Summary Philippine Income Tax Formula

Different Taxpayers and Income Tax Treatments

S u b m i t t e d b y :

[ T y p e t h e c o m p a n y a d d r e s s ]

S u b m i t t e d t o :

A t t y . V i c e n t e V i l l a C a n o n e o

F i r s t S e m e s t e r - S . Y . 2 0 1 3 - 2 0 1 4

Lyndon Cena Sections 22 to 83 of the National and Internal Revenue Code (NIRC) of 1997 provides the different kinds of taxpayers, the sources of their income and the corresponding income tax treatments.

P a g e | 1

T A B L E O F C O N T E N T S

P A G E ( S )

0 INDIVIDUAL 2- 9

0 RESIDENT CITIZEN.. 2

0 Pure Compensation. 2

0 Engaged in Trade/Business 3

1.1.3 Compensation Income Earner and Engaged with Trade/Business.. 4

1.2 NON-RESIDENT CITIZEN.. 5

1.3 RESIDENT ALIEN.. 6

1.4 NON-RESIDENT ALIEN.... 7

1.4.1 Engaged in Trade/Business... 7

1.4.2 Not Engaged in Trade/Business... 8

1.4.3 Employed by Multinational Corporations, Offshore Banking Units

and Petroleum Service Contractor/Subcontractor.. 9

1.5 ESTATES AND TRUSTS.. 10

2.0 CORPORATIONS. 11-16

0 Domestic Corporation 11

2.2 Special Corporation 12

2.3 Foreign Corporation .. 13

2.3.1 Resident Foreign Corporation . 14

2.3.2 Non- Resident Foreign Corporation 15

2.4 Partnership 16

2.4.1 Partnership In General 16

2.4.2 General Professional Partnership. 11

3.0 ANNEXES. 16-

P a g e | 2

1.0. INDIVIDUAL 1.1 Resident Citizen1 Situs: Within and Outside the Philippines

1.1.1 Pure Compensation

1 Section 23(A) of NIRC 2 Section 35(A) of NIRC 3 Section 34(M) of NIRC 4 Section 35(B) of NIRC 5 Section 24(A) of NIRC

Compensation Income (Including Fringe Benefits) P XXXXXLess: Personal deduction2 P XXXXX

Premium Payments on Health Insurance3 XXXXX P (XXXXX)Taxable Income P XXXXXLess: Additional Deduction4 (XXXXX)Net Taxable Income P XXXXXLess: Tax Due5

Net Taxable Income P XXXXXMultiply by: Tax Rate (Schedular Rate) 5%- 32% P XXXXX

Net Income P XXXXX

P a g e | 3

1.1.2 Engaged in Trade/Business 6 see Annex A 7 Section 42 of NIRC; see Annex B 5 Section 34 of NIRC 9 Section 34(L) of NIRC 10 RR No. 02-10 (see Annex C) provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5% for Service Industries on Net Sales 11 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other method; same section provides for applicable useful life 12 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited corporations/association, & 30% level of administration expense. 13Section 42(B) of NIRC 14 Section 35(A) of NIRC 15 Section 34(M) of NIRC 16 Section 35(B) of NIRC 17 Section 24(A) of NIRC

Sales/Revenues/Receipts/Fees P XXXXLess: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services 6 (XXXX)Gross Income P XXXXAdd: Non-Operating & Other Income7 XXXXTotal Gross Income P XXXXLess: Allowable Deductions 8/Optional Standard Deduction 9

a) Ordinary and Necessary Expenses in Trade/Busines/Profession P XXXX1 . Salaries and Allowance2 . Transporatation & Travel Expenses3 . Rental Expense4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10 10

b) Interest XXXXc) Taxes XXXXd) Losses XXXXe) Bad Debts XXXXf) Depreciation 11 XXXXg) Depletion XXXXh) Charitable and other contributions 12 XXXXi) Research and Development XXXXj) Pension Trusts XXXX P (XXXX)

Taxable Income13 P XXXXLess: Personal Deduction14 P XXXX

Premium on Health Insurance15 XXXX Additional Deduction16 XXXX P (XXXX)

Net Taxable Income P XXXXLess: Tax Due17

Multiply by: Tax Rate 5-32%NET INCOME P XXXX

P a g e | 4

1.1.3 Compensation Income Earner and Engaged in Trade/Business

18 see Annex A 19 Section 42 of NIRC; see Annex B 20 Section 34 of NIRC 21 Section 34(L) of NIRC 22 RR No. 02-10 provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5% for Service Industries on Net Sales 23 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other method; same section provides for applicable useful life 24 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited corporations/association, & 30% level of administration expense. 25Section 42(B) of NIRC 26 Section 35(A) of NIRC 27Section 34(M) of NIRC 26 Section 35(B) of NIRC 29 Section 24(A) of NIRC

Compensation IncomeAdd: Income from Trade/Business

Sales/Revenues/Receipts/Fees P XXXXLess: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services18 (XXXX)Gross Income P XXXXAdd: Non-Operating & Other Income19 XXXXTotal Gross Income P XXXXLess: Allowable Deductions 20/Optional Standard Deduction21



Taxable Income from Trade/Business25 P XXXXLess: Personal Deduction26 P XXXX

Premium on Health Insurance27 XXXX

Additional Deduction28 XXXX P (XXXX)Net Taxable Income P XXXXLess: Tax Due29

Multiply by: Tax Rate 5-32%NET INCOME P XXXX

P a g e | 5

1.2 NON- RESIDENT CITIZEN30 Situs: Within the Philippines31 30 Section 22(E) of NIRC in relation with Section 23(C) of NIRC 31 Section 23 (B) of NIRC

Income from Within the Philippines P XXXXOther than those in Section 24(B), (C) and (D) of the NIRCLess: Personal Deduction P XXXX

Premium on Health Insurance XXXX Additional Deduction XXXX P (XXXX)

Net Taxable Income P XXXXLess: Tax Due

Net Taxable Income P XXXX Multiply by: Tax Rate 5%-32% P (XXXX)

NET INCOME P XXXX

P a g e | 6

1.3 RESIDENT ALIEN32 Situs: Within the Philippines33 32 Section 22(F) of NIRC 33 Section 23 (D) of NIRC





NET INCOME P XXXX

P a g e | 7

1.4 NON-RESIDENT ALIEN34 1.4.1 Engaged in Trade/Business (ETB) Situs: Within the Philippines35

32 Section 22(G) of NIRC in relation to Section 25(A)(1) 33 Section 23 (D) of NIRC





NET INCOME P XXXX

P a g e | 8

1.4.2 Not Engaged in Trade/Business (NETB) Situs: Within the Philippines37 36 Section 22(G) of NIRC in relation to Section 25(B) 37 Section 23 (D) of NIRC

Income from Within the Philippines (Sec. 42(A))Interests P XXXXDividends XXXX

Domestic Intra-corporate dividends- exempt from Income Tax XXXXRents XXXXSalaries, Wages, Compensation, Remuneration & Emoluments XXXXPremiums & Annuities XXXXOther fixed, determinable annual or periodic or casual gains, profits and income and capital gains XXXXGross Income P XXXXLess: Tax Due

Gross Income P XXXX Multiply: Tax Rate 25% P XXXX

NET INCOME P XXXX

P a g e | 9

1.4.3 Employed by Regional/Area Headquarters and Regional Operating Headquarters of Multinational Corporations, Offshore Banking Units, or Service Contractors/Subcontractors Engaged in Petroleum Operations in the Philippines38 Situs: Within the Philippines 38 Section 25(B) to (E) of NIRC 39 Supra

Salaries P XXXXWages XXXXAnnuities XXXXRemuneration XXXXOther Emoluments XXXX

Honoraria XXXXAllowances XXXX

Gross Income P XXXXLess: Tax Due

Gross Income P XXXX Multiply: Tax Rate39 15% P XXXX

NET INCOME P XXXX

P a g e | 10

1.5 Estates and Trusts40

Situs: Within and Outside the Philippines 40 Section 60 66 of NIRC

Income from:Property held in trust P XXXXIncome accumulated for benefit of unborn/unascertained person of fof future distribution XXXXIncome distributed currently by fiduciary to beneficiaries XXXXIncome collected by guardian of an infant XXXXIncome received during administration/settlement XXXXIncome subject to discretion of fiduciary- weither be distributed/accumulated XXXXExcept:Pension, Stock bonus or profit sharing planGross Income P XXXXLess: Allowable deductions/Optional Standard Deduction P XXXX

Distribution to Beneficiaries, heirs & legatees XXXX P20,000.00 (Exemption) 20,000.00 P (XXXX)

Less: Tax Due P XXXX Gross Income P XXXX Multiply: Tax Rate 5-32% P XXXX

NET INCOME P XXXX

P a g e | 11

2.0 CORPORATIONS

2.1 Domestic Corporations1 Situs: Within and Outside the Philippines2

1 Section 22(C) of NIRC - means those created/organized in the Philippines under its laws. 2 Section 23(E) of NIRC in relation with Section 42 of the same code. 3 see Annex A 4 Section 42 of NIRC; see Annex B 5 Section 34 of NIRC 6 Section 34(L) of NIRC 7 RR No. 02-10 provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5% for Service Industries on Net Sales 8 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other method; same section provides for applicable useful life 9 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited corporations/association, & 30% level of administration expense. 10Section 42(B) of NIRC 11 Section 27(A) of NIRC 12 Section 27(E) of NIRC 13 Section 27(A) of NIRC

Sales/Revenues/Receipts/Fees P XXXXLess: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services3 (XXXX)Gross Income P XXXXAdd: Non-Operating & Other Income4 XXXXTotal Gross Income P XXXXLess: Allowable Deductions 5/Optional Standard Deduction 6



Taxable Income10 P XXXXLess: Tax Due

Multiply by: Tax Rate1. Whichever would result to a higher tax due

a . Normal Corporate Income Tax11 30%b . Minimum Corporate Income Tax12 2%

2. Optional Corporate Income Tax13 15%NET INCOME P XXXX

P a g e | 12

2.2 SPECIAL CORPORATIONS14 Situs: Within and Outside the Philippines15

14 Section 27(B) of NIRC 15 Section 23(E) of NIRC in relation with Section 42 of the same code. 16 see Annex A 17 Section 27(E)(4) of NIRC which Gross Income from related activity 18 Section 27(B) of NIRC- Gross Income from unrelated activities exceeds 50% of the Gross Income in Section 27(A) of NIRC shall apply, as if Domestic Corporation 19 Section 34 of NIRC 20 Section 34(L) of NIRC 21 RR No. 02-10 provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5% for Service Industries on Net Sales 22 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other method; same section provides for applicable useful life 23 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited corporations/association, & 30% level of administration expense. 24Section 42(B) of NIRC 25 Section 27(A) of NIRC

Revenues/Receipts/Fees P XXXXLess: Cost of Services16 (XXXX)Gross Income17 P XXXXAdd: Gross Income from unrelated activity18 P XXXX

Less: Allowable Deductions 19/Optional Standard Deduction 20a) Ordinary and Necessary Expenses in Trade/Busines/Profession P XXXX

1 . Salaries and Allowance2 . Transporatation & Travel Expenses3 . Rental Expense4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10 21



Multiply by: Tax Rate25 30%NET INCOME P XXXX

P a g e | 13

2.3. FOREIGN CORPORATION

2.3.1 Resident Foreign Corporation- In Gerneral26

Situs: Within the Philippines27

26 Section 28(A)(1) of in relation to Section 22(H) NIRC, in contrast with Corporations with different tax rate as regards Section 28(A)(3), (4) and (6) of the same Code. 27 Section 23(F) of NIRC 28 Section 42 of the NRC 29 see Annex A 30 Section 42 of NIRC; see Annex B 31 Section 34 of NIRC 32 Section 34(L) of NIRC 33 RR No. 02-10 provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5% for Service Industries on Net Sales 34 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other method; same section provides for applicable useful life 35 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited corporations/association, & 30% level of administration expense. 36Section 42(B) of NIRC 37 Section 27(A) of NIRC with different tax rate as regards Section 28(A)(3), (4) and (6) of the same Code as cited in Note 26. 38 Section 27(E) of NIRC 39 Section 27(A) of NIRC

Sales/Revenues/Receipts/Fees P XXXXLess: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services28 (XXXX)Gross Income29 P XXXXAdd: Non-Operating & Other Income30 XXXXTotal Gross Income P XXXXLess: Allowable Deductions 31/Optional Standard Deduction 32




Multiply by: Tax Rate1. Whichever is higher

1 . Normal Corporate Income Tax37 30%2 . Minimum Corporate Income Tax38 2%

2. Optional Corporate Income Tax39 15%NET INCOME P XXXX

P a g e | 14

2.3.2 NON-RESIDENT FOREIGN CORPORATION- In Gerneral40 Situs: Within the Philippines41

40 Section 28(B)(1) in relation to Section 22(I) of NIRC. 41 Section 23(F) of NIRC 42 Section 28(B)(1)) of NIRC 43 Section 27(A) of NIRC

Interests P XXXXDividends XXXXRents XXXXRoyalties XXXXSalaries XXXXPremiums (except reinsurance premiums) XXXXAnnuities XXXXEmoluments XXXXCapital Gains (except those subject to capital gains tax) XXXXOthers XXXXGross Taxable Income42 P XXXXLess: Tax Due

Multiply by: Tax Rate1 . Normal Corporate Income Tax43 30%

NET INCOME P XXXX

P a g e | 15

2.4 PARTNERSHIP

2.4.1 Partnership in General44

Situs: Within and Outside the Philippines

44 same treatment with Domestic Corporation

Sales/Revenues/Receipts/Fees P XXXXLess: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services (XXXX)Gross Income P XXXXAdd: Non-Operating & Other Income XXXXTotal Gross Income P XXXXLess: Allowable Deductions /Optional Standard Deduction

a) Ordinary and Necessary Expenses in Trade/Busines/Profession P XXXX1 . Salaries and Allowance2 . Transporatation & Travel Expenses3 . Rental Expense4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10

b) Interest XXXXc) Taxes XXXXd) Losses XXXXe) Bad Debts XXXXf) Depreciation XXXXg) Depletion XXXXh) Charitable and other contributions XXXXi) Research and Development XXXXj) Pension Trusts XXXX P (XXXX)

Taxable Income P XXXXLess: Tax Due

Multiply by: Tax Rate1. Whichever would result to a higher tax due

a . Normal Corporate Income Tax 30%b . Minimum Corporate Income Tax 2%

2. Optional Corporate Income Tax 15%NET INCOME P XXXX

P a g e | 16

2.3 PARTNERSHIP 2.3.1 General Professional Partnership 45

Situs: Within and Outside the Philippines

45 same treatment with Domestic Corporation with the exception that Income Tax is not imposable as provided in Section 26 of the Tax Code

Sales/Revenues/Receipts/Fees P XXXXLess: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services (XXXX)Gross Income P XXXXAdd: Non-Operating & Other Income XXXXTotal Gross Income P XXXXLess: Allowable Deductions /Optional Standard Deduction

a) Ordinary and Necessary Expenses in Trade/Busines/Profession P XXXX1 . Salaries and Allowance2 . Transporatation & Travel Expenses3 . Rental Expense4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10

b) Interest XXXXc) Taxes XXXXd) Losses XXXXe) Bad Debts XXXXf) Depreciation XXXXg) Depletion XXXXh) Charitable and other contributions XXXXi) Research and Development XXXXj) Pension Trusts XXXX P (XXXX)

NET INCOME P XXXX

P a g e | 17

ANNEXES

ANNEX B- Section 42 of NIRC

Non-operating Income & Other Income within Phils.Income from Within the Philippines (Sec. 42(A))InterestsDividends

Domestic Intra-corporate dividends- exempt from Income TaxForeign corporation- 50% Rule

ServicesRentals & RoyaltiesSale of Property

Income from Outside the Philippines (Sec. 42(C))Interests (Other than those derived in Sec. 42(A))Dividends (Other than those derived in Sec. 42(A))Services from outside the PhilippinesRentals & Royalties from outside the Philippines

ANNEX A- Cost of Goods Sold/Manufactured & Sold/Cost of Sales/ServicesSection 27(A) of NIRC

Inventory- beginning P XXXXXAdd: Purchases XXXXXRaw Materials Available for Sale P XXXXXLess: Inventory-ending (XXXXX)Cost of Goods Sold P XXXXX

Inventory- beginning P XXXXXAdd: Purchases-beginning XXXXXRaw Materials Available for Use P XXXXXLess: Purchases-ending (XXXXX)Raw Materials Used P XXXXXAdd: Direct Labor P XXXXX Manufacturing Over-head XXXXX P XXXXXCost of Goods Manufactured P XXXXXLess: Inventory-ending (XXXXX)Cost of Goods Manufactured & Sold P XXXXX

Salaries & Wages P XXXXXAdd: Other Direct Cost* XXXXXCost of Sales/Services P XXXXX* Other cost necessary for the sale of service

P a g e | 18

ANNEX C-Other Provisions of NIRC

Annex C-1 Income Tax Treatment to Passive Incomes of Individuals

FINAL TAX RATES ON PASSIVE INCOMES

Resident Non-resident ETB NETB5

1 . Royalties 20% 10% 10% 20% 25% Royalties on books, literary works and musical compositions 10% 10% Exempt 10% 25%

2 . Prizes and Other Taxable Winnings1 20% 10% 10% 20% 25%3 . Interest Income from Philippine Currency Bank Deposits, xxx 20% 20% 20% 20% 25%4 . Interst Income from Long-term Deposit Instruments2 5%- 20% 20% Exempt Exempt 25%5 . Interst Income from Foreign Currency Bank Deposits 7.50% 7.50% 7.50% - -6 . Cash and/or Property Dividends 10% 10% 10% 10% 25%7 . Capital Gains from Sale of Shares of Stock Not Traded in Stock Exchange3 5% / 10% 5% / 10% 5% / 10% 5% / 10% 5% / 10%8 . Capital Gains from Sale of Real Property4 6% 6% 6% 6% 6%

1 On Citizen- Except Prizes amounting to P10,000.00 or less which are subject to Section 24(A)and PCSO and Lotto Winnings

2 On Alien- Provided that before 5 yrs holder thereof pre-terminates such, final tax shall be imposedon the total amount subject to Section 25 (A)(2) of NIRC

3 On Citizen- Section 24 (C) of NIRC4 On Citizen- Section 24 (D) of NIRC

Moreover,(a) if is sold to the government/any political subdivisions/GOCC's, 6% final tax is at the option of taxpayers. (b) If proceeds is from disposition of prinsipal residence and is fully utilized in acquiring new prinsipal residence

within 18 months from date of disposition. The capital gains is exempt from tax subject to conditions setforth in Section 24(D).

5 Subject to 25% Tax Rate on Gross Income pursuant to Section 25(B) of NIRC except Capital Gains as provided in number 7 & 8

Passive IncomesNon-resident

AlienCitizen

Resident

P a g e | 19

Annex C-2 Income Tax Treatment to Passive Incomes of Corporations

Annex C-3 Exclusions from Gross Income (Section 32(B) of NIRC)

FINAL TAX RATES ON PASSIVE INCOMES

1 . Royalties 20% 20% 10% 25% -2 . Interest Income from Philippine Currency Bank Deposits, xxx 20% 20% 20% 25% -2 . Interst Income from Expanded Foreign Currency Bank Deposits 7.50% 7.50% 7.50% 7.50% Exempt

Interest Income from Foreign Loans - - - - 20%4 . Cash and/or Property Dividends 10% 10% 10% 10%

Intra-corporate dividends from domestic corporation1 Exempt Exempt Exempt Exempt 15%5 . Capital Gains from Sale of Shares of Stock Not Traded in Stock Exchange 5% / 10% 5% / 10% 5% / 10% 5% / 10% 5% / 10%6 . Capital Gains from Sale of Real Property 6% 6% 6% 6% -

1 On Non-resident Foreign Corporation-Pursuant to Section 28 (B) of NIRC

Non-resident

Foreign Corporation

Passive IncomesResident

Domestic Corporations ETB NETB

1 . Proceeds from Life Insurance2 . Return of Premiums3 . Gifts, Bequests and Devices4 . Compensation of Injuries/Sickness5 . Income exempt under Treaty6 . Retirement Benefits, Pensions, Gratuitites, etc.7 . (a) Retirement Benefits

(b) Any amount received by an official/ employee/by his heirs from employer as consequence of separation xxx(c) Social security benefits- SSS benefits, and GSIS benefits(d) Benefits received under States Veterans Administration

8 . Miscellaneous Items(a) Income Derived by Foreign Government(b) Income Derived by the Gov't/Political Subdivisions(c) Prizes and awards from recognition of religious, charitable, scientific, educational, xxx(d) Prizes and awards in Sports Competition sanctioned by national sports associations(e ) 13th Month Pay and Other Benefits subject to P30,000.00 ceiling(f) GSIS, SSS, Medicare and Other contributions(g) Gains from Sale of Bonds, Debentures or Other Certificates of Indebtedness with maturity of more than 5 years(h) Gains from Redemption of Shares in Mutual Fund

P a g e | 20

Annex C-4 Taxability of Other Resident Foreign Corporations (Section 28(A) of NIRC)

Annex C-5 Taxability of Non-Resident Foreign Corporations in Particular (Section 28(B) of NIRC)

With Income Tax Rate other than 30%Tax Rate

International air carriers 2.50%International shipping companies 2.50%Offshore Banking Units 10%Branches of Head Office 15%Regional/Area Headqurters of Multinational Companies ExemptRegional Operating Headqurters of Multinational Companies 10%

With Income Tax Rate other than 30%Tax Rate

Cinematographic film owners, lessors/ distributors 25.00%Owners/lessors of Vessels chartered by Philippine Nationals 4.50%Owners/lessors ot Aircraft, machineries and other equiptments 7.50%

P a g e | 21

Annex C-6 Income tax Exempt Corporations (Section 30 of NIRC)

Annex C-7 Fringe Benefit (Section 33 of NIRC)

Any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees as defined herein) such as, but not limited to, the following:

1. Housing; 2. Expense account; 3. Vehicle of any kind; 4. Household personnel, such as maid, driver and others; 5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted; 6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations; 7. Expenses for foreign travel; 8. Holiday and vacation expenses; 9. Educational assistance to the employee or his dependents; and 10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.

Computation:

Gross Factor x FBT RateTotal Monetary Value=FBT

1 . Labor, agricultural or horticultural organization not organized principally for profit; 2 . Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated

for mutual purposes and without profit; 3 . A beneficiary society, order or association, operating fort he exclusive benefit of the members such as a fraternal organization operating

under the lodge system, or mutual aid association or a nonstock corporation organized by employees providing for the payment of life,sickness, accident, or other benefits exclusively to the members of such society, order, or association, or nonstock corporation or their dependents;

4 . Cemetery company owned and operated exclusively for the benefit of its members; 5 . Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes,

or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inures to the benefit of any member, organizer, officer or any specific person in relation to RMC 76-2003

6 . Business league chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stock-holder, or individual;

7 . Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; 8 . A nonstock and nonprofit educational institution in relation to RMC 76-20039 . Government educational institution;

10 . Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from membersfor the sole purpose of meeting its expenses; and

11 . Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them;

P a g e | 22

Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under this Section:

1. Fringe benefits which are authorized and exempted from tax under special laws; 2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; 3. Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and 4. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.

Annex C-8 Computation of Interest (Section 34(B) of NIRC)

Annex C-9 Additional Requirements for Deductibility of Certain Payments (Section 34(K) of NIRC)

In relation to RR No. 12-2013 dated July 12, 2013

Pursuant to Section34 (K) of NIRC providing for additional requirements for deductibility of certain income payments whereby deductions shall only be allowed when it is shown the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this Section 58 and 81 of this Code, in view of the authority granted to the CIR to promulgate rules and regulations (Section 244 of NIRC), Section 2.58.5 of RR No. 02-98 is hereby amended as follows:

Section 2.58.5- Requirement for Deductibility - Any income payment which is otherwise deductible under

the Code shall be allowed as a deduction from the payor's gross income only if it is shown that the income tax required to be withheld has been paid to the Bureau in accordance with Secs. 57 and 58 of the Code.

No deduction will also be allowed notwithstanding payments of withholding tax at the time of audit investigation or reinvestigation/reconsideration in case no withholding of tax was made in accordance with Sections 57 and 58 of the Code,

(1) In GeneralAllowable Interest

Interest Expense P XXXXLess:

Interest Income P XXXXXMutiply by: Tax Rate 33% P XXXX

Allowable Interest P XXXX

(2) Exceptions - No deduction shall be allowed in respect of interest under the succeeding subparagraphs: (a) If within the taxable year an individual taxpayer reporting income on the cash basis incurs an indebtedness

on which an interest is paid in advance through discount or otherwise: Provided, That such interest shall be allowed a a deduction in the year the indebtedness is paid: Provided, further, That if the indebtedness is payable in periodic amortizations, the amount of interest which corresponds to the amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year;

(b)If both the taxpayer and the person to whom the payment has been made or is to be made are persons specified under Section 36 (B); or (c)If the indebtedness is incurred to finance petroleum exploration.

P a g e | 23

Annex C-10 Items which are not deductible (Section 36 of NIRC)

(A) General Rule. - In computing net income, no deduction shall in any case be allowed in respect to -

(1) Personal, living or family expenses;

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

This Subsection shall not apply to intangible drilling and development costs incurred in petroleum operations which are deductible under Subsection (G) (1) of Section 34 of this Code.

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

(4) 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.

(B) Losses from Sales or Exchanges of Property. - In computing net income, no deductions shall in any case be allowed in respect of losses from sales or exchanges of property directly or indirectly -

(1) Between members of a family. For purposes of this paragraph, the family of an individual shall include only his brothers and sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants; or

(2) Except in the case of distributions in liquidation, between an individual and corporation more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual; or

(3) Except in the case of distributions in liquidation, between two corporations more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for the same individual if either one of such corporations, with respect to the taxable year of the corporation preceding the date of the sale of exchange was under the law applicable to such taxable year, a personal holding company or a foreign personal holding company;

(4) Between the grantor and a fiduciary of any trust; or

(5) Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust; or

(6) Between a fiduciary of a trust and beneficiary of such trust.

P a g e | 24

Annex C-11 Revenue Memorandum Circular (RMC) 31-2013 dated April 12, 2013 Guidelines on the Taxation of Compensation of Philippine and Alien Individuals Employed by Foreign Governments/Embassies/Diplomatic Missions and International Organizations Situated in the Philippines

International comity has provided Governments/Embassies/Diplomatic Missions and International Organizations Situated in the Philippines acting as employers enjoy the immunity from collecting taxes on salaries and emoluments of their employees, whether they are foreigners or Philippine nationals.

In relation, Section 2.78.1(B)(5) of RR No. 02-98 providing for the exemption from withholding tax on compensation on compensation for services by a citizen or resident of the Philippines for a foreign government or an international organization, the said provision on exemption on withholding does not equate to the exemption from paying income tax itself pursuant to Section 23 Subsections (A) and (D) of the Tax Code. International Agreements which grant withholding tax immunity to foreign governments/embassies/diplomatic missions and international organizations must expressly and unequivocally provide for exemptions from payment of income taxes on specified employees of the said institutions. Those not covered shall be subject to the general rule on taxability of Philippine nationals and alien individuals.

Summary Philippine Income Tax Formula

Documents

Transcript of Summary Philippine Income Tax Formula