ANNEX B:

INCOME TAX TABLES

TABLE 1 TAX RATES FOR INDIVIDUALS

GENERAL CATEGORIES CITIZENS ALIENS

RESIDENTS NON-RESIDENTS RESIDENTS NRAEBT NRANEBT
PERMANENTLY STAYED STAYED OUTSIDE THE STAYED WITHIN THE STAYED WITHIN THE STAYED IN THE PHIL. 180
IN THE PHIL OR MAY PHIL. 183 DAYS OR PHIL. FOR MORE THAN PHIL. MORE THAN 180 DAYS OR LESS
PERIOD OF STAY HAVE STAYED OUTSIDE MORE 12 MONTHS FROM DAYS
THE PHIL. LESS THAN 183 DATE OF ARRIVAL
DAYS

SOURCES OF INCOME ALL SOURCES WITHIN THE PHIL. WITHIN THE PHIL. WITHIN THE PHIL. WITHIN THE PHIL.

NATURE OF INCOME TAXABLE BASE/ TAX RATE

Compensation, Business, Trade, Taxable Income

Profession (including casual gains, 5% - 34%(1998)
profits, income, and capital gains, prizes - 33%(1999)
of P10,000 or less). Not included are - 32%(2000)
items of income subject to final tax and (Normal Tax Rate)
or special tax treatment

Interest from any currency bank deposit Gross income

and yield or any other monetary benefit (within) 25%
from deposit substitute and from trust
Gross income (within) 20% Final Withholding tax (FWT)
funds and similar arrangements,
royalties, prizes (except amounting to
P10,000 or less) and other winnings
except PCSO and lotto winnings)

Royalties on books, as well as either Gross income (within) 10% FWT

literary works and musical composition

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 GENERAL CATEGORIES CITIZENS ALIENS
RESIDENTS NON-RESIDENTS RESIDENTS NRAEBT NRANEBT

Interest income from depository bank Gross income (within) 7.5% Any income from Gross income(within) Any income from transactions with depository bank under
under the expanded foreign currency FWT (Exchange Rate to be transaction with depositary 7.5% FWT the expanded FCDS or ODU Exempt [Sec.(27)D(3)]
deposit system (FCDS) used shall be the opening banks under the expanded [Sec.28(A)(4)]
rate on remittance day) FCDS or OBU
-Exempt
[Sec27(D)(3)]
[Sec.28(A)(4)]

Interest income from long-term deposit Interest on long term deposit - Exempt
or deposit in the form of savings, In case of Pretermination:
common or individual trust funds, Remaining maturity of
Gross income (within) 25%
deposit substitute investment 4 yrs. to less than 5 yrs - 5%
management accounts in denomination 3 yrs. to less than 4 yrs. - 12%
of P10,000 or as prescribed by the BSP. less than 3 yrs. - 20%

Cash and/or property dividends actually Gross income (within) FWT Year
or constructively received from a 6% - 1998
domestic corp. or from a joint stock 8% - 1999
company, insurance or mutual fund 10% - 2000
companies, or on the share of an Gross Income (within) 20%
individual in the distributable net income FWT
after tax of a taxable partnership, or on (Tax on dividends shall apply on income earned on or after Jan. 1, 1998.
the share on the net income after tax of Sec. 73(c) provides that dividends distributed are deemed made from
an association, joint account, or a joint most recently accumulated profits)
venture or consortium taxable as a
corporation.

Capital gains from shares of stock not Net capital gains (within)
traded in the local stock exchange Not over P100,000 5%
In excess of P100,000 10%

Capital gains from sale or other
disposition of real property located in
the Phils.
1. Gross Selling Price or FMV whichever is higher 6% Final Tax
2. If sold to the government or any of its political subdivision or agencies or to GOCC, 6% Final Tax or Normal Tax Rate, at the option of taxpayer.
3. If proceeds is from disposition of principal residence and is fully utilized in acquiring or constructing a new principal residence within 18 months
from the date of disposition, (date of notarization) the capital gain is exempt from the capital gains tax subject to the following conditions.
a. Historical cost or adjusted basis of property sold is carried over to the new principal residence.

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 GENERAL CATEGORIES CITIZENS ALIENS
RESIDENTS NON-RESIDENTS RESIDENTS NRAEBT NRANEBT
b. The commissioner is notified within 30 days from the date of disposition of the taxpayers intention to avail of the tax exemption.
c. Tax exemption can only be availed of once every 10 years.
d. Unutilized portions of the proceeds is subject to capital gains tax to be computed proportionately. The tax on the unutilized portion shall be
paid within 30 days after the expiration of the 18-month period.

Cinematographic film and similar works Individual Normal tax Rate shall apply Gross Income (within) 25% Gross Income (within) 25%

Proprietary educational institution/

Individual Normal tax Rate shall apply N.A.
Hospital

Fringe Benefit except on the following: A. Grossed up monetary value of fringe benefit furnished In the case of aliens, the tax rates to be applied on fringe benefit shall be as follows:
or granted to the employee (except rank and file) 1. NRANEBT 25%
A. Not considered as gross income 2. Aliens employed by regional HO 15 %
Tax Rate Grossed Up Divisor Year 3. Aliens employed by OBU 15%
1. if required or necessary to the 4. Aliens employed by Petroleum Service
business of employer 34% FWT 66% 1998 5. Contractors and Subcontractors
2. if for the convenience or 33% FWT 67% 1999
advantage of employer 32% FWT 68% 2000 Gross up divisor is the difference between 100% and the applicable rates.

B. Fringe Benefit that is not taxable
under Sec. 32 (B) Exclusions from
Gross Income
B. Fringe Benefit include, but not be 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 and similar organizations
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his

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 GENERAL CATEGORIES CITIZENS ALIENS
RESIDENTS NON-RESIDENTS RESIDENTS NRAEBT NRANEBT
dependents; and
10. Life or health insurance and other non-lire insurance
premiums or similar amounts on excess of what the
law allows.

C. The following fringe benefits are not taxable under Sec.

33 Fringe Benefit Tax:

1. Fringe Benefits which are authorized and exempted

under special laws. The 13th month Pay and Other
Benefits with the ceiling of P30,000 may be increased
through rules and regulations issued by the Secretary
of Finance considering the effect on the same of the
inflation rate at the end of the taxable year;
2. Contributions of the lawyer for the benefit of the
employee to retirement, insurance and hospitalization
benefit plans;
3. Benefits given to the Rank and File Employees,
whether granted under a collective bargaining
agreement or not; and
4. The De minimis benefits benefits which are relatively
small in value offered by the employer as a means of
promoting goodwill, contentment, efficiency of
Employees

D. The term Rank and File Employees shall mean all

employees who are holding neither managerial nor
supervisory position as defined in the Labor Code

E. In the case of rank and file employees, fringe benefits

other than those excluded from gross income under
the Tax Code and other special laws, are taxable
under the individual normal tax rate.

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TABLE 2 PREFERENTIAL TAX TREATMENT ON CERTAIN INDIVIDUALS

GENERAL CITIZENS ALIENS

CATEGORIES RESIDENTS NON-RESIDENTS RESIDENTS NRAEBT NRANEBT
SOURCE OF INCOME ALL SOURCES WITHIN THE PHIL. WITHIN THE PHIL. WITHIN THE PHIL. WITHIN THE PHIL.

A. 15% Final A1. A tax rate of 15% is imposed on gross income(salaries, A1. A tax rate is imposed on gross income (salaries, wages, annuition, compensation ,remuneration,
Withholding Income wages, etc. received by every Filipino employee occupying the other emoluments such as honoraria and allowances)
Tax (FWIT) same position as an alien employed by any of the following: a. Regional or area Headquarters
b. Regional Operating Headquarters
a. Multinational company which is foreign firm or entity c. Offshore Banking Units (OBUs) established in the Phil.
engaged in international trade with an established branch d. Foreign petroleum service contractor or subcontractor engaged in Petroleum Operations in the Phil.
in the Phils. as follows:

i) Regional or Area Headquarters

ii) Regional Operating Headquarters

b. Offshore Banking Units

c. Foreign petroleum service contractor or sub-contractor

B. Partners in a general B.1. A general professional partnership is not subject to

professional income tax. A partner in a general professional partnership is
partnership liable to income tax only in his separate and individual
capacity
2. For purposes of computing the distributive share of the
partners, the net income of the partnership is computed in the
same manner as a corporation.
3. Each partner shall report as gross income his distributive
share actually or constructively received in the net income of
the partnership.

C. Foreign Source C.1. Regardless of the period of stay in the Phil., foreign
Compensation. source (compensation income) is not taxable if received by
Income is not any of the following non-resident citizen.
subject to income a) Immigrant NOT TAXABLE
tax b) Foreign-based employee on a permanent basis
c) Overseas Contract Worker, including overseas seaman
2. A Filipino employed as a Philippine Embassy/Consultant
service personnel of the Phil. Embassy/consulate is not to be
treated as a non-resident citizen, hence, his income is taxable.

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TABLE 3 TAX RATES FOR CORPORATIONS

GENERAL CATEGOTIES DOMESTIC CORPORATIONS FOREIGN CORPORATIONS

IN GENERAL, INCLUDING GOCCs, AGENCIES OR RESIDENT FOREIGN CORPORATIONS NON-RESIDENT CORPORATIONS (NOT
INSTRUMENTALITIES (EXCEPT GSIS, SSS, PHIC, PCSO AND (EXISTING UNDER THE LAWS OF FOREIGN ENGAGED IN TRADE OR BUSINESS IN THE
PAGCOR) ENGAGED IN A SIMILAR BUSINESS INDUSTRY OR COUNTRY, ENGAGED IN TRADE OR PHIL.)
ACTIVITIES BUSINESS WITHIN THE PHIL.)
SOURCES OF INCOME ALL SOURCES WITHIN THE PHIL. WITHIN THE PHIL.
NATURE OF INCOME TAXABLE BASE/RATE

In General TAX INCOME TAXABLE INCOME GROSS INCOME

35%(Normal Domestic Rate) Same as Normal Domestic Rate and with the Same as Normal Domestic Rate but without
34% - 1998 same option of 15% tax on gross income option to pay the 15% tax on gross income.
33% - 1999 effective Jan. 1,2000.
32% - 2000
A. Transition Period
1. For Corp. Adopting fiscal year accounting period, income and
expenses shall be deemed to have been earned and spent
equally for each month of the period.
2. Taxable Income x No. of Mos. Covered x Tax Rate
12 Mos. by the tax rate
B. Optional Corporate Tax Rate of 15% of Gross Income
1. The President upon recommendation of the Secretary of
Finance, may, effective January 1, 2000 allow corporations
the option to be taxed at 15% of the gross income subject to
certain conditions.
C. Government or its Political Subdivision.
1. Income derived from any public utility or from the exercise of
any essential government function accruing to the
Government of the Phil. Or to any political subdivision thereof
is excluded from gross income[Sec. 32(B)(7)(b)]

Interest on currency bank Interest Income on foreign loans contracted on

deposit and yield or any or after Aug. 1, 1986(20%fwt)
other monetary benefit
from deposit substitutes Gross Income ( within ) 20% FWT
and from trust funds and
similar arrangements
royalties

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GENERAL CATEGOTIES DOMESTIC CORPORATIONS FOREIGN CORPORATIONS
IN GENERAL, INCLUDING GOCCs, AGENCIES OR RESIDENT FOREIGN CORPORATIONS NON-RESIDENT CORPORATIONS (NOT
INSTRUMENTALITIES (EXCEPT GSIS, SSS, PHIC, PCSO AND (EXISTING UNDER THE LAWS OF FOREIGN ENGAGED IN TRADE OR BUSINESS IN THE
PAGCOR) ENGAGED IN A SIMILAR BUSINESS INDUSTRY OR COUNTRY, ENGAGED IN TRADE OR PHIL.)
ACTIVITIES BUSINESS WITHIN THE PHIL.)
Income derived under the 1. Gross interest income derived by a domestic corporation and a resident foreign corporation from a depositary 1. Any income from transaction with
expanded FCDS bank 7.5% FWT. depository banks under FCDS shall be exempt
2. Income derived by a depository bank from foreign currency transactions with local commercial banks including from income tax
branches of foreign banks, other depositary banks, and residents 10% Final Tax.
Inter-corporate dividends Dividends received by a domestic corporation from another Dividends received from a domestic corporation Dividend received from a domestic corp.
and income from a domestic corporation shall not be subject to tax. not subject to tax. 15% FWT, Provided foreign law allows
taxable partnership taxpayer clause, otherwise it will be subject to
the normal domestic rate
Capital Gains from the Net Capital Gain
sale of shares of stocks Not over P100,000 5%
not traded in the local Excess of P100,000 10%
stock exchange.
Capital Gains Realized Gross Selling Price or FMV whatever is higher 6% Final Tax
from the Disposition of
Land and/or Buildings
Minimum Corporate 1. Gross Income
Income Tax (MCIT) 2% MCIT beginning on the fourth taxable year immediately following the year in which such corporation
commenced its business operation.
2. Carry Forward of Excess MCIT- to be carried forward and provided against the normal income tax [as computed
under Sec. 27(A) for the (three(3) succeeding taxable years
3. The Secretary of Finance is authorized to suspend MCIT on a corporation which suffers losses on account of-
A. Prolonged dispute; or
B. Force majeure
C. Legitimate business reverses; or N.A.
4. A Gross Income = Gross Sales Sales Returns, Discounts, and allowances Cost of Goods
(Trading or Manufacturing Concern)

- Cost of Goods and shall include all business expenses directly incurred to produce the merchandise to bring
them to their present location and use.
- For trading or merchandising , cost of goods sold shall include
a. Invoice cost
b. Import duties
c. Freight
d. Assurance while goods are in transit

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GENERAL CATEGOTIES DOMESTIC CORPORATIONS FOREIGN CORPORATIONS
IN GENERAL, INCLUDING GOCCs, AGENCIES OR RESIDENT FOREIGN CORPORATIONS NON-RESIDENT CORPORATIONS (NOT
INSTRUMENTALITIES (EXCEPT GSIS, SSS, PHIC, PCSO AND (EXISTING UNDER THE LAWS OF FOREIGN ENGAGED IN TRADE OR BUSINESS IN THE
PAGCOR) ENGAGED IN A SIMILAR BUSINESS INDUSTRY OR COUNTRY, ENGAGED IN TRADE OR PHIL.)
ACTIVITIES BUSINESS WITHIN THE PHIL.)
For manufacturing: cost of goods manufactured and sold shall include all cost of production of farmer goods
such as
a. Raw materials used
b. Direct labor
c. Manufacturing overhead
d. Freight cost
e. Insurance premium
f. other cost to bring the raw materials to the factory or warehouse

B. Gross Income = Gross Receipt Sales Return; allowances, discount cost of Service(Service)
1. Cost of service shall mean all direct cost and expenses necessarily incurred to provide the service including
a. Salaries and employee benefits of personnel, consultants and specials directly utilized in providing the
service such as depreciation or rental of equipment used and cost of supplies.
2. In the case of banks, cost of service shall include interest expense

Improperly Accumulated 1. Improperly Accumulated Taxable Income 10% tax in addition to other income taxes
Taxable Income means 2. The improperly accumulated earnings tax shall not apply to:
taxable income adjusted a. Publicly held corporations
by: b. Banks and other non-banks Financial intermediaries
1. Income exempt from c. Insurance companies
tax
2. Income excluded 3. The fact that any corporation is a mere holding company or investment company shall be prima facie evidence
from gross income of a purpose to avoid the tax upon its shareholders or members
3. Income subject to 4. The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs
final tax of the business shall be determinative of the purpose to avoid the tax upon its shareholders or members unless
4. The amount of net the corporation, by the clear preponderance of evidence, shall prove the contrary. N.A.
operating loss carry- 5. For corporations using the calendar basis the accumulated earnings tax shall not apply on improperly
over deducted. accumulated income as of Dec. 31,1997. For fiscal year basis, the tax shall not apply to the 12 month period of
And reduced by the sum fiscal year 1997-1998. Improperly accumulated earnings as of the end of a calendar or fiscal year period on or
of: after Dec. 31, 1998 shall be subject to the 10% tax on such improperly accumulated earnings.
1. Dividends actually or
constructively paid;
and
2. Income tax paid for
the taxable year

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TABLE 4 PREFERENTIAL TAX TREATMENT ON CERTAIN CORPORATION

DOMESTIC CORPORATION FOREIGN CORPORATIONS

1. Educational Institution RESIDENT FOREIGN CORPORATION NON-RESIDENT FOREIGN CORP.
2. Hospital
1. A NON-STOCK, Non-Profit Educational Institution is exempt from International Carrier (within) Gross Phil. Billings Non-Resident Owner or Lessor of Sea Vessel Chartered by
Income Tax on its Revenue as educational institution and from Philippine National Gross rental lease charter
the operation of ancillary activities located within the school
premises
Offshore Banking Unit (OBU) Income derived by OBU Any income from transaction with OBU shall be exempt from
a. Cafeteria/canteen from foreign currency transaction with local commercial income tax
b. Dormitories bankers, including branches of foreign bank, including
c. Bookstores any interest income derived from foreign currency loans
d. School Bus granted to residents.
e. Hospitals 10% - Final Tax
f. Pharmacies or Drugstores and from banks deposits subject to
certain condition. Branches (Except those registered with PEZA). Any Non-resident owner or lessor of aircraft machinery and other
profit remitted to the head office (total profit applied or equipment
2. If gross income from unrelated trade business or other activity earmarked for remittance without any deduction for the Gross Rental or fees
does not exceed 50% of the total gross income derived from all tax component thereof). 7.5%
sources 10% of the Taxable Income will be imposed on the 15% - FWT
following:

a. Proprietary/ profit oriented educational institution

b. Non-stock, non-profit hospital Regional or Area Headquarters not subject to Income N.A.
Tax
3. If gross income from unrelated trade business or other activity
exceeds 50% of the total gross income derived from all sources,
the Regular Domestic Rate will be imposed to the following: Regional Operating Headquarters N.A.

a. Proprietary/ profit oriented educational institution

b. Non-stock, non-profit hospital

4. Regardless of the proportion explained in item No. 2 and 3 a

profit oriented hospital will be treated as an ordinary domestic
corporation , hence subject to the Normal Domestic rate.

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