Bir-2019-income-tax-description.docx

Income Tax Description Edited By: Prof. Fabian Ceasar B.Exmundo, CPA, MSTax

Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the deductions if any, authorized for such types of income, by the Tax Code, as amended, or other special laws.

Who are Required to File Income Tax Returns? Individuals • Resident citizens receiving income from sources within or outside the Philippines

1) Employees deriving purely compensation income from two or more employers, concurrently or successively at any time during the taxable year 2) Employees deriving purely 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 3) Self-employed individuals receiving income from the conduct of trade or business and/or practice of profession 4) Individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession

5) Individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax 6) Individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing 7) Non-resident citizens receiving income from sources within the Philippines 8) Aliens, whether resident or not, receiving income from sources within the Philippines

Non-Individuals 1) Corporations including partnerships, no matter how created or organized. 2) Domestic corporations receiving income from sources within and outside the Philippines 3) Foreign corporations receiving income from sources within the Philippines 4) Estates and trusts engaged in trade or business

Annual Income Tax For Individuals Earning Purely Compensation

Income (Including Non-Business/Non-Profession Related Income) BIR Form 1700 - Annual Income Tax For Individuals Earning Purely Compensation Income (Including Non-Business/Non-Profession Related Income) Documentary Requirements 1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316) 2. Duly approved Tax Debit Memo, if applicable 3. Proofs of Foreign Tax Credits, if applicable 4. Income Tax Return previously filed and proof of payment, if filing an amended

return for the same taxable year. Procedures 1. For Electronic Filing and Payment System (eFPS) Filer a.

Fill-up applicable fields in the BIR Form No. 1700

b.

Pay electronically by clicking the "Proceed to Payment" button and fill-up the required fields in the "eFPS Payment Form" click "Submit" button.

c.

Receive payment confirmation from eFPS-AABs for successful e-filing and e-payment. 2. For Non-eFPS Filer

a. b. c.

Fill-up applicable fields in the BIR Form No. 1700 in the downloaded Electronic Bureau of Internal Revenue Form (eBIRForm) Package Print the duly accomplished BIR Form No. 1700 Proceed to the nearest Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1700, together with the required

attachments and your payment. d.

In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1700, together with the required attachments and your payment.

e.

Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer. 3. For Manual Filer

a.

Fill-up the BIR Form No. 1700 in triplicate copies.

b.

Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form 1700, together with the required attachments.

c.

Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

Deadline

On or before the 15th day of April of each year covering taxable income for calendar year 2018 and thereafter.

Annual Income Tax For Individuals, Estates, and Trusts BIR Form 1701 - Annual Income Tax Return Individuals, Estates and Trusts Documentary Requirements 1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if

applicable 2. Certificate of Income Payments Not Subjected to Withholding Tax (BIR Form

2304), if applicable 3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable 4. Duly approved Tax Debit Memo, if applicable 5. Proof of Foreign Tax Credits, if applicable 6. Income Tax Return previously filed and proof of payment, if filing an amended

return for the same year 7. Account Information Form (AIF) or the Certificate of the independent Certified

Public Accountant (CPA) with Audited Financial Statements if the gross annual sales, earnings, receipts or output exceed three million pesos (P3,000,000.00) 8. Account Information Form or Financial Statements not necessarily audited by an

independent CPA if the gross annual sales, earnings, receipts or output do not exceed P3,000,000.00 and is subject to graduated income tax rates under Section 24(A)(2)(a) 9. Proof of prior year’s excess tax credits, if applicable

Procedures

1. For eFPS Filer a.

Fill-up applicable fields in the BIR Form No. 1701

b.

Pay electronically by clicking the “Proceed to Payment” button and fill-up the required fields in the “eFPS Payment Form” then click “Submit” button.

c.

Receive payment confirmation from eFPS-AABs for successful e-filing and e-payment.

2. For Non-eFPS Filer a.

Fill-up fields in the BIR Form No. 1701 in the downloaded Electronic Bureau of Internal Revenue Form (eBIRForm) Package

b.

Print the duly accomplished BIR Form No. 1701

c.

Proceed to the nearest Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701, together with the required attachments and your payment.

d.

In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701, together with the required attachments and your payment.

e.

Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For Manual Filer a.

Fill-up the BIR Form No. 1701 in triplicate copies.

b.

Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form 1701, together with the required attachments.

c.

Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative. Deadline

Final Adjustment Return or Annual Income Tax Return - On or before the 15th day of April of each year covering income for calendar year 2018 and thereafter

Account Information Form For Self-Employed Individuals, Estates And Trusts (Including Those With Mixed Income, i.e., Compensation Income and Income from Business and/or Practice of Profession) BIR Form 1701 AIF - Account Information Form for Self-Employed Individuals, Estates and Trusts (Including those with Mixed Income, i.e., Compensation Income and Income from Business and/or Practice of Profession) and Estates and Trusts (Engaged in Trade or Business) NOTE: Pursuant to Sec. 71 of RA 10963, otherwise known as Tax Reform Acceleration and Inclusion Act, amending Sec. 232 of the Tax Code, as amended, in relation to Revenue Memorandum Circular No. 6 – 2001, corporations, companies or persons whose gross annual sales, earnings, receipts or output exceed P3,000,000 may not accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listing income-producing properties and the corresponding income therefrom, and other relevant statements duly certified by an independent CPA. Documentary Requirements None Procedures 1. Accomplish BIR Form 1701 AIF in triplicate. 2. Attach the same to BIR Form 1701.

Deadline Same deadline as BIR Form 1701 - On or before the 15th day of April of each year covering taxable income for calendar year 2018 and thereafter [return to index]

Quarterly Income Tax For Individuals, Estates And Trusts Including Those With Mixed Income, i.e., Compensation Income and Income from Business and/or Practice of Profession BIR Form 1701Q - Quarterly Income Tax Return For Individuals, Estates and Trusts Documentary Requirements 1. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable 2. Duly approved Tax Debit Memo, if applicable 3. Proof of other payment/s made, if applicable 4. Summary Alphalist of Withholding Agents of Income Payments Subjected to

Withholding Tax at Source (SAWT), if applicable Procedures 1. For eFPS Filer a.

Fill-up applicable fields in the BIR Form No. 1701Q

b.

Pay electronically by clicking the “Proceed to Payment” button and fill-up the required fields in the “eFPS Payment Form” then click “Submit” button.

c.

Receive payment confirmation from eFPS-AABs for successful e-filing and epayment.

2. For Non-eFPS Filer a.

Fill-up applicable fields in the BIR Form No. 1701Q in the downloaded Electronic Bureau of Internal Revenue Form (eBIRForm) Package

b.

Print the duly accomplished BIR Form No. 1701Q

c.

Proceed to the nearest Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701Q, together with the required attachments and your payment.

d.

In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701Q, together with the required attachments and your payment.

e.

Receive your copy of the duly stamped and validated tax return and BIR prescribed deposit slip from the teller of the AABs or Electronic Revenue Official Receipt (eROR) from the Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For Manual Filer a.

Fill-up the BIR Form No. 1701Q in triplicate copies (Compensation Income need not be reported in the Quarterly Income Tax Return and is to be declared only on the Annual Income Tax Return).

b.

Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form 1701Q, together with the required attachments.

c.

Receive your copy of the duly stamped and validated form from the RDO.

Deadlines 1. May 15 of the current taxable year– for the first quarter

2. August 15 of the current taxable year – for the second quarter 3. November 15 of the current taxable year – for the third quarter

Annual Income Tax For Corporations And Partnerships BIR Form 1702 - Annual Income Tax Return (For Corporations and Partnerships) Documentary Requirements 1. Certificate of Income Payments Not Subjected to Withholding Tax (BIR Form

2304), if applicable 2. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable 3. Duly approved Tax Debit Memo, if applicable 4. Proof of Foreign Tax Credits, if applicable 5. Income tax return previously filed and proof of payment, if amended return is filed

for the same taxable year 6. Account Information Form (AIF) or the Certificate of the independent CPA with

Audited Financial Statements, if the gross annual sales, earnings, receipts or output exceed P3,000,000. 7. Proof of prior year’s excess tax credits, if applicable

Procedures 1. For eFPS Filer a.

Fill-up applicable fields in the BIR Form No. 1702

b.

Pay electronically by clicking the “Proceed to Payment” button and fill-up the required fields in the “eFPS Payment Form” then click “Submit” button.

c.

Receive payment confirmation from eFPS-AABs for successful e-filing and e-payment.

2. For Non-eFPS Filer a.

Fill-up fields in the BIR Form No. 1702 in the downloaded Electronic Bureau of Internal Revenue Form (eBIRForm) Package

b.

Print the duly accomplished BIR Form No. 1702

c.

Proceed to the nearest Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702, together with the required attachments and your payment.

d.

In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702, together with the required attachments and your payment.

e.

Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For Manual Filer a.

Fill-up the BIR Form No. 1702 in triplicate copies.

b.

Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form 1702, together with the required attachments.

c.

Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

Deadline Final Adjustment Return or Annual Income Tax Return - On or before the 15th

day of the fourth month following the close of the taxpayer’s taxable year

Quarterly Income Tax For Corporations And Partnerships BIR Form 1702Q - Quarterly Income Tax Return (For Corporations and Partnerships) Documentary Requirements 1. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable 2. Duly approved Tax Debit Memo, if applicable 3. Previously filed return, if an amended return is filed for the same quarter

Procedures 1. For eFPS Filer a.

Fill-up applicable fields in the BIR Form No. 1702Q

b.

Pay electronically by clicking the “Proceed to Payment” button and fill-up the required fields in the “eFPS Payment Form” then click “Submit” button.

c.

Receive payment confirmation from eFPS-AABs for successful e-filing and e-payment.

2. For Non-eFPS Filer a.

Fill-up applicable fields in the BIR Form No. 1702Q in the downloaded Electronic Bureau of Internal Revenue Form (eBIRForm) Package

b.

Print the duly accomplished BIR Form No. 1702Q

c.

Proceed to the nearest Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702Q, together with the required attachments and your payment.

d.

In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702Q, together with the required attachments and your payment.

e.

Receive your copy of the duly stamped and validated tax return and BIR prescribed deposit slip from the teller of the AABs or Electronic Revenue Official Receipt (eROR) from the Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For Manual Filer a.

Fill-up the BIR Form No. 1702Q in triplicate copies.

b.

Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form 1702Q, together with the required attachments.

c.

Receive your copy of the duly stamped and validated form from the RDO.

Deadline Corporate Quarterly Declaration or Quarterly Income Tax Return - On or before the 60th day following the close of each of the quarters of the taxable year

Income Tax Rates 1)For Individual Citizens and Resident Aliens Earning Purely Compensation Income

and Individuals Engaged in Business and Practice of Profession A.

Graduated Income Tax Rates under Section 24(A)(2) of the Tax Code of 1997, as amended by Republic Act No. 10963

Amount of Net Taxable Income Rate Over But Not Over P250,000 0% P250,000 P400,000 20% of the excess over P250,000 P400,000 P800,000 P30,000 + 25% of the excess over P400,000 P800,000 P2,000,000 P130,000 + 30% of the excess over P800,000 P2,000,000 P8,000,000 P490,000 + 32% of the excess over P2,000,000 P8,000,000 P2,410,000 + 35% of the excess over P8,000,000 B. For Purely Self-Employed Individuals and/or Professionals Whose Gross Sales/Receipts and Other Non-Operating Income Do Not Exceed the VAT Threshold of P3,000,000, the tax shall be, at the taxpayer’s option: 1) 8% Income Tax on Gross Sales or Gross Receipts in Excess of P250,000 in Lieu of the Graduated Income Tax Rates and the Percentage Tax; Or 2) Income Tax Based on the Graduated Income Tax Rates

C.

For Individuals Earning Both Compensation Income and Income from Business and/or Practice of Profession, their income taxes shall be: 1.

For Income from Compensation: Based on Graduated Income Tax Rates; and

2.

For Income from Business and/or Practice of Profession: a.

If the total Gross Sales/Receipts Do Not Exceed VAT

Threshold of P3,000,000, the Individual Taxpayer May Opt to Avail: i.

8% Income Tax on Gross Sales/Receipts and Other NonOperating Income in Lieu of the Graduated Income Tax Rates and the Percentage Tax; Or

ii.

Income Tax Based on Graduated Income Tax Rates

If the total Gross Sales/Receipts Exceed VAT Threshold of P3,000,000

b.

i.

D.

Income Tax Based on Graduated Income Tax Rates

On Certain Passive Income of Individual Citizens and Resident Aliens

Passive Income 1. Interest from currency deposits, trust funds and deposit substitutes 2. Royalties (on books as well as literary & musical compositions) - In general 3. Prizes (P10,000 or less )

- Over P10,000 4. Winnings (except from PCSO and Lotto amounting to P10,000 or less ) - From PCSO and Lotto amounting to P10,000 or less 5. Interest Income from a Depository Bank under the Expanded Foreign Currency Deposit System 6. Cash and/or Property Dividends received by an individual from a domestic corporation/ joint stock company/ insurance or mutual fund companies/ Regional Operating Headquarter of multinational companies 7. Share of an individual in the distributable net income after tax of a partnership (except GPPs)/ association, a joint account, a joint venture or consortium taxable as corporation of which he is a member or co-venture 8. Capital gains from sale, exchange or other disposition of real property located in the Philippines, classified as capital asset 9. Net Capital gains from sale of shares of stock not traded in the stock exchange

Tax Rate 20% 10% 20% Graduated Income Tax Rates 20% 20% exempt 15% 10%

10%

6% 15%

10. Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP)
Upon pretermination before the fifth year, there should be imposed on the entire income from the proceeds of the long-term deposit based on the remaining maturity thereof:
Holding Period - Four (4) years to less than five (5) years - Three (3) years to less than four (4) years - Less than three (3) years

2)

Exempt

5% 12% 20%

For Non-Resident Aliens Not Engaged in Trade or Business

A. Tax Rate in General – on taxable income from all sources within the Philippines

same manner as individual citizen and resident alien individual B. Certain Passive Income Tax Rates 1. Interest from currency deposits, trust funds and deposit substitutes 20% 2. Royalties (on books as well as literary & musical compositions) 10% - In general 20% 3. Prizes (P10,000 or less ) Graduated Income Tax Rates - Over P10,000 20% 4. Winnings (except from PCSO and Lotto) 20% exempt - From PCSO and Lotto 5. Cash and/or Property Dividends received from a domestic corporation/ 20% joint stock company/ insurance/ mutual fund companies/ Regional Operating Headquarter of multinational companies 6. Share of a non-resident alien individual in the distributable net income 20% after tax of a partnership (except GPPs) of which he is a partner or from an association, a joint account, a joint venture or consortium taxable as corporation of which he is a member or co-venture 7. Interest Income from long-term deposit or investment in the form of Exempt savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP)
Upon pre-termination before the fifth year, there should be

imposed on the entire income from the proceeds of the long-term deposit based on the remaining maturity thereof:
Holding Period - Four (4) years to less than five (5) years - Three (3) years to less than four (4) years - Less than three (3) years 8. Capital from the sale, exchange or other disposition of real property located in the Philippines classified as capital asset 9. Net Capital gains from sale of shares of stock not traded in the Stock Exchange - Not over P100,000 - Any amount in excess of P100,000

5% 12% 20% 6%

5% 10%

For Non-resident Aliens Not Engaged in Trade or Business 1. Gross amount of income derived from all sources within the Philippines 2. Capital gains from the exchange or other disposition of real property located in the Philippines 3. Net Capital gains from the sale of shares of stock not traded in the Stock Exchange - Not Over P100,000 - Any amount in excess of P100,000

25% 6%

5% 10%

For Alien Individuals Employed by Regional Headquarters (RHQ) or Area Headquarters and Regional Operating Headquarters (ROH) of Multinational Companies, Offshore Banking Units (OBUs), Petroleum Service Contractor and Subcontractor

On the gross income consisting of salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and emoluments derived from the Philippines

Graduated Income Tax Rates

For General Professional Partnerships Net Income of the Partnerships

0%

For Domestic Corporations Rates of Tax on Certain Passive Income of Corporations 1. Interest from currency deposits, trust funds, deposit substitutes and similar arrangements received by domestic corporations 2. Royalties from sources within the Philippines 3. Interest Income from a Depository Bank under Expanded Foreign Currency Deposit System 4. Cash and Property Dividends received by a domestic corporation from another domestic corporation 5. Capital gains from the sale, exchange or other disposition of lands and/or building 6. Net Capital gains from sale of shares of stock not traded in the stock exchange

Tax Rate 20% 20% 15% 0% 6% 15%

***Beginning on the 4th year immediately following the year in which such corporation commenced its business operations, when the minimum corporate income tax is greater than the tax computed using the normal income tax.

For Resident Foreign Corporation NATURE OF INCOME TRANSACTIONS 1) a. In General – on taxable income derived from sources within the Philippines b. Minimum Corporate Income Tax – on gross income c. Improperly Accumulated Earnings – on improperly accumulated

APPLICABLE RATE 30% 2% 10%

taxable income 2) International Carriers – on gross Philippine billings 3) Regional Operating Headquarters of Multinational Companies– on taxable income 4.) Regional or Area Headquarters of Multinational Companies 5) Corporation Covered by Special Laws

6) Offshore Banking Units (OBUs) In general – Income derived by OBUs from foreign currency transactions with non-residents, other OBUs, local commercial banks and branches of foreign banks authorized by BSP On interest income derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks, local branches of foreign banks authorized by BSP to transact business with OBUs 7) Income derived under the Expanded Foreign Currency Deposit System Interest income derived by a depository bank under the expanded foreign currency deposit system. On Income derived by depository banks under the expanded foreign currency deposit systems from foreign currency transactions with nonresidents, OBUs in the Philippines, local commercial banks including branches of foreign banks that may be authorized by BSP On interest income derived from foreign currency loans granted by depository banks under the expanded foreign currency deposit systems to residents other than offshore banking units in the Philippines or other depository banks under the expanded system 8.) Branch Profit Remittances – on total profits applied or earmarked for remittance without any deduction for the tax component thereof (except those activities which are registered with the Philippines Economic Zone Authority) 9.) Interest from currency deposits, trust funds, deposit substitutes and similar arrangements 10. Royalties derived from sources within the Philippines

2½% 10% exempt Rate specified under the respective special laws 10% Exempt

10%

7½% exempt

10%

15%

20% 20%

Related Revenue Issuances RMO No. 23-2018, RR No. 8-2018, RA No. 10963, RR No. 12-2007, RR No. 14-2002, RA No. 9337, RR No. 9-98, RR No. 1-98, RR No. 5-97, RR No. 4-96