TAXATION

FAR EASTERN UNIVERSITY – MANILA

FINAL INCOME TAXATION AND CAPITAL GAIN TAXATION (1301)
Income Subject to Final Taxes on certain passive income from Philippine Sources /Regular Rates/Capital Gain Tax
Rates:
Legend: Note:
RES – Resident alien Final tax on passive income xxx
CIT - Citizen Add: Capital gain tax xxx
NRA-NETB – Non resident alien not engaged in business Total Final Taxes xxx
DOM – Domestic corporation
RFC – Resident foreign corporation
NRFC – Non resident foreign corporation

RES/CIT NRA-ETB NRA-NETB DOM RFC NRFC

Final tax rates on passive income

Interest in any currency bank

20% 20% 25% 20% 20% 30%
deposit
Yield or any other monetary
benefit from deposit substitute
(obtained from 20 or more 20% 20% 25% 20% 20% 30%
individual or corporate
lenders)
Yield or any other monetary
benefit from trust funds and 20% 20% 25% 20% 20% 30%
similar arrangements
Royalties in general 20% 20% 25% 20% 20% 30%
Royalties on books, as well as
other literary works and 10% 10% 25% - - -
musical composition
Prizes (except P10,000 or less
which shall be subject to Sec.
20% 20% 25% Regular rate Regular rate 30%
24 (A) for res/cit and nra-etb
individuals)
Other winnings and PCSO &
Lotto –taxable above P10,000
(except winnings to P10,000 or 20% 20% 25% Regular rate Regular rate 30%
less Philippine Charity
Sweepstakes and Lotto winnings)
Interest income received from
depository bank under 15%
Exempt Exempt 15% 15% Exempt
expanded foreign currency (NRC-
deposit system Exempt)
Interest income from long-
term deposit or investment in
the form of savings, common
or individual trust funds,
Regular rate* Regular rate%*
deposit substitutes,
(RMC 7-2015) (RMC 7-2015)
investment management Exempt Exempt 25% 30%
30%(Corporate 30%(Corporate
accounts and other
Tax) Tax)
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% 20% 20% 30%
3 years to less than 4 years 12% 12% 25% 20% 20% 30%
Less than 3 years 20% 20% 25% 20% 20% 30%
15% (tax
sparing
rule) or
Dividend from domestic
10% 20% 25% Exempt Exempt 30% (no
corporation
tax
sparing
rule)
Share of an individual in the
distributable net income after
tax of a PARTNERSHIP (OTHER
THAN a general professional 10% 20% 25% - - -
partnership) of which he is a
partner (beginning January 1,
2000)

13. FINAL TAX AND CGTAX Page 1 of 19

 RES/CIT NRA-ETB NRA-NETB DOM RFC NRFC

Income derived by a
depository bank from foreign
currency transactions with
non-residents, OBUs in the - - - Exempt Exempt Exempt
Philippines, local commercial
bank including branches of
foreign banks
Interest income from foreign
currency loan granted by
depository banks under
expanded system to residents - - - 10% 10% Exempt
other than OBUs in the
Philippines and other
depository bank
Any income of non-residents
(individual or corporation)
from transactions with Exempt Exempt Exempt
depository banks under
expanded system
Interest on foreign loans
contracted - - - - - 20%
on or after August 1, 1986
Tax on capital gains
Sale of shares of stock not
traded in the stock of 15% 15% 15% 15% 15% 15%
exchange
Sale, barter, transfer and/or
assignment of shares of stock
of publicly-listed companies
not compliant with mandatory
minimum public ownership
15% 15% 15% 15% 15% 15%
(10% of the publicly-listed
companies’ issued and
outstanding shares, exclusive
of any treasury shares) (RR
No. 16-2012)
6% of GSP 6% of GSP 6% of GSP
Sale of real property classified 6% of GSP or FMV
or FMV or FMV or FMV
as capital asset (located in the whichever is - -
whichever whichever whichever
Philippines) higher
is higher is higher is higher

Notes:
Domestic Corporation Resident Foreign
Nonresident Foreign
Corporation Corporation
Capital gains realized from Capital asset – on gross Not applicable
sale or exchange or disposition selling price or fair market Capital Gain Tax on sale or disposition of real properties is not
of land and/or building value whichever is higher applicable. (See RR 7-2003)
- 6% final tax
Revenue Regulations No. 7-2003

Provides the guidelines in determining whether a particular property is a Capital Asset or an Ordinary Asset for purposes of imposing
the Capital Gains tax or ordinary income tax or Minimum Corporate Income Tax.

Sale of Real Property Classified as Capital Assets

• In the case of domestic corporations’ capital gains from the sale, exchange or disposition of land/buildings, located in the
Philippines, which are classified as capital assets, shall be subject to capital gains tax of six percent (6%) based on the
gross selling price or current fair market value, whichever is higher.

• In the case of resident foreign corporations, real property located in the Philippines, regardless of classification, sold by a
resident foreign corporation shall be subject to the creditable withholding tax(expanded)(6%) under Sec. 2.57.2(J) of
RR No. 2-98, as amended, and consequently to ordinary income tax or MCIT, whichever is applicable.

• In the case of non-resident foreign corporation, the gain from sale of real property located in the Philippines shall be subject
to final withholding tax at the rate of 30%.

Tax Treatment under RR No. 7-2003

Capital gains from sale/exchange/disposition of real properties classified as capital assets

13. FINAL TAX AND CGTAX Page 2 of 19

 Domestic Corporation
Individuals – in case of citizens, resident
aliens & non-resident aliens engaged in trade
or business in the Philippines
Individuals – non-resident aliens NOT
engaged in trade or business in the
Philippines
Domestic Corporations
Resident Foreign Corporations
Non-Resident foreign Corporations
Resident Foreign Nonresident Foreign
Corporation Corporation
6% Capital Gains Tax (CGT)*
*However, if sold/transferred by individuals to the government or any of its
political subdivisions/agencies or to GOCCs, the tax shall either be the 6% tax or
graduated income tax rates, at the option of the taxpayer.
6% CGT
6% CGT for land and building only, otherwise the same shall be subject to the
ordinary income tax or MCIT, whichever is applicable
Subject to creditable withholding tax and consequently, the ordinary income
tax or MCIT, whichever is applicable
30% Final Tax

Tax Base for CGT : Gross Selling price or fair market value (FMV) at the time of sale, whichever is higher

FMV – whichever is the higher of:

- FMV as determined by the Commissioner of Internal Revenue; and
- FMV as shown in the schedule of values of the provincial and city assessors.

Tax Base for CWTax: The creditable withholding tax 6% of the GSP or FMV, whichever is higher. (RR 6-2001)

Capital Gains Tax

a. Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange
Tax base: Net capital gains
Tax rates: 15% Notes: STT on listed
Tax forms : BIR Form 1707 (Per transaction return) shares - .60 of 1%
BIR Form 1707-A (Annual capital gain tax return) (stock transaction tax)
Deadline: within 30 days

b. Capital Gains from Sale of Real Property Classified as Capital Asset (Located in the Philippines)
Tax base: Gross selling price or fair market value whichever is higher
Tax rate: 6% final tax
Tax form : BIR form 1706
Deadline: within 30 days

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

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.

d. Exemption from 6% capital gains tax on sale/transfer (CAPITAL GAIN TAX EXEMPTION: Requirements)
a. The capital asset sold was a principal residence;
b. The taxpayer is a citizen of the Philippines or resident alien;
c. The proceeds of the sale was invested in acquiring a new principal residence;
d. Notice to make such utilization was given to the BIR within 30 days from the date of sale;
e. Utilization of the proceeds of the sale was made within eighteen (18) months from the date of sale;
f. A cash deposit is made with an accredited bank for an amount equal to the capital gain tax, and answerable for the
capital gain tax should the conditions for the exemption be not satisfied;
g. The exemption shall be availed of once only every ten years.

• If the entire proceeds of the sale is invested, the entire capital gain is exempt. The cost basis of the new
principal residence will be the basis of the old residence.

• If only a portion of the proceeds of the sale is invested in the new residence,

Exemption on Capital gain tax:

Proceeds of the sale not invested x What should have been the tax (CGT)
Entire proceeds of the sale

Basis of the new principal Residence:

Proceeds of the sale invested x Basis of the old Residence
Entire proceeds of the sale

• If the amount invested is in excess of the proceeds of the sale, the capital gain is exempt and the basis for the
new principal residence is equal to the basis of the old residence plus the additional investment ( New
Residence = Old residence + additional capital investment)

e. Filing of Final Capital Gains Tax Return on sale of principal residence

13. FINAL TAX AND CGTAX Page 3 of 19

 • 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 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.
• 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.

Interest income derived from Long-Term Deposits or Investment Certificates (RMC No. 7-2015)
Tax Treatment: In order for the interest 1. The depositor or investor is an individual citizen (resident or non-resident) or
income from long-term deposit or investment resident alien or non-resident alien engaged in trade or business in the Philippines;
in the form of savings, common or individual
trust funds, deposit substitutes, investment 2. The long-term deposits or investment certificates should be under the name of
management accounts and other investments the individual and not under the name of the corporation or the bank or the trust
evidenced by certificates in such form department/unit of the bank;
prescribed by the Bangko Sentral ng Pilipinas
(BSP) to be exempted from income tax, 3. The long-term deposits or investments must be in the form of savings, common
the following characteristics/conditions or individual trust funds, deposit substitutes, investment management accounts
must be present: and other investments evidenced by certificates in such form prescribed by the
Bangko Sentral ng Pilipinas (BSP);
Notes:
Short term deposits – are those for a period 4. The long-term deposits or investments must be issued by banks only and not by
of less than five years. other entities or individuals;

Long-term deposits or investments
certificates – refer to certificate of time
deposits or investment in the form of savings,
common or individual trust funds, deposit
substitutes, investments management
accounts and other investments with a
maturity of not less than five years, the
form of which shall be prescribed by the BSP
and issued by banks only (not by non-bank
financial intermediaries or finance companies)
to individuals in denominations of P10,000
and other denominations are may be
prescribed by the BSP. (RMC 18-2011)
Provided, that for interest income derived by
individuals investing in common or individual
trust funds or investment management
accounts to be exempt from income tax, the
following additional characteristics/conditions
must ALL be present:
In case of pre-termination, transfer or
negotiation of said long-term deposit or
investment by the depositor or investor before
the fifth (5th) year:
5. The long-term deposits or investments must have a maturity period of not less
than five (5) years;
6. The long-term deposits or investments must be in denominations of Ten
Thousand Pesos (P10,000) and other denominations as may be prescribed by the
BSP;
7. The long-term deposits or investments should not be terminated by the original
investor before the fifth (5th) year, otherwise they shall be subjected to the
graduated rates of 5%, 12% or 20% on interest income earnings; and
8. Except those specifically exempted by law or regulations, any other income such
as gains from trading, foreign exchange gain shall not be covered by income tax
exemption.
1. The investment of the individual investor in the common or individual trust
fund or investment management account must be actually held/managed by the
bank for the named individual at least five (5) years without interruption. The
term "bank" referred to herein are banks duly licensed as such by the Bangko
Sentral ng Pilipinas;
2. The underlying investments of the common or individual trust account or
investment management accounts must comply with the requirements of Section
22(FF) of the NIRC of 1997, as amended, as well as the requirements mentioned
above;
3. The common or individual trust account or investment management account
must hold on to such underlying investment in continuous and uninterrupted
period for at least five (5) years.
The interest income shall be subject to the following graduated rates of Final
Withholding Tax (FWT) on the entire income and shall be deducted and withheld by
the depository bank from the proceeds of the long-term deposit or investment
certificate based on the remaining maturity thereof as follows:

Citizen (Resident or Non-resident)/ Four (4) years to less than five (5) years - 5%
Resident alien/ NRA-Engaged in business Three (3) years to less than four (4) years - 12%
Less than three (3) years - 20%

Non-resident alien not engaged in For non-resident alien not engaged in trade or business in the Philippines, interest
business income received from long-term deposit or investment shall be subject to a Final
Withholding Tax (FWT) at the rate of twenty five percent (25%) pursuant
to Section 25 (B) of the NIRC of 1997, as amended.
Non-resident foreign corporation For non-resident foreign corporation, interest income received from long-term
deposit or investment shall be subject to a Final Withholding Tax (FWT) at the rate
of thirty percent (30%) pursuant to Section 28 (B) (1) of the NIRC of 1997, as
amended.

Domestic corporation and Resident Interest income from long-term deposit or investment shall be subject to regular
foreign corporation income tax at the rate of thirty percent (30%) if received by a domestic
corporation and resident foreign corporation pursuant to Sections 27 (A) and 28
(A) (1) of the NIRC of 1997, as amended.

Examples:
1. 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

13. FINAL TAX AND CGTAX Page 4 of 19

(a resident alien), who, in turn, held it for 8 years. The FWT due are as follows:
Mr. X 2 years 20% FWT
Mr. Y 8 years Exempt

2. 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. The FWT due are as follows:
Mr. X 3 years 12% FWT
Mr. Y 2 years 20% FWT
Mr. Z 5 years Exempt

3. An instrument with maturity period of 10 years 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. The FWT due are as follows:
Mr. X 3 years 12% FWT
Mr. Y 2 years 20% FWT
Mr. Z 4 years 5% FWT

In sum, pre-termination, transfer or negotiation of long-term deposit or investment certificate held by the depositor or investor for
less than five (5) years even if such long-term deposit or investment certificate has a maturity period of five (5) years or more
shall be subject to appropriate income tax rate pursuant to Sections 24 (B) (1), 25 (A) (2), 27 (D) (1) and 28 (A) (7) (a) of the
NIRC of 1997, as amended.

4. Mr. X (a resident citizen) appoints Bank A — Trust Department to manage his money created through a trust agreement. Bank A
— Trust Department then invests said money in a 5-year corporate bond.
i) Even if Mr. X does not withdraw his money from such trust agreement for at least five (5) years, his interest income
from the trust agreement will NOT be exempt from the final withholding tax (FWT) as the underlying investment
is a corporate bond, even if such corporate bond has a maturity period of five (5) years. The underlying instrument
needs to comply with the requirements of Section 22(FF) of the NIRC of 1997, as amended, as well as the
requirements mentioned. A bond, promissory note or any other type of debt instrument issued by a non-bank
corporation as an underlying instrument will not meet the requirements of Section 22(FF) as it is not issued by a bank.
ii) If Bank A — Trust Department in its own name without mentioning the particular individual for whom the
investment is being made invests the fund instead in a 10- year long-term deposit or investment certificate, the long-
term deposits and investments made in the name of a trust department of a bank are not exempted from the
twenty percent (20%) final withholding tax (FWT). Only those made specifically "in trust for the name of specific
and qualified individual investors" may be exempted from income tax under Sections 24(B)(1) and 25(A)(2) of the
NIRC of 1997, as amended, provided they comply with Section 22(FF) of the NIRC of 1997.
iii) If Bank A — Trust Department in the name of Mr. X invests the fund instead in a 10-year long-term deposit or
investment certificate as defined under Section 22(FF) of the NIRC of 1997, as amended, Mr. X's interest income derived
from the trust agreement shall be exempt from income tax provided that Bank A — Trust Department in behalf of Mr.
X will hold such deposit or investment in continuous and uninterrupted period for at least five (5) years. The holding
period for both the individual investor in the trust agreement and the trust in the underlying instrument must both be at
least five (5) years.

Items of Gross Income

Income distinguished from other terms
From capital Capital is the fund or property existing at one distinct time, while income denotes a flow of wealth during
a definite period
From receipts Receipts have reference to all wealth that flows into the taxpayer, which includes return of capital.
Receipts are broader in scope than income
From revenue 1. Revenue, as applied to taxation, refers to all the funds or income derived by the government, whether
from tax or any other source while income, for tax purpose, is employed in its “natural and obvious sense”
to mean money or gain received, coming to a person (natural or juridical) during a given period of time

2. Revenue is to the government while income is to a person (natural or juridical)

13. FINAL TAX AND CGTAX Page 5 of 19

Income from whatever source
Example of income 1. Gains arising from expropriations of property
from whatever 2. Gambling gains
source 3. Income from illegal business or from embezzlement
4. Damage recovery (compensation from damages)
• Rewards given to persons instrumental in the discovery of violations of the National Internal Revenue Code are:
subject to FINAL TAX OF 10% of reward collected or P1,000,000, whichever is LOWER.
Reward collected:
Revenues Xxx
Surcharges Xxx
Fees recovered Xxx
Fine Xxx
Penalty Xxx
Total Xxx
Multiply by: 10%
Reward Collected Pxxx
VS P1,000,000
Whichever is Lower Pxxx
Multiply by: Final tax rate 10%
Final Tax Pxxx

SEC. 282. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue
Code and in the Discovery and Seizure of Smuggled Goods. -
(A) For Violations Any person, except an internal revenue official or employee, or other public official or employee, or his
of the National relative within the sixth degree of consanguinity, who voluntarily gives definite and sworn information, not
Internal Revenue yet in the possession of the Bureau of Internal Revenue, leading to the discovery of frauds upon the internal
Code. revenue laws or violations of any of the provisions thereof, thereby resulting in the recovery of revenues,
surcharges and fees and/or the conviction of the guilty party and/or the imposition of any of the fine or
penalty, shall be rewarded in a sum equivalent to ten percent (10%) of the revenues, surcharges
or fees recovered and/or fine or penalty imposed and collected or One Million Pesos (P1,000,000)
per case, whichever is lower. The same amount of reward shall also be given to an informer where the
offender has offered to compromise the violation of law committed by him and his offer has been accepted by
the Commissioner and collected from the offender: Provided, That should no revenue, surcharges or
fees be actually recovered or collected, such person shall not be entitled to a reward: Provided,
further, That the information mentioned herein shall not refer to a case already pending or previously
investigated or examined by the Commissioner or any of his deputies, agents or examiners, or the
Secretary of Finance or any of his deputies or agents: Provided, finally, That the reward provided herein shall
be paid under rules and regulations issued by the Secretary of Finance, upon recommendation of the
Commissioner.
(B) For Discovery To encourage the public to extend full cooperation in eradicating smuggling, a cash reward equivalent to ten
and Seizure of percent (10%) of the fair market value of the smuggled and confiscated goods or One Million Pesos
Smuggled Goods. (P1,000,000) per case, whichever is lower, shall be given to persons instrumental in the discovery and
seizure of such smuggled goods.
10% Final tax The cash rewards of informers shall be subject to income tax, collected as a final withholding tax, at a rate of
ten percent (10%).

Notes:
Used to be excluded but now 1. Interest on government securities (subject to 20% final tax)
subject to final tax 2. Income derived as informer’s reward to persons instrumental in the discovery of violations of
the NIRC and in the discovery and seizure of smuggled goods (subject to 10% final tax)

CREDITABLE WITHHOLDING TAXES

Creditable withholding taxes – items of regular income are subject to creditable withholding tax (CWTax). The CWT is withheld at
source by customers or clients but is not a final tax. It is an advance tax deductible against the annual income tax due of the
taxpayer.
Classification of Withholding Tax at Source
Withholding tax may be classified into two major categories:
1. Final Withholding Tax
2. Creditable Withholding Tax

What are the types of Withholding Taxes?

There are four types of withholding taxes, namely:
a. Withholding Tax on Compensation
b. Expanded Withholding Tax
c. Final Withholding Tax
d. Withholding Tax on Government Money Payments
- Withholding Tax on Vat
- Withholding Tax on Percentage Taxes

Final Withholding tax VS. Creditable Withholding Tax

Similarities:

13. FINAL TAX AND CGTAX Page 6 of 19

1. In both cases, the income payor withhold a fraction of the income and remits the same to the government.
2. By collecting at the moment cash is available, both serve to avoid cash flow problem to the taxpayer and the government.

Differences:
Final Withholding Tax Creditable Withholding Tax
Income tax withheld Full Only a portion
Coverage Passive income Active income
Who remits the actual tax Income payor Income payor for the CWT and the
taxpayer for the balance
Forms BIR Form 1601-FQ for reporting the BIR Form 1601-C monthly remittance
monthly remittance of final income taxes return of income taxes withheld on
withheld. comepnsastion (Note: BIR Form 2316 –
certificate of compensation payment and
tax withheld, shall be filed and paid under

BIR Form 1601 C, monthly remittance

BIR Form 1602 on interest paid on return on income taxes withheld on
deposits and yield on deposits substitutes compensation.)

BIR Form 1603 quarterly remittance BIR Form 1601 -EQ quarterly remittance
return of final income taxes withheld on return of creditable expanded income
fringe benefits paid to employees other taxes withheld
than rank and file
BIR Form 1606 withholding tax
remittance return for onerous transfer of
real property other than capital assets

Tax Type Covered period Form to Use Alphalist of Due date for filing and payment
Payees
Non-EFPS Filers EFPS Filers
Expanded/creditable 1st month of the BIR Form 1601E None 10th day of the 15th day of the
Withholding Tax quarter following month following month
2nd month of the BIR Form 1601E None 10th days of the 15th day of the
quarter following month following month
Calendar Quarter BIR Form 1601EQ Yes (to include all Last day of the Last day of the
income payments month following month following
for the quarter) the close of the the close of the
quarter quarter
Final Withholding Tax 1st month of the BIR Form 1601F None 10th day of the 15th day of the
quarter following month following month
2nd month of the BIR Form 1601F None 10th days of the 15th day of the
quarter following month following month
Calendar Quarter BIR Form 1601FQ Yes for 1601FQ (to Last day of the Last day of the
include all income month following month following
payments for the the close of the the close of the
quarter) quarter quarter

Notes: (SECTION 2.58. Returns and Payment of Taxes Withheld at Source)

Manner, Venue and Time of Filing of Withholding Tax Returns and Payment of Taxes Withheld at Source - Taxpayers
mandated to electronically file and pay shall use the BIR’s electronic system, while those not mandated has the option to either use
the said electronic system, or file with the Authorized Agent Banks (AABs) under the jurisdiction of the Revenue District Office where
they are registered. Withholding agents located at municipalities where there is no AAB, the returns shall be filed with the Revenue
Collection Officer assigned in the said municipality. The filing of the withholding tax returns (BIR Form No. 1601EQ for creditable
withholding tax and Form Nos. 1602 for final tax on interest on bank deposits, 1603 for final tax withheld on fringe benefits, and
1601FQ for all other final withholding taxes) and payment of the taxes withheld at source shall be made not later than the last
day of the month following the close of the quarter during which the withholding was made.

For this purpose, the quarter shall follow the calendar quarter, e.g., for taxes withheld during the quarter ending March 31, the same
shall be remitted by the withholding agent on or before April 30. The return filed shall be accompanied by the Quarterly Alphabetical
List of Payees (QAP), reflecting the name of income payees, Taxpayer Identification Number (TIN), the amount of income paid
segregated per month with total for the quarter (all income payments prescribed as subject to withholding tax under these
regulations, whether actually subjected to withholding tax or not subjected due to exemption), and the total amount of taxes
withheld, if any.

Considering that taxes withheld by the withholding agents are held in trust for the government and its availability is an imperious
necessity to ensure sufficient cash inflow to the National Treasury, withholding agents shall file BIR Monthly Remittance Form (BIR
Form No. 0619E and/or 0619F) every tenth (10th) day of the following month when the withholding is made, regardless of the
amount withheld. For withholding agents using EFPS facility, the due date is on the fifteenth (15th) day of the following month.
Withholding agents with zero remittance are still required to use and file the same form.

In the case of sale of shares of stocks not traded thru a local stock exchange and sale of real property considered as capital asset,
the filing and payment of the tax due thereon shall be made within thirty (30) days after the sale or disposition using BIR Form No.
1707 and 1706, respectively. For sale of real property considered as ordinary asset, the remittance of tax withheld shall be made on
or before the tenth (10th) day following the month of transaction using BIR Form No. 1606.

13. FINAL TAX AND CGTAX Page 7 of 19

Creditable Withholding Tax Rate on lncome Payments

(A) Professional fees, talent fees, etc for services rendered- on the gross professional, promotional, and talent fees or any
other form of remuneration for services rendered by the following:
Individual payee:
If gross income for the current year did not exceed P3,000,000 Five percent (5%)
If gross income is more than P3,000,000 or VAT registered regardless Ten percent (10%)
of amount

Non-Individual payee:
If gross income for the current year did not exceed P720,000 Ten percent (10%)
If gross income exceeds P720,000 Fifteen percent (15%)

(B) Rentals
(1) Real Properties - On gross rental for the continued use or possession of real property used in business which the payor or
obligor has not taken or is not taking title, or in which he has no equity – Five percent (5%)

(2) Personal Properties – On gross rental or lease in excess of Ten Thousand Pesos (₱10,000) annually for the continued use or
possession of personal property used in business which the payor or obligor has not taken or is not taking title, or in which he has no
equity, except those under financial lease arrangements with leasing and finance companies authorized to operate under Republic
Act No. 8556 (Financing Company Act of 1998). – Five percent (5%)

However, the Ten Thousand Pesos (₱10,000) threshold shall not apply when the accumulated gross rental or lease paid by the lessee
to the same lessor exceeds or is reasonably expected to exceed ₱10,000 within the year. In which case, the lessee shall withhold the
five percent (5%) withholding tax on the entire amount.

(3) Poles, satellites and transmission facilities - On gross rentals or lease for the use of poles, satellites and/or transponder and
transmission facilities which include but not limited to the following: switchboards, land lines/aerial cables, underground cables and
submarine cables – Five percent (5%)

(4) Billboards - On gross rentals or lease of spaces used in posting advertisements in the form of billboards and/or structures
similar thereto, posted in public places such as, but not limited to, buildings, vehicles, amusement places, malls, street posts, etc. –
Five percent (5%);
(5) Cinematographic film rentals and other payments [formerly under letter (D)]– On gross payments to resident individuals
and corporate cinematographic film owners, lessors or distributors – Five percent (5%)

(C) Income payments to certain contractors [formerly under letter (E)] – On gross payments to the following contractors,
whether individual or corporate — Two percent (2%)

(1) General engineering contractors — Those whose principal contracting business in connection with fixed works requiring
specialized engineering knowledge and skill including the following divisions or subjects:

(a) Reclamation works;

(b) Railroads;
(c) Highways, streets and roads;
(d) Tunnels;
(e) Airports and airways;
(f) Waste reduction plants;
(g) Bridges, overpasses, underpasses and other similar works;
(h) Pipelines and other systems for the transmission of petroleum and other liquid or gaseous substances;
(i) Land leveling;
(j) Excavating;
(k) Trenching;
(l) Paving; and
(m) Surfacing work.

(2) General Building contractors — Those whose principal contracting business is in connection with any structure built, for the
support, shelter and enclosure of persons, animals, chattels, or movable property of any kind, requiring in its construction the use of
more than two unrelated building trades or crafts, or to do or superintend the whole or any part thereto. Such structure includes
sewers and sewerage disposal plants and systems, parks, playgrounds, and other recreational works, refineries, chemical plants and
similar industrial plants requiring specialized engineering knowledge and skills, powerhouse, power plants and other utility plants and
installation, mines and metallurgical plants, cement and concrete works in connection with the above-mentioned fixed works.

(3) Specialty Contractors — Those whose operations pertain to the performance of construction work requiring special skill and
whose principal contracting business involves the use of specialized building trades or crafts.

(4) Other contractors —

(a) Filling, demolition and salvage work contractors and operators of mine drilling apparatus;

(b) Operators of dockyards;

(c) Persons engaged in the installation of water system, and gas or electric light, heat or power;

(d) Operators of stevedoring, warehousing or forwarding establishments;

13. FINAL TAX AND CGTAX Page 8 of 19

(e) Transportation contractors which include common carriers for the carriage of goods and merchandise of whatever kind by land,
air or water, where the gross payments by the payor to the same payee amounts to at least two thousand pesos (₱2,000) per
month, regardless of the number of shipments during the month;

(f) Printers, bookbinders, lithographers and publishers except those principally engaged in the publication or printing of any
newspaper, magazine, review or bulletin which appears at regular intervals, with fixed prices for subscription and sale;

(g) Messengerial, janitorial, private detective and/or security agencies, credit and/or collection agencies and other business agencies;

(h) Advertising agencies, exclusive of gross payments to media;

(i) Independent producers of television, radio and stage performances or shows;

(j) Independent producers of "jingles";

(k) Labor recruiting agencies and/or “labor-only” contractors. For this purpose, any person who undertakes to supply workers to an
employer shall be deemed to be engaged in “labor-only” contracting where such person does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises and other materials and the workers recruited and placed by
such person are performing activities which are directly related to the principal business or operations of the employer which the
workers are habitually employed;

(l) Persons engaged in the installation of elevators, central air conditioning units, computer machines and other equipment and
machineries and the maintenance services thereon;

(m) Persons engaged in the sale of computer services, computer programmers, software/program developer/designer, internet
service providers, web page designing, computer data processing, conversion or base services and other computer related activities;

(n) Persons engaged in landscaping services;

(o) Persons engaged in the collection and disposal of garbage;

(p) TV and radio station operators on sale of TV and radio airtime; and

(q) TV and radio blocktimers on sale of TV and radio commercial spots.

(D) Income distribution to the beneficiaries [formerly under letter (F)] – On income distributed to the beneficiaries of estates
and trust as determined under Sec. 60 of the Code, except such income subject to final withholding tax and tax exempt income —
Fifteen percent (15%)

(E) Income payments to partners of general professional partnerships [formerly under letter (H)] – Income payments made
periodically or at the end of the taxable year by a general professional partnership to the partners, such as drawings, advances,
sharings, allowances, stipends, etc. — Fifteen percent (15%), if the gross income for the current year exceeds P720,000; and Ten
percent (10%), if otherwise.

(F) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale,
exchange, or transfer of real property classified as ordinary asset [formerly under letter (J)] – A creditable withholding tax
based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Section 6(E) of
the Code, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real property, other than capital asset,
shall be imposed upon the withholding agent/buyer, in accordance with the following schedule:
A. Where the seller/transferor is exempt from the creditable withholding tax in accordance with Sec. 2.57.5 of these Exempt
regulations
B. Upon the following values of real property, where the seller/transferor is habitually engaged in the real estate business:
With a selling price of five hundred thousand pesos (P500,000) or less 1.5%
With a selling price of more than five hundred thousand pesos (P500,000) but not more than two million pesos 3.0%
(P2,000,000)
With selling price of more than two million pesos (P2,000,000) 5.0%
C. Where the seller/transferor is not habitually engaged in the real estate business 6.0%

Registration with the HLURB or HUDCC shall be sufficient for a seller/transferor to be considered as habitually engaged in the real
estate business. If the seller/transferor is not registered with HLURB or HUDCC, he/it may prove thathe/it is engaged in the real
estate business by offering other satisfactory evidence (for example, he/it consummated during the preceding year at least six
taxable real estate transactions, regardless of amount). Notwithstanding the foregoing, for purposes of these Regulations, banks
shall not be considered as habitually engaged in the real estate business.
xxx xxx xxx

(G) Additional income payments to government personnel from importers, shipping and airline companies, or their
agents [formerly under letter (K)] – On gross additional payments by importers, shipping and airline companies, or their agents to
government personnel for overtime services as authorized by law — Fifteen percent (15%);

For this purpose, the importers, shipping and airline companies or their agents, shall be the withholding agents of the Government.
(H) Certain income payments made by credit card companies [formerly under letter (L)] – On one-half (1/2) of the gross
amounts paid by any credit card company in the Philippines to any business entity, whether a natural or juridical person,
representing the sales of goods/services made by the aforesaid business entity to cardholders — One percent (1%)

(I) Income payment made by top withholding agents, either private corporations or individuals, to their local/resident
supplier of goods and local/resident supplier of services other than those covered by other rates of withholding tax.
[formerly under letters (M) and (W)] – Income payments made by any of the top withholding agents, as determined by the

13. FINAL TAX AND CGTAX Page 9 of 19

Commissioner, to their local/resident supplier of goods/services, including non-resident aliens engaged in trade or business in the
Philippines, shall be subjected to the following withholding tax rates:

Supplier of goods – One percent (1%)

Supplier of services – Two percent (2%)

Top withholding agents shall include the following:

a. Classified and duly notified by the Commissioner as either any of the following unless previously de-classified as such or had
already ceased business operations:
(1) A large taxpayer under Revenue Regulations No. 1-98, as amended;
(2) Top twenty thousand (20,000) private corporations under RR No. 6-2009; or
(3) Top five thousand (5,000) individuals under RR No. 6-2009;

b. Taxpayers identified and included as Medium Taxpayers, and those under the Taxpayer Account Management Program (TAMP).
The top withholding agents by concerned LTS/RRs/RDOs shall be published in a newspaper of general circulation. It may also be
posted in the BIR website. These shall serve as the “notice” to the top withholding agents. The obligation to withhold under this sub-
section shall commence on the first (1st) day of the month following the month of publication. Existing withholding agents classified
as large taxpayers, top 20,000 private corporations or top 5,000 individuals which have not been delisted prior to these regulations
shall remain as top withholding agents. The initial and succeeding publications shall include the additional top withholding agents and
those that are delisted.

The term “goods” pertains to tangible personal property. It does not include intangible personal property, as well as agricultural
products which are defined under item (N) of this Section.

The term “local resident suppliers of goods/suppliers of services” pertains to a supplier from whom any of the top withholding agents,
regularly makes its purchases of goods/services. As a general rule, this term does not include a casual purchase of goods/services
that is purchase made from a non-regular supplier and oftentimes involving a single purchase. However, a single purchase which
involves Ten thousand pesos (P10,000) or more shall be subject to withholding tax under this subsection. The term “regular
suppliers”, for purposes of these regulations, refer to suppliers who are engaged in business or exercise of profession/calling with
whom the taxpayer-buyer has transacted at least six (6) transactions, regardless or amount per transaction, either in the previous
year or current year.

(J) Income Payments made by a government office, national or local, including barangays, or their attached agencies
or bodies, and government-owned or controlled corporations to its local/resident supplier of goods/services, other
than those covered by other rates of withholding tax. [formerly under letter (N)] – Income payments, except any single
purchase which is P10,000 and below, which are made by a government office, national or local, including barangays, or their
attached agencies or bodies, and government-owned or controlled corporations, on their purchases of goods and purchases of
services from local/resident suppliers:
Supplier of goods – One percent (1%)
Supplier of services – Two percent (2%)

A government-owned or controlled corporation shall withhold the tax in its capacity as a government-owned or controlled corporation
rather than as a corporation stated in Subsection (I) hereof.

(K) Tolling fees paid to refineries [formerly under letter (P)] – On the gross processing/tolling fees paid for the conversion of
molasses to its by-products and raw sugar to refined sugar. – Five percent (5%)

(L) Payments made by pre-need companies to funeral parlors [formerly under letter (Q)] – On the gross payments made by
pre-need companies to funeral parlors for funeral services rendered. – One percent (1%).

(M) Payments made to embalmers [formerly under letter (R)] – On the gross payments made to embalmers for embalming
services rendered to funeral companies. – One percent (1%)

(N) Income payments made to suppliers of agricultural products [formerly under letter (S)] – Income payments made to
agricultural suppliers such as those, but not limited to, payments made by hotels, restaurants, hotels, restaurants, resorts, caterers,
food processors, canneries, supermarkets, livestock, poultry, fish and marine product dealers, hardwares, factories, furniture shops,
and all other establishments, in excess of the cumulative amount of Three hundred thousand pesos (₱300,000.00) within the same
taxable year. - One percent (1%)

The term “agricultural suppliers” refers to suppliers/sellers of agricultural, forest and marine food and non-food products, livestock
and poultry of a kind generally used as, or yielding or producing of foods for human consumption; and breeding stock and genetic
materials therefor. “Livestock” shall include cow, bull and calf, pig, sheep, goat and other animals similar thereto. “Poultry” shall
include fowl, duck, goose, turkey and other animals similar thereto. “Marine products” shall include fish and crustacean such as but
not limited to, eel, trout, lobster, shrimp, prawn, oyster, mussel and clam, shell and other aquatic products.

Meat, fruit, fish, vegetable and other agricultural and marine food products, even if they have undergone the simple processes of
preparation or preservation for the market, such as freezing, drying, salting, smoking or stripping, including those using advanced
technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack and other similar packaging
method, shall still be covered by this subsection.

An agricultural food product shall include, but shall not be limited to the following: corn, coconut, copra, palay, cassava, coffee, etc.
Polished and/or husked rice, corn grits, locally produced raw cane sugar and ordinary salt shall be considered as agricultural food
products.

(O) Income payments on purchases of minerals, mineral products and quarry resources as defined and discussed in
Section 151 of the Tax Code [formerly under letter (T)] – Income payments on purchases of minerals, mineral products, and
quarry resources such as but not limited to silver, gold, marble, granite, gravel, sand, boulders and other materials/products. – Five
percent (5%). However, BSP is required to withhold one percent (1%) of gross payments made, and remit the same to the
Government.

13. FINAL TAX AND CGTAX Page 10 of 19

(P) MERALCO Payments on the following [formerly under letter (U)]: On gross amount of interest whether paid directly to the
customers or applied against customer’s billings: (1) Residential and General Service customers whose monthly electricity
consumption exceeds 200 kwh as classified by MERALCO – Ten percent (10%) (2) Non-residential customers – Ten percent (10%)

(Q) Interest income on the refund paid either through direct payment or application against customers’ billings by
other electric Distribution Utilities (DUs) in accordance with the rules embodied in ERC Resolution No. 8, Series of
2008, dated June 4, 2008, governing the refund of meter deposits … [formerly under letter (V)] - xxx xxx xxx xxx : On
gross amount of interest whether paid directly to the customers or applied against customer’s billings: (1) Residential and General
Service customers whose monthly electricity consumption exceeds 200 kwh as classified by the concerned DU – Ten percent (10%)
(2) Non-residential – Twenty percent (20%)

(R) Income payments made by political parties and candidates of local and national elections on all their purchase of
goods and services related to campaign expenditures, and income payments made by individuals or juridical persons
for their purchases of goods and services intended to be given as campaign contributions to political parties and
candidates [formerly under letter (X)] – Five percent (5%)

(S) Interest income derived from any other debt instruments not within the coverage of ‘deposit substitutes’ and
Revenue Regulations 14-2012, unless otherwise provided by law or regulations [formerly under letter (Y)] – Twenty
Percent (20%)

(T) Income payments to Real Estate Investment Trust (REIT) [formerly under letter (Z)] – Income payments made to
corporate taxpayers duly registered with the LTS-Regular LT Audit Division as REIT for purposes of availing the incentive provisions
of Republic Act No. 9856, otherwise known as “The Real Estate Investment Trust Act of 2009”, as implemented by RR 13-2011 - One
percent (1%)

(U) Income payments on sugar [formerly under letter (AA)] – applies to locally produced sugar which also subject to One percent
(1%) CWT.

Provided, finally, That, notwithstanding the presentation of proof of exemption from the payment of income tax (e.g. BIR ruling,
special law, etc.), the concerned proprietor, or operator of the sugar mill/refinery, or any buyer of Quedan or Molasses Storage
Certificate is still required to withhold and remit the creditable withholding tax

For purposes of these regulations, all income payments paid to sub-agents or their equivalent, whether paid directly or indirectly by
the agent or the owner of the goods, shall be subject to withholding tax in the same manner as that of the agent.

Note:
Any income subject to income tax may be subject to withholding tax; however, income exempt from income tax is consequently
exempt from withholding tax. Further, income not subject to withholding tax does not necessarily mean that it is not subject to
income tax.”

13. FINAL TAX AND CGTAX Page 11 of 19

 SOURCES OF INCOME
Situs – Place of taxation. It is the state or political unit which has jurisdiction to impose a particular tax. The state where the
subject to be taxed has a situs may rightfully levy and collect the tax. The situs is necessarily in the state which has jurisdiction or
which exercises dominion over the subject in question.

Factors to Consider in Determining Situs of Taxation

1. Subject matter ( person, property, or activity)
2. Nature of tax
3. Citizenship
4. Residence of the taxpayer
5. Sources of income
6. Place of exercise, business or occupation being taxed

Sources of Income Test of Source of Income

1. Income from services Place of performance
No. of days of performance in RP_________ x Compensation Received
No. of days of performance in RP and outside RP
2. Rent Location of property
3. Royalties Place of use of intangible
4. Gain on sale of real property Location of property
5. Gain on sale of personal property
purchased in one country and sold in another Place of sale
6. Gain on sale of foreign shares of stock Place of sale
Income within (shares of domestic corporation treated as derived entirely from
6. Gain on sale of domestic shares of stock sources within the Philippines regardless of where the said shares are sold)
7. Interest Residence of debtor
8. Mining Place where mine is located
9. Farming Place where farm is located

13. FINAL TAX AND CGTAX Page 12 of 19

 Source of income
Produced and sold within Within
Produced and sold without Without
Produced in whole/part within and Partly within and without
sold without
Produced in whole/part without Partly within and without
10. Manufacturing business*** and sold within
11. Dividend
a. From domestic company Income within
If ratio is:
(< 50%) Less than 50%, the entire dividend purely without the Philippines
( > 50%) At least 50%, the dividend income partly within and partly without the
b. From foreign company Philippines
From foreign corporation (based on the ratio of the gross income of the foreign corporation for the preceding 3 years prior to
declaration of dividends derived from Philippine sources):
Philippine Gross income (3 years) x Dividend
Income within = Total Gross income (3 years)

***MANUFACTURING BUSINESS: Computation of income within when independent factory or production price has not been
established:
Taxable income X Value of property, within
2 Value of property, within and without
Add: Xxx
Taxable income X Gross sales, within
2 Gross sales, within and without Xxx
Income within Xxx

Deductions of Taxpayer Whose Taxable Income is From Philippine Sources Only

Gross income within xxx
Less: Expenses, interest, losses and other deductions properly allocated to income within
Ratably portion of unallocated expenses, interest, etc
Phil. Gross income x Unallocated expenses
Total Gross income (xxx)
Net Income xxx

Dividend received may be:

Corporation:
Not Taxable/Exempt Final Tax Subject to year end tax
from Tax
1. Received by Received by non-resident corporation Received by domestic corporation from foreign
domestic corporation from domestic corporation 15% (tax corporation (included in gross income)
from another sparing credit) or 30% (no tax sparing
domestic corporation credit) Tax Sparing Credit
2. Received by 15% or 30%
resident foreign 15%/30%- if received from domestic Philippines USA
corporation from a corporation Investment
domestic corporation
30%- if NRFC does not allow a tax credit
or received from foreign corporation Dividend Taxable for
(predominance test, proportion in the Corporate tax 30% tax deemed paid 15%
Philippines)
Tax Credit (15%)
Notes: Final tax 15%
*NRFC- All passive income within the
Philippines is subject to 30% Final Tax (
except interest income and income under
expanded foreign currency deposit
system-EXEMPT)
** NRFC – Interest on foreign loans
subject to 20% Final Tax

Individual Taxpayer:
Final Tax
RC NRC RA NRA –Engaged
On dividend from Domestic Corporation and any entity Taxable
as Domestic Corporation 10% 10% 10% 20%
* Non-resident alien not engaged in business –All passive income within the Philippines is subject to 25% Final Tax (except
interest income received from a depository bank under expanded foreign currency deposit system – exempt)

What are the distinction between each of the three (3) modes submission of alphalist as prescribed by RR NO. 1-2104?
eFPS Attachment eSubmission Email Submission
Data entry and validation Yes Yes Yes
13. FINAL TAX AND CGTAX Page 13 of 19
module requirement
Who may avail of the 3
submission modes?
What is the specific manner of
submission of the alphalist?
Where will the aplhalist be
initallly lodged before it can be
successfully upload and stored
in the data warehouse, for
purposes of considering the
same as officially received by
the BIR?
Only taxpayers enrolled with
eFPS
Through eFPS as attachment
to the Annual Information
Return
Revenue DATA Center (RDC)
where the content of the
alphalist shall undergo an
automated validation process
All taxpayers whether or not
enrolled with EFPS or IAF
By email through a single
email address at esubmission
@bir.gov.ph
RDC where the content of the
alphalist shall undergo an
automated validation process
Taxpayers who are neither
enrolled with eFPS or IAF
By email at the dedicated
email address of the RDO
where the taxpayer is duly
registered.
RDC where the content of the
alphalist will undergo a manual
validation process prior to
uploading to the RDC for the
automated validation process.

Who are those mandated to use eFPS?

Those mandated are the following:
• Taxpayer Account Management Program (TAMP) Taxpayers (RR No. 10-2014)
• Accredited Importer and Prospective Importer required to secure the BIR-ICC & BIR-BCC
(RR No. 10-2014)
• National Government Agencies (NGAs) (RR No. 1-2013)
• All Licensed Local Contractors (RR No. 10-2012)
• Enterprises Enjoying Fiscal Incentives (PEZA, BOI, Various Zone Authorities, Etc.) (RR No. 1-2010)
• Top 5,000 Individual Taxpayers (RR No. 6-2009)
• Corporations with Paid-Up Capital Stock of P10 Million and above (RR No. 10-2007)
• Corporations with Complete Computerized Accounting System (CAS) (RR No. 10-2007)
• Procuring Government Agencies with respect to Withholding of VAT and Percentage Taxes
(RR No. 3-2005)
• Government Bidders (RR No. 3-2005)
• Insurance companies and Stock brokers (RMC No. 71-2004)
• Large Taxpayers (RR No. 2-2002, as amended)
• Top 20,000 Private Corporation (RR No. 2-98, as amended)
Who are those mandated to use eBIRForms and eFile?
RR 6-2014 mandates the use of eBIRForms as follows:
• ACCREDITED TAX AGENTS/ PRACTITIONERS & all its client-taxpayers who authorized them to file in their behalf
• ACCREDITED PRINTERS of Principal and Supplementary Receipts/Invoices
• One-Time Transaction (ONETT) taxpayers
• Those engaged in business, or those with mix income (both compensation and business income) who shall file a “NO
PAYMENT” Return (exception under RMC No. 12-2015)
• Government-Owned or Controlled Corporations (GOCCs)
• Local Government Units (LGUs), except barangays
• Cooperatives, registered with National Electrification Administration (NEA) and Local Water Utilities Administrations
(LWUA)

Use of Electronic BIR Forms : The eBIR Forms is an application covering thirty-six (36) BIR Forms Comprised of the following:
a. Income tax returns
b. VAT forms
c. Excise tax forms
d. Withholding tax forms
e. Donor’s tax forms
f. Estate tax forms
g. Documentary stamp tax forms
h. ONNET forms
i. Other forms as provided under RR 6-2014

Advantages of the use of eBIR Forms (RMO 24-2013)

a. Validate automatically the registration information indicated on the tax returns submitted by the taxpayers in the Integrated Tax
System (ITS) database of the BIR.
b. Prompt concerned revenue officials or employees on any discrepancies between registration submitted by the taxpayer and its
ITS database
c. Encourage concerned taxpayers to update their registration information with the BIR upon validation of tax returns submitted.

1. Electronic Filing and Payment System (EFPS) - refers to the system developed and maintained by the BIR for electronically
filing tax returns, including attachments, if any, and paying taxes due thereon, specifically through the internet

2. Filing Reference Number - refers to the control number issued by the EFPS to acknowledge that a tax return, including
attachments, has been successfully filed electronically. This shall serve as evidence of filing and the date of filing of the return

3. Confirmation number - refers to the control number issued by authorized agent bank (AAB) to the taxpayer and BIR to
acknowledge that the taxpayer's account has been successfully debited electronically in payment of his tax liability. This shall serve
as evidence of the fact of payment of the taxpayer's liability to the extent of the amount reflected in the Confirmation Number, and
the date of payment by the taxpayer

13. FINAL TAX AND CGTAX Page 14 of 19

4. Acknowledgement number - refers to the control number issued by the AAB to the BIR to confirm that tax payment has been
credited to the account of the government or recognized as revenue (internal revenue tax collection) by the Bureau of Treasury

A. e-filing and e-payment-

1. The return is deemed filed, on the date appearing in, and after a Filing Reference Number is generated and issued to the
taxpayer via the EFPS.
2. The tax due thereon is deemed paid after a Confirmation Number is issued to the taxpayer and to the BIR by the AAB.
3. In addition, an Acknowledgement Number shall be issued by the AAB to the BIR to confirm that the tax payment has been
credited to the account of the government or recognized as revenue (internal revenue tax collection) by the Bureau of Treasury.
(RR No. 9-2002)

B. e-filing and Manual payment –

1. The return is deemed filed, on the date appearing in, and after a filing reference is issued to the taxpayer via EFPS.
2. The print-out of the filing reference number shall be presented to the AABs for manual payment of the tax due thereon.
3. The payment thereof is received upon validation of the document containing the filing reference number generated by the EFPS
and the issuance of an official receipt by the AAB.

C. Date of Receipt of Return –

The receipt of the return occurs at the time it enters the EFPS and shall be evidenced by the date indicated in the filing reference
number.

The paper copy of the audited financial statements shall be filed within fifteen (15) days from the date of filing of BIR Form
No. 1702.

PROBLEMS

Problem 1: (Final Taxes) The following information are presented to you by a taxpayer who seeks your assistance in computing
the correct taxes:
Interest form Philippine peso bank P100,000
Yield from deposit substitute in the Philippines 200,000
Interest from bank deposit in Chase J.P Morgan Bank, USA 300,000
Prizes, Philippines 50,000
Interest form Philippines depository bank under EFCDS 80,000
Interest income from long term deposit, Philippines 90,000
Dividend form domestic corporation 150,000
Capital gain from sale of shares of stock not thru the local stock exchange 200,000

Based on the above data compute the final tax on passive income and the capital gains tax assuming the taxpayer is:
a. Resident citizen e. Domestic corporation
b. Non-resident citizen f. Resident foreign corporation
c. Non-resident alien doing business in the Philippines g. Non-resident foreign corporation
d. Non-resident alien not doing business in the Philippines

Problem 2: (Applicable tax)

Case 1: In 2016, ADB Finance (domestic corporation) purchased various equity securities from listed domestic corporations for
P100,000. ADB classified the securities as Trading Securities/FAFVPL under the applicable accounting standards. ADB received
P10,000 dividend income from such investments in 2017. Determine the applicable tax of ADB.

Case 2: In 2016, ADB Finance (domestic corporation) purchased various equity securities from listed domestic corporations for
P100,000. ADB classified the securities as Trading Securities/FAFVPL under the applicable accounting standards. ADB sold the
shares in 2017 for P150,000. Determine the applicable tax.

Case 3: In 2016, ADB Finance purchased equity securities from ABC Corporation (non-listed) for P100,000. ADB classified the
securities as Available for Sale Securities/FAFVOCI under the applicable accounting standards. ADB sold the shares in 2017 for
P150,000. Determine the applicable tax.

Case 4: In 2016, ADB Finance purchased debt securities from various companies (listed) for P100,000. ADB classified the securities
as Trading Securities/FAFVPL under the applicable accounting standards. ADB received interest income from those securities
amounting to P20,000. Determine the applicable tax.

Problem 3: (Dealer in securities ) A company sold 100,000 SMV equity shares for P1,000,000. The related costs of the said
securities are as follows:
Acquisition Cost P900,000
Brokerage Fee 40,000
Required:
1. If A Company is a dealer in securities and sold the securities through the stock market, the income tax due would be
2. If A Company is not a dealer in securities and sold the securities through the stock market, the stock transaction tax would
be
3. If A Company is not a dealer in securities and sold the securities directly to the buyer, capital gain tax would be
4. If A Company (Domestic Corporation) is not a dealer in securities a and sold the securities directly to the buyer, capital gain
tax would be
5. If A Company (Resident Foreign Corporation) is not a dealer in securities a and sold the securities directly to the buyer,
capital gain tax would be
13. FINAL TAX AND CGTAX Page 15 of 19
 6. If A Company (Nonresident Foreign Corporation) is not a dealer in securities a and sold the securities directly to the buyer,
capital gain tax would be

Problem 4: (Sale of Family Home ) Mr. S sold his family home costing, P1, 200, 000 for P3, 000, 000. He applied for tax
exemption. He spent P2, 000, 000 for the construction of his new residential home
Required: Compute the following
1. If the tax exemption was granted, how much is the capital gains tax?
2. Based on No. 1, how much is the basis of the new residential home?
3. If the tax exemption was not granted, how much is the capital gains tax?
4. Based on No. 3, how much is the basis of the new residential home?

Problem 5 : (Disposition to the Philippine Government) ABC Corporation had a net income from business operations of P200,000
before considering a capital gain of P1,000,000 on a sale of land to the National Government of the Philippines (Selling price of P6M, FMV is
P5.5M and cost of P5M). Using the best alternative available to minimize taxes.
a. Assuming ABC Corporation (Domestic), how much is the total tax liability for the year 20X1?
b. Assuming ABC Corporation (Resident foreign), how much is the total tax liability for the year 20X1?
c. Assuming ABC Corporation (Non-resident foreign), how much is the total tax liability for the year 20X1?

Problem 5: (Informer's Reward) X, a first cousin of B (an RDO), provided an information to the BIR leading to a discovery of a
tax fraud amounting to P9,000,000. How much is the amount of net cash rewards that can be received by X from the government?

Problem 6: (Sale of capital/ordinary asset) Mr. A sold 500 square meter land for P3,000,000. The value as determined by the
Commissioner of Internal Revenue is P300 per square meter, while the market value in the tax declaration is P2,200,000.

Compute for the income tax and the nature of the tax if:
a. The land is a capital asset
b. The land is an ordinary asset and Mr. A is habitually engaged in real estate business
c. The land is an ordinary asset and the seller is not habitually engaged in real estate business.

Problem 7: (Sources of Income) The records of a taxpayer Domestic Corporation shown below:
Gross income P10000,000
Expenses connected therewith 7,000,000
Other income:
Dividend from domestic corporations:
60% of its income came from the Philippine source 200,000
40% of its income came from the Philippine source 100,000
Dividend from resident foreign corporations:
60% of its income came from the Philippine source 160,000
40% of its income came from the Philippine source 80,000
Dividend from a non-resident foreign corporation 40,000
The taxable income is

Problem 7: (Situs of Taxation) Indicate whether the following income of the taxpayer is subject to income tax or not.
INCOME RC RA, NRC NRA(ETB) NRA(NETB)
1. Rent on apartment in the Phils.
2. Rent on apartment in Canada
3. Dividend-domestic corporation
4. Dividend-foreign corporation
5. Lotto winnings in the Phils.
6. Lotto winnings in U.S.A.
7. Cash prize on contest, Phils.
8. Cash prize on contest, U.S.A.
9. Interest, bank deposit in U.S.A.
10. Interest bank deposit – Phils.

Problem 8: (Predominance Test) Mr. Araki, a non-resident alien stockholder, receives a dividend income of P300,000 in 20x7
from a foreign corporation doing business in the Philippines. The gross income of the foreign corporation from within and without the
Philippines for three years preceding are as follows:
20x4 20x5 20x6
From within the Philippines P16,000,000 P12,000,000 P14,000,000
From without the Philippines 18,000,000 14,000,000 16,000,000

How much of the dividend income received by Mr. Araki is considered income from sources within the Philippines?

Problem 9: (Cash/Property Dividend) BBB, Inc. a domestic corporation enjoyed a particularly year in 2015. In June 2016, its
Board of Directors approved the distribution of cash dividends to its stockholders. BBB, Inc. has individual and corporate
stockholders. What is the tax treatment of the cash dividends received from BBB, Inc. by the following stockholders.
a) American citizen. (2015, date and paraphrasing supplied)

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A final withholding tax for ten percent (10%) shall be imposed upon the cash dividends actually or constructively received by an
individual resident alien from BBB, Inc. a domestic corporation. [NIRC of 1997, Sec. 24 (B) (2)]

b) Non-resident alien engaged in trade or business. (2015, date and paraphrasing supplied)

A final withholding tax of twenty percent (20%) shall be imposed upon the cash dividends actually or constructively received by a
non-resident alien engaged in trade or business from BBB, Inc. a domestic corporation. [NIRC of 1997, Sec. 25 (A)(2)]

c) Non-resident alien not engaged in trade or business. (2015, date and paraphrasing supplied)

A final withholding tax equal to twenty-five percent (25%) of the entire income received from all sources within the Philippines,
including the cash dividends received from BBB, Inc. (NIRC of 1997, Sec. 25 (B), NIRC)

d) Domestic corporation. (2015, date and paraphrasing applied)

Dividends received by a domestic corporation from another domestic corporation, such as BBB, Inc. shall not be subject to tax.
(NIRC of 1997, Sec. 27 (D)(4))

e) Non-resident foreign corporation. (2015, date and paraphrasing supplied)

Dividends received by a non-resident foreign corporation are generally subject to an income tax of 30% to be withheld at source.
[NIRC of 1997, Sec. 28 (B)(1), as amended by Rep. Act. No. 9337]

However, a final withholding tax of fifteen percent (15%) is imposed on the amount of cash dividends received from a domestic
corporation like BBB, Inc. if the country in which the non-resident foreign corporation is domiciled would allow as tax credit against
the tax due from it, taxes deemed paid in the Philippines of 15% representing the difference between the 30% regular income tax
rate and the 15% preferential rate. [NIRC of 1997, Sec. 28 (B)(5)(b), as amended by Rep. Act 9337]

Problem 10: (Pioneer Industry) MGC Corp. secured an income tax holiday for 5 years as a pioneer industry. On the fourth year
of the tax holiday, MGC Corp. declared and paid cash dividends to its stockholders, all of whom are individuals. Are the dividends
taxable?
(A) The dividends are taxable; the tax exemption of MGC Corp. does not extend to its stockholders.
(B) The dividends are tax exempt because of MGC Corp.’s income tax holiday.
(C) The dividends are taxable if they exceed 50% of MGC Corp.’s retained earnings.
(D) The dividends are exempt if paid before the end of MGC Corp’s fiscal year. (2013)

SUGGESTED ANSWER: (A) The dividends are taxable; the tax exemption of MGC Corp. does not extend to its stockholders. (Sunio
vs. NLRC, G.R. No. L-57767, January 31, 1984)

Problem 11: (Stock Dividend) May a stock dividend constitute taxable income to the shareholder who receives it?
Why?

No. Stock dividends are unrealized gains and cannot be subject to income tax until the gains have been realized. Stock dividends
represent capital and do not constitute income to its recipient. The mere issuance thereof is not subject to income tax as they are
nothing but an “enrichment through increase in value of capital investment.”
As capital, stock dividends postpone the realization of profits because the “fund represented by the new stock has been transferred
from surplus to capital and no longer available for actual distribution.”
Before realization, stock dividends are nothing but a representation of an interest in the corporate properties. As capital, it is not yet
subject to income tax. (Commissioner of Internal Revenue v. Court of Appeals, et. al., G.R. No. 108576, January 20, 1999)

Problem 12: (Stock Dividend) On 03 January 2015, a Filipino citizen residing in the Philippines, purchased one hundred (100)
shares in the capital stock of Y Corporation, a domestic corporation. On 03 January 2017, Y Corporation declared, out of the profits
of the company earned after 01 January 2017, a hundred percent (100%) stock dividends on all stockholders of record as of 31
December 2016 as a result of which X holding in Y Corporation became two hundred (200) shares. Are the stock dividends received
by Y subject to income tax? Explain.

The stock dividend declared under the circumstances obtaining in the problem may or may not be the subject of income taxation.
As a general rule, stock dividend representing the transfer of surplus to capital account shall not be subject to tax. [NIRC of 1997,
Sec. 73 (B), 1st sentence]

Where stock dividends are given as returns on investment, the dividends are subject to tax when the distribution results in changes
in the proportionate interest of the stockholder. (Rev. Regs. No. 2, Sec. 252)

It appears in the problem that the stock dividends were given only to stockholders of record as of 31 December 2016. If all the
stockholders are stockholders as of said date, then there would be no proportionate change in ownership, hence not taxable. If not
all are stockholders of record as of 31 December 2026, then the declaration of the stock dividends would result in disproportionate
change in ownership. In such a case, the stock dividend declaration would be taxable.

Problem 13: (Liquidating Dividend) ABC Corp. was dissolved and liquidating dividends were declared and paid to the
stockholders. What tax consequence follows?
a. ABC Corp. should deduct a final tax of 10% from the dividends.
b. The stockholders should declare their gain from their investment and pay income tax at the ordinary rates.
c. The dividends are exempt from tax.
d. ABC Corp. should withhold a 10% creditable tax.

Problem 14: Which of the following holds true as to date?

I. Submission of hard or physical copies of alphalists is no longer allowed.
II. Unutilized creditable input taxes attributable to zero-rated sales can only be recovered through application for refund or tax
credit.

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III. Once an electronic Letter of Authority or any other notice of audit is received, taxpayers are barred from making amendments.
IV. In all principal and supplementary receipts/invoice which can still be used until October 31, 2013, the term “valid until October
31, 2013 only” shall be stamped prominently on the face of the receipts or invoices.
I II III IV
a. Yes Yes No Yes
b. Yes Yes Yes Yes
c. Yes No No No
d. No Yes No No

MULTIPLE CHOICE
1. Under this system, the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the
income tax due from the payee on the said income.
a. Creditable withholding tax c. Global tax system
b. Final withholding tax d. Schedular tax system

2. Under this system, taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the
payee on said income.
a. Creditable withholding tax c. Global tax system
b. Final withholding tax d. Schedular tax system

3. Which of the following statements is not correct?

a. Creditable withholding tax may refer to withholding tax on compensation or to withholding of business tax.
b. The withholding tax on business may refer either to VAT or to Percentage Tax.
c. Withholding tax on compensation may also refer to expanded withholding tax.
d. Creditable withholding tax is the other term for final withholding tax.

4. Withholding taxes are the primary liability of the

a. Earner or payee of income
b. Payor of income
c. Payee and payor of income
d. Collecitng agency of the government.

5. XYZ is one of the Philippines registered top 20,000 private corporation. As the company’s accountant you where tasked to
account for all payments made local/resident suppliers. What percentage of withholding tax rates of income payments made by top
20,000 private corporations to their local/resident suppliers of goods?
a. 1% of the gross payments
b. 2% of the gross payments
c. 3% of the gross payments
d. 4% of the gross payments

6. Macky a non-stock and non-profit charitable institution pays for its regular repairs and maintenance of its facilities to Carmel
Manpower Service. As the accountant of the exempt entity, how much withholding tax will you impose to its supplier (Carmel) for the
repairs and maintenance expense?
a. Exempt from withholding tax
b. 1 % withholding tax on its gross payment
c. 2% withholding tax on its gross payment
d. 5 % withholding tax on its gross payment

7. ABC Domestic Corporation hired Velayo, Gorres and Santos accounting firm to conduct its annual audit for the year 2017. Ayer
Corporation paid VGS & Co., an engagement fee equivalent to Php 100 Million. Such payment to VGS & Co. shall be:
a. Exempt from withholding tax
b. Subject to 1 % withholding tax on its gross payment
c. Subject to 2 % withholding tax on its gross payment
d. Subject to 5 % withholding tax on its gross payment

8. Not subject to creditable withholding tax.

a. Rental of real property used in business.
b. Management and technical consultants
c. Lawyers
d. Sale of real property capital assets.

9. ACCNTNT Reyes is an accountant of a government agency. On the payments to suppliers of goods and services, which tax is not
required to be withheld by their agency?
a. Income tax on possible income of the supplier.
b. VAT on all income payments subject to VAT.
c. Percentage tax on all payments subject to percentage tax.
d. Documentary stamp tax on documentary stamps to be attached to the vouchers.

10.. A person or entity who is considered as a withholding agent is required to perform the following duties and obligations, except:
a. To remit the creditable withholding taxes withheld within 10 days after the end of every month.
b. To deduct tax from all money payments subject to withholding tax.
c. To furnish withholding tax certificates to recipient of income payments subject to withholding.
d. To register the taxpayer with the proper office of the Bureau of Internal Revenue.

Items 11 through 12 are based on the following information:

11. Miss May believes in the honesty and capability of mayoralty candidate Cora P. Tu, to lead their town. She, therefore, donated
P100,000 cash to help her admired candidate win in the May 2017 elections.

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QI: Is the donation subject to income tax on Cora Tu?
Q2: Is Miss May required to withhold the 5% creditable withholding tax on the donation?

1ST Question 2nd Question

a. Yes Yes
b. Yes No
c. No No
d. No Yes

12. In the preceding question suppose Miss May decides to use the P100,000 in purchasing campaign materials from Nakamura
Merchandise for candidate Tu, what will be the consequence of this action of Miss May?
The payment constitutes a donation subject to donor's tax
a. The payment constitutes a donation subject to donor's tax
b. The payment is considered as an income of candidate Tu.
c. The payment is subject to 5% creditable withholding tax to be withheld by candidate Tu.
d. The payment is subject to 5% creditable withholding tax which can be claimed as tax credit by Nakamura Merchandise.

13. The Board of Directors of ABC Corporation received a subpoena from the Department of justice involving tax fraud. The
Chairman of the Board summon you to attend the regular Board of Directors meeting to address whose signature must appear
before a withholding tax returns and consequently be held imprisoned in case of fraud?
a. President and Treasurer
b. Treasurer and Corporate Secretary
c. Corporate Secretary and Internal Auditor
d. Internal Auditor and Comptroller

14. Any person required to file a tax return, statement or document shall be registered and assigned a TIN. What does TIN mean?
a. Tax information number
b. Temporary identification number
c. Tax informer number
d. Tax identification number

15. Which among the following taxpayers is required to use only the calendar year for tax purposes?
a. Partnership exclusively for the design of government infrastructure projects considered as practice of civil engineering.
b. Joint stock company formed for the purpose of undertaking constructions projects.
c. Business partnership engaged in energy operations under a service contract with the government
d. Joint account (cuentas en participation) engaged in the trading of mineral ores.

Items 16 through 17 are based on the following information: A taxpayer received the following income:
• Interest income from a local bank
• Dividend from a resident foreign corporation
• Dividend from a domestic corporation
16. Assuming the recipient is an individual taxpayer, should the income be included in his annual ITR?
a. No, both income are subject to final tax
b. Yes, both income are subject to regular income tax, hence, included in the ITR
c. Yes, but only the dividend from a resident foreign corporation shall be included in his annual ITR.
d. None of the choices

17. Assuming the recipient is a domestic corporation, should the income be included in its annual ITR?
a. No, both income are subject to final tax
b. Yes, both income are subject to regular income tax, hence, included in the ITR
c. Yes, but only the dividend from a resident foreign corporation shall be included in his annual ITR.
d. None of the choices

18. Interest income of a domestic commercial bank derived from a peso loan to a domestic corporation in 2016 is:
a. Subject to the 30% income tax based on its net taxable income;
b. Subject to the 20% final withholding tax;
c. Subject to the 7.5% final withholding tax;
d. Subject to 10% final withholding tax.

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