Chapter I
INCOME TAXES1
A. INDIVIDUAL INCOME TAX
1. Persons subject to the individual income tax
For income tax purposes, individual taxpayers are classified
into:
a. Citizen
(1) Resident citizen - is a citizen of the Philippines who has a
permanent home or place of abode in the Philippines to which
he/she intends to return whenever he/she is absent for business
or pleasure.
(2) Nonresident citizen - is a citizen of the Philippines who:
(a) establishes the fact of his/her physical presence abroad
EO 22 with the definite intention to reside therein; (b) leaves the
country to reside abroad, either as an immigrant or for
employment on a permanent basis; (c) 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; or, who has been considered
1
Title II of the National Internal Revenue Code (NIRC) of 1997, as amended.
Guide to Philippine Taxes 1
,Chapter I Income Taxes
nonresident citizen previously and who arrives in the
Philippines at anytime during the taxable year to reside
permanently in the Philippines shall be treated as nonresident
citizen for the taxable year in which he arrives in the Philippines
with respect to his income abroad until the date of his arrival
in the Philippines.2
b. Alien
(1) Resident alien - is an individual who is not a citizen of the
Philippines but whose residence is within the Philippines.3
(2) Nonresident alien - is an individual who is not a citizen of
the Philippines and whose residence is not within the
Philippines.4
A nonresident alien is deemed engaged in trade or
business in the Philippines if he/she has stayed in the
Philippines for an aggregate period of more than 180 days
during any calendar year.5
2. Income subject to tax
The incomes of individuals are grouped into different
categories, to wit:
a. Compensation income, consists of income arising from
employer-employee relationship such as salaries, wages,
emoluments and honoraria, commissions, taxable bonuses and
2
Sec. 22(E), supra.
3
Sec. 22(F), supra.
4
Sec. 22(G), supra.
5
Sec. 25(A)(1), supra.
2 Guide to Philippine Taxes
,Chapter I Income Taxes
fringe benefits, taxable allowances (such as transportation,
representation, entertainment, and the like)6, non-monetary
compensation, director’s fees and the like, taxable pensions and
retirement pay, amounts drawn as salaries by partners of a
partnership and other incomes of a similar nature unless
specifically exempted by the Tax Code. [refer to item A (4)]
b. Business income and income from profession, consist of
business and/or trade income, fees from the exercise of
profession, gains from sale or exchange of assets, commissions,
rental income, and other incomes not covered by compensation
income.
c. Passive income and other sources of income7, consist of interest
from foreign and Philippine currency bank deposits (including
yields and other monetary benefits from deposit substitutes and
trust fund and similar arrangements), royalties, prizes and other
winnings, and dividends. The other sources of income include
capital gains from sales of shares of stock, sales of real property8,
informer’s rewards, etc. 9
6
Representation and Transportation Allowances (RATA) granted to
government officials and employees under the General Appropriations Act are deemed
as reimbursement for expenses incurred in the performance of the duties of the
recipient-government officials and employees and thus are not considered as additional
compensation taxable under the regular individual income tax and subject to
withholding tax. (BIR Ruling No. 062-91).
7
Sec. 24(B)(1), supra.
8
Sec. 24(C) and (D), supra.
9
Revenue Regulations (RR) No. 7-2011 (issued by the BIR on June 14, 2011)
provides that unutilized/excess campaign funds or campaign contributions net of an
election candidate’s campaign expenditures, shall be considered as subject to income
tax, and as such, must be included in the candidate’s taxable income as stated in his/
her income tax return filed for the subject taxable year.
Guide to Philippine Taxes 3
, Chapter I Income Taxes
3. Determination of Taxable Income
a. Citizen
(1) Resident citizen - on incomes derived from sources within
and without the Philippines, as follows:
(a) On compensation income - on modified gross income
basis i.e., gross compensation income less deductions and/
or personal and additional exemptions;10
(b) On income from profession, business and/or trade - on
net income basis i.e., gross income from profession,
business and/or trade less the itemized deductions or
optional standard deduction equivalent to 40% of gross
sales or gross receipts and personal and additional
exemptions; and
(c) On passive income - on the gross amount thereof.
(2) Nonresident citizen - taxed similarly as a resident citizen
on incomes from sources within the Philippines.
10
Except those who are subject to 15% tax on their gross income.
Section 7(A) of RR 17-2011, “Implementing the Tax Provisions of the
Personal Equity and Retirement Act (PERA) Law”, provides that a qualified
PERA contributor is entitled to a tax credit equivalent to five percent (5%) of
the aggregate qualified PERA contributions made in one calendar year. Each
qualified PERA contributor shall be issued a Certificate of Entitlement to
5% tax credit or PERA Tax Credit Certificate, as the case may be. The entitlement
to the 5% tax credit for an employee or one who is self-employed shall be
allowed to be credited only against the contributor’s income tax liability;
while in the case of overseas Filipinos, he/she shall be entitled to claim the
5% tax credit against any national internal revenue tax liabilities (excluding
the contributor’s withholding tax liabilities as withholding agent).
4 Guide to Philippine Taxes
INCOME TAXES1
A. INDIVIDUAL INCOME TAX
1. Persons subject to the individual income tax
For income tax purposes, individual taxpayers are classified
into:
a. Citizen
(1) Resident citizen - is a citizen of the Philippines who has a
permanent home or place of abode in the Philippines to which
he/she intends to return whenever he/she is absent for business
or pleasure.
(2) Nonresident citizen - is a citizen of the Philippines who:
(a) establishes the fact of his/her physical presence abroad
EO 22 with the definite intention to reside therein; (b) leaves the
country to reside abroad, either as an immigrant or for
employment on a permanent basis; (c) 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; or, who has been considered
1
Title II of the National Internal Revenue Code (NIRC) of 1997, as amended.
Guide to Philippine Taxes 1
,Chapter I Income Taxes
nonresident citizen previously and who arrives in the
Philippines at anytime during the taxable year to reside
permanently in the Philippines shall be treated as nonresident
citizen for the taxable year in which he arrives in the Philippines
with respect to his income abroad until the date of his arrival
in the Philippines.2
b. Alien
(1) Resident alien - is an individual who is not a citizen of the
Philippines but whose residence is within the Philippines.3
(2) Nonresident alien - is an individual who is not a citizen of
the Philippines and whose residence is not within the
Philippines.4
A nonresident alien is deemed engaged in trade or
business in the Philippines if he/she has stayed in the
Philippines for an aggregate period of more than 180 days
during any calendar year.5
2. Income subject to tax
The incomes of individuals are grouped into different
categories, to wit:
a. Compensation income, consists of income arising from
employer-employee relationship such as salaries, wages,
emoluments and honoraria, commissions, taxable bonuses and
2
Sec. 22(E), supra.
3
Sec. 22(F), supra.
4
Sec. 22(G), supra.
5
Sec. 25(A)(1), supra.
2 Guide to Philippine Taxes
,Chapter I Income Taxes
fringe benefits, taxable allowances (such as transportation,
representation, entertainment, and the like)6, non-monetary
compensation, director’s fees and the like, taxable pensions and
retirement pay, amounts drawn as salaries by partners of a
partnership and other incomes of a similar nature unless
specifically exempted by the Tax Code. [refer to item A (4)]
b. Business income and income from profession, consist of
business and/or trade income, fees from the exercise of
profession, gains from sale or exchange of assets, commissions,
rental income, and other incomes not covered by compensation
income.
c. Passive income and other sources of income7, consist of interest
from foreign and Philippine currency bank deposits (including
yields and other monetary benefits from deposit substitutes and
trust fund and similar arrangements), royalties, prizes and other
winnings, and dividends. The other sources of income include
capital gains from sales of shares of stock, sales of real property8,
informer’s rewards, etc. 9
6
Representation and Transportation Allowances (RATA) granted to
government officials and employees under the General Appropriations Act are deemed
as reimbursement for expenses incurred in the performance of the duties of the
recipient-government officials and employees and thus are not considered as additional
compensation taxable under the regular individual income tax and subject to
withholding tax. (BIR Ruling No. 062-91).
7
Sec. 24(B)(1), supra.
8
Sec. 24(C) and (D), supra.
9
Revenue Regulations (RR) No. 7-2011 (issued by the BIR on June 14, 2011)
provides that unutilized/excess campaign funds or campaign contributions net of an
election candidate’s campaign expenditures, shall be considered as subject to income
tax, and as such, must be included in the candidate’s taxable income as stated in his/
her income tax return filed for the subject taxable year.
Guide to Philippine Taxes 3
, Chapter I Income Taxes
3. Determination of Taxable Income
a. Citizen
(1) Resident citizen - on incomes derived from sources within
and without the Philippines, as follows:
(a) On compensation income - on modified gross income
basis i.e., gross compensation income less deductions and/
or personal and additional exemptions;10
(b) On income from profession, business and/or trade - on
net income basis i.e., gross income from profession,
business and/or trade less the itemized deductions or
optional standard deduction equivalent to 40% of gross
sales or gross receipts and personal and additional
exemptions; and
(c) On passive income - on the gross amount thereof.
(2) Nonresident citizen - taxed similarly as a resident citizen
on incomes from sources within the Philippines.
10
Except those who are subject to 15% tax on their gross income.
Section 7(A) of RR 17-2011, “Implementing the Tax Provisions of the
Personal Equity and Retirement Act (PERA) Law”, provides that a qualified
PERA contributor is entitled to a tax credit equivalent to five percent (5%) of
the aggregate qualified PERA contributions made in one calendar year. Each
qualified PERA contributor shall be issued a Certificate of Entitlement to
5% tax credit or PERA Tax Credit Certificate, as the case may be. The entitlement
to the 5% tax credit for an employee or one who is self-employed shall be
allowed to be credited only against the contributor’s income tax liability;
while in the case of overseas Filipinos, he/she shall be entitled to claim the
5% tax credit against any national internal revenue tax liabilities (excluding
the contributor’s withholding tax liabilities as withholding agent).
4 Guide to Philippine Taxes
