Income Tax
Contents
Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws.
Individuals
Corporations no matter how created or organized including general professional partnerships
Estates and trusts engaged in trade or business
Tax Form
BIR Form 1700 - Annual Income Tax Return (For Individual Earning Purely Compensation Income Including Non-Business/Non-Profession Related Income)
Documentary Requirements
1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316)
2. Waiver of the Husband’s right to claim additional exemption, if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Proof of Foreign Tax Credits, if applicable
5. Return previously filed return and proof of payment, if amended return
Procedures
1. Fill-up BIR Form 1700 in triplicate.
2. If there is payment:
3. For Refundable Returns and for tax returns with second installment:
Deadline
On or before the 15th day of April of each year covering income for the preceding taxable yearTax Form
BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those With Business and Compensation Income)
Documentary Requirements
1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
4. Waiver of the Husband’s right to claim additional exemption, if applicable
5. Duly approved Tax Debit Memo, if applicable
6. Proof of Foreign Tax Credits, if applicable
7. Return previously filed return and proof of payment, if amended return
8. Account Information Form (AIF) and the Certificate of the independent CPA or Audited Financial Statements except for taxpayers who opted for the Optional Standard Deduction (The CPA Certificate is required if the gross quarterly sales, earnings, receipts or output exceed P 150,000.00)
9. Proof of prior year’s excess tax credits, if applicable
Procedures
1. Fill-up BIR Form 1701 in triplicate copies.
2. If there is payment:
3. For Refundable Returns and for those returns with second installment:
Deadline
Final Adjustment Return - On or before the 15th day of April of each year covering income for the preceding yearTax Form
BIR Form 1701 AIF - Account Information Form For Self-Employed Individuals, Estates and Trusts (Including those with Mixed Income, i.e., Business and Compensation Income)
NOTE: Pursuant to Revenue Memorandum Circular No. 6 – 2001, corporations, companies or persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listing income-producing properties and the corresponding income therefrom, and other relevant statements duly certified by an independent CPA.
Documentary Requirements
None
Procedures
1. Accomplish BIR Form 1701 AIF in triplicate.
2. Attach the same to BIR Form 1701.
Deadline
Same deadline as BIR Form 1701 - On or before the 15th day of April of each year covering income for the preceding year
Tax Form
BIR Form 1701Q - Quarterly Income Tax Return For Self-Employed Individuals, Estates and Trusts (Including those with Mixed Income, i.e., Business and Compensation Income)
Documentary Requirements
1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
3. Duly approved Tax Debit Memo, if applicable
Procedures
1. Fill-up BIR Form 1701Q in triplicate.
2. If there is payment:
3. For Refundable Returns and for those returns with second installment:
Deadlines
Tax Form
BIR Form 1702 - Annual Income Tax Return (For Corporations and Partnerships)
Documentary Requirements
1. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
2. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Proof of Foreign Tax Credits, if applicable
5. Return previously filed return and proof of payment, if amended return
6. Account Information Form (AIF) and the Certificate of the independent CPA /or Audited Financial Statements except for taxpayers who opted for the Optional Standard Deduction. (The CPA Certificate is required if the gross quarterly sales, earnings, receipts or output exceed P150,000.00)
7. Proof of prior year’s excess tax credits, if applicable
Procedures
1. Fill-up BIR Form 1702 in triplicate.
2. If there is payment:
3. For No Payment Returns and Refundable Returns:
Deadline
Final Adjustment Return - On or before the 15th day of the fourth month following the close of the taxpayer’s taxable year
Tax Form
BIR Form 1702 AIF - Account Information Form (For Corporations and Partnerships)
NOTE: Pursuant to Revenue Memorandum Circular No. 6 – 2001, corporations, companies or persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listing income-producing properties and the corresponding income therefrom, and other relevant statements duly certified by an independent CPA.
Documentary Requirements
None
Procedures
1. Accomplish BIR Form 1702 AIF in triplicate.
2. Attach the same to BIR Form 1702.
Deadline
Same deadline as BIR Form 1702 - On or before the 15th day of the fourth month following the close of the taxpayer’s taxable year
Tax Form
BIR Form 1702 Q - Quarterly Income Tax Return (For Corporations and Partnerships)
Documentary Requirements
1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
3. Duly approved Tax Debit Memo, if applicable
Procedures
1. Fill-up BIR Form 1702 Q in triplicate.
2. If there is payment:
3. For Refundable Returns and for those returns with second installment:
Deadline
Corporate Quarterly Declaration - On or before the 60th day following the close of each of the quarters of the taxable year
Tax Form
BIR Form 1704 - Improperly Accumulated Earnings Tax Return (For Corporations)
Documentary Requirements
1. Photocopy of Annual Income Tax Return (BIR Form 1702) and Audited Financial Statements or Account Information Form of the covered taxable year duly received by the BIR; and
2. Sworn declaration as to dividends declared taken from the covered year's earnings and the corresponding tax withheld, if any
Procedures
1. Fill-up BIR Form 1704 in triplicate.
2. If there is payment:
3. If there is no payment:
Deadline
Within fifteen (15) days after the close of the year
Tax Form
BIR Form 1703 - Annual Income Information Return For Non Resident Citizens/OCWs and Seamen (For Foreign-Sourced Income)
Note: Now optional based on Revenue Regulations No. 5-2001.
A. For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession
Over |
But Not Over |
Rate |
|---|---|---|
P10,000 |
5% | |
P10,000 |
P30,000 |
P500 + 10% of the Excess over P10,000 |
P30,000 |
P70,000 |
P2,500 + 15% of the Excess over P30,000 |
P70,000 |
P140,000 |
P8,500 + 20% of the Excess over P70,000 |
P140,000 |
P250,000 |
P22,500 + 25% of the Excess over P140,000 |
P250,000 |
P500,000 |
P50,000 + 30% of the Excess over P250,000 |
P500,000 |
P125,000 + 34% of the Excess over P500,000 in 1998 |
Note: Effective January 1, 1999, the maximum rate shall be thirty-three percent (33%) and thirty-two percent (32%) on January 1, 2000.
Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to be paid at the time the return is filed and the second installment on or before July 15 of the same year at the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.
| Tax Rate | Taxable Base | |
|---|---|---|
| 1. Domestic Corporations: | ||
| a. In General | 32% | Taxable income from all sources |
| b. Minimum Corporate Income Tax* | 2% | Gross Income |
| c. Improperly Accumulated Earnings | 10% | Improperly Accumulated Taxable Income |
| 2. Proprietary Educational Institution | 10% | Taxable income from all sources |
| 3. Non-stock, Non-profit Hospitals | 10% | Taxable income from all sources |
| 4. GOCC, Agencies & Instrumentalities | ||
| a. In General | 32% | Taxable income from all sources |
| b. Minimum Corporate Income Tax* | 2% | Gross Income |
| c. Improperly Accumulated Earnings | 10% | Improperly Accumulated Taxable Income |
| 5. National Gov't. & LGUs | ||
| a. In General | 32% | Taxable income from all sources |
| b. Minimum Corporate Income Tax* | 2% | Gross Income |
| c. Improperly Accumulated Earnings | 10% | Improperly Accumulated Taxable Income |
| 6. Taxable Partnerships | ||
| a. In General | 32% | Taxable income from all sources |
| b. Minimum Corporate Income Tax* | 2% | Gross Income |
| c. Improperly Accumulated Earnings | 10% | Improperly Accumulated Taxable Income |
| 7. Exempt Corporation | ||
| a. On Exempt Activities | 0% | |
| b. On Taxable Activities | 32% | Taxable income from all sources |
| 8. General Professional Partnerships | 0% | |
| 9. Corporation covered by Special Laws | Rate specified under the respective special laws | |
| a. In General | 32% | Taxable income from all sources |
| b. Minimum Corporate Income Tax* | 2% | Gross Income |
| c. Improperly Accumulated Earnings | 10% | Improperly Accumulated Taxable Income |
*Beginning on the 4th year immediately following the year in which such corporation commenced its business operations, when the minimum corporate income tax is greater than the tax computed using the normal income tax.
| Tax Rate | Tax Base | |
|---|---|---|
| 10. International Carriers | 2.5% | Gross Philippine Billings |
| 11. Regional Operating Head | 10% | Taxable Income |
| 12. Offshore Banking Units (OBUs) | 10% | Gross Taxable Income On Foreign Currency Transaction |
| 13. Foreign Currency Deposit Units (FCDU) | 32% | On Taxable Income other than Foreign Currency Transaction |
| 13. Foreign Currency Deposit Units (FCDU) | 10% | Gross Taxable Income On Foreign Currency Transaction |
| 32% | On Taxable Income other than Foreign Currency Transaction | |
| In General | ||
| Over | But Not Over | |
| P10,000 | 5% | |
| P10,000 | P30,000 | P500 + 10% of the Excess over P10,000 |
| P30,000 | P70,000 | P2,500 + 15% of the Excess over P30,000 |
| P70,000 | P140,000 | P8,500 + 20% of the Excess over P70,000 |
| P140,000 | P250,000 | P22,500 + 25% of the Excess over P140,000 |
| P250,000 | P500,000 | P50,000 + 30% of the Excess over P250,000 |
| P500,000 | P125,000 + 34%* of the Excess over P500,000 in 1998. |
Note: Effective January 1, 1999, the maximum rate shall be thirty-three percent (33%) and thirty-two percent (32%) on January 1, 2000.
| Passive Income | |
| 1. Interest on any peso bank deposit | 20% |
| 2. Royalties (except on books as well as literary & musical composition - 10%) | 20% |
| 3. Prizes (except prizes amounting to P10,000 or less -5%) | 20% |
| 4. Winnings (except from PCSO and lotto) | 20% |
| 5. Interest Income of Foreign Currency Deposit | 7.5% |
| 6. Interest from long-term deposit | |
| Holding Period | |
| - 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% |
| 7. Cash and/or Property Dividends | |
| Beginning January 1, 1998 | 6% |
| Beginning January 1, 1999 | 8% |
| Beginning January 1, 2000 & thereafter | 10% |
| 8. On capital gains presumed to have been realized from sale, exchange or other disposition of real property (capital asset) | 6% |
| 9. On capital gains for shares of stock not traded in the stock exchange | |
| - Not over P100,000 | 5% |
| - Any amount in excess of P100,000 | 10% |
B. For Non-Resident Aliens Engaged in Trade or Business
| 1. On Certain Passive Income* | 20% |
| 2. Interest Income from long time deposits | |
| Holding Period | |
| -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% |
| 3. On capital gains presumed to have been realized from the sale, exchange or other disposition of real property | 6% |
| 4. On capital gains for shares of stock not traded in the Stock Exchange | |
| - Not over P100,000 | 5% |
| - Any amount in excess of P100,000 | 10% |
*Cash and/or Property Dividends, Share in the distributable net income of the partnership, Interest on any bank deposits, Royalties (except on books as well as literary works and musical composition), Prizes (except prizes amounting to P10,000 or less), Winnings
C. For Non-Resident Aliens Not Engaged in Trade or Business
| 1. On the gross amount of income derived from all sources within the Philippines | 25% |
2. On capital gains presumed to have been realized from the exchange or other disposition of real property located in the Phils. |
6% |
D. Aliens Employed by Regional Headquarters (RHQ), Regional Operating (ROH), Offshore Banking Units (OBU), Petroleum Service Contractors and Subcontractors
15%
E. General Professional Partnerships
0%
F. Domestic Corporations
| 1) a. In General | 32% |
| b. Minimum Corporate Income Tax | 2% |
| c. Improperly Accumulated Earnings | 10% |
| 2) Proprietary Educational Institution | 10% |
| 3) Non-stock, Non-profit Hospitals | 10% |
| 4) GOCC, Agencies & Instrumentalities | |
| a. In General | 32% |
| b. Minimum Corporate Income Tax | 2% |
| c. Improperly Accumulated Earnings | 10% |
| 5) National Gov't & LGUs | |
| a. In General | 32% |
| b. Minimum Corporate Income Tax | 2% |
| c. Improperly Accumulated Earnings | 10% |
| 6) Taxable Partnerships | |
| a. In General | 32% |
| b. Minimum Corporate Income Tax | 2% |
| c. Improperly Accumulated Earnings | 10% |
| 7) Exempt Corporation | |
| a. On Exempt Activities | 0% |
| b. On Taxable Activities | 32% |
| 8) Corporation covered by Special Laws | Rate specified under the respective special laws |
G. Resident Foreign Corporation
| 1)a. In General | 32% |
b. Minimum Corporate Income Tax |
2% |
c. Improperly Accumulated Earnings |
10% |
| 2) International Carriers | 25% |
| 3) Regional Operating Headquarters | 10% |
| 4) Corporation Covered by Special Laws | Rate specified under the respective special laws |
5) Offshore Banking Units (OBUs) |
10% |
| 6) Foreign Currency Deposit Units (FCDU) | 10% |
RR No. 4-95, RR No. 4-96, RR No. 5-97, RR No. 1-98
Sections 23-59, 67-73 and 74-77 of the National Internal Revenue Code
1) What is income?
Income means all wealth, which flows into the taxpayer other than as a mere return of capital.
2) What is Taxable Income?
Taxable income means the pertinent items of gross income specified in the Tax Code less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws.
3) What is Gross Income?
Gross income means all income derived from whatever source.
4) What comprises gross income?
Gross income includes, but is not limited to the following:
5) What are some of the exclusions from gross income?
6) What are the allowable deductions from gross income?
Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationships where the only deduction up to a maximum limit of P 2,400 per year per family is the premium payment on health and/or hospitalization insurance, a taxpayer may opt to avail any of the following allowable deductions from gross income:
In addition, individuals who are either earning compensation income, engaged in business or deriving income from the practice of profession are entitled to personal and additional exemptions as follows:
Personal Exemptions:
For single individual or married individual judicially decreed as legally separated with no qualified dependents…………………………………………...P 20,000.00
For head of family………………………………….....P 25,000.00
For each married individual *……………………... .P 32,000.00
Note: In case of married individuals where only one of the spouses is deriving gross income, only such spouse will be allowed to claim the personal exemption.
Additional Exemptions
The maximum amount of P 2,400 premium payments on health and/or hospitalization insurance can be claimed if:
7) Who are required to file the Income Tax returns?
8) Who are not required to file Income Tax returns?