SPECIAL

NOTES BY ATTY. FRANKLIN I. CUETO, CPA

INCOME TAXATION

FORMULAS

Individuals - Resident Citizens, Non-Resident Citizens, Resident Alines, Non-Resident Alien Engaged in Business

Individuals - purely compensation income Gross Compensation Income - Exclusions = Taxable Compensation Income x Tax Rate (using tax table) = Income Tax Due - Income Tax Withheld = Income Tax Payable

Individual - self-employed or professional

8% Tax on Gross Income (except those that are subject to VAT) All income - Exclusions - P250,000.00* = Gross Income x 8% = Income Tax Due - Tax Credits = Income Tax Payable
Itemized Deduction All Income - Exclusions = Gross Income - Allowable Deductions = Taxable Net Income x Tax Rate (using tax table) = Income Tax Due - Tax Credits = Income Tax Payable
Optional Standard Deduction (Citizens and Resident Alien only) All Income - Exclusions = Gross Income - 40% of Gross Income = Taxable Net Income x Tax Rate (using tax table) = Income Tax Due - Tax Credits = Income Tax Payable

*Note: P250,000.00 reduction is allowed only for purely self-employed/professional; otherwise, if mixed compensation and self-employed/professional, no reduction.

Individuals - passive income Passive Income x Final Tax Rate = Final Tax Due

Individuals - Non Resident Aliens Not Engaged in Business Gross Income x 25% = Income Tax Due

Corporations - Domestic, Resident Corps. (take note of definition of Corporations under tax code!)
Itemized Deduction All Income - Exclusions = Gross Income - Allowable Deductions = Taxable Net Income x 30% = Income Tax Due - Tax Credits = Income Tax Payable
Optional Standard Deduction All Income - Exclusions = Gross Income - 40% of Gross Income = Taxable Net Income x 30% = Income Tax Due - Tax Credits = Income Tax Payable

Corporations - Non-Resident Corporations Gross Income x 30% = Income Tax Due

INDIVIDUALS CORPORATIONS
Non-resident Alien Non-resident Alien Domestic Resident Non-Resident
Resident Citizen Non-resident Citizen Resident Alien Engaged in Business Not engaged in Business Corporation Foreign Foreign
Corporation Corporation
General Principles of Income Taxation in the Philippines within and without within within within Within within and without within within
without - tax exempt

Tax Rates - Passive Income

Royalties 20% 20% 20% 20% 25% of Gross Income 20% 20% 30% of Gross Income
Royalties on books, literary works and musical compositions 10% 10% 10% 10% 25% of Gross Income 20% 20% 30% of Gross Income
ordinary income ordinary income ordinary income ordinary income ordinary income ordinary income
Prizes P10,000 and below 25% of Gross Income 30% of Gross Income
(schedule of rates of tax) (schedule of rates of tax) (schedule of rates of tax) (schedule of rates of tax) (corporate tax rate of 30%) (corporate tax rate of 30%)
ordinary income ordinary income
Prizes exceeding P10,000 20% 20% 20% 20% 25% of Gross Income 30% of Gross Income
(corporate tax rate of 30%) (corporate tax rate of 30%)
Winnings P10,000 and below from PCSO and lotto Exempt Exempt Exempt Exempt Exempt Exempt Exempt Exempt
ordinary income ordinary income
Other Winnings (including PCSO and lotto winnings exceeding P10,000) 20% 20% 20% 20% 25% of Gross Income 30% of Gross Income
(corporate tax rate of 30%) (corporate tax rate of 30%)
Interest from any current bank deposit 20% 20% 20% 20% 25% of Gross Income 20% 20% 30% of Gross Income
Interest under expanded foreign currency deposit system 15% Exempt 15% Exempt Exempt 15% 7.50% Exempt
ordinary income ordinary income
Interest from long-term deposits (maturity of five years or more) Exempt Exempt Exempt Exempt Exempt 30% of Gross Income
(corporate tax rate of 30%) (corporate tax rate of 30%)
Dividends from domestic corp. (cash and property dividends only) 10% 10% 10% 20% 25% of Gross Income Exempt Exempt - but subject to remittance tax 15% - subject to tax-sparing credit

Special Notes:
Capital gains (presumed) from sale of real property (based on gross selling price
6% 6% N/A N/A N/A 6% N/A N/A
or current market value at the time of sale, whichever is higher)
Sale of stocks not traded in local exchange (based on net capital gains) 15% 15% 15% 15% 15% 15% Not over P100k - 5%; over P100k - 10% Not over P100k - 5%; over P100k - 10%
Sale of stocks traded in local exchange, classified as other percentage tax -
6/10 of 1% 6/10 of 1% 6/10 of 1% 6/10 of 1% 6/10 of 1% 6/10 of 1% 6/10 of 1% 6/10 of 1%
subject to stock transaction tax (based on gross selling price)