Income Taxation
Form no 1701Q
Quarterly Income Tax Return for Self-Employed Individuals, Estates and Trusts (including those with both business and compensation income) filed on the 15th day of the 2nd month following the close of each of the first three quarters of the taxable year except for the first quarter. Quarter Months Covered Due Date CY First Jan-Mar On or before Apr 15 Second Apr-Jun On or before Aug 15 Third July-Sept On or before Nov 15
Regional or Area Headquarters
RHQs
Regional Operating Headquarters
ROHQs
OCWs or OFWs (Overseas Contract Workers or Overseas Filipino Workers)
Refer to Filipino citizens employed in foreign countries who are physically present in a foreign country as a consequence of their employment thereat.
Foreign Currency Deposit Unit (FCDU)
Refer to the unit of a local bank or a local branch of a foreign bank authorized by the Bangko Sentral ng Pilipinas.
Electronic Bureau of Internal Revenue Forms (eBIRForms)
Refers to the two types of electronic services (e-Services) provided by the BIR for the preparation, generation, and submission of tax returns, which are the following:
Compensation Income
"Compensation" means all remuneration for services performed by an employee fir his employer-employee relationship, unless specifically excluded by the tax code.
Non-Resident Citizen
- Establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. - Leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis. - 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.
Resident Alien
- Means an individual whose residence is within the Philippines and who is not a citizen thereof. - He is one who is actually present in the Philippines and who is not a mere transient or sojourner. But residence does not mean mere physical presence. An alien is considered a resident or a non-resident depending on his intention with regard to the length and nature of his stay.
Final tax
- imposed on income or gain shall no longer be included as taxable income subject to the graduated rates - imposed w/o any deduction and withheld at source - amount received by passive income earner is net of the final tax
NET COMPENSATION INCOME
- the compensation arrived at after subtracting from gross compensation income derived by resident citizens or resident aliens, basic personal and additional exemptions; and premium payments, if any, on health and hospitalization insurance under certain conditions.
One who comes to the Philippines for a definite purpose which in its nature would require an extended stay and to that end makes his home temporarily in the Philippines, becomes a resident, though it may be his intention at all times to return to his domicile (place of habitual or permanent residence) abroad when the purpose for which he came has been accomplished.
A British computer expert was hired by a Philippine corporation to assist in its computer system installation for which he had to stay in the Philippines for 6 months. Is he a resident alien?
NO. One who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient.
A British cultural performer was engaged to perform in the Philippines for two weeks after which he returned to his country. Is he a resident alien?
Resident Citizen
A Filipino citizen who permanently resides in the Philippines.
Regional or area headquarters (RHQs)
A branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets.
Regional operating headquarters (ROHQs)
A branch established in the Philippines by multinational companies which are engaged in any of the following services: general administration and planning; business planning and coordination; sourcing and procurement of raw materials and components; corporate finance advisory services; research and development services and product development; technical support and maintenance; data processing and communications; and business development.
Offshore banking Unit (OBU)
A branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the BSP to transact offshore banking business in the Philippines.
Mixed income earner
A compensation-earner who at the same time is engaged in business or practice of profession.
NO. His trip to Manila did not interrupt his residence abroad. The phrase "uninterrupted period" should not be interpreted literally. His trip to Manila did not affect the continuity of his residence abroad.
A non-resident citizen went to Manila under the Balikbayan Program Does his return to Manila interrupt his residence abroad?
NO. Because he has no intention at all to return to the Philippines.
A resident alien left the Philippines and abandoned his residency thereof without any intention of returning. May he still be considered a resident alien?
YES, his re-entry permit proves that he has not abandoned his residence in the Philippines.
A resident alien left the Philippines with a re-entry permit. Is he still a resident alien?
No, mere ownership of shares of stock in the Philippines is not enough to constitute as engaging in trade or business in the Philippines.
An alien owns shares of stock in the Philippines. Is he considered as engaged business or trade in the Philippines?
YES. Because he is forming the functions of a public office.
An alien temporarily serves as executive manager of an airline in Manila. Is he considered engaged in trade or business in the Philippines.
Deposit Substitutes
An alternative from of obtaining funds from the public* other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrowers own account.
Marginal income earner
An individual whose business does not realize gross sales or receipts exceeding P100,000 in any 12-month period.
form no. 1701
Annual Income Tax Return For Self-Employed Individuals, Estates and Trusts (Including those with both business and compensation income) Filed on or before the 15th day of April of each year covering income for the preceding taxable year.
form no. 1700
Annual Income Tax Return for Individuals Earning Purely Compensation Income (Including Non-Business/Non-Profession Income) Filed on or before the 15th day of April of each year covering income for the preceding taxable year.
fringe benefits
Any good, service, or other benefit furnished or granted by an employer in cash or in kind in addition to basic salaries, to an individual employee (except rank-and-file employee) under an employee-employer relationship.
Business Income
Arises from self-employment or practice of profession. This shall not include income from performance of services by the taxpayer as an employee.
Gross Income
As defined in Section 32 of R.A. 8424 or the Tax Reform Act of 1997 (amending the National Internal Code or the Tax Code), means all income derived from whatever source including but not limited to the following items: 1. Compensation for services 2. Gross income (trade or business/exercise of 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 a general professional partnership.
Local Branch of a Foreign Bank
Branch of a foreign bank doing business in the Philippines (R.A. 337, as amended)
Answer: Selling price P2,500,000 Tax rate 6% Final Tax P 150,000
Compute for Capital Gain Tax (from Sale of Real Property) ILLUSTRATION: In 2022, Nicos, a resident citizen, sold his residential house and lot in Singalong, Manila for P2,500,000. The cost of the house and lot three years ago when he acquired the property was P1,500,000 and the fair market value at the time of sale is P2,300,000. How much is the capital gains from the sale?
Answer: Selling price P160,000 Cost 40,000 Capital gains P120,000 On P120,000 at 15% P 18,000 Capital Gain Tax (Beg. Jan. 1, 2018)
Compute for Capital Gain Tax (from sale of shares of stock, not traded through the local stock exchange) ILLUSTRATION: In 2022, Uri, a resident citizen, owns and holds as capital assets, shares of stocks of Prudential Guarantee and Assurance, Inc., a domestic corporation, costing P40,000. He sold all the shares directly to Lilibeth for P160,000. How much final tax must be paid?
Computation of Final Tax: Interest (P75,000 x 20%) P15,000 Royalty (P80,000 x 20%) 16,000 Prize (P50,000 x 20%) 10,000 Dividends (P30,000 x 10%) 3,000 Total P44,000
Compute for Final Tax (Passive Income) ILLUSTRATION: Helena, single and a resident citizen, has the following passive income for the year 2022: Interest from BPI Savings deposit P75,000 Royalty from Invention 80,000 Prize in a painting competition 50,000 Dividends received from a domestic corporation 30,000
Answer: Monetary value of the fringe benefit P198,000 Divide by 68% Grossed-up monetary value P291,176 Multiply by 32% Fringe benefit tax P 96,088
Compute for Fringe Benefit Tax (Fringes Benefit) ILLUSTRATION: In June 2022, Boris, a resident citizen, received from his employer, fringe benefit of P198,000. This fringe benefit is subject to the fringe benefit tax. Compute the tax that shall be paid by Boris' employer.
Answer: Gross income P390,000 Less: Deductions 80,000 Basic personal Exemption 50,000 130,000 Taxable Income P260,000 Tax due: On P250,000 P 0 10,000 at 20% 2,000 P 2,000
Compute the Tax Due (Business Income) ILLUSTRATION: Katrina, single and resident citizen, has a gross business income of P350,000 in 2022. Deductions related to her business is P80,000. How much is her taxable income and tax due for 2022?
Answer: Gross compensation income P180,000 Less: Basic Personal Exemption 50,000 Net Taxable Compensation Income P130,000 Tax Due: On P130,000 EXEMPT
Compute the tax due. (Compensation Income) ILLUSTRATION: Kyla, single and a resident citizen, has a gross income of P180,000 in 2022. How much is her taxable income and tax due for 2022? A resident citizen, who is single, is allowed basic personnel exemption of P50,000 (per R.A. 9504).
- Present at the time of the adoption of the Feb. 2, 1987 Constitution. - Fathers and mothers are citizen of the Philippines. - Born before Jan. 17, 1973, adoption of the 1973 Constitution. - Naturalized in accordance with law.
Considerations of being "citizens" in the Philippines.
Answer: P250,000 Exempt 50,000 (20%) 10,000 Tax Due P10,000
Determine the income due assuming the "taxable compensation income" for the year is P300,000.
Answer: P800,000 P130,000 1,050,000 (30%) 315,000 Tax Due P445,000
Determine the income tax due assuming the "net taxable compensation income" for the year is P1,850,000.
Exempt
Determine the tax due assuming the "taxable compensation income" for the year is P240,000.
Self-employed individual
Either a single proprietor engaged in business or in the practice of his profession.
Electronic Filing and Payment System (eFPS)
Electronic processing and transmission of tax return information including attachments, and taxes due thereon to the government made over to the internet through the BIR website.
Deposits
Funds in foreign currencies which are accepted and held by an Offshore Banking Unit or Foreign Currency Deposit Unit in the regular course of business, with the obligation to return an equivalent amount to the owner thereof, with or without interest.
True
If a taxpayer is receiving compensation from two or more employers, he/she must combine all compensation income received from all employers for a particular calendar year. Taxed at the graduated rates from 5% to 32% (revised section 24(A) per R.A. 9504). (True or False)
NET INCOME
Income arrived at after subtracting from the gross income of a citizen, resident alien, and non-resident alien if the latter is ETB in the Philippines the deductions of the taxpayer, including the basic personal and additional exemptions, if any.
INCOME TAX RETURN
Is a sworn statement or declaration in which the taxpayer discloses the nature and extent of his tax liability by formally making a report of his income and allowable deductions for the taxable year in the prescribed form.
"Most of the Time"
It is interpreted to mean presence abroad for at least 183 days during the taxable year.
Source of Income
It is not a place but the property, activity or service that produced the income
REGULAR COMPENSATION
KINDS OF COMPENSATION- includes basic salary, fixed allowances for representation, transportation, and others paid to an employee.
Non-Resident Alien Engaged in Trade or Business (stayed for more than 180 days)
NRA-ETB
Non-Resident Alien Not Engaged in Trade or Business (stayed for 180 days or less)
NRA-NETB
EXCESS WITHHOLDING TAX
Over-withholding of income tax on compensation shall be refunded by the employer, except if the over withholding is due to the employer's failure or refusal to file the withholding exemption certificate, or supplies false or inaccurate information, the excess shall not be refunded but shall be forfeited in favor of the government.
Passive Income
Subject to a separate and final tax at fixed rates ranging from 5% to 25%. They are not included in the computation of taxable income from compensation or business/professional income, the tax due on which is computed in accordance with the graduated income tax schedule for individuals in Section 24(A).
PASSIVE INCOME
Subject to a separate and final tax. These are taxed at fixed rates ranging from 5%-20%. (e.g. interests, royalties, prizes, winnings, dividends)
Resident citizens
Taxable on all income derived from sources within and without.
Non-residents citizens and alien individuals - resident and non-resident
Taxable only on income derived from sources within the Philippines. An overseas contract worker is taxable is only on his income from sources within.
Capital gains from sale of shares of stock, not traded through the local stock exchange
Taxed at 15% capital gain taxes on a per transaction basis.
Capital Gains from Sale of Real Property
Taxed at 6% final tax on the gross selling price or current fair market value at the time of sale, whichever is higher.
Offshore banking system
The conduct of banking transactions in foreign currencies involving the receipt of funds principally from external and internal sources and the utilization of such fund pursuant to Presidential Decree 1034 as implemented by Central Bank (now BSP) Circular 1389, as amended.
Foreign Currency Deposit System (FCDS)
The conduct of banking transactions whereby any person, whether natural or juridical, may deposit foreign currencies forming part of the Philippine international reserves, in accordance with the provisions of R.A. 6426 entitled "An Act Instituting a Foreign Currency Deposit System in the Philippines, and For Other Purposes."
ENTIRE OR GROSS INCOME
The entire or gross income w/o any deduction with respect to non-resident aliens not engaged in trade or business in the Philippines
Use of Capital
The place where the capital is employed
Labor
The place where the labor is performed
Profits from the sale or exchange of capital assets
The place where the sale or transactions occur
True
The term trade, business or profession shall NOT include performance of services by the taxpayer as an employee but it includes the performance of the functions of a public office. (True or False)
RHQs and ROHQs
These are the multinational entities in the Philippines that are engaged in international trade with affiliates and subsidiary branch offices in the Asia-Pacific region.
Public
This term means borrowing from 20 or more individual or corporate lenders at any one time.
Local Bank
Thrift/commercial bank organized under the laws of the Republic of the Philippines (R.A. 6426)
withholding of tax on compensation income
a method of collecting the income tax at source upon receipt of the income. - It applies to all employed individuals whether citizens or aliens, deriving income from compensation for services rendered in the Philippines.
GLOBAL TREATMENT
a system where the tax treatment views indifferently the tax base and generally treats in common all categories of taxable income of the taxpayer; the taxpayer is required to lump up all items of income earned during a taxable period and pay under a single set of income tax rules on these different items of income; aggregate of the gross compensation income and gross business or professional income less the allowable deductions
GROSS COMPENSATION INCOME
derived by aliens including Filipinos employed by regional and area headquarters and regional operating headquarters and regional operating headquarters of multinational companies, by offshore banking units, or by foreign petroleum service contractors and sub-contractors.
SUPPLEMENTAL COMPENSATION
includes payments to an employee in addition to the regular compensation such as but not limited to the following: a. Overtime pay b. Night shift differential pay c. Fees, including director's fee d. Commission e. Profit sharing f. Monetized vacation and sick leave g. Fringe benefits received by rank & file employees h. Hazard pay i. Holiday pay j. 13th month pay and other benefits k. Other remunerations
Online eBIRForms System
is a filing infrastructure that accepts tax returns submitted online and automatically computes penalties for tac returns submitted beyond due date.
Offline eBIRForms Package
is a tax preparation software that allows the taxpayer and Accredited Tax Agent (ATA) to accomplish or fill out tax forms offline.
TAXABLE INCOME
is defined as the pertinent items of gross income less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws. it is the amount or tax base upon which tax rate is applied to arrive at the tax due
Estimated Tax
means the amount which the individual declared as income tax in his final adjusted and annual income tax return for the preceding taxable year minus the credits allowed.
SCHEDULAR SYSTEM
the income tax treatment varies depending on the kind of taxable income of the taxpayer; provides for a different tax treatment of different types of income so that a separate tax return is required to be filed for each type of income and the tax is computed on a per return or per schedule basis
eFPS and eBIRForms
two BIR electronic platforms available for filing tax returns: