tax2

Description

Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code), as amended, 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.

Who Are Required To File Income Tax Returns

Individuals

Resident citizens receiving income from sources within or outside the Philippines o employees deriving purely compensation income from 2 or more employers,

concurrently or successively at anytime during the taxable year o employees deriving purely compensation income regardless of the amount, whether

from a single or several 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

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

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

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

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

o 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 general professional

partnerships Domestic corporations receiving income from sources within and outside the

Philippines Foreign corporations receiving income from sources within the Philippines Estates and trusts engaged in trade or business

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 Husband’s 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:

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

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

o Receive your copy of the duly stamped and validated form from the teller of the

AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

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

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

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

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

Annual Income Tax 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 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those With Both Business and Compensation Income)


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 Husband’s right to claim additional exemption, 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 the gross quarterly sales, earnings, receipts or output exceed P 150,000.00

9. Proof of prior year’s excess tax credits, if applicable

Procedures

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



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

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

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

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


DeadlineFinal Adjustment Return or Annual Income Tax Return - On or before the 15th day of April of each year covering income for the preceding year

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 those with Mixed Income, i.e., Compensation Income and Income from Business and/or Practice of Profession) and Estates and Trusts (Engaged in Trade or Business)

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


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 the preceding year

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


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


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

Procedures

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


o 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.

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

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

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

carry over and returns qualified for second installment:

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


Deadlines April 15 – for the first quarter August 15 – for the second quarter November 15 – for the third quarter

Annual Income Tax For Corporations And Partnerships

Tax Form

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


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



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, if the gross quarterly sales, earnings, receipts or output exceed P150,000.00

7. Proof of prior year’s excess tax credits, if applicable

Procedures




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


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

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

o 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 the close of the taxpayer’s taxable year

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 gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listing income-producing properties and the corresponding income therefrom, and other relevant statements duly certified by an independent CPA.


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 taxpayer’s taxable year

Quarterly Income Tax For Corporations And Partnerships

Tax Form

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


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


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

Procedures

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


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

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


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

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

o 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 of each of the quarters of the taxable year

Improperly Accumulated Earnings Tax For Corporations

Tax Form

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


1. Photocopy of Annual Income Tax Return (BIR Form 1702) with Audited Financial Statements and/or Account Information 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




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


3. If there is no payment:

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

o 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

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 under Section 32 (B) of this Title, setting forth the items of gross income and of deductions allowed by this Title, and the names, Taxpayer Identification Numbers (TIN), addresses and shares of each of the partners.

Tax Rate

For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession

Amount of Net Taxable Income Rate

Over 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




P500,000 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 first installment to be paid at the time the return is filed and the second installment 15 of the same year at on or before July the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.

Tax Rate Taxable Base

1. Domestic Corporations:

a. In General 30% (effective Jan. 1, 2009) Net taxable income from all sources

b. Minimum Corporate Income Tax* 2% Gross Income

c. Improperly Accumulated Earnings 10% Improperly Accumulated Taxable Income

2. Proprietary Educational Institution 10%

Net taxable income provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income

3. Non-stock, Non-profit Hospitals 10%

Net taxable income provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income

4. GOCC, Agencies & Instrumentalities

a. In General 32% Net taxable income from all sources



5. National Gov't. & LGUs




6. Taxable Partnerships




7. Exempt Corporation

a. On Exempt Activities 0%

b. On Taxable Activities 32% Net taxable income from all sources

8. General Professional Partnerships 0%

9. Corporation covered by Special Laws

Rate specified under the respective special laws

10. International Carriers 2.5% Gross Philippine Billings

11. Regional Operating Head 10% Taxable Income

12. Offshore Banking Units (OBUs) 10% Gross Taxable Income On Foreign Currency Transaction

32% On Taxable Income other than Foreign Currency Transaction

13. Foreign Currency Deposit Units (FCDU) 10% Gross Taxable Income On Foreign

Currency Transaction

32% On Taxable Income other than Foreign Currency Transaction

*Beginning on the 4th year immediately following the year in which such corporation commenced its business operations, 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%

Holding Period

- 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%

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 real property (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%

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

1. On Certain Passive Income* 20%

2. Interest Income from long time deposits

Holding Period

-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 real property 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 property located in the Phils. 6%

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

15%

E) 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 taxable income 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 exceeds 50% of the total gross income from all sources 30%

4) GOCC, Agencies & Instrumentalities

a. In General - on net taxable income 30%



5) Taxable Partnerships

a. In General – on net taxable income 30%



6) Exempt Corporation

a. On Exempt Activities 0%

b. On Taxable Activities 32%

8) Corporation covered by Special Laws


G) Resident Foreign Corporation

1)a. In General – on net taxable income 30%



2) International Carriers – on gross Philippine billings 25%

3) Regional Operating Headquarters on gross income 10%

4) Corporation Covered by Special Laws


5) Offshore Banking Units (OBUs) on gross income 10%

6) Foreign Currency Deposit Units (FCDU) on gross income 10%

Related Revenue Issuances

RR No. 4-95, RR No. 4-96, RR No. 5-97, RR No. 1-98

Codal Reference

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

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 the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other 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 per family is the premium payment on health and/or hospitalization insurance, a taxpayer may opt to avail any of the following allowable deductions from gross income:

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

income for corporations; or

b) Itemized Deductions which include the following:

o Expenses o Interest o Taxes o Losses o Bad Debts o Depreciation o Depletion of Oil and Gas Wells and Mines o Charitable Contributions and Other Contributions o Research and Development o Pension Trusts

In addition, individuals who are either earning compensation income, engaged in business or deriving income from the practice 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 qualified dependents………………………………………P 50,000.00For head of family……………………………P 50,000.00For each married individual *…………P 50,000.00Note: In case of married individuals where only one of the spouses is deriving gross income, only such spouse will be allowed to claim the personal exemption. Additional Exemptions:

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

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 his wife

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

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

o employees deriving purely compensation income regardless of the amount, whether from a single or several 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

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

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

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

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

o 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 o domestic corporations receiving income from sources within and outside the

Philippines

o foreign corporations receiving income from sources within the Philippines o 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 income tax on which has been correctly withheld

d. An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies, petroleum service contractors and sub-

contractors and offshore-banking units, 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

following requirements are present :

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

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

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

o the employee’s spouse also complies with all 3 conditions stated above o the employer files the annual information return (BIR Form No. 1604-CF) o 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 presence abroad 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 an immigrant 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 him to 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 any time during the year to reside permanently in the Philippines will likewise be treated as a non-resident citizen during 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 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 worker is taxable only on income from sources within the Philippines; provided, that a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged 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/consulate is 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, the return will be filed directly with the Revenue Collection Officer or duly Authorized Treasurer of the city or municipality in which such person has his legal residence or principal place of business in the Philippines, or if there is none, filing of the return will be at the Office of the Commissioner.

For “no payment” ITRs -- refundable, break-even, exempt and no operation/transaction,

including returns to be paid 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, "no payment" 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 of necessary 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

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

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

o 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 (whether calendar or fiscal year, depending on the accounting period employed) is imposed on a corporation taxable under Title II of the Tax Code, as amended, beginning on the 4th taxable year immediately following the taxable year in which such corporation commenced its business operations when the MCIT is greater than the regular income tax. The MCIT is compared with the regular income tax, which is due from a corporation. If the regular income is higher than the MCIT, then the corporation does not pay the MCIT but the amount of the regular income tax. 14) Who are covered by MCIT? The MCIT covers domestic and resident foreign corporations which are subject to the regular income tax. The term “regular income tax” refers to the regular income tax rates under the Tax Code. Thus, corporations which are subject to 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 the preferential rate under special law, the MCIT shall apply on operations by the regular income tax rate. Newly established 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 reckoning which 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 have been 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 their present 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 goods are in transit.For a manufacturing concern, cost of goods manufactured and sold means all costs of production of finished goods such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs 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 of services which cover all direct costs and expenses necessarily incurred to provide the services required by the customers 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 equipment used;

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 taxpayers employing 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 credited against 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 corporation’s books as an asset under 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, he can 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 qualified dependent 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 of fiscal evasion with respect to taxes on income (and on capital) could be defined in terms of its purpose. First, a tax treaty is intended to promote international trade and investment in several ways, the most important of which is by allocating 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 reduce tax 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 as as follows:

Effective Philippine Tax Treaties (as of June 2010)

Country Date of Effectivity Date and Venue of Signature

1. Australia January 1, 1980 May 11, 1979, Manila, Philippines

2. Austria January 1, 1983 April 4, 1981, Vienna, Austria

3. Bahrain January 1, 2004 November 7, 2001, Manila, Philippines

4. Bangladesh January 1, 2004 September 8, 1997, Manila, Philippines

5. Belgium January 1, 1981 October 2, 1976, Manila, Philippines

6. Brazil January 1, 1992 Sept. 29, 1983, Brasilia, Brazil

7. Canada January 1, 1977 March 11, 1976, Manila, Philippines

8. China January 1, 2002 November 18, 1999, Beijing, China

9. Czech January 1, 2004 November 13, 2000, Manila, Philippines

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

11. Finland January 1, 1982 October 13, 1978, Manila, Philippines

12. France January 1, 1978 January 9, 1976, Kingston, Jamaica

13. Germany January 1, 1985 July 22, 1983, Manila, Philippines

14. Hungary January 1, 1998 June 13, 1997, Budapest, Hungary

15. India January 1, 1995 February 12, 1990, Manila, Philippines

16. Indonesia January 1, 1983 June 18, 1981, Manila, Philippines

17. Israel January 1, 1997 June 9, 1992, Manila, Philippines

18. Italy January 1, 1990 December 5, 1980, Rome, Italy

19. Japan January 1, 1981 February 13, 1980, Tokyo, Japan

20. Korea January 1, 1987 February 21, 1984, Seoul, Korea

21. Malaysia January 1, 1985 April 27, 1982, Manila, Philippines

22. Netherlands January 1, 1992 March 9, 1989, Manila, Philippines

23. New Zealand January 1, 1981 April 29, 1980, Manila, Philippines

24. Norway January 1, 1998 July 9, 1987, Manila, Philippines

25. Pakistan January 1, 1979 February 22, 1980, Manila, Philippines

26. Poland January 1, 1998 September 9, 1992, Manila, Philippines

27. Romania January 1, 1998 May 18, 1994, Bucharest, Romania

28. Russia January 1, 1998 April 26, 1995, Manila, Philippines

29. Singapore January 1, 1977 August 1, 1977, Manila, Philippines

30. Spain January 1, 1994 March 14, 1989, Manila, Philippines

31. Sweden (Renegotiated) January 1, 2004 June 24, 1998, Manila, Philippines

32. Switzerland January 1, 2002 June 24, 1998, Manila, Philippines

33. Thailand January 1, 1983 July 14, 1982, Manila, Philippines

34. United Arab Emirates January 1, 2009 September 21, 2003, Dubai, UAE

35. United Kingdom of Great Britain and Northern Ireland

January 1, 1979 June 10, 1976, London, United Kingdom

36. United States of America January 1, 1983 October 1, 1976, Manila, Philippines

37. 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 b Philippine tax treaties?

Income taxes imposed by the domestic laws of the Contracting States, including substantially similar taxes that may be imposed later, in addition to, or in place, are covered by the tax treaties. In the Philippines, this is generally limited to 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 of a 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 business profits of enterprises of the other Contracting State. Under this concept, profits of an enterprise of a Contracting State are not taxable by the other Contracting State, unless the enterprise carries on business through a permanent establishment situated in the other Contracting State.

A list of places, circumstances, and activities which constitute a permanent establishment is provided under the different 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 other Contracting 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 is generally defined under the domestic laws of the Contracting States. However, this is further defined in the tax treaties.

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 a permanent establishment or pertaining to a fixed base are taxed in the Philippines if the immovable property or permanent establishment or fixed base is located here.

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Philippines Tax Computation Sunday, June 28, 20092009 Philippines Tax Computation

Tax Relief Program Exempts minimum wage earners in the private sector and their

counterparts(casual employees) in the public sector from paying income tax.[Republic Act No. 9504]

Personal exemptions up.

Status OLD Tax Law NEW Tax Law

Single P20,000 P50,000

Head of The Family P25,000 P50,000

Married P32,000 P50,000

Additional Deduction for Every Qualified Dependents

P8,000 P25,000

For instance, a family of one working spouse with 3 qualified dependents will have a total

of P125,000.00 in personal exemptions. (from the OLD P 56,000.00)

The law classify a DEPENDENT as a “legitimate, illegitimate or legally adopted child” living with the taxpayer and not more than 21 years old, unmarried and not employed.

New Tax Table For January 2009

http://philippinestaxcomputation.blogspot.com/2009/06/2009-philippines-tax-computation.html

Posted by sports-broadcaster at 11:48 PM 38 comments Tax Computation in the Philippines

1. The first step is you should answer the following questions below: What is Your Status? (Single or Married?) Do You Have Any Dependent? How Many? How much is your Monthly Basic Pay(salary)?(This does not include your overtime

pay/monetary value of your late/tardiness,holiday pay, but includes the monthly allowance that you received.)

2. How much is your SSS,Philhealth,and HDMF (Pag-Ibig) monthly contributions?

Before starting,it is very important first to have a calculator with you.

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Simple Calculator

With your Monthly Basic Pay(Salary) you can immediately know your contributions.Just refer to this table below:

For SSS:

Suppose your monthly basic pay(salary) is P11,000.00 then by looking at the table above(under the column of Range of Compensation) just find the range of compensation that includes P11,000.00 and simply move your eyes horizontally and look for your corresponding SSS Contribution(under the main column Social Security and sub-column EE or Employee Contribution).So what did you see? P366.70 right?.

Now just try it on your own,suppose your monthly basic pay(salary)is P14,000.00 what is your SSS Contribution? Answer:P466.70

http://www.math.com/students/calculators/source/basic.htm

Since you already know how to look for your SSS Contribution it is time for you now to know how much is your employer's contribution counterpart.Again, find the Range of Compensation where you belong,move your eyes horizontally, and just look under the main column Social Security and sub-column ER or Employer Contribution.

Suppose you have a P11,000 monthly basic pay (salary) then the ER or Employer Contribution would be P777.30 and your total monthly contribution that debit in the SSS is P1,144 (P777.30 +P366.70).

If your monthly basic pay (salary) is P14,000, what is your employer contribution?your total contribution? Answer: ER= P989.30 ; TC= P1456.00

For Philhealth:

Illustration:

For instance you have a monthly basic pay (salary) of P11,000, then your Philhealth Monthly Contribution would be P137.50. How did I get this figure?It is simple,just look for the column under Monthly Salary Range and find for the interval where your salary belongs. After that, move your eyes horizontally(to the right) and find for the corresponding Philhealth Monthly Contribution under the Employee's Share Column.Got that???It is easy right?Now, take your try.

Example my gross basic pay (salary) is P14,000.00,how much is my Philhealth Monthly Contribution? Answer:P175.00

Aside from this it is also better and wise to know your employer's contribution counterpart .Again, going back to the Philhealth Table above just look for the column under Employer's Share that corresponds to your monthly gross income.If your monthly gross income is P11ooo.00 then your Employer's Share is P137.50 and the total amount that debit in your Philhealth Contribution is P275.00 (Employee's Share + Employer's Share).

For HDMF/Pag-Ibig Contribution:

Illustration:

If your Monthly Basic Pay (Salary) is P11,000 then your HDMF Contribution is P11,000.00 X .02 = P220 and your Employer's Counterpart is P11,000.00 X .02 = P220 . This computation is so easy.After you know where your Gross Monthly Salary Range belong just multiply it by the MULTIPLIER that corresponds to your monthly basic pay (salary) .The total monthly contribution that debit in your HDMF Contribution is P440.00 monthly.

Note: You can also demand to your Finance Officer or Human Resource Officer if you want to increase your HDMF Monthly Contribution.Why should you do that?These are the reasons:

If you want to avail a housing loan. (The bigger contribution you have the bigger the money later on that you can loan for your housing loan.

To reduced your monthly withholding tax. Even the difference is minimal still it is an advantage to your part.Why let the government get your money and can't even avail the priviledges.It is better to invest your money in HDMF than letting it see in the "trust" fund of our government.NOTE: If you increase your HDMF Contribution you will reduce the tax that the government get from you and at the same time you are investing it to have a better house that you will own someday.

3. Are you receiving other allowances like laundry allowance,transportation allowances ,rice allowances,etc.? If yes how much?

You need this later on when you compute your withholding tax because these are not taxable. Failure to note this may result to erroneous result of computation.

4.What is TAXABLE INCOME?

Taxable income is the portion of income that is the subject of taxation.

In the Philippines our taxable income is determined by this formula:

Taxable Income = [Gross (Basic)Monthly Income+ Overtime Pay+Holiday Pay+Night Differential] - (minus) [Tardiness Deduction+Allowances+SSS Contribution+Philhealth Contribution,HDMF Contribution]

Note: I did not include and subtract the amount of personal exemptions(exemptions due to your status like:Head of the Family,Single,Married etc.) since your corresponding personal exemptions can be see later on in the tax table and your personal exemption is included already in the formula for computing the tax.You will understand it clearly later on when I introduce the general formula of withholding tax computation.

5.Factors you need to consider when solving your withholding tax (Applicable for Old Tax Ruling).

Factors that increases your tax: Overtime Pay Holiday Pay Night Differential

Factors that decreases your tax: Late/Tardiness Allowances SSS Contribution Philhealth Contribution HDMF Contribution Personal Exemptions (ex. single, head of the family, head of the family with

qualified dependents,etc)

6.You must have a copy of BIR Tax Table

New Tax Table For January 2009

7. Knowing the General Formula of Withholding Tax ,Knowing the Parts and to Use the Tax Table, and Computing Your Withholding Tax

General Formula:

Withholding Tax = ( ([Taxable Income] - [Bracket or Exemption] ) x [%over] ) + [Bracket Tax or Base Tax]

Where as Taxable Income=[Gross (Basic)Monthly Income+ Overtime Pay+Holiday Pay+Night Differential] - (minus) [Tardiness Deduction+Allowances+SSS Contribution+Philhealth Contribution,HDMF Contribution]

Note: Before Solving For your Withholding Tax, find your Taxable Income first and simply substitute the value in Withholding Tax Formula.

Parts of Tax Table Bracket or Exemption %over

Bracket Tax or Base Tax

Illustration:

Assuming your tax is computed in a monthly basis and you already computed your TAXABLE INCOME (not your gross income) totaling to P8,558 and you are Single then:

Corresponding Bracket or Exemption:P6,667.00 Corresponding %over: 15% or.15 Corresponding Bracket Tax or Base Tax: P208.33

Question: Why did I use the amount P6,667.00 as the Bracket or Exemption for the taxable income of P8,558? Why not P5,000 with a %over of 10% or P4,167 with a %over of 5%?Do you know why?

Answer: Of course there is a way on finding your corresponding Bracket or Exemption and %over given your Taxable Income but I will not introduce it here since it is a long process that requires your arithmetic skills.I am just considerate for those who are poor in Math. Anyway, I will still share my precious trick that I am sure you will all understand it in an easy and direct way. I am 100% sure of this number trick since I already tested it a thousand times.It is better to understand it if I will show a series of examples. Here are they:

When finding for the corresponding Bracket or Exemption and %over just look: 1. The row of your STATUS(ex. Single,Head of the Family,Married,and etc.)on the

table. 2. Then look for the greatest number that is less than to your Taxable

Income(within the row of your STATUS).This is now your bracket or exemption.

3. After you found it,move your eyes vertically upward (on the tax table)and look for your corresponding % over and Bracket Tax or Base Tax.

Example 1:

Given:

Assuming Withholding Tax Computed Monthly Taxable Income: P8558.00 Status: Single(S)

Answer:

Corresponding Bracket or Exemption:P6,667.00 Corresponding %over: 15% or.15 Corresponding Bracket Tax or Base Tax: P208.33

Computing Your Withholding Tax:

Withholding Tax = ( ([Taxable Income] - [Bracket or Exemption] ) x [%over] ) + [Bracket Tax or Base Tax]

Withholding Tax =P491.98

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