Module 2

A resident alien is an individual whose residence is within the Philippines and who is not a citizen thereof.

RESIDENT ALIEN

He is not a Filipino citizen but is residing within the Philippines.

RESIDENT ALIEN

He is taxed on his worldwide income because of the protection he gets from the Philippine Government even when he is outside the country. The Philippines retains personal jurisdiction over the person of the citizen no matter how long he lives in a foreign country, for as long as he remains a citizen.

RESIDENT CITIZEN

In this system, the different types of incomes are subject to different sets of graduated or flat income tax rates The applicable tax rates will depend on the classification of the taxable income and the basis could be gross income or net income Separate income tax return is filed by the recipient of the income for the particular type of income received No income tax return is filed by the recipient of a passive income subject to final withholding tax since the withholding agent is responsible for the filing of the withholding tax return and payment of final tax to the BIR

SCHEDULAR TAX SYSTEM

This system was adopted under B.P. 135

SCHEDULAR TAX SYSTEM

Under the NIRC, gross income means all income derived from whatever source, including (but not limited to) the following items:

(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items; (2) Gross income derived from the conduct of trade or business or the exercise of a profession; (3) Gains derived from dealings in property; (4) Interests; (5) Rents; (6) Royalties; (7) Dividends; (8) Annuities; (9) Prizes and winnings; (10) Pensions; and (11) Partner's distributive share from the net income of the general professional partnership.

The features of the Philippine Income Tax Law are:

*It is a direct tax *It is a progressive tax *The Philippines has adopted the most comprehensive system of imposing income tax by adopting the citizenship principle, the residence principle and the source principle. *The Philippines follows the semi-schedular or semi-global system of income taxation.

Criteria in imposing Income Tax:

1. CITIZENSHIP OR NATIONALITY PRINCIPLE 2.RESIDENCE OR DOMICILE PRINCIPLE 3. SOURCE OF INCOME PRINCIPLE

What are the kinds of income taxpayers under the NIRC?

1. Domestic Corporations; 2. Foreign Corporations; 3. Non-resident Citizen; 4. Resident Citizen; and 5. Non-resident alien.

There are 3 Income Tax Systems:

1. Global Tax System 2. Schedular Tax System 3. Semi-schedular or semi-global Tax System

A non-Filipino citizen who is actually present in the Philippines and who is not a mere transient or sojourner;

ALIENS

If the non-Filipino lives in the Philippines and has no definite intention as to his stay; or

ALIENS

One who comes in the Philippines for a definite purpose of such nature that an extended stay may be necessary for its accomplishment and makes Philippines his temporary home.

ALIENS

In this system, the total allowable deductions as well as personal and additional exemptions are deducted from the gross income to arrive at the net taxable income subject to the graduated income tax rates regardless if compensation income or passive income All items of gross income, deductions, and personal and additional exemptions were declared in one income tax return and one set of tax rates were applied on the net taxable income

GLOBAL TAX SYSTEM

This is the tax system used by the Philippines until 1981

GLOBAL TAX SYSTEM

Net Taxable Income =

GLOBAL TAX SYSTEM - [Gross Income - (Deductions + Exemptions)]

It means income, gain or profit subject to income tax It includes compensation for personal services, business income, profits, and income derived from any source whatever (whether legal or illegal) UNLESS the income is exempt from income tax by law or it is subject to final withholding income tax

GROSS INCOME

The formula is:

Gross Sales or Gross Revenue - Cost of Goods Sold / Cost of Services = Gross Income

a direct tax on actual or presumed income of taxpayers during the taxable year.

INCOME TAX

defined as a tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a person's income, emoluments, profits and the like.

INCOME TAX

He is not a Filipino citizen and is not residing within the Philippines.

NON-RESIDENT ALIEN

This is an individual whose residence is not within the Philippines and who is not a citizen thereof.

NON-RESIDENT ALIEN

is one whose aggregate period of his stay in the Philippines is (?) during any calendar year. Note that aggregate means that even if his stay is not continuous, as long as it exceeds (?) days, then he is considered as a NRAETB.

NON-RESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES - more than 180 days

not engaged in trade or business (NRANETB) is one whose aggregate period of his stay in the Philippines (?)

NON-RESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES - does not exceed 180 days

A Filipino citizen who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein;

NON-RESIDENT CITIZEN

A Filipino citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at any time during the taxable year to permanently reside in the Philippines.

NON-RESIDENT CITIZEN

A Filipino citizen who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis;

NON-RESIDENT CITIZEN

A Filipino citizen who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time (at least for 183 days) during the taxable year; or

NON-RESIDENT CITIZEN

All compensation income, business or professional income, capital gain, passive income and other income not subject to final tax are added together to arrive at the gross income After deducting the sum of allowable deductions as well as personal and additional exemptions, the taxable income is subjected to one set of graduated tax rates (for individuals). With respect to incomes not subject to final withholding tax, the computation of the income tax is 'global. However, passive incomes subject to final tax and capital gains remain subject to different set of tax rates and covered by different tax returns.

SEMI-SCHEDULAR OR SEMI-GLOBAL TAX SYSTEM

This was adopted by the Philippines on 1986 through E.O.37

SEMI-SCHEDULAR OR SEMI-GLOBAL TAX SYSTEM

Gross Income = Taxable Income = Taxable Income x Graduated Tax Rate

SEMI-SCHEDULAR OR SEMI-GLOBAL TAX SYSTEM - [Compensation Income + Business Income + Capital Gain + Passive Income (which were not subject to a final tax rate)] [Gross Income - (Deductions +Exemptions)]

This means the pertinent items of gross income specified in this Code, less deductions, if any, authorized for such types of income by this Code or other special laws." Gross Income - Deductions

TAXABLE INCOME

is any person subject to tax imposed by Title II (Income Tax) of the Tax Code (NIRC).

Taxpayer

Who is considered a Filipino citizen under the Philippine law?

Under Sec. 1, Art. III of the 1987 Philippine Constitution: 1. Those who are citizens of the Philippines at the time of the adoption of the Constitution (on 02 February 1987); 2. Those whose fathers or mothers are citizens of the Philippines (take note that it is now father OR mother since under the 1975 Constitution, only those who have Filipino fathers AND mothers were considered as Filipino citizens); 3. Those born before 17 January 1973 (date of adoption of the 1973 Philippine Constitution), of Filipino mothers, who elect Philippine citizenship upon reaching the age of majority; and 4. Those who are naturalized in accordance with law (naturalized are those who undergoes the process to become naturalized Filipino citizens).

The individual taxpayers are further classified into the following: A. Citizen B. Aliens

a.1. Resident Citizen; or a.2.Non-resident Citizen b.1. Resident Aliens; or b.2. Non-resident aliens b.2.1. Non-resident aliens engaged in trade or business in the Philippines; or b.2.2. Non-resident aliens NOT engaged in trade or business in the Philippines

A (?) is an artificial being created by law which is given the right to conduct business, to sue and be sued, among other things. A (?) is usually created to perform a business. By law, the (?) is considered as a different being than its incorporators, directors, and stockholders.

corporation

An (?) is an artificial being considered as a taxpayer when a person (decedent) dies.

estate

Non-resident Citizen - He is taxed on his income from (?) the Philippines

from within

Resident Alien - He is taxed on his income from (?) the Philippines

from within

Non-resident Alien Not Engaged on Trade or Business in the Philippines - He is taxed on his income (?) the Philippines only (?)

from within - at the flat rate of 25% (except on sale of shares of stock which has the rate of 15%)

Non-resident Alien Engaged on Trade or Business in the Philippines - He is taxed on his income (?) the Philippines only (?)

from within - at the graduated rates or final tax rate for passive investment

Resident Citizen - He is taxed on his income from (?) the Philippines

from within and outside

An (?) is a natural person.

individual

Taxpayer can be:

individual, trust, estate, corporation

A (?) is the agency created between the trustor and the trustee.

trust