CLASSIFICATION OF TAXPAYERS
receives compensation for services rendered
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.
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 list!
Sec. 26. A general professional partnership shall not be
subject to income tax but persons engaging in business
as partners in a GPP shall be liable for income tax only in
their separate and individual capacity.
Note: Ordinary partnership is taxable in the same manner
as corporations. =30%
 B. CORPORATIONS Tax rates of income tax on Domestic Corp

WHO ARE TAXABLE? An income tax of 30% is hereby imposed upon the
taxable income from all sources within and without the
1. Domestic Corporation – created or organized in the Phil. By every corporation.
Phils. or under its law [Sec. 22(C), NIRC]
2. Resident Foreign Corporation – engaged in trade The Pres, upon recommendation of Secretary of Finance,
or business within the Philippines [Sec. 22(H), NIRC] may allow corp the option to be taxed at the rate of 15%
3. Non-resident Foreign Corporation – not engaged after the following conditions have been satisfied:
in trade or business within the Philippines [Sec. 22(I),
1) A tax effort ratio of 20% of Gross National
NIRC]
Product(GNP)
2) A ratio of 40% of income tax collection to total tax
A Corporation Includes:
revenues
1. Partnerships, no matter how created or
3) A VAT tax effort of 4% of GNP
organized;
4) .9% ratio of the consolidated Public Sector
2. Joint-stock companies; Financial Position to GNP
3. Joint accounts (cuentas en participacion)
4. Associations; or Gross income = gross sales-sales returns, discounts,
5. Insurance companies [Sec. 22(B), NIRC]. allowances, and cost of good sold.

Excludes: For trading or merchandising concern, cost of good

1. General professional partnerships; sold shall include;
2. Joint venture or consortium formed for the purpose of
 the invoice cost of the goods sold
undertaking construction projects or engaging in
 import duties ,
petroleum, coal, geothermal and other energy
operations pursuant to an operating or consortium  freight in transporting the goods.
agreement under a service contract For manufacting concern, cost of good sold shall
with the include:
Government.
 all cost of production of finish goods
CORPORATIONS EXEMPT FROM
INCOME TAXATION (FOR INCOME REALIZED Cost of Good sold = all business expenses directly
AS SUCH) UNDER NIRC incurred to produce the merchandise to bring them to
their present location or use.
1. Those enumerated under Sec.
Tax payers engaged in the sale of service.-
30.
Exempt corporations are subject to income tax Gross income = gross receipt – sales return, allowances
on their income from any of their properties, real or and discounts.
personal, or from any other activities conducted for
profit, regardless of the disposition made of such Proprietary educational institutions and hospitals
income. which are non profit shall pay a tax of 10% on their
taxable income except those covered by interest on
2. With respect to GOCCs, the general rule is deposits,yields and any other monetary benefit. = final
that these corporations are taxable as any other rate of 20%. Provided that if the gross income from
corporation except: unrelated trade, business or other activity exceeds 50%
a. GSIS of the total gross income derived by such educational or
b. SSS hospitals from all sources, The prescribed graduated
c. Philippine Health Insurance Corp. income tax rate shall be imposed on the entire taxable
PHIC income.
d. Local Water District- LWD
Minimum Corporate income tax on domestic corporation-
3. Regional or Area Headquarters under Sec.
check the list.
22 (DD) – not subject to income tax
Carry forward of Excess minimum Tax- any excess of
Regional operating headquarters under Sec. the minimum corporate income tax over the normal
22(EE) shall pay a tax of 10% of their taxable income tax shall be carried forward and credited against
income. the normal income tax for the three immediately
succeeding years.
ONLY DOMESTIC CORPORATIONS are taxable for
income derived from sources within and without the Relief from MCIT- suspension of such on account of
Philippines. All other corporate income taxpayers are prolonged labor dispute or because of force majeure or
taxable only for income derived from sources within the because of legitimate business reverses.
Philippines. Tax Rates: Please refer to Annex B!
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 not 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
EXPENSES
– There should be allowed as deduction from gross
income all the ordinary and necessary expenses paid or
incurred during the taxable year which are directly
attributable to the development management operation
and/or conduct of the trade, business, or exercise of a
profession, including;
Reasonable allowance for:
 Salaries, wages and other forms of
compensation for personal services actually
rendered including gross up monetary
value (GUMV) of fringe benefit furnished or
granted to the employee
 Travel expenses here and abroad
 Entertainment, amusement and recreation
expenses
Substantiation Requirements - no deduction from
gross income shall be allowed unless the tax payer shall
substantiate with sufficient evidence, such as official
receipts or other adequate records:
 The amount of the expense being deducted
 Direct connection or relation of the expense
being deducted to the development,
management, operation and/or conduct of
T,B,P of tax payer.
Bribes, kickbacks and other Similar Payments – no
deduction for gross income shall be allowed, made
directly or indirectly, to an official or employee of the
national government
Expenses Allowable to Private Institutions – a private
institution may, at its option;
  To deduct expenditures incurred during
taxable year for the expansion of school
facilities
 To deduct allowance for depreciation
INTERESTS
The amount of interest paid or incurred within taxable
year on indebtedness in connection with the taxpayer’s
T,B,P shall be allowed as deduction from gross income.
Provided the allowable deduction for interest expense
shall be 33%
Exceptions:
 if within taxable year, and individual taxpayer
incur indebtedness in which paid in advance
through discount or otherwise
 if both tax payer and the person to whom
payment has been made or is to be made are
brothers and sisters, spouse, ancestors and
lineal descendants
Optional Treatment Expense – the taxpayer, at his
option may allow as deduction or treated as capital
expenditure, interest incurred to acquire property, in
connection with T,B,P.
TAXES
Taxes paid or incurred during the taxable year in
connection with T,B,P shall be allowed as deduction
Exceptions:
 Income tax provided for under this Title
 Income taxes imposed by authority of any
foreign country
 Estate and donor’s taxes
 Taxes assessed against local benefits
Limitation on Deductions – in cases of non-resident
alien individual (NRAI) engage in T or B in PH and a
resident corporation (RC) the deductions shall be allowed
only to the extent that they are connected with the income
from sources within the Philippines.
Credit against Tax for Taxes of Foreign Countries
 Citizen and Corporation – the amount of
income taxes paid or incurred during the
taxable year to any foreign country.
 Partnership and Estates - any individual
who is a member of GPP or beneficiary of an
estate or trust, his proportionate share of
such taxes of the GPP or the estate or trust
paid.
Limitation on Credit
 Limitation by Country – the amount of credit
in respect to the tax incurred in any country
shall not exceed the same proportion of the
tax against which such credit is taken, which
the taxpayers taxable income ffrom sources
within such country bears to his entire taxable
income for the same taxable year.
 Limitation by total – the total amount of the
credit shall not exceed the same proportion of
tax against which such credit is taken
Proof of Credits
 the total amount of income derived from
sources without the PH
 The amount of income derived from each
country
 All other information necessary for the
verification and computation of such credits
LOSSES
Losses actually sustained during the taxable year
and not compensated for by insurance or other forms of
indemnity shall be allowed as deductions:
 If incurred in T , B , P.
 Of property connected with T , B , P, if the
loss arises by force majeure
Proof of loss – in the case of NRAI or FC, the losses
deductible shall be those;
 actually sustained during the year incurred in
the business; or
 Exercise of a profession conducted within the
PH when such loss is not compensated by
insurance or other forms of indemnity
Net Operating Loss Carry Over (NOLCO)
The NOLCO of the business or enterprise for any taxable
year immediately preceding the current taxable year,
which had not been previously offset, shall be carried over
as a deduction from gross income for the next 3
consecutive taxable years immediately following the year
of such loss. The NOLCO shall be allowed only if there’s
no substantial change in the ownership of the business or
enterprise in that-
 Not less than 75% in the nominal value of
outstanding issued shares.if the business is
in the name of corporation
 Not less than 75% of the paid up capital of the
corporation
BAD DEBTS
Debts due to the taxpayer actually ascertained to be
worthless and charged off within the taxable year except
those connected with P, T, B, and those sustained under
Sec. 36(B).
DEPRECIATION
There should be allowed as depreciation deduction a
reasonable allowance for exhaustion, wear and tear of
property used in trade or business. It also include property
held by tenant and property held in trust.
DEPLETION OF OIL, GAS WELL AND MINES
A reasonable allowance for depletion or amortization
computed in accordance with the cost of depletion shall
be granted
CHARITABLE AND OTHER CONTRIBUTIONS
Gifts or contributions actually paid or made within taxable
year to or for the use of the Government of the PH or any
of its agencies, etc. exclusively for public purpose or
associations organized and operated exclusively for
religious, charitable, scientific, etc.

 Individual – 10%
 Corporation – 5%
Contributions Deductible in Full

 Donation to GPH to be used in activities in

education, health, youth, and sports
development according to NEDA
 Donations to foreign institutions or
international organizations which are fully
deductible in pursuance with agreements,
treaties, or commitments
 Donations to Accredited non-government
organization – organized and operated
exclusively for scientific, research,
educational, character – building and youth
and sports development or charitable
purposes or combination thereof.
RESEARCH AND DEVELOPMENT
A tax payer may treat research or development
expenditures which are paid or incurred by him during the
taxable year in connection with T , P, B. The taxable
treated shall be allowed as deduction during the taxable
year when paid or incurred
PENSION TRUST
Employer who establishes and maintains a pension trust
to deduct the payment of reasonable pensions to his
employees only if : 1) the same has not been allowed as
deduction; 2) apportioned in equal parts over a period of
10 years
OPTIONAL STANDARD DEDUCTION
RC/NRC/RA – may elect a standard deduction in an
amount not exceeding 40% of his gross sales or gross
receipt.
DC/OP – may elect standard deduction in an amount not
exceeding 40%