Income Taxation By Atty. Tony Ligon What is Income?  Realized profit or gains  Inflow of wealth to the taxpayer whether as payment for services, interest or profit from investment.  Not a mere return of capital

Elements of Imposition of Income Tax:  Gain or profit  It must be realized or received, actually or constructively  Not exempted by law or treaty from income tax

Is business purpose a requirement in the imposition of taxes ? NNNNo. Any business purpose as to why or how the income was earned by the taxpayer is not a requirement. Income from illegal sources therefore,are also taxable

The following are the persons liable to pay Income Tax:  Individual  Trust  Estate  Corporation

Individual Taxpayers: Resident citizen Non Resident citizen Resident Alien Non-resident alien a) Trade or Business b) Not In Trade or Business

Income Tax Rates applicable: ( Individual)  Net capital gain on shares of stock in domestic corporation not listed and traded in a local stock exchange: and traded in a local stock exchange: First 100, Final Tax of 5% On excess % * RC, NRC, RA, NRA ( B or NB) * RC, NRC, RA, NRA ( B or NB)

Gross selling Price or FMV at the time of sale held as capital asset FFFFinal Tax of 6% Applies to RC, NRC, RA, NRA (B or NB)

From within the Philippines- On interest on foreign currency deposit under the expanded foreign currency deposit system: Final tax of 7.5% -- RC / RA Final tax of 7.5% -- RC / RA Exempt for -- NRC Exempt for -- NRC NRA ( B or NB) NRA ( B or NB)

Income within the Philippines:  Royalties fr. books, literary works Musical compositions Final tax of 10% - RC, NRC, RA,NRA (B)  On other royalties, Prizes exceeding P 10,000 Other winnings ( except PCS & lotto) Final Tax of 20% - RC, NRC, RA, NRA (B)  On other NET TAXABLE INCOME RA RC, NRC, RA, NRA (B)

Income within the Philippines  Interest Income Final tax of 20% Final tax of 20%  Gross income from cinematographic films and other similar works films and other similar works Final tax of 25% Final tax of 25%

NRA not engaged in Trade or Business in the Philippines GROSS Income from within the Philippines FINAL TAX OF 25%

Resident Citizen Resident Citizen  on other taxable net income Taxable within and without Philippines

Non-resident citizen, Resident alien; Resident Alien engaged in Trade or Business in the Philippines  ON OTHER NET TAXABLE INCOME OUTSIDE THE PHILIPPINES - EXEMPT - EXEMPT

CORPORATION  Under corporation code: An artificial being created by operation of law, having the power of succession and the powers attributes and properties provided by law or incidental to its existence.

Under the National Internal Revenue Code ( NIRC)- “Corporation shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts ( cuentas en participation), associations, or insurance companies, but does not include general professional partnerships and a joint venture or consortium projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operation or consortium agreement under a service contract with the government. include general professional partnerships and a joint venture or consortium projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operation or consortium agreement under a service contract with the government.

Taxable Corporations:  Domestic corporation  Foreign Corporation : a) Resident foreign corporation a) Resident foreign corporation b) non-resident foreign corporation b) non-resident foreign corporation

Income Tax Rates for the Corporation: Selling Price or FMV, whichever is higher, capital asset Domestic Final tax of 6% Resident (na) NonRes F (na) Net capital gain on sale of shares of stock of DC ( not listed ) Not over 100,000 Excess over 100,000 Final Tax: 5%10% 5%10% 5%10%

Income Tax Rates for the Corporation: Interest on foreign currency deposit under FCDS Domestic Final tax : 7.5% Resident Final tax : 7.5% NonRes F Final tax : 7.5% Dividend from domestic corp ExemptExempt Final Tax 15%

Income Tax Rates for the Corporation: Interest on any currency bank deposit, yield of other monetary benefit from deposit substitute, trust funds or similar arrangement Domestic Final Tax of 20% Resident Final Tax of 20% Non Res F

Domestic Corporation  On Net taxable Income from within and outside the Philippines: 30 % Net 30 % Net Minimum Corporate Income Tax Manufacturing/ Trading ( beg. 4rth year of operations ) 2% Gross ( beg. 4rth year of operations ) whichever is higher of 30% net or 2 % Gross

Resident Foreign Corporation  On Net taxable Income from within the Philippines: 30 % Net 30 % Net Minimum Corporate Income Tax Manufacturing/ Trading ( beg. 4rth year of operations ) 2% Gross ( beg. 4rth year of operations ) whichever is higher of 30% net or 2 % Gross

Non resident foreign corp.  Interest on foreign loans: Final Tax of 20% Final Tax of 20% TAXABLE GROSS INCOME within the Philippines - Final Tax of 30 %

Capital Asset:  Property held by the taxpayer ( whether or not connected with his trade or business but does not include: a.Stock in trade of the taxpayer or the property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year b.Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business c.Property used in the trade or business of a character which is subject to allowance for depreciation d.Real property used in trade or business of the taxpayer Capital asset is an asset which is not ordinary.

Capital Gain Tax Exemption ( individual or natural person) If the sale or disposition of a principal residence of a natural person which is fully utilized in acquiring or constructing a new principal residence – exempt from 6% capital gain tax:

Requirements of exemption: 1.Proceeds of the sale is utilized within 18 months from the date of sale or disposition 2.The commissioner of internal revenue is notified by the taxpayer within 30 days from date of sale 3.Deposit is made of the six (6%) capital gain wihteld by the buyer in cash or manager’s check in an authorized bank in escrow agreement 4.It can be availed only once every 10 years

Gross income ( inclusions)  Compensation for services in whatever form paid, including but not limited to fees, salaries and wages, commissions and similar items  Gross income derived from the conduct of trade or business or exercise of profession  Gains derived from dealings in property I  Interests  Royalties  Dividends  Annuities  Prizes and winnings  Pensions  Partner’s distributive share from the net income of the general professional partnership

Gross income ( exclusions )  Proceeds of life insurance paid to heirs of beneficiaries  Returns of premiums  Value of property acquired by Gifts, bequest or devise or descent  Amount received through accident or health insurance or under Workmen’s compensation act, as compensation for personal injuries or sickness plus amount of any damages received  Income of any kind to the extent required by any treaty obligation binding upon the govt of phil.  Retirement benefits  Sickness, death benefits  SSS / GSIS benefits  Prizes /awards made in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement– recipient was selected without any action on his part and no substantial future services  Prizes and awards granted to athletes, sactioned by nat. sports commission  13 th month pay not exceeding 30,000 etc. etc.

Deductions from Gross Income: Individual with gross compensation income ( employer-employee) - premium payments on health/hospitalization insurance - premium payments on health/hospitalization insurance - personal exemptions - personal exemptions (RA 9504) (RA 9504)

Deductions from gross income: For individuals with gross income from business or practice of profession  Optional Standard Deductions 40% of GI or Itemized deductions Itemized deductions  - premium payments on health/hospitalization insurance  personal exemptions (RA 9504) (RA 9504)

Deductions from gross income: For corporations Optional Standard Deductions 40% of GI or 40% of GI or Itemized deductions (RA 9504) Itemized deductions (RA 9504)

Itemized deductions (expenses related to trade or business or to the practice of profession) :  Interest  Taxes  Losses  Bad debts  Depreciation  Depletion  Pension trust  Charitable and other contributions  Research and development  Expenses in general

Thank you. Thank you.