MODULE 9

CERTAIN PASSIVE INCOMES

Individual taxpayers are also subject to final tax on certain passive income.

A final tax at the rate prescribed below is imposed upon the amount of the
following items of gross income received, among others, by an individual from sources
within the Philippines:

1. Interest from any, including foreign currency, currency bank deposit and yield or
any other monetary benefit from deposit substitutes and from trust funds and
similar arrangements (except from long term deposits or investments); royalties;
literary works and musical compositions; prizes and other winnings except lotto
and other PCSO winnings

2. Cash and property dividends received from a domestic corporation and regional
operating headquarters of multi-national companies, or the share of an individual
partner in the distributable net income after tax in the business partnership or the
share of a member in the net income after tax of an association, joint venture or
consortium subject to tax under section 27(a) of the Tax Code as a corporation.

3. Capital gains from sales of shares of stocks

4. Capital gains from shares of real properties. Capital gains presumed to have
been realized from the sale, exchange or other disposition of real property
located in the Philippines classified as capital assets, including pacto de retro
sales and other forms of conditional sales, by individuals, including estates and
trusts, are taxed at the rate of 6% based on the gross selling price or the current
fair market value, whichever is higher. Capital gain is derived from sale or
exchange of capital assets which exclude all property classified by law as
ordinary assets.

Examples of Ordinary Assets – stock in trade of the tax payer, property held by
him primarily for sale to customers, property used in trade or business and
subject to depreciation and real property used in trade or business.

MEANING OF TAX RETURN

The tax return is the sworn statement or declaration excluded in accordance with
law on a required form wherein the taxpayer states the facts as to the nature and extent
of his/its tax liability for a taxable year including the computation of the tax due.

INDIVIDUALS REQUIRED TO FILE INCOME TAX RETURN

 Under the Tax Code, the following individuals, except otherwise provided, are
required to file an income tax return covering all taxable income earned for the
preceding year:

1. Every resident citizen, regardless of the source of his income, within or outside
the Philippines;
2. Every non-resident citizen, on his income from sources within the Philippines;
3. Every resident alien, on his income from sources within the Philippines; and
4. Every non-resident alien engaged in trade or business or in the exercise of
profession in the Philippines, as to his income from sources within the
Philippines.

Remember, the sources of income may be within the Philippines; without or outside
the Philippines; or partly within and partly outside the Philippines.

INDIVIDUALS NOT REQUIRED TO FILE INCOME TAX RETURN

The following individuals are not required to file an income tax return (ITR):

1. An individual whose gross income does not exceed his total personal and
additional exemptions for dependents. However, a citizen of the Philippines and
any alien individual engaged in business or practice of profession within the
Philippines, shall file an income tax return, regardless of the amount of gross
income
2. An individual earning pure compensation income, but not exceeding P60,000.00,
from one employer, the income tax on which has already been correctly withheld.
3. Regardless of the amount of income, the following individuals are not also
required to file an income tax return since the final income tax imposed therein is
to be withheld by the payor-corporation and/or person and paid to the BIR:

a.) Individuals whose income consists solely of royalties, interests, prizes,

winnings, royalties, dividend, etc. and share of individual person in a business
partnership or association, joint venture or consortium taxable as a
corporation;
b.) Alien employed by regional or area headquarters and regional operating
headquarters of multi-national corporations with respect to compensation
income;
c.) Aliens employed by offshore banking units with respect to compensation
income; and
d.) Aliens employed by foreign service contractors and subcontractors engaged
in petroleum exploration in the Philippines with respect to compensation
income.

FILING OF IDIVIDUAL INCOME TAX RETURN

 When to file – The return, covering income of the preceding taxable year, shall
be filed on or before April 15 of each year or in meritorious cases, within the extension
which may be granted by the BIR.

Individual engaged in trade or business or the practice of a profession, are

required to file the 1 st, 2nd and 3rd quarter return on or before April 15, August 15 and
November 15, respectively.

With respect to individuals subject to tax on capital gains, the return shall be filed
as follows:

a.) Gains from the sale or exchange of shares of stock not traded through the
local stock exchange, within 30 days after each transaction and a final
consolidated return on or before April 15 of each year covering all stock
transactions of the preceding taxable year; and
b.) Gains from the sale or disposition of real property, within 30 days following
each sale or other disposition. When the date falls on a Saturday, Sunday or
a holiday, the due date falls on the next business day.

Where to file – the return shall be filed in triplicate copies, 2 copies for the
bank/BIR and 1 copy for the taxpayer.

Legal residence is the address where the tax payer normally resides, and
principal place of business is the place where the main business activity of the
taxpayer in conducted. For individuals practicing their profession, this refers to
the place where their main office is located.

An employee tax payer can file his return with the revenue office with jurisdiction
over his place of work or employment.

PAYMENT OF INDIVIDUAL INCOME TAX

When and where – the income tax is paid by the person subject thereto at the
time the return is filed. This is called the “pay as you file” system. The last day for the
payment of income tax coincide s with the last day for the filing of the return.

The tax is paid at the place where the return is filed.