ReSA

The Review School of Accountancy

Tel. No. 735-9807 & 734-3989
TAXATION A. S. TAMAYO

TX - 502: TAX RATES FOR INDIVIDUAL TAXPAYERS, ESTATES AND TRUSTS

1. Sec. 24 (A) – The tax shall be computed on taxable income in accordance with and at the rates
established in the following schedule (resident citizens, non-resident citizens, resident alien, estate
and trust):

Over But not over The tax shall be Plus Of excess over
P 10,000 5% - -
P 10,000 30,000 P 500 10% P 10,000
30,000 70,000 2,500 15% 30,000
70,000 140,000 8,500 20% 70,000
140,000 250,000 22,500 25% 140,000
250,000 500,000 50,000 30% 250,000
500,000 - 125,000 32% 500,000

2. Final Tax Rates on Certain Passive Income from Philippine Sources.

a. Rates of Tax Certain Passive Income

1) Sec. 24 (B) – For residents or citizens;

2) Sec. 25 (A) (2) – For non-resident aliens engaged in trade or business.
a. Interest from any currency bank deposit 20%
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more individual or
corporate lenders) 20%
c. Yield or any other monetary benefit from trust funds and similar arrangements 20%
d. Royalties, in general 20%
e. Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Sec. 24 (A) 20%
f. Other winnings (except Philippine Charity Sweepstakes and Lotto winnings) 20%
g. Royalties on books, as well as other literary works and musical compositions 10%
3) Sec. 25 (B) – For non-resident aliens not engaged in trade or business
a. Interest from any currency bank deposit 25%
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more individual or
corporate lenders) 25%
c. Yield or any other monetary benefit from trust funds and similar arrangements 25%
d. Royalties, in general 25%
e. Royalties on books, as well as other literary works and musical compositions 25%
f. Prizes 25%
g. Other winnings (except Philippine Charity Sweepstakes and Lotto winnings) 25%

RES/CIT NRA-ETB NRA-NETB

a. Interest income received from a depositary bank under expanded foreign
currency deposit system 7½% Exempt* Exempt*
b. Interest income from long-term deposit or investment in the form of
savings, common or individual trust funds, deposit substitutes, investment Exempt Exempt 25%
management accounts and other investments evidenced by certificates in
such form prescribed by Bangko Sentral ng Pilipinas (BSP)
If pre-terminated before fifth year, a final tax shall be imposed based on
remaining maturity:
4 years to less than 5 years 5% 5% 25%
3 years to less than 4 years 12% 12% 25%
Less than 3 years 20% 20% 25%
*also applies to non-resident citizens
4) Cash and/or Property Dividends
a. Cash and/or property dividends actually or constructively received from a
DOMESTIC CORP. or from JOINT STOCK CO., INSURANCE or MUTUAL
FUND COMPANIES and REGIONAL OPERATING HEADQUARTERS of
multinationals (beginning January 1, 2000} 10% 20% 25%
b. Share of an individual in the distributable net income after tax of a
PARTNERSHIP (OTHER THAN a general professional partnership) of which
he is a partner (beginning January 1, 2000) 10% 20% 25%
c. Share of an individual in the net income after tax of an ASSOCIATION, a
JOINT ACCOUNT, or a JOINT VENTURE or CONSORTIUM taxable as a
corporation of which he is a member or co-venturer (beginning January 1, 10% 20% 25%
2000)

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Provided, however, that the tax on dividends shall apply only on income earned on or after January 1, 1998.
Income forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after
January 1, 1998, be subject to this tax
.
5) Exercises:
a. Identify whether the following are subject to final tax or not. Taxpayer is RESIDENT CITIZEN unless otherwise
stated (Y/N).
Final tax? Rate
1) Interest from peso bank deposit, Equitable – PCIB, Makati
2) Interest from Japanese yen bank deposit, Sumitomo Bank, Japan
3) Interest from USA dollar bank deposit, First USA Bank, New York
4) Interest income from a debt instrument not within the coverage of deposit substitute,
Philippines
5) Interest income from a debt instrument within the coverage of a deposit substitute, Philippines
6) Interest on government debt instrument and securities (regardless of number of lenders at the
time of the origination)
7) Interest from overdue accounts receivable, Philippines
8) Royalties, in general, Manila
9) Royalties, books published in Manila
10) Prize amounting to P30,000, Philippines
11) Prize amounting to P10,000, Philippines
12) Prize amounting to P40,000, USA
13) Winnings amounting to P30,000, Philippines
14) Winnings amounting to P10,000, Philippines
15) USA Sweepstakes winnings
16) Philippine Lotto winnings
17) Interest received from depository bank under expanded foreign currency deposit system
(jointly in the name of a non-resident citizen and his spouse who is a resident citizen)
18) Interest income from long-term deposit or investment evidenced by certificates issued by BSP
(issued by a financial institution other than a bank in denomination of P10,000)
19) Interest income from long-term deposit or investment evidenced by certificates issued by BSP
(issued by a bank to an individual in denomination of P10,000)
20) Dividend from a domestic corporation received on April 15, 2006
21) Share in distributive net income of local business partnership received on May 15, 2006
22) Share in net income after tax of an association, a joint account, or a joint venture or
consortium received on August 15, 2006
23) Share in the net income of a general professional partnership
24) Dividend from a foreign corporation
25) Interest income from long-term deposit or investment evidenced by certificates issued by BSP
received by a NONRESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS
26) Interest income from long-term deposit or investment evidenced by certificates issued by BSP
received by a NONRESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS
27) Interest income received by NONRESIDENT ALIEN individual from a depository bank under
expanded foreign currency deposit system
28) Interest income received by a NON-RESIDENT CITIZEN individual from a depository bank
under expanded foreign currency deposit system
29) Dividend received by a NONRESIDENT ALIEN not engaged in business in the Philippines from
a domestic corporation.
30) Dividend received by a NONRESIDENT ALIEN engaged in trade in the Philippines from a
domestic corporation

b. An instrument with a maturity period of 10 years was held by Mr. X (a resident citizen) for 2 years and was transferred
to Mr. Y (a resident alien) who, in turn, held it for 8 years. How much is final withholding tax due?
Mr. X _____
Mr. Y _____

c. An instrument with maturity period of 10 years was held by Mr. X (a non-resident citizen) for 3 years and transferred it
to Mr. Y (a resident alien). Mr. Y held it for 2 years before subsequently transferring it to Mr. Z (a resident citizen), who
held it until the day of maturity or for 5 years. How much is the final withholding tax due?
Mr. X _____ Mr. Y ________ Mr. Z __________

d. An instrument with maturity period of 10 years was held by Mr. X (a non-resident alien engaged in trade or business in
the Philippines) for 3 years and transferred it to Mr. Y (a resident citizen). Mr. Y held it for 2 years before subsequently
transferring it to Mr. Z (a resident alien), who pre-terminated it after 4 years. How much is the final withholding tax

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due?
Mr. X _____ Mr. Y _________ Mr. Z ___________

3. Capital Gains Tax

a. Sec. 24 (C) – Capital Gains from Sale of Tax base: Net capital gains
Shares of Stock not Traded in the Stock Tax rates: 5% - not over P100,000
Exchange 10% - excess of P100,000

Sale, barter, transfer and/or assignment of

shares of stock of publicly-listed companies
not compliant with mandatory minimum
public ownership (10% of the publicly-
listed companies’ issued and outstanding
shares, exclusive of any treasury shares)
(RR No. 16-2012)
b. Sec. 24 (D) – Capital Gains from Sale of
Real Property Classified as Capital Asset
(Located in the Philippines)
c. Disposition of real property classified as
capital asset by individual to the
government or any of its political
subdivisions or agencies or to GOCCs
d. Exemption from 6% capital gains tax on
sale/transfer of principal residence
e. Carry-over of historical cost or adjusted
basis
Tax base: Gross selling price or fair market
value whichever is higher
Tax rate: 6% final tax
The tax to be imposed shall be determined either under Section 24
(A) for the normal rate of income tax for individual citizens or
residents or under Section 24 (D) (1) for the final tax on the
presumed capital gains of property at 6%, at the option of the
taxpayer-seller.
1) Exempt proceeds
Capital gains presumed to have been realized from the sale or
disposition of their principal residence by natural persons, the
proceeds of which is fully utilized in acquiring or constructing a
new principal residence within 18 calendar months from the
date of sale or disposition shall be exempt from capital gains tax.
2) Escrow agreement
The buyer/tansferee shall withhold from the seller and shall
deduct from the agreed selling price/consideration the 6% capital
gains tax which shall be deposited in cash or manager’s check in
interest bearing account with an Authorized Agent Bank (AAB)
under an Escrow Agreement between the concerned Revenue
District Officer, the Seller and the Transferee, and the AAB.
The historical cost or adjusted basis of the real property sold or
disposed shall be carried over to the new principal residence built or
acquired.

f. Computation for the basis Historical cost of old principal residence xxx
of the new principal Add: Additional cost to acquire new principal residence xxx*
residence Adjusted cost basis of the new principal residence xxx

*Cost to acquire new principal residence xxx

Less: Gross selling price of old principal residence xxx
Additional cost to acquire new principal residence xxx
g. Notification required The Commissioner shall have been duly notified by the taxpayer within 30 days
from the date of sale or disposition through a prescribed return of his intention to
avail of the tax exemption.
h. Exemption once every 10 The tax exemption can only be availed of once every 10 years.
years
i. Taxable portion if no full If there is no full utilization of the proceeds of sale or disposition of principal
utilization of proceeds residence, the portion of the gain presumed to have been realized from the sale or
disposition shall be subject to capital gains tax.
The taxable portion is computed as follows:
Unutilized portion x Tax base
Gross selling price

Computation of adjusted cost basis of the new principal residence:

j. Filing of Final Capital Gains
Tax Return on sale of
principal residence
Utilized portion x Historical cost
Gross selling price
1) After depositing the amount representing the 6% capital gains tax, the
Buyer/Transferee and the Seller, shall jointly file, within thirty (30) days from the
date of sale or disposition of the principal residence, with the RDO having
jurisdiction over the property, in duplicate, the Final Capital Gains Tax Return
covering the property bought with no computed tax due stating that the

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supposed tax due/amount so withheld by the buyer is maintained in an escrow

account, which amount will be used to satisfy future tax liability, if any, on the
subject transaction.
2) For purposes of capital gains tax otherwise due on the sale, exchange or
disposition of the said Principal Residence, the execution of the Escrow
Agreement shall be considered sufficient.

4. Tax Rates for Special Aliens and their Filipino Counterparts

Persons Subject to
Tax Tax Rate
Sec. 25 (C) Alien Individual 15% of gross income within the Philippines
Employed by Regional a. Same tax treatment to Filipinos whether or not there is an alien executive
or Area Headquarters occupying managerial or technical position.
and Regional b. Filipinos employed by ROHQs or RHQs in a managerial or technical
Operating position shall have the option to be taxed at either 15% of their gross
Headquarters of income or at the regular rate on taxable compensation income under Section
Multinational Co. 24 (A).
c. All other employees are considered as regular employees who are subject to
the regular income tax rate on their taxable compensation income.
d. Filipinos exercising the option to be taxed at fifteen percent (15%)
preferential rate for occupying the same managerial or technical position as
that of an alien employed in an ROHQs or RHQs must meet all following
requirements:
1) Position and Functional Test – The employee must occupy managerial
position or technical position AND must actually be exercising such
managerial or technical functions pertaining to said position;
2) Compensation Threshold Test - In order to be considered a managerial or
technical employee for income tax purposes, the employee must have
received, or is due to receive under a contract of employment, a gross
annual taxable compensation of at least P975,000 (whether or not this is
actually received.)
3) Exclusivity Test – The Filipino managerial or technical employee must be
exclusively working for the ROHQs or RHQs as a regular employee and
not just a consultant or contractual personnel. Exclusivity means having
just one employer at a time. (RR No. 11-2010)
Sec. 25 (D) Alien Individual 15% of gross income within the Philippines (same tax treatment to Filipinos
Employed by Offshore employed and occupying managerial and technical positions similar to those
Banking Units occupied by aliens employed by these offshore banking units).
Sec. 25 (E) Alien Individual 15% of gross income within the Philippines (same tax treatment to Filipinos
Employed by Foreign employed and occupying the same position as those aliens who are permanent
Petroleum Service residents of a foreign country but who are employed by petroleum service
Contractor and contractor and subcontractor in the Philippines).
Subcontractor

END

TAXATION – Tax Rates for Individual Taxpayers, Estate

and Trusts TX-502