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    Income Tax - Bureau of Internal RevenueIndex for Income Tax:

    Description

    Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of profession, conduct oftrade or business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code), asamended, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income,by the Tax Code, as amended, or other special laws.

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    Who Are Required To File Income Tax Returns

    Individuals

    Resident citizens receiving income from sources within or outside the Philippines

    employees deriving purely compensation income from 2 or more employers, concurrently orsuccessively at anytime during the taxable year

    employees deriving purely compensation income regardless of the amount, whether from a single orseveral employers during the calendar year, the income tax of which has not been withheld correctly (i.e.tax due is not equal to the tax withheld) resulting to collectible or refundable return

    self-employed individuals receiving income from the conduct of trade or business and/or practice ofprofession

    individuals deriving mixed income, i.e., compensation income and income from the conduct of trade orbusiness and/or practice of profession

    individuals deriving other non-business, non-professional related income in addition to compensationincome not otherwise subject to a final tax

    individuals receiving purely compensation income from a single employer, although the income of whichhas been correctly withheld, but whose spouse is not entitled to substituted filing

    marginal income earners

    Non-resident citizens receiving income from sources within the PhilippinesAliens, whether resident or not, receiving income from sources within the PhilippinesCorporation shall include partnerships, no matter how created or organized.Domestic corporations receiving income from sources within and outside the PhilippinesForeign corporations receiving income from sources within the PhilippinesEstates and trusts engaged in trade or business

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  • Annual Income Tax For Individuals Earning Purely Compensation Income (Including Non-Business/Non-Profession Related Income) and For Marginal Income Earners

    Tax Form

    BIR Form 1700 - Annual Income Tax Return (For Individual Earning Purely Compensation Income Including Non-Business/Non-Profession Related Income)

    Documentary Requirements

    1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316)

    2. Waiver of the Husbands right to claim additional exemption, if applicable

    3. Duly approved Tax Debit Memo, if applicable

    4. Proof of Foreign Tax Credits, if applicable

    5. Income Tax Return previously filed and proof of payment, if filing an amended return for the same taxable year

    Procedures

    1. Fill-up BIR Form 1700 in triplicate.

    2. If there is payment:

    Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered andpresent the duly accomplished BIR Form 1700, together with the required attachments and your payment.

    In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or MunicipalTreasurer located within the Revenue District Office where you are registered and present the duly accomplished BIRForm 1700, together with the required attachments and your payment.

    Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue CollectionOfficer/duly Authorized City or Municipal Treasurer.

    3. For "No Payment" Returns including refundable returns, and for tax returns qualified for second installment:

    Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIRand present the duly accomplished BIR Form 1700, together with the required attachments.

    Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

    Deadline

    On or before the 15th day of April of each year covering taxable income for the preceding taxable year

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    Annual Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those With MixedIncome,i.e., Compensation Income and Income from Business and/or Practice of Profession )

    Tax Form

  • BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those WithBoth Business and Compensation Income)

    Documentary Requirements

    1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable

    2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable

    3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable

    4. Waiver of the Husbands right to claim additional exemption, if applicable

    5. Duly approved Tax Debit Memo, if applicable

    6. Proof of Foreign Tax Credits, if applicable

    7. Income Tax Return previously filed and proof of payment, if filing an amended return for the same year

    8. Account Information Form (AIF) or the Certificate of the independent CPA with Audited Financial Statements if thegross quarterly sales, earnings, receipts or output exceed P 150,000.00

    9. Proof of prior years excess tax credits, if applicable

    Procedures

    1. Fill-up BIR Form 1701 in triplicate copies.

    2. If there is payment:

    Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered andpresent the duly accomplished BIR Form 1701, together with the required attachments and your payment.

    In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or MunicipalTreasurer located within the Revenue District Office where you are registered and present the duly accomplished BIRForm 1701, together with the required attachments and your payment.

    Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue CollectionOfficer/duly Authorized City or Municipal Treasurer

    3. For "No Payment" including refundable/ creditable returns, returns with excess tax credit carry over, and returnsqualified for second installment:

    Proceed to the Revenue District Office where you are registered or to any established Tax Filing Centers establishedby the BIR and present the duly accomplished BIR Form 1701, together with the required attachments.

    Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

    Deadline

    Final Adjustment Return or Annual Income Tax Return - On or before the 15th day of April of each year coveringincome for the preceding year

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    Account Information Form For Self-Employed Individuals, Estates And Trusts (Including Those With Mixed

  • Income , I.E., Compensation Income and Income from Business and/or Practice of Profession)

    Tax Form

    BIR Form 1701 AIF - Account Information Form For Self-Employed Individuals, Estates and Trusts (Including thosewith Mixed Income, i.e., Compensation Income and Income from Business and/or Practice of Profession) and Estatesand Trusts (Engaged in Trade or Business)

    NOTE: Pursuant to Revenue Memorandum Circular No. 6 2001, corporations, companies or persons whose grossquarterly sales, earnings, receipts or output exceed P 150,000.00 may not accomplish this form. In lieu thereof, theymay file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listingincome-producing properties and the corresponding income therefrom, and other relevant statements duly certified byan independent CPA.

    Documentary Requirements

    None

    Procedures

    1. Accomplish BIR Form 1701 AIF in triplicate.

    2. Attach the same to BIR Form 1701.

    Deadline

    Same deadline as BIR Form 1701 - On or before the 15th day of April of each year covering taxable income for thepreceding year

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    Quarterly Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those With MixedIncome, I.E., Compensation Income and Income from Business and/or Practice of Profession)

    Tax Form

    BIR Form 1701Q - Quarterly Income Tax Return For Self-Employed Individuals, Estates and Trusts (Including thosewith both Business and Compensation Income)

    Documentary Requirements

    1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable

    2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable

    3. Duly approved Tax Debit Memo, if applicable

    4. Previously filed return, if an amended return is filed for the same quarter

    Procedures

    1. Fill-up BIR Form 1701Q in triplicate.

    2. If there is payment:

    Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you registered and

  • present the duly accomplished BIR Form 1701 Q, together with the required attachments and your payment.

    In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or MunicipalTreasurer located within the Revenue District Office where you are registered and present the duly accomplished BIRForm 1701Q, together with the required attachments and your payment.

    Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue CollectionOfficer/duly Authorized City or Municipal Treasurer.

    3. For "No Payment" Returns including refundable/ creditable returns with excess tax credit carry over and returnsqualified for second installment:

    Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIRand present the duly accomplished BIR Form 1701Q, together with the required attachments.

    Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

    Deadlines

    April 15 for the first quarter

    August 15 for the second quarter

    November 15 for the third quarter

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    Annual Income Tax For Corporations And Partnerships

    Tax Form

    BIR Form 1702 - Annual Income Tax Return (For Corporations and Partnerships)

    Documentary Requirements

    1. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304), if applicable

    2. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable

    3. Duly approved Tax Debit Memo, if applicable

    4. Proof of Foreign Tax Credits, if applicable

    5. Income tax return previously filed and proof of payment, if amended return is filed for the same taxable year

    6. Account Information Form (AIF) and/or the Certificate of the independent CPA with Audited Financial Statements, ifthe gross quarterly sales, earnings, receipts or output exceed P150,000.00

    7. Proof of prior years excess tax credits, if applicable

    Procedures

    1. Fill-up BIR Form 1702 in triplicate.

    2. If there is payment:

  • Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered andpresent the duly accomplished BIR Form 1702, together with the required attachments and your payment.

    In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or MunicipalTreasurer located within the Revenue District Office where you are registered and present the duly accomplished BIRForm 1702 with the required attachments and your payments.

    Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue CollectionOfficer/duly Authorized City or Municipal Treasurer.

    3. For "No Payment" Returns including refundable/ creditable returns and returns with excess tax credit carry over:

    Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by BIR andpresent the duly accomplished BIR Form 1702, together with the required attachments.

    Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative

    Deadline

    Final Adjustment Return or Annual Income Tax Return - On or before the 15th day of the fourth month following theclose of the taxpayers taxable year

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    Account Information Form For Corporations And Partnerships

    Tax Form

    BIR Form 1702 AIF - Account Information Form (For Corporations and Partnerships)

    NOTE: Pursuant to Revenue Memorandum Circular No. 6 2001, corporations, companies or persons whose grossquarterly sales, earnings, receipts or output exceed P 150,000.00 may not accomplish this form. In lieu thereof, theymay file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listingincome-producing properties and the corresponding income therefrom, and other relevant statements duly certified byan independent CPA.

    Documentary Requirements

    None

    Procedures

    1. Accomplish BIR Form 1702 AIF in triplicate.

    2. Attach the same to BIR Form 1702.

    Deadline

    Same deadline as BIR Form 1702 - On or before the 15th day of the fourth month following the close of the taxpayerstaxable year

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    Quarterly Income Tax For Corporations And Partnerships

  • Tax Form

    BIR Form 1702 Q - Quarterly Income Tax Return (For Corporations and Partnerships)

    Documentary Requirements

    1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable

    2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304), if applicable

    3. Duly approved Tax Debit Memo, if applicable

    4. Previously filed return, if an amended return is filed for the same quarter

    Procedures

    1. Fill-up BIR Form 1702 Q in triplicate.

    2. If there is payment:

    Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered andpresent the duly accomplished BIR Form 1702 Q, together with the required attachments and your payment.

    In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or MunicipalTreasurer located within the Revenue District Office where you are registered and present the duly accomplished BIRForm 1702 Q.

    Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue CollectionOfficer/duly Authorized City or Municipal Treasurer.

    3. For Refundable Returns and for those returns with second installment:

    Proceed to the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702Q, together with the required attachments.

    Receive your copy of the duly stamped and validated form from the RDO representative.

    Deadline

    Corporate Quarterly Declaration or Quarterly Income Tax Return - On or before the 60th day following the close ofeach of the quarters of the taxable year

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    Improperly Accumulated Earnings Tax For Corporations

    Tax Form

    BIR Form 1704 - Improperly Accumulated Earnings Tax Return (For Corporations)

    Documentary Requirements

    1. Photocopy of Annual Income Tax Return (BIR Form 1702) with Audited Financial Statements and/or AccountInformation Form of the covered taxable year duly received by the BIR; and

    2. Sworn declaration as to dividends declared taken from the covered year's earnings and the corresponding tax

  • withheld, if any

    Procedures

    1. Fill-up BIR Form 1704 in triplicate.

    2. If there is payment:

    Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered andpresent the duly accomplished BIR Form 1704, together with the required attachments and your payment.

    In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or MunicipalTreasurer located within the Revenue District Office where you are registered and present the duly accomplished BIRForm 1704

    Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue CollectionOfficer/duly Authorized City or Municipal Treasurer.

    3. If there is no payment:

    Proceed to the Revenue District Office where you are registered and present the duly accomplished BIR Form 1704,together with the required attachments.

    Receive your copy of the duly stamped and validated form from the RDO representative

    Deadline

    Within fifteen (15) days after the close of the taxable year

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    Annual Income Information Form for General Professional Partnerships

    Sec. 55. Returns of General Professional Partnership (Tax Code of 1997, as amended)

    Every general professional partnership shall file, in duplicate, a return of its income, except income exempt underSection 32 (B) of this Title, setting forth the items of gross income and of deductions allowed by this Title, and thenames, Taxpayer Identification Numbers (TIN),addresses and shares of each of the partners.

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    Tax Rate

    A. For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice ofProfession

    Amount of Net Taxable Income RateOver But Not Over

    P10,000 5%P10,000 P30,000 P500 + 10% of the Excess over P10,000

    P30,000 P70,000 P2,500 + 15% of the Excess over P30,000

  • P70,000 P140,000 P8,500 + 20% of the Excess over P70,000P140,000 P250,000 P22,500 + 25% of the Excess over P140,000P250,000 P500,000 P50,000 + 30% of the Excess over P250,000P500,000 P125,000 + 32% of the Excess over P500,000 in 2000 and onward

    Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the firstinstallment to be paid at the time the return is filed and the second installment 15 of the same year at on or before Julythe Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer isregistered.

    Tax Rate Taxable Base1. DomesticCorporations:

    a. In General 30% (effective Jan. 1,2009)

    Net taxable income from all sources

    b. MinimumCorporate IncomeTax*

    2% Gross Income

    c. ImproperlyAccumulatedEarnings

    10% Improperly Accumulated Taxable Income

    2. ProprietaryEducationalInstitution

    10% Net taxable income provided that the gross income from unrelatedtrade, business or other activity does not exceed 50% of the totalgross income

    3. Non-stock, Non-profit Hospitals

    10% Net taxable income provided that the gross income from unrelatedtrade, business or other activity does not exceed 50% of the totalgross income

    4. GOCC, Agencies& Instrumentalities

    a. In General 30% Net taxable income from all sourcesb. MinimumCorporate IncomeTax*

    2% Gross Income

    c. ImproperlyAccumulatedEarnings

    10% Improperly Accumulated Taxable Income

    5. National Gov't. &LGUs

    a. In General 30% Net taxable income from all sourcesb. MinimumCorporate IncomeTax*

    2% Gross Income

  • c. ImproperlyAccumulatedEarnings

    10% Improperly Accumulated Taxable Income

    6. TaxablePartnerships

    a. In General 30% Net taxable income from all sourcesb. MinimumCorporate IncomeTax*

    2% Gross Income

    c. ImproperlyAccumulatedEarnings

    10% Improperly Accumulated Taxable Income

    7. ExemptCorporation

    a. On ExemptActivities

    0%

    b. On TaxableActivities

    30% Net taxable income from all sources

    8. GeneralProfessionalPartnerships

    0%

    9. Corporationcovered by SpecialLaws

    Rate specified underthe respective speciallaws

    10. InternationalCarriers

    2.5% Gross Philippine Billings

    11. RegionalOperating Head

    10% Taxable Income

    12. OffshoreBanking Units(OBUs)

    10% Gross Taxable Income On Foreign Currency Transaction30% On Taxable Income other than Foreign Currency Transaction

    13. ForeignCurrency Deposit Units (FCDU)

    10% Gross Taxable Income On Foreign Currency Transaction30% On Taxable Income other than Foreign Currency Transaction

    *Beginning on the 4th year immediately following the year in which such corporation commenced its businessoperations, when the minimum corporate income tax is greater than the tax computed using the normal income tax.

    Passive Income 1. Interest from currency deposits, trust funds and deposit substitutes 20%2. Royalties (on books as well as literary & musical composition) 10%- In general 20%

  • 3. Prizes (P10,000 or less ) 5%- In excess of P10,000 20%4. Winnings (except from PCSO and lotto) 20%5. Interest Income of Foreign Currency Deposit 7.5%6. Cash and Property Dividends - To individuals from Domestic Corporations 10 %- To Domestic Corporations from Another Domestic Corporations 0%7. On capital gains presumed to have been realized from sale, exchange or other disposition of realproperty (capital asset)

    6%

    8. On capital gains for shares of stock not traded in the stock exchange - Not over P100,000 5%- Any amount in excess of P100,000 10%9. Interest Income from long-term deposit or investment in the form of savings, common or individual trustfunds, deposit substitutes, investment management accounts and other investments evidenced bycertificatesUpon pretermination before the fifth year , there should be imposed on the entire income from theproceeds of the long-term deposit based on the remaining maturity thereof:Holding Period

    Exempt

    - Four (4) years to less than five (5) years 5%- Three (3) years to less than four (4) years 12%- Less than three (3) years 20%

    B. For Non-Resident Aliens Engaged in Trade or Business

    1. Interest from currency deposits, trust funds and deposit substitutes 20%2. Interest Income from long-term deposit or investment in the form of savings, common or individual trustfunds, deposit substitutes, investment management accounts and other investments evidenced bycertificatesUpon pretermination before the fifth year, there should be imposed on the entire income fromthe proceeds of the long-term deposit based on the remaining maturity thereof:Holding Period:

    Exempt

    -Four (4) years to less than five (5) years 5%-Three (3) years to less than four (4) years 12%-Less than three (3) years 20%3. On capital gains presumed to have been realized from the sale, exchange or other disposition of realproperty

    6%

    4. On capital gains for shares of stock not traded in the Stock Exchange

    - Not over P100,000 5%

  • - Any amount in excess of P100,000 10%

    C) For Non-Resident Aliens Not Engaged in Trade or Business

    1. On the gross amount of income derived from all sources within the Philippines 25%2. On capital gains presumed to have been realized from the exchange or other disposition of real propertylocated in the Phils.

    6%

    3. On capital gains for shares of stock not traded in the Stock Exchange - Not Over P100,000 5%- Any amount in excess of P100,000 10%

    D) On the gross income in the Philippines of Aliens Employed by Regional Headquarters (RHQ) or AreaHeadquarters and Regional Operating Headquarters (ROH), Offshore Banking Units (OBUs), PetroleumService Contractor and Subcontractor

    On the gross income in the Philippines of Aliens Employed by Regional Headquarters (RHQ) or AreaHeadquarters and Regional Operating Headquarters (ROH), Offshore Banking Units (OBUs), PetroleumService Contractor and Subcontractor

    15%

    E) General Professional Partnerships

    General Professional Partnerships 0%

    F) Domestic Corporations

    1) a. In General on net taxable income 30% b. Minimum Corporate Income Tax on gross income 2% c. Improperly Accumulated Earnings on improperly accumulated taxableincome

    10%

    2) Proprietary Educational Institution and Non-profit Hospitals 10% - In general (on net taxable income) 10% - If the gross income from unrelated trade, business or other activity exceeds50% of the total gross income from all sources

    30%

    4) GOCC, Agencies & Instrumentalities a. In General - on net taxable income 30% b. Minimum Corporate Income Tax on gross income 2% c. Improperly Accumulated Earnings on improperly accumulated taxableincome

    10%

    5) Taxable Partnerships a. In General on net taxable income 30%

  • b. Minimum Corporate Income Tax on gross income 2% c. Improperly Accumulated Earnings on improperly accumulated taxableincome

    10%

    6) Exempt Corporation a. On Exempt Activities 0% b. On Taxable Activities 30%8) Corporation covered by Special Laws Rate specified under the

    respective special laws

    G) Resident Foreign Corporation

    1) a. In General on net taxable income 30% b. Minimum Corporate Income Tax on gross income 2% c. Improperly Accumulated Earnings on improperly accumulatedtaxable income

    10%

    2) International Carriers on gross Philippine billings 2.50%3) Regional Operating Headquarters on gross income 10%4) Corporation Covered by Special Laws Rate specified under the respective

    special laws5) Offshore Banking Units (OBUs) on gross income 10%6) Foreign Currency Deposit Units (FCDU) on gross income 10%

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    Related Revenue Issuances

    RR No. 4-95, RR No. 4-96, RR No. 5-97, RR No. 1-98, RA 9337, RR 14-2002, RR 12-2007

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    Codal Reference

    Sections 23-59, 67-73 and 74-77 of the National Internal Revenue Code

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    Frequently Asked Questions

    1) What is income?

    Income means all wealth, which flows into the taxpayer other than as a mere return of capital.

    2) What is Taxable Income?

  • Taxable income means the pertinent items of gross income specified in the Tax Code as amended, less thedeductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code orother special laws.

    3) What is Gross Income?

    Gross income means all income derived from whatever source.

    4) What comprises gross income?

    Gross income includes, but is not limited to the following:

    Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages,commissions and similar item

    Gross income derived from the conduct of trade or business or the exercise of profession

    Gains derived from dealings in property

    Interest

    Rents

    Royalties

    Dividends

    Annuities

    Prizes and winnings

    Pensions

    Partner's distributive share from the net income of the general professional partnerships

    5) What are some of the exclusions from gross income?

  • 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, etc.

    Miscellaneous items

    income derived by foreign government

    income derived by the government or its political subdivision

    prizes and awards in sport competition

    prizes and awards which met the conditions set in the Tax Code

    13th month pay and other benefits

    GSIS, SSS, Medicare and other contributions

    gain from the sale of bonds, debentures or other certificate of indebtedness

    gain from redemption of shares in mutual fund

    6) What are the allowable deductions from gross income?

    Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationships where the only deduction provided that the gross family income does not exceed P250,000 perfamily is the premium payment on health and/or hospitalization insurance, a taxpayer may opt to avail any of thefollowing allowable deductions from gross income:

    a)Optional Standard Deduction - an amount not exceeding 40% of the net sales for individuals and gross income forcorporations; or

    b) Itemized Deductions which include the following:

  • Expenses

    Interest

    Taxes

    Losses

    Bad Debts

    Depreciation

    Depletion of Oil and Gas Wells and Mines

    Charitable Contributions and Other Contributions

    Research and Development

    Pension Trusts

    In addition, individuals who are either earning compensation income, engaged in business or deriving income from thepractice of profession are entitled to personal and additional exemptions as follows:

    Personal Exemptions:

    For single individual or married individual judicially decreed as legally separated with no qualifieddependentsP 50,000.00

    For head of familyP 50,000.00

    For each married individual *P 50,000.00

    Note: In case of married individuals where only one of the spouses is deriving gross income, only such spouse will beallowed to claim the personal exemption.

    Additional Exemptions:

    For each qualified dependent, an P25,000 additional exemption can be claimed but only up to 4 qualifieddependents

    The additional exemption can be claimed by the following:

    The husband who is deemed the head of the family unless he explicitly waives his right in favor of hiswife

    The spouse who has custody of the child or children in case of legally separated spouses. Provided, thatthe total amount of additional exemptions that may be claimed by both shall not exceed the maximumadditional exemptions allowed by the Tax Code.

    The individuals considered as Head of the Family supporting a qualified dependent

  • The maximum amount of P 2,400 premium payments on health and/or hospitalization insurance can be claimed if:

    Family gross income yearly should not be more than P 250,000

    For married individuals, the spouse claiming the additional exemptions for the qualified dependents shallbe entitled to this deduction

    7) Who are required to file the Income Tax returns?

    Individuals

    Resident citizens receiving income from sources within or outside the Philippines

    employees deriving purely compensation income from 2 or more employers, concurrently orsuccessively at anytime during the taxable year

    employees deriving purely compensation income regardless of the amount, whether from a single orseveral employers during the calendar year, the income tax of which has not been withheld correctly (i.e.tax due is not equal to the tax withheld) resulting to collectible or refundable return

    self-employed individuals receiving income from the conduct of trade or business and/or practice ofprofession

    individuals deriving mixed income, i.e., compensation income and income from the conduct of trade orbusiness and/or practice of profession

    individuals deriving other non-business, non-professional related income in addition to compensationincome not otherwise subject to a final tax

    individuals receiving purely compensation income from a single employer, although the income of whichhas been correctly withheld, but whose spouse is not entitled to substituted filing

    marginal income earners

    Non-resident citizens receiving income from sources within the Philippines

    Aliens, whether resident or not, receiving income from sources within the Philippines

    Corporations no matter how created or organized including partnerships

    domestic corporations receiving income from sources within and outside the Philippines

    foreign corporations receiving income from sources within the Philippines

    taxable partnerships

  • Estates and trusts engaged in trade or business

    8) Who are not required to file Income Tax returns?

    a. An individual who is a minimum wage earner

    b. An individual whose gross income does not exceed his total personal and additional exemptions

    c. An individual whose compensation income derived from one employer does not exceed P 60,000 and the incometax on which has been correctly withheld

    d. An individual whose income has been subjected to final withholding tax (alien employee as well as Filipinoemployee occupying the same position as that of the alien employee of regional headquarters and regional operatingheadquarters of multinational companies, petroleum service contractors and sub-contractors and offshore-bankingunits, non-resident aliens not engaged in trade or business)

    e. Those who are qualified under substituted filing. However, substituted filing applies only if all of the followingrequirements are present :

    the employee received purely compensation income (regardless of amount) during the taxable year

    the employee received the income from only one employer in the Philippines during the taxable year

    the amount of tax due from the employee at the end of the year equals the amount of tax withheld by theemployer

    the employees spouse also complies with all 3 conditions stated above

    the employer files the annual information return (BIR Form No. 1604-CF)

    the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.

    9) Who are exempt from Income Tax?

    Non-resident citizen who is:

    a) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presenceabroad with a definite intention to reside therein

    b) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as animmigrant or for employment on a permanent basis

    c) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires himto be physically present abroad most of the time during the taxable year

    d) A citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at anytime during the year to reside permanently in the Philippines will likewise be treated as a non-resident citizen duringthe taxable year in which he arrives in the Philippines, with respect to his income derived from sources abroad untilthe date of his arrival in the Philippines.

    Overseas Filipino Worker, including overseas seaman

  • An individual citizen of the Philippines who is working and deriving income from abroad as an overseas Filipino workeris taxable only on income from sources within the Philippines; provided, that a seaman who is a citizen of thePhilippines and who receives compensation for services rendered abroad as a member of the complement of a vesselengaged exclusively in international trade will be treated as an overseas Filipino worker.

    NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the Philippine Embassy/consulateis not treated as a non-resident citizen, hence his income is taxable.

    10) What are the procedures in filing Income Tax returns (ITRs)?

    For with payment ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704)

    File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with the Authorized Agent Bank(AAB) of the place where taxpayer is registered or required to be registered. In places where there are no AABs, thereturn will be filed directly with the Revenue Collection Officer or duly Authorized Treasurer of the city or municipality inwhich such person has his legal residence or principal place of business in the Philippines, or if there is none, filing ofthe return will be at the Office of the Commissioner.

    For no payment ITRs -- refundable, break-even, exempt and no operation/transaction, including returns to bepaid on 2nd installment and returns paid through a Tax Debit Memo(TDM)

    File the return with the concerned Revenue District Office (RDO) where the taxpayer is registered. However, "nopayment" returns filed late shall be accepted by the RDO but instead shall be filed with an Authorized Agent Bank(AAB) or Collection Officer/Deputized Municipal Treasurer (in places where there are no AABs), for payment ofnecessary penalties.

    11) How is Income Tax payable of individuals (resident citizens and non-resident citizens)computed?

    Gross Income P ___________Less: Allowable Deductions (Itemized or Optional) ___________Net Income P ___________Less: Personal & Additional Exemptions ___________Net Taxable Income P ___________Multiply by Tax Rate (5 to 32%) ____________Income Tax Due: Tax withheld (per BIR From 2316/2304) P ___________Income tax payable P____________

    12) How is Income Tax paid?

    Through withholding

  • Generally 10% or 15% if the gross annual business or professional income exceeds P720,000per year

    20% - Fees paid to directors who are not employees and 20% of professional fees paid to non-individuals

    Other withholding tax rates

    Pay the balance as you file the tax return, computed as follows:

    Income Tax Due P ___________Less: Withholding Tax ___________Net Income Tax Due P ___________

    13) Is the Minimum Corporate Income Tax (MCIT) an addition to the regular or normal income tax?

    No, the MCIT is not an additional tax. An MCIT of 2% of the gross income as of the end of taxable year (whethercalendar or fiscal year, depending on the accounting period employed) is imposed on a corporation taxable underTitle II of the Tax Code, as amended, beginning on the 4th taxable year immediately following the taxable year in whichsuch corporation commenced its business operations when the MCIT is greater than the regular income tax. TheMCIT is compared with the regular income tax, which is due from a corporation. If the regular income is higher thanthe MCIT, then the corporation does not pay the MCIT but the amount of the regular income tax.

    Notwithstanding the above provision, however, the computation and the payment of MCIT, shall likewise apply at thetime of filing the quarterly corporate income tax as prescribed under Section 75 and Section 77 of the Tax Code, asamended. Thus, in the computation of the tax due for the taxable quarter, if the computed quarterly MCIT is higherthan that quarterly normal income tax, the tax due to be paid for such taxable quarter at the time of filing the quarterlyincome tax return shall be the MCIT which is two percent (2%) of the gross income as of the end of the taxablequarter. In the payment of said quarterly MCIT, excess MCIT from the previous taxable year/s shall not be allowed tobe credited. Expanded withholding tax, quarterly corporate income tax payments under the normal income tax, andthe MCIT paid in the previous taxable quarter/s are allowed to be applied against the quarterly MCIT due.

    14) Who are covered by MCIT?

    The MCIT covers domestic and resident foreign corporations which are subject to the regular income tax. The termregular income tax refers to the regular income tax rates under the Tax Code. Thus, corporations which are subjectto a special corporate tax system do not fall within the coverage of the MCIT.

    For corporations whose operations or activities are partly covered by the regular income tax and partly covered by thepreferential rate under special law, the MCIT shall apply on operations by the regular income tax rate. Newlyestablished corporations or firms which are on their first 3 years of operations are not covered by the MCIT.

    15) When does a corporation start to be covered by the MCIT?

    A corporation starts to be covered by the MCIT on the 4th year of its business operations. The period of reckoningwhich is the start of its business operations is the year when the corporation was registered with the BIR. This rule will

  • apply regardless of whether the corporation is using the calendar year or fiscal year as its taxable year.

    16) When is the MCIT reported and paid? Is it quarterly?

    The MCIT is paid on an annual basis and quarterly basis. The rules are governed by Revenue Regulations No. 12-2007.

    17) How is MCIT computed?

    The MCIT is 2% of the gross income of the corporation at the end of the year.

    Gross income means gross sales less sales returns, discounts and cost of goods sold. Passive income, which havebeen subject to a final tax at source do not form part of gross income for purposes of the MCIT.

    Cost of goods sold includes all business expenses directly incurred to produce the merchandise to bring them to theirpresent location and use.

    For trading or merchandising concern, cost of goods sold means the invoice cost of goods sold, plus import duties,freight in transporting the goods to the place where the goods are actually sold, including insurance while the goodsare in transit.

    For a manufacturing concern, cost of goods manufactured and sold means all costs of production of finished goodssuch as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and othercosts incurred to bring the raw materials to the factory or warehouse.

    For sale of services, gross income means gross receipts less sales returns, allowances, discounts and cost ofservices which cover all direct costs and expenses necessarily incurred to provide the services required by thecustomers and clients including:

    Salaries and employees benefits of personnel, consultants and specialists directly rendering the service;Cost of facilities directly utilized in providing the service such as depreciation or rental of equipmentused;Cost of supplies

    Interest Expense is not included as part of cost of service, except in the case of banks and other financial institutions.

    Gross Receipts means amounts actually or constructively received during the taxable year. However, for taxpayersemploying the accrual basis of accounting, it means amounts earned as gross income.

    18) What is the carry forward provision under the MCIT?

    Any excess of the MCIT over the normal income tax may be carried forward on an annual basis and be creditedagainst the normal income tax for 3 immediately succeeding taxable years.

    19) How would the MCIT be recorded for accounting purposes?

    Any amount paid as excess minimum corporate income tax should be recorded in the corporations books as an assetunder account title Deferred charges-MCIT

    20) How long can we amend our income tax return?

    There is no prescription period for amending the return. When the taxpayer has been issued a Letter of Authority, hecan no longer amend the return.

  • 21) Can a benefactor of a senior citizen claim him/her as additional dependent in addition to his/her 3 qualifieddependent children at P 25,000 each?

    No, pursuant to Revenue Regulations 2-94, the benefactor of a senior citizen cannot claim the additional exemption.

    22) What is a tax treaty?

    A tax treaty formally known as convention or agreement for the avoidance of double taxation and the prevention offiscal evasion with respect to taxes on income (and on capital) could be defined in terms of its purpose. First, a taxtreaty is intended to promote international trade and investment in several ways, the most important of which is byallocating taxing jurisdiction between the Contracting States so as to eliminate or mitigate double taxation of income. Second, a tax treaty is intended to permit the Contracting States to better enforce their domestic laws so as to reducetax evasion. These purposes are in fact incorporated in the title and the preamble.

    23) What are the effective Philippine tax treaties?

    The Philippines has thirty-seven (37) effective tax treaties. The following tax treaties and their dates of effectivity asas follows:

    Effective Philippine Tax Treaties (as of June 2010)

    Country Date ofEffectivity

    Date and Venue of Signature

    1. Australia January 1, 1980 May 11, 1979, Manila, Philippines2. Austria January 1, 1983 April 4, 1981, Vienna, Austria3. Bahrain January 1, 2004 November 7, 2001, Manila,

    Philippines4. Bangladesh January 1, 2004 September 8, 1997, Manila,

    Philippines5. Belgium January 1, 1981 October 2, 1976, Manila, Philippines6. Brazil January 1, 1992 Sept. 29, 1983, Brasilia, Brazil7. Canada January 1, 1977 March 11, 1976, Manila, Philippines8. China January 1, 2002 November 18, 1999, Beijing, China9. Czech January 1, 2004 November 13, 2000, Manila,

    Philippines10. Denmark (Renegotiated) January 1, 1998 June 30, 1995, Copenhagen,

    Denmark11. Finland January 1, 1982 October 13, 1978, Manila, Philippines12. France January 1, 1978 January 9, 1976, Kingston, Jamaica13. Germany January 1, 1985 July 22, 1983, Manila, Philippines14. Hungary January 1, 1998 June 13, 1997, Budapest, Hungary15. India January 1, 1995 February 12, 1990, Manila,

    Philippines

  • 16. Indonesia January 1, 1983 June 18, 1981, Manila, Philippines17. Israel January 1, 1997 June 9, 1992, Manila, Philippines18. Italy January 1, 1990 December 5, 1980, Rome, Italy19. Japan January 1, 1981 February 13, 1980, Tokyo, Japan20. Korea January 1, 1987 February 21, 1984, Seoul, Korea21. Malaysia January 1, 1985 April 27, 1982, Manila, Philippines22. Netherlands January 1, 1992 March 9, 1989, Manila, Philippines23. New Zealand January 1, 1981 April 29, 1980, Manila, Philippines24. Norway January 1, 1998 July 9, 1987, Manila, Philippines25. Pakistan January 1, 1979 February 22, 1980, Manila,

    Philippines26. Poland January 1, 1998 September 9, 1992, Manila,

    Philippines27. Romania January 1, 1998 May 18, 1994, Bucharest, Romania28. Russia January 1, 1998 April 26, 1995, Manila, Philippines29. Singapore January 1, 1977 August 1, 1977, Manila, Philippines30. Spain January 1, 1994 March 14, 1989, Manila, Philippines31. Sweden (Renegotiated) January 1, 2004 June 24, 1998, Manila, Philippines32. Switzerland January 1, 2002 June 24, 1998, Manila, Philippines33. Thailand January 1, 1983 July 14, 1982, Manila, Philippines34. United Arab Emirates January 1, 2009 September 21, 2003, Dubai, UAE35. United Kingdom of Great Britain and NorthernIreland

    January 1, 1979 June 10, 1976, London, UnitedKingdom

    36. United States of America January 1, 1983 October 1, 1976, Manila, Philippines37. Vietnam January 1, 2004 November 14, 2001, Manila,

    Philippines

    24) What office can we inquire about the said tax treaties?

    The International Tax Affairs Division (ITAD).

    25) What taxes are covered by Philippine tax treaties?

    Income taxes imposed by the domestic laws of the Contracting States, including substantially similar taxes that maybe imposed later, in addition to, or in place, are covered by the tax treaties. In the Philippines, this is generally limitedto Title II (Tax on Income) of the National Internal Revenue Code of 1997, as amended.

    26) How is business income treated under our tax treaties?

  • The business profits of a resident of a Contracting State shall not be taxable in the Philippines unless that enterprise ofa resident of a Contracting State carries on business in the Philippines through a permanent establishment.

    27) What is the concept of permanent establishment (PE) as used in tax treaties?

    PE is defined as a fixed place of business through which the business of the enterprise is wholly or partly carried on. The concept of permanent establishment is used to determine the rights of a Contracting State to tax the businessprofits of enterprises of the other Contracting State. Under this concept, profits of an enterprise of a Contracting Stateare not taxable by the other Contracting State, unless the enterprise carries on business through a permanentestablishment situated in the other Contracting State.

    A list of places, circumstances, and activities which constitute a permanent establishment is provided under thedifferent tax treaties which the Philippines has with other countries.

    28) What is the Most-Favored-Nation clause (MFN)?

    The appearance of the MFN clause in the tax treaty means that a Contracting State will grant to a resident of the otherContracting State the same lower rate of tax or exemption the former has granted to a resident of a third State.

    29) What is the tax treatment on immovable property?

    Income from an immovable property is taxable in the Contracting State where the property is situated. This term isgenerally defined under the domestic laws of the Contracting States. However, this is further defined in the taxtreaties.

    30) How are capital gains taxed under our tax treaties?

    Gains from the alienation of immovable property or movable property forming part of the business property of apermanent establishment or pertaining to a fixed base are taxed in the Philippines if the immovable property orpermanent establishment or fixed base is located here.

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    Income Tax - Bureau of Internal Revenue