INCOME and INCOME TAXES
Income – in broad sense, means ALL WEALTH, which flows into the tax payer other than a mere return
of capital.
- it is the return in money from one’s business, labor, or capital invested (gains, profits, salary
and wages).
- it is a flow of the fruits of one’s labor.
Income Tax – is a tax on all yearly profits arising from property, profession, trade or business, or is a tax
on a person’s income, emoluments, profits and the like.
Classification of Individual Income Taxpayers:
1. Citizen
a. Resident b. Non-resident
2. Alien
a. Resident b. Non-resident
Resident citizen – is a Filipino citizen who permanently resides in the Philippines.
Non-resident citizen ↓
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.
This means a Filipino citizen who is outside the Philippines and with the intention of being a permanent
resident of that country (foreign countries).
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.
This means a Filipino citizen who left Philippines within a certain year to be a resident of one foreign
country. He or she goes abroad for the purpose of work or as a permanent settler.
c. A citizen of the Philippines who works and derives income from abroad and whose employment
requires him to be physically present abroad most of the time during taxable year.
A Filipino citizen who is working or earning an income outside the Philippines and in every year, he or
she is most of the time stays there in the foreign country.
d. A citizen who has been previously considered as non-resident citizen and who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be
treated as a non-resident citizen for 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.
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, A Filipino citizen who was previously a non-resident and derived his/her income from abroad and then
arrived in the Philippines anytime in a year though his/her intention is to live in the Philippines
permanently. But this Filipino will just be considered a non-resident within that year of his/her arrival in
the Philippines only (the following years after that where this Filipino will be considered as resident
citizen already).
e. The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines
to reside permanently abroad or to return to and reside in the Philippines, as the case may be.
This is for the two cases: 1. A Filipino who applied of his intention to live or reside permanently in a
foreign country. 2. A Filipino from abroad who applied of his intention to live or reside permanently in
the Philippines.
Resident Alien – an individual whose residence is within the Philippines and who is not a citizen thereof.
This means a foreign individual who lives in the Philippines but not yet a Filipino citizen.
Non-resident Alien – an individual whose residence is not within the Philippines and not a citizen
thereof.
This means both foreigner and not a Filipino citizen. One example of this is a tourist.
VALUE-ADDED TAX on SALE of GOODS or PROPERTIES
Value-added tax – is a form of sales tax.
- it is a tax on consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on importation of goods into the
Philippines. This means VAT is imposed on every sale of goods or properties or services
inside the Philippines. Imported goods are also subject to VAT.
- it is an indirect tax which may be shifted or passed on to the buyer, transferee or
lessee of goods, properties or services. Why said to be an indirect tax? This is because
the merchant selling goods is the one paying VAT to the government but the one who is
actually paying or shouldering it is the customer who buys goods from a merchant.
“Goods or Properties” include: Below are being charge of VAT.
a. Real properties held primarily for sale to customers or for lease; Example of these are buildings
or house and lot acquired intended for Sale or for Rent to earn an income.
b. The right or privilege to use intangible assets; Example of this is the right to use a “patent” or
“copyright” which are example of an intangible assets.
c. The right or privilege to use in the Philippines of any industrial, commercial or scientific
equipment; Example of this is when you use equipment from a laboratory to conduct
experiments for certain project or purpose you have to pay VAT.
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Income – in broad sense, means ALL WEALTH, which flows into the tax payer other than a mere return
of capital.
- it is the return in money from one’s business, labor, or capital invested (gains, profits, salary
and wages).
- it is a flow of the fruits of one’s labor.
Income Tax – is a tax on all yearly profits arising from property, profession, trade or business, or is a tax
on a person’s income, emoluments, profits and the like.
Classification of Individual Income Taxpayers:
1. Citizen
a. Resident b. Non-resident
2. Alien
a. Resident b. Non-resident
Resident citizen – is a Filipino citizen who permanently resides in the Philippines.
Non-resident citizen ↓
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.
This means a Filipino citizen who is outside the Philippines and with the intention of being a permanent
resident of that country (foreign countries).
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.
This means a Filipino citizen who left Philippines within a certain year to be a resident of one foreign
country. He or she goes abroad for the purpose of work or as a permanent settler.
c. A citizen of the Philippines who works and derives income from abroad and whose employment
requires him to be physically present abroad most of the time during taxable year.
A Filipino citizen who is working or earning an income outside the Philippines and in every year, he or
she is most of the time stays there in the foreign country.
d. A citizen who has been previously considered as non-resident citizen and who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be
treated as a non-resident citizen for 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.
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, A Filipino citizen who was previously a non-resident and derived his/her income from abroad and then
arrived in the Philippines anytime in a year though his/her intention is to live in the Philippines
permanently. But this Filipino will just be considered a non-resident within that year of his/her arrival in
the Philippines only (the following years after that where this Filipino will be considered as resident
citizen already).
e. The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines
to reside permanently abroad or to return to and reside in the Philippines, as the case may be.
This is for the two cases: 1. A Filipino who applied of his intention to live or reside permanently in a
foreign country. 2. A Filipino from abroad who applied of his intention to live or reside permanently in
the Philippines.
Resident Alien – an individual whose residence is within the Philippines and who is not a citizen thereof.
This means a foreign individual who lives in the Philippines but not yet a Filipino citizen.
Non-resident Alien – an individual whose residence is not within the Philippines and not a citizen
thereof.
This means both foreigner and not a Filipino citizen. One example of this is a tourist.
VALUE-ADDED TAX on SALE of GOODS or PROPERTIES
Value-added tax – is a form of sales tax.
- it is a tax on consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on importation of goods into the
Philippines. This means VAT is imposed on every sale of goods or properties or services
inside the Philippines. Imported goods are also subject to VAT.
- it is an indirect tax which may be shifted or passed on to the buyer, transferee or
lessee of goods, properties or services. Why said to be an indirect tax? This is because
the merchant selling goods is the one paying VAT to the government but the one who is
actually paying or shouldering it is the customer who buys goods from a merchant.
“Goods or Properties” include: Below are being charge of VAT.
a. Real properties held primarily for sale to customers or for lease; Example of these are buildings
or house and lot acquired intended for Sale or for Rent to earn an income.
b. The right or privilege to use intangible assets; Example of this is the right to use a “patent” or
“copyright” which are example of an intangible assets.
c. The right or privilege to use in the Philippines of any industrial, commercial or scientific
equipment; Example of this is when you use equipment from a laboratory to conduct
experiments for certain project or purpose you have to pay VAT.
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