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Tax on Individuals - Philippine Taxation

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Kirsten Corpuz

on 29 June 2016

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Transcript of Tax on Individuals - Philippine Taxation

You are a Filipino Citizen if you're..
1. Born (by birth) with father and/or mother as Filipino Citizens

2. Born before January 17, 1973 of Filipino mother who elects Philippine citizenship by the age of majority.

3. or if you have acquired Philippine citizenship after birth (naturalized).

Special Taxpayers
Alien individuals or Filipino Citizens who are taxed with a 15% tax rate based on their gross compensation income
Requisites to be classified as a Dependent
Philippine Tax
For income tax purposes, individual taxpayers are classified into:
a. Citizen b. Alien

(1) Resident citizen - is a citizen of the Philippines who has a permanent home or place of abode in the Philippines to which he/she intends to return whenever he/she is absent for business or pleasure.

(2) Nonresident citizen - is a citizen of the Philippines who establishes the fact of his/her physical presence abroad with the definite intention to reside therein and shall include any Filipino who leaves the country as immigrant (one who leaves the Philippines to reside abroad as an immigrant for which a foreign visa as such has been secured), permanent employee ( one who leaves the Philippines to reside abroad permanently for regular employment), and contract worker (one who leaves the Philippines on account of a contract of employment which is renewed from time to time during the taxable year as to require physical presence abroad for an aggregate period of one hundred eighty (180) days or more during such taxable year)
(1) Resident alien - is an individual who is not a citizen of the Philippines but whose residence is within the Philippines.
(2) Nonresident alien - is an individual who is not a citizen of the Philippines and whose residence is not within the Philippines.
Classification of Aliens
1. Resident Aliens

2. Non Resident Aliens
Individual whose residence is not within the Philippines and who is not a citizen thereof classified into:
(a) Engaged in trade or business in the Philippines (ETB)
(b) Not engaged in trade or business in the Philippines
Not a resident of the Philippines but has been residing within the country for more than 1 year.
They are employed occupying managerial or technical positions with regional or area headquarters of multinational corporations.. etc.
If the special taxpayer is an alien, all of his gross compensation income is subject to 15% final tax
If the taxpayer is a Filipino Citizen, he has 2 options:

First option is to be taxed 15% at his gross compensation income.
Or be taxed at a regular income tax rate ranging from 5-32%
Basic Personal Php 50,000.00
Additional Exemptions
Php25,000.00 for each Dependent Child
Maximum of 4
1. Affiliation - must be either legitimate, illegitimate or legally adopted.

2.Age - must not be more than 21 yrs. old during taxable year.

3. Status - must not be married. Income - must not be gainfully employed.

4. Support - taxpayer must provide over 50% of the dependent's support.
5. Residence - must be living with the taxpayer.
Every individual is entitled to personal exemption unless he is a NRA and not engaged in trade in the Philippines or his income is purely subject to income tax, or a CORPORATION.
Change in Status
Classes of Taxes
on Individuals
1. Normal (Tabular) graduated Tax
Individual taxpayer's taxable income subject to normal (tabular) tax is income derived from compensation, business and profession.

It may also include capital gains and passive income not subject to final taxes.
2. Passive Income Tax
Passive Income is an income earned from allowing other to use one's rights, or game of chance or investment, which taxpayer merely waits for the income to come in.

Income from passive tax is subjected to final taxes only.

Passive income is classified as follows:
Cash Dividends
Property Dividends
3. Capital Gains Tax
These taxes are imposed on sales or exchanges of properties not used in business.

Measured at 6% of the value of the property, multiplied to its zonal value.
Taxable Income means pertinent
items of gross income, less the
deductions authorized by NIRC
and other special laws.
Non Resident Alien Engaged in Business
Non Resident Alien Not Engaged in Business
Tax Credit for Taxes Paid to Foreign Country
An alien individual shall not be allowed credits for the taxes paid to foreign countries.
the income tax paid by resident citizen to any foreign country may be treated as an item deduction or tax credit.
The total amount of the credit shall not exceed the proportion of the tax against which such credit is taken
Taxes paid by an individual to a foreign country shall be subject to the following rules:
Two or More Foreign Countries
Actual tax paid to foreign country
Limit on tax credit computed usig individual taxable income from foreign country
Limit on tax credit computed using total taxable income from foreign country
The same formula is used as that of ine foreign country except that the allowable tax credit will be the lower of the following:
Limit of Tax Credit Paid To Foreign Country
One Foreign Country

Tax Credit = Taxable inc. fr country Philippine
-------------------------------- X income tax
Taxable inc. fr all sources
Withholding Taxes on Salaries
are income taxes that are temporarily based on estimate.
Self-Employed Individuals
is an individual taxpayer whose income is derived solely from his own business
Income Tax on Professional or Talent Fees
professionals are required to collect a 12% VAT based on the gross receipts which shall be remitted to the BIR on the 20th day of the succeeding month.
1. Practice of Profession
10% creditable withholding tax for an annual income of P720,000 and below. And 15% for income more than P720,000.
2. Professional atheleys, entertainers, musical and movie directors.
a. 10% if the annual income does not exceed P720,000
b. 15% if the annual income exceeds P720,000
Individual Income Tax Return (ITR)
Exempt Individual to File Income Tax returns
1. Resident Filipino Citizen on his income from all sources.
2. Nonresident Filipino Citizen on his income derived within the Philippines
3. Resident alien on his income derived within the Philippines
4. Every nonresident alien engaged in trade or business or profession in the Philippines
1. An individual who is nt engaged in business or practice of profession whose gross income does not exceeed his personal and additional exemptions for dependents.
2. Minimum wage earners.
3. If his gross income does not exceed his total personal and additional exemtions for dependents
4. If his pure compensation income derived from the Philippines and the pertinent income tax has been correctly withheld.
5. Regardless of amount, the ff individuals are not required to file an income tax return:
a. an individual whose sole income hass been subjected to final withholding tax
b. alien employees of regional or area headquarters
c. aliens employed by offshore banking units
d. alien employees of service contractors and sub-contractors
ITR of parent to Include Income of Children
a. When the donor's tax has been aid on such property, or
b. When the transfer of such property is exempt from donor's tax
Financial Statements Attached to the ITR
1. Statement of Net Worth and Operations
2. Balance Sheet and Profit and Loss Statements
3. Other Statements
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