Common-Taxes -Income-Tax VAT OPT WT v2

July 18, 2012 Taxes Common to Taxpayers

Taxes Common to Taxpayers: Income Tax, VAT, Other Percentage Tax, Withholding g gTaxes

18 July 2012

Discussion Outline

► Income Tax

– General Principles

– Taxability of Individuals– Taxability of Individuals

– Taxability of Corporations

– Gross Income

– Allowable Deductions from Gross Income

– Unallowable Deductions from Gross Income

– Filing of Returns and Administrative Requirements

July 18, 2012 Slide 2 Taxes Common to Taxpayers


Discussion Outline

► Value-Added Tax– General Principles– Input VAT on Capital Goodsp p– Treatment of Excess Input VAT– Filing of Returns and Administrative Requirements

► Other Percentage Taxes– Persons Subject to Percentage Tax and Percentage Tax Rates– Filing of Returns and Administrative Requirements

► Withholding TaxesNature of Different Common Withholding Taxes


– Nature of Different Common Withholding Taxes– Withholding Agents– Withholding Tax Rates– Filing of Returns and Administrative Requirements

Income Tax



General Principles


► Individuals

– Resident citizen: taxable on all income derived from sources within and without the Philippines

N id t iti t bl l i d i d f ithi

General Principles

– Non-resident citizen: taxable only on income derived from sources within the Philippines

► Corporations

– Domestic corporation - taxable on all income derived from sources within and without the Philippines

– Foreign Corporations (resident and non-resident) – taxable only on Philippine sourced income


Philippine-sourced income


Taxability of Individuals


► Graduated tax rates:


Over But Not Over Amount / Rate Of Excess Over

Not over 10,000 5% -

10,000 30,000 500 + 10% 10,000

30,000 70,000 2,500 + 15% 30,000

70,000 140,000 8,500 + 20% 70,000

140,000 250,000 22,500 + 25% 140,000

250,000 500,000 50,000 + 30% 250,000

500,000 over 125,000 + 32% 500,000


► Married individuals:

► Husband and Wife compute separately individual income tax

► Income which cannot be directly attributed to either of the spouse, divided equally between them.


► Personal exemptions:

► Basic personal exemption - P50,000 for each individual taxpayer

► Additional personal exemption - P25,000 for each dependent


not exceeding four (4)

► Husband – proper claimant of additional personal exemption for children except:

a. Husband is unemployed

b. Husband is non-resident citizen deriving income from foreign sources

c Husband waives his right to claim the exemptions of children


c. Husband waives his right to claim the exemptions of children (waiver should be for all children) in a sworn statement to be attached to his Application for Registration (BIR Form No. 1902) and that of his wife's

► Interests, royalties, prizes and other winnings – 20% final tax, except if prizes does not exceed P10,000

► Royalties on books literary works and musical compositions – 10% final tax

Passive Income Subject to Final Tax for Individuals

tax

► Interest income received by an individual taxpayer from a depository bank under the expanded foreign currency deposit system – 7.5% final tax

► Interest income from long term investment held for more than 5 years and in accordance with the prescribed rules – exempt

► Cash and/or property dividends – 10% final tax

► Capital gains from sale of shares of stocks not traded in the stock exchange – 5% for not over P100,000 and 10% for in excess of P100,000


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► Capital gains from sale of real property – 6% based on the gross selling price or current fair market value, whichever is higher.


Taxability of Corporations


Domestic corporation:

► 30% Regular Corporate Income Tax (RCIT)


► based on taxable income derived during each taxable year from all sources within and without the Philippines.

► 2% Minimum Corporate Income Tax (MCIT)

► Applicable if greater than 30% RCIT

► Beginning on the fourth taxable year immediately following the year in which such corporation commenced its operation.



2% MCIT (cont’d):

► Excess MCIT over RCIT

► Carried forward and credited against the normal income tax for the three (3) i di t l di t bl


(3) immediately succeeding taxable years.

► Secretary of Finance - authorized to suspend imposition of MCIT on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverses.

► Computed in quarterly income tax return and annual income tax return.


► Interests, royalties, prizes and other winnings – 20% final tax

► Interest income received by an domestic corporation from a depository bank under the expanded foreign currency deposit system – 7.5% final tax

I t t di id d di id d i d b d ti ti

Passive Income Subject to Final Tax for Corporations

► Intercorporate dividends – dividends received by a domestic corporation from another domestic corporation shall not be subject to tax

► Capital gains from sale of shares of stocks not traded in the stock exchange – a final tax on the net capital gains realized as follows:

Not over P100,000 5%

Amount in excess of P100,000 10%

► Capital gains from sale of real property – 6% based on the gross selling price or current fair market value whichever is higher


price or current fair market value, whichever is higher.


► 10% of the improperly accumulated taxable income

► Applies to every corporation formed or availed for the purpose of avoiding th i t ith t t it h h ld th h h ld f

10% Improperly Accumulated Earnings Tax (IAET)

the income tax with respect to its shareholders or the shareholders of any other corporation by permitting earnings and profits to accumulate instead of being divided or distributed.

► Exempt from IAET

► Banks and other non-bank financial intermediaries

► Insurance companies

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► Publicly-held corporations

► Taxable partnerships

► Exempt from IAET (cont’d):

► Non-taxable joint ventures

► PEZA-registered enterprises


► BCDA-registered enterprises

► Other entities registered under special economic zones enjoying special tax rates on their registered operations or activities in lieu of other taxes, national or local

► Branches of a foreign corporation or resident foreign corporation.

Closely-held corporations


► Corporations at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than 20 individuals.

► Domestic corporations not falling under this definition considered publicly-held corporations.


► Evidence of purpose to avoid income tax:

– Prima Facie Evidence

– Mere holding company or investment company


– Evidence Determinative of Purpose

– Earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business (i.e., retained earnings is in excess of 100% of paid up capital) unless proven to the contrary.

► Paid-up capital


► Par value of the shares of stock (RMC No. 35-2011)

Gross Income



All income derived from whatever source, except certain items as provided by the Tax Code, including (but not limited to) the following:

– Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items

Gross Income

– Gross income derived from the conduct of trade or business or the exercise of a profession

– Gains derived from dealings in property

– Interests (except those already subject to final tax or exempt from income tax)

– Rents

– Royalties

– Dividends (except those already subject to final tax or exempt from income tax)


– Annuities

– Prizes and winnings (except those already subject to final tax or exempt from tax)

– Pensions

– Partner's distributive share from the net income of the general professional partnership.

Exclusions:

– Life insurance – however, interests, if any, shall be included in the gross income

– Amounts received by the Insured as return of premiums paid under life insurance

Gift b t d d i

Gross Income

– Gifts, bequests and devices

– Compensation for injuries and sickness – including the amounts of any damages received, whether by suit or agreement, on account of such injuries and sickness

– Income exempt under Treaty

– Retirement benefits, pensions, gratuities, etc.

– Prizes and awards – provided that the recipient was selected without any action on his part to enter the contest or proceeding and the recipient is not required to render substantial future services as a condition to receiving the prize or award


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– Gains from the sale of bonds, debentures or other certificate of indebtedness with a maturity of more than 5 years (applicable to individuals only)

– Gains from redemption of shares in mutual fund


Allowable Deductions from Gross Income


► Expenses –

► Ordinary and necessary expenses paid or incurred during the taxable year

► Directly attributable to, the development, management, operation and/or d t f th t d b i i f f i


conduct of the trade, business or exercise of a profession

► Interests –

► Paid or incurred during the taxable year

► Related to indebtedness in connection with the taxpayer's profession, trade or business


– If taxpayer has interest income subject to final tax

– Amount of interest expense reduced by 33% of such interest income.

– Interests paid to related parties not allowable deduction


► Taxes –

► Paid or incurred within the taxable year

► Related to taxpayer's profession, trade or business


► Exception

► Income tax under Title II of the Tax Code

► Income taxes imposed by authority of any foreign country

► Estate and donor’s taxes

► Taxes assessed against local benefits of a kind tending to increase the value of the property assessed.


Taxes allowed as deduction (e.g., not among the exceptions above) are refunded or credited

► Part of gross income in the year of receipt subject to tax benefit doctrine

► Losses –

► actually sustained during the taxable year

► not compensated for by insurance or other forms of indemnity


► Incurred in trade or business

► Property connected with trade or business (loss arising from fires, storms, shipwreck, or other casualties, or from robbery, etc.)

► Sworn declaration of loss – submit to BIR within 45 days from discovery of the casualty or robbery, theft or embezzlement

► Net Operating Loss Carry-Over (NOLCO) – deductible for the next 3 ti t bl i di t l f ll i th f h l


consecutive taxable years immediately following the year of such loss. Provided:

► taxpayer is not exempt from income tax during the year of the loss, and

► no substantial change in ownership of the business or enterprise


► Capital losses

► Deductible up to the extent of capital gains

► Individuals: any excess capital losses over the capital gains (in an amount not in excess of the net income for such year) after


amount not in excess of the net income for such year), after considering the allowable percentage of deduction, may be carried over for not more than 12 months.

► “Wash sales” of stocks or securities

► Wagering losses –

► Arising from wagers/betting games (other than those already subject to other percentage tax, such as illegal gambling, endings, etc.)

► Deductible only up to the extent of gains from such transaction


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► Abandonment losses

► Depreciation

► Depletion of oil and gas wells and mines

► Charitable and other contributions


► Individuals – not in excess of 10% of taxable income before donation

► Corporations – not in excess of 5% of taxable income before donation

► Deductible in full – donations to:

► Government

► Certain foreign institutions or international organization

► Accredited nongovernment organization – subject to compliance with certain requirements


► Certificate/s of Donation – required as proof for deductibility


► Research and development

► Pension trusts


► Additional requirements for deductibility of certain payments – properly subjected to appropriate withholding taxes (e.g., expanded withholding tax, final withholding tax, etc.)

► Optional Standard Deduction (OSD)


► Available to:

– Individuals subject to the graduated tax rates (i.e., individuals who does not purely derive income from compensation)

– 40% of his gross sales or gross receipts

40% Optional Standard Deduction (OSD)

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– Corporations

– 40% of its gross income.

► Intention to avail of the OSD must be disclosed in 1st quarter ITR

► Irrevocable for the taxable year

► Individuals availing of OSD – not required to submit financial statements as attachment to ITR

► Records pertaining to gross sales/receipts or gross income must still be kept


► Records pertaining to gross sales/receipts or gross income must still be kept


Unallowable Deductions from Gross Income


► Personal, living or family expenses

► Any amount paid out for new buildings or for permanent improvements, or betterments made to increase the value of any property or estate

► Any amount expended in restoring property or in making good the exhaustion

Unallowable Deductions from Gross Income

► Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made

► Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy

► Losses from sales or exchanges of property directly or indirectly

– Between members of a family


– Between an individual and a corporation more than 50% in value of the outstanding stock of which is owned by the individual


Filing of Returns and Administrative Requirements


Individuals (cont’d):

► Where to file – AAB, RDO, Collection Agent or duly authorized Treasurer of the city or municipality in which such person has his legal residence or principal place of business in the Philippines, or if there be no legal residence


p p p pp , gor place of business in the Philippines, with the Office of the Commissioner.

► When to file and pay:

► Declaration of income tax

► Every individual receiving self-employment income

► On or before April 15 of the same taxable year.




► When to file and pay (cont’d):

► Quarterly income tax return – payment shall be made in 4 installments.

1st installment: at the time of the declaration (on or before April 15)


1 installment: at the time of the declaration (on or before April 15)

2nd installment: on or before August 15 of the current year

3rd installment: on or before November 15 of the current year

4th installment: on or before April 15 of the following calendar year

► Annual income tax return -

► Lump sum payment: on or before April 15 of the following calendar year

► Installment payment: applicable if tax due is in excess of P2,000


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1st installment: at the time the return is filed

2nd installment: on or before July 15 following the close of the calendar year.


► Married individuals, whether citizens, resident or nonresident aliens, who do not derive income purely from compensation – file a return for the taxable year to include the income of both spouses,


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► If impracticable for the spouses to file one return – each spouse may file a separate return of income

► BIR shall consolidate the filed returns for verification

► Income of unmarried minors derived from property received from a living parent shall be included in the return of the parent, except:

► when the donor's tax has been paid on such property


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► when the transfer of such property is exempt from donor's tax


Corporations:

► Deadline for filing and payment:

► Quarterly income tax return (BIR Form No. 1702Q): 60 days after the close of each of the first 3 quarters of the taxable year


close of each of the first 3 quarters of the taxable year.

► Annual income tax return (BIR Form No. 1702): 15th day of the 4th month following the end of the year

► Required attachments upon filing to the BIR:

► Audited financial statements

► Statement of Management Responsibility

► Original copies of creditable withholding taxes (CWT), if any

H d ft f th l h li t f ithh ldi t (SAWT)


► Hard or softcopy of the summary alphalist of withholding taxes (SAWT), as applicable

► Other supporting schedules, if applicable

Value Added Tax (VAT)



General Principles


► Imposed on any person who sells, barters, exchanges, leases goods or properties and renders services in the course of trade or business

► Imposed on any person who imports goods.

General Principles

► Indirect tax- amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.

► In the course of trade or business (Rule of Regularity) –regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person or government entity.

► Incidental – something necessary, appertaining to, or depending upon another which is termed the principal, something incident to the main


purpose.

► Annual sales and/or receipts does not exceed P1,919,500 – not subject to VAT, but subject to percentage tax.


VAT Rates

► Taxable

– General Rate: 12%

S i l R t 0%

General Principles

– Special Rate: 0%

► Exempt

Zero-rated Sales Exempt Sales

Subject to VAT at 0% rate. Not subject to VAT

Input taxes allocable/ attributable to the zero-rated sale may be claimed as

Input taxes allocable/ attributable to th VAT t l t b


the zero-rated sale may be claimed as input tax credit

the VAT exempt sale cannot be claimed as input tax credit but shall form part of costs.

VAT Base

► Sale of goods – gross selling price

General Principles

► Less: sales returns and allowances and sales discounts

► Add: charges for packaging, delivery & insurance

► Add: excise taxes if goods are subject to excise tax

► Sale of services – gross receipts



► VAT invoice – for sale, barter or exchange of goods or properties

► VAT OR – for lease of goods or properties, and every sale, barter or exchange of services

► The amount of VAT shall be shown as a separate item in the invoice or

Substantiation Requirements

► The amount of VAT shall be shown as a separate item in the invoice or receipt

► “VAT-exempt sale” shall be written or printed prominently on the invoice or receipt for VAT exempt transactions

► “Zero-rated sale” shall be written or printed prominently on the invoice or receipt for zero-rated transactions


► Domestic purchases of goods or properties made in the course of trade or business – VAT invoice

► Domestic purchase of services – VAT OR

► Importation – Original import entry internal revenue declaration (IEIRD) or

Supporting documents for claiming input tax

► Importation – Original import entry internal revenue declaration (IEIRD) or other equivalent document showing actual payment of VAT on importation

► Transitional input tax – inventory of goods as shown in a detailed list to be submitted to the BIR

► “Deemed sale” transactions – required invoices

► Payments to non-residents (such as for services, rentals or royalties) –Monthly WVAT Return (BIR Form 1600) filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due which was withheld by


the payor


Input VAT on Capital Goods


► Computation of input tax if the aggregate acquisition cost (exclusive of VAT) in a calendar month, regardless of acquisition cost of each capital good, shall:

► Exceed P1 million:

- If estimated useful life of a capital good is 5 years or more:

Input VAT on depreciable Capital Goods

- If estimated useful life of a capital good is 5 years or more:

- If estimated useful life of a capital good is less than 5 years

NOT d P1 illi

Months 60

Tax Input TotalTax InputMonthly

Months in Life Useful Estimated

Tax Input TotalTax InputMonthly


► NOT exceed P1 million:

- Total input tax allowed as credit against output tax in the month of acquisition


Treatment of Excess Input VAT


► Carried-over

► Claimed as Refund

► Claimed as Tax Credit Certificate (TCC)

Treatment of Excess Input VAT

Period of application:

► Zero-rated and effectively zero-rated sales

► Within 2 years after the close of taxable quarter when such sales were made

► Cancellation of VAT registration

► Registration is cancelled due to retirement from, cessation of business, or d t h i ti f t t VAT t


due to changes in or cessation of status as VAT taxpayer

► Within 2 years from date of cancellation




► If manual:

► Monthly VAT declaration: within 20 days following the end of each month

► Quarterly VAT return: within 25 days following the close of each taxable quarter


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► Quarterly returns should reflect the cumulative totals of the sales, purchases, output tax and input tax for the taxable quarter

► Withholding VAT return: on the 10th day of the following month

► If through Electronic Filing and Payment System (EFPS):

► Monthly VAT declaration:

► Filing: depends on the industry classification of the taxpayer


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► Payment: 25 days from the end of the month

► Quarterly VAT return: same as the deadline for manual

► Withholding VAT return: same as the deadline for manual


► Quarterly Summary Lists of Sales (QSLS) and Quarterly Summary Lists of Purchases (QSLP) are required for the following:

► Persons liable for VAT


► Persons liable for VAT

► Before January 1, 2012

► Required for taxpayers with quarterly purchases not exceeding P1,000,000 and quarterly sales not exceeding P2,500,000 are not required to submit QSLS/P

► Beginning January 1, 2012

► All taxpayers


► Manner of Submission:

► Manual:

► USB/CD/DVD to the RDO or LTDO or LTAD


► USB/CD/DVD to the RDO or LTDO or LTAD

► within 25 days following the close of each taxable quarter

► EFPS

► Through EFPS

► within 30 days following the close of each taxable quarter



Other Percentage Taxes


► Tax on persons exempt from VAT –

► Gross annual sales and/or receipts do not exceed P1,500,000, and not VAT-registered

Th h ld i d f P1 500 000 t P1 919 500 b i i

Persons Subject to Percentage Tax and the Applicable Percentage Tax Rates

► Threshold increased from P1,500,000 to P1,919,500 beginning January 1, 2012 pursuant to RR No. 11-2011

► Cooperatives – exempt from the 3% gross receipts tax.

► Rate: 3% of his gross monthly sales or receipts





► Payment: not be later than the 20th day following the end of each month. ► For person retiring from a business – notify nearest RDO, file return and

pay the tax due thereon within 20 days after closing of business


► Filing shall be made with:► Authorized Agent Bank (AAB) within the territorial jurisdiction of the

Revenue District Office where the taxpayer is required to register/conducting business.

► In case no AABs – with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer within the Revenue District Office where the taxpayer is required to register/conducting business.

► Consolidated return for head office and branches


► Consolidated return for head office and branches –► Required for large taxpayers► Others – may opt to file either consolidated or individual returns


Withholding Taxes


Different Kinds of Common Withholding Taxes

Kinds

► Expanded Withholding Tax

Nature

► Income tax withheld on income payments – creditable against income t d f

► Final Withholding Tax

► Withholding Value-Added Tax (VAT)

► Fringe Benefit Tax

tax due from payee

► Income tax withheld on income payments – full payment of income tax due from payee

► VAT withheld – may be final or creditable against VAT liability of payee

► Income tax withheld on benefits of ffi f ll t f l t d


► Fringe Benefit Tax

► Withholding Tax on Wages

officers – full payment of related income tax due from officers

► Income tax withheld on compensation of employees – payment of income tax due on compensation to employees


Who are Withholding Agents?Who are Withholding Agents?

► Any juridical person, whether or not engaged in trade or business;

► An individual, with respect to payments made in connection with his trade or businesstrade or business.

► In exchanges or transfers of real property, the buyers, whether or not engaged in trade or business, are constituted as withholding agents. In any case, no Certificate Authorizing Registration (CAR)/ Tax Clearance Certificate (TCC) shall be issued to the buyer unless the withholding tax due on the sale, transfer or exchange of property has been duly paid.

► All government offices including government owned or controlled


► All government offices including government-owned or controlled corporations, as well as provincial, city, and municipal governments and barangays;

► Agents, employees, or any person purchasing goods or services/paying for and in behalf of the aforesaid withholding agents ► Provided that the ORs of payment/sales invoice shall be issued in

Who are Withholding Agents?Who are Withholding Agents?

the name of the person whom the former represents and the corresponding certificate of taxes withheld (BIR Form No. 2307) shall immediately be issued upon withholding of the tax. (RR 30-03 dated December 12, 2003)

► Person having control over the payment and who, at the same time, claims the expenses



When the obligation to withhold arisesWhen the obligation to withhold arises

At the time an income payment is:

• Paid, or

• Payable, ory ,

• Accrued or recorded as an expense or asset, whichever is applicable, in the payors books whichever comes first

(Section 2.57.4 of RR No. 2-98 as amended by Section 4 of RR No. 12-2001)


Expanded Withholding Tax (EWT)



Basic PrinciplesBasic Principles

► Only payments enumerated under the EWT regulations are subject to EWT.

► Payee and the payor must be residents of the Philippines (except payments to non-resident aliens engaged in trade or business in the Philippines).

► N t fi l t► Not a final tax.

► EWT Base:

– Gross billing on payments made to a Non-VAT registered supplier of goods or services;

– Gross amount paid exclusive or net of VAT on payments made to a VAT-registered supplier of goods and services

► CWT Certificate (BIR Form 2307)


► CWT Certificate (BIR Form 2307)

► Furnished in triplicate within 20 days following the close of the taxable quarter employed by the payee in filing his/its quarterly ITR unless requested by the payee to be submitted simultaneously with the income payment.

Payments to which entities are not subject to withholdingPayments to which entities are not subject to withholding

Section 2.57.5 of RR 2-98

A. National government and its instrumentalities and barangays except government-owned and controlled corporations.

B. Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:

1. Sales of real property by a corporation which is registered with and certified by the Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed P180,000 in Metro Manila and other highly urbanized areas and P150,000 in other areas or such adjusted amount of selling price for socialized


P150,000 in other areas or such adjusted amount of selling price for socialized housing as may later be determined and adopted by the HLURB, as provided under R.A. No. 7979 and its implementing regulations

(Underscored phrase – amendment introduced by RR No. 14-2002)


2. Corporations duly registered with the BOI, PEZA and SBMA enjoying exemption from income tax

3. Corporations which are exempt from the income tax under Section 30 of the Tax Code:

• Government Service Insurance System (GSIS);

Payments to which entities are not subject to withholdingPayments to which entities are not subject to withholding

• Government Service Insurance System (GSIS); • Social Security System (SSS); • Philippine Health Insurance Corporation (PHIC); • Philippine Charity Sweepstakes Office (PCSO); and

However, the income payments arising from any activity which is conducted for profit or income derived from real or personal property shall be subject to a withholding tax as prescribed in these regulations.

4. General Professional Partnerships (RR 14-2002)

5 Joint ventures or consortia formed for the purpose of undertaking construction


5. Joint ventures or consortia formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal & other energy operations pursuant to an operating or consortium agreement under a service contract with the government (RR 14-2002)

(Underscored phrase – amendment introduced by RR No. 14-2002)

EWT RatesEWT Rates

Payee Tax Base Tax Rate

Taxable Individuals

Gross professional, promotional and talent fees, or any other form of

15 %* -- if the current year’s gross income of payee exceeds y

remuneration(Fees, per diems, allowances, and any other form of income payments NOT subject to withholding tax on compensation)

p yP 720,000

10 %* -- if the current year’s gross income of payee does not exceed P 720,000

• 10% - if without sworn declaration stating that his gross income has exceeded P720,000


• 15% - if without sworn declaration that its gross income did not exceed P720,000 starting July 1

• 15% - for the subsequent payments if accumulated payments within the year exceeding P720,000 to a particular payee,


EWT RatesEWT Rates


Taxable Juridical Persons

Gross professional, promotional and talent fees or any other form f i f

15% -- if the current year’s gross income of payee exceeds P 20 000of remuneration for

servicesP720,000

10% -- if the current year’s gross income of payee does not exceed P720,000

(refer to previous slide)

Lessors of:a Real Properties Gross rental 5%


a. Real Propertiesb. Personal Properties

c. Poles, satellites, and transmission facilities

d. Billboards

Gross rental 5%

Rentals of Real Properties

Income Payments EWT Application

Rentals of Real Property – 5%Rentals of Real Property – 5%

1. Advance Rentals Subject to EWT at the time of payment (RR No. 2-98, as amended)

2. Subsequent Rental Payments

Subject to EWT at the time paid, payable, or accrued (last month of the quarter claimed as expense), whichever comes first (RR No. 2-98, as amended)

3. Security Deposits Subject to EWT at the time applied as rentals


y p(BIR Ruling UN-042-2-8-94 dated January 24, 1988)

4. Real Property Taxes If paid by the lessee in behalf of the lessor – subject to EWT (RR No. 2)


EWT RatesEWT Rates


Cinematographic film owners lessor or

Gross payment 5%owners, lessor, or distributors, whether individual or corporate

General Engineering/ Building/ Specialty Contractors

Gross payment 2%

Other Contractors Gross payment 2%


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RMC No. 39-2007 dated January 22, 2007RMC No. 39-2007 dated January 22, 2007

Tax Type Treatment

Tax treatment of agency fees and salaries of security guards

Income Tax Agency fees and salaries of the guards - deductible from gross income (subject to withholding tax rules)

Amount deductible should be net of VAT (except if taxpayer is not VAT registered)

Value-Added Tax

Can claim input tax on agency fees, if supported by VAT ORs (except if taxpayer is non-VAT)

Generally, no input VAT claimable on salaries of the guards


Withholding Tax

Agency fee – subject to 2% EWT

Salaries of guards – not subject to EWT if certain conditions are met


EWT RatesEWT Rates


Customs, insurance, stock, real estate, immigration and

Gross commissions or service fees (RR 17-2003)

10%

immigration and commercial brokers and agents of professional entertainers

17-2003)

Business establishments on payments made by credit card companies for sale of goods/services by each business entity to

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One-half (1/2) of gross payments

1%


cardholders

EWT RatesEWT Rates


Medical practitioners (including doctors of medicine veterinarians

Professional fees 15% -- if the income payments to medical practitioner exceedsmedicine, veterinarians

and dentists)practitioner exceeds P720,000

10% -- if the income payments to medical practitioner does not exceed P720,000



EWT RatesEWT Rates


Income payments by Top 20,000 private corporations* totheir local/resident suppliers oftheir local/resident suppliers of goods and services other than those covered by other rates of withholding tax

a. Supplier of goods Gross Selling Price,or total amount of goods or its equivalent

1%


b. Supplier of goods Gross Payments 2%

* If notified by the BIR as Top 20,000 Corporation (TTC)

► Payments to Meralco by TTC/GO/LT-

► EWT base: current amount due appearing in the billing statement.

► Payments to telecommunication companies by TTC/GO/LT on overseas dispatch message or con ersation originating in the Philippines

EWT Clarifications in RMC No. 72-2004EWT Clarifications in RMC No. 72-2004

dispatch, message or conversation originating in the Philippines

► EWT rate: 2%

► EWT base: amount paid less the overseas communications tax.

► Payment to Meralco and telecommunications companies by the TTC/GO/LT

► EWT rate: 2% as payment for services

► Payment for movie/concert tickets

EWT t 2% t f i



► Payment of interest on bank loans by the TTC/GO/LT and other fees paid to the bank

► EWT rate: 2%


► Payments for life and non-life insurance premium by the TTC/GO/LT to domestic/resident foreign insurance companies


P i t t i i th h b k t

EWT Clarifications in RMC No. 72-2004EWT Clarifications in RMC No. 72-2004

► Premium payments to insurance companies through brokers or agents or any other person authorized to receive/collect payment on behalf of the insurance company

► EWT rate: 2%

► Withholding agent: payor or person having control over the payment. However, payor is required to issue the certificate of taxes withheld (BIR Form No. 2307) in the name of the insurance company, not in the name of the insurance broker.


► Payment made to Health Maintenance Organizations (HMOs) by TTC/GO/LT


Final Withholding Tax (FWT)




► Full and final payment of the income tax due from the payee on a particular type of income subject to FWT (e.g., interest on deposits, royalties, etc.)

► Limited only to the payee’s income tax liability and does not extend► Limited only to the payee s income tax liability and does not extend to other taxes that may be imposed on said income.

► Liability for the payment of the tax rests primarily on the payor as withholding agent.

► Payee is not required to file an income tax return for the particular income subjected to FWT.


Commonly used FWT Rates Commonly used FWT Rates

Income Payment Tax Rate Payee

Gross income derived from all sources within the Philippines such

i t t di id d t

30% Non-residentForeign Corporationas interests, dividends, rents,

royalties, annuities emoluments, or other fixed or determinable annual, periodic or casual gains, profits and income and capital gains (except capital gains realized from sale, exchange, disposition of shares of stock in any domestic corporation

hi h i bj t t CGT)

Corporation


which is subject to CGT).

Interest income on Foreign Loans contracted on or after August 1, 1986

20% Non-residentForeign Corporation


Tax Treaty ReliefTax Treaty Relief

RMO No. 72-2010

► The following Tax Treaty Relief Applications (TTRAs) forms shall henceforth be adopted to implement this RMO:henceforth be adopted to implement this RMO:

Form No. Purpose

BIR Form No. 0901-P For Business Profits

BIR Form No. 0901-T For Profits from Shipping and Air Transport

BIR Form No. 0901-D For Dividend Income

BIR Form No. 0901-I For Interest Income

BIR Form No 0901 R For Royalty Income


BIR Form No. 0901-R For Royalty Income

BIR Form No. 0901-C For Capital Gains

BIR Form No. 0901-S For Income from Services

BIR Form No. 0901-O For Other Income Earnings

Tax Treaty Relief Applications: RMO 72-2010Tax Treaty Relief Applications: RMO 72-2010

► Shall only be submitted to and received by the International Tax Affairs Division (ITAD).

► Must be made BEFORE the transaction or before the first taxable event.

► Disqualification – failure to file with ITAD within the prescribed period



Fringe Benefit Tax (FBT)



► Fringe benefits furnished or granted to:

► Rank and file employees – part of the employee’s gross p y p p y gcompensation income subject to WTW.

► Non-rank and file employees – subject to FBT.

► EMPLOYER is liable to FBT.



Fringe Benefit Tax Rate and BaseFringe Benefit Tax Rate and Base

► FBT Rate and FBT Base– Generally – FBT rate = 32%; FBT base = monetary value of

benefit divide by 68%– Non-resident alien individual who is not engaged in trade or business

i th Phili i FBT t 25% FBT b t l fin the Philippines – FBT rate = 25%; FBT base = monetary value of benefit divide by 75%

– If given to: (1) an alien individual employed by regional or area headquarters of a multinational company or by regional operating headquarters of a multinational company; (2) an alien individual employed by an offshore banking unit of a foreign bank established in the Philippines; (3) an alien individual employed by a foreign service contractor or by a foreign service subcontractor engaged in petroleum operations in the Philippines; and (4) any of their Filipino


petroleum operations in the Philippines; and (4) any of their Filipino individual employees who are employed and occupying the same position as those occupied or held by the alien employees. – FBT rate =15%; FBT base = monetary value of benefit divide by 85%

► Gross Monetary Value (GMV) = Value of Benefit + FBT

Fringe Benefits NOT Subject to FBTFringe Benefits NOT Subject to FBT

1. Fringe benefits which are authorized and exempted from income tax under the Code or under any special law;

2. Contributions of the employer for the benefit of the employee to retirement insurance and hospitalization benefit plans;retirement, insurance and hospitalization benefit plans;

3. Benefits given to the rank and file, whether granted under a collective bargaining agreement or not;

4. De minimis benefits – as will be discussed in detail in later slides;

5. If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or


6. If the grant of the fringe benefit is for the convenience or advantage of the employer.

► If fringe benefit is exempt from FBT – may still form part of employee’s gross compensation income subject to WTW


Valuation of Fringe Benefits (FB)Valuation of Fringe Benefits (FB)

1. If FB is granted in money, or is directly paid for by the employer

The value of the FB is the amount granted or paid for.

2. If the FB is granted or furnished by the employer in property other than money and ownership is transferred to the employee

The value of the FB shall be equal to the FMV of the property as determined in accordance with Section 6(E) of the Tax Code (Authority of the Comm. To Prescribe Real Property Values).

3. If the FB is granted or furnished bythe employer in property other than

The value of FB is equal to the depreciation value of the property.


p y p p ymoney but ownership is not transferred to the employee

p p p y

Valuation of Fringe Benefits (FB)Valuation of Fringe Benefits (FB)

► Computation of the FBT would entail:

1. valuation of the benefit granted; and

2. determination of the proportion or percentage of the benefit which is subject to FBT –j

Nature of benefit given Valuation of Fringe Benefit

1. If FB is granted in money, or is directly paid for by the employer

Amount granted or paid for

2. If the FB is granted or furnished by the employer in property other than money and ownership is transferred to the employee

FMV of the property as determined in accordance with Section 6(E) of the Tax Code (Authority of the Comm. To Prescribe Real Property Values)


p y p y )

3. If the FB is granted or furnished bythe employer in property other than money but ownership is not transferred to the employee

Depreciation of the property


Common BenefitsCommon Benefits

► Housing

► Expense account

► Motor vehicle of any kind

► Household expenses

► Interest on loans at less than market rate to the extent of the difference between the market rate and actual rate granted

► Membership fees, dues, and other expenses borne by the employee in social and athletic clubs or other similar organizations

► Foreign travel expenses


► Holiday and vacation expenses

► Educational assistance to the employee and his dependents

► Life or health insurance and other non-life insurance premiums

► Stock options

Housing Privileges – NRFHousing Privileges – NRF

Housing Privilege Monetary Value

a. Lease of residential property for residential use of employees

MV = 50% x rental payments

Wh MV t l f FBWhere: MV = monetary value of FB

b. Assignment of residential property for use of employee as his usual place of residence

MV = [5% (FMV or ZV, whichever is higher)] x 50%


Where: FMV = Fair market value of the land improvement, as declared in the Real Property Tax Declaration Form

ZV = Zonal Value as determined by the Commissioner of Internal Revenue


Housing Privileges – NRFHousing Privileges – NRF

Housing Privilege Monetary Value

c. Purchase of residential property on installment basis for use of employees and ownership is not

MV = 5% x AC x 50%

Wh AC A i iti C temployees and ownership is not transferred to employees

Where: AC = Acquisition Cost, exclusive of interest

d. Purchase of residential property and ownership is transferred in the name of the employees

MV = AC or ZV, whichever is higher

e. Purchase of residential property and transfer of ownership to employees for residential use, at a

MV = FMV or ZV, (whichever is higher) - Cost to the employees


p yprice less than the employer’s acquisition cost

Motor Vehicle – NRFMotor Vehicle – NRF

Motor vehicles provided by the employer to its employees shall be treated as follows:

Motor Vehicle Monetary Value

a. Purchase of motor vehicle in the name of the employee

MV = ACMV = AC

b. Cash is given to the employee for the purchase of the vehicle, ownership is placed in the name of the employee

MV = Cash Received by the Employee

However, if the cash given by the employer to its employee is subjected to WTW, the same shall not be subject to FBT


same shall not be subject to FBT.

c. Purchase of car on installment basis, the ownership of which is placed in the name of the employee

MV = AC / 5Where:

AC = Acquisition Cost, exclusive of interest





d Employer shoulders a portion of the MV = Amount shouldered by thed. Employer shoulders a portion of the purchase price, the ownership of which is placed in the name of the employee

MV = Amount shouldered by the employer

e. Employer owns and maintains a fleet of motor vehicles for use of the business and the employees

MV = (AC/5) x50%Exceptions:

Motor vehicles in the fleet which are used for sales, freight, delivery, service and other non-personal use.


f. Employer leases and maintains a fleet of motor vehicles for the use of the business and the employees

MV = 50% x rentalpayments

Exceptions:

Motor vehicles in the fleet which are used for sales, freight, delivery, service and other non-personal use




g. The use of aircraft (including helicopters) owned and maintained by the employer shall be treated as used for business

N/A

(Not subject to FBT)

h. Use of yacht, whether owned or maintained or leased by the employer

MV = Depreciation over estimated useful life of 20 years


For “a” to “d”

► The entire MV of the benefit shall be treated as taxable fringe benefit regardless of whether the motor vehicle is used by the employee partly for his personal purpose and partly for the benefit of his employer.


Withholding Tax on Wages (WTW)



► “Compensation”

► All remuneration for services performed by an employee for his p y p yemployer under an employer-employee relationship, unless specifically excluded by the Tax Code.

► Even if the relationship of employer and employee does not exist any longer at the time when payment is made



WTW rateWTW rate

Rates for computation of Annualized Income*

Over But Not Amount Rate Of Excess Over Over

not o er 10 000 5%not over 10,000 5%

10,000 30,000 500+10% 10,000

30,000 70,000 2,500+15% 30,000

70,000 140,000 8,500+20% 70,000

140,000 250,000 22,500+25% 140,000

250,000 500,000 50,000+30% 250,000


500,000 over 125,000+32% 500,000

* Note that there are different tax tables for monthly/ semi-monthly/ weekly/ bi-weekly rates depending on the payroll period.

List of “De Minimis” Benefits: RR No. 5-2011 List of “De Minimis” Benefits: RR No. 5-2011

a) Monetized unused vacation leave credits of private employees not exceeding 10 days during the year;

b) Monetized value of vacation and sick leave credits paid to government officials and employees;officials and employees;

c) Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month;

d) Rice subsidy of P1,500 or 1 sack of 50 kg rice per month amounting to not more than P1,500;

e) Uniform and clothing allowance not exceeding P4,000 per annum; (Now P5,000 effective January 1, 2012 per RR No. 8-2012)

f) Actual medical assistance, e.g., medical allowance to cover medical and


) ghealthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000 per annum;

g) Laundry allowance not exceeding P300 per month;


List of “De Minimis” BenefitsList of “De Minimis” Benefits

h) Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000, received by the employee under an established written plana which does not discriminate in favor of highly paid employees;

i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;

j) Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum wage on a per region basis.

B fi i h d b


► Benefits given that are not enumerated above

► Not considered as “de minimis” benefits,

► Shall be subject to income tax as well as withholding tax on compensation income (shall mean FBT if given to NRF employees)

Employees Qualified for Substituted FilingEmployees Qualified for Substituted Filing

a) Receiving purely compensation income (regardless of amount) during the taxable year

b) Receiving the income only from one employer in the Philippines duringb) Receiving the income only from one employer in the Philippines during the taxable year

c) Amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer

d) Spouse also complies with all 3 conditions stated above.

e) Employer files the annual information return (BIR Form No. 1604-CF)


e) Employer files the annual information return (BIR Form No. 1604 CF)

f) Employer issues BIR Form 2316 (Oct 2002 ENCS) version to each employee


Employees NOT Qualified for Substituted FilingEmployees NOT Qualified for Substituted Filing

A. Deriving compensation from two or more employers concurrently or successively at anytime during the taxable year.

B D i i ti i dl f th t h th fB. Deriving compensation income, regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return.

C. Whose gross compensation income do not exceed the statutory minimum wage or Five Thousand Pesos (P5,000.00) per month (Sixty Thousand Pesos [PHP 60,000] a year, whichever is higher, including employees of the government of the Philippines or any of its political subdivisions


the government of the Philippines, or any of its political subdivisions, agencies or instrumentalities, with salary grades 1 to 3.

Employees NOT Qualified for Substituted FilingEmployees NOT Qualified for Substituted Filing

D. Deriving other non-business, non-profession-related income in addition to compensation income not otherwise subject to a final tax.

E R i i l ti i f i l l lth hE. Receiving purely compensation income from a single employer, although the income tax of which has been correctly withheld, but whose spouse falls under Section 2.83A(A), (B), (C) and (D) of these Regulations.

F. Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income, or compensation income and other non-business, non-profession-related income.”





Deadlines for Filing and Payment of WT

Information Manual EFPS

1. Monthly Return (BIR Form 1601)*

Filing - Within 10 days after the end of each month except for taxes withheld for

Filing - Within 15 days after the end of each month except for taxes withheld for except for taxes withheld for

the month of December each year, which shall be filed on or before January 15 of the following year

Payment - within 10 days after the end of each month, except for taxes withheld for the month of December

except for taxes withheld for the month of December each year, which shall be filed on or before January 20 of the following year

Payment - within 15 days after the end of each month, except for taxes withheld for the month of December


the month of December each year, which shall be paid on or before January 15 of the following year

the month of December which shall be paid on or before January 20 of the following year

* Pursuant to Revenue Regulation (RR) No. 26-2002, taxpayers enrolled in the EFPS shall observe the staggered filing deadlines of their tax returns of taxpayers based on industry classification.



2. Monthly Alphalist of Payees (MAP) Whose Income Recei ed Ha e

Within 10 days after the end of each month except for ta es ithheld for the

Within 15 days after the end of each month except for ta es ithheld for the


Income Received Have Been Subjected to Withholding Tax

for taxes withheld for the month of December each year, which shall be filed on or before January 15 of the following year

for taxes withheld for the month of December each year, which shall be filed on or before January 20 of the following year

3. Semestral List of Regular Suppliers of Goods and Services**

On or before January 31 and July 31 of each year.

On or before January 31 and July 31 of each year.


** Only applicable to Companies that are considered as one of the Top 10,000 (Now Top 20,000) Private Corporations


4. Annual Information Return of Creditable Income Taxes Withheld (E d d)/I

On or before March 1 of the following year

On or before March 1 of the following year


(Expanded)/Income Payments Exempt from Withholding Tax (BIR Form 1604-E)

5. Certificates of Creditable Tax Withheld (BIR Form No. 2307) - to be issued by the payor to the payee

Within twenty (20) days following the close of the taxable quarter employed by the payee in filing his quarterly income tax return

Within twenty (20) days following the close of the taxable quarter employed by the payee in filing his quarterly income tax return


payee quarterly income tax return. quarterly income tax return.

6. Annual Information Return of Taxes Withheld (BIR Form No. 1604 -CF)

to be filed with the revenue district office on or before January 31 of the following year in which payments were made.

to be filed with the revenue district office on or before January 31 of the following year in which payments were made.



7. Withholding VAT Return (BIR Form 1600)

Deadline of filing and payment: 10th day of the following month



following month following month

8. Fringe Benefit Tax (BIR Form 1603) - Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other than


Deadline of filing and payment shall be five (5) days later than the deadline set under the manual filing and payment system


Employees Other than Rank and File

Question and Answers


Common-Taxes -Income-Tax VAT OPT WT v2

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