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Atty. Erikson V. Eustaquio

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I. Tax Code ProvisionsII. When Income is Taxable

III. General Principles of Income TaxationIV. Definition of TermsV. Formula for Computation of Income TaxVI. Gross IncomeVII. Allowable deductionsVIII. Filing of tax returns

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y NIRC, as amended, Title II, Sections 22 to 83

y Tax Code Provisions

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When is income taxable?

There is income, gain or profit

Income, gain or profit is received or realized during thetaxable year Income, gain or profit is not exempt from income tax

Income-flow of wealth other than as a mere returnof capital (Conwi vs. CIR, 213 SCRA 83)

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General Principles of Income Taxation in the Philippines(Section 23)

Resident citizen-taxable on all income derived fromsources within and without the Phils

Non-resident citizen-taxable only on income derivedfrom sources within the Philippines

Citizen who is an OCW-taxable only on income fromsources within the Philippines

Seaman (of a vessel engaged exclusively ininternational trade)-considered OCW

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General Principles of Income Taxation in the Philippines(Section 23)

Alien individual, whether resident or non-resident-

taxable only on income derived from sources withinthe Philippines

Domestic corporation-taxable on all income derivedfrom sources within and without the Philippines

Foreign corporation-whether or not engaged in tradeor business in the Philippines, taxable only on incomederived from sources within the Philippines

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General Principles of Income Taxation in the Philippines

Situs rules (Section 42)Interest income-residence of the obligor Dividends-

* Domestic corporation-within* Foreign corporation 50% of gross income within for 3 years-

withinServices-place of performance

Rentals and Royalties-place of useReal Property-location of real propertyPersonal property-place of sale (except shares of stock in a

domestic corporation, within regardless of the place of sale)

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Definition of Terms (Section 22)

Note the ff new definitions added by RA 9504,approved on June 17, 2008

GG-statutory minimum wageHH-minimum wage earner

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Formula for computation of income tax (Section 31)

A. Global

Gross income xxLess Allowable deductions (xx)Taxable income xxTax rate x%Tax due xxLess: Tax credit (xx)

Tax payable xx

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Formula for computation of income tax (Section 31)

A. Global

Global tax rates:

Citizens, resident aliens, NRAETB- 5%-32%NRANETB-25%Domestic corporations and RFC-30% (effective Jan 1,2009; RA 9337)

NRFC-30% (effective Jan 1, 2009; RA 9337)

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Formula for computation of income tax

B. Schedular

Item of income multiplied by tax rate.

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Gross Income (Section 32)Income derived from whatever source, including but not limited to the ff:

Compensation for servicesGross income from conduct of trade, business, professionGains from dealings in propertyInterestsRentsRoyaltiesDividendsAnnuitiesPrizes and winningsPensionsPartners distributive share from the net income of a GPP

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Allowable Deductions (Sec 34 to 42)

A. Compensation income earners:

- Premium payments on health and/or hospitalization insurance (Section 34 M)

- Personal exemptions (Section 35)

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Allowable DeductionsB. Non-compensation income earners (Section 34)

Individuals1. Itemized deductions + premium on

health/hospitalization insurance + personalexemptions; or

2. Optional standard deduction (40% of gross sales or

gross receipts) + premium on health/hospitalizationinsurance + personal exemptions (see Section 34,L, as amended by RA 9504; approved on June 17,2008)

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Allowable DeductionsB. Non-compensation income earners (Section 34)

Itemized deductions

ExpensesInterestTaxesLossesBad debtsDepreciationDepletionCharitable and other contributionsResearch and development

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Allowable DeductionsB. Non-compensation income earners (Section 34)

Itemized deductions

Requirements for deductibilitySee detailed requirements for eachNote Section 34K-proof of withholding

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Allowable DeductionsCorporate Taxpayers

Itemized deductions

Optional standard deduction for domestic andresident foreign corporations (Section 34L, asamended by RA 9504) 40% of gross income

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Filing of tax returnsIndividual tax returns- Section 51

Annual income tax return

Corporate tax returns- Sections 52, 53, 76

Quarterly and cumulativeFinal adjustment return