exclusions of individuals in the philippines (updated 2014)

8/13/2019 Exclusions of Individuals in the Philippines (Updated 2014)

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TAXN01G Group 2) xclusions from Gross Income


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RECAP: Gross IncomeChapter VI Section 32 A

Except when otherwise provided in this Title,gross income means all income derived fromwhatever source, including (but not limitedto) the following items:


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RECAP: Gross Income

1. Compensation forservices in whateverform paid, including,but not limited tofees, salaries, wages,commissions, andsimilar items;

2. Gross income derivedfrom the conduct oftrade or business or

the exercise of aprofession;

3. Gains derived fromdealings in property;

4. Interests;

5. Rents;

6. Royalties;

7. Dividends;

8. Annuities;

9. Prizes and winnings;

10.Pensions; and

11.Partner's distributive

share from the netincome of the generalprofessionalpartnership.


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NIRCNational InternalRevenue Code (R.A. 8424)

Tax Reformation Act of 1997 STATE POLICY. It is hereby declared the policy of the State to promote

sustainable economic growth through the rationalization of thePhilippine internal revenue tax system, including tax administration; to

provide, as much as possible, an equitable relief to a greater number oftaxpayers in order to improve levels of disposable income and increaseeconomic activity; and to create a robust environment for business toenable firms to compete better in the regional as well as the globalmarket, at the same time that the State ensures that Government is ableto provide for the needs of those under its jurisdiction and care.


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What is the difference betweenEXCLUSIONS & EXEMPTIONS?

Exclusionsremoval of otherwise taxableitems from the reach of taxation

Exemptionsfreedom from a charge ofburden to which others are subjected


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Exclusions from Gross Income as statedin NIRC Section 2 par. B

The following items shall not be included in gross income andshall be exempt from taxation:

1. Life Insurance Proceeds

2. Amount received by insured as return of premium3. Gifts, Bequests and Devises

4. Compensation for injuries or sickness

5. Income exempt under treaty

6. Retirement benefits, pensions, gratuities, etc.

7. Miscellaneous Items


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1. Life InsuranceProceeds

2. Amountreceived by

insured as returnof premium- by Princess


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LIFE INSUR NCEWhat is excluded: The proceeds of

life insurance policies paid to heirsor beneficiaries upon the death ofthe insured.

Reason:Insurance is a contract ofindemnity; hence, the proceedsshould be treated as indemnity andnot as gain or income.

HOWEVER If such amounts areheld by the insurer under anagreement to pay interestthereon, the interest payments shall

be included in gross income.


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mount Received by Insuredas RETURN of Premium


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3. Gifts, Bequestsand Devises

4. Compensation

for injuries orsickness

5. Income exemptunder Treaty

- by

Jenessa


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Tax Exemption: Gifts, Bequests, andDevises

-This refers to properties acquired by gift, bequest, devise, ordescent.

Gift - something voluntarily transferred by one person to

another without compensation. Bequest - the property or money that you promise in your

will to give to another person or organization after you die.

Devises - a will or clause of a will disposing of real property


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Tax Exemption: Gifts, Bequests, andDevises

A gift is an act of liberty which requires theacceptance of the donee and that anything receivedtherefrom is not derived from trade or business

neither from the exercise of profession. Hence, it isnot an income.

Gifts or donation inter vivos are subject to

donorstax.


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Tax Exemption: Gifts, Bequests, and

Devises

Whereas, bequest and devises are gifts which

would take effect upon the death of the donor,hence subject to estate tax. Bequest refer topersonal property while devises refer to realproperty.


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Tax Exemption: Compensation forInjuries or Sickness

a) Amounts received, through Accident or HealthInsurance or under Workmens Compensation

Acts.b) Compensation for personal injuries or sickness

c) Damages received, whether by suit oragreement, on account of such injuries or

sickness.


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Revenue Regulations No. 2-98, Sec.

2.78.1(B)(6) provides that:

(B) Exemptions from withholding tax oncompensation. The following income payments are

exempted from the requirement of withholding tax oncompensation:

(6) Damages. Actual, moral, exemplary and nominaldamages received by an employee or his heirs pursuant to afinal judgment or compromise agreement arising out of or

related to an employer-employee relationship.


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Tax Exemption: Compensation forInjuries or Sickness

The foregoing are excluded in thedetermination of income because the amount

received therefrom is not considered an income butmerely a recompense or reward in the form ofdamages.


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Tax Exemption: Income Exempt

under Treaty

This refers to the income of any kind, to

the extent required by any treaty obligationbinding upon the Government of thePhilippines (Sec.34[B][5]).


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6. Retirementbenefits,

pensions,

gratuities, etc.- by Micah &Hanna


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6. Retirement Benefits, Pensions,Gratuities, etc.

a) Retirement Benefits

b) Separation Pay

c) Social Security Benefits, Retirement Gratuities,Pensions and Other Similar Benefits

d) Benefits under United States VeteransAdministration

e) Social Security Benefitsf) GSIS Benefits


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a. Retirement Benefits

Requisites:1. In accordance with a reasonable private benefit plan maintained bythe employer;

2. Retiring official or employee has been in the service of the same

employer for at least ten (10) years;

3. Not less than fifty (50) years of age at the time of his retirement

4. The benefits granted under this subparagraph shall be availed of by anofficial or employee only once


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Retirement benefit received by official employees of privatefirms under a reasonable private benefit plan maintained bythe employer, if the following requirements are met:

a. The retirement plan must be approved by the Bureau ofInternal Revenue;

b. The retiring official or employees must have been in theservice of the same employer for at least ten (10) years and isnot less than fifty (50) years of age at the time of retirement;and

c. The retiring official or employee shall not have previouslyavailed of the privilege under the retirement benefit plan of thesame or another employer


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For the retirement benefits to be exempt from the withholding tax, thetaxpayer is burdened to prove the concurrence of the followingelements:

1. A reasonable private benefit plan is maintained by the employer;

2. The retiring official or employee has been in the service of the same

employer for at least ten (10) years;

3. The retiring official or employee is not less than fifty (50) years of ageat the time of his retirement; and

4. The benefit had been availed of only once


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b. Separation Pay

Any amount received by an official or employee orby his heirs from the employer as a consequence ofseparation of such official or employee from the

service of the employer because of death sickness orother physical disability or for any cause beyond thecontrol of the said official or employee

a. Less than 10 yearsb. Below 50 years old


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c. Social Security Benefits, RetirementGratuities, Pensions and Other Similar Benefits

Benefits received by resident or non-resident citizensof the Philippines or aliens who come to reside

permanently in the Philippines, from foreigngovernment agencies and other institutions, privateor public


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d. Benefits under United States Veterans

AdministrationPayments of benefits due or to become due to anyperson residing in the Philippines under the laws ofthe United States administered by the United States

Veterans Administration


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e. Social Security Benefits

Benefits received from or enjoyed under theSocial Security System in accordance with theprovisions of Republic Act No. 8282

R.A. 8282 = Social Security Law


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f. GSIS Benefits

Benefits received from the GSIS under RepublicAct No. 8291, including retirement gratuity receivedby government officials and employees.

R.A. 8291 = The Government Service Insurance SystemAct of 1997


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7. MiscellaneousItems

- by April and Jo


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7. Miscellaneous Items

a) Income Derived by Foreign Government

b) Income Derived by the Government or its PoliticalSubdivisions

c) Prices and Awardsd) Prices and Awards in Sports Competition

e) 13thMonth Pay and Other Benefits

f) GSIS, SSS, Medicare and Other Contributions

g) Gains from the Sale of Bonds, Debentures or otherCertificate of Indebtedness

h) Gains from Redemption of Shares in Mutual Fund


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K Investment Office, a London-basedinvestment body of the state Kuwait,is accorded an independent juridicalstatus for the purpose of managingKuwaits funds and investment assetsK investment Office has investmentsin the Philippines in governmentbonds, corporate bonds and bankdeposits, which are primarily held bycustodian, H Bank.

BIR RULING 103-2012, FEB. 21, 2012


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Is the income derived by Kinvestment Office from itsinvestment in thePhilippines included inincome tax, andconsequently from WHT?


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Income derived from investments in the

Philippines in loans, stocks, bonds, or other

domestic securities or from interest on

deposits in banks in the Philippines by :

(1)Foreign Governments;

(2)Financing Institutions owned, controlled, orenjoying refinancing from foreign governments;

(3)International or regional financial institutions

established by foreign governments.


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Garments and Textile Export Board GTEB)has been created and organized pursuant ofP.D. No. 14 on June 10, 1978. It wasplaced under the Office of the Presidentand chaired representative of Secretary ofTrade. One of its functions is to overseethe implementation of the garments andtextile agreements between the Republic ofthe Philippines and other countriesparticularly the administration of garments

and textile quotas.

BIR RULING 67-99, MAY 13, 1999


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Income derived from any public utility or

from the exercise of any essential

governmental functions accruing to theGovernment of the Philippines or to any

political subdivisions thereof.

Sec. 32(B)(7)(a)


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GTEB contends that itshould not be subject tocorporate income taxbecause it is agovernment regulatorybody performing strictly

govtfunctions. Is thecontention valid?


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Prizes and Awards made primarily in recognitionof:

Religious Charitable Scientific Educational

Artistic Literary

Civic Achievement

If:

(1) The recipient was selected w/o any action onhis part to enter the contest or proceeding

(2) The recipient is not required to render

substantial future services as a condition to

receiving the prize or award


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All prizes and awards granted to athletes in local and

international sports competitions and tournaments

whether held in the Philippines or abroad andsanctioned by their national sports association.

The sports competition whether local or international

sports competition as long as sanctioned oraccredited by the athletes respective national sports

associations, the prizes and awards will be excluded

from gross income


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However, the provisions of R.A. 7549, dated May 22,

1992, which was integrated in the aforecited section of

the Tax Code. Section 2 of the said Act provides that

the national sports association shall refer only to those

sports associations duly accredited by the Philippine

Olympic Committee (POC).

International Chess Grandmaster Joly

Antonio.

Accordingly, the prize money won by

GM Rogelio (Joey) M. Antonio, Jr., is

subject to 20% final withholding tax

under Section 24(B)(1) of the Tax

Code of 1997, as implemented by

Revenue Regulations No. 2-98. (BIR

Ruling No. 026-2000 dated June 13,

2000)


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It is not included in the taxable income of thecandidate to whom they were given because

contributions were given not for personal

expenditure/enrichment of the candidate

concerned but for the purpose of utilizing such

contributions for the campaign.

Requisites:

These campaign contributions must have been

utilized to cover a candidates expenditures for

electoral campaign

Any candidate winning or losing should file the

appropriate Statement of Expenditures required

under the Omnibus Election Code


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Gross benefits received by officialsand employees of public and private

entities. Provided, however, thatthe total exclusion under this

subparagraph shall NOTexceedthirty thousand pesos

(P30,000)which shall cover:


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1. Benefits received by officials andemployees of the national and localgovernment pursuant to R.A. 6866;

2. Benefits received by employeespursuant to P.D. 851, as amended byMemorandum Order 28, dated Aug.

13, 1986


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3. Benefits received by officials and employeesnot covered by P.D. 851, as amended by

Memorandum Order 28, dated Aug. 13, 1986; and

4. Other benefits such as productivity incentivesand Christmas bonus. Provided, further, that the

ceiling of thirty thousand pesos (P30,000) may beincreased through rules and regulations issued by

the Secretary of Finance, upon recommendationof the Commissioner, after considering, among

others, the effect on the same of the inflation rateat the end of the taxable year.


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GSIS, SSS, Medicare and Pag-ibigcontributions, and union dues of

individuals.These items are notincluded in

the Gross Taxable Compensation

Income.


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Gains realized from the sale orexchange or retirement of bonds,debentures or other certificate of

indebtedness with a maturity ofmore than five (5) years.


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Gains derived by investors fromredemption of shares of stock by

investors in a mutual fund areexempt from capital gains tax

pursuant to Section 32 (B)(7)(h) of

the Tax Code of 1997, which excludessuch gains from gross income.


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Hazard pay shall mean the amount paid by

the employer to MWEs who were actuallyassigned to danger or strife-torn areas,

disease-infested places, or in distressed orisolated stations and camps, which expose

them to great danger of contagion or perilin life.


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exclusions of individuals in the philippines (updated 2014)

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