Income Taxation

By Atty. Tony Ligon

What is Income?

Realized profit or gains

Inflow of wealth to the taxpayer whether as
payment for services, interest or profit
from investment.
Not a mere return of capital
Elements of Imposition
of Income Tax:
Gain or profit
It must be realized or received, actually
or constructively
Not exempted by law or treaty from
income tax
Is business purpose a
requirement in the
imposition of taxes ?
No. Any business purpose as to why or
how the income was earned by the
taxpayer is not a requirement .

Income from illegal sources therefore ,are

also taxable
The following are the
persons liable to pay
Income Tax:
Individual
Trust
Estate
Corporation
Individual Taxpayers:
Resident citizen
 Income Tax Rates
applicable: ( Individual)
Net capital gain on shares of stock in
domestic corporation not listed
and traded in a local stock exchange:
First 100,000 ----- Final Tax of 5%
On excess ----- 10%

* RC , NRC, RA, NRA ( B or NB)

Gross selling Price or
FMV at the time of sale
held as capital asset
Final Tax of 6%
Applies to RC, NRC, RA, NRA (B or NB)
From within the Philippines-
On interest on foreign currency deposit
under the expanded
foreign currency deposit system:
Final tax of 7.5% -- RC / RA
Exempt for -- NRC
NRA ( B or NB)
Income within the
Philippines:
Royalties fr. books, literary works
Musical compositions
Final tax of 10% - RC, NRC, RA,NRA (B)
On other royalties,
Prizes exceeding P 10,000
Other winnings ( except PCS & lotto)
Final Tax of 20% - RC, NRC, RA, NRA (B)
On other NET TAXABLE INCOME
RA 9504 - RC, NRC, RA, NRA (B)
Income within the
Philippines
Interest Income
Final tax of 20%
Gross income from cinematographic
films and other similar works
Final tax of 25%
NRA not engaged in Trade
or Business in the
Philippines
GROSS Income
from within the Philippines

FINAL TAX OF 25%

Resident Citizen

on other taxable net income

Taxable within and without Philippines
Non-resident citizen,
Resident alien; Resident
Alien engaged in Trade or
Business in the
ON OTHER NET Philippines
TAXABLE INCOME
OUTSIDE THE PHILIPPINES
- EXEMPT
CORPORATION
Under corporation code:
An artificial being created by operation of
law, having the power of succession and
the powers attributes and properties
provided by law or incidental to its
existence.
Under the National Internal
Revenue Code ( NIRC)-
Corporation shall include partnerships, no matter
how created or organized, joint-stock
companies, joint accounts ( cuentas en
participation), associations, or insurance
companies, but does not
include general professional partnerships and a
joint venture or consortium projects or
engaging in petroleum, coal, geothermal and
other energy operations pursuant to an
operation or consortium agreement under a
service contract with the government.
Taxable Corporations:

Domestic corporation
Foreign Corporation :
a) Resident foreign corporation
b) non-resident foreign
corporation
 Income Tax Rates for
the Corporation:
Selling Price Domestic Resident NonRes F
or FMV, Final tax of (na) (na)
whichever is
6%
higher ,
capital asset

Net capital gain Final Tax: Final Tax: Final Tax:

on sale of
shares of stock 5% 5% 5%
of DC ( not
listed ) 10% 10% 10%
Not over
100,000
Excess over
100,000
 Income Tax Rates for
the Corporation:
Interest on Domestic Resident NonRes F
foreign Final tax : Final tax : Final tax :
currency
7.5% 7.5% 7.5%
deposit
under FCDS

Dividend from Exempt Exempt Final Tax

domestic corp
15%
 Income Tax Rates for the
Corporation:
Interest on Domestic Resident Non Res F
any currency Final Tax of Final Tax of
bank deposit,
20% 20%
yield of other
monetary
benefit from
deposit
substitute,
trust funds or
similar
arrangement
Domestic Corporation
On Net taxable Income from within and
outside the Philippines:
30 % Net
Minimum Corporate Income Tax
Manufacturing/ Trading
( beg. 4rth year of operations ) 2% Gross

( beg. 4rth year of operations ) whichever is

higher of 30% net or 2 % Gross
Resident Foreign
Corporation
On Net taxable Income from within the
Philippines:
30 % Net
Minimum Corporate Income Tax
Manufacturing/ Trading
( beg. 4rth year of operations ) 2% Gross

( beg. 4rth year of operations ) whichever is

higher of 30% net or 2 % Gross
Non resident foreign
corp.
Interest on foreign loans:
Final Tax of 20%

TAXABLE GROSS INCOME within the

Philippines - Final Tax of 30 %
Capital Asset:
Property held by the taxpayer ( whether or not connected with
his trade or business but does not include:
a. Stock in trade of the taxpayer or the property of a kind which
would properly be included in the inventory of the taxpayer if on
hand at the close of the taxable year
b. Property held by the taxpayer primarily for sale to customers in
the ordinary course of his trade or business
c. Property used in the trade or business of a character which is
subject to allowance for depreciation
d. Real property used in trade or business of the taxpayer

Capital asset is an asset which is not ordinary .

Capital Gain Tax
Exemption
( individual or natural
If the sale or disposition of a principal
person )
residence of a natural person which is
fully utilized in acquiring or constructing
a new principal residence exempt from
6% capital gain tax:
Requirements of
exemption:
1. Proceeds of the sale is utilized within 18 months from
the date of sale or disposition
2. The commissioner of internal revenue is notified by
the taxpayer within 30 days from date of sale
3. Deposit is made of the six (6%) capital gain wihteld
by the buyer in cash or managers check in an
authorized bank in escrow agreement
4. It can be availed only once every 10 years
Gross income
( inclusions)
Compensation for services in whatever form paid, including but
not limited to fees, salaries and wages, commissions and similar
items
Gross income derived from the conduct of trade or business or
exercise of profession
Gains derived from dealings in property I
Interests
Royalties
Dividends
Annuities
Prizes and winnings
Pensions
Partners distributive share from the net income of the general
professional partnership
Gross income ( exclusions )
Proceeds of life insurance paid to heirs of beneficiaries
Returns of premiums
Value of property acquired by Gifts, bequest or devise or descent
Amount received through accident or health insurance or under Workmens
compensation act, as compensation for personal injuries or sickness plus amount of
any damages received
Income of any kind to the extent required by any treaty obligation binding upon the
govt of phil.
Retirement benefits
Sickness, death benefits
SSS / GSIS benefits
Prizes /awards made in recognition of religious, charitable, scientific, educational,
artistic, literary or civic achievement recipient was selected without any action on his
part and no substantial future services
Prizes and awards granted to athletes , sactioned by nat. sports commission
13th month pay not exceeding 30,000

etc.
Deductions from Gross
Income:
Individual with gross compensation income
( employer-employee)
- premium payments on
health/hospitalization insurance
- personal exemptions
(RA 9504)
Deductions from gross
income:
For individuals with gross income from business
or practice of profession
Optional Standard Deductions 40% of GI or
Itemized deductions
- premium payments on health/hospitalization
insurance
personal exemptions
(RA 9504)
Deductions from gross
income:
For corporations
Optional Standard Deductions
40% of GI or
Itemized deductions (RA 9504)
Itemized deductions
(expenses related to trade or business or to the
practice of profession) :
Interest
Taxes
Losses
Bad debts
Depreciation
Depletion
Pension trust
Charitable and other contributions
Research and development
Expenses in general
Thank you.