May 2024

INTRODUCTION TO INCOME TAX

Atty. C. Llamado

Concept of Income Tax

An income tax is one levied on the income from property or an occupation. It is a direct
tax upon the thing called income.1

Purpose of Income Tax

The imposition of the income tax is intended:

1. To raise revenue to defray the expenses of the government; and

2. To mitigate the evils arising from the inequalities of wealth by a progressive scheme
of taxation which places the burden on those best able to pay.2

Characteristics of Philippine Income Tax

Philippine income tax has the following characteristics:

Nat 1. A national tax – It is imposed and collected by the National Government throughout
the country.

Gren 2. A general tax – It is levied without a specific or predetermined purpose. Thus, the
revenue from income tax may be appropriated for general public purposes.

Ex 3. An excise tax – It is imposed on the right or privilege of a person to receive or earn

income.

D 4. A direct tax – It is payable by the person upon whom it is directly imposed by law. It
cannot be shifted or passed on to others.

↑T
5. In general, a progressive tax for individual taxpayers – It is based upon one’s ability
to pay. The higher the taxable net income of the individual, the higher the marginal tax
rate.3

compre 6. The income tax system is a comprehensive system. – It adopts the citizen principle,
the residence principle, and the source principle.

7. Semi-global or semi-schedular system. – Some types of taxable income are

compounded or grouped together without distinction, and after deducting expenses and
other allowable deductions therefrom, are then subjected to the same set of tax rate(s).
This is known as the global tax system (or net income tax system).

However, there are some types of taxable income like passive income and certain
capital gains which are classified into different categories, and are accorded different
tax treatments. Each category of income has its own schedule of tax rates. This is
known as the schedular tax system (or gross income tax system).

1
Cooley on Taxation.
2
Madrigal v. Rafferty & Concepcion, 38 Phil. 414.
3
However, individual taxpayers who earn self-employment income, under certain conditions, may
choose to be taxed at an 8% tax rate.

1
 Income
-
/ sale of Ordinary asset used in :
business inventory
-

property/Asset
&
sale
of
use of capital

/
L sale of capital asset
2
X types :
human financial/tangible :
rental income

X dividends
other assets
1) Inventory 2) not inventory
1) domestic shares

notaaa
employee 2) real property in
-

waren alse

Ph held as

Capital asset

3) CGT

SITUS

· can the ph tax the income ?

Character of Taxpayer

·
Resident Citizen w/in & wo

&
· non-resident citizen
·
Oh lo
w/ir
· Resident Alien

·
non-resident alien engaged in trade/business

· non-resident alien not engaged in trade/business

Type of
Income final

·
mana, traded in SE

JE
none

%
15 X net capital gain
s e e r,
ing price
GT +
BIR

wo ns

not traded in

&, not of

y H(SPusZV us Av) % LGT

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May 2024

Meaning of Income & illegal

legal
- Income means all wealth which flows into the taxpayer other than a mere return of
capital. Income is a gain derived from:
a) The use or employment of labor or capital, or both labor and capital; and/or
b) From the sale or other disposition of assets or property (both ordinary and
capital).

Income Distinguished From “Capital”

Capital is a fund, income is a flow. Capital is wealth, while income is the service (or fruit)
of wealth. Capital is the tree, income the fruit.4

Amounts received as a return of capital are not income.5

Theory of Separability or Severance Test of Income

Under the doctrine of severance test of income, in order that income may exist, it is
necessary that there be a separation from capital of something of exchangeable value.

The concept of income requires a realization of gain.

The following are examples which do not give rise to income nor to a realization of gain,
and therefore no income tax shall be imposed:
1) Stock dividends;
2) Mere increase in the value of property.

Requisites for Taxability of Income

1. There must be a gain or profit whether in cash or its equivalent;

2. The gain must be realized or received; and
3. The gain must not be excluded by law or international treaty from taxation.

Classification of Income According to Source

For income tax purposes, the word “source” refers to the activity, or property, or labor that
gave rise or produced the income.

Based on source, income is classified as follows:

1. Income from sources within the Philippines;

2. Income from sources without the Philippines; and
3. Income from sources partly within and partly without the Philippines.6

4
Madrigal v. Rafferty, 38 Phil. 414.
5
Vol. 1 Mertens, Sec. 5.06, p. 17.
6
Sec. 42, NIRC.

2
May 2024
-

How To Determine Income Within and Income Without

Income Test Source of Income

(1) Interest income Residence of the debtor

Lbank

(2) Income from services Place of performance

or
Place of completion or delivery7

(3) Rent Location of property

(4) Royalty Place of use of intangible

(5) Gain on sale of real property Location of property

(6) Gain on sale of personal Place of sale

property purchased in one
country and sold in another

(7) Dividend
A. From Domestic Corp. Income within

B. From Foreign Corp. GR :

Income without

Except: If 50% or more of the gross

income of the foreign corporation for
the preceding three (3) years prior to
the declaration of dividend or for
such part of such period as the
corporation has been in existence,
was derived from sources within the
Philippines, then part of the dividend
is income within.

Income within = (Phil. Gross

Income/Total Gross Income) x
Dividend

(8) Sale of domestic shares Income within

(9) Sale of foreign shares Income without

(10) Income from transportation and Partly within and partly without
other services rendered partly
within and partly without the
Philippines

7
Applies to transactions occurring in multiple stages. (Aces Philippines Cellular Satellite Corporation
vs. CIR, Supreme Court, G.R. No. 226680, January 30, 2023).

3
May 2024

Situs of Income

The situs of the income is the place of taxation of the income or the country which has
jurisdiction to impose the tax. For income tax purposes, income may be taxed in one or
more or all of the following places or countries –

1. The place where the taxpayer is a citizen;

2. The place where the taxpayer is a resident; and
3. The place where the income is earned or derived.

Income Tax System of the Philippines

The income tax system of the Philippines may be characterized under two general
categories, namely:
RIP WEED
1. Gross income taxation, whereby a final tax is imposed on the gross amount of specified
types of income, such as interest income, royalty, prizes, dividends, and capital gains.
This is also known as the schedular system of taxation.

2. Net income taxation, whereby certain deductions are allowed and subtracted from the
aggregate of incomes not subject to final tax, and the tax computed is based on the
resulting net income therefrom. This is also known as the global system of taxation.

Types of Taxable Income

within only
wine wo within only
Capital Gains subject
Passive Income subject
“Returnable” Income8 to Capital Gains Tax
to Final Tax (“FT”)
(“CGT”)
a) Compensation income from Earned without any Arise from the sale of 2
being an employee further action on the types of capital assets,
b) Income from trade, part of the taxpayer. Ex. namely:
business, or practice of a dividends, interest a) Real property in the
profession income on bank Philippines classified
c) Gain from sale of ordinary deposits as capital asset; and
assets; b) Shares of domestic
d) Net capital gain from sale of corporations
“other capital assets”9 and (provided the seller
e) Other taxable income not or taxpayer is not a
subject to FT or CGT. dealer in securities)

Income Tax Return (ITR) Final Tax Final Tax (“CGT”)

8
Income to be included in the Income Tax Return of an individual taxpayer.
9
Other capital assets refer to capital assets other than the capital assets whose sales give rise to a
CGT.

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 May 2024

Steps on How to Compute the Tax of an Individual

Step 1: Type of Returnable Income Passive income Capital gains

Income

Step 2: Type of Generally, subject to Net Subject to Final Subject to Capital

Tax Liability Income Taxation Tax (FWT) Gains Tax (FWT)

EXC: NRANETB
Step 3: Actual Gross Income xxx Passive income x “Capital gains” x
Computation Less: Deductions (xxx) FT rate CGT rate
Net taxable income xxx
then
Compute Tax (using
10
graduated rate table)

General Categories of Individual Taxpayers

Definition
1. Resident Under Sec. 1, Art IV of the 1987 Constitution, the following are citizens of
Citizen the Philippines:
(1) Those who are citizens at the time of the adoption of the 1987
Constitution; or
taxable for income
(2) Those whose fathers and mothers are citizens; or
win & without (3) Those born before January 17, 1973 of Filipino mothers, and who elect
Philippine citizenship upon reaching majority age; or
(4) Those who are naturalized in accordance with law.
AND
Whose residence is within the Philippines

2. Non-Resident a. Citizen who establishes the fact of his physical presence abroad with a
Citizen (Note definite intention to reside therein;
1) - 183
b. Citizen who leaves for abroad either as an immigrant, or for employment
days

on a permanent basis;
c. Citizen who derives income from abroad which requires him to be
physically present abroad most of the time (≥ 183 days) during the year
(Sec. 22(E)) Lau512 +

3. OCW/OFW a) Citizen working or deriving income from abroad. Must be registered

taxed as
citizen
with the POEA;
non-resident b) Seaman who is a citizen and works as a member of the complement of a
vessel engaged exclusively in international trade (Sec. 22(F))
Problem
:

that he/she is an Alien

4. Resident Not a citizen but whose residence is within the Philippines.
Alien - His purpose in coming to the Philippines requires an extended stay
·

If stated
non-resident
for good
-
but left the Ph
alien

If stayed I

Resident
did not leave Ph

Alien
intention in the country, and makes his home temporarily in the Philippines
(ex. expatriates or those employed in the Philippines).
=

stay
indefinite
- Not a mere transient or sojourner as determined by his intention
regarding the nature and length of stay.
5. Non-resident Not a citizen, not a resident of the Philippines
alien

a) ETB > days 10 - If stay in the Philippines is for > 180 days during the year
(Note 2)

10
In the ITR, an individual taxpayer may avail of the 8% tax rate on gross sales/receipts plus non-
operating income if they qualify and elect to do so, in lieu of the graduated rates.

5
May 2024

b) NETB - If stay in the Philippines is for ≤ 180 days during the year (Sec. 25(A)(1))
6. Special a) Non-resident alien cinematographic film owner, lessor, or distributor
Individual b) Subcontractor, whether citizen, resident alien, or NRAETB, of service
taxpayers contractors engaged in petroleum operations
c) Alien individual employed by offshore gaming licensees or their service
providers
d) Qualified individuals availing of the Income Tax Holiday under special
laws or under Section 294 of the Tax Code
e) Qualified individuals availing of the 5% gross income tax (GIT)
incentive under special laws or under Section 294 of the Tax Code
f) Individual registered as a BMBE
7. MWEs Worker, whether in the public or private sector, who is paid not more than
the statutory minimum wage (Sec. 22 (HH)).

Notes:

1) A non-resident citizen who arrives in the Philippines at any time during the taxable year
to reside permanently in the Philippines shall be treated as a non-resident citizen for the
taxable year in which he arrives in the Philippines with respect to his income from
sources abroad until the date of his arrival in the Philippines.

2) “Trade or business” includes functions of public office, performance of personal

services, but normally does not include performance of services as an employee.

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 May 2024

I. “Returnable” Income

Source of Type of
Individual Returnable
Taxable Tax Base Tax Rate
Taxpayer Income
Income

Within and
Taxable
1. Resident citizen Without the
Compensation Compensation Graduated Rates
Philippines
Income Income (a) (last page of
handout)
2. Non-resident Within the
citizen Philippines Taxable Net
Within the Income (b) Graduated Rates
3. OCWs/OFWs Income from
Philippines
Business, Trade, OR
Within the or Practice of Gross
4. Resident Alien
Philippines Profession Sales/Receipts11 8%
Plus Non-
operating Income
5. Non-resident Within the
(c), (d)
alien ETB Philippines

6. Non-resident Within the

Gross Income 25% FT
alien NETB (e) Philippines
Notes:

(a) Taxable Compensation Income = Gross Compensation Income – Non-Taxable/Exempt Income

Non-Taxable/Exempt Income includes: (1) SMW, holiday pay, overtime pay, night shift
differential, and hazard pay of an MWE;
(2) First ₱90,000 of 13th Month Pay and Other
Benefits;
(3) De minimis fringe benefits;
(4) Employee’s share of SSS, GSIS, Philhealth, and
12
PAG-IBIG contributions; and
(5) Union dues.

(b) Sales/Receipts, net of returns, allowances and discounts ₱ xxxxx

Less: Cost of Sales/Cost of Services (xxxx)
Gross Income from Operations ₱ xxxxx
Less: Itemized Deductions or OSD (xxxx)
Net income ₱ xxxxx
Add: Non-operating income ₱ xxxx
Share in GPP net income xxxx xxxxx
Taxable Net Income ₱ xxxxx

11
“Gross sales”, for purposes of the 8% income tax, shall be the total sales, net of the following: (1)
sales returns and allowances; and (2) discounts determined and granted at the time of sale.
“Gross receipts”, for purposes of the 8% income tax, refers to the total amount of money or its
equivalent representing the contract price, compensation, service fee, rental or royalty, including the
amount charged for materials supplied with the services, and deposits and advance payments, actually
or constructively received during the taxable period for the services performed or to be performed for
another person, except for returnable security deposits. (RR 8-2018).
12
Employee’s share of mandatory contributions and union dues are actually DEDUCTIONs.

7
 May 2024

(c) Purely self-employed individuals or mixed earners can avail of the 8% income tax rate if the
gross sales/receipts from their business/profession plus non-operating income does not exceed
the VAT threshold of ₱3,000,000.

The 8% tax is in lieu of (1) the graduated rates and (2) the OPT under Section 116 of the Tax
Code.

However, this option is not available to the following individual taxpayers:

(1) VAT-registered taxpayers;
(2) Taxpayer subject to OPT other than the 3% OPT under Section 11613;
(3) Partners of general professional partnerships (“GPPs”);
(4) Individuals enjoying income tax exemption (e.g., those registered as BMBEs); and
(5) Taxpayers who fail to signify their intention to avail of the 8% income tax rate in the First
(1st) Quarter Income Tax Return, or in the First (1st) Quarter Percentage Tax Return, or in
the initial quarterly return of the taxable year upon the commencement of a new business or
practice of profession (RR 8-2018).

(d) Net of ₱250,000 if individual taxpayer is a self-employed individual earning income purely from
self-employment or practice of profession. Mixed income earners are not allowed this
₱250,000 deduction.

(e) In the case of NRAs not engaged in trade or business (“NRANETBs”)–

(1) The 25% tax on gross income is a final tax to be deducted and withheld by the payor of the
income and remitted to the BIR.
(2) The payor of the income is constituted by law as a withholding agent.
(3) The NRANETB does not have to file a Philippine income tax return because the tax on the
income received is considered paid, said tax having been deducted by the payor of the
income.

7. Special Individual Taxpayers Type of Income Tax Base Tax Rates

Income from film leasing
a) Non-resident alien cinematographic
and distribution within
film owner, lessor, or distributor Gross Income 25% FT
the Philippines (including
royalties)
b) Subcontractor, whether citizen, Income derived from
resident alien, or NRAETB, of service contract with a service
contractors engaged in petroleum contractor engaged in Gross Income 8% FT
operations petroleum operations in
the Philippines.
c) Alien individual employed by offshore Income received from Gross
New gaming licensees (POGOs), or their offshore gaming licensee compensation 25% FT
service providers or service provider. income
d) Qualified individuals availing of the
Income from registered
Income Tax Holiday (“ITH”) under Exempt
activities
special laws

13
Section 116 of the Tax Code provides for the imposition of a 3% percentage tax on the sales/receipts
of persons engaged in VAT-taxable transactions, but who are not VAT-registered, and whose annual
sales or receipts do not exceed the threshold of ₱3,000,000.

8
 May 2024

e) Qualified individuals availing of ITH

incentive under Section 294 of the Tax Income from registered
Exempt
Code activities

f) Qualified individuals availing of 5%

gross income tax (GIT) incentive Income from registered
Gross Income 5%
under special laws activities
3e
nat g) Qualified individuals availing of the
Income from registered
5% GIT under Section 294 of the Tax Gross Income 5%
activities
local 2% Code
govt Income arising purely
h) Individual registered as a BMBE from its operations as a Exempt
BMBE
8. MWEs Statutory Minimum Wage Exempt
(SMW) including holiday
pay, overtime pay, night
shift differential pay, and
hazard pay.

Special Individual Taxpayers

(1) BOI-Registered Filipinos Availing of Income Tax Holiday (“ITH”)

All registered individuals shall be granted the ITH incentive to the extent they are
engaged in a preferred area of investment as declared by the Board of Investments
(BOI) under E.O. No. 226 (Omnibus Investments Code).

To qualify for BOI registration, an individual must be engaged or is proposing to

engage:14

1) in an area of activity listed in the Investment Priorities Plan (“IPP”);

2) if not so listed, at least fifty percent (50%) of its production is for export if a
Philippine national, or at least seventy percent (70%) of its production is for
export if a foreigner;
3) exporting part of its production under such terms and conditions and/or limited
incentives as the BOI may determine;
4) producing or manufacturing a product which is used as input to an export product;
5) export trading of export products bought by it from one or more export producers;
6) rendering service to domestic and foreign tourists if listed in the IPP;
7) in rendering technical, professional or other services as may be determined by the
BOI which are paid for in foreign currency; or
8) in exporting television and motion pictures and musical recordings made or
produced in the Philippines, either directly or through an export trader.

ITH – exemption from income taxes levied by the National Government.

Registered individuals may avail of the ITH to the extent they are engaged
in a preferred area of investment (either pioneer or non-pioneer).

14
Rule I, Sec. 1(i), IRR of E.O. No. 226.

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May 2024

Period of availment shall be as follows:

(1) New registered pioneer15 firms – for 6 years from commercial operations.
(2) New registered non-pioneer16 firms – for 4 years from commercial operations.
(3) Expanding firms – for 3 years from commercial operations of the expansion.

In exceptional cases, existing firms undertaking new activities distinct from existing
operations may qualify as new projects subject to the setting up of separate books of
account. In such cases, only sales of such registered products shall be entitled to the
ITH exemption.

Export traders and service exporters shall be entitled to the ITH if they will export
products and services which are new exports for the Philippines, or will serve new
export markets.

Additional Period of Availment

For new registered firms, the ITH incentive may be extended for an extra year for
each of the following cases, but in no case to exceed the total period of eight (8)
years for pioneer registered enterprises.

(1) If the average cost of indigenous raw materials used in the manufacture of the
registered product is at least fifty percent (50%) of the total cost of raw materials
for the preceding years prior to the extension unless the BOI prescribes a higher
percentage; or
(2) If the annual or average net foreign exchange savings or earnings (“NFEE”)
amount to at least US$500,000.00 during the first three (3) years of operations
to be determined by the BOI at the end of such three-year period.

15
“Pioneer Enterprise" shall mean a registered enterprise:
(1) Engaged in the manufacture, processing or production, and not merely in the assembly or packaging
of goods, products, commodities or raw materials that have not been or are not being produced
in the Philippines on a commercial scale; or
(2) Which uses a design, formula, scheme, method, process or system of production or transformation
of any element, substance or raw materials into another raw material or finished goods which is
new and untried in the Philippines; or
(3) Engaged in the pursuit of agricultural, forestry and mining activities and/or services including the
industrial aspects of food processing whenever appropriate, pre-determined by the BOI, in
consultation with the appropriate Department, to be feasible and highly essential to the attainment
of the national goal, in relation to a declared specific national food and agricultural program for
self-sufficiency and other social benefits of the project; or
(4) Which produces non-conventional fuels or manufactures equipment which utilize non-
conventional sources of energy, or uses or converts to coal or other non-conventional fuels or
sources of energy in its production, manufacturing or processing operations.

Provided:
(a) that the final product in any of the foregoing instances, involves or will involve substantial use
and processing of domestic raw materials, whenever available, taking into account the risks and
magnitude of investment; and
(b) that the foregoing definitions shall not in any way limit the rights and incentives granted to less-
developed-area enterprises provided under Title V, Book I of E.O. No. 226 (Art. 17, E.O. No.
226).
16
“Non-Pioneer Enterprise” shall include all registered producer enterprises other than pioneer
enterprises (Art. 18, E.O. No. 226).

10
May 2024

(2) PEZA17-registered enterprises in ECOZONEs18

1) Income Tax Holiday (“ITH”) – Individuals registered as ECOZONE (a)

Export Enterprises19 or (b) Free Trade Enterprises20 may choose to avail of this
incentive under E.O. No. 226.

Note: PEZA-registered entities enjoying ITH also enjoy the following

incentives:21
(a) exemption from duties and taxes on importation into the
ECOZONE;
(b) exemption from payment of the RPT on machineries and equipment
they acquire or use in their production operations, during the first
three (3) years of use of such machinery and equipment; and
(c) exemption from payment of local taxes, licenses, and fees, except
the real estate tax.

2) Five (5%) on Gross Income (“5% GIT”) – 5% of the gross income22 earned
by the business enterprise within the ECOZONE shall be paid and remitted as
follows:23
a) Three percent (3%) to the National Government;
b) Two percent (2%) which shall be directly remitted by the business
establishments to the treasurer’s office of the municipality or city where
the enterprise is located.

The 5% GIT shall be in lieu of all other taxes (national24 or local25), except for
real property taxes on land owned by an ECOZONE developer/operator.

17
Philippine Economic Zone Authority.
18
Also called Special Economic Zones (SEZs), are selected areas with highly developed or which have
the potential to be developed into agro-industrial, industrial, tourist/recreational, commercial,
banking, investment, and financial centers. An ECOZONE may contain any or all of the following:
Industrial Estates; Export Processing Zones; Free Trade Zones; Tourist/Recreational Centers; and
IT Parks.
19
Export enterprise – engages in manufacturing, assembling or processing activity, and resulting in
the exportation of 100% of its production, unless a lower percentage is prescribed by PEZA.
20
Free Trade enterprise – engages in the tax and duty-free importation of goods or merchandise within
the restricted or free trade area of an ECOZONE for immediate trans-shipment, or for storage,
repacking, sorting, mixing, or manipulation, and subsequent exportation unless the PEZA allows the
sale of the same in the Customs Territory.
21
Rule XV, Sec. 1, IRR of RA 7916; Art. 78, E.O. 226.
22
“Gross Income” refers to gross sales or gross revenues derived from business activity within the
ECOZONE, net of sales discounts, sales returns and allowances, and minus costs of sales or direct
costs but before any deduction is made for administrative expenses or incidental losses during a
given taxable period (Rule I, Sec. 2 (nn), IRR of R.A. No. 7916).
23
Sec. 24, R.A. No. 7916.
24
National taxes shall mean all internal revenue taxes including: (1) Regular Income Tax; (2) VAT;
(3) OPT; (4) DST; (5) Excise Tax; and (6) Customs duties and import charges.
25
Local taxes shall include: (1) Business taxes; (2) Real Property Tax, except on lands owned by an
ECOZONE Developer or IT Park/Building Developer; and (3) Other taxes, fees, and charges
imposed by Local Government Units (LGUs). (BIR Ruling DA-326-07)

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May 2024

The 5% GIT shall be available to

(a) Individuals registered as ECOZONE (1) Export Enterprises or (2) Free

Trade Enterprises, upon expiry of the ITH if such individual chose to avail
of the ITH at the start of its operations; and

(b) Other individuals registered as ECOZONE (1) Developers/Operators26, (2)

Export Enterprises, (3) Free Trade Enterprises, (4) Domestic Market
Enterprises27, (5) Utilities Enterprises28, (6) Facilities Enterprises29, or (7)
Tourism Enterprises.30

Notes:

(a) The exemption from all other taxes under the ITH and 5% GIT regimes does
not include the following:

1) Withholding taxes at source (expanded withholding tax (“EWT”) and

Final Withholding Tax (“FWT”)) on income payments by PEZA-
registered individuals;
2) Withholding tax on compensation income of employees of PEZA-
registered individuals; and
3) Fringe Benefits Tax (“FBT”) on fringe benefits given to managerial or
supervisory employees of PEZA-registered individuals.

These taxes are not the taxes of a PEZA-registered entity. Instead, these are
taxes of a PEZA-registered entity’s payees which are withheld and remitted
by the PEZA-registered enterprise.

(b) On the other hand, income payments received from its customers related to
its registered activities, by a PEZA-registered enterprise, whether availing the
ITH or 5% GIT incentive, are exempt from the withholding tax.31

26
Developer/Operator – develops, operates, and maintains an ECOZONE, and the required
infrastructure facilities and utilities such as light and power systems, water supply and distribution
systems, sewerage and drainage systems, pollution control devices, communication facilities, paved
road network, administration building and other facilities as may be required by the PEZA.
27
Domestic Market Enterprise - engages in manufacturing, assembling or processing activities
resulting in the sale of its finished products (1) in the Customs Territory, or (2) in the non-restricted
or authorized areas within the ECOZONE in its entirety, or (3) if exporting a portion of its
production, it continually fails to export at least 50% thereof for a period of 3 years without any
justifiable reason.
28
Utilities Enterprise – engages in power generation and distribution, water production and
distribution, and telecommunication services within the ECOZONE.
29
Facilities Enterprise – owner and/or operator of buildings, warehouses, and other structures and
facilities leased out to PEZA-registered export producers and other locators (in the ECOZONE).
30
Tourism Enterprise – engages in the establishment and operation of tourist-oriented
accommodations, restaurants operated as an integral part of a tourism facility (e.g., hotels, resorts,
recreational centers), or sports and recreational facilities within the ECOZONE.
31
BIR Ruling Nos. 422-14, October 23, 2014; DA-(C-020) 091-10, June 10, 2010.

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May 2024

(c) Income derived by an individual registered with the PEZA from its registered
activities shall be subject to such treatment as may be specified in its terms of
registration, i.e. (a) the ITH where such income shall be exempt from the regular
income tax; or (b) the 5% preferential GIT, if the same has been approved.

However, the following shall be subject to the regular internal revenue taxes
(i.e., regular individual income taxes; final taxes on bank deposits, capital gains
taxes, etc.):

(1) Income realized by registered individuals from activities which are not
registered;
(2) Income of all other persons and entities which are not registered (i.e.
income payments to entities in the Customs Territory32, to shareholders,
and to non-registered creditors, etc.)
(3) Income of Service Enterprises or providers (e.g. those providing
customs brokerage, transportation, parcel, janitorial, restaurant, banking,
insurance services, etc.) which are required by locator enterprises but
which need not be physically based inside the ECOZONE.

NOTE: Beginning April 11, 2021, the power of Investment Promotion Agencies,
including the BOI and PEZA, to review, approve, or disapprove fiscal and tax
incentives was transferred to the Fiscal Incentives Review Board (“FIRB”),
pursuant to R.A. No. 11534. Such Investment Promotion Agencies are now
mandated to merely recommend to the FIRB whether to approve or disapprove
the application of an enterprise for fiscal and tax incentives. Moreover, the
incentives to be applied for by taxpayers shall be the incentives available under
Title XIII of the Tax Code, as inserted by R.A. No. 11534.

The foregoing discussed the tax incentives under P.D. No. 66 and E.O. No.
226 which, though already repealed, may still be enjoyed by registered
enterprises which had been granted such incentives prior to April 11, 2021.
Pursuant to Section 311 of the Tax Code, such registered enterprises shall be
allowed to continue with the availment of such incentives for the period
specified in the terms and conditions of their registration, or for the period
specified in Section 311, whichever is applicable. After such period(s), they
may avail of incentives provided in the Tax Code for the periods provided
therein, before eventually being subject to the regular corporate income tax
rates.

The periods of availment of the income tax incentives in accordance with the
transition rules under Section 311 of the Tax Code are summarized as follows:

Tax Incentive
After
Regime Prior
Transition Period Transition
to April 11,
Period
2021

ITH only ITH for period Regular

specified in registration Individual
Taxes

32
Customs Territory refers to areas in the Philippines where the Philippine customs and tariff laws are
enforced.

13
 May 2024

ITH but ITH for period

entitled to 5% specified in registration; Regular
GIT after ITH then 5% SCIT33 for 10 Individual
expires years Taxes

5% GIT 5% GIT for 10 years; Regular

then 5% SCIT for 10 Individual
Especial
years (for exporters)
corporate Income
Tax
Taxes

New (3) Registered individuals subject to ITH under Sec. 294 of the Tax Code

ITH for 4 to 7 years depending on the location and industry priorities specified in
Section 296 of the Tax Code.

Note: To qualify for the ITH, the registered individual must comply with the
requirements of Section 304 of the Tax Code.34

New (4) Registered individual taxpayers subject to the 5% SCIT (5% GIT) under
Sec. 294 of the Tax Code

Effective July 1, 2020, a qualified registered enterprise shall pay an income tax
equivalent to 5% of gross income, in lieu of all national and local taxes.

For the purpose of the 5% tax on gross income earned, local taxes shall not include
fees and charges as defined under Section 131(l) and (g), respectively, of the Local
Government Code of 1991.35

Note: To qualify for the 5% GIT, the registered enterprise must comply with the
requirements of Section 304 of the Tax Code.

33
SCIT is the Special Corporate Income Tax. It is 5% of Gross Income which is also available to
individuals registered under Section 304 of the Tax Code.
34
A registered business enterprise must:
(a) Be engaged in a project or activity included in the Strategic Investment Priority Plan;
(b) Meet the target performance metrics after the agreed time period;
(c) Install an adequate accounting system that shall identify the investments, revenues, costs, and
profits or losses of each registered project or activity; or establish a separate corporation for
each registered project or activity;
(d) Comply with the e-receipting and e-sales requirements of Section 237 of the Tax Code; and
(e) Submit annual reports of beneficial ownership of the organization and related parties (Sec. 304,
NIRC).
35
Fee means a charge fixed by law or ordinance for the regulation or inspection of a business or
activity (Sec. 131(l), LGC).

Charges refer to pecuniary liability, as rents or fees against persons or property (Sec. 131(g),
LGC).

14
 May 2024

Moreover, only those considered export enterprises36 may avail of the 5% tax
on gross income.

NOTE: The period of availment of the income tax incentives under Section 294 of the
Tax Code shall be as follows:37

For Registered
5% SCIT or Regular
Export ITH
then EDs38 then Individual
Enterprises For 4-7 years
for 10 years Taxes
(REEs)

Deductions
For Domestic Cenhanced Regular
Market ITH EDs
then then Individual
Enterprises For 4-7 years for 5 years
Taxes
(DMEs)

(5) Alien Individuals Employed by Offshore Gaming Licensees (POGOs) and

New Service Providers39

An alien individual40 employed and assigned in the Philippines by an offshore

gaming licensee41 or its service provider42 shall be subject to a final withholding tax

Tancillary
of twenty-five percent (25%) on their gross income. Provided, the minimum FWT
services
36
Export enterprise is one which results in:
(1) Direct exportation; and/or
(2) Sale of its manufactured, assembled, or processed product or information technology/business
process outsourcing services to another registered export enterprise that will form part of the
final export product or export service of the latter,

of at least 70% of its total production or output.

37
Sec. 296, NIRC.
38
EDs are the enhanced deductions under Section 294 of the Tax Code which were added by the
CREATE law.
39
Sec. 25(G), NIRC as inserted by R.A. No. 11590.
40
Regardless of residency, and of term and class of working or employment permit or visa (Sec. 25(G),
NIRC).
41
Offshore gaming licensee shall refer to an offshore gaming operator, whether organized abroad or in the
Philippines, duly licensed and authorized to conduct offshore gaming operations, including the acceptance of
bets from offshore customers (Sec. 22(II), NIRC).
42
An accredited service provider to an offshore gaming licensee shall be a natural person (regardless of
citizenship or residence) or a juridical person, wherever duly organized, which provides ancillary services to
an offshore gaming licensee or to any gaming licensee or operator with licenses from other jurisdictions. Such
ancillary services include but shall not be limited to customer and technical relations and support, information
technology, gaming software, data provision, payment solutions, and live and streaming services (Sec. 27(G),
NIRC).

15
May 2024

due for any taxable month shall not be lower than Twelve Thousand, Five Hundred
Pesos (₱12,500).
minimum payment
In computing the 25% final tax, gross income shall include, whether in cash or in
kind, the following items received from an offshore gaming licensee or service
provider: (1) basic salary/wage; (2) annuities; (3) compensation; (4) remuneration;
and (5) other emoluments such as honoraria and allowances.

Note: Any income of such alien employee from all other sources within the
Philippines shall not be subject to a 25% final tax, but shall be subject to the
pertinent income taxes in the Tax Code.

(6) Individuals registered as Barangay Micro Business Enterprise (“BMBE”)

A Barangay Micro Business Enterprise or BMBE refers to any business entity or

enterprise engaged in the production, processing, or manufacturing of products or
commodities, including agro-processing, trading, and services43, which activities
are barangay-based44 and micro-business45 in nature, and whose total assets
including those arising from loans but exclusive of the land on which the
particular business entity's office, plant and equipment are situated, shall not
be more than Three Million Pesos (₱3,000,000.00).46

43
"Services" shall exclude those rendered by anyone, who is duly licensed by the government after
having passed a government licensure examination, in connection with the exercise of one's
profession (e.g. lawyer, doctor, accountant, etc.) (Sec. 3(a), R.A. No. 9178).

It shall also exclude services rendered by juridical persons such as partnerships or corporations
engaged in consultancy, advisory, and similar services where the performance of such services are
essentially carried out through licensed professionals (DOF D.O. 17-04).
44
A business enterprise shall be considered “barangay-based” if:
(i) the majority of its employees are residents of the municipality where its principal place of
business is located; or
(ii) its principal activity consists in the application/use of a particular skill peculiar to the locality
or of raw materials predominantly sourced from the area; or
(iii) its business operations are confined within the territorial jurisdiction of the municipality or
LGU in which its principal place of business is located:

Provided, however, that the enterprise may establish warehouses, buying stations, sales outlets, and
booking or administrative offices anywhere in the Philippines, subject to pertinent rules and
registration requirements of the concerned LGUs and other government agencies where such
warehouses, outlets, stations or offices are established.
45
It shall be considered “micro-business in nature and scope” if:
(i) its principal activity is primarily for livelihood, or determined by the Small and Medium
Enterprises Development (SMED) Council or DTI as a priority area for development or
government assistance;
(ii) the enterprise is not a branch, subsidiary, division or office of a large-scale enterprise; and
(iii) its policies and business modus operandi are not determined by a large-scale enterprise or by
persons who are not owners or employees of the enterprise (i.e. franchises) (DOF D.O. No. 17-
04).
46
Valuation of Assets – Cash consisting of Philippine currency shall be valued at actual currency value;
if in foreign currency, it shall be valued at the official exchange rate as prescribed by the Bangko
Sentral ng Pilipinas. Other assets shall be generally valued at acquisition or historical cost, net of a
reasonable amount for depreciation as determined under GAAP if the asset is depreciable, or book
value, whichever is higher. Real property shall be valued at acquisition cost, net of depreciation;

16
May 2024

Registration

The Department of Trade and Industry (“DTI”), through the Negosyo Center in
the city or municipality, shall have the sole power to issue the Certificate of
Authority for BMBEs to avail of the benefits under R.A. No. 9178.

Upon approval of registration of the BMBE, the Negosyo Center shall issue the
Certificate of Authority which shall be renewable every two (2) years. The DTI,
through the Negosyo Center, may charge a fee therefor which shall not be more
than One Thousand Pesos (₱1,000) to be remitted to the National Government.

Fiscal Incentives

Registered BMBEs can avail of the following incentives:

(1) Income tax exemption from income arising from the operations of the
enterprise;

A duly registered BMBE shall be exempt from income tax on income arising
purely from its operations as such BMBE.

Provided:
(i) the income tax exemption shall not apply to (a) income subject to final
taxes, (b) capital gains subject to the capital gains tax, and (c)
compensation income (of employees) (d) income from practice of a
profession received directly from clients or from a general
professional partnership; and (e) other income not effectively
connected with the operations of the BMBE.

(ii) The exemption also does not extend to business taxes (VAT or OPT).

(iii) The exemption does not extend to local taxes. However, the LGUs
are encouraged either to reduce the amount of local taxes, fees and
charges imposed or to exempt the BMBEs from local taxes, fees and
charges.

(2) Exemption from the coverage of the Minimum Wage Law. BMBE
employees will still receive the same social security and health care benefits
as other employees;

(3) Priority to a special credit window set up specifically for the financing
requirements of BMBEs; and

(4) Technology transfer, production and management training, and

marketing assistance programs for BMBE beneficiaries.

however, if no sufficient proof is submitted as to its acquisition cost, the same shall be valued at
current zonal value as established by the BIR (DOF D.O. No. 17-04).

17
May 2024

statutory minimum wage

(7) Minimum Wage Earners (“MWEs)47 Holiday Pay Hazard Pay
Overtime Pay Night Shift Differential
MWEs shall be exempt from the payment of income tax on their statutory
minimum wage. Holiday pay, overtime pay, night shift differential pay, and
hazard pay received by such minimum wage earner shall likewise be exempted
from income tax.

Note: An employee who has 2 or more employers each paying him an SMW, shall
remain to be an MWE exempt from income tax and withholding tax on the SMW
he receives from each employer.

However, the Following Income Payments to MWEs are Taxable and Subject
to Withholding:

1) Additional compensation received from his employer, other than the SMW, holiday
pay, overtime pay, hazard pay, and night shift differential pay, such as (a)
commissions, (b) honoraria, (c) fringe benefits, (d) benefits in excess of the
allowable statutory amount of “13th month pay and other benefits” of ₱90,000, (e)
taxable allowances, and (f) other taxable income.

2) Income from the conduct of trade, business, or practice of a profession (except

income subject to final tax), in addition to his compensation income.

47
MWEs are workers in the private or public sector who are paid the statutory minimum wage (SMW).
The SMW shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board
(“RTWPB”). The RTWPB of each region shall determine the wage rates in the different regions based
on established criteria and shall be the basis of exemption from income tax for this purpose.

18
May 2024

Filing ITRs of Individual Taxpayers

1. Individuals Required to File Income Tax Return

RC (a) Every Filipino citizen residing in the Philippines;

nRC (b) Every Filipino citizen residing outside the Philippines on his income from sources
within the Philippines;
RA (c) Every alien residing in the Philippines on income derived from sources within the
Philippines; and
NRA (d) Every non-resident alien engaged in trade or business or in the exercise of a

profession in the Philippines.

2. Individuals Not Required to File Income Tax Return

(a) An individual whose taxable income does not exceed ₱250,000 under the graduated
rates of Section 24(A)(2)(a) of the Tax Code.

EXC. An individual (whether citizen or alien) engaged in business or practice of a

profession within the Philippines shall file income tax returns, regardless of
the amount of gross income.

(b) An individual receiving purely compensation income, regardless of amount, from

only one employer in the Philippines for the calendar year, the income tax of which
has been withheld correctly by the said employer (substituted filing)48.

EXC.

1) An individual deriving compensation from two or more employers

concurrently or successively at any time during the taxable year shall file an
income tax return.

2) Individuals receiving purely compensation income from a single employer

although the income tax of which has been correctly withheld, but whose
spouse does not qualify for substituted filing, must file an income tax return
covering the income of both spouses.

(c) An individual whose sole income has been subjected to final withholding tax
pursuant to Section 57 (A) of the Tax Code.

(d) A minimum wage earner as defined in Section 22(HH) of the Tax Code or an
individual who is exempt from income tax pursuant to the provisions of this Code
and other laws, general or special.

48
The employee shall sign BIR Form No. 2316 (Certificate of Compensation Payment and Tax
Withheld) and return the same to the employer. The employer shall, in turn, submit a duplicate copy to
the BIR not later than February 28 of the succeeding year with the accompanying Certified List of
Employees Qualified for Substituted Filing of ITR. This list, when stamped “RECEIVED” by the BIR
shall be tantamount to the substituted filing of ITR by the qualified employees.

19
May 2024

Notes:

(1) Individuals deriving other non-business, non-profession-related income in addition

to compensation income not otherwise subject to final tax are required to file an
income tax return.

(2) The foregoing notwithstanding, any individual not required to file an income tax
return may nevertheless be required to file an information return pursuant to rules
and regulations.

3. Husband and Wife

Married individuals shall file a joint return to include the income of both spouses, but
where it is impracticable for the spouses to file one return, each spouse may file a
separate return of income but the returns so filed shall be consolidated by the BIR for
purposes of verification for the taxable year.

Return of Parent to Include Income of Children

The income of unmarried minors derived from property received from a living parent
shall be included in the return of the parent, except:

(1) When the donor’s tax has been paid on such property; or
(2) When the transfer of such property is exempt from donor’s tax.

4. Individual returns shall be filed in duplicate.

5. Required Attachments

(a) BIR Form No. 2316 (Certificate of Compensation Payment/Tax Withheld) – for
individuals earning compensation income.
(b) BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source) – for self-
employed individuals, estates and trusts.
(c) Summary Alphalist of Withholding Agents of Income Payments Subjected to
Withholding Tax at Source (“SAWT”)
(d) Audited Financial Statements Which Must be Attached to the Annual Income Tax
Return Upon Filing49

If the gross sales, earnings, receipts, or output from business for the year exceed
₱3,000,000:
(1) Balance Sheet and Profit and Loss Statement certified by an independent CPA.
(2) Comparative profit and loss statements for the current and preceding taxable
years.

49
If an individual taxpayer is computing his tax under the Graduated Rates, and is itemizing deductions,
his Financial Statements (whether audited or not) shall be required as an attachment even if his gross
sales/receipts plus non-operating income is less than ₱3.0 Million. If the same exceeds ₱3.0 Million,
his annual income tax return shall be accompanied by Audited Financial Statements. If he claims the
OSD, or if he avails of the 8% income tax rate option, the Financial Statements are not required
to be attached (Rev. Reg. No. 8-2018).

20
May 2024

(3) Schedule of income producing properties and corresponding incomes

therefrom.

6. Where to File Return

The return shall be filed with:

a) An authorized agent bank (AAB) located within the territorial jurisdiction of the
Revenue District Office where taxpayer is registered,50 or
b) Revenue District Officer, Collection Agent, 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 be no legal residence or place of business in
the Philippines, with the Office of the Commissioner.

7. When to File Return

(a) The annual return must be filed on or before the fifteenth (15th) day of April of
each year covering income for the preceding taxable year;

(b) Individuals earning self-employment (business) income (whether solely or in

combination with employment income or other income not subject to final taxes)
must file quarterly returns51 and a final adjusted return (annual ITR)52 as follows:

1st Quarter - on or before May 15 of the current taxable year;

2nd Quarter - on or before August 15 of the current taxable year;
3rd Quarter - on or before November 15 of the current taxable year;
Final Adj. Return - on or before April 15 of the next year.53, 54

50
AABs have been instructed to accept out-of-district returns (i.e. returns filed outside the jurisdiction
of the RDO where the taxpayer is registered) whose due dates fell within the ECQ period.
51
BIR Form No. 1701Q (Quarterly ITR for Self-Employed Individuals, Estates, and Trusts)
52
BIR Form No. 1700 (Annual ITR for Individuals Earning Purely Compensation Income)

BIR Form No. 1701 (Annual ITR for Individuals (Including MIXED Income Earner), Estates and
Trusts)

BIR Form No. 1701A (Annual ITR for Individuals Earning Income PURELY from
Business/Profession: Those under the graduated rates with OSD as mode of deduction OR those
who opted to avail of the 8% income tax rate)
53
RR No. 8-2018. However, under the Tax Code as amended by the TRAIN Law, the final adjusted
ITR shall be filed on or before May 15 of the following year. For purposes of the CPALE, we will
follow RR No. 8-2018.
54
Professionals and other suppliers of services deriving gross receipts of ₱250,000 or less in any 12-
month period and who (1) are hired under a job order or service contract with the departments and
agencies of the government, local government units (“LGUs”), state colleges and universities, including
GOCCs and government financial institutions (“GFIs”), and (2) receive income from a LONE PAYOR
with no other source of income, shall be exempt from filing quarterly ITRs. Such professional or
supplier of service shall file only an annual ITR (RMC No. 51-2018).

21
May 2024

(c) Individuals subject to tax on capital gains:

(1) From the sale or exchange of shares of stock not traded thru a local stock
exchange: Form No. 1707 shall be filed within thirty (30) days after each
transaction, and a final consolidated return, Form No. 1707-A shall be filed on
or before April 15 of each year covering all stock transactions of the preceding
taxable year; and

(2) From the sale or disposition of real property classified as a capital asset:
Form No. 1706 shall be filed within 30 days following each sale or other
disposition.

8. When There is An Overpayment in the Final Adjusted Return (Annual

Return)
·

Refund
The taxpayer has the following options: ·
TCC
·
jax credit carry over

a) For the overpayment to be refunded to him;

b) For him to be issued a Tax Credit Certificate; or
c) For the overpayment to be carried over as a tax credit against his income tax
liabilities for the quarters of the succeeding taxable years.

Option (c) is the default choice. Once the taxpayer opts to carry-over and apply the
overpayment against the income tax due for the succeeding taxable year, no application
for cash refund, or issuance of a tax credit certificate shall be allowed.

↑ 2 no not corpo
9. Installment Payment - , ,

or before Out 15
1ST -File 2nd-on

When the tax due in the annual ITR is in excess of Two Thousand Pesos (₱2,000), the
taxpayer, other than a corporation, may elect to pay the tax in two (2) equal installments,
in which case, the first installment shall be paid at the time the return is filed, and the
second installment, on or before October 1555 following the close of the calendar year.

If any installment is not paid on or before the date fixed for its payment, the whole
amount of the tax unpaid becomes due and payable, together with the delinquency
penalties.

10. Filing an Amended Return

A return may be modified, changed, or amended within (3) years from the date such
return is filed provided no notice for audit or investigation of such return has, in the
meantime, been actually served upon the taxpayer.

55
Before the TRAIN, the second installment should be paid on or before July 15 following the close
of the calendar year.

22
May 2024

Rules for Filing the 3 Quarterly ITRs and Annual ITR of

Individual Taxpayers:

1) Cumulative Filing. This means that the 1st Quarterly ITR will involve financial data for
the 1st quarter only. The 2nd Quarterly ITR shall include data for the 1st and 2nd quarters of
the year. The 3rd Quarterly ITR shall include data for the 1st, 2nd, and 3rd quarters of the
year. The Annual ITR, which is the final ITR for the taxable year, shall include data for the
1st, 2nd, 3rd, and 4th quarters of the year.

2) Compensation income from being an employee is included only in the Annual ITR.
Business income, gain from sale of ordinary assets, net capital gains from sale of “other
capital assets”, and other taxable income not subject to FT, shall be included in all 3
quarterly ITRs and in the annual ITR.

3) An individual taxpayer shall be filing on a calendar year basis. The deadlines for filing
the ITRs are as follows:

1st Quarter May 15 of the Current Taxable Year

2nd Quarter August 15 of the Current Taxable Year
3rd Quarter November 15 of the Current Taxable Year
Annual ITR April 15 of the Next Year.

23
May 2024

II. Passive Income Subject to Final Withholding Tax (FWT)

Some types of income, collectively referred to as passive income, like interest income,
dividends, royalty income, etc. are subject to final withholding taxes.

Notes:

1. To be subject to the final withholding tax (“FWT”), (a) the income must be taxable by
the Philippine government and (b) the payor must be under the jurisdiction of the BIR.
This means that such income must necessarily be sourced within the Philippines.

2. The payor of the income must withhold the tax. In the case of interest income on a
bank deposit, the bank must withhold the tax.

3. The income subject to final WT is not returnable. This means that the interest income
in number (2) does not have to be reported or included in the ITR of the taxpayer.

TAXATION OF PASSIVE INCOME

Passive Income Citizen and RA NRAETB NRANETB
a) Interest from any currency Generally,
20% 20%
bank deposit in ₱ 25% of gross
b) Yield or monetary benefit from income
deposit substitutes, trust funds, 20% 20% received from
and similar arrangements (Note 1) all sources
c) Royalties 20% 20% within the
Philippines as
Except royalties on books, 10% 10% interest,
literary works, and dividends,
musical compositions rents,
d) Prizes of more than ₱10,000 20% 20% salaries,
premiums,
Except prizes of ₱10,000 or less Included in ITR Included in ITR annuities,
compensation
e) Winnings 20% 20% etc.

Philippine Charity Sweepstakes and Exempt if Exempt if

and Lotto winnings ₱10,000 or less ₱10,000 or less56

f) Interest from a depositary bank 15%57

under the expanded foreign in the in (EXC: NRC – Exempt
currency deposit system -(Note 3) exempt)
g) Interest income from long term
deposit or investment of 5 years Exempt Exempt
or more (Note 2)
h) Cash or property dividend
received from a domestic
corporation, or regional 10% 20%
operating headquarter of an
MNC
i) Share of an individual partner in
the after-tax net income
of a business partnership, or an 10% 20%
organization, JV, or consortium
taxable as a corporation

56
Sec. 25(A)(2), NIRC as amended by R.A. No. 11534 which took effect April 11, 2021.
57
Before January 1, 2018, the FT rate was 7.5%.

24
May 2024

Notes:

1. Deposit substitutes – alternative form of obtaining funds from the public other than
deposits. “Public” means borrowing from 20 or more lenders at any one time. Exs.
Banker acceptances, PNs, repurchase agreements, government debt instruments and
securities.58

- If the debt instrument is not a deposit substitute, interest income shall not be subject
to a final withholding tax. Instead, the interest income shall be included in the
taxpayer’s ITR, and the same shall be subject to CWT.

2. Long-term deposit or investment certificate – Certificate of time deposit or

investment certificates with a maturity of at least 5 years issued by a bank, and not
by a non-bank financial intermediary. The exemption only covers interest income.
Any gain from trading such certificates is not covered by the exemption.

- NRANETB shall not be exempt

- the LT deposit or investment certificate must be issued by a bank
- may be in the form of savings, common, or individual trust funds, deposit
substitutes, investment management accounts
- investment must have a maturity of at least 5 years from the time it is held
- investment must be held for at least 5 years for the interest income to be exempt

Pre-termination of investment
If the deposit or investment is pre-terminated before the 5th year, the entire income shall
be subject to final tax to be withheld by the depositary bank from the proceeds of the
long-term deposit or investment based on the holding period of the taxpayer:

Less than 3 years 20%

3 years to less than 4 years 12%
4 years to less than 5 years 5%

Ex. A long-term investment instrument with a maturity of 30 years was bought by Mr.
A from a bank. The instrument was sold successively to other investors. The
holding periods of the investors are as follows:

Holding Period FWT Rate

Mr. A (NRC) 3 years 12%
Mr. B (RA) 2 years 20%
Mr. C (NRA ETB) 5 years Exempt
Mr. F (NRA NETB) 5 years 25%

58
Government debt instruments and securities shall be considered deposit substitutes irrespective of the
number of lenders at the time of origination, if the same are to be traded or exchanged in the secondary
market.

25
May 2024

3. Interest on foreign currency bank deposits RG & RA only at 15

%

Interest on foreign currency deposit is taxable if received by an individual taxpayer,

except a non-resident individual, who may be a non-resident citizen or a non-resident
alien.59

An OCW shall be exempt from the 15% final tax on interest income from a foreign
currency bank deposit in the Philippines. However, if the deposit account is jointly in
the name of an OCW and another individual (spouse or dependent) who is a Philippine
resident, only 50% of the interest income shall be exempt, while the other 50% shall be
subject to the 15% FWT.

4. Interest income from savings and time deposits of members with their credit
cooperative , and interest income from cooperative members’ fixed deposits (i.e.
paid-up capital) – exempt from tax.

5. BIR Forms filed by the Payor of the Income60

Monthly Remittance (Form Filed not later than the 10th day of the month
0619F) following the month when withholding was
made. Filed for the first two (2) months of each
calendar quarter.

Quarterly Remittance (Form Filed not later than the last day of the month
1601FQ) following the close of the quarter during which
withholding was made.

Attachment: Quarterly Alphabetical List of

Payees (QAP) reflecting the name of the
payees, their TIN, amount of income paid to
each, and FT withheld from each.

Quarterly Remittance of FTs Filed not later than the last day of the month
Withheld on Interest paid on following the close of the quarter.
Deposits/Deposit
Substitutes/Trusts/Etc (Form
1602Q)

Annual Information Return of Filed on or before January 31 of the year

FWTs (Form 1604-F) following the calendar year in which the income
payments subject to FWTs were paid or
accrued.

59
Sec. 24 (B) (1), NIRC.
60
These forms are also used to pay the following final taxes: (a) 25% FT on income from film leasing
and distribution within the Philippines of NRA cinematographic film owner, lessor, or distributor; (b)
8% FT on income derived by subcontractors in petroleum operations; (c) 10% FT on informer’s
reward; and (d) 25% FT on income paid to NRANETBs.

26
May 2024

Annual alphalist of payees, income payments,

and FWTs shall be reflected in the Schedules of
Form 1604-F.

6. Dividends received from a Foreign Corporation:

If received by:
RC NRC, RA, NRAETB NRANETB

GR: Such dividend is Included in the Exempt Exempt

income without ITR

EXC: When dividend 100% of dividend Part without shall be Part without shall be
is sourced partly is included in the exempt exempt
within and partly ITR
without Part within shall be Part within shall be
included in the ITR subject to a 25% FT

27
May 2024

III. Capital Gains Subject to Final Tax (also known as “Capital Gains Tax”)
common shares

A. On the Sale of Domestic Shares of Stock

1. Shares of stock in a domestic corporation not traded in the stock exchange.

(a) Tax Base – Net capital gain which is the excess of the amount realized on the sale
(selling price) over the basis or adjusted basis of the shares.

Selling price – the total consideration of the sale consisting of the sum of money
and/or the fair market value of property received, if any.

Adjusted basis – the basis of the shares sold plus expenses of sale/disposition

(b) Tax rate on net capital gain: 15%61

(c) Withholding agent – The payor of the income who, in this case, is the buyer.

(d) Who are subject? All individual taxpayers, except the following:62

(1) Dealers in securities. The gains from such sales by dealers shall be included as
ordinary income in their income tax returns;

(2) Investors in shares of stock in a mutual fund company.

(3) All other persons, whether natural or juridical, who are specifically exempt from
national internal revenue taxes under existing investment incentives and other
special laws.

(e) The sale, barter, or exchange of stock options is treated as a sale, barter, or
exchange of shares of stock not listed on the stock exchange.63

(f) BIR Forms to be filed:

Form 1707 Filed within thirty (30) days after each transaction
Form 1707-A (Final Filed on or before April 15 of each year covering all
Consolidated Return) stock transactions of the preceding year.

61
Before January 1, 2018, the FT was 5% on the first ₱100,000 of gain plus 10% on any gain in excess
of ₱100,000.
62
Rev. Reg. No. 6-2008.
63
RMC No. 79-2014.

28
May 2024

2. Shares of stock listed and traded thru the local stock exchange64
business tax not income tax
↑

(a) Rate and Base – Six-tenths of one percent (6/10 of 1%)65 of the gross selling price
or gross value in money of the shares of stock sold.

(b) Withholding agent – The tax must be deducted and withheld by the stockbroker who
effected the sale at the stock exchange.

(c) Who are subject? All individual taxpayers, except the following:66

(1) Dealers in securities;

(2) Investors in shares of stock in a mutual fund company;

(3) All other persons, whether natural or juridical, who are specifically exempt from
national internal revenue taxes under existing investment incentives and other
special laws.

(4) Sellers of shares of a publicly-listed company which is non-compliant with the

mandatory minimum public ownership (“MPO”)67 – subject to the 15% capital
gains tax.

(5) Sellers of shares of stock in the stock exchange where the transaction excludes
the public by pre-arranging the sale or pre-determining the buyers. Ex. Block
sale - subject to the 15% capital gains tax.

(d) Kind of tax – Business tax. The sale in the local stock exchange of traded domestic
shares held as capital assets does not give rise to an income tax event. In other
words, such a transaction is exempt from income tax. The 6/10 of 1% tax on the
selling price is a tax on the sales transaction and not on the income or gain from
such sale.

(e) BIR Form to be filed by the Stockbroker who effected the sale:

Form No. 2552 Filed within five (5) banking days from the date of collection

Notes:

(1) The rules above cover situations where a corporation voluntarily buys back its own
common shares thereby becoming treasury shares. In such cases, the stock
transaction tax under Section 127(A) of the Tax Code shall apply if the shares are

64
Sec. 127(A), NIRC.
65
Before January 1, 2018, the FT was ½ of 1% of the gross selling price.
66
Rev. Reg. No. 6-2008.
67
MPO – the minimum percentage of outstanding shares held by the public or public float. It also
refers to the portion of outstanding shares of the company which are freely available and tradeable
in the market. Currently the MPO is 20%.

29
May 2024

bought in a local stock exchange. Otherwise, the transaction shall be subject to the
net capital gains (final) tax.68

(2) Tax on traded shares – The tax on the sale of shares traded at the stock exchange
is not an income tax, but a business tax (i.e. a tax on the sales transaction). It is in
the form of a percentage tax on the selling price under Section 127(A) of the Tax
Code, which is also called a stock transaction tax. However, the imposition of a
percentage tax on the selling price of traded shares has the effect of a final tax
because any gain on the sale is not returnable.

(3) Effect of Non-Payment of Tax – The sale or exchange cannot be registered in the
books of the corporation unless the receipts of payment of the tax imposed is filed
with and recorded by the stock transfer agent or secretary of the corporation. Any
stock transfer agent or secretary of the corporation or the stockbroker, who caused
the registration of transfer of ownership or title on any share of stock in violation of
the aforementioned requirement shall be punished in accordance with the provisions
of the Tax Code.69

(4) Redemption of preferred shares. If redeemed by issuing corporation which is not

contemplating dissolution, any capital gain or loss of the preferred shareholder
from the redemption shall be subject to the regular income tax.

B. On the Sale of Real Property Classified as Capital Assets

1. Transaction subject – Sale, transfer, or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de retro sales and other forms
of conditional sales.

2. Rate and Base of Tax – Six percent (6%) of the gross selling price or current fair market
value of the property, whichever is higher. The fair market value of the property is the
higher of zonal value or assessor’s value.

3. Final Tax – The tax to be withheld by the payor (buyer) is a final tax and the capital
gain from the sale is not returnable.

4. Who are Subject? All individual taxpayers.

5. Forced Sale to the State Under Eminent Domain – If the sale is made to the government
or any of its political subdivisions or agencies, or to government-owned or –controlled
corporations, the taxpayer may choose either (a) to have the gain included and taxed in
the ITR or (b) to be subject to the capital gains tax under Section 24(D).

68
Rev. Reg. No. 6-2008.
69
Sec. 11, Rev. Regs. No. 6-2008.

30
May 2024

6. Exemption from the Capital Gains Tax:

(a) Sale of raw lands to be used for “socialized housing” projects, or sold under the
Community Mortgage Program (CMP).70

(b) Land transfers under the Comprehensive Agrarian Reform Law of 1988.

(c) Sale of principal residence, and subsequent acquisition or construction of another

principal residence:71
1) Sale by a natural person (individual) of his principal residence located in the
Philippines;
2) The proceeds of the sale must be fully utilized in acquiring or constructing a
new principal residence within 18 calendar months from the date of sale;
3) The historical cost or adjusted basis of the real property sold or disposed shall
be carried over to the new principal residence built or acquired;
4) The taxpayer must notify the Commissioner within 30 days from the date of
sale or disposition of his intention to avail of the tax exemption;
5) The 6% capital gains tax shall be deposited in cash or manager’s check in an
interest-bearing account with an authorized agent bank (“AAB”) under an
Escrow Agreement between the concerned Revenue District Officer, the
seller, and the buyer-transferee.
6) The tax exemption can be availed of only once every 10 years.

Proceeds of sale not fully utilized – If the proceeds of the sale are not fully utilized
in the purchase or construction of a new residence in 6(c) above, the portion of
the gain presumed to have been realized on the sale shall be subject to capital
gains tax. The following formula is used to arrive at the taxable portion:

Unutilized Amount x (Higher of GSP or FMV) = Taxable

Gross Selling Price (“GSP”) Portion

7. BIR Form to be filed:

Form 1706 Filed within thirty (30) days following each sale, exchange, or
disposition of real property.

Final Tax on Informer’s Reward

Informer – person (except a BIR employee, or other public employee, or his relative
within the 6th degree of consanguinity) who gives information that leads to the
discovery of frauds or violations of tax laws, which results in the recovery of taxes, or
in the conviction of the tax evader, or in a compromise agreement with the BIR.

Reward = LOWER of (a) Ten percent (10%) of the revenues, surcharges, or fees
recovered and/or fine, or penalty imposed and collected, or the value of
smuggled and confiscated goods, OR (b) One million pesos (₱1,000,000)
per case.

Final Tax = 10% of the reward.

70
R.A. No. 7279.
71
Sec. 24(D)(2), NIRC.

31
May 2024

WITHHOLDING TAX ON INCOME PAYMENTS

Final Withholding Tax (“FWT”)

a) FTs on passive income
b) CGT on sale of domestic shares, and sale of real property
classified as capital asset.

TWO TYPES
Creditable Withholding Tax (“CWT”) or EWT
a) On compensation income
b) On certain income payments (EWT)

Withholding Tax System:

a) For the income payment to be subject to the CWT and to the FWT, the following must
concur:
(1) The income payment must be taxable to the payee; and
(2) The BIR must have jurisdiction over the payor of the income (in most cases, this means
that the income must be sourced within the Philippines).

b) Not all income payments are subject to creditable WT. Only those payments specified
or enumerated in the law or internal revenue regulations are subject to the creditable
withholding tax system.

c) The income subject to FWT is not returnable, i.e. not included in the ITR of the recipient of
the income.

On the other hand, the income subject to CWT shall be included in the ITR of the payee of
the income. The amount to be reported by the payee shall be gross of the CWT.

d) The CWT withheld by the payor shall be allowed as a tax credit against the income tax
liability of the payee in the taxable year or quarter in which the income was earned or
received.

There is no need for the taxpayer-claimant to prove actual remittance by the withholding
agent to the BIR.72 As long as the taxpayer-claimant receives the BIR Form No. 2307 from
his customer/client and attaches the same to his ITR, the former can avail of a tax credit
equivalent to the amount reflected therein as tax withheld.

e) Time of withholding. When an income payment is paid or payable, or when it is accrued

or recorded as an expense or asset by the payor, whichever comes first.

f) Income payments subject to CWT (see list on pages 31-33). The payor of such incomes
must withhold the CWT thereon. Otherwise, such payor cannot use such payments as
deductions against gross income in computing the net taxable income in the ITR.

72
The withholding of the income tax and the remittance thereof are the responsibility of the
withholding agent and not of the taxpayer-claimant. The latter therefore has no control over the
remittance of the taxes withheld from its income by the withholding agent or payor. (McKinsey Co.
vs. CIR, CTA Case No. 9332, May 28, 2019.)

32
May 2024

Types of CWTs
CWT on Compensation CWT on Other Income (Expanded WT)

Who Withholds: Who Withholds:

Employer - Files a Form 1601-C73 monthly Customer or Client - Files a Form 0619E and
and remits the WT to the BIR. remits the WTs within ten (10) days after the
end of the month in which the withholding
At the end of the year, employer files a Form was made. This is filed for the first two (2)
1604-C,74 which lists the total WTs on months of each calendar quarter.
compensation from all its employees for the
taxable year.
- Shall also attach an Alphalist of Files a Form 1601-EQ quarterly not later
Employees containing compensation than the last day of the month following the
income of each employee, and taxes close of the quarter during which the
withheld from each. withholding was made. In such form, the
amount payable shall be equal to the total
taxes withheld during the quarter less the
amounts paid in the first 2 months of the
quarter.
Attachment: Quarterly Alphalist of Payees
and WTs (QAP).

On or before March 1 of the following year,

customer files a Form 1604-E which lists all
the WTs withheld from all its payees (i.e. its
vendors or suppliers) for the entire previous
taxable year.
- Shall also attach an Alphalist of
Payees and WTs which is to be
attached to the aforementioned form.

Amount of CWT: Amount of CWT:

Depends on the compensation of the Depends on the nature of the income

employee, and on his income tax rate. payment and the CWT rate as provided by
law

Employee: Payee (Vendor or Supplier):

Will receive from his employer at the end of Will receive a Form 2307 from the customer
the year a Form 2316 stating his total gross or client showing the tax withheld from the
taxable compensation income, non-taxable income payment within 20 days from the
payments made by the employer, and the close of the quarter, or upon request of the
total taxes withheld by the employer. payee.
A complete list of income payments to
individual payees which are subject to the
Expanded Withholding Tax (“EWT”) is
found in the next 2 pages.

73
For the months of January to November, Form 1601C shall be filed on or before the tenth (10th) day
of the following month in which the withholding was made. For taxes withheld in December, Form
1601C shall be filed not later than January 15 of the succeeding year.
74
Form 1604-C shall be filed on or before January 31 of the following year.

33
 May 2024

Note: The EWT rates with stars are those rates which students must be familiar with for the
board exams.
* Summarize

INDIVIDUAL PAYEES EWT

1) Professionals (Lawyers, CPAs, Engineers, etc.)
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
2) Professional Entertainers such as, but not limited to actors, singers, lyricists, composers, emcees
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
3) Professional Athletes including basketball players, pelotaris, and jockeys
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
4) Directors and Producers involved in movies, stage, radio, television, and musical productions
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
5) Management and Technical Consultants
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
6) Business and Bookkeeping Agents and Agencies
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
7) Insurance Agents and Insurance Adjusters
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
8) Other Recipients of Talent Fees
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
9) Fees of Directors who are Not Employees of the company
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
10) Rentals: On gross rental or lease for the continued use or possession of personal property in excess of
Ten Thousand Pesos (₱10,000) annually, and real property used in business which the payor or obligor
has not taken title or is not taking title to, or in which he has no equity; poles, satellites, transmission 5%
facilities and billboards.

11) Cinematographic film rentals, and other payments to resident individuals and corporate
cinematographic film owners, lessors, or distributors. 5%
12) Income payments to certain contractors 2%
13) Income distribution to the beneficiaries of estates and trusts 15%
14) Gross commissions or service fees of customs, insurance, stock, immigration and commercial
brokers; fees of agents of professional entertainers and real estate service practitioners (RESPs)
(i.e. real estate consultants, real estate appraisers, and real estate brokers)

- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
15) Professional fees paid to Medical Practitioners (includes doctors of medicine, doctors of
veterinary science, and dentists) by hospitals and clinics or paid directly by Health Maintenance
Organizations (HMOs) and/or similar establishments
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
16) Payments by a General Professional Partnership (GPP) to its partners

34
 May 2024

- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
17) Income Payments made by Credit Card Companies 0.5%
18) Income Payments made by the Government and government-owned and controlled corporations
(GOCCs)
- To its local/resident suppliers of goods other than those covered by other rates of withholding tax 1%
- To its local/resident suppliers of services other than those covered by other rates of withholding tax 2%
19) Additional Income Payments to Government Personnel from importers, shipping and airline
companies or their agents for overtime services 15%
20) Income Payments made by Top Withholding Agents75, 76
- To their local/resident suppliers of goods other than those covered by other rates of withholding tax 1%
- To their local/resident suppliers of services other than those covered by other rates of withholding tax 2%
21) Commissions, Rebates, Discounts and Other Similar Considerations Paid/Granted to
Independent and/or Exclusive Sales Representatives and Marketing Agents and Sub-Agents of
Companies, including Multi-Level Marketing Companies
- If gross income of payee for the current year did not exceed ₱3M 5%
- If gross income of payee is more than ₱3M, or payee is VAT-registered regardless of amount 10%
22) Gross Payments to Embalmers by Funeral Parlors 1%
23) Payments by Pre-Need Companies to Funeral Parlors 1%
24) Tolling Fees Paid to Refineries 5%
25) Income Payments Made To Suppliers of Agricultural Products in Excess of Cumulative Amount
of ₱300,000 Within the Same Taxable Year 1%

26) Income Payments on Purchases of Minerals, Mineral Products, and Quarry Resources, such as
but not limited to silver, gold, marble, granite, gravel, sand, boulders, and other mineral 5%
products except purchases by the Bangko Sentral ng Pilipinas

27) Income Payments on Purchases of Minerals, Mineral Products, and Quarry Resources by the
Bangko Sentral ng Pilipinas from Gold Miners/Suppliers under P.D. No. 1899, as amended by 1%
R.A. No. 7076

28) On Gross Amount of Refund Given by MERALCO to Customers with Active Contracts as
Classified by MERALCO 15%

29) On Gross Amount of Interest on the Refund of Meter Deposit Whether Paid Directly to the
Customers or Applied Against the Customer's Billings of Residential and General Service
Customers Whose Monthly Electricity Consumption Exceeds 200 KWH as Classified by 10%
MERALCO

75
Under RR No. 31-2020, top withholding agents shall refer to those taxpayers whose gross
sales/receipts or gross purchases during the preceding year taxable year shall fall under the minimum
thresholds determined according to the existing group classifications of Revenue District Offices
where they are duly registered, as follows:

Gross Sales/Receipts or Gross Purchases of

RDO Group Classification
At Least
Groups A and B Twelve Million Pesos (₱12,000,000)
Groups C, D, and E Five Million Pesos (₱5,000,000)
76
Top withholding agents (TWAs) are obligated to withhold 1% or 2% on (a) their purchases of goods
and services, respectively, from regular suppliers, and (b) casual purchases worth ₱10,000 and
above.

Regular suppliers are defined as suppliers with whom the taxpayer-buyer has at least six (6)
transactions, regardless of amount, either in the previous year or current taxable year.

35
 May 2024

30) On Gross Amount of Interest on the Refund of Meter Deposit Whether Paid Directly to the
Customers or Applied Against the Customer's Billings of Non-Residential Customers Whose 15%
Monthly Electricity Consumption Exceeds 200 KWH as Classified by MERALCO

31) On Gross Amount of Interest on the Refund of Meter Deposit Whether Paid Directly to the
Customers or Applied Against the Customer's Billings of Residential and General Service
10%
Customers Whose Monthly Electricity Consumption Exceeds 200 KWH as Classified by Other
Electric Distribution Utilities (DUs)
32) On Gross Amount of Interest on the Refund of Meter Deposit Whether Paid Directly to the
Customers or Applied Against the Customer's Billings of Non-Residential Customers Whose
Monthly Electricity Consumption Exceeds 200 KWH as Classified by Other Electric Distribution 15%
Utilities (DUs)

33) Income Payments Made by Political Parties and Candidates of Local and National Elections on
all their Purchases of Goods and Services Related to Campaign Expenditures, and Income
Payments made by Individuals or Juridical Persons for their Purchases of Goods and Services 5%
Intended to be Given as Campaign Contributions to Political Parties and Candidates

34) Interest Income Derived from any Debt Instrument Not Within the Coverage of Deposit
Substitutes and Rev. Reg. No. 14-2012. 15%

35) Income Payments on Locally Produced Raw Sugar 1%

36) Income Payments made by joint ventures/consortiums
- To its local/resident suppliers of goods 1%
- To its local/resident suppliers of services 2%

37) Distributive share of co-venturers/members in the net income of a JV/consortium not 15%
taxable as a corporation

Notes to EWT:

(a) For income payments numbers 1 to 9, 14, 15, and 21, two withholding rates are prescribed,
5% or 10%.

The payor/withholding agent shall withhold the higher rate of 10% if:
(1) the payee fails to provide the income payor/withholding agent of the required
declaration77; or
(2) the income payment exceeds ₱3.0 Million, despite receiving the sworn declaration
from the income payee.78

(b) For number 9, if the director is also an employee, the fees shall form part of compensation
income subject to the WT on compensation.

(c) An individual payee shall not be subjected to withholding if:

77
Income Payee’s Sworn Declaration of Gross Receipts/Sales (for Self-Employed and/or Engaged in
the Practice of Profession with Several Income Payors) that his gross receipts will not exceed ₱3.0
Million and that he is not VAT-registered (Annex B-1 of Rev. Reg. No. 11-2018).

Individual payees whose gross receipts/sales in a taxable year shall not exceed ₱3.0 Million, are
required to submit such Sworn Declaration of Gross Receipts/Sales, together with a copy of his
Certificate of Registration (“COR”), to all the income payors/withholding agents not later than
January 15 of each year or at least prior to the initial payment of the professional
fees/commissions/talent fees, etc in order for them to be subject to five percent (5%).
78
Sec. 2.57.3 of Rev. Reg. No. 2-98, as amended by Rev. Reg. No. 11-2018.

36
May 2024

(1) the source of income comes from a lone income payor, and
(2) the total income payment is less than ₱250,000 in a taxable year, and
(3) the concerned payee executes an Income Payee’s Sworn Declaration of Gross
Receipts/Sales79 that shall be submitted to the lone payor. The payee’s sworn
declaration shall be submitted to the lone income payor before the initial payment of
income on or before January 15 of each year, whichever is applicable.

In the event that the individual payee’s cumulative gross receipts in a year exceed
₱250,000, the income payor/withholding agent shall withhold the prescribed withholding
tax based on the amount in excess of ₱250,000, despite the prior submission of the
individual income payee’s sworn declaration. On the other hand, if the individual income
payee failed to submit an income payee’s sworn declaration to the lone income
payor/withholding agent, the income payment shall be subject to the applicable
withholding tax even though in a taxable year the income payment is ₱250,000 and
below.80

(d) The income payors/withholding agents shall subsequently execute a sworn declaration81
stating the number of payees who have submitted the income payees’ sworn declarations
with the accompanying copies of their CORs. Such declaration of the income
payors/withholding agents shall be submitted, together with the list of payees, to the
concerned BIR office where registered on or before January 31 of each year or fifteen (15)
days following the month when a new income recipient has submitted the payee’s sworn
declaration.

79
Income Payee’s Sworn Declaration of Gross Receipts/Sales (for Self-Employed and/or Engaged in
the Practice of Profession with Lone Income Payor) (Annex B-2 of Rev. Reg. No. 11-2018)
80
Sec. 2.57.3 of Rev. Reg. No. 2-98, as amended by Rev. Reg. No. 11-2018.
81
Annex C of Rev. Reg. No. 11-2018.

37
May 2024

Graduated Tax Rates: Effective January 1, 2018 to December 31, 2022:

On citizens, resident aliens, non-resident aliens engaged in business in the Philippines

On compensation, business and other income

Range of Taxable Income (TI) Tax Due = a + [b x (TI - c)]

Over Not Over Basic Amount Additional Rate Of Excess Over
(a) (b) (c)
- 250,000 - -
250,000 400,000 - 20% 250,000
400,000 800,000 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 - 2,410,000 35% 8,000,000

Graduated Tax Rates: Effective January 1, 2023 onwards:

On citizens, resident aliens, non-resident aliens engaged in business in the Philippines

On compensation, business and other income

Range of Taxable Income (TI) Tax Due = a + [b x (TI - c)]

Over Not Over Basic Amount Additional Rate Of Excess Over
(a) (b) (c)
- 250,000 - -
250,000 400,000 - 15% 250,000
400,000 800,000 22,500 20% 400,000
800,000 2,000,000 102,500 25% 800,000
2,000,000 8,000,000 402,500 30% 2,000,000
8,000,000 - 2,202,500 35% 8,000,000

38