Income TaxationIncome Taxation By Atty. Tony LigonBy Atty. Tony Ligon

What is Income? What is Income?

Realized profit or gains Realized profit or gains Inflow of wealth to the taxpayer whether as Inflow of wealth to the taxpayer whether as

payment for services, interest or profit payment for services, interest or profit from investment.from investment.

Not a mere return of capital Not a mere return of capital

Elements of Imposition of Elements of Imposition of Income Tax:Income Tax:

Gain or profitGain or profit It must be realized or received, actually It must be realized or received, actually

or constructivelyor constructively Not exempted by law or treaty from Not exempted by law or treaty from

income taxincome tax

Is business purpose a Is business purpose a requirement in the requirement in the imposition of taxesimposition of taxes ? ?

No. Any business purpose as to why or No. Any business purpose as to why or how the income was earned by the how the income was earned by the taxpayer is not a requirement .taxpayer is not a requirement .

Income from illegal sources therefore ,are Income from illegal sources therefore ,are also taxable also taxable

The following are the The following are the persons liable to pay persons liable to pay Income Tax:Income Tax:

IndividualIndividual TrustTrust EstateEstate Corporation Corporation

Individual Taxpayers:Individual Taxpayers: Resident citizen Resident citizen Non Resident citizen Non Resident citizen Resident Alien Resident Alien Non-resident alien Non-resident alien a) Trade or Business a) Trade or Business b) Not In Trade or b) Not In Trade or

Business Business

Income Tax Rates Income Tax Rates applicable: ( Individual) applicable: ( Individual)

Net capital gain on shares of stock in Net capital gain on shares of stock in domestic corporation not listed domestic corporation not listed

and traded in a local stock exchange:and traded in a local stock exchange:First 100,000 ----- Final Tax of 5%First 100,000 ----- Final Tax of 5%On excess ----- 10% On excess ----- 10% * RC , NRC, RA, NRA ( B or NB)* RC , NRC, RA, NRA ( B or NB)

Gross selling Price orGross selling Price orFMV at the time of saleFMV at the time of saleheld as held as capital assetcapital asset

Final Tax of 6% Final Tax of 6%

Applies to RC, NRC, RA, NRA (B or NB) Applies to RC, NRC, RA, NRA (B or NB)

From within the Philippines-From within the Philippines-

On interest on foreign currency deposit On interest on foreign currency deposit

under the expanded under the expanded

foreign currency deposit system:foreign currency deposit system:

Final tax of 7.5% -- RC / RAFinal tax of 7.5% -- RC / RA

Exempt for -- NRCExempt for -- NRC

NRA ( B or NB) NRA ( B or NB)

Income Income withinwithin the the Philippines:Philippines:

Royalties fr. books, literary worksRoyalties fr. books, literary works

Musical compositions Musical compositions

Final tax of 10% - RC, NRC, RA,NRA (B)Final tax of 10% - RC, NRC, RA,NRA (B) On other royalties,On other royalties,

Prizes exceeding P 10,000 Prizes exceeding P 10,000

Other winnings ( except PCS & lotto)Other winnings ( except PCS & lotto)

Final Tax of 20% - RC, NRC, RA, NRA (B)Final Tax of 20% - RC, NRC, RA, NRA (B) On other NET TAXABLE INCOMEOn other NET TAXABLE INCOME

RA 9504 - RC, NRC, RA, NRA (B) RA 9504 - RC, NRC, RA, NRA (B)

Income Income withinwithin the the Philippines Philippines

Interest IncomeInterest Income

Final tax of 20% Final tax of 20% Gross income from cinematographicGross income from cinematographic

films and other similar worksfilms and other similar works

Final tax of 25% Final tax of 25%

NRA not engaged in Trade NRA not engaged in Trade or Business in the or Business in the PhilippinesPhilippines

GROSSGROSS Income Income

from from within the Philippineswithin the Philippines

FINAL TAX OF 25% FINAL TAX OF 25%

Resident CitizenResident Citizen

on other taxable net income on other taxable net income

Taxable Taxable within and withoutwithin and without Philippines Philippines

Non-resident citizen,Non-resident citizen,Resident alien; Resident Resident alien; Resident Alien engaged in Trade orAlien engaged in Trade orBusiness in the PhilippinesBusiness in the Philippines

ON OTHER NET TAXABLE INCOME ON OTHER NET TAXABLE INCOME OUTSIDEOUTSIDE THE PHILIPPINES THE PHILIPPINES

- - EXEMPT EXEMPT

CORPORATION CORPORATION Under corporation codeUnder corporation code::

An artificial being created by operation of An artificial being created by operation of law, having the power of succession and law, having the power of succession and the powers attributes and properties the powers attributes and properties provided by law or incidental to its provided by law or incidental to its existence.existence.

Under the National Internal Under the National Internal Revenue Code ( NIRC)-Revenue Code ( NIRC)-

““Corporation shall include partnerships, no matter Corporation shall include partnerships, no matter how created or organized, joint-stock how created or organized, joint-stock companies, joint accounts ( cuentas en companies, joint accounts ( cuentas en participation), associations, or insurance participation), associations, or insurance companies, companies, but does notbut does not

include general professional partnerships and a include general professional partnerships and a joint venture or consortium projects or joint venture or consortium projects or engaging in petroleum, coal, geothermal and engaging in petroleum, coal, geothermal and other energy operations pursuant to an other energy operations pursuant to an operation or consortium agreement under a operation or consortium agreement under a service contract with the government. service contract with the government.

Taxable Corporations:Taxable Corporations:

Domestic corporationDomestic corporation Foreign Corporation :Foreign Corporation :

a) Resident foreign corporationa) Resident foreign corporation

b) non-resident foreign corporation b) non-resident foreign corporation

Income Tax Rates for the Income Tax Rates for the Corporation:Corporation:

Selling Price Selling Price or FMV, or FMV, whichever is whichever is higher , higher , capital asset capital asset

DomesticDomestic Final tax of Final tax of 6% 6%

Resident Resident ( (na) na)

NonRes F NonRes F (na) (na)

Net capital gain Net capital gain on sale of on sale of shares of stock shares of stock of DC ( not of DC ( not listed )listed )

Not over Not over 100,000100,000

Excess over Excess over 100,000100,000

Final Tax:Final Tax:

5%5%

10%10%

Final Tax:Final Tax:

5%5%

10%10%

Final Tax:Final Tax:

5%5%

10%10%

Income Tax Rates for the Income Tax Rates for the Corporation:Corporation:

Interest on Interest on foreign foreign currency currency deposit deposit under FCDSunder FCDS

Domestic Domestic Final taxFinal tax : : 7.5%7.5%

Resident Resident Final taxFinal tax : : 7.5%7.5%

NonRes F NonRes F Final taxFinal tax : : 7.5%7.5%

Dividend from Dividend from domestic corp domestic corp

Exempt Exempt ExemptExempt Final Tax Final Tax 15%15%

Income Tax Rates for the Income Tax Rates for the Corporation:Corporation:

Interest on Interest on any currency any currency bank deposit, bank deposit, yield of other yield of other monetary monetary benefit from benefit from deposit deposit substitute, substitute, trust funds or trust funds or similar similar arrangement arrangement

DomesticDomestic Final Tax Final Tax of 20%of 20%

Resident Resident Final Tax Final Tax of 20%of 20%

Non Res FNon Res F

Domestic CorporationDomestic Corporation On Net taxable Income from On Net taxable Income from within and within and

outsideoutside the Philippines: the Philippines:

30 % Net30 % Net

Minimum Corporate Income Tax Minimum Corporate Income Tax

Manufacturing/ TradingManufacturing/ Trading

( beg. 4rth year of operations ) 2% Gross ( beg. 4rth year of operations ) 2% Gross

( beg. 4rth year of operations ) whichever is ( beg. 4rth year of operations ) whichever is higher of 30% net or 2 % Grosshigher of 30% net or 2 % Gross

Resident Foreign Resident Foreign CorporationCorporation

On Net taxable Income from On Net taxable Income from withinwithin the the Philippines:Philippines:

30 % Net30 % Net

Minimum Corporate Income Tax Minimum Corporate Income Tax

Manufacturing/ TradingManufacturing/ Trading

( beg. 4rth year of operations ) 2% Gross ( beg. 4rth year of operations ) 2% Gross

( beg. 4rth year of operations ) whichever is ( beg. 4rth year of operations ) whichever is higher of 30% net or 2 % Grosshigher of 30% net or 2 % Gross

Non resident foreign Non resident foreign corp.corp.

Interest on foreign loans:Interest on foreign loans:

Final Tax of 20%Final Tax of 20%

TAXABLE GROSS INCOME TAXABLE GROSS INCOME withinwithin the the Philippines - Final Tax of 30 %Philippines - Final Tax of 30 %

Capital Asset: Capital Asset:

Property held by the taxpayer ( whether or not connected with Property held by the taxpayer ( whether or not connected with his trade or business but does not include:his trade or business but does not include:

a.a. Stock in trade of the taxpayer or the property of a kind which 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 would properly be included in the inventory of the taxpayer if on hand at the close of the taxable yearhand at the close of the taxable year

b.b. Property held by the taxpayer primarily for sale to customers in Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business the ordinary course of his trade or business

c.c. Property used in the trade or business of a character which is Property used in the trade or business of a character which is subject to allowance for depreciationsubject to allowance for depreciation

d.d. Real property used in trade or business of the taxpayer Real property used in trade or business of the taxpayer

Capital asset is an asset which is not ordinary .Capital asset is an asset which is not ordinary .

Capital Gain Tax ExemptionCapital Gain Tax Exemption ( individual or natural ( individual or natural personperson) )

If the sale or disposition of a principal If the sale or disposition of a principal residence of a natural person which is residence of a natural person which is fully utilized in acquiring or constructing fully utilized in acquiring or constructing a new principal residence – exempt from a new principal residence – exempt from 6% capital gain tax:6% capital gain tax:

Requirements of Requirements of exemption: exemption:

1.1. Proceeds of the sale is utilized within 18 months from Proceeds of the sale is utilized within 18 months from the date of sale or dispositionthe date of sale or disposition

2.2. The commissioner of internal revenue is notified by The commissioner of internal revenue is notified by the taxpayer within 30 days from date of salethe taxpayer within 30 days from date of sale

3.3. Deposit is made of the six (6%) capital gain wihteld Deposit is made of the six (6%) capital gain wihteld by the buyer in cash or manager’s check in an by the buyer in cash or manager’s check in an authorized bank in escrow agreement authorized bank in escrow agreement

4.4. It can be availed only once every 10 yearsIt can be availed only once every 10 years

Gross income Gross income ( inclusions)( inclusions) Compensation for services in whatever form paid, including but Compensation for services in whatever form paid, including but

not limited to fees, salaries and wages, commissions and similar not limited to fees, salaries and wages, commissions and similar itemsitems

Gross income derived from the conduct of trade or business or Gross income derived from the conduct of trade or business or exercise of profession exercise of profession

Gains derived from dealings in property IGains derived from dealings in property I InterestsInterests Royalties Royalties Dividends Dividends AnnuitiesAnnuities Prizes and winningsPrizes and winnings PensionsPensions Partner’s distributive share from the net income of the general Partner’s distributive share from the net income of the general

professional partnershipprofessional partnership

Gross income ( exclusionsGross income ( exclusions)) Proceeds of life insurance paid to heirs of beneficiaries Proceeds of life insurance paid to heirs of beneficiaries Returns of premiumsReturns of premiums Value of property acquired by Gifts, bequest or devise or descent Value of property acquired by Gifts, bequest or devise or descent Amount received through accident or health insurance or under Workmen’s Amount received through accident or health insurance or under Workmen’s

compensation act, as compensation for personal injuries or sickness plus amount compensation act, as compensation for personal injuries or sickness plus amount of any damages receivedof any damages received

Income of any kind to the extent required by any treaty obligation binding upon Income of any kind to the extent required by any treaty obligation binding upon the govt of phil.the govt of phil.

Retirement benefits Retirement benefits Sickness, death benefitsSickness, death benefits SSS / GSIS benefitsSSS / GSIS benefits Prizes /awards made in recognition of religious, charitable, scientific, educational, Prizes /awards made in recognition of religious, charitable, scientific, educational,

artistic, literary or civic achievement– recipient was selected without any action on artistic, literary or civic achievement– recipient was selected without any action on his part and no substantial future serviceshis part and no substantial future services

Prizes and awards granted to athletes , sactioned by nat. sports commissionPrizes and awards granted to athletes , sactioned by nat. sports commission 1313thth month pay not exceeding 30,000 month pay not exceeding 30,000

etc.etc.

Deductions from Gross Deductions from Gross Income:Income:

Individual with gross compensationIndividual with gross compensation income income ( employer-employee) ( employer-employee)

- premium payments on - premium payments on health/hospitalization insurancehealth/hospitalization insurance

- personal exemptions- personal exemptions

(RA 9504)(RA 9504)

Deductions from gross Deductions from gross income:income:

For individuals with gross income from business For individuals with gross income from business or practice of professionor practice of profession

Optional Standard Deductions Optional Standard Deductions 40% of GI 40% of GI oror

Itemized deductionsItemized deductions - premium payments on health/hospitalization - premium payments on health/hospitalization

insuranceinsurance personal exemptionspersonal exemptions

(RA 9504)(RA 9504)

Deductions from gross Deductions from gross income:income:

For corporationsFor corporations

Optional Standard Deductions Optional Standard Deductions 40% of GI40% of GI oror Itemized deductions Itemized deductions (RA 9504) (RA 9504)

Itemized deductionsItemized deductions (expenses related to trade or business or to the (expenses related to trade or business or to the

practice of profession) :practice of profession) : InterestInterest TaxesTaxes LossesLosses Bad debtsBad debts DepreciationDepreciation Depletion Depletion Pension trustPension trust Charitable and other contributionsCharitable and other contributions Research and developmentResearch and development Expenses in general Expenses in general

Thank you.Thank you.