000 or less ) 5%
n excess of P10,000 20%
Winnings (except from PCSO and lotto) 20%
0.Compensation Income/Gross Income*
15%

For Filipinos or aliens holding managerial, supervisory, or technical positions in regional headquarters of a multinational corporation
1.Fringe benefits granted to employees with managerial or supervisory positions are subject to the fringe benefits tax.
he grossed-up monetary value of fringe benefits is derived by dividing the monetary value of these fringe benefits by 68%. The grossed-up monetary value is 32%
en multiplied by 32%. The value derived is the amount to be withheld by the employer as fringe benefits tax. on grossed up

2.Informer’s Reward

informer is a person who has been instrumental discovering people who have been violating the tax code, or smuggling goods. His reward is subject to 10%
0% tax.
xxx

xxx xxx
APPLY TAX RATES ON PASSIVE
INCOME:
Interest income from Phil. Bank deposits;
1. Regular & savings - 20%

2. Long – term deposits


5 years - exempt
 Pretermination
 4 < 5 years - 5%
 3 < 4 years - 12 %
 < 3 years - 20%

3. Expanded foreign currency deposits system 7.5%


APPLY TAX RATES ON PASSIVE
INCOME :

5. Profits from sale


of property
6%
APPLY TAX RATES ON PASSIVE
INCOME :

6. On capital gains for shares of stock not traded


in the stock exchange

-Not over P100,000 - 5%

-Any amount in excess of P100,000 -10%


APPLY TAX RATES ON PASSIVE
INCOME :

7. Royalties on
literary or musical
works
10%
APPLY TAX RATES ON PASSIVE
INCOME :

8. Prizes
(P10,000 or less ) 5%

- In excess of P10,000 20%


APPLY TAX RATES ON PASSIVE
INCOME :

9. Winnings (except
from PCSO and lotto)

20%
APPLY TAX RATES ON PASSIVE
INCOME :

10. Compensation
Income/Gross Income*
15%

*For Filipinos or aliens holding managerial, supervisory, or


technical positions in regional headquarters of a
multinational corporation
APPLY TAX RATES ON PASSIVE
INCOME :

11. Informer’s Reward


10%
An informer is a person who has been
instrumental discovering people who have been
violating the tax code, or smuggling goods. His
reward is subject to 10% tax.
APPLY TAX RATES ON PASSIVE
INCOME :

12. Fringe benefits granted to


employees with managerial or
supervisory positions are subject
to the fringe benefits tax.
The grossed-up monetary value of fringe benefits is
derived by dividing the monetary value of these fringe
benefits by 68%. The grossed-up monetary value is then
multiplied by 32%. The value derived is the amount to be
withheld by the employer as fringe benefits tax.
What is a fringe benefit tax?
.
H
TAXES ON PASSIVE INCOME
ARE FINAL TAXES AND NEED
NOT BE FILED BY THE
PERSON RECEIVING THIS
INCOME. THE ONE PAYING
THE INCOME IS THE ONE
WHO IS GOING TO REMIT THE
AMOUNT TO THE BIR AND HE
IS CALLED A WITHHOLDING
AGENT
SUMMARY OF
INCOME TAX ON
INDIVIDUALS
(a) “Employees”
When is there an employer-employee relationship?
Common Law tests in determining an employment relationship.
The following "tests" are only pieces of evidence that shall be weighed, at times
differently, depending on the situation, to determine whether a worker is part of the
payer's business or in business on his own account ..

1. The Control Test


This was the first attempt to clarify the relationship between a worker and a payer. It
was set out in Regina v. Walker (1858). The Control Test was simply assessing the
presence or absence of control a manager or supervisor might or might not have
over their worker.
"…A principal has the right to direct what the agent has to do; but a master has not
only that right, but also the right to say how it is to be done."
Regina v. Walker, (1858) 27 L.J.M.C. 207
This test was seen as too simplistic especially in recent years, when highly skilled
and professional workers possess skills beyond the ability of their employers to
direct.
2. The Fourfold Test
This was developed in a 1947 Privy Council decision in Montreal v. Montreal Locomotive
Works Ltd. et al where the court stated:
"… It has been suggested that a fourfold test would in some cases be more appropriate, a
complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss.
Control in itself is not always conclusive."
Montreal v. Montreal Locomotive Works Ltd. et al, [1947] 1 D.L.R. 161
Lord Wright went on to indicate the crucial question is "whose business is it?" This question
is from the worker's perspective and not the payer's.

3. The Integration Test


This was first developed in Stevenson Jordon and Harrison, Ltd. v. MacDonald and Evans,
(1952). This approach attempts to find if the service being provided by the worker is
performed as an integral part of the business, or done on behalf of the business but not
integrated into that business. This "test" is best explained by an excerpt from the decision:
"… One feature which seems to run through the instances is that, under a contract of
service, a man is employed as part of the business, and his work is done as an integral part
of the business; whereas, under a contract for services, his work, although done for the
business, is not integrated into it but is only accessory to it."
Stevenson Jordan and Harrison, Ltd. v. MacDonald and Evans, [1952] 1 T.L.R. 101
http://www.esdc.gc.ca/en/esdc/acts_regulations/labour/interpretations_policies/employer
_employee.page
THIS IS THE INCOME
TAX RETURN FILED BY
COMPENSATION
INCOME EARNERS ON
OR BEFORE APRIL 15
OF THE SUCCEEDING
YEAR
ANNUAL CREDITABLE
WITHHOLDING TAX
CERTIFICATE ISSUED
BY THE EMPLOYER TO
THE EMPLOYEES AT
THE END OF THE YEAR

ATTACHMENT TO 1700 IF
REFUNDABLE /PAYABLE
(b) "Self-employed“
means persons engaged in business
and who derive their personal income
from such business. This includes single
proprietorships, i.e., manufacturers,
traders, market vendors, owners of
eateries, farmers and service shops
(b) "Professionals "

means persons who derive their income from the


practice of their profession. This includes lawyers
and other persons who are registered with the
Professional Regulation Commission such as
doctors, dentists, certified public accountants
and others similarly situated. The term
"professional" also refers to one who pursues an
art and makes his living therefrom such as
artists, athletes and others similarly situated.
INCOME TAX
RETURNS FILED BY
THE INDIVIDUALS
EARNING BUSINESS
OR PROFESSIONAL
INCOME AND THE
BIR FORMS
REQUIRED TO BE
ATTACHED AS PROOF
OF TAX CREDITS
(c) Partners of General
Professional Partnerships
GPPs, as defined by Section 22(B) of the National
Internal Revenue Code (NIRC), as amended, 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. Under Sec.
2.57.5(B)(4) of Revenue Regulation (RR) 2-98, as
amended, payments made to GPPs in
consideration of its professional services are
exempt from creditable withholding taxes.
INCOME TAX RETURNS
FILED ON INCOME OF
BUSINESSMEN,
PROFESSIONALS,
PARTNERS IN A GENERAL
PROFESSIONAL
PARTNERSHIP AND
ESTATES AND TRUSTS AND
THE BIR FORMS REQUIRED
TO BE ATTACHED AS PROOF
OF TAX CREDITS
(d) Estates and trusts
The tax imposed upon individuals shall apply to the income of
estates or of any kind of property held in trust, including:

(1) Income accumulated in trust for the benefit of unborn or


unascertained person or persons with contingent interests, and
income accumulated or held for future distribution under the terms
of the will or trust;
(2) Income which is to be distributed currently by the fiduciary to
the beneficiaries, and income collected by a guardian of an infant
which is to be held or distributed as the court may direct;
(3) Income received by estates of deceased persons during the
period of administration or settlement of the estate; and
(4) Income which, in the discretion of the fiduciary, may be either
distributed to the beneficiaries or accumulated.
Estates and trusts -Exception.
- The tax imposed on estates and trusts shall not apply to
employee's trust which forms part of a pension, stock bonus or
profit-sharing plan of an employer for the benefit of some or all of
his employees
(1) if contributions are made to the trust by such employer, or
employees, or both for the purpose of distributing to such employees
the earnings and principal of the fund accumulated by the trust in
accordance with such plan, and
(2) if under the trust instrument it is impossible, at any time
prior to the satisfaction of all liabilities with respect to employees
under the trust, for any part of the corpus or income to be (within the
taxable year or thereafter) used for, or diverted to, purposes other
than for the exclusive benefit of his employees: Provided, That any
amount actually distributed to any employee or distributee shall be
taxable to him in the year in which so distributed to the extent that it
exceeds the amount contributed by such employee or distributee
Trusts
.Trusts like estates, are a taxable entity. A trust is a fiduciary
entity whose objective is to hold and invest money or property held
in the trust for the benefit of the beneficiaries. Trust property
consists of principal (aka corpus), which is the property transferred
to the trust by the grantor, and income earned by the trust, usually
from investments. If the trust retains income beyond the end of
the calendar year, then it must pay taxes on it. If money is
distributed to the beneficiaries, then whether it is taxable or not to
the beneficiaries will depend on whether principal or income was
distributed, and if it was income, then whether it was tax-free
income or retained income from previous years that the trust has
already paid tax on. Because trusts are not subject to double
taxation, either principal or income on which the trust paid taxes
can be distributed tax-free to the beneficiaries. Likewise, any
taxable distribution to beneficiaries is deductible by the trust
INCOME TAX
RETURNS FILED BY
THE ESTATES AND
TRUSTS AND THE
BIR FORMS
REQUIRED TO BE
ATTACHED AS
PROOF OF TAX
CREDITS
A POWERPOINT
PRESENTATION
OF PHILIPPINE
INDIVIDUAL
D
INCOME TAXATION
USING
ALL INCOME
FROM WHATEVER
SUBMITTED SOURCE IN THE
FOR COMPUTATION OF
COPYRIGHT TAX Date
BY Completed:
September
MARIA TERESA-MAPUE - 29, 2019,
CORRALES & ANNE Tanza, Cavite
LORENZE THERESE Philippines
CORRALES
A POWERPOINT
PRESENTATION
OF PHILIPPINE
INDIVIDUAL
D
INCOME TAXATION
USING
ALL INCOME
FROM WHATEVER
SUBMITTED SOURCE IN THE
FOR COMPUTATION OF
COPYRIGHT TAX Date
BY Completed:
September
MARIA TERESA-MAPUE - 29, 2019,
CORRALES & ANNE Tanza, Cavite
LORENZE THERESE Philippines
CORRALES