1. INCOME TAXATION

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

3. Requisites for income to be taxable:
Gain or addition to net worth
Complete dominion
Not be excluded by law or treaty

4. What is Income Tax?
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.

5. Types of Income: Compensation income Business income
GENERAL (Part of GI, subject to 5%-32%)
SPECIAL (not part, subject to final tax)
Compensation income
Business income
Income from profession
Interests, royalties, prizes and other winnings subject to final tax (Passive income)
Cash and property dividends, except stock dividends (Passive Income)
Capital gains from sale of:
Real property;
Unlisted shares of stock; and
Listed shares of stock (OPT)

6. Sources of Income: Item Source compensation Place of performance
Interest
Residence of debtor
Rent , royalty, gain from sale of real property
Location of property
Gain from sale of personal property
Place of sale
Gain from sale of shares of stock:
Domestic corporation
Foreign corporation
From within the Philippines
From within/without the Philippines
Dividend income from:

7. TAXPAYER
TAX BASE
TAXABLE ON INCOME
RC,DC
Taxable Income
Within/without the Philippines
RA, NRC, NRA-ETB, RFC
Within the Philippines
GPP, ET
It depends on IT.
NRA-NETB, NFC
Gross Income

8. CLASSIFICATION OF TAXPAYERS:
Individuals
citizens
aliens
resident citizens (RC)
non-resident citizens (NRC)
OCW*
resident aliens (RA)
non-resident aliens - engaged in trade or business within the Phils. (NRAETB)
non-resident aliens – not engaged in trade or business within the Phils. (NRANETB)

9. CLASSIFICATION OF TAXPAYERS:
Corporations
Estates
Trusts
Domestic (DC)
Foreign:
resident foreign corporation (RFC)
non-resident foreign corporation (NRFC)

10. TYPES OF TAXPAYERS INDIVIDUALS Resident Citizen/Alien
Nonresident Citizen
Nonresident Alien
Establishes physical presence abroad and intention to reside therein.
Leaves Philippines during the taxable year to reside abroad, as immigrant or for permanent employment.
Works and derives income from abroad and whose employment requires physical presence abroad (not less than 183 days).
Previously considered as nonresident and arrives during the taxable year to become a permanent resident.
Engaged or not in trade and business in the Philippine (stay is more /less than 180 days during the taxable year).
Aliens employed by offshore banking units and petroleum contractor/subcontractor.
Aliens employed by regional/area headquarters and regional operating headquarters of multinational companies.

11. TYPES OF TAXPAYERS CORPORATION Included: Not included: Partnerships;
Joint stock companies;
Joint accounts;
Associations;
Insurance companies
General professional partnership;
Joint venture or consortium undertaking construction or energy operation under a service contract with the government

12. TYPES OF TAXPAYERS ESTATE TRUST
Property, rights, and obligations of a person which are not extinguished by his death and those that accrues thereto;
Taxed in the same way as an individual provided it is irrevocable and earns income; and
What is taxed is the income not the property.
Arrangement created by agreement under which title to property is passed to another for conservation or investment with the income and the corpus/principal distributed in accordance with the directions of the creator; and
To be taxable as a separate entity, grantor must have absolute and irrevocable given up control and benefit over the trust.

13. INCOME TAXATION UNDER NIRC:
Net Income Tax/Taxable Income:
GI – Deductions - Exemptions
Gross Income Tax:
All income from whatever source.
Final Income Tax
On passive income and capital gains
Fringe benefit tax:
Benefits to managerial and supervisory employee; Ee is taxed but burden is on Er

14. INCOME TAXATION UNDER NIRC:
Capital Gains Tax:
Real property and stocks not traded in stock market
Optional Corporate Income Tax
Minimum Corporate Income Tax: 2% of GI
Improperly Accumulated Earnings Tax
Branch Profit Remittance Tax
Preferential Rates: for special corporations

15. Who are required to file the ITRs?
As for Individuals
Resident citizens receiving income within/outside
employees deriving purely compensation income:
from 2 or more employers, concurrently or successively at anytime during the taxable year
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/refundable return
individuals deriving:
mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession
other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax
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
self-employed individuals receiving income from the conduct of trade or business and/or practice of profession
marginal income earners

16. Who are required to file the ITRs?
As for Individuals
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 within/outside the Philippines
foreign corporations receiving income from within the Philippines
taxable partnerships
Estates and trusts engaged in trade or business

17. Who are NOT required to file the ITRs?
minimum wage earner
individual whose GI do not exceed his total personal and addt’l exemptions
individual whose compensation derived from one employer do not exceed P 60,000 and the income tax has been correctly withheld
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)

18. Who are NOT required to file the ITRs?
are qualified under “substituted filing”. However, it applies only if all of the following requirements 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 the employer
the employee’s spouse also complies with all 3 conditions stated above
the employer files the annual information return (BIR Form No CF)
the employer issues BIR Form No (Oct 2002 ENCS version ) to each employee.

19. Who are exempt from Income Tax?
a. Non-resident citizen who:
establishes to the satisfaction of the Commissioner his physical presence abroad with a definite intention to reside therein;
leaves the Philippines during the taxable year to permanently reside abroad, either as an immigrant or for employment;
works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the taxable year;
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 .

20. Who are exempt from Income Tax?
b. Overseas Filipino Worker, including overseas seaman who is working and deriving income from abroad as an OFW 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 OFW. 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.

21. What is Gross Income?
Gross income means all income derived from whatever source.

22. What comprises Gross Income?
GI includes, but is not limited to the following:
Compensation for services, in whatever form paid, including not limited to fees, salaries, wages, commissions, etc.
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

23. What are exclusions from GI?
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 the government or foreign government
prizes and awards in sport competition/ met conditions of 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/redemption of shares in mutual fund

24. Gross Income Formula: Sale of Goods: Sale of Services: Gross Sales XXX
Less: Sales Discounts (XXX)
Sales Returns and Allowances (XXX)
Net Sales XXX
Less: Cost of Goods Sold** (XXX)
Gross Income XXX
Cost of Goods Sold**
Trading/Merchandising concern:
Manufacturing concern:
Invoice cost
Import duties
Freight-In
Insurance while in transit
Raw materials
Direct labor
Manufacturing overhead
Freight-in
Insurance
Other costs to bring RM to the factory

25. Who are entitled to Exemptions?
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, each married individual or judicially decreed as legally separated with no qualified dependents………………………P 50, Additional Exemptions: For each qualified dependent, a P25,000 additional exemption can be claimed but only up to 4 qualified dependents

26. Who can claim additional exemption?
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

27. Family gross income yearly should not be more than P 250,000
Who can claim deduction for the maximum P2,400 on health and/or hospitalization insurance?
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

28. 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.

29. 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.

30. Computation of Taxable Income:
Purely compensatory income
Business income
Gross Compensation
Less: Health/Hospital premium payments (P2400 maximum per year)
Exemptions-personal and addtl.
Taxable Income
Gross Revenue/Sales
Less: Cost of Sales
Gross Income
Less: Allowable Deductions
**Exemptions-personal and addtl.
** for individuals