TAXATION

TAX RATES FOR INDIVIDUAL TAXPAYERS, ESTATES AND TRUSTS

1. Sec. 24 (A) – 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
P10,000 5% -
P10,000 30,000 P500 10% P10,000
30,000 P70,000 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 20%
c. Yield or any other monetary benefit from trust funds and similar arrangements 20%
d. Royalties, in general 20%
e. Prizes (except prized amounting to P10,000 or less which shall be subject to tax 20%
under Sec 24 (A))
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 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 NAR–NETB

a. Interest income received from a depositary bank under 7½% Exempt* Exempt*
expanded foreign currency deposit system
b. Interest income from long-term deposit or investment Exempt Exempt 25%
evidenced by certificates prescribed by BPS
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

Cash and/or Property Dividends 10% 20% 25%

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
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 (beginning January 1, 2000)
b. Share of an individual in the distributable net 10% 20% 25%
income after tax of PARTNERSHIP (other than a
general professional partnership) of which he is a
partner (beginning January 1, 2000)
c. Share of an individual in the net income after tax 10% 20% 25%
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, 2000)

4.) Exercise: 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 US dollar bank deposit, BPI-Makati
3.) Interest from Japanese yen bank deposit, Sumitomo Bank, Japan
4.) Interest from USA dollar bank, deposit, First USA Bank, New York
5.) Interest from money market placement, PCIB Investment House
6.) Interest from overdue accounts receivable, Philippines
7.) Royalties, in general, Manila
8.) Royalties, books published in Manila
9.) Prize amounting to P30,000, Philippines
10.) Prize amounting to P10,000, Philippines
11.) Prize amounting to P40,000, USA
12.) Winnings amounting to P30,000, Philippines
13.) Winnings amounting to P10,000, Philippines
14.) USA Sweepstakes winnings
15.) Philippine Lotto winnings
16.) Interest received from depository bank under expanded foreign
currency deposit system
17.) Interest income from long-term deposit or investment
evidenced by certificates issued by BSP
18.) Dividend from a domestic corporation received on April 15,
2006
19.) Share in distributive net income of local business partnership
received on May 15, 2006
20.) Share in net income after tax of an association, a joint account,
or a joint venture or consortium received on August 15, 2006
21.) Share in the net income of a general professional partnership
22.) Dividend from a foreign corporation
23.) Interest income received by NONRESIDENT CITIZEN individual
from a depository bank under expanded foreign currency deposit
system
24.) Interest income received by a NONRESIDENT CITIZEN individual
from a depository bank under expanded foreign currency deposit
system.
25.) Dividend received by a NONRESIDENT ALIEN not engage in
business in the Philippines from a domestic corporation
26.) Dividend received by a NONRESIDENDT ALIEN engaged in trade
in the Philippines from a domestic corporation

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
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 b. Sec. 24 (D) – Capital Gains from Sale of Real Tax base: Gross selling price or fair
Property Classified as Capital Asset (Located market
in the Philippines) value whichever is higher
Tax rate: 6%
Real property is sold to the government or any Tax due: 6% capital gains tax or Sec. 24
political subdivisions or agencies or GOCC’s (A)
c. Exception from 6% capital gains tax
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 6% capital gains tax otherwise due on the presumed
capital gains derived from the sale, exchange or disposition of
his principal residence 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/transferor and the AAB to the effect that the amount so
deposited, including its interest yield shall only be released to
such seller/transferor upon certification by the said RDO that
the proceeds of sale or disposition thereof has, in fact, been
utilized in the acquisition or construction of the
seller/transferor’s new principal residence within 18 calendar
months from the date of the said sale or disposition.
3.) Carry over of historical The historical cost or adjusted basis of the real property sold
cost or disposed shall be carried over the new principal residence
built or acquired.
4.) Computation for the Historical cost of old principal residence xxx
basis of the new Add: Additional cost to acquire new principal residence xxx*
principal 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
5.) 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
exception.
6.) Exemption once every 10 The tax exemption can only be availed of once every 10 years.
years
7.) Taxable portion if no full If there is no fun utilization of the proceeds of sale or
utilization of proceeds disposition, 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 computed as follows:
Utilized portion x Tax base
Gross selling price

8.) Exercises
a. An individual taxpayer holds shares of stock as investment. During the current year, he sold the
shares he bought for P100,000 for P180,000 directly to a buyer. How much is the capital gains tax on
the sale if any?

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 b. An individual taxpayer holds shares of stock as investment which he bought for P500,000. During
the current year, he sold it directly to a buyer for P750,000. How much is the capital gains tax on the
sale, if any?

c. An individual taxpayer invested P300,000 in the common shares of SMC Corp. during the current
year, he sold these shares directly to a buyer for P250,000. How much is the capital gains tax on the
sale, if any?

d. During the year 2009,, Ms. Kat Antonio sold her vacation house for P500,000. She acquired it for
P700,000 two (2) years ago. The fair market value of the vacation house at the time of sale was
P800,000. Ms. Antonio was going to use the proceeds to build her new principal residence within
eighteen (18) months after informing BIR within thirty (30) days of such intention. How much is the
capital gain tax, if any?

e. Mr. C. Avenido acquired his principal residence in 2004 at a cost of P1,000,000. He sold the said
property on January 1, 2006, with a fair market value of P5,000,000 for a consideration of
P4,000,000. Within the 18-month reglementary period he purchased his new principal residence at
cost of P7,000,000.
Question 1 – How much is the capital gains tax due?
2 – How much is the basis of the new principal residence?

f. Using the same data in letter d, if for example, Mr. Avenido acquired his new principal residence
within the 18-month reglementary period but did not utilize the entire proceeds of the sale in
acquiring his new principal residence because he only used P3,000,000 thereof in acquiring his new
principal residence.
Question 1 – How much is the capital gains tax?
2 – How much is the basis of the new principal residence?

4. Tax Rates for Special Aliens and their Filipino Counterparts

Person Subject to Tax Tax Rate
Sec. 25 (C) Alien Individual Employed by 15% of gross income within Philippines
Regional or Area Headquarters and (same tax treatment of Filipinos employed
Regional Operating Headquarters and occupying managerial and technical
of Multinational Companies positions similar to those occupied by aliens
employed by these multinational
companies).
Sec. 25 (D) Alien Individual Employed by 15% of gross income within the Philippines
Offshore Banking Units (same tax treatment to Filipinos employed
and occupying managerial and technical
positions similar to those occupied by aliens
employed by theses offshore banking units).
Sec. 25 (E) Alien Individual Employed by 15% of gross income within the Philippines
Foreign Petroleum Service (same tax treatment to Filipinos employed
Contractor and Subcontractor and occupying the same position as those
aliens who are permanent residents of a
foreign country but who are employed by
petroleum service contractor and
subcontractor in the Philippines).

5. Exercises
a. A married resident citizen has four (4) qualified dependent children. He has the following data on
income and expenses for the year 2009:
Salary, Philippines, gross of withholding tax of P5,000 P60,000
Gross business income, Philippines 500,000
Business expenses, Philippines 180,000
Gross business income, USA 900,000
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 Business expenses, USA 300,000
Interest income from bank deposit, Philippines 50,000
Interest income from bank deposit, USA 70,000
Royalty on book published in the Philippines 100,000
Prize in a contest he joined in the Philippines 5,000
Gain from sale of shares stock not traded through the local stock exchange 150,000
Dividend received from a domestic corporation 40,000
Tax payments, first three (3) quarters 100,000

Question 1 – How much is the taxable net income in the Philippines?

2 – How much is the tax payable after deducting the allowable tax credits and payments?
3 – How much is the total final tax on certain passive income?
4 – How much is the capital gains tax?

b. A resident alien individual with three qualified dependent adopted children asked you to assist him in
the preparation of his tax return for his income in 2009. He provided you the following information:
Gross business income, Philippines P1,000,000
Gross business income, Japan 5,000,000
Business expenses, Philippines 200,000
Business expenses, Japan 800,000
Philippine Charity Sweepstakes winnings 500,000
Japanese Sweepstakes winnings 400,000
Interest income, Bank of Tokyo, Japan 100,000
Expanded Foreign Currency Deposit System (EFDS), Philippines 300,000
Interest on peso bank deposit, Philippines 100,000
Quarterly income taxes paid 50,000

Question 1 – How much was the taxable net income?

2 – How much was the tax due after deducting the quarterly tax payments?
3 – How much was the final tax on passive income?

c. An expatriate employed by an offshore banking unit in the Philippines has the following data for the
year 2009:
Salaries received from the OBU P15,000,000
Allowances received from OBU 5,000,000
Interest on pesos bank deposit, Philippines 100,000
Gain from sale of shares of stock not traded through the local stock 50,000
exchange

How much is tax to be withheld from the above income of the expatriate?

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