C.

Tax Rates
1. Individuals
a. Graduated income tax rates on taxable income
b. Capital gains flat rate
i . on sales of shares of stock of domestic corporation (except dealers
in securities)
aa. of 1% Gross Selling price listed shares
bb. 5% for 1st 100,000 and 10% in excess of 100,00 of net Capital gains
shares not listed and exchanged in stock exchange
ii. On sale of real property classified as capital asset by individual flat
rate 6%
c. Passive income subject to final tax at preferential rates
2. Corporations
a. Domestic
i . Regular of normal income tax rate flat rate 30% starting 2009
ii. MCIT
SEC 27 NIRC Rates of Income tax on Domestic Corporations. (E) Minimum Corporate Income Tax on Domestic Corporations. (1) Imposition of Tax. - A minimum corporate income tax of two percent (2%0
of the gross income as of the end of the taxable year, as defined herein, is
hereby imposed on a corporation taxable under this Title, beginning on the
fourth taxable year immediately following the year in which such corporation
commenced its business operations, when the minimum income tax is greater
than the tax computed under Subsection (A) of this Section for the taxable
year.
(2) Carry Froward of Excess Minimum Tax. - Any excess of the minimum
corporate income tax over the normal income tax as computed under
Subsection (A) of this Section shall be carried forward and credited against
the normal income tax for the three (3) immediately succeeding taxable
years.
(3) Relief from the Minimum Corporate Income Tax Under Certain Conditions. The Secretary of Finance is hereby authorized to suspend the imposition of
the minimum corporate income tax on any corporation which suffers losses
on account of prolonged labor dispute, or because of force majeure, or
because of legitimate business reverses.
The Secretary of Finance is hereby authorized to promulgate, upon
recommendation of the Commissioner, the necessary rules and regulation
that shall define the terms and conditions under which he may suspend the
imposition of the minimum corporate income tax in a meritorious case.

(4) Gross Income Defined. - For purposes of applying the minimum

corporate income tax provided under Subsection (E) hereof, the term
'gross income' shall mean gross sales less sales returns, discounts and
allowances and cost of goods sold. "Cost of goods sold' shall include all
business expenses directly incurred to produce the merchandise to
bring them to their present location and use.
REVENUE REGULATIONS 12-07 SEC. 2. AMENDATORY
PROVISION. Pertinent portions of
of Revenue Regulations No. 9- are hereby
to read as
98
amended
follows:
Sec.
INCOM
2.27(E)
MINIMUMCORPORATE E
TAX
DOMESTIC CORPORATIONS

Sec. 2.27(E)

(MCIT
)
ON

(1) Imposition of the Tax. - A minimum corporate income

tax (MCIT) of two percent (2%) of the gross income as of the end of the
taxable year (whether calendar or fiscal year, depending on the
accounting period employed) is hereby imposed upon any domestic
corporation beginning on the fourth (4th) taxable year immediately
following the taxable year in which such corporation commenced its
business operations. The MCIT shall be imposed whenever such
corporation has zero or negative taxable income or whenever the
amount of minimum corporate income tax is greater than the normal
income tax due from such corporation. XXX
For purposes of these Regulations, the term, normal income tax means
the income tax rates prescribed under Sec. 27 (A) and Sec. 28(A)(1) of the
Code at 34% on January 1, 1998; 33% effective January 1, 1999; at 32%
effective January 1, 2000 and 35% effective November 1, 2005 and
thereafter.
Provided, however, that effective January 1, 2009 the rate of income
tax shall be thirty percent (30%), pursuant to RA No. 9337.
In the case of a domestic corporation
xxx xxx xxx
(2) Carry forward of excess minimum corporate income
tax xxx xxx xxx
Illustration on to carry forward excess minimum
how
corporate income tax
presen on annualized
ted
basis Excess of MCIT
Normal Income
Over the Normal
Year
Tax
MCIT
Income Tax
P
1998
P50,000
75,000 P25,000
amount of tax
P
1998 payable
75,000
P100,00
1999
P60,000
0
P40,000

1999
2000

amount of tax
payable

P100,000

Computation of Net Amount of Tax

Payable in 2000:
Amount of tax
payable
Less:
(25,000
1998 excess MCIT )
(40,000
1999 excess MCIT )
Net amount of tax
payable

P100,00
0
P60,000

P100,0
00

P65,00
0
P35,00
0

The taxpayer shall pay the MCIT whenever it is greater than

the regular or normal corporate income tax which is imposed under Sec.
27(A) and Sec. 28(A)(1) of the Code. The final comparison between the
normal income tax payable by the corporation and the MCIT shall be
made at the end of the taxable year and the payable or excess
payment in the Annual Income Tax
Return shall be computed taking into consideration corporate
income tax payment made at the time of filing of quarterly
corporate income tax returns whether this be MCIT or normal
income tax Thus, under the example, the taxpayer should have paid
the MCIT of P75,000.00 since this amount is greater than the normal
income tax of P50,000.00 in 1998.

xxx

xx xx
x x

(3) Relief from the Minimum Corporate Income Tax under Certain
Conditions
xxx xxx xxx
xxx xxx xxx
(4) Definition of Terms
(a) Gross income defined For purposes of the minimum
corporate income tax prescribed under this Subsection, the term gross
income means gross sales less sales returns, discounts, and
allowances and cost of goods sold, in case of sale of goods, or gross
revenue less sales returns, discounts, allowances and cost of
services/direct cost, in case of sale of services . This rule,
notwithstanding, if apart from deriving income from these core
business activities there are other items of gross income
realized or earned by the taxpayer during the taxable period
which are subject to the normal corporate income tax, the same
items must be included as
part of the taxpayers gross income for computing MCIT. This
means that the term gross income will also include all items

of gross income enumerated under Section 32(A) of the Tax

Code, as amended, except income exempt from jncome tax and
income subject to final withholding tax described in the
succeeding subparagraph.
Gross sales shall include only sales contributory to income
taxable under Sec. 27(A) of the Code. Cost of goods sold shall
include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use. Gross
Revenue shall include income from sale of services, likewise, taxable
under Sec. 27(A). Cost of Services or Direct Cost of Services shall include
business expenses directly incurred or related to the gross revenue from
rendition of services.
Passive incomes which are subject to final tax at source shall
not form part of gross income for purposes of minimum corporate
income tax.
xxx
xxx
(5) Specific Rules for Determining the Period When
a Corporation Becomes
Subject to the MCIT xxx xxx xxx
(6) Manner of filing and payment The minimum
corporate income tax (MCIT) shall be paid in the same manner
prescribed for the payment of the normal corporate income tax
which is on a quarterly and on a yearly basis. It shall be covered by a
tax return designed for the purpose which will be submitted together
with the corporation's annual final adjustment income tax return.
Domestic corporations shall be required to pay the minimum corporate
income tax on a quarterly basis, pursuant to the provisions of Sec. 75
and Sec. 77 of the
Code in
Secti 245 of the same Code, as
relation to
on
amended.
xxx
xxx
xxx
th
SEC.3. TRANSITORY PROVISIONS. In
the filing of e quarterly
income tax return for taxable quarter which is due for filing after the
the
effectivity
of these
th
shall be
cumulativ
Regulations,
e
computation of the MCIT done
on e
basis covering not only
current taxable
previous
the
quarter
but also the taxable
quarters of the same taxable year. Such computed MCIT shall be compared
with the cumulative normal income tax, whereupon the higher amount
between the two shall be the basis of the quarterly income tax payment to be
made for said taxable quarter.

Thus, for those using calendar year

basis
quarterly income tax return for third
the
quarter

accounting period, in the filing of

the
ended September
2007
which is due
the 1st and
the gross

on or before
29, 2007,
for filing November
income
for 2nd
shall be added to the gross income for the quarter
September 2007,
quarters ended
the
total of which shall be the basis of the 2%
which shall then be compared
MCIT
with
the computed cumulative
income tax. The cumulative MCIT for the three
normal
(3)
said quarters shall be paid in case the same appears to be higher than the
normal income tax computed for the same period. Excess normal income tax
carried over from previous taxable year and payments made for the previous
quarters of the same taxable year, including withholding tax credits claimed
for said previous quarters of same taxable year shall be credited against the
computed tax due in the cumulative quarterly tax return.

MAMALATEO: MCIT
Gross receipt and cost of services per industry
For purposes of applying MCIT the gross receipts and cost of services of
taxpayers engaged in the following types of services, or any other kind but of
a similar nature, shall be determined as follows:
i) banks and non bank financial intermediaries performing quasi banking
activities pursuant to sec V,W, and X of NIRC xxxx
ii) insurance and pension funding companies
iii) finance companies and other financial intermediaries not performing quasi
banking activities
iv) brokers of securities (excluding banks)
v) customs, insurance, real estate, immigration, and commercial brokers
vi) general engineering and/or building contractors
vii) common carriers or transportation contractors
viii)hotel, motel, rest/pension/lodging house and resort operators
ix) food service establishments
x) lessors of property
xi) telephone and telegraph electric gas, and water utilities
xii) radio and/or television broadcasting
xiii) relief from minimum corporate income tax under certain conditions
xv) specific rules for determining period when a corporation becomes subject
to MCIT
xvi) manner and filing and payment
xvii) accounting treatment of the excess minimum corporate income tax paid
xviii) exceptions

iii. Improperly Accumulated Earnings Tax (IAET)

Section 29. Imposition of Improperly Accumulated Earnings Tax. (A) In General. - In addition to other taxes imposed by this Title, there is
hereby imposed for each taxable year on the improperly accumulated taxable
income of each corporation described in Subsection B hereof, an improperly
accumulated earnings tax equal to ten percent (10%) of the improperly
accumulated taxable income.
(B) Tax on Corporations Subject to Improperly Accumulated Earnings Tax. (1) In General. - The improperly accumulated earnings tax imposed in the
preceding Section shall apply to every corporation formed or availed for the
purpose of avoiding the income tax with respect to its shareholders or the
shareholders of any other corporation, by permitting earnings and profits to
accumulate instead of being divided or distributed.
(2) Exceptions. - The improperly accumulated earnings tax as provided for
under this Section shall not apply to:
(a) Publicly-held corporations;
(b) Banks and other nonbank financial intermediaries; and
(c) Insurance companies.
(C) Evidence of Purpose to Avoid Income Tax. (1) Prima Facie Evidence. - the fact that any corporation is a mere holding
company or investment company shall be prima facie evidence of a purpose
to avoid the tax upon its shareholders or members.
(2) Evidence Determinative of Purpose. - The fact that the earnings or profits
of a corporation are permitted to accumulate beyond the reasonable needs of
the business shall be determinative of the purpose to avoid the tax upon its
shareholders or members unless the corporation, by the clear preponderance
of evidence, shall prove to the contrary.
(D) Improperly Accumulated Taxable Income. - For purposes of this Section,
the term 'improperly accumulated taxable income' means taxable income'
adjusted by:
(1)
(2)
(3)
(4)

Income exempt from tax;

Income excluded from gross income;
Income subject to final tax; and
The amount of net operating loss carry-over deducted;

And reduced by the sum of:

(1) Dividends actually or constructively paid; and
(2) Income tax paid for the taxable year.
Provided, however, That for corporations using the calendar year basis, the

accumulated earnings under tax shall not apply on improperly accumulated

income as of December 31, 1997. In the case of corporations adopting the
fiscal year accounting period, the improperly accumulated income not subject
to this tax, shall be reckoned, as of the end of the month comprising the
twelve (12)-month period of fiscal year 1997-1998.
(E) Reasonable Needs of the Business. - For purposes of this Section, the term
'reasonable needs of the business' includes the reasonably anticipated needs
of the business.
Rev Regulations 2-2001 Digest
REVENUE MEMORANDUM ORDER NO. 2-2001 issued January 18, 2001 defines
and delineates the functions and processes of the National Office
Management Information System (NOMIS)-Management Reporting through
Executive Information System (EIS) Capability (Release 4).
The following officials will have access on the NOMIS (Release 4):
1) Commissioner;
2) Deputy Commissioners;
3) concerned Assistant Commissioners;
4) concerned Head Revenue Executive Assistants;
5) Regional Directors;
6) Asst. Regional Directors of Metro Manila and Cebu City; and
7) selected Division Chiefs and Section Chiefs.
The reports and screens that can be generated, printed or viewed through
NOMIS (Release 4) are specified in the Order, including the Office Scorecard
that will be used in the monitoring of performance of concerned BIR offices.

Notes: IAET! in addition to other income taxes imposed under Income tax, an
improperly accumulated earnings tax equal to 10% of the improperly
accumulated taxable income for each taxable year is imposed.
CONCEPT OF IMPROPERLY ACCUMULATED EARNINGS TAX
a tax equal to 10% of the improperly accumulated taxable income of
corporation formed or availed of for the purpose of avoiding the income tax
with respect to its shareholders or the shareholders of any corporation to
accumulate instead of dividing them among or distributing them to the
shareholders is imposed.
The rationale is that if the earnings and profits were
distributed, the shareholders would then be liable to income
tax thereon, whereas if the distribution were not made to them they
would not incur in respect to the undistributed earnings and profits of
the corporation.
Thus a tax being imposed in the nature of a penalty to the corporation
for the improper accumulation of its earnings and as a form of
deterrent to the avoidance of tax upon shareholders who are supposed
to pay dividends tax on the earnings distributed to them .
If there is a determination that a corporation has accumulated income

beyond the reasonable needs of the business , the 10% improperly

accumulated earnings tax shall be imposed.
DETERMINATION OF REASONABLE NEEDS OF THE BUSINESS
An accumulation of earnings or profits (including undistributed earnings or
profits of prior years ) is unreasonable if it is not necessary for the
purpose of the business , considering all the circumstances of the
case.
To determine the reasonable needs of the business in order to justify an
accumulation of earnings, these Regulations hereby adhere to the so-called
Immediacy test.
Accordingly, the term reasonable needs means the immidate needs
of the business, including reasonably anticipated needs.
In either case, the corporation should be able to prove an immediate
need for the accumulation of the earnings and profits , or the direct
correlation of anticipated needs to such accumulation of profits.
Otherwise such accumulation would be deemed to be not for the
reasonable needs of the business, and the penalty tax would apply.
The following constitute accumulation of earnings for the reasonable needs of
the business:
a) allowance for increase in the accumulation of earnings up to 100% of the
paid up capital of the corporation as of Balance sheet date inclusive of
accumulations taken from the years.
b) earnings reserved for definite corporate expansion projects or programs
requiring considerable capital expenditures as approved by the BOD or
equivalent body
c)Earnings reserved for building, plants or equipment acquisition as approved
by the BOD or equiv body
d) earnings body reserved for compliance with any loan covenant or pre
existing obligation established under a legitimate business agreement
e) earnings required by law or applicable regulations to be retained by the
corporation or in respect of which there is a legal prohibition against its
distribution
f) in the case of subsidiaries of foreign corporations in the Ph, all undistributed
earnings intended or reserved for investments within the Ph as can be proven
by corporate records and / or relevant documentary evidence.
THE 10% IAET imposed on improperly accumulated taxable income
earned starting 1998 Jan 1 by domestic corporation as defined under
NIRC and which are classified as closely-held corporations. However,
IAET shall not apply to the ff corps:
a) banks and other non bank financial intermediaries
b) insurance companies
c) publicly held corps
d) taxable partnerships
e) GPP
f) non taxable JVs
g) enterprises duly registered with PEZA under RA 7916 and enterprises
registered pursuant to the Bases Conversion and Devt Act as well as other
enterprises duly registered under special economic zones declared by law

which enjoy payment of a special tax rate on their registered operations or

activities in lieu of other taxes, national or local.
For purposes of there Regulations, closely held corporations are those
corporations atleast 50% in value of the OCS or atleast 50% of the total
combined voting power of all classes of stock entitled to vote is owned
directly or indirectly by or for not more than individuals.
Domestic corporations not falling under the aforesaid definitions are,
therefore, publicly-held corporations.
When is a corporation a closely held corp = p. 466
Tax base of improperly accumulated earnings tax: For corporations
subject to tax, the Improperly Accumulated Taxable income for a particular
year is first determined by adding to that years taxable income the following:
a) income exempt from tax
b) income excluded from gross income
c) income subject to final tax; and
d) the amount of NOLCO deducted
The taxable income as thus determined shall be reduced by the sum of:
a) income tax paid/payable during the taxable year
b) dividends actually or constructively paid / issued from the applicable years
taxable income;
c) amount reserved for the reasonable needs of the business as defined in
these Regulations emanating from the covered years taxable income.
The resulting Improperly Accumulated Taxable income is thereby
multiplied by 10% to get the Improperly accumulated earnings tax.
Once the profit has been subjected to IAET, the same shall no longer
be subjected to IAET in later years even if not declared as dividend.
Profits which have been subjected to IAET when finally declared as
dividends shall nevertheless be subject to Tax on dividends imposed
under NIRC except those instances where the recipient
The dividends shall be deemed to have been paid out of the most
recently accumulated profits or surplus and shall constitute a part of
the annual income of the distributee for the year in which received
pursuant to Sec 73 C
Dividends must be declared and paid or issue not later than one year
following the close of the taxable year otherwise the IAET if any should
be paid within 15 days thereafter.
The following are prima facie instances of accumulation of profits beyond the
reasonable needs of a business and indicative of purpose to avoid income tax
upon shareholders:
a) investment of substantial earnings and profits of the corporation in
unrelated business or in stock or securities of unrelated business
b) investment in bonds and other long term securities
c) accumulation of earnings in excess of 100% of paidup capital not otherwise

intended for the reasonable needs of the business as defined in these

Regulations.
In order to determine whether profits are accumulated for the reasonable
needs of the business as to avoid the imposition of the improperly
accumulated earnings tax, the controlling intention of the taxpayer is that
which is manifested at the time of the accumulation , not subsequently
declared intentions which are merely product of afterthought.
iv. Domestic Corporations entitled to preferential tax rates
aa. Proprietary educational institutions 10% of taxable income
Section 27. Rates of Income tax on Domestic Corporations. (B) Proprietary Educational Institutions and Hospitals. - Proprietary
educational institutions and hospitals which are nonprofit shall pay a tax of
ten percent (10%) on their taxable income except those covered by
Subsection (D) hereof:
Provided, that if the gross income from unrelated trade, business or other
activity exceeds fifty percent (50%) of the total gross income derived by such
educational institutions or hospitals from all sources, the tax prescribed in
Subsection (A) hereof shall be imposed on the entire taxable income.
For purposes of this Subsection, the term 'unrelated trade, business or other
activity' means any trade, business or other activity, the conduct of which is
not substantially related to the exercise or performance by such educational
institution or hospital of its primary purpose or function.
A 'Proprietary educational institution' is any private school maintained and
administered by private individuals or groups with an issued permit to operate
from the Department of Education, Culture and Sports (DECS), or the
Commission on Higher Education (CHED), or the Technical Education and
Skills Development Authority (TESDA), as the case may be, in accordance
with existing laws and regulations.
bb. Foreign currency deposit unit of local universal or commercial bank - 10%
final tax
Section 27. Rates of Income tax on Domestic Corporations. - (D) Rates of Tax
on Certain Passive Incomes. (3) Tax on Income Derived under the Expanded Foreign Currency Deposit
System. - Income derived by a depository bank under the expanded foreign
currency deposit system from foreign currency transactions with local
commercial banks, including branches of foreign banks that may be
authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with
foreign currency depository system units and other depository banks under
the expanded foreign currency deposit system, including interest income from
foreign currency loans granted by such depository banks under said expanded
foreign currency deposit system to residents, shall be subject to a final
income tax at the rate of ten percent (10%) of such income.

Any income of nonresidents, whether individuals or corporations, from

transactions with depository banks under the expanded system shall be
exempt from income tax.
cc. Firms taxed under special income tax regimes eg registered entities under
PEZA law and Bases Conversion Development Act - 5% final tax on gross
income

v. Resident Foreign Corporations

aa. General Rule : 30% of the net taxable income from sources within the
Philippines
Section 22. Definitions - When used in this Title: (H) The term 'resident foreign
corporation' applies to a foreign corporation engaged in trade or business
within the Philippines.
Section 28. Rates of Income Tax on Foreign Corporations. - A) Tax on Resident
Foreign Corporations. (1) In General. - Except as otherwise provided in this Code, a corporation
organized, authorized, or existing under the laws of any foreign country,
engaged in trade or business within the Philippines, shall be subject to an
income tax equivalent to thirty-five percent (35%) of the taxable
income derived in the preceding taxable year from all sources within
the Philippines: provided, That effective January 1, 1998, the rate of
income tax shall be thirty-four percent (34%); effective January 1, 1999, the
rate shall be thirty-three percent (33%), and effective January 1, 2000 and
thereafter, the rate shall be thirty-two percent (32%).
In the case of corporations adopting the fiscal-year accounting period, the
taxable income shall be computed without regard to the specific date when
sales, purchases and other transactions occur. Their income and expenses for
the fiscal year shall be deemed to have been earned and spent equally for
each month of the period.
The reduced corporate income tax rates shall be applied on the amount
computed by multiplying the number of months covered by the new rates
within the fiscal year by the taxable income of the corporation for the period,
divided by twelve.
Provided, however, That a resident foreign corporation shall be granted
the option to be taxed at fifteen percent (15%) on gross income
under the same conditions, as provided in Section 27 (A).
(2) Minimum Corporate Income Tax on Resident Foreign Corporations. - A
minimum corporate income tax of two percent (2%) of gross income,
as prescribed under Section 27 (E) of this Code, shall be imposed,
under the same conditions, on a resident foreign corporation taxable under
paragraph (1) of this Subsection.

(5) Tax on Branch Profits Remittances. - Any profit remitted by a branch

to its head office shall be subject to a tax of fifteen (15%) which shall
be based on the total profits applied or earmarked for remittance without any
deduction for the tax component thereof (except those activities which are
registered with the Philippine Economic Zone Authority). The tax shall be
collected and paid in the same manner as provided in Sections 57 and 58 of
this Code: provided, that interests, dividends, rents, royalties, including
remuneration for technical services, salaries, wages premiums, annuities,
emoluments or other fixed or determinable annual, periodic or casual gains,
profits, income and capital gains received by a foreign corporation during
each taxable year from all sources within the Philippines shall not be treated
as branch profits unless the same are effectively connected with the conduct
of its trade or business in the Philippines.
bb. Exempt entities
1. Regional or Area HQs
22 (DD) The term 'regional or area headquarters' shall mean a branch
established in the Philippines by multinational companies and which
headquarters do not earn or derive income from the Philippines and which act
as supervisory, communications and coordinating center for their affiliates,
subsidiaries, or branches in the Asia-Pacific Region and other foreign markets.
Section 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. (6) Regional or Area Headquarters and Regional Operating Headquarters of
Multinational Companies. -

(c) Capital Gains from Sale of Shares of Stock Not Traded in the Stock
Exchange. - A final tax at the rates prescribed below is hereby imposed upon
the net capital gains realized during the taxable year from the sale, barter,
exchange or other disposition of shares of stock in a domestic corporation
except shares sold or disposed of through the stock exchange:

Not over P100,000

5%

On any amount in excess of

P100,000

10%

2. Representative Office

cc. RFCs subject to preferential tax rates

1. International carrier = 28 A (3) International Carrier. - An international
carrier doing business in the Philippines shall pay a tax of two and onehalf percent (2 1/2%) on its 'Gross Philippine Billings' as defined
hereunder: xxxxx
RA 10378. SEC. 28. Rates of Income Tax on Foreign Corporations.
(A) Tax on Resident Foreign Corporations. XX
(3). International Carrier. An international carrier doing business in the
Philippines shall pay a tax of two and one-half percent (21/2 %) on its Gross
Philippine Billings as defined hereunder:
(a) International Air Carrier. Gross Philippine Billings refers to the amount
of gross revenue derived from carriage of persons, excess baggage, cargo,
and mail originating from the Philippines in a continuous and uninterrupted
flight, irrespective of the place of sale or issue and the place of payment of
the ticket or passage document: Provided, That tickets revalidated,
exchanged and/or indorsed to another international airline form part of the
Gross Philippine Billings if the passenger boards a plane in a port or point in
the Philippines: Provided, further, That for a flight which originates from the
Philippines, but transshipment of passenger takes place at any part outside
the Philippines on another airline, only the aliquot portion of the cost of the
ticket corresponding to the leg flown from the Philippines to the point of
transshipment shall form part of Gross Philippine Billings.
(b) International Shipping. Gross . Philippine Billings means gross
revenue whether for passenger, cargo or mail originating from the Philippines
up to final destination, regardless of the place of sale or payments of the
passage or freight documents.
Provided, That international carriers doing business in the Philippines may
avail of a preferential rate or exemption from the tax herein imposed on their
gross revenue derived from the carriage of persons and their excess baggage
on the basis of an applicable tax treaty or international agreement to which
the Philippines is a signatory or on the basis of reciprocity such that an
international carrier, whose home country grants income tax exemption to
Philippine carriers, shall likewise be exempt from the tax imposed under this
provision.
2. OBUS 10% FINAL TAX
28 A (4) Offshore Banking Units. - The provisions of any law to the contrary
notwithstanding, income derived by offshore banking units authorized by the
Bangko Sentral ng Pilipinas (BSP) to transact business with offshore banking
units, including any interest income derived from foreign currency loans
granted to residents, shall be subject to a final income tax at the rate
of ten percent (10%) of such income.

Any income of nonresidents, whether individuals or corporations, from

transactions with said offshore banking units shall be exempt from income
tax.
3. Regional Operating HQs - 10% taxable income
Section 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. - (6) Regional or Area Headquarters
and Regional Operating Headquarters of Multinational Companies. - (b)
Regional operating headquarters as defined in Section 22(EE) shall pay a tax
of ten percent (10%) of their taxable income.
Section 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. (6) Regional or Area Headquarters and Regional Operating Headquarters of
Multinational Companies. (b) Regional operating headquarters as defined in Section 22(EE) shall pay a
tax of ten percent (10%) of their taxable income.
4. Foreign currency deposit unit in Ph of foreign bank 10% final tax
Section 28. Rates of Income Tax on Foreign Corporations. - (A) Tax on Resident
Foreign Corporations. - (7) Tax on Certain Incomes Received by a Resident
Foreign Corporation. (b) Income Derived under the Expanded Foreign Currency Deposit System. Income derived by a depository bank under the expanded foreign currency
deposit system from foreign currency transactions with local commercial
banks including branches of foreign banks that may be authorized by the
Bangko Sentral ng Pilipinas (BSP) to transact business with foreign currency
deposit system units, including interest income from foreign currency loans
granted by such depository banks under said expanded foreign currency
deposit system to residents, shall be subject to a final income tax at the rate
of ten percent (10%) of such income.
Any income of nonresidents, whether individuals or corporations, from
transactions with depository banks under the expanded system shall be
exempt from income tax.
5. Branch of foreign corp registered with PEZA, SBMA , CDA, etc 5% final tax
on gross income
6. Qualified service contractor or subcontractor engaged in petroleum
operations in the PH 8% of gross income in lieu of any and all local and
international taxes
PD 87, PD 1354
dd. Branch Profits remittance tax (BPRT)

Section 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. (5) Tax on Branch Profits Remittances. - Any profit remitted by a branch
to its head office shall be subject to a tax of fifteen (15%) which shall
be based on the total profits applied or earmarked for remittance
without any deduction for the tax component thereof (except those
activities which are registered with the Philippine Economic Zone
Authority). The tax shall be collected and paid in the same manner as
provided in Sections 57 and 58 of this Code: provided, that interests,
dividends, rents, royalties, including remuneration for technical services,
salaries, wages premiums, annuities, emoluments or other fixed or
determinable annual, periodic or casual gains, profits, income and capital
gains received by a foreign corporation during each taxable year from all
sources within the Philippines shall not be treated as branch profits unless the
same are effectively connected with the conduct of its trade or business in
the Philippines.
1. Entities exempt from BPRT: PEZA, SBMA registered entities
2. Not deemed remittance of profit: remittable profit transferred to Ph
Corporation; remittance of assigned capital
3. Deemed Profit remittance
Revenue Memo Ruling No 1-2001
MARUBENI V CIR : Marubeni Corporation is a Japanese corporation licensed to
engage in business in the Philippines.
When the profits on Marubenis investments in Atlantic Gulf and Pacific Co. of
Manila were declared, a 10% final dividend tax was withheld from it, and
another 15% profit remittance tax based on the remittable amount after the
final 10% withholding tax were paid to the Bureau of Internal Revenue.
Marubeni Corp. now claims for a refund or tax credit for the amount which it
has allegedly overpaid the BIR
Issues and Ruling:
1. W/N the dividends Marubeni received from Atlantic Gulf are effectively
connected with its conduct or business in the Philippines as to be considered
branch profits subject to 15%profit remittance tax imposed under NIRC 24(b)
(2) NO!
Pursuant to Sec 24(b)(2), only profits remitted abroad by a branch office to its
head office which are effectively connected with its trade or business in the
Philippines are subject to the 15% profit remittance tax. The dividends
received by Marubeni from Atlantic Gulf are not income arising from the
business activity in which Marubeni is engaged. Accordingly, said dividends if
remitted abroad are not considered branch profits for purposes of the 15%
profit remittance tax imposed by Section 24(b)(2).

2. Whether Marubeni is a resident or NRFC -- NRFC, with respect to the

transaction.
Marubenis head office in Japan is a separate and distinct income taxpayer
from the branch in the Phil. The investment on Atlantic Gulf was made for
purposes peculiarly germane to the conduct of the corporate affairs of
Marubeni in Japan, but certainly not of the branch in the Phil.
3. At what rate should Marubeni be taxed? 15%.
The applicable provision is Sec 24(b)(1)(iii) in conjunction with the PhilippineJapan Tax Treaty of 1980.
As a general rule, it is taxed 35% of its gross income from all sources within
the Phil. However, a discounted rate of 15% is given to Marubeni on dividends
received from Atlantic Gulf on the condition that Japan, its domicile state,
extends in favor of Marubeni a tax credit of not less than 20% of the dividends
received. This 15% tax rate imposed on the dividends received under Section
24(b)(1)(iii) is easily within the maximum ceiling of 25% of the gross amount
of the dividends as decreed in Article 10(2)(b) of the Tax Treaty.
Notes:
Each tax has a different tax basis. Under the Philippine-Japan Tax Convention,
the 25% rate fixed is the maximum rate, as reflected in the phrase shallnot
exceed. This means that any tax imposable by the contracting state
concerned should not exceed the 25%limitation and said rate would apply
only if the tax imposed by our laws exceeds the same.

vi. Non-resident Foreign corporations NRFC

aa. General Rule: 30% of gross income
Section 22. Definitions - When used in this Title:
(I) The term 'nonresident foreign corporation' applies to a foreign corporation
not engaged in trade or business within the Philippines.
Section 28. Rates of Income Tax on Foreign Corporations. - (B) Tax on
Nonresident Foreign Corporation. -xx
bb. NRFCs subject to preferential tax rates
1. Non resident Cinematographic film onwer, lessor, or distributor - 25% gross
income
28 B (2) Nonresident Cinematographic Film Owner, Lessor or Distributor. - A
cinematographic film owner, lessor, or distributor shall pay a tax of twentyfive percent (25%) of its gross income from all sources within the Philippines.
2. Nonresident owner or lessor of vessels chartered of Ph nationals - 4.5% of
gross rentals or charter fees

28 B (3) Nonresident Owner or Lessor of Vessels Chartered by Philippine

Nationals. - A nonresident owner or lessor of vessels shall be subject to a tax
of four and one-half percent (4 1/2%) of gross rentals, lease or charter fees
from leases or charters to Filipino citizens or corporations, as approved by the
Maritime Industry Authority.
3. Nonresident owner on Lessor of Aircraft Machineries and other Equipment 7.5% of gross rentals or fees
Section 28. Rates of Income Tax on Foreign Corporations. - (B) Tax on
Nonresident Foreign Corporation. (4) Nonresident Owner or Lessor of Aircraft, Machineries and Other
Equipment. - Rentals, charters and other fees derived by a nonresident lessor
of aircraft, machineries and other equipment shall be subject to a tax of
seven and one-half percent (7 1/2%) of gross rentals or fees.
VIII. RETURNS AND PAYMENT OF TAX
a. Individual return NIRC 51, 56, 74
1. Who are required to file
(a) Every Filipino citizen residing in the Philippines;
(b) Every Filipino citizen residing outside the Philippines, on his income from
sources within the Philippines;
(c) Every alien residing in the Philippines, on income derived from sources
within the Philippines; and
(d) Every nonresident alien engaged in trade or business or in the exercise of
profession in the Philippines.
2. Who are not required to file ITR:
(a) An individual whose gross income does not exceed his total personal and
additional exemptions for dependents under Section 35: Provided, That a
citizen of the Philippines and any alien individual engaged in business or
practice of profession within the Philippine shall file an income tax return,
regardless of the amount of gross income;
(b) An individual with respect to pure compensation income, as defined in
Section 32 (A)(1), derived from sources within the Philippines, the income tax
on which has been correctly withheld under the provisions of Section 79 of
this Code: Provided, That an individual deriving compensation concurrently
from two or more employers at any time during the taxable year shall file an
income tax return: Provided, further, That an individual whose compensation
income derived from sources within the Philippines exceeds Sixty thousand
pesos (P60,000) shall also file an income tax return;
(c) An individual whose sole income has been subjected to final withholding

tax pursuant to Section 57(A) of this Code; and

(d) An individual who is exempt from income tax pursuant to the provisions of
this Code and other laws, general or special.
3. Where to file: Except in cases where the Commissioner otherwise permits,
the return shall be filed with an authorized agent bank, 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.
4. When to file:
(1) The return of any individual specified above shall be filed on or before the
fifteenth (15th) day of April of each year covering income for the preceding
taxable year.
(2) Individuals subject to tax on capital gains;
(a) From the sale or exchange of shares of stock not traded thru a local stock
exchange as prescribed under Section 24(c) shall file a return within thirty
(30) days after each transaction and a final consolidated return on or before
April 15 of each year covering all stock transactions of the preceding taxable
year; and
(b) From the sale or disposition of real property under Section 24(D) shall file
a return within thirty (30) days following each sale or other disposition.
5. Where to pay:
Section 56. Payment and Assessment of Income Tax for Individuals and
Corporation. (A) Payment of Tax. (1) In General. - The total amount of tax imposed by this Title shall be paid by
the person subject thereto at the time the return is filed. In the case of tramp
vessels, the shipping agents and/or the husbanding agents, and in their
absence, the captains thereof are required to file the return herein provided
and pay the tax due thereon before their departure. Upon failure of the said
agents or captains to file the return and pay the tax, the Bureau of Customs is
hereby authorized to hold the vessel and prevent its departure until proof of
payment of the tax is presented or a sufficient bond is filed to answer for the
tax due.
(2) Installment of Payment. - When the tax due is in excess of Two thousand
pesos (P2,000), 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
July 15 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.
6. Capital gains on shares of stock and real estate: 56 (3)
(3) Payment of Capital Gains Tax. - The total amount of tax imposed and
prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)(c)
shall be paid on the date the return prescribed therefor is filed by the person
liable thereto: Provided, That if the seller submits proof of his intention to
avail himself of the benefit of exemption of capital gains under existing
special laws, no such payments shall be required : Provided, further, That in
case of failure to qualify for exemption under such special laws and
implementing rules and regulations, the tax due on the gains realized from
the original transaction shall immediately become due and payable, subject
to the penalties prescribed under applicable provisions of this Code: Provided,
finally, That if the seller, having paid the tax, submits such proof of intent
within six (6) months from the registration of the document transferring the
real property, he shall be entitled to a refund of such tax upon verification of
his compliance with the requirements for such exemption.
"In case the taxpayer elects and is qualified to report the gain by installments
under Section 49 of this Code, the tax due from each installment payment
shall be paid within (30) days from the receipt of such payments.
7. Quarterly declaration of income tax - Section 74
Section 74. Declaration of Income Tax for Individuals. (A) In General. - Except as otherwise provided in this Section, every individual
subject to income tax under Sections 24 and 25(A) of this Title, who is
receiving self-employment income, whether it constitutes the sole source of
his income or in combination with salaries, wages and other fixed or
determinable income, shall make and file a declaration of his estimated
income for the current taxable year on or before April 15 of the same taxable
year. In general, self-employment income consists of the earnings derived by
the individual from the practice of profession or conduct of trade or business
carried on by him as a sole proprietor or by a partnership of which he is a
member. Nonresident Filipino citizens, with respect to income from without
the Philippines, and nonresident aliens not engaged in trade or business in
the Philippines, are not required to render a declaration of estimated income
tax. The declaration shall contain such pertinent information as the Secretary
of Finance, upon recommendation of the Commissioner, may, by rules and
regulations prescribe. An individual may make amendments of a declaration
filed during the taxable year under the rules and regulations prescribed by
the Secretary of Finance, upon recommendation of the Commissioner.
(B) Return and Payment of Estimated Income Tax by Individuals. - The amount
of estimated income as defined in Subsection (C) with respect to which a
declaration is required under Subsection (A) shall be paid in four (4)
installments. The first installment shall be paid at the time of the declaration

and the second and third shall be paid on August 15 and November 15 of the
current year, respectively. The fourth installment shall be paid on or before
April 15 of the following calendar year when the final adjusted income tax
return is due to be filed.
(C) Definition of Estimated Tax. - In the case of an individual, the term
'estimated tax' means the amount which the individual declared as income
tax in his final adjusted and annual income tax return for the preceding
taxable year minus the sum of the credits allowed under this Title against the
said tax. If, during the current taxable year, the taxpayer reasonable expects
to pay a bigger income tax, he shall file an amended declaration during any
interval of installment payment dates.
NOTES:
Income tax returns covering income, profits, and gains
1. Individuals deriving purely compensation income must file his
income tax return (BIR FORM 1701) not later than April 15 of the
following year.
2. This requirement of filing tax returns is no longer required
beginning 2002.
3. SUBSTITUTED FILING OF TAX RETURNS: is allowed where an
employee receives purely compensation income from a single
employer who deducted and remitted to the BIR the correct amount
of withtholding tax from the employees compensation income
during the year.
4. In lieu of the regular tax returns to be filed by the
employees, BIR FORM 1643 shall be filed by the employer
with the BIR.
5. NRC who receive purely foreign source income are no longer
required to file their PH income tax returns, although they must still
file an income tax return covering the income from sources within
the PH
6. MARRIED INDIVIUDAL ETB may die during the year in this case
two income tax returns must be filed by his executor or
administrator
(1) regular ITR covering his business from Jan 1 up to date he lived,
and
(2) regular ITR to be filed by the estate of the deceased covering
business income from the date of death up to December 31.
There will also be two exemptions allowed :
50 k as married, claimed by the taxpayer in his ITR
50 k claimed by the estate in its tax return.
RMC 1-2003 SUBSTITUTED FILING SYSTEM
The Bureau of Internal Revenue (BIR), in its mission of providing an efficient
and convenient service to its taxpayers, is implementing a hassle-free
method of filing Individual Income Tax Returns (BIR Form 1700). This method
of filing recognizes under certain circumstances, the employers Annual
Information Return (BIR Form No. 1604CF) as the substitute income tax
return filed by the employee since it contains the same information found in

the income tax return ordinarily filed.

This Circular aims to provide some basic information and answers to
questions frequently asked on substituted filing.
0

What is Substituted Filing?

Substituted Filing is when the employers annual return (BIR Form
1604CF) may be considered as the substitute Income Tax Return
(ITR) of employee inasmuch as the information provided in his income
tax return (BIR Form 1700) would exactly be the same information
contained in the employers annual return (BIR Form No. 1604-CF).

How is Substituted Filing different from Non-Filing?

Under substituted filing, an individual taxpayer although required
under the law to file his income tax return, will no longer have to
personally file his own income tax return but instead the employers
annual information return filed will be considered as the substitute
income tax return of the employee inasmuch as the information in the
employers return is exactly the same information contained in the
employees return.

Non-filing is applicable to certain types of individual taxpayers who are

not required under the law to file an income tax return. An example is an
employee whose pure compensation income does not exceed P60,000,
and has only one employer for the taxable year and whose tax withheld is
equivalent to his tax due.
0

Who are qualified and under what conditions will substituted

filing of BIR Form No. 1700 apply?
Substituted filing applies only to individuals who meet all the following
conditions:
1 The employee receives purely compensation income (regardless of
amount) during the taxable year
2 The employee receives the income only from one employer in the
Philippines during the taxable year
3 The amount of tax due from the employee at the end of the year
equals the amount of tax withheld by the employer
4 The employees spouse also complies with all three (3) conditions
stated above.
5 The employer files the annual information return (BIR Form No.
1604-CF)
6 The employer issues BIR Form 2316 (Oct 2002 ENCS) version to
each employee

Who are not qualified for substituted filing of BIR

Form 1700? The following individuals are not qualified for
substituted filing:

1
2

4
5

Individuals deriving compensation income from two or more

employees, concurrently or successively at anytime during the
taxable year
Employees deriving compensation income, regardless of amount,
whether from a single or several employers during the calendar
year, the income tax of which has not been withheld correctly (i.e.
tax due is not equal to the tax withheld) resulting to a collectible or
refundable return
Employees whose monthly gross compensation income does not
exceed Five Thousand Pesos (P5,000) or the statutory minimum
wage, whichever is higher, and opted for non-withholding of tax on
said income
Individuals deriving other non-business, non-profession-related
income in addition to compensation not otherwise subject to final
tax
Individuals deriving purely compensation income from a single
employer, although the income of which has been correctly
subjected to withholding tax, but whose spouse is not entitled to
substituted filing
Non-resident aliens engaged in trade or business in the Philippines
deriving purely compensation income or compensation income and
other business or profession related income

5. What will be presented in case an ITR is required?

BIR Form 2316 (Oct 2002 ENCS version) is a statement signed by both the employee
and the employer and serves the same purpose as if BIR Form No. 1700 had been filed.
This, however, is not to be submitted or filed with the BIR if the employee is qualified for
substituted filing.
7. Who shall prepare and issue BIR Form 2316?
In general, every employer or other person who is required to deduct and withhold the
tax on compensation including fringe benefits given to rank and file employees, shall
Part I Employee Information (items 3 to
12)
This refers to employees personal information as declared by
him in the Certificate of Update of Exemption and Employers
and Employees Information (BIR Form 2305). The same
information should likewise be consistent with the information
in the Annual Information Return (BIR Form 1604CF).
furnish every employee from whose compensation taxes have
been withheld the Certificate of Compensation Payment/Tax Withheld (BIR Form 2316
Oct 2002 ENCS version).
8. When should the employer issue BIR Form 2316?
Employers should issue BIR Form 2316 to the employee on or before January 31 of the
succeeding calendar year, or if employment is terminated before the close of such
calendar year, on the day on which the last payment of compensation is made.
9. What is contained in the Substituted Filing signature box in BIR Form 2316?
The lowest portion of BIR Form 2316 (Oct 2002 ENCS version) shall be accomplished
only for substituted filing. It consists of two parts namely, matters certified to by the
employer and matters certified to by the employee. The employer and employee, under
the pain of perjury, shall sign the boxes for substituted filing.
10. For substituted filing, what are the matters being certified to by the
EMPLOYER?
The matters being certified to by the employer are as follows:
a. That the information contained in BIR Form 2316 (Oct 2002 ENCS version) are the
same as reported and declared in BIR Form 1604 CF, i.e.,
The employees information is the same as that declared by the employee
in BIR Form 2305
If employee had previous employer/s, the previous employers information
is the same as that declared in previous employers BIR Form 2316 issued
to said employee
The information pertaining to the present employer is true and correct
The details of compensation and taxes withheld is true and correct
b. That the employer filed with the BIR the Annual Information Return (BIR Form
1604CF)
11. For substituted filing, what are the matters being certified to by the
EMPLOYEE?

The matters being certified to by the employee are as follows:

a. That the employee is qualified under the substituted filing of income tax returns
(BIR Form 1700), i.e.,
The employee receives purely compensation income (regardless of
amount) during the taxable year
The employee receives the income only from one employer in the
Philippines during the taxable year
The amount of tax due from the employee at the end of the year equals
the amount of tax withheld by the employer
1 If married, that the employees spouse also complies with all three (3) conditions
stated above.
2 That the employee has none of the instances for disqualification for substituted
filing. (refer to question no. 4 of this issuance)
3 That the BIR Form 1604CF filed by his employer shall constitute as his income tax
return
4 That BIR Form 2316 (Oct 2002 ENCS version) shall serve as the same purpose as if
BIR Form 1700 had been filed pursuant to the provisions of RR 3-2002 as amended
by RR 19-2002.

For other government agencies and other offices, public and private, requiring
presentation of individual income tax return (BIR Form 1700) as proof of
income earnings, what would be a replacement for BIR Form 1700 for those
qualified for substituted filing?
For those qualified for substituted filing, BIR Form 1700 should no longer be required as
proof of financial capacity or proof of income earnings. Presentation of BIR Form 2316
(Oct 2002 ENCS version) is sufficient proof of income earnings since it is a statement
signed by both the employee and the employer and it shall serve the same purpose as if
BIR Form No. 1700 had been filed.

What is the use of the BIR Form 2316, for those qualified for substituted
filing?
The BIR Form 2316 (Oct 2002 ENCS version) can be used for the following purposes:
1 As proof of financial capacity for purposes of loan, credit card, or other
application
2 As proof of payment of tax or for availing tax credit in the employees home
country
3 In securing travel permits and travel tax exemptions when necessary; and
4 For other purposes to meet the requirements of various government/private
agencies

When does substituted filing take effect?

It took effect for taxable year 2001 on a voluntary basis and is mandatory for
income/compensation earned starting taxable year 2002. Thus, employees who qualify
for substituted filing for taxable year 2002 and beyond will no longer file BIR Form 1700
on or before the 15th of April of every year.
What will an employee do with BIR Form 2316 issued by the employer?
If the BIR Form 2316 was issued by a previous employer as a result of termination of
employment and the employee has been subsequently employed within the same
calendar year, the employee should submit a copy of BIR Form 2316 issued by the
previous employer to his present employer, for consolidation with his current
compensation received from the present employer.

If the employee is qualified for substituted filing, the employee concerned should sign
the substituted filing signature box of BIR Form 2316 and have the same signed by the
employer. A copy of BIR Form 2316 signed both by the employer and employee shall be
retained and kept by the employer and the employee.
If an employee is not qualified for substituted filing, he is required by law to file his
income tax return (BIR Form 1700 or BIR Form 1701). BIR Form 2316 should be attached
as proof of his compensation income and withholding taxes as well as other necessary
and applicable attachments, like financial statements, certificate of creditable
withholding taxes.

For those qualified for substituted filing, is it necessary to have BIR Form
2316 notarized?
No, it is not necessary to have BIR Form 2316 notarized for those qualified for
substituted filing.

Can an employee file an ITR (BIR Form No. 1700) even if he is qualified for
substituted filing?
No, for taxable year 2002 and beyond, substituted filing is mandatory for qualified
employees.

B. CORPORATE REGULAR RETURNS (SEC 52, 53, 56 )

1. Quarterly income tax
Section 52. Corporation Returns. (A) Requirements. - Every corporation subject to the tax herein imposed, except foreign
corporations not engaged in trade or business in the Philippines, shall render, in duplicate,
a true and accurate quarterly income tax return and final or adjustment return in
accordance with the provisions of Chapter XII of this Title. The return shall be filed by the
president, vice-president or other principal officer, and shall be sworn to by such officer and
by the treasurer or assistant treasurer.
2. Final adjustment return
Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall
file a final adjustment return covering the total taxable income for the preceding calendar
or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is
not equal to the total tax due on the entire taxable income of that year, the corporation
shall either:
(A)Pay the balance of tax still due; or
(B)Carry-over the excess credit; or
(C)Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return may
be carried over and credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable years. Once the option to carry-over and apply

the excess quarterly income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered irrevocable for
that taxable period and no application for cash refund or issuance of a tax credit certificate
shall be allowed therefor.
3. When to file : Section 77. Place and Time of Filing and Payment of Quarterly Corporate
Income Tax. - (B) Time of Filing the Income Tax Return. - The corporate quarterly declaration
shall be filed within sixty (60) days following the close of each of the first three (3) quarters
of the taxable year. The final adjustment return shall be filed on or before the fifteenth
(15th) day of April, or on or before the fifteenth (15th) day of the fourth (4th) month
following the close of the fiscal year, as the case may be.
4. Where to file : Section 77. Place and Time of Filing and Payment of Quarterly Corporate
Income Tax. (A) Place of Filing. -Except as the Commissioner other wise permits, the quarterly income
tax declaration required in Section 75 and the final adjustment return required I Section 76
shall be filed with the authorized agent banks or Revenue District Officer or Collection
Agent or duly authorized Treasurer of the city or municipality having jurisdiction over the
location of the principal office of the corporation filing the return or place where its main
books of accounts and other data from which the return is prepared are kept.
5. When to Pay: Section 77. Place and Time of Filing and Payment of Quarterly Corporate
Income Tax. (C) Time of Payment of the Income Tax. - The income tax due on the corporate quarterly
returns and the final adjustment income tax returns computed in accordance with Sections
75 and 76 shall be paid at the time the declaration or return is filed in a manner prescribed
by the Commissioner.
6. Capital gains on shares of stock: Shares of stock of a domestic corporation
Listed and traded in a local stock exchange : the transaction is exempt from income
tax, but subject to of 1% stock transaction tax, which is required to be withheld and
deducted by the stockbroker handling the transaction and remitted to the BIR within 5
working days from the date of sale
Unlisted, or listed but traded outside a local stock exchange: the capital gains tax
must be filed within 30 days from the date of sale with the RDO where the principal place of
business of the seller is located.
NOTES: ELECTRONIC FILING AND PAYMENT SYSTEM

3.1 Large Taxpayers. (a) Beginning the calendar year 2001 and all fiscal years as well as
calendar years thereafter, Large
Taxpayers shall e-file their final adjustment income tax returns
for the said calendar/fiscal years and e-pay the taxes due
thereon through the EFPS on or before the 15th day of the fourth
month following the close of the taxable year. Nonetheless, epayment shall be optional for tax returns that will be filed until
July 31, 2002. Thus, until July 31, 2002, if a taxpayer does not opt to pay electronically,
payment shall be made manually.
(b) Beginning July 1, 2002, Large Taxpayers shall e-file all the

tax returns that can be filed electronically through the EFPS but e-payment shall
nonetheless remain optional until July 31,
2002. However, unless otherwise notified by the
Commissioner of Internal Revenue (CIR), for all returns that
will be filed starting August 1, 2002, e-payment of the taxes
due thereon thru EFPS shall become mandatory.
NOTES: thus, based on the above provisions since July 1 2002 there has been no instance where
large taxpayers would have manually filed their tax returns nor would have paid their taxes manually
since Aug 1 2002/
8.1 Large Taxpayers. - (a) Large Taxpayers who will e-pay shall enroll with any EFPS AAB
authorized to serve them and who is capable to accept e-payments. E-payments shall be made within
the day the return is electronically filed following the pay-as-youfile principle.
Accreditation of an existing BIR AAB as an EFPS AAB
authorized to service taxpayers classified and notified by the BIR as
large taxpayers shall be opened to such number of
commercial/universal banks as may be necessary to provide
efficient and effective service to all the large taxpayers.
Notes: with respect to payment of large taxpyers the same must be made only thru EFPS authorized
agent banks AAB and not thru Revenue Collection Officers.
Thus all large taxpayers are hereby reminded to refrain from manually paying their taxes thru the
RCOs and to strictly comply with the Regulations mandating them to e-pay their taxes thru their
EFPS AABs. Other wise the penalty of 25% surcharge for wrong venue is provided for under
Sec 248 (a)(2) as amended shall be imposed.
9.1 e-Filing and e-Payment. - The return is deemed filed, on the
date appearing in, and after a Filing Reference Number is generated and issued to the
taxpayer via the EFPS. The tax due thereon is deemed paid after a Confirmation Number is issued to
the taxpayer and to the BIR by the AAB. In addition, an Acknowledgement Number shall be issued
by the AAB to the BIR to confirm that the tax payment has been credited to the account of 3
the government or recognized as revenue (internal revenue tax collection) by the Bureau
of Treasury.

IX. WITHHOLDING TAX

withholding taxes of income tax on compensation income on certain income payments made to
resident taxpayers and on income made to NR taxpayers is impt because the obligation to withhold
and remit the tax is mandatory.
the amount of withholding tax that should have been withheld and remitted to the BIR plus
penalties are assessed by the BIR against the withholding agent.
expenses claimed as deductions from gross income may however be allowed as deductions

A. final withholding tax at source sec 57 (entire)

Section 57. Withholding of Tax at Source. xx
(B) Withholding of Creditable Tax at Source. - The Secretary of Finance may, upon the
recommendation of the Commissioner, require the withholding of a tax on the items of income
payable to natural or juridical persons, residing in the Philippines, by payor-corporation/persons as
provided for by law, at the rate of not less than one percent (1%) but not more than thirty-two
percent (32%) thereof, which shall be credited against the income tax liability of the taxpayer for the
taxable year.
Notes: Since withholding taxes are deducted by withholding agents (who have control custody or
receipt of funds) when the income payments are paid or payable, they are described as withholding
taxes at source.
In other words the income tax of the recipient of the income is withheld and deducted atr
the source and at the time of accrual or payment of the expense by the withholding agentpayor of income
The withholding of income tax is particularly significant where the payee is a NRA ind or
NRFC over whom the Ph gov has no jurisdiction and cannot therefore enforce collection
of deficiency tax assessments.
Withholding of tax is also an effective way of collecting income tax on interest on bank
deposits of taxpayers who enjoy confidentiality of their deposits under RA No 1405.
B. CREDITABLE WITHHODOING TAX
here taxes withheld on certain income payments are intended to equal or atleast approximate the
tax due of the payee on said income.
the income tax recipient is still required to file quarterly and annual ITR to report income and/or
to pay the difference between the tax withheld and the tax due on the income.
taxes withheld on income payments covered by the expanded withholding tax and compensation
income are creditable in nature against the income tax liability for the year, provided the same are
evidenced by the appropriate withholding tax certificate (BIR 2317) that is attached to the income
tax return filed with the BIR.
There are 3 types of creditable withholding taxes, namely:
(1) expanded withholding tax on certain income payments made by private persons to resident
taxpayers;
(2) withholding tax on compensation income for services done in the PH and
(3) withholding tax on money payments made by the government.
1. Expanded withholding tax: 390-392
Essential Requisites for EWT
An income payment is subject to the expanded withholding tax, if the ff conditions concur:
a. An expense is paid or payable by the taxpayer, which is income to the recipient thereof subject to
income tax;
b. income is fixed or determinable at the time of payment;
c. the income is one of the income payments listed in the regulations that is subject to withholding

tax;
If the payor of income is one of the top 20000 corporations, the income payment, although not
listed as subject to EWT under the regulations is subject to CWT of 1% if it insolves purchase of
goods, or 2% if it insolves purchase of services.
d. the income recipient is a resident of the Ph liable to income tax
e. the payor-withholding agent is also a resident of the PH.
An expense is paid or payable by the taxpayer , which is income to the recipient thereof subject
to income tax. The payment must represent income to the recipient thereof and it is subject to
income tax. Unless income gain or profit is expressly exempt under the Tax Code or special law, it is
presumed to be taxable.
The withholding of creditable withholding tax shall not apply to income payments made to the ff:
pp 394
REVENUE REGULATION 2-98
Section 28. Rates of Income Tax on Foreign Corporations. SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income
tax withheld by the withholding agent is constituted as a full and final payment of the income
tax due from the payee on the said income. The liability for payment of the tax rests primarily on
the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under
withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not
required to file an income tax return for the particular income.
The finality of the withholding tax is limited only to the payee's income tax liability on the particular
income. It does not extend to the payee's other tax liability on said income, such as when the said
income is further subject to a percentage tax. For example, if a bank receives income subject to final
withholding tax, the same shall be subject to a percentage tax.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on
certain income payments are intended to equal or at least approximate the tax due of the payee on
said income. The income recipient is still required to file an income tax return, as prescribed in Sec.
51 and Sec. 52 of the NIRC, as amended, to report the income and/or pay the difference between the
tax withheld and the tax due on the income. Taxes withheld on income payments covered by the
expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation income
(referred to in Sec. 2.78 also of these regulations) are creditable in nature.
SECTION 2.57.1. Income Payments Subject to Final Withholding Tax. The following forms of
income shall be subject to final withholding tax at the rates herein specified;
(A) Income payments to a citizen or to a resident alien individual;
(1) Interest from any peso bank deposit, and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements; royalties (except on books as well as other
literary works and musical compositions), prizes (except prizes amounting to ten thousand pesos

(P10,000.00) or less which shall be subject to tax under Sec. 24 (A) of the Code) and other winnings
(except Philippine Charity Sweepstakes winnings and lotto winnings) derived from sources within
the Philippines Twenty percent (20%).
(2) Royalties on books, as well as other literary works and musical compositions Ten percent
(10%).
(3) Interest income received by a resident individual taxpayer from a depository bank under the
Foreign Currency Deposit System Seven and one-half percent (7.5%).
(4) Interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas which was preterminated by the holder before the fifth (5th) year at the rates herein prescribed to be deducted and
withheld from the proceeds thereof based on the length of time that the instrument was held by the
taxpayer
Holding Period Rate
Four (4) years to less than five (5) years 5%
Three (3) years to less than four (4) years 12%
Less than three (3) years 20%
(5) Cash and/or property dividends actually or constructively received from a domestic corporation,
joint stock company, insurance or mutual fund companies or on the share of an individual partner in
the distributable net income after tax of a partnership (except general professional partnership) or on
the share of an individual in the net income after tax of an association, a joint account or a joint
venture or consortium of which he is a member or a co-venturer.
6% - beginning January 1, 1998
8% - beginning January 1, 1999 and
10% - beginning January 1, 2000 and thereafter
The tax on cash and property dividends shall only be imposed on dividends which are declared from
profits of corporations made after December 31, 1997.
(6) On capital gains presumed to have been realized from the sale, exchange 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 based on the gross selling price or fair
market value as determined in accordance with Sec. 6(E) of the Code (i.e. the authority of the
Commissioner to prescribe the real property values), whichever is higher Six percent (6%).
In case of dispositions of real property made by individuals to the government or any of its political
subdivisions or agencies or to government-owned or controlled corporations, the tax to be imposed
shall be determined either under Section 24(A) of the Code for normal income tax for individual
citizens and residents or under Section 24(D)(1) of the Code for the final tax on capital gains from
sale of property at six percent (6%), at the option of the taxpayer.
WITHHOLDING AGENT:
SECTION 2.57.3. Persons Required to Deduct and Withhold. The following persons are hereby
constituted as withholding agents for purposes of the creditable tax required to be withheld on
income payments enumerated in Section 2.57.2:

(A) In general, any juridical person, whether or not engaged in trade or business;
(B) An individual, with respect to payments made in connection with his trade or business. However,
insofar as taxable sale, exchange or transfer of real property is concerned, individual buyers who are
not engaged in trade or business are also constituted as withholding agents;
(C) All government offices including government-owned or controlled corporations, as well as
provincial, city and municipal governments.
SECTION 2.57.4. Time of Withholding. The obligation of the payor to deduct and withhold the
tax under Section 2.57 of these regulations arises at the time an income is paid or payable, whichever
comes first, the term "payable" refers to the date the obligation become due, demandable or legally
enforceable.
SECTION 2.57.5. Exemption from Withholding. The withholding of creditable withholding
tax prescribed in these Regulations shall not apply to income payments made to the following:
(A) National government and its instrumentalities, including provincial, city or municipal
governments;
(B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any
law, general or special, such as but not limited to the following:
(1) Sales of real property by a corporation which is registered with and certified by the Housing and
Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where
the selling price of the house and lot or only the lot does not exceed one hundred eighty thousand
pesos (P180,000) in Metro Manila and other highly urbanized areas and one hundred fifty thousand
pesos (P150,000) in other areas or such adjusted amount of selling price for socialized housing as
may later be determined and adopted by the HLURB, as provided under Republic Act No. 7279 and
its implementing regulations;
(2) Corporations registered with the Board of Investments and enjoying exemption from the income
tax provided by Republic Act No. 7916 and the Omnibus Investment Code of 1987;
(3) Corporations which are exempt from the income tax under Sec. 30 of the NIRC, to wit: the
Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine
Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the
Philippine Amusement and Gaming Corporation (PAGCOR); However, the income payments arising
from any activity which is conducted for profit or income derived from real or personal property
shall be subject to a withholding tax as prescribed in these regulations.

2. WITHHOLDING TAX ON COMPENSATION

REVREG 2-98

SECTION 2.78. Withholding Tax on Compensation. The withholding of tax on compensation

income is a method of collecting the income tax at source upon receipt of the income. It applies
to all employed individuals whether citizens or aliens, deriving income from compensation for
services rendered in the Philippines. The employer is constituted as the withholding agent.

SECTION 2.78.1. Withholding of Income Tax on Compensation Income.

(A) Compensation Income Defined. In general, the term "compensation" means all
remuneration for services performed by an employee for his employer under an employeremployee relationship, unless specifically excluded by the Code.
The name by which the remuneration for services is designated is immaterial. Thus, salaries,
wages, emoluments and honoraria, allowances, commissions (e.g. transportation,
representation, entertainment and the like); fees including director's fees, if the director is, at
the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits
except those which are subject to the fringe benefits tax under Sec. 33 of the Code; taxable
pensions and retirement pay; and other income of a similar nature constitute compensation
income.
The basis upon which the remuneration is paid is immaterial in determining whether the
remuneration constitutes compensation. Thus, it may be paid on the basis of piece-work, or a
percentage of profits; and may be paid hourly, daily, weekly, monthly or annually. rep
Remuneration for services constitutes compensation even if the relationship of employer and
employee does not exist any longer at the time when payment is made between the person in
whose employ the services had been performed and the individual who performed them.
(1) Compensation paid in kind. Compensation may be paid in money or in some medium
other than money, as for example, stocks, bonds or other forms of property. If services are paid
for in a medium other than money, the fair market value of the thing taken in payment is the
amount to be included as compensation subject to withholding. If the services are rendered at a
stipulated price, in the absence of evidence to the contrary, such price will be presumed to be
the fair market value of the remuneration received. If a corporation transfers to its employees its
own stock as remuneration for services rendered by the employee, the amount of such
remuneration is the fair market value of the stock at the time the services were rendered.
(2) Living quarters or meals. If a person receives a salary as remuneration for services
rendered, and in addition thereto, living quarters or meals are provided, the value to such
person of the quarters and meals so furnished shall be added to the remuneration paid for the
purpose of determining the amount of compensation subject to withholding. However, if living
quarters or meals are furnished to an employee for the convenience of the employer, the value
thereof need not be included as part of compensation income.
(3) Facilities and privileges of a relatively small value. Ordinarily, facilities and privileges
(such as entertainment, medical services, or so called "courtesy" discounts on purchases),
furnished or offered by an employer to his employees generally, are not considered as
compensation subject to withholding if such facilities or privileges are of relatively small value
and are offered or furnished by the employer merely as a means of promoting the health,
goodwill, contentment, or efficiency of his employees.
Where compensation is paid in property other than money, the employer shall make necessary
arrangements to ensure that the amount of the tax required to be withheld is available for
payment to the Commissioner.
(4) Tips and gratuities. Tips or gratuities paid directly to an employee by a customer of the
employer which are not accounted for by the employee to the employer are considered as
taxable income but not subject to withholding.
(5) Pensions, retirement and separation pay. Pensions, retirement and separation pay
constitute compensation subject to withholding, except those provided under Subsection B of
this section.

(6) Fixed or variable transportation, representation and other allowances

(a) IN GENERAL, fixed or variable transportation, representation and other allowances which
are received by a public officer or employee or officer or employee of a private entity, in addition
to the regular compensation fixed for his position or office, is compensation subject to
withholding.
(b) Any amount paid specifically, either as advances or reimbursements for travelling,
representation and other bonafide ordinary and necessary expenses incurred or reasonably
expected to be incurred by the employee in the performance of his duties are not compensation
subject to withholding, if the following conditions are satisfied:
(i) It is for ordinary and necessary travelling and representation or entertainment expenses paid
or incurred by the employee in the pursuit of the trade, business or profession; and
(ii) The employee is required to account/liquidate for the foregoing expenses in accordance with
the specific requirements of substantiation for each category of expenses pursuant to Sec. 34
of the Code. The excess of actual expenses over advances made shall constitute taxable
income if such amount is not returned to the employer. Reasonable amounts of
reimbursements/ advances for travelling and entertainment expenses which are pre-computed
on a daily basis and are paid to an employee while he is on an assignment or duty need not be
subject to the requirement of substantiation and to withholding.
(7) Vacation and sick leave allowances. Amounts of "vacation allowances or sick leave
credits" which are paid to an employee constitute compensation. Thus, the salary of an
employee on vacation or on sick leave, which are paid notwithstanding his absence from work,
constitutes compensation. However, the monetized value of unutilized vacation leave credits of
ten (10) days or less which were paid to the employee during the year are not subject to
income tax and to the withholding tax.
(8) Deductions made by employer from compensation of employee. Any amount which is
required by law to be deducted by the employer from the compensation of an employee
including the withheld tax is considered as part of the employee's compensation and is deemed
to be paid to the employee as compensation at the time the deduction is made.
(9) Remuneration for services as employee of a nonresident alien individual or foreign entity.
The term "compensation" includes remuneration for services performed by an employee of a
nonresident alien individual, foreign partnership or foreign corporation, whether or not such
alien individual or foreign entity is engaged in trade or business within the Philippines. Any
person paying compensation on behalf of a non-resident alien individual, foreign partnership, or
foreign corporation which is not engaged in trade or business within the Philippines is subject to
all provisions of law and regulations applicable to an employer.
(10) Compensation for services performed outside the Philippines. Remuneration for
services performed outside the Philippines by a resident citizen for a domestic or a resident
foreign corporation or partnership, or for a non-resident corporation or partnership, or for a nonresident individual not engaged in trade or business in the Philippines shall be treated as
compensation which is subject to tax.
A non-resident citizen as defined in these regulations is taxable only on income derived from
sources within the Philippines. In general, the situs of the income whether within or without the
Philippines, is determined by the place where the service is rendered.

(B) Exemptions from withholding tax on compensation. The following income payments are
exempted from the requirement of withholding tax on compensation:
(1) Remunerations received as an incident of employment, as follows:
(a) Retirement benefits received under Republic Act under 7641 and those received by officials
and employees of private firms, whether individual or corporate, under a reasonable private
benefit plan maintained by the employer which meet the following requirements:
(i) The plan must be reasonable;
(ii) The benefit plan must be approved by the Bureau;
(iii) The retiring official or employee must have been in the service of the same employer for at
least ten (10) years and is not less than fifty (50) years of age at the time of retirement; and
(iv) The retiring official or employee should not have previously availed of the privilege under
the retirement benefit plan of the same or another employer.
(b) Any amount received by an official or employee or by his heirs from the employer due to
death, sickness or other physical disability or for any cause beyond the control of the said
official or employee, such as retrenchment, redundancy, or cessation of business. rep
The phrase "for any cause beyond the control of the said official or employee" connotes
involuntariness on the part of the official or employee. The separation from the service of the
official or employee must not be asked for or initiated by him. The separation was not of his
own making. Whether or not the separation is beyond the control of the official or employee,
being essentially a question of fact, shall be determined on the basis of prevailing facts and
circumstances. It shall be duly established by the employer by competent evidence which
should be attached to the monthly return for the period in which the amount paid due to the
involuntary separation was made.
Amounts received by reason of involuntary separation remain exempt from income tax even if
the official or the employee, at the time of separation, had rendered less than ten (10) years of
service and/or is below fifty (50) years of age.
Any payment made by an employer to an employee on account of dismissal, constitutes
compensation regardless of whether the employer is legally bound by contract, statute, or
otherwise, to make such payment.
(c) Social security benefits, retirement gratuities, pensions and other similar benefits received
by residents or non-resident citizens of the Philippines or aliens who come to reside
permanently in the Philippines from foreign government agencies and other institutions private
or public;
(d) Payments of benefits due or to become due to any person residing in the Philippines under
the law of the United States administered by the United States Veterans Administration;
(e) Payments of benefits made under the Social Security System Act of 1954 as amended; and
(f) Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity
received by government officials and employees.
(2) Remuneration paid for agricultural labor
(a) Remuneration for services which constitute agricultural labor and paid entirely in products of
the farm where the labor is performed is not subject to withholding. In general, however, the

term, "agricultural labor" does not include services performed in connection with forestry,
lumbering or landscaping.
(b) Remuneration paid entirely in products of the farm where the labor is performed by an
employee of any person in connection with any of the following activities is excepted as
remuneration for agricultural labor:
(i) The cultivation of soil;
(ii) The raising, shearing, feeding, caring for, training, or management of livestock, bees,
poultry, or wildlife; or
(iii) The raising or harvesting of any other agricultural or horticultural commodity. The term
"farm" as used in this subsection includes, but is not limited to stock, dairy, poultry, fruits and
truck farms, plantations, ranches, nurseries ranges, orchards, and such greenhouse and other
similar structures as are used primarily for the raising of agricultural or horticultural
commodities.
(c) The remuneration paid entirely in products of the farm where labor is performed for the
following services in the employ of the owner or tenant or other operator of one or more farms
is not considered as remuneration for agricultural labor, provided the major part of such
services is performed on a farm:
(i) Services performed in connection with the operation, management, conservation,
improvement, or maintenance of any such farms or its tools or equipments; or
(ii) Services performed in salvaging timber, or clearing land brush and other debris left by a
hurricane or typhoon.
The services described in (i) above may include for example, services performed by
carpenters, painters, mechanics, farm supervisors, irrigation engineers, bookkeepers, and other
skilled or semi-skilled workers, which contribute in any way to the conduct of the farm or farms,
as such, operated by the person employing them, as distinguished from any other enterprise in
which such person may be engaged. Since the services described in this paragraph must be
performed in the employ of the owner or tenant or other operator of the farm, the exception
does not extend to remuneration paid for services performed by employees of a commercial
painting concern, for example, which contracts with a farmer to renovate his farm properties.
(d) Remuneration paid entirely in products of the farm where labor is performed by an
employee in the employ of any person in connection with any of the following operations is not
considered as remuneration for agricultural labor without regard to the place where such
services are performed:
(i) The making of copra, stripping of abaca, etc.;
(ii) The hatching of poultry;
(ii) The raising of fish;
(iv) The operation or maintenance of ditches, canals, reservoirs, or waterways used exclusively
for supplying or storing water for farming purposes; and
(v) The production or harvesting of crude gum from a living tree or the processing of such crude
gum into gum spirits or turpentine and gum resin, provided such processing is carried on by the
original producer of such crude gum.
(e) Remuneration paid entirely in products of the farm where labor is performed by an
employee in the employ of a farmer or a farmer's cooperative, organization or group in the
handling, planting, drying, packing, packaging, processing, freezing, grading, storing or
delivering to storage or to market or to carrier for transportation to market, of any agricultural or
horticultural commodity, produced by such farmer or farmer-members of such organization or
group, is excepted as remuneration for agricultural labor. Services performed by employees of
such farmer or farmer's organization or group in handling, planting, drying, packaging,
processing, freezing, grading, storing, or delivering to storage or to market or to carrier for

transportation to market of commodities produced by persons other than such farmer or

members of such farmer's organization or group are not performed "as an incident to ordinary
farming operation".
All payments made in cash or other forms other than products of the farm where labor is
performed, for services constituting agricultural labor as explained above, are not within the
exception.
(3) Remuneration for domestic services. Remuneration paid for services of a household
nature performed by an employee in or about the private home of the person by whom he is
employed is not subject to withholding. However, the services of household personnel furnished
to an employee (except rank and file employees) by an employer shall be subject to the fringe
benefits tax pursuant to Sec. 33 of the Code, as amended.
A private home is the fixed place of abode of an individual or family. If the home is utilized
primarily for the purpose of supplying board or lodging to the public as a business enterprise, it
ceases to be a private home and remuneration paid for services performed therein is not
exempted.
In general, services of a household nature in or about a private home include services rendered
by cooks, maids, butlers, valets, laundresses, gardeners, chauffeurs of automobiles for family
use.
The remuneration paid for the services above enumerated which are performed in or about
rooming or lodging houses, boarding houses, clubs, hotels, hospitals or commercial offices or
establishments is considered as compensation;
Remuneration paid for services performed as a private secretary, even if they are performed in
the employer's home is considered as compensation;
(4) Remuneration for casual labor not in the course of an employer's trade or business. The
term "casual labor" includes labor which is occasional, incidental or regular. The expression
"not in the course of the employer's trade or business" includes labor that does not promote or
advance the trade or business of the employer.
Thus, any remuneration paid for labor which is occasional, incidental or irregular, and does not
promote or advance the employer's trade or business, is not considered as compensation.
(5) Compensation for services by a citizen or resident of the Philippines for a foreign
government or an international organization. Remuneration paid for services performed as
an employee of a foreign government or an international organization is exempted. The
exemption includes not only remuneration paid for services performed by ambassadors,
ministers and other diplomatic officers and employees but also remuneration paid for services
performed as consular or other officer or employee of a foreign government or as a nondiplomatic representative of such government.
(6) Damages. Actual, moral, exemplary and nominal damages received by an employee or
his heirs pursuant to a final judgment or compromise agreement arising out of or related to an
employer-employee relationship.
(7) Life Insurance. The proceeds of life insurance policies paid to the heirs or beneficiaries
upon the death of the insured, whether in a single sum or otherwise, provided however, that
interest payments agreed under the policy for the amounts which are held by the insured under

such an agreement shall be included in the gross income.

(8) Amount received by the insured as a return of premium. The amount received by the
insured, as a return of premium or premiums paid by him under life insurance, endowment, or
annuity contracts either during the term or at the maturity of the term mentioned in the contract
or upon surrender of the contract.
(9) Compensation for injuries or sickness. Amounts received through Accident or Health
Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or
sickness, plus the amount of any damages received whether by suit or agreement on account
of such injuries or sickness.
(10) Income exempt under treaty. Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
(11) Thirteenth (13th ) month pay and other benefits.
(a) Thirteenth (13th) month pay equivalent to the mandatory one (1) month basic salary of
officials and employees of the government, (whether national or local), including governmentowned or controlled corporations, and or private offices received after the twelfth (12th) month
pay; and
(b) Other benefits such as Christmas bonus, productivity incentive bonus, loyalty award, gifts in
cash or in kind and other benefits of similar nature actually received by officials and employees
of both government and private offices.
The above stated exclusions (a) and (b) shall cover benefits paid or accrued during the year
provided that the total amount shall not exceed thirty thousand pesos (P30,000.00) which may
be increased through rules and regulations issued by the Secretary of Finance, upon
recommendation of the Commissioner, after considering, among others, the effect on the same
of the inflation rate at the end of the taxable year.
(12) GSIS, SSS, Medicare and other contributions. GSIS, SSS, Medicare and Pag-Ibig
contributions, and union dues of individual employees.
SECTION 2.78.2. Payroll Period. The term "payroll period" means the period of services for
which a payment of compensation is ordinarily made to an employee by his employer. It is
immaterial that the compensation is not always paid at regular intervals.
For the purpose of determining the tax, an employee can have but one payroll period with
respect to the compensation paid by any one employer. Thus, if an employee is paid a regular
compensation for the weekly payroll and in addition thereto is paid supplemental compensation
(for example taxable bonuses) determined with respect to a different period, the payroll period
is the weekly payroll period.
C. FRINGE BENFIT TAX
REVENUE REGULATION 3-98
SEC. 2.33.

SPECIAL TREATMENT OF FRINGE BENEFITS

(A)
Imposition of Fringe Benefits Tax A final withholding tax is hereby imposed on the
grossed-up monetary value of fringe benefit furnished, granted or paid by the employer to
the employee, except rank and file employees as defined in these Regulations, whether
such employer is an individual, professional partnership or a corporation, regardless of
whether the corporation is taxable or not, or the government and its instrumentalities

except when: (1) the fringe benefit is required by the nature of or necessary to the trade,
business or profession of the employer; or (2) when the fringe benefit is for the
convenience or advantage of the employer. The fringe benefit tax shall be imposed at the
following rates:
Effective January 1, 1998
34%
Effective January 1, 1999
33%
Effective January 1, 2000
32%
The tax imposed under Sec. 33 of the Code shall be treated as a final income tax on the
employee which shall be withheld and paid by the employer on a calendar quarterly basis
as provided under Sec. 57 (A) (Withholding of Final Tax on certain Incomes) and Sec. 58 A
(Quarterly Returns and Payments of Taxes Withheld) of the Code.
The grossed-up monetary value of the fringe benefit shall be determined by dividing the
monetary value of the fringe benefit by the following percentages and in accordance with
the following schedule:
Effective January 1, 1998
66%
Effective January 1, 1999
67%
Effective January 1, 2000
68%
The grossed-up monetary value of the fringe benefit represents the whole amount of
income realized by the employee which includes the net amount of money or net monetary
value of property which has been received plus the amount of fringe benefit tax thereon
otherwise due from the employee but paid by the employer for and in behalf of his
employee, pursuant to the provisions of this Section.
Coverage These Regulations shall cover only those fringe benefits given or furnished to
managerial or supervisory employees and not to the rank and file.
The term, "RANK AND FILE EMPLOYEES" means all employees who are holding neither
managerial nor supervisory position. The Labor Code of the Philippines, as amended,
defines "managerial employee" as one who is vested with powers or prerogatives to lay
down and execute management policies and/or to hire, transfer, suspend, lay-off, recall,
discharge, assign or discipline employees. "Supervisory employees" are those who, in the
interest of the employer, effectively recommend such managerial actions if the exercise of
such authority is not merely routinary or clerical in nature but requires the use of
independent judgment. cdtai
Moreover, these regulations do not cover those benefits properly forming part of
compensation income subject to withholding tax on compensation in accordance with
Revenue Regulations No. 2-98.
Fringe benefits which have been paid prior to January 1, 1998 shall not be covered by these
Regulations.
Determination of the Amount Subject to the Fringe Benefit Tax In general, the
computation of the fringe benefits tax would entail (a) valuation of the benefit granted and
(b) determination of the proportion or percentage of the benefit which is subject to the
fringe benefit tax. That the Tax Code allows for the cases where only a portion (i.e. less
than 100 per cent) of the fringe benefit is subject to the fringe benefit tax is clearly stated
in Section 33 (a) of R.A. 8424 which stipulates that fringe benefits which are "required by
the nature of, or necessary to the trade, business or profession of the employer, or when
the fringe benefit is for the convenience or advantage of the employer" are not subject to
the fringe benefit tax. Thus, in cases where the fringe benefits entail joint benefits to the
employer and employee, the portion which shall be subject to the fringe benefits tax and
the guidelines for the valuation of fringe benefits are defined under these rules and
regulations.

Unless otherwise provided in these regulations, the valuation of fringe benefits shall be as
follows:
(1)
If the fringe benefit is granted in money, or is directly paid for by the employer,
then the value is the amount granted or paid for.
(2)
If the fringe benefit is granted or furnished by the employer in property other than
money and ownership is transferred to the employee, then the value of the fringe benefit
shall be equal to the fair market value of the property as determined in accordance with
Sec. 6 (E) of the Code (Authority of the Commissioner to Prescribe Real Property Values).
(3)
If the fringe benefit is granted or furnished by the employer in property other than
money but ownership is not transferred to the employee, the value of the fringe benefit is
equal to the depreciation value of the property.
Taxation of fringe benefit received by a non-resident alien individual who is not engaged in
trade or business in the Philippines A fringe benefit tax of twenty-five percent (25%) shall
be imposed on the grossed-up monetary value of the fringe benefit. The said tax base shall
be computed by dividing the monetary value of the fringe benefit by seventy-five per cent
(75%).
Taxation of fringe benefit received by (1) an alien individual employed by regional or area
headquarters of a
multinational company or by regional operating headquarters of a multinational company;
(2) an alien individual employed by an offshore banking unit of a foreign bank established
in the Philippines; (3) an alien individual employed by a foreign service contractor or by a
foreign service subcontractor engaged in petroleum operations in the Philippines; and (4)
any of their Filipino individual employees who are employed and occupying the same
position as those occupied or held by the alien employees. A fringe benefit tax of fifteen
per cent (15%) shall be imposed on the grossed-up monetary value of the fringe benefit.
The said tax base shall be computed by dividing the monetary value of the fringe benefit by
eighty-five per cent (85%).
Taxation of fringe benefit received by employees in special economic zones Fringe
benefits received by employees in special economic zones, including Clark Special
Economic Zone and Subic Special Economic and Free Trade Zone, are also covered by these
regulations and subject to the normal rate of fringe benefit tax or the special rates of 25%
or 15% as provided above.
(B)
Definition of Fringe Benefit In general, except as otherwise provided under these
regulations, for purposes of this Section, the term "FRINGE BENEFIT" means any good,
service, or other benefit furnished or granted by an employer in cash or in kind, in addition
to basic salaries, to an individual employee (except rank and file employee as defined in
these regulations) such as, but not limited to the following:
(1)
Housing;
(2)
Expense account;
(3)
Vehicle of any kind;
(4)
Household personnel, such as maid, driver and others;
(5)
Interest on loan at less than market rate to the extent of the difference between the
market rate and actual rate granted;
(6)
Membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations;
(7)
Expenses for foreign travel;
(8)
Holiday and vacation expenses;
(9)
Educational assistance to the employee or his dependents; and
(10)
Life or health insurance and other non-life insurance premiums or similar amounts
in excess of what the law allows.
For this purpose, the guidelines for valuation of specific types of fringe benefits and the

determination of the monetary value of the fringe benefits are give below. The taxable
value shall be the grossed-up monetary value of the fringe benefit.
(1)
Housing privilege
(a)
If the employer leases a residential property for the use of his employee and the
said property is the usual place of residence of the employee, the value of the benefit shall
be the amount of rental paid thereon by the employer, as evidenced by the lease contract.
The monetary value of the fringe benefit shall be fifty per cent (50%) of the value of the
benefit.
(b)
If the employer owns a residential property and the same is assigned for the use of
his employee as his usual place of residence, the annual value of the benefit shall be five
per cent (5%) of the market value of the land and improvement, as declared in the Real
Property Tax Declaration Form, or zonal value as determined by the Commissioner pursuant
to Section 6(E) of the Code (Authority of the Commissioner to Prescribe Real Property
Values), whichever is higher. The monetary value of the fringe benefit shall be fifty per cent
(50%) of the value of the benefit. cda
The monetary value of the housing fringe benefit is equivalent to the following:
MV = [5%(FMV or ZONAL VALUE] X 50%
WHERE:
MV = MONETARY VALUE
FMV = FAIR MARKET VALUE
(c)
If the employer purchases a residential property on installment basis and allows his
employee to use the same as his usual place of residence, the annual value of the benefit
shall be five per cent (5%) of the acquisition cost, exclusive of interest. The monetary value
of fringe benefit shall be fifty per cent (50%) of the value of the benefit.
(d)
If the employer purchases a residential property and transfers ownership thereof in
the name of the employee, the value of the benefit shall be the employer's acquisition cost
or zonal value as determined by the Commissioner pursuant to Section 6(E) of the Code
(Authority of the Commissioner to Prescribe Real Property Values), whichever is higher. The
monetary value of the fringe benefit shall be the entire value of the benefit.
(e)
If the employer purchases a residential property and transfers ownership thereof to
his employee for the latter's residential use, at a price less than the employer's acquisition
cost, the value of the benefit shall be the difference between the fair market value, as
declared in the Real Property Tax Declaration Form, or zonal value as determined by the
Commissioner pursuant to Sec. 6(E) of the Code (Authority of the Commissioner to
Prescribe Real Property Values), whichever is higher, and the cost to the employee. The
monetary value of the fringe benefit shall be the entire value of the benefit.
(f)
Housing privilege of military officials of the Armed Forces of the Philippines (AFP)
consisting of officials of the Philippine Army, Philippine Navy and Philippine Air Force shall
not be treated as taxable fringe benefit in accordance with the existing doctrine that the
State shall provide its soldiers with necessary quarters which are within or accessible from
the military camp so that they can be readily on call to meet the exigencies of their military
service.
(g)
A housing unit which is situated inside or adjacent to the premises of a business or
factory shall not be considered as a taxable fringe benefit. A housing unit is considered
adjacent to the premises of the business if it is located within the maximum of fifty (50)
meters from the perimeter of the business premises.
(h)
Temporary housing for an employee who stays in a housing unit for three (3) months
or less shall not be considered a taxable fringe benefit.
(2)
Expense account
(a)
In general, expenses incurred by the employee but which are paid by his employer
shall be treated as taxable fringe benefits, except when the expenditures are duly receipted
for and in the name of the employer and the expenditures do not partake the nature of a
personal expense attributable to the employee.
(b)
Expenses paid for by the employee but reimbursed by his employer shall be treated
as taxable benefits except only when the expenditures are duly receipted for and in the
name of the employer and the expenditures do not partake the nature of a personal

expense attributable to the said employee.

(c)
Personal expenses of the employee (like purchases of groceries for the personal
consumption of the employee and his family members) paid for or reimbursed by the
employer to the employee shall be treated as taxable fringe benefits of the employee
whether or not the same are duly receipted for in the name of the employer.
(d)
Representation and transportation allowances which are fixed in amounts and are
regular received by the employees as part of their monthly compensation income shall not
be treated as taxable fringe benefits but the same shall be considered as taxable
compensation income subject to the tax imposed under Sec. 24 of the Code.
(3)
Motor vehicle of any kind
(a)
If the employer purchases the motor vehicle in the name of the employee, the
value of the benefit is the acquisition cost thereof. The monetary value of the fringe benefit
shall be the entire value of the benefit, regardless of whether the motor vehicle is used by
the employee partly for his personal purpose and partly for the benefit of his employer.
(b)
If the employer provides the employee with cash for the purchase of a motor
vehicle, the ownership of which is placed in the name of the employee, the value of the
benefits shall be the amount of cash received by the employee. The monetary value of the
fringe benefit shall be the entire value of the benefit regardless of whether the motor
vehicle is used by the employee partly for his personal purpose and partly for the benefit of
his employer, unless the same was subjected to a withholding tax as compensation income
under Revenue Regulations No. 2-98.
(c)
If the employer purchases the car on installment basis, the ownership of which is
placed in the name of the employee, the value of the benefit shall be the acquisition cost
exclusive of interest, divided by five (5) years. The monetary value of the fringe benefit
shall be the entire value of the benefit regardless of whether the motor vehicle is used by
the employee partly for his personal purpose and partly for the benefit of his employer.
(d)
If the employer shoulders a portion of the amount of the purchase price of a motor
vehicle the ownership of which is placed in the name of the employee, the value of the
benefit shall be the amount shouldered by the employer. The monetary value of the fringe
benefit shall be the entire value of the benefit regardless of whether the motor vehicle is
used by the employee partly for his personal purpose and partly for the benefit of his
employer.
(e)
If the employer owns and maintains a fleet of motor vehicles for the use of the
business and the employees, the value of the benefit shall be the acquisition cost of all the
motor vehicles not normally used for sales, freight, delivery service and other non-personal
used divided by five (5) years. The monetary value of the fringe benefit shall be fifty per
cent (50%) of the value of the benefit.
The monetary value of the motor vehicle fringe benefit is equivalent to the following:
MV = [(A)/5] X 50%
where:
MV = Monetary value
A = acquisition cost
(f)
If the employer leases and maintains a fleet of motor vehicles for the use of the
business and the employees, the value of the benefit shall be the amount of rental
payments for motor vehicles not normally used for sales, freight, delivery, service and
other non-personal use. The monetary value of the fringe benefit shall be fifty per cent
(50%) of the value of the benefit.
(g)
The use of aircraft (including helicopters) owned and maintained by the employer
shall be treated as business use and not be subject to the fringe benefits tax.
(h)
The use of yacht whether owned and maintained or leased by the employer shall be
treated as taxable fringe benefit. The value of the benefit shall be measured based on the
depreciation of a yacht at an estimated useful life of 20 years.
(4)
Household expenses Expenses of the employee which are borne by the employer
for household personnel, such as salaries of household help, personal driver of the
employee, or other similar personal expenses (like payment for homeowners association
dues, garbage dues, etc.) shall be treated as taxable fringe benefits.

(5)
Interest on loan at less than market rate
(a)
If the employer lends money to his employee free of interest or at a rate lower than
twelve per cent (12%), such interest foregone by the employer or the difference of the
interest assumed by the employee and the rate of twelve per cent (12%) shall be treated as
a taxable fringe benefit.
(b)
The benchmark interest rate of twelve per cent (12%) shall remain in effect until
revised by a subsequent regulation.
(c)
This regulation shall apply to installment payments or loans with interest rate lower
than twelve per cent (12%) starting January 1, 1998.
(6)
Membership fees, dues, and other expenses borne by the employer for his
employee, in social and athletic clubs or other similar organizations. These expenditures
shall be treated as taxable fringe benefits of the employee in full.
(7)
Expenses for foreign travel
(a)
Reasonable business expenses which are paid for by the employer for the foreign
travel of his employee for the purpose of attending business meetings or conventions shall
not be treated as taxable fringe benefits. In this instance, inland travel expenses (such as
expenses for food, beverages and local transportation) except lodging cost in a hotel (or
similar establishments) amounting to an average of US$300.00 or less per day, shall not be
subject to a fringe benefit tax. The expenses should be supported by documents proving
the actual occurrences of the meetings or conventions.
The cost of economy and business class airplane ticket shall not be subject to a fringe
benefit tax. However, 30 percent of the cost of first class airplane ticket shall be subject to
a fringe benefit tax.
(b)
In the absence of documentary evidence showing that the employee's travel abroad
was in connection with business meetings or conventions, the entire cost of the ticket,
including cost of hotel accommodations and other expenses incident thereto shouldered by
the employer, shall be treated as taxable fringe benefits. The business meetings shall be
evidenced by official communications from business associates abroad indicating the
purpose of the meetings. Business conventions shall be evidenced by official
invitations/communications from the host organization or entity abroad. Otherwise, the
entire cost thereof shouldered by the employer shall be treated as taxable fringe benefits of
the employee.
(c)
Travelling expenses which are paid by the employer for the travel of the family
members of the employee shall be treated as taxable fringe benefits of the employee.
(8)
Holiday and vacation expenses Holiday and vacation expenses of the employee
borne by his employer shall be treated as taxable fringe benefits.
(9)
Educational assistance to the employee or his dependents
(a)
The cost of the educational assistance to the employee which are borne by the
employer shall, in general, be treated as taxable fringe benefit. However, a scholarship
grant to the employee by the employer shall not be treated as taxable fringe benefit if the
education or study involved is directly connected with the employer's trade, business or
profession, and there is a written contract between them that the employee is under
obligation to remain in the employ of the employer for period of time that they have
mutually agreed upon. In this case, the expenditure shall be treated as incurred for the
convenience and furtherance of the employer's trade or business.
(b)
The cost of educational assistance extended by an employer to the dependents of
an employee shall be treated as taxable fringe benefits of the employee unless the
assistance was provided through a competitive scheme under the scholarship program of
the company.
(10)
Life or health insurance and other non-life insurance premiums or similar amounts
in excess of what the law allows The cost of life or health insurance and other non-life
insurance premiums borne by the employer for his employee shall be treated as taxable
fringe benefit, except the following: (a) contributions of the employer for the benefit of the
employee, pursuant to the provisions of existing law, such as under the Social Security
System (SSS), (R.A. No. 8282, as amended) or under the Government Service Insurance
System (GSIS) (R.A. No. 8291), or similar contributions arising from the provisions of any

other existing law; and (b) the cost of premiums borne by the employer for the group
insurance of his employees.
(C)
Fringe Benefits Not Subject to Fringe Benefits Tax In general, the fringe benefits
tax shall not be imposed on the following fringe benefits:
(1)
Fringe benefits which are authorized and exempted from income tax under the
Code or under any special law;
(2)
Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans;
(3)
Benefits given to the rank and file, whether granted under a collective bargaining
agreement or not;
(4)
De minimis benefits as defined in these Regulations;
(5)
If the grant of fringe benefits to the employee is required by the nature of, or
necessary to the trade, business or profession of the employer; or
(6)
If the grant of the fringe benefit is for the convenience of the employer.
The exemption of any fringe benefit from the fringe benefit tax imposed under this Section
shall not be interpreted to mean exemption from any other income tax imposed under the
Code except if the same is likewise expressly exempt from any other income tax imposed
under the Code or under any other existing law. Thus, if the fringe benefit is exempted from
the fringe benefits tax, the same may, however, still form part of the employee's gross
compensation income which is subject to income tax, hence, likewise subject to a
withholding tax on compensation income payment.
The term "DE MINIMIS" benefits which are exempt from the fringe benefit tax shall, in
general, be limited to facilities or privileges furnished or offered by an employer to his
employees that are of relatively small value and are offered or furnished by the employer
merely as a means of promoting the health, goodwill, contentment, or efficiency of his
employees such as the following:
(1)
Monetized unused vacation leave credits of employees not exceeding ten (10) days
during the year;
(2)
Medical cash allowance to dependents of employees not exceeding P750 per
semester or P125 per month;
(3)
Rice subsidy of P350 per month granted by an employer to his employees;
(4)
Uniforms given to employees by the employer;
(5)
Medical benefits given to the employees by the employer;
(6)
Laundry allowance of P150 per month;
(7)
Employee achievement awards, e.g. for length of service or safety achievement,
which must be in the form of a tangible personal property other than cash or gift certificate,
with an annual monetary value not exceeding one-half () month of the basic salary of the
employee receiving the award under an established written plan which does not
discriminate in favor of highly paid employees; dctai
(8)
Christmas and major anniversary celebrations for employees and their guests;
(9)
Company picnics and sports tournaments in the Philippines and are participated
exclusively by employees; and
(10)
Flowers, fruits, books or similar items given to employees under special
circumstances, e.g. on account of illness, marriage, birth of a baby, etc
(D)
Tax Accounting for the Fringe Benefit Furnished to the Employee and the Fringe
Benefit Tax Due Thereon. As a general rule, the amount of taxable fringe benefit and the
fringe benefits tax shall constitute allowable deductions from gross income of the employer.
However, if the basis for computation of the fringe benefits tax is the depreciation value,
the zonal value as determined by the Commissioner pursuant to Section 6(E) of the Code or
the fair market value as determined in the current real property tax declaration of a certain
property, only the actual fringe benefits tax paid shall constitute a deductible expense for
the employer. The value of the fringe benefit shall not be deductible and shall be presumed
to have been tacked on or actually claimed as depreciation expense by the employer.
Provided, however, that if the aforesaid zonal value or fair market value of the said property
is greater than its cost subject to depreciation, the excess amount shall be allowed as a
deduction from the employer's gross income as fringe benefit expense.

RMC 30 08
REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City

April 1, 2008

REVENUE MEMORANDUM CIRCULAR NO. 30-2008

Subject :

Clarifying the Taxability of Insurance Companies for

MCIT,
Business Tax, and Documentary Stamp Tax Purposes.

To

All Internal Revenue Officers and Others Concerned.

The primary and predominant business activity of an insurance company is the

writing of insurance or the reinsuring of risks underwritten by insurance companies which
are subject to the supervision by the Insurance Commission.
Section 2 of Presidential Decree No. 612 (PD 612), otherwise known as the The
Insurance Code defines the term doing an insurance business or transacting an
insurance business to include: (a) making or proposing to make, as insurer, any insurance
contract; (b) making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity of the
surety; (c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning of this
Code; (d) doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code. X x x

In proposing to indemnify another against any loss, damage or liability arising from
an unknown or contingent event through the issuance of insurance policies, these
companies engaged in the insurance business receive, as consideration for the services
rendered, premium payment from the insured/policyholder.
The insurance business may pertain to life insurance or non- life insurance business.
Life insurance company is a company which deals with the insurance on human lives
and insurance appertaining thereto or connected therewith. The service likewise includes
soliciting group insurance, and health and accident insurance policies which the company is
nevertheless authorized to pursue as part of its business activity. Group insurance is
essentially a single insurance contract that provides coverage for many individuals. In its
original and most common form, group insurance provides life or health insurance coverage
for the employees of one employer. In an accident insurance,

Page 1 of 11

the insureds beneficiary has the burden of proof in demonstrating that the cause
of death is due to the covered peril. Once the fact is established, the burden then
shifts to the insurer to show any excepted peril that may have been stipulated by
the parties. An accident insurance is not thus to be likened to an ordinary life
insurance where the insured's death, regardless of the cause thereof, would
normally be compensable.
Non-life insurance
on the other
is one
solicits
company,
hand,
which
insurance
on the secur ity of property
as: marine, fire and casualty insurance
such
companies;
surety, fidelity, indemnity and bonding companies; such
persons as may
and
other
be
authorized by the Insurance Commission.
Determination of the Minimum Corporate Income Tax For Life and
Non-Life Insurance Companies. - For purposes of computing the gross income
on the sale of services which shall be the basis of the 2% Minimum Corporate
Income Tax (MCIT) imposed under Section 27(E) and Section 28(A)(2) of the 1997
National Internal Revenue Code (Tax Code), as amended, of life and non- life
insurance companies, their gross revenue shall include direct premium and
reinsurance assumed (net of returns, cancellations); miscellaneous income;
investment income not subject to final tax; released reserve; and, all other items
treated as gross income under Section 32 of the said Tax Code, as amended.
Their costs of services or direct cost and identifiable direct revenue-related
deductions shall refer to those incurred costs which are exclusively related or
otherwise considered indispensable to the creation of the revenue from their
business activity as an insurance company, including the generation of
investment income not subject to final taxes, and shall be limited to the
following:
.
01.
Claims, losses, maturities and benefits net of reinsurance
recoveries;
0 Additions required by law to reserve fund; and
0 Reinsurance ceded.
Taxability of the Various Business
of Life Insurance
Activities
Company
for Business Tax and Documentary Stamp
Tax. (a) Business Tax.
it may be
tha
core revenue source of

While said
t
the a
insuranc
premium
life e
company is the generation of s
fromundertaking life
business undertakings have
and
insurance contracts,its slowly
evolved expanded
through the years
from the premiums
main
such
that aside earned
from its activity,
its other ancillary services have likewise
forth other types of revenue
brought
like
income,
interest
other investment
rental management
fee, income,
income,
renewal
re- issuance fees,
fees, penalties and the
and/or reinstatement
like.

regard to
With these
types of income,
Gross Receipts Tax ) to be
tax, VAT or imposed
activit pursued by the life insurance
y
company

the business tax

(i.e.,

whethe premiu
r
m

will depend on the nature of the

in producing such type of
income.

Page 2 of 11

(1) Direct Writings/Premiums - Generally, for the premiums

received by a life insurance company in undertaking its insurance
activities, the same are subject to premium tax at the rate of five percent
(5%) on its direct writings/premiums pursuant to Section 123 of the Tax
Code, as amended, to wit:

"SEC. 123. Tax on Life Insurance Premiums. There shall be

collected from every person, company or corporation (except purely
cooperative companies or associations) doing life insurance business of
any sort in the Philippines a tax of five percent (5%) of the total premium
collected, whether such premiums are paid in money, notes, credits or any
substitute for money; but premiums refunded within six (6) months after
payment on account of rejection of risk or returned for other reason to a
person insured shall not be included in the taxable receipts; nor shall any
tax be paid upon reinsurance by a company that has already paid the tax;
nor upon premiums collected or received by any branch of a domestic
corporation, firm or association doing business outside the Philippines on
account of any life insurance of the insured who is a nonresident, if any
tax on such premium is imposed by the foreign country where the branch
is established nor upon premiums collected or received on account of any
reinsurance, if the insured, in case of personal insurance, resides outside
the Philippines, if any tax on such premiums is imposed by the foreign
country where the original insurance has been issued or perfected; nor
upon that portion of the premiums collected or received by the insurance
companies on variable contracts [as defined in Section 232(2) of
Presidential Decree No. 612], in excess of the amounts necessary to
insure the lives of the variable contract owners.
" Xxx xxx xxx
Re- insurance fees,
fees, renewal fees as well as
reinstatement
penalties
to the life insurance company
are incidental to or in
paid which
connection
issue
with the insurance policy contracts d
are considered akin to premiums,
thus such types of income
covered by the above,
are
also quoted
provision of
Section 123, subject to
premium tax for the gross
the
5% amount
received on
fees and/or
such penalties
(2) Management Fees, Rental Income , or Other Income
from
Unrelate Services
any
d
Management fees, rental income, or other
income earned
the life insurance
which can
by
company
fromservices be
pursued
of the insurance business
subjec
independently
activity,
are thus nott
to the 5% premium tax imposed under Section
the
123
above but, rather, same
are
services that are subject to the imposition
treated
as income for of
VAT

pursuant
of the Tax Code, as
to the percentage
to
Section 108 amended,
or tax
imposed under
116 of the same Tax Code, as the case
Section
may be.
(3) Investment
Income

(3.a) Investment Income Realized from the Investment of

Premium Earned.
from investment
s
Income realized activities
utilizing
the premiums earned the life insurance company
policyholders
by
from
its is
considere merel
par
incidenta
an is
d
y
a t
of, l
to d
necessary to its main
business of
insurance
contracting
services.

Page 3 of 11

investmen
furthe
t
income is considered
exempt from the r
business
since
premiums
hav bee
tax
the
,
which e
n
the source
invested had
subjecte to the imposition of the
of the funds already
been d
5%
premium
pursuant to Section 123 of the Tax Code, as
tax
amended.
Such
imposition
of

Investme Income Realized from the

(3.b) nt
Investment
of Funds
Obtained from Others
The income
by the life insurance
. earned
company
whereby it
the funds
policyholders
uses
solicited
andpooled
from its to
invest in
marketable securities,
and other financial
various
instruments,
products,
funds are recognized as
which liabilities
by the life insurance company and
can be
the
anytime, is
which withdrawn
by policyholders
considered
as an
income earned from
quasifunction, thus, subject to
performing
a banking
the
gross
tax imposed under Section 121 of the Tax
as
receipts
Code,
amended.
Apportionme
Determin
(3.c)
Manner of
nt
to e
Exempt
Investment Income and Investment Income Subject to Gross
Receipts Tax
discussed
investment income that is exempt
As has been above,
from
the
business tax only
to that portion of investment
imposition of pertains
income
source of the funds used in the investment
where the activities
comes from
the
funds (i.e.,
earned of the
insurance
owned
premiums
)
life
company.
that portion of investment
whereby the
For income
source
of the funds
used was solicited from the
than the
policyholders
for purposes other payment
current premiums due to the life insurance company
of the and
where such
are
by the life insurance company
funds solicited treated
as
liabilities, such
to have been
performing quasiincome is considered earned
from banking
function and
subjec to the imposition of gross receipts tax
,
therefore,
t
pursuant
to Section 121
as
of
the Tax Code, amended.

In order to
of the
determine
which portion investment
income earned
for the
is
and which portion is taxable, the investment
month
exempt income
earne for the month shall be allocated between the
d
following:
(i) liability account balance pertinent the other funds solicited
from the policyholders as of the end of such month; and
(ii) the total premiums earned for the month.

Exempt/Non Taxable Investment Income

= Investment Income x ___Item (ii)_above
for the
Sum of Items (i) & (ii)
month
above

Page 4 of 11

Investment Income Subject to Gross Receipts Tax

= Investment Income x ___Item (i)_above

for
Sum of
the
Items
(i) & (ii)
mont
h
above
life insurance
Example : "Akim Life Assurance Corp.", a company,
during the month of
investme
amountin
April,
realized an nt
income g
to
The
funds used in generating this income come
P1,000,000. investment
from
both the
earned by the
and the other
premiums
company
funds
solicited from
its policyholders . For the same
the premiums earned
compan
month,
by
the y
amounted
P30,000,000 while the liability balance of the end
to
of
the said
month pertinent to the
funds solicited amounted to
other
P20,000,000.
The
of the investment
exempt
portion income
and the portion to be
subject to the gross receipts tax are determined as follows:

Exempt

P1,000,00
0
x P30,000,000
P50,000,000
P600,000
======
==

Taxable for Gross Receipts Tax = P1,000,000 x

P20,000,00
0
P50,000,00
0
= P 400,000
========

(b) Documentary Stamp Tax. - With respect to life insurance policies

issued by the life insurance company, the same is subject to documentary stamp
tax pursuant to Section 183 of the Tax Code, as amended, as quoted hereunder:
"SEC. 183. Stamp Tax on Life Insurance Policies. On all
policies of insurance or other instruments by whatever name the same
may be called, whereby any insurance shall be made or renewed upon

any life or lives, there shall be collected a documentary stamp tax of Fifty
centavos (P0.50) on each Two hundred pesos (P200), or fractional part
thereof, of the amount of premium collected.
For certificates issued, documentary stamp tax is imposed as follows:

Page 5 of 11

SEC. 188. Stamp Tax on Certificates. On each certificate of

damage or otherwise, and on every other certificate or document issued
by any customs officer, marine surveyor, or other person acting as such,
and on each certificate issued by a notary public, and on each certificate
of any description required by law or by rules or regulations of a public
office, or which is issued for the purpose of giving information, or
establishing proof of a fact, and not otherwise specified herein, there shall
be collected a documentary stamp tax of Fifteen pesos (P15.00).
For group insurance policies issued, the premium collected therefrom shall
be subject to Section 183 above. For the individual certificates issued to each
and every employee covered by the group insurance policy, the issuance of such
certificate shall be subject to Section 188 above.
However, with regard to health and accident insurance coverage provided,
the basis for the payment of documentary stamp tax shall be the provision
prescribed by Section 185 of the same Tax Code, viz:
SEC. 185. Stamp Tax on Fidelity Bonds and Other
Insurance Policies. On all policies of insurance or bonds or obligations
of the nature of indemnity for loss, damage or liability made or renewed
by any person, association, company or corporation transacting the
business of accident, fidelity, employer's liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), and all bonds,
undertakings, or recognizances, conditioned for the performance of the
duties of any office or position, for the doing or not doing of anything
therein specified, and on all obligations guaranteeing the validity or
legality of any bond or other obligations issued by any province, city,
municipality, or other public body or organization, and on all obligations
guaranteeing the title to any real estate, or guaranteeing any mercantile
credits, which may be made or renewed by any such person, company or
corporation, there shall be collected a documentary stamp tax of Fifty
centavos (P0.50) on each Four pesos (P4.00), or fractional part thereof, of
the premium charged.
Taxability of the Other Financial Services/Products Sold by the
Life Insurance Company in addition to the Life Insurance Policy
Solicited. - In pursuing its main activity of proposing to undertake for a
consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event through
the issuance
insurance policies upon payment by insurer of
premium, it,
of
the
the
at
the same
offers to its policyholder other
services/products, which
time,
financial
upon
acceptance by the
are made as a rider, clause,
or
policyholder,
warranty
endorsement
attached to and formed part the insurance policy contract
of
issued.
Examples of such financial products are the Variable Unit Link (VUL) and
the Premium Deposit Fund (PDF).
Variable Unit Link (VUL). - Among the salient features of this financial
service/product are, as follows:

In addition to the life insurance policy contracted, policyholders are

made to contribute to a fund set up by the life insurance company;

Page 6 of 11

Of the total amount given by the policyholder for the life

insurance
policy and the contribution to be made to such fund, only 2% to 5%
represents the premium payment for the life insurance policy,
while 95% to 98% of the rest of the amount paid pertains to the
amount contributed to the fund;

The contribution to the fund is represented by units of shares;

A fixed amount is set for each unit of share, thus, the percentage
of
contribution of the policyholder to the fund corresponds to the
number of unit of shares he owns therein;

The amount pooled to the fund is then invested in stocks,

securities, debt
instruments, and other
passiv investment income derived
similar
e
s,
from
which are those that are
exempt from tax subject to final
either
or
tax

acts as fund
As such,
The life insurance company merely manager.
the
fund is not commingled with the owned funds of the life
said
insurance
company
;
The life insurance company does not share in
the
income derived by
from the investment activities but
the fund rather
derives income by
management fees based
charging on
a certain fixed rate; and

The income earned by the fund together with the contributions

made are
then distributed to the policyholders upon surrender/redemption of
units of shares.

The tax consequences insofar as this above financial product/service is

concerned are, as follows:

The premiums received on account of the life insurance solicited

from the policyholder, being the main business activity of the life
insurance company is, in addition to the income tax imposed under
Title II of the Tax Code, as amended, subject to the abovementioned
business tax/premium tax and DST;

For the management fees earned by the life insurance company

in
managing the investment portfolio of the VUL
fund, such
manageme fees , in addition to the
tax imposed under Title
nt
income
II
of the Tax Code, as amended, is subject
pursuant to
to
VAT Section

of the Tax Code, as amended, or to

percentage tax
108 the
imposed
under Section 116 of the same Code, as the case
may be;
issued to the policyholder
The certificates evidencing
hiscontribution
which partake the nature
of trust shall
to the VUL fund of
deeds be

Page 7 of 11

subject to the imposition of DST prescribed by Section 195 of the

Tax Code, as amended; and
For the
policyholder from the redemption of
gain
realized by the his
units of shares in
fund, the same must be declared
the
VUL
and
reported
by
the said policyholder for income tax purposes.
Premium Deposit Fund (PDF) Another example of a financial
product/service offered by the life insurance company that is made a rider to the
life insurance policy contract issued to the policyholder is the premium deposit
fund. Among the salient features of the product/service are as follows:
In addition to the life insurance policy contracted, policyholders are
made to make deposits for the future premium payment;
Deposits of at least Php500 each may be made to this fund
for
payment of future premium on the policy;
The
fund
will be used in investment activities;
shall be credited to the fund annually on each policy
Interest anniversary
at such rates as the life
company may declare
insurance
each
year but
never less than the lowest
rate prevailing on
account
interest
savings
s
in
banks;
That the balance of the deposit inclusive of the interest earned,
maybe
withdrawn anytime at the option of the policyholder; and
And that the insurance company treats such deposits in its books of
accounts as liabilities to the policyholders.
The tax consequences insofar as this above financial product/service is
concerned are, as follows:

The premiums received on account of the life insurance solicited

from the policyholder, being the main business activity of the life
insurance company is, in addition to the income tax imposed by the
Title II of the Tax Code, as amended, subject to the abovementioned
business tax/premium tax and DST;

The investment income earned by the insurance company from the

investment activities using the fund, in addition to the income tax
imposed by
II of the Tax Code, as
Title
amended,
is
subject tothe
gros
receipts tax imposed under
s
Section
121 of the Tax Code,as
amended;

issued to the
evidencing deposits made
The instrument policyholder
to
the premium deposit fund which is
in the books
treated
as liability of
insurance companies, is considered as
accounts of the life Certificate of
Indebtedness
subject
to the imposition of DST prescribed by Section

Page 8 of 11

179 of the Tax Code, as amended, at the rate of One peso (P1.00)
on each Two hundred pesos (P200), or fractional part thereof, of the
issue price of any such debt instruments; and
The interest earned by policyholder from the
the
premium
deposit fund
is subject to
final withholding tax imposed by Sections 24(B)
20%
(1);
an
28 (A)(7) of the Tax
25(A)(2); 27((D)(1) d
Section Code,
as
amended, which provides
a final tax at the rate of twenty
that
percent
(20%) is imposed upon the amount of interest from any currency
bank
deposit and yield or any other monetary benefit from deposit
substitutes
and from trust funds and similar
arrangements.
because a close
aforementioned features
This is so perusal
of theof
tha
insurance company
saidfund shows t with the manner theoperates
b
the mode by which
this fund, the same can e
likened to banks
accepts
from
whereby
deposits
the
public deposits
received are
apparently booked as liabilities
for such liabilities
interes
and
received,
t
payment based on the agreed interest
are committed be paid
s
rate
to
to
the depositors
which
interest anddeposit can be withdrawn by said
depositors anytime.
Inasmuc
transac in the
manne
h
as insurance companies t
same
r
as the
as the
business of the banks insofar premium
deposit fund is
concerned
to
,
interest paid their
policyholders earned out of the
premiu
fund very well falls within
purview
m
deposit the
of
what may
be considered as
arrangements prescribed for
similar
by
Tax Code,
Thus,
interes payments are subject to the
as amended. such
t
final
withholding tax at the rate
percent
of
twenty (20%).
Taxability of the Non-Life Insurance Company for Business
Tax
and
Documentary Stamp Tax. (a) Business Tax. Pursuant to Section 108 of the Tax as
Code,
amended, the
gross receipts of non- life insurance companies (except
crop
their
insurances)
is

subject to the imposition of VAT

includes the total premiums collected
which
whether
such premiums are paid in money, notes, credits or any substitute for
money.
Premium receive from a health
accident insurance
underwritte
s
d
and
contract
n
insurance companies are
gross
by the non- life likewise
included in the ir receipts
subject to VAT since
treate a
casualty insurance
issued by
the
same is d
s
when
the
non- life
insurance
company.
The following non- life insurance companies are subject to VAT on gross
premium received beginning January 1, 1996:
a. Marine, fire and casualty insurance companies;

Page 9 of 11

b. Surety, fidelity, indemnity and bonding companies;

c. Mutual benefit associations;
d. Government-owned or controlled corporations engaged in the
business of non- life insurance;
e. Non-stock, non-profit organizations and cooperatives engaged in
the business of non-life insurance; and
f. All other persons, whether individual, trust/estate, partnership,
association, joint venture, or corporation engaging in the non-life
insurance business, such as but not limited to resident foreign
persons rendering non-life insurance services in the Philippines in
the course of its trade or business.
"Gross Receipts" does not include the following:
:
i.
ii.
iii.
iv.
v.

Premiums refunded within six (6) months after payment on account

of rejection of risk or returned for other reason to the person
insured (return premiums);
Premiums on reinsurance of a company that has already paid the
tax;
Premiums on account of any reinsurance, if the risk insured against
covers property located outside of the Philippines;
Documentary stamp and local taxes passed on by the insurance
company to the insured; and
VAT passed on to the insured.

(b) Documentary Stamp Tax. - With respect to insurance policies other

than health and accident insurance policies issued by the non- life insurance
company, the same are subject to documentary stamp taxes pursuant to Section
184 of the Tax Code, as amended, as quoted hereunder, regardless of the fact
that policies may have become ineffective due to non-payment of the
corresponding premiums:
"SEC. 184. Stamp Tax on Policies of Insurance Upon
Property. On all policies of insurance or other instruments by whatever
name the same may be called, by which insurance shall be made or
renewed upon property of any description, including rents or profits,
against peril by sea or on inland waters, or by fire or lightning, there shall
be collected a documentary stamp tax of Fifty centavos (P0.50) on each
Four pesos (P4.00), or fractional part thereof, of the amount of premium
charged: Provided , however, That no documentary stamp tax shall be
collected on reinsurance contracts or on any instrument by which cession
or acceptance of insurance risks under any reinsurance agreement is
effected or recorded.

With regard to
insurance company,
the provision
prescribed by

health and accident insurance policies issued by the nonlife basis for the payment of documentary stamp tax shall
be the Section 185 of the same Tax Code, as amended,
viz:

SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance

Policies. On all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage or liability made or renewed by any person,
association, company or corporation transacting the business of accident,
fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator,

automatic sprinkler, or other branch of insurance (except life, marine, inland, and
fire insurance), and all bonds, undertakings, or recognizances, conditioned for
the performance of the duties of

Page 10 of 11

any office or position, for the doing or not doing of anything therein specified, and on
all obligations guaranteeing the validity or legality of any bond or other obligations
issued by any province, city, municipality, or other public body or organization, and on
all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile
credits, which may be made or renewed by any such person, company or corporation,
there shall be collected a documentary stamp tax of Fifty centavos (P0.50) on each
Four pesos (P4.00), or fractional part thereof, of the premium charged.
For certificates issued, documentary stamp tax is imposed as follows:
SEC. 188. Stamp Tax on Certificates. On each certificate of damage or
otherwise, and on every other certificate or document issued by any customs officer,
marine surveyor, or other person acting as such, and on each certificate issued by a
notary public, and on each certificate of any description required by law or by rules or
regulations of a public office, or which is issued for the purpose of giving information,
or establishing proof of a fact, and not otherwise specified herein, there shall be
collected a documentary stamp tax of Fifteen pesos (P15.00).
Likewise, Certificate of Cover (COC) issued
insurances shall be subject the documentary
to
stamp
188 above.

pertinent to
motor

vehicl
e
Sectio
tax imposed under n

All revenue rulings and issuances inconsistent herewith are hereby revoked, amended,
or modified accordingly.
All internal revenue officers are hereby enjoined to give this Circular as wide a publicity
as possible.

(Original Signed)
LILIAN B. HEFTI
Commissioner of Internal Revenue

cc:
Secretary of Financea
Philippine Insurers and Reinsurers Association (PIRA)
Philippine Life Insurance Association, Inc. (PLIA)

Page 11 of 11