Income Taxes for Individual

-Group 1
Individual Tax Payers
- Natural persons with income derived from
within the territorial jurisdiction of taxing authority.

-TAX CODE
Individual Tax Payers
Citizens of the Philippines:
Filipino Citizens - Art. IV, Section I of the 1987 Philippine Constitution

a. Those who are citizens of the Philippines at the time of the

adoption of the 1987 Philippine Constitution;
b. born (by birth) with father and/or mother as Filipino Citizens;
c. born before January 17, 1973 of Filipino mother who elects
Philippine citizenship upon reaching the age of majority; or
d. acquired Philippine citizenship after birth (naturalized) in
accordance with Philippine laws.
Individual Tax Payers
Classification of Citizens of the Philippines:
Resident Citizens (RC) Nonresident Citizens (NRC)

stayed permanently in the stayed outside the Philippines for

Philippines or stayed outside 183 days or more by the end of
of the Philippines for less than the year (aggregate).
183 days during taxable year

-taxable on income w/n and -taxable on income w/n the

w/o the Philippines Philippines sources only.
Example Problem

Case 1 - Allan is a natural born Filipino Citizen. His family

migrated in US 15 yrs. ago. For personal reasons, he
decided to return and reside permanently in the Philippines
on March 1, 2019.
Example Problem

Case 1 - Allan is a natural born Filipino Citizen. His family

migrated in US 15 yrs. ago. For personal reasons, he
decided to return and reside permanently in the Philippines
on March 1, 2019.
Answer:

• From Jan. to Feb. 2019 - Allan is classified as NRC

• From Mar. 1, 2018 - Allan is classified as RC.
Problem
An individual taxpayer provided the ff. info. for 2019
Gross Business Income, Philippines - 5,000,000
Gross Business Income, Canada - 2,000,000
Gross Business Income, Singapore - 1,000,000
Business Expenses, Philippines - 3,000,000
Business Expenses, Canada - 1,000,000
Business Expenses, Singapore - 500,000
Determine the taxable income assuming:
Case A: Taxpayer is a Resident Citizen
Case B: Taxpayer is a Nonresident Citizen
Answer
• Case A - Solution
Gross Business Income, Philippines 5,000,000
Gross Business Income, Canada 2,000,000
Gross Business Income, Singapore 1,000,000
Business Expenses, Philippines (3,000,000)
Business Expenses, Canada (1,000,000)
Business Expenses, Singapore (500,000)
TAXABLE INCOME: 3,500,000

• Case B - Solution
Gross Business Income, Philippines 5,000,000
Business Expenses, Philippines (3,000,000)
TAXABLE INCOME: 2,000,000
Individual Tax Payers
Individual Alien
Alien - whether a resident or not citizens of the Philippines,
is taxable only for income derived from sources with the
Philippines (Sec. 23D, NIRC)
- foreign-born person who is not qualified to acquire Philippine
citizenship by birth or after birth.
Individual Tax Payers
Individual Alien
Resident Alien (RA) Nonresident Alien (NRA)
NRA- Engaged NRA- Not
in Trade or Engaged in
individual whose residence is Business Trade or
not in the Philippines and who (NRAETB) Business
(NRANETB)
is not citizen thereof stayed in the
Philippines for an stayed in the
aggregate period Philippines for an
of more than 180 aggregate period
days during of less than
taxable year equal 180 days
during taxable
year
Example Problem
Case 4 - Greg Popovich, head coach of the San Antonio Spurs in
the NBA is in the Philippines for a month-long NBA promotional tour.
He also expressed his intention to regularly visit the Philippines.

Case 5 - Mika “The Iceman” Immonen, a Finnish cue artist and

former world billiard champion is a resident of Finland. He won the
world 9-ball championship in 2005 in the Philippines. He is also the
owner of one of the disco pubs in Malate since then.
Answer:

• Case 4 - NRA-NETB
• Case 5 - NRA-ETB
Marginal Income Earners (MIE's)
These are individuals:
1. Whise activity are principally for subsistence or livelihood
that do not realize gross sales or receipts exceeding
P100,000 in any 12-month period.
2. Not deriving compensation as employee; and
3. who are not licensed professionals, consultants, artists,
sales agent,broker and other similarity situated, including
all others whose income have been subjected to
withholding tax.
Special Taxpayers
Special taxpayer are those alien individuals or Filipino
citizens who are taxed with a 15% tax rate based on their
gross compensation income when the following conditions
are met:
1. They are employed occupying managerial and/or
technical positions with regional or area headquarters of
multi-national corporations, petroleum service
contractors and subcontractors, or offshore banking
units.
2. If the special taxpayer is an alien, all of this gross
compensation income received is subject to 15% final
3. If the taxpayer is a Filipino citizen, he has the option to be
taxed at 15% final tax based on his gross compensation
income received or at a regular income tax rate (5% to
32%) based on the net taxable compensation income if his
gross annual taxable compensation is at least P975,000
(whether or not actually received).
PERSONAL EXEMPTIONS

Personal exemptions are the arbitrary amounts allowed

by law as deduction from the gross compensation income
and/or net business income and /or professional income as
the case may be, for personal , living , or family expenses.

This exemption, only granted to individual taxpayers who

have earnings not subject to final tax.
Kinds of Personal Exemption

Basic Personal Exemption is a deducible allowance

granted by the law to reduce the taxable income of an
individual taxpayer.
Based on R.A 9504 the basic personal exemption for
individual taxpayer amounts to P50,000 whether he/she is
married, head of family or single.
In the case of married individual, only the spouse deriving
income is allowed to deduct personal exemption.
Kinds of Personal Exemption

Additional exemption is a deductible allowance in addition

to the basic personal exemption allowed for qualified
dependent children of an individual taxpayer.
The R.A 9504 provides that he amount of additional
exemption for each qualified child(not exceeding four)
P25,000.
Example

For the taxable year 2017, Mr. Cruz, married and with six
qualified dependent children has a compensation income of
P200,000. Assuming that Mr. Cruz is a Filipino Citizen, how
much is his total personal exemption?
Answer

Basic personal exemption P50,000

Add:Additional exemptions
(P25000x4 children) P100,000
P150,000
Taxpayers Allowed for Personal Exemption

With compensation or business income in the Philippines:

1. Citizens of the Philippines, whether resident or non
resident
2. Resident Aliens
3. Estates and Trust
4. Nonresident alien engage in trade
Taxpayers Allowed for Personal Exemption
Requisites before a non resident alien engage in business
in Philippines may be granted personal exemption:
1. The country of which the non resident alien is a subject
or a citizen has an income tax law
2. Such income tax law of the foreign country allows
personal exemptions to a Filipino Citizen deriving income
therein but not resident therein (Principle of reciprocity)
3. The non resident alien files an income tax return (ITR) in
the Philippines in due time
4. Such ITR is rue and accurate, covering all income
received from sources within the Philippines.
Taxpayer Not allowed for Personal Exemption

1. Nonresident aliens engaged in trade or business in the

Philippines not enjoying reciprocity clause
2. Nonresident aliens not engage in trade or in business in
the Philippines
3. Corporation
4. Partnership
Requisites for Additional Exemptions
Requirement should met by the dependents of an individual
taxpayer
The dependent must be:
1. a taxpayer 's child, whether legitimate, illegitimate or
legally adopted
2. chief depending for support on the taxpayer
3. living with the tax payer
4. not married; not gainfully employed, and not more than
21 years old (exepmption: incapable of self-support
because of mental or physical defect.)
Example

Compute he personal exemption of Mr. Weygan, a Filipino,

legally seperated with the following dependents:
a. Children: A, 30 years old and jobless; B, 19 years old
student but gainfully employed; C, 22 years old mentally
retarted,
b. 55- year old father
c. 12-year old illegitemate son
d. Supporting a senior citizen (60 years old)
Answer

Basic Personal exemption P50,000

Add: Additional exemption
Child mentaly retarded P25,000
Illegitimate child P25,000 P50,000
Total personal exemption P100,000
Rules in Claiming Additional Exemption

1. If only one spouse is delivering taxable income, only said

spouse may claim the additional exemption.

Example:
Mr. Lee, married to Mrs. Lee, a plain housewife, with a 6
qualified dependent children, has a compensation income
of 130,000. How much iss the personal exemption of
couple?
Rules in Claiming Additional Exemption

Answer:

Mr. Lee Mrs. Lee Total

Basic personal exemption P50,000 P0 P50,000
Add: Aditional exemption
(P25,000x4) P100,000 P100,000
Total personal exemption P150,000
Rules in Claiming Additional Exemption

2. If both of the spouses earn income during the taxable

year, only one can claim additional exenptions for
dependent qualified children.
Example:
Mr. and Mrs. Park, both Filipinos with 6 dependent children,
have compensation income of P300,000 and business
income of P200,000, respectively. How much is the total
personal exemption of the couple?
 Rules in Claiming Additional Exemption

Answer:

Mr. Park Mrs. Park Total

Basic personal exemption P50,000 P50,000 P100,000
Add: Aditional exemption
(P25,000x4) P100,000 P100,000
Total personal exemption P200,000
Rules in Claiming Additional Exemption

3. If legally seperated from the spouse with a qualified

dependent child: basic personal exemption,and additional
exemption shall be allowed to the spouse who has custody
of the children.
Example:
Mr. and Mrs. Byun, both Filipinos and legally
seperated, with one dependent child under the custody of
Mrs. Byun,have compensation income during the year
amounting to P240,000 and business income of P250,000,
respectively.
Rules in Claiming Additional Exemption

Answer:
Mr. Byun Mrs. Byun
Basic personal exemption P50,000 P50,000
Add: Aditional exemption
(P25,000x1) P25,000
Total personal exemption P50,000 P75,000
Rules in Claiming Additional Exemption

4. An unmarried individual with a child out of wedlock who is

a recognized natural child can claim a personal exemption
plus additional exemption.

Example:
Miss Kim, a single mother Filipino, with one qualified
dependent child who is acknowledged by his father, has
compensation income amounting to P280,000. If Miss Kim
chiefly support her child, how much is her personal
exemption?
Rules in Claiming Additional Exemption

Answer:

Basic personal exemption- head of the family P50,000

Add:Additional exemption(P25,000x1) P25,000
Total personal exemption P75,000
 Status Summary
Individual Taxpayer Exemption
Old Train Law
Married P50,000
Widowed with 1 qualified dependent child P75,000

Widowed with qualified dependent not his child P50,000

Widowed without dependent P50,000

Legally separated with 1 qualified dependent child P75,000
None
Legally separated with qualified dependent not his P50,000
child

Legally separated without dependents P50,000

Not separated P50,000

Dependent Children

Additional
Exemption
Old Train
Law
Born P25,000
Reaches 21 years old- abnornal P25,000 None
and incapable
Dependent Other than Children

A taxpayer with dependent other than his children is

not entitled to additional exemption.