CLASSIFICATION OF TAXPAYERS
Individuals
a. citizens
(1) resident citizens (RC)
(2) non-resident citizens (NRC)
b. aliens
(1) resident aliens (RA)
(2) non-resident aliens (NRA)
(a) engaged in trade or
business within the Phils.
(NRAETB)
(b) not engaged in trade or
business within the
Philippines (NRANETB)
Corporations
a. Domestic (DC)
b. Foreign
(1) resident foreign corporation
(RFC)
(2) non-resident foreign
corporation (NRFC)
Estates
Trusts
Partnerships
A. INDIVIDUALS
WHO ARE TAXABLE?
1. Resident Citizen
2. Non-resident Citizen
A non-resident citizen means, a
Filipino citizen:
a. who establishes to the
satisfaction of the Commissioner
the fact of his physical presence
abroad with a definite intention
to reside therein;
b. who leaves the Philippines
during the taxable year to reside
abroad, either as an immigrant
or for employment on a
permanent basis;
c. 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;
d. who is previously considered as a
non-resident and who arrives in
the Philippines at anytime during
the taxable year to reside
thereat permanently shall be
considered non-resident 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 [Sec.22 (E), NIRC]
NOTE: An overseas contract worker
(OCW) is taxable only on income
derived from sources within the
Philippines. [Sec. 23 (B)(C)]
A seaman is considered as an
OCW provided the following
requirements are met:
1. receives compensation for services rendered abroad
as a member of the complement of a vessel; and
2. such vessel is engaged exclusively
in international trade.
Based on the above provisions,
there are three (3) types of
nonresident citizens, namely: (1) immigrants; (2)
employees of a foreign
entity on a permanent basis; and
3) overseas contract workers.
Immigrants and employees of a foreign
entity on a permanent basis are
treated as nonresident citizens from
the time they depart from the
Philippines. However, overseas
contract workers must be physically
present abroad most of the time
during the calendar year to qualify as
nonresident citizens.
3. Resident alien - means an individual
whose residence is within the
Philippines and who is not a citizen
thereof. [Sec.22 (F, NIRC)]
4. Non-resident alien engaged in
trade or business within the
Philippines. (NRAETB)
A non-resident alien means an
individual whose residence is not within the Philippines
and who is not a citizen thereof. [Sec.22 (G)]
The term trade or business
includes the performance of the
functions of a public office. [Sec. 22
(S)]
The term trade, business or
profession shall not include
performance of services by the
taxpayer as an employee. [Sec. 22
(CC)]
A non-resident alien individual
who shall come to the Philippines
and stay therein for an aggregate
period of more than 180 days during
any calendar year shall be deemed a
non-resident alien doing business in
the Philippines Section 22(G)
notwithstanding [Sec. 25(A)(1)]
5. Non-resident alien not engaged in
trade or business within the
Philippines. (NRANETB)
ONLY RESIDENT CITIZENS are taxable
for income derived from sources within
and without the Philippines. All other
individual income taxpayers are taxable
only for income derived from sources
within the Philippines.
Tax Rates: Please refer to Annex A.
Check the book
Sec. 26. A general professional partnership shall not be under Sec. 22 (DD) – not subject to
subject to income tax but persons engaging in business income tax
as partners in a GPP shall be liable for income tax only in Regional operating headquarters
their separate and individual capacity. under Sec. 22(EE) shall pay a tax of
10% of their taxable income.
Note: Ordinary partnership is taxable in the same manner ONLY DOMESTIC CORPORATIONS are
as corporations. =30% taxable for income derived from sources
within and without the Philippines. All
B. CORPORATIONS other corporate income taxpayers are
WHO ARE TAXABLE? taxable only for income derived from
1. Domestic Corporation – created or sources within the Philippines.
organized in the Phils. or under its
law [Sec. 22(C), NIRC] Tax rates of income tax on Domestic Corp
2. Resident Foreign Corporation –
An income tax of 30% is hereby imposed upon the
engaged in trade or business within
taxable income from all sources within and without the
the Philippines [Sec. 22(H), NIRC]
3. Non-resident Foreign Corporation – Phil. By every corporation.
not engaged in trade or business The Pres, upon recommendation of Secretary of Finance,
within the Philippines [Sec. 22(I),
may allow corp the option to be taxed at the rate of 15%
NIRC]
A Corporation Includes: after the following conditions have been satisfied:
1. Partnerships, no matter how 1) A tax effort ratio of 20% of Gross National
created or organized; Product(GNP)
2. Joint-stock companies;
2) A ratio of 40% of income tax collection to total tax
3. Joint accounts (cuentas en
participacion) revenues
4. Associations; or 3) A VAT tax effort of 4% of GNP
5. Insurance companies [Sec. 22(B), 4) .9% ratio of the consolidated Public Sector
NIRC]. Financial Position to GNP
Excludes:
1. General professional Gross income = gross sales-sales returns, discounts,
partnerships; allowances, and cost of good sold.
2. Joint venture or consortium
For trading or merchandising concern, cost of good
formed for the purpose of
sold shall include;
undertaking construction projects or
engaging in petroleum, coal,  the invoice cost of the goods sold
geothermal and other energy
 import duties ,
operations pursuant to an operating
or consortium agreement under a  freight in transporting the goods.

service contract with the For manufacting concern, cost of good sold shall
Government. include:
CORPORATIONS EXEMPT FROM INCOME
 all cost of production of finish goods
TAXATION (FOR INCOME REALIZED AS SUCH)
UNDER NIRC Cost of Good sold = all business expenses directly
1. Those enumerated under Sec. incurred to produce the merchandise to bring them to
30.
their present location or use.
Exempt corporations are subject
to income tax on their income from Tax payers engaged in the sale of service.-
any of their properties, real or
personal, or from any other activities Gross income = gross receipt – sales return, allowances
conducted for profit, regardless of and discounts.
the disposition made of such income.
2. With respect to GOCCs, the Proprietary educational institutions and hospitals
general rule is that these which are non profit shall pay a tax of 10% on their
corporations are taxable as any taxable income except those covered by interest on
other corporation except: deposits,yields and any other monetary benefit. = final
a. GSIS rate of 20%. Provided that if the gross income from
b. SSS unrelated trade, business or other activity exceeds 50%
c. Philippine Healt Insurance Corp. PHIC of the total gross income derived by such educational or
d. Local Water District- LWD
hospitals from all sources, The prescribed graduated
3. Regional or Area Headquarters
income tax rate shall be imposed on the entire taxable
income.
Minimum Corporate income tax on domestic corporation-
check the list.
Carry forward of Excess minimum Tax- any excess of
the minimum corporate income tax over the normal
income tax shall be carried forward and credited against
the normal income tax for the three immediately
succeeding years.
Relief from MCIT- suspension of such on account of
prolonged labor dispute or because of force majeure or
because of legitimate business reverses.
Gross income, defined- same with the above cited
Tax on non-resident Foreign Corp.=30%
Non resident;
Cinematographic Film owner, lessor or Distributor. =
25% of its gross income from all sources within the
Philippines.
Owner or Lessor of Vessels Chartered by Philippine
Nationals = 4 ½ %
 gross rentals or ;
 charter fees from leases or ;
 charters to Filipino citizens or corporation
Resident Owner or Lessor of Aircraft, Machineries
and other Equipment = 7 ½ % of gross rentals or fees.
Tax on Certain Incomes Received by a Nonresident
Foreign Corporation;
Final withholding tax rate
 Interest on Foreign Loans. = 20%
contracted on or after August 1, 1986
 Intercorporate dividends = 15% on the
amount of cash or property received from
domestic corporation. A non resident is allow
a credit against the tax due from the
nonresident foreign corporation taxes
deemed to have been paid equivalent to 15%
 Capital gains from sale of shares of stock
not traded in the Stock of Exchange = 15%
Sec. 29 Improperly Accumulated Earning Tax =10%
Check also the list.
In general, sec 29 applies only to corporation
Exception;
 Publicly held corporations
 Banks and other nonbank financial
intermediaries
 Insurance companies
Prima facie evidence to avoid income tax upon its
share holders or members
 Being a mere holding company or
 Investment company
Improperly Accumulated Taxable income means
taxable income adjusted by:
 Income exempt from tax
 Income excluded from gross income
 Income subject to final tax and
 The amount of net operating loss carry-over
deducted
Sec. 30 Exemptions from Tax on Corporations
 Labor, agricultural or horticultural
organization not organized principally for
profit
 Mutual savings bank not having a capital
stock and cooperative bank without capital
stock
 A beneficiary society, order or association,
operating exclusively for the benefit of its
members
 Cemetery company owned and operated
exclusively for the benefit of its members
 Non stock corporation or association
organized and operated exclusively for
religious, charitable, scientific, athletic or
cultural purposes
 Civic League or organization not organized
for profit but operated exclusively for the
promotion of social welfare
 A non stock non profit education institution
 Government educational institution
Nothswithstanding, the income derived from any
activities conducted for profit shall be subject to tax of
30%
Computation of taxable income
Taxable income = pertinent items of gross income less
allowable deductions
Gross income = all income derived from whatever
source, including, but not limited to the following
items;(CGGIRRDAPP)
 Compensation for services in whatever form,
including but not limited to wages, salaries,
fees
 Gross income derived from the conduct of
trade or business
 Gains derived from dealings in property
 Interests
 Rents
 Royalties
  Dividends
 Annuities
 Prizes and winnings
 Pension
Exclusion from Gross Income (LAGCIRM)
 Life insurance
 Amount received by Insured as Return of
Premium
 Gifts, bequests, and devises
 Compensation for Injuries or Sickness
 Income exempt under Treaty
 Retirement benefits, pensions, Gratuities
– retiring official or employee has been in the
service of the same employer for at least 10
years and is not less than 50 years of age at
the time of his retirement. The benefits
granted can be availed only once.
 Miscellaneous items-
1) Income derived by Foreign government -
income derived from investments in the
Philippines
2) Income derived by the Government or its
Political Subdivisions
3) Prizes and Awards made primarily in
recognition of religious, charitable,
scientific, artistic, literary or civic
achievement, provided the recipient was
selected without any action on his part
and he is not required to render
substantial future services as a condition
to receiving the prize or award
4) Prizes and Awards in Sports Competiton
5) 13th month pay and other Benefits
6) GSIS, SSS, PAGIBIG, Medicare,
contributions and union dues
7) Gains from the Sale of bonds,
debentures, or other Certificate of
Indebtedness.
Sec. 33 Special Treatment for Fringe Benefits
A final tax of 35% on the grossed up monetary
value (GUMV) furnished or granted to the employee by
the employer, whether and individual, or a corporation
Computation of GUMV of fringe benefit
= Actual value of fringe benefit divided by 65%
Fringe benefit defined; any good, service or other benefit
furnished or granted in cash or in kind by an employer to
and individual employee, such as , but not limited to the
following;( HEVHMEHEL)
 Housing
 Expenses account
 Vehicle of any kind
 Household personnel, such as maid, driver
and others
 Membership fees, dues and other expenses
borne by the employer for employee in social
and athletic clubs or other similar
organization
 Expenses for foreign travel
 Holiday and vacation expenses
 Educational assistance to the employee or
his dependents
 Life or health insurance
The following fringe benefits are non taxable; (FCBD)
 Fringe benefits which are authorized and
exempted from tax under special laws
 Contributions of the employer for the benefit
of the employee to retirement, insurance and
hospitalization benefit
 Benefits given to the rank and file employees
 De minimis benefit – it refers to facilities and
privileges of relatively small value
Allowable Deductions
Sec. 34 – Deductions from Gross Income, except for
taxpayers earning compensation income arising from
personal services rendered under an employer- employee
relationship.
The allowable deductions are the following;
(EITLBDDCRPO)
 Expenses
 Interest
 Taxes
 Losses
 Bad Debts
 Depreciation
 Depletion of Oil and Gas Wells and Mines
 Charitable and Other Contributions
 Research and Development
 Pension Trusts
 Optional Allowable Deductions – and
individual, other than a nonresident alien,
may elect a standard deduction in an amount
not exceeding 40% of his gross
sales/receipts, as the case maybe. In the
case of domestic and resident foreign
corporation, it may elect a standard deduction
in an amount not exceeding 40% of its gross
income