Income Taxes on Individuals

Individual taxpayers are natural person with income derived from within the territo-
rial jurisdiction of a taxing authority.Under the tax code, individual taxpayers are
classified as:
1. Resident citizens (RC)
2. Nonresident citizens (NRC)
3. Resident aliens (RA)
4. Nonresident aliens engaged in trade or business (NRAETB)
5. Nonresident aliens not engaged in trade or business (NRA-NETB)

Citizens of the Philippines
Under Section I, Article III of the Philippine Constitution, a Filipino citizen is
he who is/ has
1. Born(by birth) with father and/or mother as Filipino citizens;
2. Born before Jan. 17, 1973 of Filipino mother who elects Philippine citi-
zenship upon reaching the age of majority; or

Dual citizenship natural born citizens of the Philippines who become
citizens of foreign country shall retain their Philippine citizenship upon taking
their oath of allegiance to the Philippine Republic(dual citizenship under RA 9225)
Derivative citizenship the unmarried child(illegitimate or adopted), below
18 years of age, of those who re-acquire Philippine citizenship under RA9225,




3. Acquired Philippine citizenship after birth(naturalized) in accordance with
Philippine laws.

Nonresident citizen of the Philippines
He is a citizen who:
1. Establishes to the satisfaction of the Commissioner of Internal Revenue, the fact of his
personal presence abroad with a definite with a definite intention to reside therein.
2. Leaves the Philippines during the taxable year to reside abroad
a. as an immigrant or
b. For employment on a permanent basis, or
c. For work and derives income from abroad and whose employment thereat
requires him to be physically abroad most of the time during the taxable
year.
3. A citizen of the Philippines who shall have stayed outside the Philippines for 183 days
or more by the end of the year.
4. Was previously a non-resident citizen and who arrives in the Philippines at any time
during the taxable year to reside permanently in the Philippines.

Illustration. Allan is a natural born Filipino citizen. His family migrated in U.S. fifteen(15)
years ago. For personal reasons, Allan decided to return and reside permanently in the
Philippines on March 1, 2013.
Required: Determine the correct classification of Allan as a taxpayer for 2013 taxable year.



Answer: From Jan. to Feb. 2013: Allan is classified as nonresident citizen
From March 2013 onwards: Allan is classified as resident a citizen

Overseas Contractworker (OCW) or Overseas Filipino Worker(OFW)
Revenue Regulation 1-2011 defines OCW as Filipino citizens employed in other countries,
commonly referred to as OFWs, who are physically present in a foreign country as a con-
Sequence of their employment thereat.

Alien is a foreign-born person who is not qualified to acquire Philippine citizen-
ship by birth or after birth.

Resident alien Section 22F of the Tax code defines resident alien as an individual
whose residence is within the Philippines and who is not a citizen thereof.

Non resident aliens - Section 22G of the Tax Code means an individual whose re-
sidence is not in the Philippines and who is not a citizen thereof. They are aliens who come
to the Philippines for a define purpose, which in its nature may be promptly accomplished.

Senior Citizens Generally qualified Senior Citizens deriving returnable income
during the taxable year, whether from compensation or otherwise, are required to file their
income tax returns and pay the tax as they file the return.
Tax Base and Rate
The applicable income tax on ordinary income for individuals depends on several
Factors such as the classification of the taxpayer, source of income and the type of income.
Individual taxpayer are classified as:
1. Resident citizens (RC)
2. Nonresident citizens(NRC)
3. Resident aliens(RA)
4. Nonresident aliens engaged in trade or business(NRAETB)
5. Non resident aliens not engaged in trade or business(NRANETB)
Resident citizens are taxable on their income from whatever source (income within and
without ) while all other types of individual taxpayers enumerated above are taxable
on their income derived from Philippine sources only (income within).
Income earned by an OCW or OFW as defined in RR 1-2011 that is earned out of the
country is exempted from income tax. However, the earnings of an OFW from a
business venture or any other property in the Philippines is subject to income tax.
Nonresident alien not engaged in trade or business is subject to 25% income tax based
on gross income from all sources within the Philippines as interest, cash and/or
property dividends, rent, salaries, wages, premiums, annuities,compensation,
remuneration, and others.


Individual taxpayers are subject to:
1) Basic tax on regular income(Section 24(A)-NIRC)
2) Final tax

Table 1. Tax Bases and Rates for Individual Taxpayers
Tax Base Source of Income Tax Rate

RC Net income Within or Without 5% -32%
(graduated rate)

NRC,RA,NRA-ETB Net income within only 5% - 32%
(graduated rate)

NRA-NETB Gross Income within only 25% final tax


Illustration.
An individual taxpayer provided the following information:
Gross business income, Philippines P 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 before personal exemption assuming
Case A: The taxpayer is a resident citizen
Case B: The taxpayer is a non resident citizen
Case C: The taxpayer is a resident alien
Case D: The taxpayer is a nonresident alien engaged in trade or business
Case E: The taxpayer is a nonresident alien not engaged in trade or business