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• Income means all wealth which flows into the taxpayer other than a
mere return of capital. Income is a gain derived from:
• The use or employment of labor or capital, or both labor and capital; and/or
• From the sale of other disposition of assets or property (both ordinary and
capital).
Income Distinguish From “Capital”
• For income tax purposes, the word “source” refers to the activity, or
property, or labor that gave rise or produced the income.
• Based on source, income is classified as follows:
• Income from sources within the Philippines;
• Income from sources without the Philippines; and
• Income from sources partly within and partly without the Philippines.
How to Determine Income Within and Income
Without
Income Test Source of Income
1. Interest income Residence of the debtor
2. Income from services Place of performance
3. Rent Location of property
4. Royalty Place of use of intangible
5. Gain on sale of real Location of property
property
6. Gain on sale of personal Place of sale
property purchased in one
country and sold in another
How to Determine Income Within and Income
Without
Income Test Source of Income
7. Dividend
A. From Domestic Corporation Income within
B. From Foreign Corporation 1) Income within, if 50% or more of the gross
income of the foreign corporation for the
preceding three (3) years prior to the
declaration of dividend or for such part of
such period as the corporation has been in
existence, was derived from sources within
the Philippines.
• The situs of the income is the place of taxation of the income or the
country which has jurisdiction to impose the tax. For income tax
purposes, income may be taxed in one or more or all of the following
places or countries –
• The place where the taxpayer is a citizen;
• The place where the taxpayer is a resident; and
• The place where the income is earned or derived.
Income Tax System of the Philippines
Exc. NRANETB
• Resident Citizen
Under Sec. 1, Art IV of the 1987 Constitution, the following are citizens
of the Philippines:
1. Those who are citizens at the time of the adoption of the 1987
Constitution; or
2. Those whose fathers and mothers are citizens; or
3. Those born before January 17, 1973 of Filipino mothers, and who
elect Philippine citizenship upon reaching majority age; or
4. Those who are naturalized in accordance with law;
5. AND whose residence is within the Philippines
General Categories of Individual Taxpayers
• Non-resident citizen
• Citizen who establishes the fact of his physical presence abroad with a
definite intention to reside therein;
• Citizen who leaves for abroad either as an immigrant, or for employment on a
permanent basis;
• Citizen who derives income from abroad which requires him to be physically
present abroad most of the time (≥183 days) during the year (Sec. 22(E))
General Categories of Individual Taxpayers
• Resident Alien
• Not a citizen but whose residence is within the Philippines.
• Not a mere transient or sojourner as determined by his intention regarding
the nature and length of stay.
General Categories of Individual Taxpayers
• Non-resident alien (NRA)
• Not a citizen, not a resident of the Philippines
• Engaged in Trade or Business (ETD)
• If stay in the Philippines is for >180 days during the year
• Not Engaged in Trade or Business (NETD)
• If stay in the Philippines is for ≤180 days during the year (Sec 25(A)(1))
General Categories of Individual Taxpayers
• Overseas Contract Worker (OCW)
• Citizen working or deriving income from abroad. Must be registered with the
Philippine Overseas Employment Administration (POEA);
• Seaman who is a citizen and works as a member of the complement of a
vessel engaged exclusively in international trade (Sec 22(F))
General Categories of Individual Taxpayers
• Special Individual taxpayer
• Non-resident alien cinematographic film owner, lessor, or distributor
• Subcontractor, whether citizen, resident alien, or NRAETB, of service
contractor engaged in petroleum operations
• Filipinos registered with the BOI availing Income Tax Holiday (ITH)
• PEZA-registered individuals availing of ITH incentive
• PEZA- registered individuals availing of 5% gross income tax (GIT) incentives
• Individual registered as a Barangay Micro Business Enterprise (BMBE)
General Categories of Individual Taxpayers
• Minimum Wage Earners (MWEs)
• Worker, whether in the public or private sector, who paid not more than the
statutory wage (Sec. 22 (HH))
• A non-resident citizen who arrives in the Philippines at any time
during the taxable year to reside permanently in the Philippines shall
be treated as a non-resident citizen for the taxable year in which he
arrives in the Philippines with respect to his income from sources
abroad until the date of his arrival in the Philippines.
• “Trade or business” includes functions of public office, performance
of personal services, but does not include performance of services as
an employee.
Returnable Income
Individual Taxpayer Sources of Type of Tax Base Tax Rate
Taxable Income Returnable
Income
1. Resident Citizen Within and Compensation Taxable Graduated Rates
Without the Income Compensation
Philippines Income
2. Non-resident Within the Income from Gross Income less Graduated Rates
citizen Philippines Business, Trade Deductions
3. OCWs/OFWs Within the or Practice of
Philippines Profession OR Gross 8%
4. Resident Alien Within the Sales/Receipts
Philippines Plus Non-
operating Income
5. Non-resident Within the
alien ETB Philippines
6. Non-resident Within the Gross Income 25%
alien NETB Philippines
Tax Rates: January 1, 2018 to December 31,
2022
Range of Taxable Income (TI) Tax Due = a + [b x (TI - c)]
Over Not Over Basic Amount Additional Rate Of Excess Over
(a) (b) (c)
- 250,000 - -
250,000 400,000 - 20% 250,000
400,000 800,000 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 - 2,410,000 35% 8,000,000
Tax Rates: Effective January 1, 2023 onwards
• Gross sales, for the purpose of the 8% income tax, shall be the total sales,
net of VAT, and net of the following deduction: 1) sales return and
allowances; and 2) discounts determined and granted at the time of sale.
• Gross receipts, for the purpose of the 8% income tax, refers to the total
amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged
for materials supplied with the services, and deposits and advance
payments, actually or constructively received during the taxable period for
the service performed or to be performed for another person, except for
returnable security deposits. In the case of a VAT taxpayer, this shall
exclude the VAT. (RR 8-2018)