ReSA

The Review School of Accountancy

Tel. No. 735-9807 & 734-3989

TAXATION TAMAYO/GARCIA

TX - 502: TAX RATES FOR INDIVIDUAL TAXPAYERS, ESTATES AND TRUSTS

1. Sec. 24 (A) – The tax shall be computed on taxable income in accordance with and at the rates
established in the following schedule (resident citizens, non-resident citizens, resident alien, estate
and trust):

Over But not over The tax shall be Plus Of excess over
P 10,000 5% - -
P 10,000 30,000 P 500 10% P 10,000
30,000 70,000 2,500 15% 30,000
70,000 140,000 8,500 20% 70,000
140,000 250,000 22,500 25% 140,000
250,000 500,000 50,000 30% 250,000
500,000 - 125,000 32% 500,000

2. Final Tax Rates on Certain Passive Income from Philippine Sources.

a. Rates of Tax Certain Passive Income

1) Sec. 24 (B) – For residents or citizens;

2) Sec. 25 (A) (2) – For non-resident aliens engaged in trade or business.
a. Interest from any currency bank deposit 20%
b. Yield or any other monetary benefit from deposit substitute 20%
c. Yield or any other monetary benefit from trust funds and similar arrangements 20%
d. Royalties, in general 20%
e. Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Sec. 24 (A) 20%
f. Other winnings (except Philippine Charity Sweepstakes and Lotto winnings) 20%
g. Royalties on books, as well as other literary works and musical compositions 10%
3) Sec. 25 (B) – For non-resident aliens not engaged in trade or business
a. Interest from any currency bank deposit 25%
b. Yield or any other monetary benefit from deposit substitute 25%
c. Yield or any other monetary benefit from trust funds and similar arrangements 25%
d. Royalties, in general 25%
e. Royalties on books, as well as other literary works and musical compositions 25%
f. Prizes 25%
g. Other winnings (except Philippine Charity Sweepstakes and Lotto winnings) 25%

RES/CIT NRA-ETB NRA-NETB

a. Interest income received from a depositary bank under expanded foreign
currency deposit system 7½% Exempt* Exempt*
b. Interest income from long-term deposit or investment evidenced by
certificates prescribed by BSP Exempt Exempt 25%
If pre-terminated before fifth year, a final tax shall be imposed based on
remaining maturity:
4 years to less than 5 years 5% 5% 25%
3 years to less than 4 years 12% 12% 25%
Less than 3 years 20% 20% 25%
*also applies to non-resident citizens
Cash and/or Property Dividends
a. Cash and/or property dividends actually or constructively received from a
DOMESTIC CORP. or from JOINT STOCK CO., INSURANCE or MUTUAL
FUND COMPANIES and REGIONAL OPERATING HEADQUARTERS of
multinationals (beginning January 1, 2000} 10% 20% 25%
b. Share of an individual in the distributable net income after tax of a
PARTNERSHIP (OTHER THAN a general professional partnership) of which
he is a partner (beginning January 1, 2000) 10% 20% 25%
c. Share of an individual in the net income after tax of an ASSOCIATION, a
JOINT ACCOUNT, or a JOINT VENTURE or CONSORTIUM taxable as a
corporation of which he is a member or co-venturer (beginning January 1, 10% 20% 25%
2000)
Provided, however, that the tax on dividends shall apply only on income earned on or after January 1, 1998.
Income forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after
January 1, 1998, be subject to this tax.

TX-502
 ReSA: The Review School of Accountancy Page 2
of 5

4) Exercise: Identify whether the following are subject to final tax or not. Taxpayer is RESIDENT CITIZEN unless
otherwise stated (Y/N).
Final tax? Rate
1) Interest from peso bank deposit, Equitable – PCIB, Makati
2) Interest from US dollar bank deposit, BPI-Makati
3) Interest from Japanese yen bank deposit, Sumitomo Bank, Japan
4) Interest from USA dollar bank deposit, First USA Bank, New York
5) Interest from money market placement, PCIB Investment House
6) Interest from overdue accounts receivable, Philippines
7) Royalties, in general, Manila
8) Royalties, books published in Manila
9) Prize amounting to P30,000, Philippines
10) Prize amounting to P10,000, Philippines
11) Prize amounting to P40,000, USA
12) Winnings amounting to P30,000, Philippines
13) Winnings amounting to P10,000, Philippines
14) USA Sweepstakes winnings
15) Philippine Lotto winnings
16) Interest received from depository bank under expanded foreign currency deposit system
17) Interest income from long-term deposit or investment evidenced by certificates issued by BSP
18) Dividend from a domestic corporation received on April 15, 2006
19) Share in distributive net income of local business partnership received on May 15, 2006
20) Share in net income after tax of an association, a joint account, or a joint venture or
consortium received on August 15, 2006
21) Share in the net income of a general professional partnership
22) Dividend from a foreign corporation
23) Interest income received by NONRESIDENT ALIEN individual from a depository bank under
expanded foreign currency deposit system
24) Interest income received by a NON-RESIDENT CITIZEN individual from a depository bank
under expanded foreign currency deposit system
25) Dividend received by a NONRESIDENT ALIEN not engaged in business in the Philippines from
a domestic corporation.
26) Dividend received by a NONRESIDENT ALIEN engaged in trade in the Philippines from a
domestic corporation

3. Capital Gains Tax

a. Sec. 24 (C) – Capital Gains from Sale of Shares of Stock not Tax base: Net capital gains
Traded in the Stock Exchange Tax rates: 5% - not over P100,000
10% - excess of P100,000
b. Sec. 24 (D) – Capital Gains from Sale of Real Property Tax base: Gross selling price or fair market
Classified as Capital Asset (Located in the Philippines) value whichever is higher
Tax rate: 6%
Real property is sold to the government or any political Tax due: 6% capital gains tax or Sec. 24 (A)
subdivisions or agencies or GOCC’s
c. Exemption from 6% capital gains tax
1) Exempt proceeds Capital gains presumed to have been realized from the sale or disposition of their
principal residence by natural persons, the proceeds of which is fully utilized in
acquiring or constructing a new principal residence within 18 calendar months
from the date of sale or disposition shall be exempt from capital gains tax.
2) Escrow agreement The 6% capital gains tax otherwise due on the presumed capital gains derived from
the sale, exchange or disposition of his principal residence shall be deposited in cash
or manager’s check in interest-bearing account with an Authorized Agent Bank
(AAB) under an Escrow Agreement between the concerned Revenue District Officer,
the seller/transferor and the AAB to the effect that the amount so deposited,
including its interest yield shall only be released to such seller/transferor upon
certification by the said RDO that the proceeds of sale or disposition thereof has, in
fact, been utilized in the acquisition or construction of the seller/transferor’s new
principal residence within 18 calendar months from the date of the said sale or
disposition.

3) Carry over of historical cost The historical cost or adjusted basis of the real property sold or disposed shall be
or adjusted basis carried over to the new principal residence built or acquired.

TX-502
TAXATION – Tax Rates for Individual Taxpayers, Estate
and Trusts (Batch 22)
 ReSA: The Review School of Accountancy Page 3
of 5

4) Computation for the basis of Historical cost of old principal residence xxx
the new principal residence Add: Additional cost to acquire new principal residence xxx*
Adjusted cost basis of the new principal residence xxx

*Cost to acquire new principal residence xxx

Less: Gross selling price of old principal residence xxx
Additional cost to acquire new principal residence xxx
5) Notification required The Commissioner shall have been duly notified by the taxpayer within 30 days
from the date of sale or disposition through a prescribed return of his intention to
avail of the tax exemption.
6) Exemption once every 10 The tax exemption can only be availed of once every 10 years.
years
7) Taxable portion if no full If there is no full utilization of the proceeds of sale or disposition, the portion of the
utilization of proceeds gain presumed to have been realized from the sale or disposition shall be subject to
capital gains tax.
The taxable portion is computed as follows:
Unutilized portion x Tax base
Gross selling price

8) Exercises
a. An individual taxpayer holds shares of stock as investment. During the current year, he sold the shares he bought for
P100,000 for P180,000 directly to a buyer. How much is the capital gains tax on the sale if any?

b. An individual taxpayer holds shares of stock as investment which he bought for P500,000. During the current year,
he sold it directly to a buyer for P750,000. How much is the capital gains tax on the sale, if any?

c. An individual taxpayer invested P300,000 in the common shares of SMC Corp. During the current year, he sold these
shares directly to a buyer for P250,000. How much is the capital gains tax on the sale, if any?

d. During the year 2011, Ms. Kat Antonio sold her vacation house for P500,000. She acquired it for P700,000 two (2)
years ago. The fair market value of the vacation house at the time of sale was P800,000. Ms. Antonio was going to
use the proceeds to build her new principal residence within eighteen (18) months after informing BIR within thirty
(30) days of such intention. How much is the capital gain tax, if any?

e. Mr. C. Avenido acquired his principal residence in 2009 at a cost of P1,000,000. He sold the said property on January
1, 2011, with a fair market value of P5,000,000 for a consideration of P4,000,000. Within the 18-month reglementary
period he purchased his new principal residence at cost of P7,000,000.

Question 1 - How much is the capital gains tax due?

2 - How much is the basis of the new principal residence?

f. Using the same data in letter d, if for example, Mr. Avenido acquired his new principal residence within the 18-month
reglementary period but did not utilize the entire proceeds of the sale in acquiring his new principal residence because
he only used P3,000,000 thereof in acquiring his new principal residence.

Question 1 - How much is the capital gains tax?

2 - How much is the basis of the new principal residence?

4. Tax Rates for Special Aliens and their Filipino Counterparts

Persons Subject to Tax Rate
Tax
Sec. 25 (C) Alien Individual 15% of gross income within the Philippines
Employed by Regional a. Same tax treatment to Filipinos whether or not there is an alien executive
or Area Headquarters occupying managerial or technical position.
and Regional Operating b. Filipinos employed by ROHQs or RHQs in a managerial or technical
Headquarters of position shall have the option to be taxed at either 15% of their gross
Multinational Companies income or at the regular rate on taxable compensation income under Section
24 (A).
c. All other employees are considered as regular employees who are subject to
the regular income tax rate on their taxable compensation income.
d. Filipinos exercising the option to be taxed at fifteen percent (15%)
preferential rate for occupying the same managerial or technical position as
that of an alien employed in an ROHQs or RHQs must meet all following
requirements:
1) Position and Functional Test – The employee must occupy managerial
position or technical position AND must actually be exercising such
managerial or technical functions pertaining to said position;
2) Compensation Threshold Test - In order to be considered a managerial or

TX-502
TAXATION – Tax Rates for Individual Taxpayers, Estate
and Trusts (Batch 22)
 ReSA: The Review School of Accountancy Page 4
of 5

technical employee fo income tax purposes, the employee must have

received, or is due to receive under a contract of employment, a gross
annual taxable compensation of at least P975,000 (whether or not this is
actually received.)
3) Exclusivity Test – The Filipino managerial or technical employee must be
exclusively working for the ROHQs or RHQs as a regular employee and
not just a consultant or contractual personnel. Exclusivity means having
just one employer at a time. (RR No. 11-2010)

Sec. 25 (D) Alien Individual 15% of gross income within the Philippines (same tax treatment to Filipinos
Employed by Offshore employed and occupying managerial and technical positions similar to those
Banking Units occupied by aliens employed by these offshore banking units).
Sec. 25 (E) Alien Individual 15% of gross income within the Philippines (same tax treatment to Filipinos
Employed by Foreign employed and occupying the same position as those aliens who are permanent
Petroleum Service residents of a foreign country but who are employed by petroleum service
Contractor and contractor and subcontractor in the Philippines).
Subcontractor
5. Exercises
a. A married resident citizen has four (4) qualified dependent children. He has the following data on income
and expenses for the year 2011:
Salary, Philippines, gross of withholding tax of P5,000 P 60,000
Gross business income, Philippines (gross sales, P1,200,000) 500,000
Business expenses, Philippines 180,000
Gross business income, USA (gross sales, P1,500,000) 900,000
Business expenses, USA 300,000
Interest income from bank deposit, Philippines 50,000
Interest income from bank deposit, USA 70,000
Interest income from domestic depository bank under EFCDS 80,000
Royalty on book published in the Philippines 100,000
Prize in a contest he joined in the Philippines 5,000
Philippine Charity Sweepstakes winnings 1,00,000
Gain from sale of shares of stock not traded through the local stock exchange 150,000
Dividend received from a domestic corporation 40,000
Tax payments, first three (3) quarters 100,000
Question 1 - How much is the taxable net income in the Philippines?
2- How much is the tax payable after deducting the allowable tax credits and payments?
3– How much is the total final tax on certain passive income?
4– How much is the capital gains tax?
5– How much is the taxable net income using optional standard deduction?

b. A resident alien individual with three qualified dependent adopted children asked you to assist him in the
preparation of his tax return for his income in 2011 . He provided you the following information:
Gross business income, Philippines (gross sales, P3,000,000) P 1,000,000
Gross business income, Japan (gross sales, P7,000,000) 5,000,000
Business expenses, Philippines 200,000
Business expenses, Japan 800,000
Philippine Charity Sweepstakes winnings 500,000
Japanese Sweepstakes winnings 400,000
Interest income, Bank of Tokyo, Japan 100,000
Interest income received from a depository bank under
Expanded Foreign Currency Deposit System (EFCDS), Philippines 300,000
Interest on peso bank deposit, Philippines 100,000
Quarterly income taxes paid 50,000

Question 1 - How much was the taxable net income?

2– How much was the tax due after deducting the quarterly tax payments?
3– How much was the final tax on passive income?
4– How much was the taxable net income using optional standard deduction?
c. An expatriate employed by an offshore banking unit in the Philippines has the following data for the
year 2011:
Salaries received from the OBU P15,000,000
Allowances received from OBU 5,000,000
Interest on peso bank deposit, Philippines 100,000
Gain from sale of shares of stock not traded through the local stock exchange 50,000

How much is the tax to be withheld from the above income of the expatriate?
END

TX-502
TAXATION – Tax Rates for Individual Taxpayers, Estate
and Trusts (Batch 22)
 ReSA: The Review School of Accountancy Page 5
of 5

THOT: It is not because things are difficult that we do not dare; it is because we do not dare that they are
difficult. - Seneca

jb

TX-502
TAXATION – Tax Rates for Individual Taxpayers, Estate
and Trusts (Batch 22)