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Description

Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller

from the sale, exchange, or other disposition of capital assets located in the Philippines,
including pacto de retro sales and other forms of conditional sale
Final Capital Gains Tax for Onerous Transfer of Real Property Classified as Capital
Assets (Taxable and Exempt)
Tax Form
BIR Form 1706 Final Capital Gains Tax Return (For Onerous Transfer of Real Property
Classified as Capital Assets -Taxable and Exempt)

Frequently Asked Questions


1) What is meant by capital asset?
Capital asset means property held by the taxpayer (whether or not connected with his trade or
business), but does not include
a) stock in trade of the taxpayer or other property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year; or
b) property held by the taxpayer primarily for sale to customers in the ordinary course of his
trade
or
business;
or
c) property used in the trade or business of a character which is subject to the allowance for
depreciation
provided
in
subsection
(F)
of
Sec.
34
of
the
Code;
or
d) real property used in trade or business of the taxpayer.
2) What is meant by ordinary asset?
Ordinary asset refers to all properties specifically excluded from the definition of capital assets
under Sec. 39 (A)(1) of the NIRC.
3.) What is meant by "Stock classified as Capital Asset"? (Sec 2(a) of RR 6-2008)
This refers to stocks and securities held by taxpayers other than dealers in securities.
4.) What is meant by "Dealer in Securities"? (Sec 2(b) of RR 6-2008)

Dealer in Securities refers to a merchant of stocks or securities, whether an individual,


partnership or corporation, with an established place of business, regularly engaged in the
purchase of securities and the resale thereof to customers; that is one, who as merchant buys
securities and re-sells them to customers with a view to the gains and profits that may be
derived therefrom. "Dealer in securities" means any person who buys and sells securities for
his/her own account in the ordinary course of business (Sec. 3.4, SRC).
5.) What is meant by real property?
Real property shall have the same meaning attributed to that term under Article 415 of Republic
Act No. 386, otherwise known as the Civil Code of the Philippines.
6.) What does a real estate dealer refer to?
A real estate dealer refers to any person engaged in the business of buying and selling or
exchanging real properties on his own account as a principal and holding himself out as a full or
part-time dealer in real estate.

7.) What does a real estate developer refer to?


Real estate developer refers to any person engaged in the business of developing real
properties into subdivisions, or building houses on subdivided lots, or constructing residential or
commercial units, townhouses and other similar units for his own account and offering them for
sale or lease.
8.)What does a real estate lessor refer to?
Real estate lessor refers to any person engaged in the business of leasing or renting real
properties on his own account as a principal and holding himself out as a lessor of real
properties being rented out or offered for rent.
9.) Who are considered engaged in the real estate business?
Taxpayers who are considered engaged in the real estate business refer collectively to real
estate dealers, real estate developers and/or real estate lessors. A taxpayer whose primary
purpose of engaging in business, or whose Articles of Incorporation states that its primary
purpose is to engage in the real estate business shall be deemed to be engaged in the real
estate business.
10.) Who are considered not engaged in the real estate business?

Taxpayers who are considered not engaged in the real estate business refer to persons other
than real estate dealers, real estate developers and/or real estate lessors.
11.) Who are considered habitually engaged in the real estate business?
Real estate dealers or real estate developers who are registered with the Housing and Land Use
Regulatory Board (HULRB) or HUDCC
12.) How can you determine whether a particular real property is a capital asset or an ordinary
asset?
a) Real properties shall be classified with respect to taxpayers engaged in the real estate
business as follows:
i) All real properties acquired by the real estate dealer shall be considered as ordinary assets.
ii) All real properties acquired by the real estate developer, whether developed or undeveloped
as of the time of acquisition, and all real properties which are held by the real estate developer
primarily for sale or for lease to customers in the ordinary course of his trade or business or
which would properly be included in the inventory of the taxpayer if on hand at the close of the
taxable year and all real properties used in the trade or business, whether in the form of land,
building, or other improvements, shall be considered as ordinary assets.
iii) All real properties of the real estate lessor, whether land, building and/or improvements,
which are for lease/rent or being offered for lease/rent, or otherwise for use or being used in the
trade or business shall likewise be considered as ordinary assets.
iv) All real properties acquired in the course of trade or business by a taxpayer habitually
engaged in the sale of real property shall be considered as ordinary assets.
Note: Registration with the HLURB or HUDCC as a real estate dealer or developer shall be
sufficient for a taxpayer to be considered as habitually engaged in the sale of real estate.
If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or developer,
he/it may nevertheless be deemed to be engaged in the real estate business through the
establishment of substantial relevant evidence (such as consummation during the preceding
year of at least six (6) taxable real estate sale transactions, regardless of amount; registration as
habitually engaged in real estate business with the Local Government Unit or the Bureau of
Internal Revenue, etc.
A property purchased for future use in the business, even though this purpose is later thwarted
by circumstances beyond the taxpayers control, does not lose its character as an ordinary

asset. Nor does a mere discontinuance of the active use of the property change its character
previously established as a business property. (Sec 3(a)(4)of RR 7-2003)
b) In the case of taxpayer not engaged in the real estate business, real properties, whether land,
building, or other improvements, which are used or being used or have been previously used in
trade or business of the taxpayer shall be considered as ordinary assets.
c) In the case of taxpayers who changed its real estate business to a non-real estate business,
real properties held by these taxpayer shall remain to be treated as ordinary assets.
d) In the case of taxpayers who originally registered to be engaged in the real estate business
but failed to subsequently operate, all real properties acquired by them shall continue to be
treated as ordinary assets.
e) Real properties formerly forming part of the stock in trade of a taxpayer engaged in the real
estate business, or formerly being used in the trade or business of a taxpayer engaged or not
engaged in the real estate business, which were later on abandoned and became idle, shall
continue to be treated as ordinary assets. Provided however, that properties classified as
ordinary assets for being used in business by a taxpayer engaged in business other than real
estate business are automatically converted into capital assets upon showing proof that the
same have not been used in business for more than two years prior to the consummation of the
taxable transactions involving said properties
f) Real properties classified as capital or ordinary asset in the hands of the seller/transferor may
change their character in the hands of the buyer/transferee. The classification of such property
in the hands of the buyer/transferee shall be determined in accordance with the following rules:
i) Real property transferred through succession or donation to the heir or donee who is not
engaged in the real estate business with respect to the real property inherited or donated, and
who does not subsequently use such property in trade or business, shall be considered as a
capital asset in the hands of the heir or donee.
ii) Real property received as dividend by the stockholders who are not engaged in the real estate
business and who do not subsequently use such property in trade or business, shall be
considered as a capital asset in the hands of the recipients even if the corporation which
declared the real property dividends is engaged in real estate business.
iii) The real property received in an exchange shall be treated as ordinary asset in the hands of
the case of a tax-free exchange by taxpayer not engaged in real estate business to a taxpayer
who is engaged in real estate business, or to a taxpayer who, even if not engaged in real estate
business, will use in business the property received in exchange.

g) In the case of involuntary transfers of real properties, including expropriations or foreclosure


sale, the involuntariness of such sale shall have no effect on the classification of such real
property in the hands of the involuntary seller, either as capital asset or ordinary asset as the
case may be.
13.) What is the basis in the valuation of property?
The value of the real property will be based on the selling price, fair market value as determined
by the Commissioner (zonal value) or the fair market value as shown in the schedule of values
of the Provincial or City Assessor, whichever is higher.
If there is no zonal value, the taxable base is whichever is higher of the gross selling price per
sales documents or the fair market value that appears in the latest tax declaration.
If there is an improvement, the FMV per latest tax declaration at the time of the sale or
disposition, duly certified by the City/Municipal Assessor shall be used. No adjustments shall be
added on the said value, provided that the tax declaration bears the upgraded fair market value
of the said property pursuant to Section 219 of R.A. No. 7160, otherwise known as the Local
Government Code of 1991 and the last paragraph of the Local Assessment Regulations No. 192 dated October 6, 1992.
In case the tax declaration being presented was issued three (3) or more years prior to the date
of sale or disposition of the real property, the seller/transferor shall be required to submit a
certification from the City/Municipal Assessor whether or not the same is still the latest tax
declaration covering the said real property. Otherwise, the taxpayer shall secure its latest tax
declaration and shall submit a copy thereof duly certified by the said Assessor. (RAMO 1-2001)
For shares of stocks, it will be based on the net capital gains realized from the sale, barter,
exchange or other disposition of shares of stocks in a domestic corporation, considered as
capital assets not traded through the local stock exchange.
14.) What is meant by "Net Capital Gains"? (Sec 2(o) of RR 6-2008)
"Net Capital Gain" means the excess of the gains from sales or exchanges of capital assets over
the losses from such sales or exchanges.
15.) What are the rules for the determination of amount and recognition of gain or loss in the
sale, barter, or exchange of shares of stock not traded through the Local Stock exchange? (Sec
7(c ) of RR 6-2008)
(A.) Determination of Selling Price. In determining the selling price, the following rules shall
apply:

(a.1) In the case of cash sale, the selling price shall be the total consideration per deed of sale.
(a.2) If the total consideration of the sale or disposition consists partly in money and partly in
kind, the selling price shall be sum of money and the fair market value of the property received.
(a.3) In the case of exchange, the selling price shall be the fair market value of the property
received.
(a.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater
than the amount of money and/or fair market value of the property received, the excess of the
fair market value of the shares of stock sold, bartered or exchanged over the amount of money
and the fair market value of the property, if any, received as consideration shall be deemed a gift
subject to the donor's tax under sec. 100 of the Tax Code, as amended.
(B.) Definition of "fair market value" of the Shares of Stock.
(b.1) In the case of listed shares which were sold, transferred or exchanged outside of the
trading system and/or facilities of the Local Stock Exchange, the closing price on the day when
the shares are sold, transferred, or exchanged. When no sale is made in the Local Stock
Exchange on the day when the Listed shares are sold, transferred, or exchanged, the closing
price on the day nearest to the date of sale, transfer or exchange of the shares shall be the fair
market
value.
Sec
2
of
RR
6-2013
(b.2) In the case of shares of stock not listed and traded in the local stock exchanges, the value
of the shares of stock at the time of sale shall be the fair market value. In determining the value
of the shares, the Adjusted Net Asset Method shall be used whereby all assets and liabilities are
adjusted to fair market values. The net of adjusted asset minus the liability values is the
indicated value of the equity.
The appraised value of real property at the time of sale shall be the higher of
(1)
The
fair
market
value
as
determined
by
the
Commissioner,
or
(2) The fair market value as shown in the schedule of valued fixed by the Provincial and City
Assessors,
or
(3) The fair market value as determined by Independent Appraiser.
(b.3) In the case of a unit of participation in any association, recreation or amusement club (such
as golf, polo, or similar clubs), the fair market value thereof shall be its selling price or the bid
price nearest published in any newspaper or publication of general circulation, whichever is
higher.
(C.) Determination of Gain or Loss from Sale or Disposition of Shares of Stock. The gain from
the sale or other disposition Stock. The gain from the sale or other disposition of shares of
stock shall be the excess of the amount realized therefrom over the basis or adjusted basis for
determining gain, and the loss shall be the excess of the basis or adjusted basis for determining

loss over the amount realized. The amount realized from the sale or other disposition of property
shall be the sum of money received plus the fair market value of the property (other than money)
received, if any.
16.) What are the applicable tax rates of Capital Gains Tax under the National Internal Revenue
Code of 1997?
a) Real Properties - 6 %
b) For Shares of Stocks not Traded in the Stock Exchange, on the net Capital Gains
- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%
17.) Who are required to file the Final Capital Gains Tax return?
Every person, whether natural or juridical, resident or non-resident, including estates and trusts,
who sells, transfers, exchanges or disposes real properties located in the Philippines classified
as capital assets, including pacto de retro sales and other forms of conditional sales or shares of
stocks in domestic corporations not traded through the local stock exchange classified as capital
assets.
18.) What is the procedure in the filing of Final Capital Gains Tax return?
File the Final Capital Gains Tax return in triplicate (two copies for the BIR and one copy for the
taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the seller or
transferor is registered, for shares of stocks or where the property is located, for real property. In
places where there are no AAB, the return will be filed directly with the Revenue Collection
Officer or Authorized City or Municipal Treasurer.
19.) Who/what are considered exempt from the payment of Final Capital Gains Tax?

Dealer in securities, regularly engaged in the buying and selling of


securities
An entity exempt from the payment of income tax under existing
investment incentives and other special laws
An individual or non-individual exchanging real property solely for
shares of stocks resulting in corporate control
A government entity or government-owned or controlled corporation
selling real property
If the disposition of the real property is gratuitous in nature
Where the disposition is pursuant to the CARP law

20.) Who are conditionally exempt from the payment of Final Capital Gains Tax?
Natural persons who dispose their principal residence, provided that the following criteria are
met:

The proceeds of the sale of the principal residence have been fully
utilized in acquiring or constructing new principal residence within
eighteen (18) calendar months from the date of sale or disposition;
The historical cost or adjusted basis of the real property sold or disposed
will be carried over to the new principal residence built or acquired;
The Commissioner has been duly notified, through a prescribed return,
within thirty (30) days from the date of sale or disposition of the
persons intention to avail of the tax exemption;
Exemption was availed only once every ten (10) years; and
There is no full utilization of the proceeds of sale or disposition. The
portion of the gain presumed to have been realized from the sale or
disposition will be subject to Capital Gains Tax.
In case of sale/transfer of principal residence, the Buyer/Transferee shall
withhold from the seller and shall deduct from the agreed selling
price/consideration the 6% capital gains tax which shall be deposited in
cash or managers check in interest-bearing account with an Authorized
Agent Bank (AAB) under an Escrow Agreement between the concerned
Revenue District Officer, the Seller and the Transferee, and the AAB to
the effect that the amount so deposited, including its interest yield, shall
only be released to such Transferor upon certification by the said RDO
that the proceeds of the sale/disposition thereof has, in fact, been
utilized in the acquisition or construction of the Seller/Transferors new
principal residence within eighteen (18) calendar months from date of
the said sale or disposition. The date of sale or disposition of a property
refers to the date of notarization of the document evidencing the
transfer of said property. In general, the term Escrow means a scroll,
writing or deed, delivered by the grantor, promisor or obligor into the
hands of a third person, to be held by the latter until the happening of a
contingency or performance of a condition, and then by him delivered to
the grantee, promise or obligee.

21.) What is a Certificate Authorizing Registration?


Certificate Authorizing Registration (CAR) is a certification issued by the Commissioner or his
duly authorized representative attesting that the transfer and conveyance of land,
buildings/improvements or shares of stock arising from sale, barter or exchange have been
reported and the taxes due inclusive of the documentary stamp tax, have been fully paid.
With the implementation of the Electronic Certificate Authorizing Registration (eCAR) System,
the CAR shall now be electronically generated.

22.) What is eCAR System?


eCAR stands for Electronic Certificate Authorizing Registration. A web-based facility that
automates the generation of CAR with barcode, eCAR will also enable electronic linkage
between the BIR and the Land Registration Authority. (Participant Guide)
eCARs shall have a validity of one (1) year from date of issue. For other manually issued CARs
that are outstanding and not yet presented to the Register of Deeds, i.e., CARs more than one
(1) year from the date of issuance which are due for revalidation and expired CARs which are
more than two (2) years from the date of issuance, are not anymore valid for presentation to the
Registry of Deeds. The said CARs shall be replaced with an eCAR by the concerned Revenue
District Offices or Large Taxpayers Divisions. A certification fee shall be charged for each
released eCAR issued/reprinted after affixture of P15.00 Documentary Stamp Tax on
Certificates (Sec 188 of the NIRC of 1997) and the prescribed Certification Fee of One Hundred
Pesos (P100.00) under Executive Order No. 197 to the taxpayer/authorized representative.
23.) How do we determine the fair market value of shares of stocks not traded
through the Local Stock Exchange?
In determining the value of the shares, the Adjusted Net Asset Method shall be
used whereby all assets and liabilities are adjusted to fair market values. The net of
adjusted asset minus the adjusted liability value is the indicated value of the
equity.
For purposes of this item, the appraised value of real property at the time of sale
shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial and
City Assessors, or
(c) The fair market value as determined by Independent Appraiser. (RR NO. 62013)

Description

Documentary Stamp Tax is a tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto
Tax Forms
BIR Form 2000 (Documentary Stamp Tax Declaration Return);
BIR Form 2000-OT Documentary Stamp Tax Declaration Return (ONE- TIME TRANSACTIONS)

Frequently Asked Questions


1) Who are required to file Documentary Stamp Tax Declaration Return?
a) In case of constructive affixture of documentary stamps, by the persons making, signing,
issuing, accepting or transferring documents, instruments, loan agreements and papers,
acceptances, assignments, sales and conveyances of the obligation, right or property incident
thereto wherever the document is made, signed, issued, accepted or transferred when the
obligation or right arises from Philippine sources or the property is situated in the Philippines at
the same time such act is done or transaction had;
b) By using the web-based Electronic Documentary Stamp Tax (eDST) System in the
payment/remittance of its/his/her DST liabilities and the affixture of the prescribed documentary
stamp on taxable documents; and
c) By Revenue Collection Agent, for remittance of sold loose documentary stamps.
Note: Wherever one party to the taxable document enjoys exemption from the tax imposed, the
other party who is not exempt will be the one directly liable to file Documentary Stamp Tax
Declaration and pay the applicable stamp tax.
2) Where is the Documentary Stamp Tax Declaration Return filed?

In the Authorized Agent Bank (AAB) within the territorial jurisdiction of the RDO which has
jurisdiction over the residence or principal place of business of the taxpayer or where the
property is located in case of sale of real property or where the Collection Agent is assigned. In
places where there is no Authorized Agent Bank, the return will be filed with the Revenue
Collection Officer or duly authorized City or Municipal Treasurer where the taxpayer's residence
or principal place of business is located or where the property is located in case of sale of real
property or where the Collection Agent is assigned.
3) What are the documents/papers not subject to Documentary Stamp Tax? (sec. 9, RR No. 132004)

Policies of insurance or annuities made or granted by a fraternal or beneficiary society,


order, association or cooperative company, operated on the lodge system or local
cooperation plan and organized and conducted solely by the members thereof for the
exclusive benefit of each member and not for profit
Certificates of oaths administered by any government official in his official capacity or
acknowledgement by any government official in performance of his official duty
Written appearance in any court by any government official in his official capacity
Certificates of the administration of oaths to any person as to the authenticity of any
paper required to be filed in court by any person or party thereto, whether the
proceedings be civil or criminal
Papers and documents filed in court by or for the national, provincial, city or municipal
governments
Affidavits of poor persons for the purpose of proving poverty
Statements and other compulsory information required of persons or corporations by the
rules and regulations of the national, provincial, city or municipal government exclusively
for statistical purposes and which are wholly for the use of the Bureau or office in which
they are filed, and not at the instance or for the use or benefit of the person filing them
Certified copies and other certificates placed upon documents, instruments and papers
for the national, provincial, city or municipal governments made at the instance and for
the sole use of some other branch of the national, provincial, city or municipal
governments
Certificates of the assessed value of lands, not exceeding P200 in value assessed,
furnished by the provincial, city or municipal Treasurer to applicants for registration of title
to land
Borrowing and lending of securities executed under the Securities Borrowing and Lending
Program of a registered exchange, or in accordance with regulations prescribed by the
appropriate regulatory authority: Provided, however, That any borrowing or lending of
securities agreement as contemplated hereof shall be duly covered by a master securities
borrowing and lending agreement acceptable to the appropriate regulatory authority, and

which agreement is duly registered and approved by the Bureau of Internal Revenue
(BIR)
Loan agreements or promissory notes, the aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000), or any such amount as may be determined by
the Secretary of Finance, executed by an individual for his purchase on installment for his
personal use or that of his family and not for business or resale, barter or hire of a house,
lot, motor vehicle, appliance or furniture: Provided, however, That the amount to be set by
the Secretary of Finance shall be in accordance with a relevant price index but not to
exceed ten percent (10%) of the current amount and shall remain in force at least for
three (3) years
Sale, barter or exchange of shares of stock listed and traded through the local stock
exchange (R.A 9648)
Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or
continuance of any agreement, contract, charter, or any evidence of obligation or
indebtedness, if there is no change in the maturity date or remaining period of coverage
from that of the original instrument.
Fixed income and other securities traded in the secondary market or through an
exchange.
Derivatives: Provided, That for purposes of this exemption, repurchase agreements and
reverse repurchase agreements shall be treated similarly as derivatives
Interbranch or interdepartmental advances within the same legal entity
All forebearances arising from sales or service contracts including credit card and trade
receivables: Provided, That the exemption be limited to those executed by the seller or
service provider itself.
Bank deposit accounts without a fixed term or maturity
All contracts, deeds, documents and transactions related to the conduct of business of
the Bangko Sentral ng Pilipinas
Transfer of property pursuant to Section 40(C)(2) of the National Internal Revenue Code
of 1997, as amended
Interbank call loans with maturity of not more than seven (7) days to cover deficiency in
reserves against deposit liabilities, including those between or among banks and quasibanks

4) What are the implications of failure to stamp taxable documents?

The untaxed document will not be recorded, nor will it or any copy thereof or any record
of transfer of the same be admitted or used in evidence in court until the requisite stamp
or stamps have been affixed thereto and cancelled

No notary public or other officer authorized to administer oaths will add his jurat or
acknowledgment to any document subject to Documentary Stamp Tax unless the proper
documentary stamps are affixed thereto and cancelled.

5) What is Electronic Documentary Stamp Tax (eDST) System? (sec. 5 (1), RR No. 7-2009)
The eDST is a web-based application created for taxpayers and the BIR that is capable of
affixing a secured documentary stamp on the taxable documents as defined under the
appropriate provisions under Title VII of the National Internal Revenue Code of 1997, as
amended, thru the use of a computer unit, any laser printer with at least 1200 dpi resolution, and
Internet Explorer 7.0 It is also capable of providing a 3-layer watermark on stamps for added
security.
6) Is DST Law applicable on Electronic Documents? (sec. 10, RR No. 13-2004)
The DST rates as imposed under the Code, as amended by R.A. 9243 shall be applicable on all
documents not otherwise expressly exempted by the said law, notwithstanding the fact that they
are in electronic form. As provided for by R.A. 8792, otherwise known as the Electronic
Commerce Act, electronic documents are the functional equivalent of a written document under
existing laws, and the issuance thereof is therefore tantamount to the issuance of a written
document, and therefore subject to DST.
7) What are the inclusions of a debt instrument? (sec. 5, RR No. 13-2004)
Debt Instrument shall mean instruments representing borrowing and lending transaction
including but not limited to:

debentures,
certificates of indebtedness,
due bills,
bonds,
loan agreements, including those signed abroad wherein the object of
the contract is located or used in the Philippines,
instruments and securities issued by the government or any of its
instrumentalities,
deposit substitute debt instruments,
certificates or other evidences of deposits that are drawing
instrument significantly higher than the regular savings deposit taking
into consideration the size of the deposit and the risks involved,
certificates or other evidences of deposits that are drawing interest and
having a specific maturity date,
promissory notes, whether negotiable or non-negotiable, except bank
notes issued for circulation.

8) Is any document, transaction or arrangement entered into under Financial Lease subject to
Documentary Stamp Tax? (RMC No. 46-2014)
Financial lease is akin to a debt rather than a lease. A nature of an obligation than a lease of
personal property. The mere act of extending credit is already a means of facilitating an
obligation or advancing in behalf of the lessee certain property in lieu of cash in exchange for a
definitive amortization to be paid to the lessor with profit margin included. Section 179 of the
NIRC, as amended, covers all debt instruments. Therefore, being a nature of an obligation, any
document, transaction or arrangement entered into under financial lease is subject to DST under
such Section of the NIRC, as amended.

Description

Donors Tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of property
between two or more persons who are living at the time of the transfer. It shall apply whether the
transfer is in trust or otherwise, whether the gift is direct or indirect and whether the property is
real or personal, tangible or intangible.

Tax Form
BIR Form 1800 Donors Tax Return
Frequently Asked Questions
1. Who are required to file the Donors Tax Return?
Every person, whether natural or juridical, resident or non-resident, who transfers or causes to
transfer property by gift, whether in trust or otherwise, whether the gift is direct or indirect and
whether the property is real or personal, tangible or intangible.
2. What donations are tax exempt?
A. In the Case of Gifts made by a Resident (Sec. 101 (A), NIRC as amended)

Dowries or donations made on account of marriage before its


celebration or within one year thereafter, by parents to each of their
legitimate, recognized natural, or adopted children to the extent of the
first P10,000
Gifts made to or for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit, or to
any political subdivision of the said Government
Gifts in favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, accredited non-government
organization, trust or philantrophic organization or research institution
or organization, provided not more than 30% of said gifts will be used by
such donee for administration purposes

B. In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines (Sec. 101 (B),
NIRC as amended)

Gifts made to or for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit, or to
any political subdivision of the said Government
Gifts in favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, accredited non-government
organization, trust or philantrophic organization or research institution
or organization, provided not more than 30% of said gifts will be used by
such donee for administration purposes

C. Tax Credit for Donor's Taxes Paid to a Foreign Country (Sec. 101 (C), NIRC as amended)

In General. - The tax imposed by this Title upon a donor who was a
citizen or a resident at the time of donation shall be credited with the
amount of any donor's tax of any character and description imposed by
the authority of a foreign country.
Limitations on Credit. - The amount of the credit taken under this
Section shall be subject to each of the following limitations:

- The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such
country
taxable
under
this
Title
bears
to
his
entire
net
gifts;
and
- The total amount of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the donor's net gifts situated outside the Philippines taxable under
this title bears to his entire net gifts.
3. What are the bases in the valuation of property?
If the gift is made in property, the fair market value at that time will be considered the amount of
gift.
In case of real property, the taxable base is the fair market value as determined by the
Commissioner of Internal Revenue (Zonal Value) or fair market value as shown in the latest
schedule of values fixed by the provincial and city assessor (MV per Tax Declaration), whichever
is higher. (Sec. 88 and 102, NIRC as amended)
If there is no zonal value, the taxable base is the fair market value that appears in the tax
declaration at the time of the gift
4. For purposes of Donors Tax, what does the term Net Gift mean?
For purposes of the donors tax, NET GIFT shall mean the net economic benefit from the
transfer that accrues to the donee. Accordingly, if a mortgaged property is transferred as a gift,
but imposing upon the donee the obligation to pay the mortgage liability, then the net gift is
measured by deducting from the fair market value of the property the amount of mortgage
assumed. (sec. 11, RR No. 2-2003)
5. Under R.A. No. 7166, any contribution in cash or in kind to any candidate or political party or
coalition of parties for campaign purposes shall not be subject to the payment of any gift tax.
What instance will it be subject to Donors Tax?
Those contributions in cash or in kind NOT duly reported to the Commission on Elections
(COMELEC) shall not be subject to donors tax.

Section 99 (C) of the Tax Code, as amended, provides that any contribution in cash or in kind for
campaign purposes shall be governed by R.A. No. 7166 or the Election Code.
Section 13 of the R.A. No. 7166 specifically states that any provision of law to the contrary
notwithstanding any contribution in cash or kind to any candidate or political party or coalition of
parties for campaign purposes, duly reported to the Commission shall not be subject to the
payment of any gift tax (donors tax). Accordingly, the BIR can impose donors tax on
contributions of this nature. (Q-14, RMC No. 63-2009)
6. For purposes of Donors Tax, is a legally adopted child considered stranger?
A legally adopted child is entitled to all the rights and obligations provided by law to legitimate
children, and therefore, donation to him shall not be considered as donation made to stranger.
(sec. 10, RR No. 2-2003)

7. For purposes of Donors Tax, are donations between businesses considered donations made
between strangers?
Donation made between business organizations and those made between an individual and a
business organization shall be considered as donation made to a stranger. (sec. 10, RR No. 22003)
8. Are gratuitous donations to Homeowners Associations subject to Donors Tax?
Gifts, donations, and other contributions received by the Homeowners Associations
(Associations) are subject to the payment of donors tax pursuant to Section 98 and 99 of the
Tax Code, as amended. Endowment or gifts received by such associations are not exempt from
donors tax considering that gifts to Associations are not qualified for exemption under Section
101(A)(3) of the Tax Code. (II, RMC No. 53-2013)
9. Is an onerous donation or donation in exchange for goods, services or use or lease of
properties to Homeowners Association subject to Donors Tax?
Pursuant to RMC No. 9-2013, Associations are subject to the corresponding internal revenue
taxes imposed under the Tax Code of 1997 on their income of whatever kind and character. In
this regard, contributions to associations in exchange for goods, services and use of properties
constitute as other assessments/charges from activity in exchange for the performance of a
service, use of properties or delivery of an object. As such, these fees are income on the part of
the associations that are subject to income tax under Section 27 of the Tax Code, as amended.
(III, RMC No. 53-2013)

10. What is the proper treatment for transactions involving transfer of property other than real
property referred to in Section 24 (D) for less than adequate and full consideration?
Where property, other than real property referred to in Section 24 (D) of the NIRC, as amended,
is transferred for less than adequate and full consideration in money or moneys worth, then the
amount by which the fair market value of the property exceeded the value of the consideration
shall, for the purpose of Donors Tax, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year. (Sec. 100, NIRC, as amended)

11. What entities are considered exempted from Donors Tax under special laws?
The list below consists of entities considered Donors Tax exempt under special laws including,
but not limited to the following:

Rural Farm School (Sec. 14, R.A. No. 10618)


Peoples Television Network, Incorporated (Sec. 15, R.A. No. 10390)
Peoples Survival Fund (Sec. 13, R.A. No. 10174)
Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, R.A. No.
10083)
Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)
Philippine Red Cross (Sec. 5, R.A. No. 10072)
Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)
National Commission for Culture and the Arts (Sec. 35, R.A. No. 10066)
Philippine Normal University (Sec. 7, R.A. No. 9647)
University of the Philippines (Sec. 25, R.A. No. 9500)
National Water Quality Management Fund (Sec. 9, R.A. No. 9275)
Philippine Investors Commission (Sec. 9, R.A. No. 3850)
Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676)
Philippine-American Cultural Foundation (Sec. 4, P.D. 3062)
International Rice Research Institute (Art. 5(2), PD 1620)
Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419)
National Social Action Council (Sec. 4, P.D. 294)
Aquaculture Department of the Southeast Asian Fisheries Development
Center (Sec. 2, P.D. 292)
Development Academy of the Philippines (Sec. 12, PD 205)
Integrated Bar of the Philippines (Sec. 3, PD 181)

12. How do we determine the fair market value of the unlisted stocks?
In determining the value of the shares, the Adjusted Net Asset Method shall be
used whereby all assets and liabilities are adjusted to fair market values. The net of

adjusted asset minus the adjusted liability value is the indicated value of the equity.
For purposes of this item, the appraised value of real property at the time of sale
shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors, or
(c) The fair market value as determined by Independent Appraiser. (RR NO. 62013) (Annex U)

Description

Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her
lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by
law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on
the privilege of transmitting property upon the death of the owner. The Estate Tax is based on
the laws in force at the time of death notwithstanding the postponement of the actual possession
or enjoyment of the estate by the beneficiary.
Tax Form
BIR Form 1801 - Estate Tax Return
Frequently Asked Questions
1. Who are required to file the Estate Tax return?
a) The executor or administrator or any of the legal heirs of the decedent or non-resident of the
Philippines under any of the following situation:
- In all cases of transfer subject to Estate Tax;
- Where though exempt from Estate Tax, the gross value of the estate exceeds two hundred
thousand P 200,000.00; and

- Where regardless of the gross value, the estate consists of registered or registrable property
such as real property, motor vehicle, share of stocks or other similar property for which a
clearance from the Bureau of Internal Revenue (BIR) is required as a prerequisite for the
transfer of ownership thereof in the name of the transferee. (part II par.(1.#3) of RMC No. 342013)
b) Where there is no executor or administrator appointed, qualified and acting within the
Philippines, then any person in actual or constructive possession of any property of the
decedent must file the return.
c) The Estate Tax imposed under the Tax Code shall be paid by the executor or administrator
before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where
there are two or more executors or administrators, all of them are severally liable for the
payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue
District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute
the remaining/distributable properties/share in the inheritance to the heir or beneficiary.
d) The executor or administrator of an estate has the primary obligation to pay the estate tax but
the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which
his distributive share bears to the value of the total net estate. The extent of his liability, however,
shall in no case exceed the value of his share in the inheritance.
2. What are included in gross estate?

For resident alien decedents/citizens:

a) Real or immovable property, wherever located


b) Tangible personal property, wherever located
c) Intangible personal property, wherever located

For non-resident decedent/non-citizens:

a) Real or immovable property located in the Philippines


b) Tangible personal property located in the Philippines
c) Intangible personal property - with a situs in the Philippines such as:
- Franchise which must be exercised in the Philippines
- Shares, obligations or bonds issued by corporations organized or constituted in the Philippines

- Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is
located in the Philippines
- Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or
bonds have acquired a business situs in the Philippines ( i. e. they are used in the furtherance of
its business in the Philippines)
- Shares, rights in any partnership, business or industry established in the Philippines
3. What are excluded from gross estate?

GSIS proceeds/ benefits


Accruals from SSS
Proceeds of life insurance where the beneficiary is irrevocably appointed
Proceeds of life insurance under a group insurance taken by employer (not taken out
upon his life)
War damage payments
Transfer by way of bona fide sales
Transfer of property to the National Government or to any of its political subdivisions
Separate property of the surviving spouse
Merger of usufruct in the owner of the naked title
Properties held in trust by the decedent
Acquisition and/or transfer expressly declared as not taxable

4. What will be used as basis in the valuation of property?

The properties subject to Estate Tax shall be appraised based on its fair market value at
the time of the decedent's death.
The appraised value of the real estate shall be whichever is higher of the fair market
value, as determined by the Commissioner (zonal value) or the fair market value, as
shown in the schedule of values fixed by the Provincial or City Assessor.
If there is no zonal value, the taxable base is the fair market value that appears in the
latest tax declaration.
If there is an improvement, the value of improvement is the construction cost per building
permit or the fair market value per latest tax declaration.

5. What are the allowable deductions for Estate Tax Purposes?


Applicable for deaths occurring after the effectivity of RA 8424 which is January 1, 1998
For a citizen or resident alien
A. Expenses, losses, indebtedness and taxes

(1) Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount
equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed
P200,000.
(2) Judicial expenses of the testamentary or intestate proceedings.
(3) Claims against the estate.
(4) Claims of the deceased against insolvent persons where the value of the decedents interest
therein is included in the value of the gross estate; and,
(5) Unpaid mortgages, taxes and casualty losses
B. Property previously taxed (Vanishing Deduction) (Section 86(2) of the NIRC as amended by
Republic Act No. 8424)
An amount equal to the value specified below of any property forming a part of the gross estate
situated in the Philippines of any person who died within five (5) years prior to the death of the
decedent, or transferred to the decedent by gift within five (5) years prior to his death, where
such property can be identified as having been received by the decedent from the donor by gift,
or from such prior decedent by gift, bequest, devise or inheritance, or which can be identified as
having been acquired in exchange for property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to
the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more
than two (2) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more
than three (3) years prior to the death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not
more than four (4) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not
more than five (5) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death;

These deductions shall be allowed only where a donors tax or estate tax imposed was finally
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the
case may be, and only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent, and only to the
extent that the value of such property is included in the decedents gross estate, and only if in
determining the value of the estate of the prior decedent, no Property Previously Taxed or
Vanishing Deduction was allowable in respect of the property or properties given in exchange
therefor. (Section 6 & 7 of RR 2-2003)
C. Transfers for public use
D. The family home - fair market value but not to exceed P1,000,000.00
The family home refers to the dwelling house, including the land on which it is situated, where
the husband and wife, or a head of the family, and members of their family reside, as certified to
by the Barangay Captain of the locality. The family home is deemed constituted on the house
and lot from the time it is actually occupied as a family residence and is considered as such for
as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code)
E. Standard deduction A deduction in the amount of One Million Pesos (P1,000,000.00) shall
be allowed as an additional deduction without need of substantiation.
F. Medical expenses All medical expenses (cost of medicines, hospital bills, doctors fees, etc.)
incurred (whether paid or unpaid) within one (1) year before the death of the decedent shall be
allowed as a deduction provided that the same are duly substantiated with official receipts. For
services rendered by the decedents attending physicians, invoices, statements of account duly
certified by the hospital, and such other documents in support thereof and provided, further, that
the total amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand
Pesos (P500,000).
G. Amount received by heirs under Republic Act No. 4917-Any amount received by the heirs
from the decedents employer as a consequence of the death of the decedent-employee in
accordance with Republic Act No. 4917 is allowed as a deduction provided that the amount of
the separation benefit is included as part of the gross estate of the decedent.
H. Net share of the surviving spouse in the conjugal partnership or community property
For a non-resident alien
A. Expenses, losses, indebtedness and taxes
B. Property previously taxed

C. Transfers for public use


D. Net share of the surviving spouse in the conjugal partnership or community property
No deduction shall be allowed in the case of a non-resident decedent not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be,
includes in the return required to be filed in the Section 90 of the Code the value at the time of
the decedents death of that part of his gross estate not situated in the Philippines.
Please note that the allowable deductions will vary depending on the law applicable at the time
of the decedents death.
6. What does the term "Funeral Expenses" include? (Sec 6 (A)(1) of RR 2-2003)
The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They
include:
(a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased
bought and used on the occasion of the burial;
(b) Expenses for the deceaseds wake, including food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives of the deceased;
(e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the
deceased owns a family estate or several burial lots, only the value corresponding to the plot
where he is buried is deductible;
(f) Interment and/or cremation fees and charges; and
(g) All other expenses incurred for the performance of the rites and ceremonies incident to
interment.
Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like
are not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives
and friends of the deceased are not deductible. Actual funeral expenses shall mean those which
are actually incurred in connection with the interment or burial of the deceased. The expenses
must be duly supported by official receipts or invoices or other evidence to show that they were
actually incurred.

7. What does the term "Judicial Expenses" include? (Sec 6 (A)(2) of RR 2-2003)
Expenses allowed as deduction under this category are those incurred in the inventory-taking of
a assets comprising the gross estate, their administration, the payment of debts of the estate, as
well as the distribution of the estate among the heirs. In short, these deductible items are
expenses incurred during the settlement of the estate but not beyond the last day prescribed by
law, or the extension thereof, for the filing of the estate tax return. Judicial expenses may
include:
(a) Fees of executor or administrator;
(b) Attorneys fees;
(c) Court fees;
(d) Accountants fees;
(e) Appraisers fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining property of the estate; and
(i) Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses claimed under Judicial
Expenses should be supported by a sworn statement of account issued and signed by the
creditor.
8. What are the requisites for deductibility of claims against the Estate? (Sec 6(A)(3) of RR 22003)
(a) The liability represents a personal obligation of the deceased existing at the time of his death
except unpaid obligations incurred incident to his death such as unpaid funeral expenses (i.e.,
expenses incurred up to the time of interment) and unpaid medical expenses which are
classified under a different category of deductions pursuant to these Regulations;
(b) The liability was contracted in good faith and for adequate and full consideration in money or
moneys worth;

(c) The claim must be a debt or claim which is valid in law and enforceable in court;
(d) The indebtedness must not have been condoned by the creditor or the action to collect from
the decedent must not have prescribed.
9. How do we determine the fair market value of the unlisted stocks? (RR NO. 62013) (Annex U)
In determining the value of the shares, the Adjusted Net Asset Method shall be
used whereby all assets and liabilities are adjusted to fair market values. The net of
adjusted asset minus the adjusted liability value is the indicated value of the
equity.
For purposes of this item, the appraised value of real property at the time of sale
shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors, or
(c) The fair market value as determined by Independent Appraiser.

Description

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 and/or personal and
additional exemptions, 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
o employees deriving purely compensation income from 2 or more
employers, concurrently or successively at anytime during the taxable
year
o 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
o self-employed individuals receiving income from the conduct of trade or
business and/or practice of profession

o individuals deriving mixed income, i.e., compensation income and


income from the conduct of trade or business and/or practice of
profession
o individuals deriving other non-business, non-professional related income
in addition to compensation income not otherwise subject to a final tax
o 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
o marginal income earners
Non-resident citizens receiving income from sources within the Philippines
Aliens, whether resident or not, receiving income from sources within the Philippines
Corporation shall include partnerships, no matter how created or organized.
Domestic corporations receiving income from sources within and outside the Philippines
Foreign corporations receiving income from sources within the Philippines
Estates and trusts engaged in trade or business

Frequently Asked Questions


1) What is income?
Income means all wealth, which flows into the taxpayer other than as a mere return of capital.
2) What is Taxable Income?
Taxable income means the pertinent items of gross income specified in the Tax Code as
amended, less the deductions and/or personal and additional exemptions, if any, authorized for
such types of income, by the Tax Code or other special laws.
3) What is Gross Income?
Gross income means all income derived from whatever source.
4) What comprises gross income?
Gross income includes, but is not limited to the following:

Compensation for services, in whatever form paid, including but not


limited to fees, salaries, wages, commissions and similar item

Gross income derived from the conduct of trade or business or the


exercise of profession

Gains derived from dealings in property

Interest

Rents

Royalties

Dividends

Annuities

Prizes and winnings

Pensions

Partner's distributive share from the net income of the general


professional partnerships

5) What are some of the exclusions from gross income?


o

Life insurance

Amount received by insured as return of premium

Gifts, bequests and devises

Compensation for injuries or sickness

Income exempt under treaty

Retirement benefits, pensions, gratuities, etc.

Miscellaneous items

o income derived by foreign government


o income derived by the government or its political subdivision

o prizes and awards in sport competition


o prizes and awards which met the conditions set in the Tax Code
o 13th month pay and other benefits
o GSIS, SSS, Medicare and other contributions
o gain from the sale of bonds, debentures or other certificate of
indebtedness
o gain from redemption of shares in mutual fund
6) What are the allowable deductions from gross income?
Except for taxpayers earning compensation income arising from personal services rendered
under an employer-employee relationships where the only deduction provided that the gross
family income does not exceed P250,000 per family is the premium payment on health and/or
hospitalization insurance, a taxpayer may opt to avail any of the following allowable deductions
from gross income:
a)Optional Standard Deduction - an amount not exceeding 40% of the net sales for individuals
and gross income for corporations; or
b) Itemized Deductions which include the following:

Expenses

Interest

Taxes

Losses

Bad Debts

Depreciation

Depletion of Oil and Gas Wells and Mines

Charitable Contributions and Other Contributions

Research and Development

Pension Trusts

In addition, individuals who are either earning compensation income, engaged in business or
deriving income from the practice of profession are entitled to personal and additional
exemptions as follows:
Personal Exemptions:
For single individual or married individual judicially decreed as legally separated with no
qualified dependentsP 50,000.00
For head of familyP 50,000.00
For each married individual *P 50,000.00
Note: In case of married individuals where only one of the spouses is deriving gross income,
only such spouse will be allowed to claim the personal exemption.
Additional Exemptions:

For each qualified dependent, an P25,000 additional exemption can be


claimed but only up to 4 qualified dependents

The additional exemption can be claimed by the following:

The husband who is deemed the head of the family unless he explicitly
waives his right in favor of his wife

The spouse who has custody of the child or children in case of legally
separated spouses. Provided, that the total amount of additional
exemptions that may be claimed by both shall not exceed the maximum
additional exemptions allowed by the Tax Code.

The individuals considered as Head of the Family supporting a qualified


dependent

The maximum amount of P 2,400 premium payments on health and/or hospitalization insurance
can be claimed if:

Family gross income yearly should not be more than P 250,000

For married individuals, the spouse claiming the additional exemptions


for the qualified dependents shall be entitled to this deduction

7) Who are required to file the Income Tax returns?

Individuals

Resident citizens receiving income from sources within or outside the


Philippines

o employees deriving purely compensation income from 2 or more


employers, concurrently or successively at anytime during the
taxable year
o 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
o self-employed individuals receiving income from the conduct of
trade or business and/or practice of profession
o individuals deriving mixed income, i.e., compensation income and
income from the conduct of trade or business and/or practice of
profession
o individuals deriving other non-business, non-professional related
income in addition to compensation income not otherwise subject to
a final tax
o 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
o marginal income earners

Non-resident citizens receiving income from sources within the


Philippines

Aliens, whether resident or not, receiving income from sources within


the Philippines

Corporations no matter how created or organized including partnerships

o domestic corporations receiving income from sources within and


outside the Philippines
o foreign corporations receiving income from sources within the
Philippines
o taxable partnerships

Estates and trusts engaged in trade or business

8) Who are not required to file Income Tax returns?


a. An individual who is a minimum wage earner
b. An individual whose gross income does not exceed his total personal and additional
exemptions
c. An individual whose compensation income derived from one employer does not exceed P
60,000 and the income tax on which has been correctly withheld
d. An individual whose income has been subjected to final withholding tax (alien employee as
well as Filipino employee occupying the same position as that of the alien employee of regional
headquarters and regional operating headquarters of multinational companies, petroleum
service contractors and sub-contractors and offshore-banking units, non-resident aliens not
engaged in trade or business)
e. Those who are qualified under substituted filing. However, substituted filing applies only if all
of the following requirements are present :

the employee received purely compensation income (regardless of


amount) during the taxable year

the employee received the income from only one employer in the
Philippines during the taxable year

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

the employees spouse also complies with all 3 conditions stated above

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

the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to
each employee.

9) Who are exempt from Income Tax?

Non-resident citizen who is:

a) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of
his physical presence abroad with a definite intention to reside therein
b) A citizen of the Philippines who leaves the Philippines during the taxable year to reside
abroad, either as an immigrant or for employment on a permanent basis
c) A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time during the
taxable year
d) A citizen who has been previously considered as a non-resident citizen and who arrives in the
Philippines at any time during the year to reside permanently in the Philippines will likewise be
treated as a non-resident citizen during the taxable year in which he arrives in the Philippines,
with respect to his income derived from sources abroad until the date of his arrival in the
Philippines.

Overseas Filipino Worker, including overseas seaman

An individual citizen of the Philippines who is working and deriving income from abroad as an
overseas Filipino worker is taxable only on income from sources within the Philippines; provided,
that a seaman who is a citizen of the Philippines and who receives compensation for services
rendered abroad as a member of the complement of a vessel engaged exclusively in
international trade will be treated as an overseas Filipino worker.
NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the
Philippine Embassy/consulate is not treated as a non-resident citizen, hence his income is
taxable.
10) What are the procedures in filing Income Tax returns (ITRs)?

For with payment ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704)

File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with the
Authorized Agent Bank (AAB) of the place where taxpayer is registered or required to be
registered. In places where there are no AABs, the return will be filed directly with the Revenue
Collection Officer 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 is none, filing
of the return will be at the Office of the Commissioner.

For no payment ITRs -- refundable, break-even, exempt and no operation/transaction,


including returns to be paid on 2nd installment and returns paid through a Tax Debit
Memo(TDM)

File the return with the concerned Revenue District Office (RDO) where the taxpayer is
registered. However, "no payment" returns filed late shall be accepted by the RDO but instead
shall be filed with an Authorized Agent Bank (AAB) or Collection Officer/Deputized Municipal
Treasurer (in places where there are no AABs), for payment of necessary penalties.
11) How is Income Tax payable of individuals (resident citizens and non-resident
citizens)computed?
Gross Income

P ___________

Less: Allowable Deductions (Itemized or Optional)

___________

Net Income

P ___________

Less: Personal & Additional Exemptions

___________

Net Taxable Income

P ___________

Multiply by Tax Rate (5 to 32%)

____________

Income Tax Due: Tax withheld (per BIR From 2316/2304)

P ___________

Income tax payable

P____________

12) How is Income Tax paid?

Through withholding

o
o

o Generally 10% or 15% if the gross annual business or professional


income exceeds P720,000 per year

o 20% - Fees paid to directors who are not employees and 20% of
professional fees paid to non-individuals
o Other withholding tax rates

Pay the balance as you file the tax return, computed as follows:

Income Tax Due

P ___________

Less: Withholding Tax

___________

Net Income Tax Due

P ___________

13) Is the Minimum Corporate Income Tax (MCIT) an addition to the regular or normal income
tax?
No, the MCIT is not an additional tax. An MCIT of 2% of the gross income as of the end of
taxable year (whether calendar or fiscal year, depending on the accounting period employed) is
imposed on a corporation taxable under Title II of the Tax Code, as amended, beginning on the
4th taxable year immediately following the taxable year in which such corporation commenced
its business operations when the MCIT is greater than the regular income tax. The MCIT is
compared with the regular income tax, which is due from a corporation. If the regular income is
higher than the MCIT, then the corporation does not pay the MCIT but the amount of the regular
income tax.
Notwithstanding the above provision, however, the computation and the payment of MCIT, shall
likewise apply at the time of filing the quarterly corporate income tax as prescribed under
Section 75 and Section 77 of the Tax Code, as amended. Thus, in the computation of the tax
due for the taxable quarter, if the computed quarterly MCIT is higher than that quarterly normal
income tax, the tax due to be paid for such taxable quarter at the time of filing the quarterly
income tax return shall be the MCIT which is two percent (2%) of the gross income as of the end
of the taxable quarter. In the payment of said quarterly MCIT, excess MCIT from the previous
taxable year/s shall not be allowed to be credited. Expanded withholding tax, quarterly
corporate income tax payments under the normal income tax, and the MCIT paid in the previous
taxable quarter/s are allowed to be applied against the quarterly MCIT due.
14) Who are covered by MCIT?
The MCIT covers domestic and resident foreign corporations which are subject to the regular
income tax. The term regular income tax refers to the regular income tax rates under the Tax

Code. Thus, corporations which are subject to a special corporate tax system do not fall within
the coverage of the MCIT.
For corporations whose operations or activities are partly covered by the regular income tax and
partly covered by the preferential rate under special law, the MCIT shall apply on operations by
the regular income tax rate. Newly established corporations or firms which are on their first 3
years of operations are not covered by the MCIT.
15) When does a corporation start to be covered by the MCIT?
A corporation starts to be covered by the MCIT on the 4th year of its business operations. The
period of reckoning which is the start of its business operations is the year when the corporation
was registered with the BIR. This rule will apply regardless of whether the corporation is using
the calendar year or fiscal year as its taxable year.
16) When is the MCIT reported and paid? Is it quarterly?
The MCIT is paid on an annual basis and quarterly basis. The rules are governed by Revenue
Regulations No. 12-2007.
17) How is MCIT computed?
The MCIT is 2% of the gross income of the corporation at the end of the year.
Gross income means gross sales less sales returns, discounts and cost of goods sold. Passive
income, which have been subject to a final tax at source do not form part of gross income for
purposes of the MCIT.
Cost of goods sold includes all business expenses directly incurred to produce the merchandise
to bring them to their present location and use.
For trading or merchandising concern, cost of goods sold means the invoice cost of goods sold,
plus import duties, freight in transporting the goods to the place where the goods are actually
sold, including insurance while the goods are in transit.
For a manufacturing concern, cost of goods manufactured and sold means all costs of
production of finished goods such as raw materials used, direct labor and manufacturing
overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials
to the factory or warehouse.

For sale of services, gross income means gross receipts less sales returns, allowances,
discounts and cost of services which cover all direct costs and expenses necessarily incurred to
provide the services required by the customers and clients including:
o

Salaries and employees benefits of personnel, consultants and


specialists directly rendering the service;
Cost of facilities directly utilized in providing the service such as
depreciation or rental of equipment used;
Cost of supplies

Interest Expense is not included as part of cost of service, except in the case of banks and other
financial institutions.
Gross Receipts means amounts actually or constructively received during the taxable year.
However, for taxpayers employing the accrual basis of accounting, it means amounts earned as
gross income.
18) What is the carry forward provision under the MCIT?
Any excess of the MCIT over the normal income tax may be carried forward on an annual basis
and be credited against the normal income tax for 3 immediately succeeding taxable years.
19) How would the MCIT be recorded for accounting purposes?
Any amount paid as excess minimum corporate income tax should be recorded in the
corporations books as an asset under account title Deferred charges-MCIT
20) How long can we amend our income tax return?
There is no prescription period for amending the return. When the taxpayer has been issued a
Letter of Authority, he can no longer amend the return.
21) Can a benefactor of a senior citizen claim him/her as additional dependent in addition to
his/her 3 qualified dependent children at P 25,000 each?
No, pursuant to Revenue Regulations 2-94, the benefactor of a senior citizen cannot claim the
additional exemption.
22) What is a tax treaty?
A tax treaty formally known as convention or agreement for the avoidance of double taxation
and the prevention of fiscal evasion with respect to taxes on income (and on capital) could be

defined in terms of its purpose. First, a tax treaty is intended to promote international trade and
investment in several ways, the most important of which is by allocating taxing jurisdiction
between the Contracting States so as to eliminate or mitigate double taxation of income.
Second, a tax treaty is intended to permit the Contracting States to better enforce their domestic
laws so as to reduce tax evasion. These purposes are in fact incorporated in the title and the
preamble.
23) What are the effective Philippine tax treaties?
The Philippines has thirty-seven (37) effective tax treaties. The following tax treaties and their
dates of effectivity as as follows:
Effective Philippine Tax Treaties (as of June 2010)
Country

Date of
Effectivity

Date and Venue of Signature

1. Australia

January 1, 1980 May 11, 1979, Manila, Philippines

2. Austria

January 1, 1983 April 4, 1981, Vienna, Austria

3. Bahrain

January 1, 2004 November 7, 2001, Manila,


Philippines

4. Bangladesh

January 1, 2004 September 8, 1997, Manila,


Philippines

5. Belgium

January 1, 1981 October 2, 1976, Manila, Philippines

6. Brazil

January 1, 1992 Sept. 29, 1983, Brasilia, Brazil

7. Canada

January 1, 1977 March 11, 1976, Manila, Philippines

8. China

January 1, 2002 November 18, 1999, Beijing, China

9. Czech

January 1, 2004 November 13, 2000, Manila,


Philippines

10. Denmark (Renegotiated)

January 1, 1998 June 30, 1995, Copenhagen,


Denmark

11. Finland

January 1, 1982 October 13, 1978, Manila,


Philippines

12. France

January 1, 1978 January 9, 1976, Kingston, Jamaica

13. Germany

January 1, 1985 July 22, 1983, Manila, Philippines

14. Hungary

January 1, 1998 June 13, 1997, Budapest, Hungary

15. India

January 1, 1995 February 12, 1990, Manila,


Philippines

16. Indonesia

January 1, 1983 June 18, 1981, Manila, Philippines

17. Israel

January 1, 1997 June 9, 1992, Manila, Philippines

18. Italy

January 1, 1990 December 5, 1980, Rome, Italy

19. Japan

January 1, 1981 February 13, 1980, Tokyo, Japan

20. Korea

January 1, 1987 February 21, 1984, Seoul, Korea

21. Malaysia

January 1, 1985 April 27, 1982, Manila, Philippines

22. Netherlands

January 1, 1992 March 9, 1989, Manila, Philippines

23. New Zealand

January 1, 1981 April 29, 1980, Manila, Philippines

24. Norway

January 1, 1998 July 9, 1987, Manila, Philippines

25. Pakistan

January 1, 1979 February 22, 1980, Manila,


Philippines

26. Poland

January 1, 1998 September 9, 1992, Manila,


Philippines

27. Romania

January 1, 1998 May 18, 1994, Bucharest, Romania

28. Russia

January 1, 1998 April 26, 1995, Manila, Philippines

29. Singapore

January 1, 1977 August 1, 1977, Manila, Philippines

30. Spain

January 1, 1994 March 14, 1989, Manila, Philippines

31. Sweden (Renegotiated)

January 1, 2004 June 24, 1998, Manila, Philippines

32. Switzerland

January 1, 2002 June 24, 1998, Manila, Philippines

33. Thailand

January 1, 1983 July 14, 1982, Manila, Philippines

34. United Arab Emirates

January 1, 2009 September 21, 2003, Dubai, UAE

35. United Kingdom of Great Britain and Northern


Ireland

January 1, 1979 June 10, 1976, London, United


Kingdom

36. United States of America

January 1, 1983 October 1, 1976, Manila, Philippines

37. Vietnam

January 1, 2004 November 14, 2001, Manila,


Philippines

24) What office can we inquire about the said tax treaties?
The International Tax Affairs Division (ITAD).
25) What taxes are covered by Philippine tax treaties?
Income taxes imposed by the domestic laws of the Contracting States, including substantially
similar taxes that may be imposed later, in addition to, or in place, are covered by the tax
treaties. In the Philippines, this is generally limited to Title II (Tax on Income) of the National
Internal Revenue Code of 1997, as amended.
26) How is business income treated under our tax treaties?

The business profits of a resident of a Contracting State shall not be taxable in the Philippines
unless that enterprise of a resident of a Contracting State carries on business in the Philippines
through a permanent establishment.
27) What is the concept of permanent establishment (PE) as used in tax treaties?
PE is defined as a fixed place of business through which the business of the enterprise is wholly
or partly carried on. The concept of permanent establishment is used to determine the rights of
a Contracting State to tax the business profits of enterprises of the other Contracting State.
Under this concept, profits of an enterprise of a Contracting State are not taxable by the other
Contracting State, unless the enterprise carries on business through a permanent establishment
situated in the other Contracting State.
A list of places, circumstances, and activities which constitute a permanent establishment is
provided under the different tax treaties which the Philippines has with other countries.
28) What is the Most-Favored-Nation clause (MFN)?
The appearance of the MFN clause in the tax treaty means that a Contracting State will grant to
a resident of the other Contracting State the same lower rate of tax or exemption the former has
granted to a resident of a third State.
29) What is the tax treatment on immovable property?
Income from an immovable property is taxable in the Contracting State where the property is
situated. This term is generally defined under the domestic laws of the Contracting States.
However, this is further defined in the tax treaties.
30) How are capital gains taxed under our tax treaties?
Gains from the alienation of immovable property or movable property forming part of the
business property of a permanent establishment or pertaining to a fixed base are taxed in the
Philippines if the immovable property or permanent establishment or fixed base is located here.

Description

Percentage tax is a business tax imposed on persons or entities/transactions:


a.
1. Who sell or lease goods, properties or services in the course of trade or business
and are exempt from value-added tax (VAT) under Section 109 (w) of the National
Internal Revenue Code, as amended, whose gross annual sales and/or receipts
do not exceed Php 1,919,500 and who are not VAT-registered; and
2. Engaged in the following industries/ transactions:
a. Cars for rent or hire driven by the lessee, transportation contractors, including persons who
transport
passengers
for
hire,
and
other
domestic
carriers
of
passengers by land (except owners of animal-drawn two-wheeled vehicle) and keepers of
garages
b. International air/shipping carriers doing business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to
another country
c. Franchise grantees of

radio and/or television broadcasting whose gross annual receipts for


the preceding year do not exceed Php 10,000,000.00 and did not opt
to register as VAT taxpayers
gas and water utilities

d. Overseas dispatch, message or conversation transmitted from the Philippines, except those
transmitted by the Philippine government, any embassy
and consular offices of a foreign government, public international organizations enjoying
exemptions pursuant to an international agreement and new
messages to a bona fide correspondent furnishing general news service
e. Banks and non-bank financial intermediaries performing quasi-banking functions
f. Other non-bank financial intermediaries (including pawnshops)
g. Person, company or corporation (except purely cooperative companies or associations) doing
life insurance business
h. Fire, marine or miscellaneous agents of foreign insurance companies
I. Proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and racetracks,
including videoke bars, karaoke bars, karaoke televisions, karaoke boxes and music lounges

j. Winnings in horse races


h. Sale, barter or exchange of shares of stock listed and traded through the local stock
exchange or through initial public offering
Who are required to file Percentage Tax Returns monthly?
Every person/entity subject to percentage tax as enumerated in items 1, 2.a, 2.b, 2.c,
2.e, 2.f, 2.g and 2.h above
Who are required to file Percentage Tax Returns quarterly?
1.
1. Operator, manager or person in charge of:

cockpits,

cabarets, day or night clubs, videoke bars, karaoke


bars, karaoke televisions, karaoke boxes and music lounges

boxing exhibitions

professional basketball games

Jai-alai and race tracks


2. Telephone and communication companies on their overseas dispatch, message or
conversation originating and transmitted from the Philippines

Monthly Percentage Tax


Tax Form
BIR Form 2551M - Monthly Percentage Tax Return
Quarterly Percentage Tax
Tax Form

Percentage Tax Return For Transactions Involving Shares of Stocks Listed and Traded
Through the Local Stocks Exchange or Through Initial and/or Secondary Offering
Tax Form
BIR Form 2552 - Percentage Tax Return for Transactions Involving Shares of Stocks Listed and
Traded Through the Local Stocks Exchange or Through Initial and/or Secondary Public Offering

Tax Rates
Coverage

Basis

Tax Rate

Persons exempt from VAT under Section 109 (W)

Gross Receipts on sale or lease of goods, properties or


services

3%

Domestic carriers and keepers of garages

Gross Receipts on transport of passengers by land (except


those thru animal drawn two-wheeled vehicles)

3%

International Carriers:
International air/shipping carriers doing business in
the Philippines

Gross Receipts from transpot of cargo from the Philippines to 3%


another country

Franchise Grantees:
Gas and water utilities

Gross Receipts

2%

Radio and television broadcasting companies whose Gross Receipts


annual gross receipts of the preceding year do not
exceed P 10,000,000 and did not opt to register as
VAT taxpayer

3%

Overseas dispatch, message or conversation


originating from the Philippines

Gross Receipts

10%

Banks and non-bank financing intermediaries


performing quasi-banking functions

On interest, commissions and discounts from lending activities as well as


income from financial leasing, on the basis of remaining maturities of
instruments maturities of instruments from which recipts are derived:
Maturity period is five years or less

5%

Maturity period is more than five years

1%

On dividends and equity shares and net income of


subsidiaries

0%

On royalties, rentals of property, real or personal, profits from 7%


exchange and all other items treated as gross income under
Sec. 32 of the Tax Code, as amended

Other non-bank financial intermediaries

On net trading gains within the taxable year of foreign


currency, debt securities, derivatives and other similar
financial instruments

7%

Interest, commissions and discounts and all other items


treated as gross income under the Tax Code, as amended

5%

Interest, commissions and discounts from lending activities, as well as


income from financial leasing on the basis of remaining maturities of
instruments:
Maturity period is five years or less

5%

Life Insurance Companies (except purely


cooperative companies or associations)

Maturity period is more than five years

1%

Total premiums collected

2%

Agents of foreign insurance companies (except reinsurance premium):


Insurance agents authorized under the Insurance
Total premiums collected
Code to procure policies of insurance for companies
not authorized to transact business in the Philippines

4%

Owners of property obtaining insurance directly with


foreign insurance companies

Total premiums paid

5%

Cockpits

Gross receipts

18%

Cabarets, Night or Day Clubs videoke bars, karaoke


bars, karaoke televisions, karaoke boxes and music
lounges

Gross receipts

18%

Boxing exhibitions

Gross receipts

10%

Professional basketball games

Gross receipts

15%

Jai-alai and race track (operators shall withheld tax


on winnings)

Gross receipts

30%

Proprietor, lessee or operator of the following:

Winnings on horse races

Winnings or 'dividends'

10%

Winnings from double forecast/quinella and


trifecta bets

4%

Prizes of owners of winning race horses

10%

Sale, Barter, Exchange of Shares of Stock Listed and Trased through the Local Stock Exchange or Through Initial Public
Offering
Sale, barter, exchange or other disposition of shares Gross selling price or gross value in money
of stock listed and traded through the Local Stock
Exchange other than the sale by a dealer of
securities [Sec. 127 (A)]

of 1%

Sale, barter or exchange or other disposition through


Gross selling price or gross value in money
initial public offering (IPO) of shares of stock in
closely-held corporations [Sec. 127 (B)]
Proportion of disposed shares to total outstanding shares after
the listing in the local stock exchange:

Codal Reference

Up to 25%

4%

Over 25% but not over 33 1/3%

2%

Over 33 1/3%

1%

Sections 116 to 128 of the National Internal Revenue Code

Description

Value-Added Tax is a form of sales tax. It is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in the Philippines and on importation of
goods into the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer,
transferee or lessee of goods, properties or services.
Who are required to file vat returns?

Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if
the aggregate amount of actual gross sales or receipts exceed One Million
Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00).

A person required to register as VAT taxpayer but failed to register

Any person, whether or not made in the course of his trade or business, who
imports goods

Monthly VAT Declarations


Tax Form

BIR Form 2550M - Monthly Value-Added Tax Declaration (February 2007 ENCS)

FREQUENTLY ASKED QUESTIONS


I. General VAT Queries
Who are liable to register as VAT taxpayers?
Any person who, in the course of trade or business, sells, barters or exchanges goods or
properties or engages in the sale or exchange of services shall be liable to register if:
a. His gross sales or receipts for the past twelve (12) months, other than those that are exempt
under Section 109 (A) to (U), have exceeded One Million Five Hundred Thousand Pesos
(P1,500,000.00): or
b. There are reasonable grounds to believe that his gross sales or receipts for the next twelve
(12) months, other than those that are exempt under Section 109 (A) to (U), will exceed One
Million Five Hundred Thousand Pesos (P1,500,000.00).
When is a new VAT taxpayer required to apply for registration and pay the registration
fee?
New VAT taxpayers shall apply for registration as VAT Taxpayers and pay the corresponding
registration fee of five hundred pesos (P500.00) using BIR Form No. 0605 for every separate or
distinct establishment or place of business before the start of their business following existing
issuances on registration.
Thereafter, taxpayers are required to pay the annual registration fee of five hundred pesos
(P500.00) not later than January 31, every year.
What compliance activities should a VAT taxpayer, after registration as such, do promptly
or periodically?
The following compliance activities must be performed by a VAT-registered taxpayer:
a. Pay the annual registration fee of P500.00 for every place of business or establishment that
generates sales;
b. Register the books of accounts of the business/occupation/calling, including practice of
profession, before using the same;

c. Register the sales invoices and official receipts as VAT-invoices or VAT official receipts for use
on transactions subject to VAT. (If there are other transaction not subject to VAT, a separate set
of non-VAT invoices or non-VAT official receipts need to be registered for use on transactions not
subject to VAT);
d. Filing of the Monthly Value-added Tax Declaration on or before the 20th day following the end
of the taxable month (for manual filers)/on or before the prescribed due dates enunciated in RR
No. 16-2005 (for e-filers) using BIR Form No. 2550M and of the Quarterly VAT Return on or
before the 25th day following the end of the taxable quarter using BIR Form No. 2550Q,
reflecting therein gross receipts (for seller of service)/ gross sales (for seller of goods) and
output tax (VAT on sales); purchases of goods and services made in the course of trade or
business/exercise of profession and input tax (VAT on purchases), other allowable tax credits as
in the case of advance VAT payment and VAT withheld by government payors, and VAT payable
or excess input VAT, whichever is applicable, with the accredited agent banks (AABs) of the BIR
or Revenue Collection Officers (RCOs) of the BIR (in areas without AAB), for returns with
payment, or with the RDO/LTDO having jurisdiction over the taxpayer (home RDO/LTDO), for
returns without payment. (The monthly VAT Declaration and the Quarterly VAT Return shall
reflect the consolidated total for all the taxable lines of activity and all the establishments - head
office and branches);
e. Submit with the RDO/LTDO having jurisdiction over the taxpayer, on or before the deadline set
in the filing of the Quarterly VAT Return, the soft copy of the Quarterly Schedule of Monthly
Sales and Output Tax (if the quarterly sales exceed P2,500,000.00), and the soft copy of the
Quarterly Schedule of Monthly Domestic Purchases and Input Tax/ the soft copy of the
Schedule of Transactional/Individual Importation ( if the quarterly total purchases exceed
P1,000,000.00), reflecting therein the required data prescribed under existing revenue
issuances.
How do we determine the main or principal business of a taxpayer who is engaged in
mixed business activities?
In determining the main or principal business of a taxpayer, we apply the predominance test.
Under this test, if more than fifty (50%) of its gross sales and/or gross receipts comes from its
business/es subject to VAT, its main/principal business falls within the VAT system making its
status as a VAT person. Otherwise, he can not be considered as a VAT person eligible for the
election provided for under Section 109(2) of the Tax Code.
What is the liability of a taxpayer becoming liable to VAT and did not register as such?

Any person who becomes liable to VAT and fails to register as such shall be liable to pay the
output tax as if he is a VAT-registered person, but without the benefit of input tax credits for the
period in which he was not properly registered.
Who may opt to register as VAT and what will be his liability?
1. Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT
may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with the RDO that has
jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for
every separate and distinct establishment.
2. Any person who is VAT-registered but enters into transactions which are exempt from VAT
(mixed transactions) may opt that the VAT apply to his transactions which would have been
exempt under Section 109(1) of the Tax Code, as amended [Sec. 109(2)].
3. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business
covered by the law granting the franchise may opt for VAT registration. This option, once
exercised, shall be irrevocable. (Sec. 119, Tax Code).
4. Any person who elects to register under optional registration shall not be allowed to cancel his
registration for the next three (3) years.
The above-stated taxpayers may apply for VAT registration not later than ten (10) days before
the beginning of the calendar quarter and shall pay the registration fee unless they have already
paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for
administrative reason deny any application for registration. Once registered as a VAT person, the
taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day
of the month following registration.
What are the instances when a VAT-registered person may cancel his VAT registration?
1. If he makes a written application and can demonstrate to the commissioner's satisfaction that
his gross sales or receipts for the following twelve (12) months, other than those that are exempt
under Section 109 (A) to (U), will not exceed one million five hundred thousand pesos
(P1,500,000.00); or
2. If he has ceased to carry on his trade or business, and does not expect to recommence any
trade or business within the next twelve (12) months.
When will the cancellation for registration be effective?

The cancellation for registration will be effective from the first day of the following month the
cancellation was approved.
What is the invoicing/ receipt requirement of a VAT-registered person?
A VAT registered person shall issue :
1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. A VAT official receipt for every lease of goods or properties and for every sale, barter or
exchange of services.
May a VAT-registered person issue a single invoice/ receipt involving VAT and Non-VAT
transactions?
Yes. He may issue a single invoice/ receipt involving VAT and non-VAT transactions provided
that the invoice or receipt shall clearly indicate the break-down of the sales price between its
taxable, exempt and zero-rated components and the calculation of the Value-Added Tax on each
portion of the sale shall be shown on the invoice or receipt.
May a VAT- registered person issue separate invoices/ receipts involving VAT and NonVAT transactions?
Yes. A VAT registered person may issue separate invoices/ receipts for the taxable, exempt, and
zero-rated component of its sales provided that if the sales is exempt from value-added tax, the
term "VAT-EXEMPT SALE" shall be written or printed prominently on the invoice or receipt and if
the sale is subject to zero percent (0%) VAT, the term "ZERO-RATED SALE" shall be written or
printed prominently on the invoice or receipt.
How is the Value-Added Tax presented in the receipt/ invoice?
The amount of the tax shall be shown as a separate item in the invoice or receipt.
Sample:
Sales Price
VAT
Invoice Amount

P 100,000.00
12,000.00
112,000.00

What is the information that must be contained in the VAT invoice or VAT official receipt?
1. Name of Seller

2. Business Style of the Seller


3. Business Address of the Seller
4. Statement that the seller is a VAT-registered person, followed by his TIN
5. Name of Buyer
6. Business Style of Buyer
7. Address of Buyer
8. TIN of buyer, if VAT- registered and amount exceed P1,000.00
9. Date of transaction
10. Quantity
11. Unit cost
12. Description of the goods or properties or nature of the service
13. Purchase price plus the VAT, provided that:

The amount of tax shall be shown as a separate item in the invoice


or receipt;
If the sale is exempt from VAT, the term "VAT-EXEMPT SALE" shall be
written or printed prominently on the invoice or receipt;
If the sale is subject to zero percent (0%) VAT, the term "ZERORATED SALE" shall be written or printed prominently on the invoice
receipt; and
If the sale involves goods, properties or services some of which are
subject to and some of which are zero-rated or exempt from VAT, the
invoice or receipt shall clearly indicate the breakdown of the sales
price between its taxable, exempt and zero-rated components, and
the calculation of the VAT on each portion of the sale shall be shown
on the invoice or receipt.

14. Authority to Print Receipt Number at the lower left corner of the invoice or receipt.
What is the liability of a taxpayer not registered as VAT and issues a VAT invoice/ receipt?
The non-VAT registered person shall, in addition to paying the percentage tax applicable to his
transactions, be liable to VAT imposed in Section 106 or 108 of the Tax Code without the benefit

of any input tax credit plus 50% surcharge on the VAT payable (output tax). If the invoice/
receipts contain the required information, purchaser shall be allowed to recognize an input tax
credit.
What is the liability of a VAT-registered person in the issuance of a VAT invoice/ receipt
for VAT-exempt transactions?
If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt
transaction but fails to display prominently on the invoice or receipt the words "VAT-EXEMPT
SALE", the transaction shall become taxable and the issuer shall be liable to pay the VAT
thereon. The purchaser shall be entitled to claim an input tax credit on his purchase.
What is "output tax"?
Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or
services by any person registered or required to register under Section 236 of the Tax Code.
What is "input tax"?
Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local
purchase of goods, properties or services, including lease or use of property in the course of his
trade or business. It shall also include the transitional input tax determined in accordance with
Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and intangible objects, which are capable
of pecuniary estimation and shall include, among others:
a. Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade
or
business;
b. The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
c. The right or privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
d. The right or the privilege to use motion picture films, films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.
What comprises "sale or exchange of services"?

The term "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, whether in kind or in cash,
including those performed or rendered by the following:
a. Construction and service contractors;
b. Stock, real estate, commercial, customs and immigration brokers;
c. Lessors of property, whether personal or real;
d. Persons engaged in warehousing services;
e. Lessors or distributors of cinematographic films;
f. Persons engaged in milling, processing, manufacturing or repacking goods for others;
g. Proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns,
resorts, theatres, and movie houses;
h. Proprietors or operators of restaurants, refreshment parlors, cafes, and other eating places,
including clubs and caterers;
i. Dealers in securities;
j. Lending investors;
k. Transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative to their
transport of goods or cargoes;
l. Common carriers by air and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines;
m. Sales of electricity by generation, transmission, and/or distribution companies;
n. Franchise grantees of electric utilities, telephone and telegraph, radio and/or television
broadcasting and all other franchise grantees, except franchise grantees of radio and/or
television broadcasting whose annual gross receipts of the preceding year do not exceed Ten
Million Pesos (P10,000,000.00), and franchise grantees of gas and water utilities;
o. Non-life insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and

p. Similar services regardless of whether or not the performance thereof calls for the exercise of
use of the physical or mental faculties.
The phrase "sale or exchange of services" shall likewise include:
a. The lease of use of or the right or privilege to use any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
b. The lease or the use of, or the right to use of any industrial, commercial or scientific
equipment;
c. The supply of scientific, technical, industrial or commercial knowledge or information;
d. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means
of enabling the application or enjoyment of any such property, or right or any such knowledge or
information;
e. The supply of services by a nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such non-resident person;
f. The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking, venture,
project or scheme;
g. The lease of motion picture films, films, tapes and discs; and
h. The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.

What is a zero-rated sale?


It is a sale, barter or exchange of goods, properties and/or services subject to 0% VAT pursuant
to Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable transaction for VAT purposes,
but shall not result in any output tax. However, the input tax on purchases of goods, properties
or services, related to such zero-rated sales, shall be available as tax credit or refund in
accordance with RR No. 16-2005.
What transactions are considered as zero-rated sales?

The following services performed in the Philippines by VAT-registered person shall be subject to
zero percent (0%) rate:
a. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);
b. Services other than processing, manufacturing or repacking rendered to a person engaged in
business conducted outside the Philippines or to a non-resident person engaged in business
who is outside the Philippines when the services are performed, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
c. Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such
services to zero percent (0%) rate;
d. Services rendered to persons engaged in international shipping or air transport operations,
including leases of property for use thereof; Provided, however, that the services referred to
herein shall not pertain to those made to common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the Philippines to another place in
the Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax
Code starting Feb. 1, 2006;
e. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of
total annual production;
f. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a
foreign country. Gross receipts of international air carriers doing business in the Philippines and
international sea carriers doing business in the Philippines are still liable to a percentage tax of
three percent (3%) based on their gross receipts as provided for in Sec. 118 of the Tax Code but
shall not be liable to VAT; and
g. Sale of power or fuel generated through renewable sources of energy such as, but not limited
to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other shipping
sources using technologies such as fuel cells and hydrogen fuels; Provided, however that zerorating shall apply strictly to the sale of power or fuel generated through renewable sources of
energy, and shall not extend to the sale of services related to the maintenance or operation of
plants generating said power .

The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
a. Export sales

The sale and actual shipment of goods from the Philippines to a


foreign country, irrespective of any shipping arrangement that
may be agreed upon which may influence or determine the
transfer of ownership of the goods so exported, paid in
acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
The sale of raw materials or packaging materials to a nonresident buyer for delivery to as resident local export-oriented
enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods, paid for in
acceptable foreign currency, and accounted for in accordance
with the rules and regulations of the BSP;
The sale of raw materials or packaging materials to an exportoriented enterprise whose export sales exceed seventy percent
(70%) of total annual production;
Sale of gold to the BSP;
Transactions considered export sales under Executive Order No.
226, otherwise known as the Omnibus Investments Code of
1987, and other special laws; and
The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations; Provided, that the same is limited to goods, supplies,
equipment and fuel pertaining to or attributable to the transport
of goods and passengers from a port in the Philippines directly to
a foreign port, or vice-versa without docking or stopping at any
other port in the Philippines unless the docking or stopping at
any other Philippine port is for the purpose of unloading
passengers and/or cargoes that originated from abroad, or to
load passengers and/or cargoes bound for abroad; Provided,
further, that if any portion of such fuel, goods or supplies is used
for purposes other than the mentioned in this paragraph, such
portion of fuel, goods and supplies shall be subject to twelve
percent (12%) output VAT.

b. Foreign Currency Denominated Sales


The sale to a non-resident of goods, except those mentioned in Sections 149 and 150 of the Tax
Code, assembled or manufactured in the Philippines for delivery to a resident in the Philippines,
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP.

c. Sales to Persons or Entities Deemed Tax-exempt under Special Law or International


Agreement
Sale of goods or property to persons or entities who are tax-exempt under special laws or
international agreements to which the Philippines is a signatory, such as, Asian Development
Bank (ADB), International Rice Research Institute (IRRI), etc.
Where will taxpayers file their applications for VAT zero-rating?
Taxpayers shall file their application directly with the Audit Information, Tax Exemption and
Incentives Division (AITEID) under the Assessment Service, or with the LTAID I and II, BIR
National Office, as the case may be.
What is a Contractor's Final Payment Release Certificate and where should taxpayers file
their application for this?
The Contractor's Final Payment Release Certificate is issued by the BIR before a government
contractor is fully paid for his contract with the government. Taxpayers may file their application
at the BIR National Office at the Audit Information, Tax Exemption and Incentives Division
(AITEID)
What transactions are considered deemed sales?
The following transactions are considered as deemed sales:
a. Transfer, use or consumption, not in the course of business, of goods or properties originally
intended for sale or for use in the course of business. Transfer of goods or properties not in the
course of business can take place when VAT-registered person withdraws goods from his
business for his personal use;
b. Distribution or transfer to:

Shareholders or investors as share in the profits of the VATregistered person; or


Creditors in payment of debt or obligation

c. Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned. Consigned goods returned by the consignee within the 60-day period
are not deemed sold;

d. Retirement from or cessation of business, with respect to all goods on hand, whether capital
goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation,
whether or not the business is continued by the new owner or successor. The following
circumstances shall, among others, give rise to transactions "deemed sale";

Change of ownership of the business. There is a change in the


ownership of the business when a single proprietorship
incorporated; or the proprietor of a single proprietorship sells his
entire business.
Dissolution of a partnership and creation of a new partnership
which takes over the business.

What is VAT-exempt sale?


It is a sale of goods, properties or service and the use or lease of properties which is not subject
to output tax and whereby the buyer is not allowed any tax credit or input tax related to such
exempt sale.
What are the VAT-exempt transactions?
a. Sale or importation of agricultural and marine food products in their original state, livestock
and poultry of a kind generally used as, or yielding or producing foods for human consumption;
and breeding stock and genetic materials therefore;
b. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds, including ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals and other animals considered as pets);
c. Importation of personal and household effects belonging to residents of the Philippines
returning from abroad and non-resident citizens coming to resettle in the Philippines; Provided,
that such goods are exempt from custom duties under the Tariff and Customs Code of the
Philippines;
d. Importation of professional instruments and implements, wearing apparel, domestic animals,
and personal household effects (except any vehicle, vessel, aircraft, machinery and other goods
for use in the manufacture and merchandise of any kind in commercial quantity) belonging to
persons coming to settle in the Philippines, for their own use and not for sale, barter or

exchange, accompanying such persons, or arriving within ninety (90) days before or after their
arrival, upon the production of evidence satisfactory to the Commissioner of Internal Revenue,
that such persons are actually coming to settle in the Philippines and that the change of
residence is bonafide;
e. Services subject to percentage tax under Title V of the Code, as amended;
f. Services by agricultural contract growers and milling for others of palay into rice, corn into
grits, and sugar cane into raw sugar;
g. Medical, dental, hospital and veterinary services except those rendered by professionals;
h. Educational services rendered by private educational institutions duly accredited by the
Department of Education (DepED), the Commission on Higher Education (CHED) and the
Technical Education and Skills Development Authority (TESDA) and those rendered by the
government educational institutions;
i. Services rendered by individuals pursuant to an employer-employee relationship;
j. Services rendered by regional or area headquarters established in the Philippines by
multinational corporations which act as supervisory, communications and coordinating centers
for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive
income from the Philippines;
k. Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws except those granted under P.D. No. 529 - Petroleum
Exploration Concessionaires under the Petroleum Act of 1949;
l. Sales by agricultural cooperatives duly registered and in good standing with the Cooperative
Development Authority (CDA) to their members, as well as of their produce, whether in its
original state or processed form, to non-members, their importation of direct farm inputs,
machineries and equipment, including spare parts thereof, to be used directly and exclusively in
the production and/or processing of their produce;
m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered
and in good standing with the Cooperative Development Authority;
n. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in
good standing with CDA; Provided, that the share capital contribution of each member does not
exceed Fifteen Thousand Pesos (P15,000.00) and regardless of the aggregate capital and net
surplus ratably distributed among the members;

o. Export sales by persons who are not VAT-registered;


p. The following sales of real properties are exempt from VAT, namely:
1. Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business;
2. Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise
known as the "Urban Development and Housing Act of 1992" and other related laws, such as
RA No. 7835 and RA No. 8763;
3. Sale of real properties utilized for specialized housing as defined under RA No. 7279, and
other related laws, such as RA No. 7835 and RA No. 8763, wherein price ceiling per unit is
P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and
other related laws;
4. Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00)
and below, or house and lot and other residential dwellings valued at Two Million Five Hundred
Thousand Pesos (P2,500,000.00) and below where the instrument of sale/ transfer/ disposition
was executed on or after July 1, 2005; Provided, that not later than January 31, 2009 and every
three (3) years thereafter, the amounts stated herein shall be adjusted to its present value using
the Consumer Price Index, as published by the National Statistics Office (NSO); Provided,
further, that such adjustment shall be published through revenue regulations to be issued not
later than March 31 of each year.
q. Lease of residential units with a monthly rental per unit not exceeding Ten Thousand Pesos
(P10,000.00), regardless of the amount of aggregate rentals received by the lessor during the
year; Provided, that not later than January 31, 2009 and every three (3) years thereafter, the
amount of P10,000.00 shall be adjusted to its present value using the Consumer Price Index, as
published by the NSO;
r. Sale, importation, printing or publication of books and any newspaper, magazine, review or
bulletin which appears at regular intervals with fixed prices for subscription and sale and which
is not devoted principally to the publication of paid advertisements;
s. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine
equipment and spare parts thereof for domestic or international transport operations; Provided,
that the exemption from VAT on the importation and local purchase of passenger and/or cargo
vessels shall be limited to those of one hundred fifty (150) tons and above, including engine and
spare parts of said vessels; Provided, further, that the vessels to be imported shall comply with
the age limit requirement, at the time of acquisition counted from the date of the vessel's original

commissioning, as follows: (a) for passenger and/or cargo vessel, the age limit is fifteen (15)
years old, (b) for tankers, the age limit is ten (10) year old, and (c) for high-speed passengers
crafts, the age limit is five (5) years old; Provided, finally, that exemption shall be subject to the
provisions of Section 4 of Republic Act No. 9295, otherwise known as "The Domestic Shipping
Development Act of 2004";
t. Importation of life-saving equipment, safety and rescue equipment and communication and
navigational safety equipment, steel plates and other metal plates including marine-grade
aluminum plates, used for shipping transport operations; Provided, that the exemption shall be
subject to the provisions of Section 4 of Republic Act No. 9295, otherwise known as "The
Domestic Shipping Development Act of 2004".
u. Importation of capital equipment, machinery, spare parts, life-saving and navigational
equipment, steel plates and other metal plates including marine-grade aluminum plates to be
used in the construction, repair, renovation or alteration of any merchant marine vessel operated
or to be operated in the domestic trade. Provided, that the exemption shall be subject to the
provisions of Section 19 of Republic Act No. 9295, otherwise known as the "The Domestic
Shipping Development Act of 2004".
v. Importation of fuel, goods and supplies engaged in international shipping or air transport
operations; Provided, that the said fuel, goods and supplies shall be used exclusively or shall
pertain to the transport of goods and/or passenger from a port in the Philippines directly to a
foreign port, or vice-versa, without docking or stopping at any other port in the Philippines unless
the docking or stopping at any other Philippine port is for the purpose of unloading passengers
and/or cargoes that originated form abroad, or to load passengers and/or cargoes bound for
abroad; Provided, further, that if any portion of such fuel, goods or supplies is used for purposes
other that the mentioned in the paragraph, such portion of fuel, goods and supplies shall be
subject to 12% VAT;
w. Services of banks, non-bank financial intermediaries performing quasi-banking functions,
and other non-bank financial intermediaries, such as money changers and pawnshops, subject
to percentage tax under Sections 121 and 122, respectively of the Tax Code; and
x. Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do
not exceed the amount of One Million Five Hundred Thousand Pesos (P1,500,000.00).
Provided, that not later than January 31, 2009 and every three (3) years thereafter, the amount
of P1,500,000.00 shall be adjusted to its present value after using the Consumer Price Index, as
published by the NSO.
What are the previously exempt transactions that are now subject to VAT?

Medical services
professionals;

Legal services;

Non-food agricultural products;

Marine and forest products;

Cotton and cotton seeds;

Coal and natural gas;

Petroleum products;

Passenger cargo vessels of more than 5,000 tons;

Work of art, literary works, musical composition;

Generation, transmission and distribution of electricity including that of


electric cooperatives;

Sale of residential lot valued at more than P1,500,000.00;

Sale of residential house & lot/dwellings valued at more than P2,500,000.00;

Lease of residential unit with a monthly rental of more than P10,000;

such

as

dental

&

veterinary

services

rendered

by

II. RELIEF-Related Queries


What is "RELIEF"?
RELIEF means Reconciliation of Listing for Enforcement. It supports the third party information
program of the Bureau through the cross referencing of third party information from the
taxpayers' Summary Lists of Sales and Purchases prescribed to be submitted on a quarterly
basis.
Who are required to submit Summary List of Sales?
VAT taxpayers with quarterly total sales/receipts (net of VAT), exceeding Two Million Five
Hundred Thousand Pesos (P2,500,000.00) are required to submit a Summary List of Sales.
Who are required to submit Summary List of Purchases?

VAT taxpayers with quarterly total purchases (net of VAT) of goods and services, including
importation exceeding One Million Pesos (P1,000,000.00) are required to submit Summary List
of Purchases.
What are the Summary Lists required to be submitted?

Quarterly Summary List of Sales to Regular Buyers/ Customers Casual


Buyers/ Customers and Output Tax
Quarterly Summary of List of Local Purchases and Input tax; and
Quarterly Summary List of Importation.

When is the deadline for submission of the above Summary Lists?


The Summary List of Sales/Purchases, whichever is applicable, shall be submitted on or before
the twney-fifth (25th) day of the month following the close of the taxable quarter -- calendar
quarter or fiscal quarter.
What are the penalties for failure to submit the Summary Lists?

For failure to file, keep or supply a statement, list or information


required on the date prescribed shall pay and administrative penalty of
One Thousand Pesos (P1,000.00) for each such failure, unless it is shown
that such failure is due to reasonable cause and not to willful neglect;
and

An aggregate amount to be imposed for all such failures during a


taxable year shall not exceed Twenty-Five Thousand Pesos (P25,000.00).

III. What is the treatment for Withholding of VAT on Government Money Payments?

The goverment or any of its political subdivisions, instrumentalities or


agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase of
goods and/or services taxed at twelve percent (12%) VAT pursuant to

Sections 106 and 108 of the Tax Code, deduct and withhold a Final VAT
due at the rate of five percent (5%) of the gross payment.
The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller.
The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of
goods or services to government or any of its political subdivisions, instrumentalities or agencies
including GOCCs in lieu of the actual input VAT directly attributable or ratably apportioned to
such sales. Should actual input VAT attributable to sales to government exceeds seven percent
(7%) of gross payments, the excess may form part of the sellers' expense or cost. On the other
hand, if actual input VAT attributable to sale to government is less than seven percent (7%) of
gross payment, the difference must be closed to expense or cost.

The government or any of its political subdivisions, instrumentalities or


agencies including GOCCs, as well as private corporation, individuals,
estates and trusts, whether large or non-large taxpayers, shall withhold
twelve percent (12%) VAT with respect to the following payments:

1. Lease or use of properties or property rights owned by non-residents; and


2. Other services rendered in the Philippines by non-residents.

IV. In what grounds can the Commissioner of Internal Revenue suspend the business
operations of a taxpayer?
The Commissioner or his authorized representative is empowered to suspend the business
operations and temporarily close the business establishment of any person for any of the
following violations:
(a) In the case of a VAT-registered Person:

Failure to issue receipts or invoices;


Failure to file a value-added-tax return as required under Section
114; or
Understatement of taxable sales or receipts by thirty percent
(30%) or more of his correct taxable sales or receipts for the
taxable quarter.

(b) Failure to any Person to Register as Required under Section 236

The temporary closure of the establishment shall be for the


duration of not less than five (5) days and shall be lifted only
upon compliance with whatever requirements prescribed by the
Commissioner in the closure order.

Description
Withholding Tax on Compensation is the tax withheld from income payments to individuals
arising from an employer-employee relationship.
Expanded Withholding Tax is a kind of withholding tax which is prescribed on certain income
payments and is creditable against the income tax due of the payee for the taxable quarter/year
in which the particular income was earned.
Final Withholding Tax is a kind of withholding tax which is prescribed on certain income
payments and is not creditable against the income tax due of the payee on other income subject
to regular rates of tax for the taxable year. Income Tax withheld constitutes the full and final

payment of the Income Tax due from the payee on the particular income subjected to final
withholding tax.
Withholding Tax on Government Money Payments (GMP) - Percentage Taxes - is the tax
withheld by National Government Agencies (NGAs) and instrumentalities, including governmentowned and controlled corporations (GOCCs) and local government units (LGUs), before making
any payments to non-VAT registered taxpayers/suppliers/payees
Withholding Tax on GMP - Value Added Taxes (GVAT) - is the tax withheld by National
Government Agencies (NGAs) and instrumentalities, including government-owned and
controlled corporations (GOCCs) and local government units (LGUs), before making any
payments to VAT registered taxpayers/suppliers/payees on account of their purchases of goods
and services.

Frequently Asked Questions


1) What are the types of Withholding Taxes?
There are two main classifications or types of withholding tax. These are:
a) Creditable Withholding Tax
- Withholding Tax on Compensation
- Expanded Withholding Tax
- Withholding of Business Tax (VAT and Percentage)
b) Final Withholding Tax
2) What is compensation?
It means any remuneration received for services performed by an employee from his employer
under an employee-employer relationship.

3) What are the different kinds of compensation?

a) Regular compensation - includes basic salary, fixed allowances for representation,


transportation and others paid to an employee
b) Supplemental compensation - includes payments to an employee in addition to the regular
compensation such as but not limited to the following:
- Overtime Pay
- Fees, including director's fees
- Commission
- Profit Sharing
- Monetized Vacation and Sick Leave
- Fringe benefits received by rank & file employees
- Hazard Pay
- Taxable 13th month pay and other benefits
- Other remunerations received from an employee-employer relationship
4) What are exempted from Withholding Tax on Compensation?
1. Remuneration as an incident of employment, such as the following:
a. Retirement benefits received under RA 7641
b. Any amount received by an official or employee or by his heirs from the employer due to
death, sickness or other physical disability or for any cause beyond the control of the said official
or employee such as retrenchment, redundancy or cessation of business
c. Social security benefits, retirement gratuities, pensions and other similar benefits
d. Payment of benefits due or to become due to any person residing in the Philippines under the
law of the US administered by the US Veterans Administration
e. Payment of benefits made under the SSS Act of 1954, as amended
f. Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity
received by the government official and employees
2. Remuneration paid for agricultural labor and paid entirely in products of the farm where the
labor is performed

3. Remuneration for domestic services


4. Remuneration for casual labor not in the course of an employer's trade or business
5. Compensation for services by a citizen or resident of the Philippines for a foreign government
or an international organization
6. Payment for damages
7. Proceeds of Life Insurance
8. Amount received by the insured as a return of premium
9. Compensation for injuries or sickness
10. Income exempt under Treaty
11. Thirteenth (13th) month pay and other benefits (not to exceed P 30,000)
12. GSIS, SSS, Medicare and other contributions
13. Compensation Income of Minimum Wage Earners (MWEs) with respect to their Statutory
Minimum Wage (SMW) as fixed by Regional Tripartite Wage and Productivity Board
(RTWPB)/National Wage and Productivity Commission (NWPC), including overtime pay, holiday
pay, night shift differential and hazard pay, applicable to the place where he/she is assigned.
14. Compensation Income of employees in the public sector if the same is equivalent to or not
more than the SMW in the non-agricultural sector, as fixed by RTWPB/NWPC, including
overtime pay, holiday pay, night shift differential and hazard pay, applicable to the place where
he/she is assigned.
5) What are De Minimis Benefits?
- These are facilities and privileges of relatively small value and are offered or furnished by the
employer to his employees merely as means of promoting their health, goodwill, contentment or
efficiency. The following shall be considered "De Minimis" benefits not subject to income tax,
hence not subject to withholding tax on compensation income of both managerial and rank and
file employees:

Monetized unused vacation leave credits of private employees not exceeding ten (10) days
during the year;
Monetized value of vacation and sick leave credits paid to government officials and employees.
Medical cash allowance to dependents of employees, not exceeding P750.00 per employee
per semester or P125.00 per month;
Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than
P1,500;
Uniform and clothing allowance not exceeding P5,000 per annum;
Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs,
annual medical/executive check-up, maternity assistance, and routine consultations, not
exceeding P10,000 per annum;
Laundry allowance not exceeding P300.00 per month;
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
plan which does not discriminate in favor of highly paid employees;
Gifts given during Christmas and major anniversary celebration not exceeding P5,000.00 per
employee per annum;
Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five
percent (25%) of the basic minimum wage on a per region basis;
6) What is substituted Filing of income tax returns (ITR)?
Substituted Filing of ITR is the manner by which declaration of income of individuals receiving
purely compensation income the taxes of which have been withheld correctly by their employers.
Instead of the filing of Individual Income Tax Return (BIR Form 1700), the employers annual
information return (BIR Form No. 1604-CF) duly stamped received by the BIR may be
considered as the substitute Income Tax Return (ITR) of the employee, inasmuch as the
information provided therein are exactly the same information required to be provided in his

income tax return (BIR Form No. 1700). However, said employees may still file ITR at his/her
option.
7) Who are qualified to avail of the substituted filing of ITR?
Employees who satisfies all of the following conditions:
a. Receiving purely compensation income regardless of amount;
b. Working for only one employer in the Philippines for the calendar year;
c. Tax has been withheld correctly by the employer (tax due equals tax withheld);
d. The employees spouse also complies with all three (3) conditions stated above.
e. The employer files the annual information return (BIR Form No. 1604-CF)
f. The employer issues BIR Form No. 2316 to each employee.
Note: For those employees qualified under the substituted filing, the employer
8) What income payments are subject to Expanded Withholding Tax?
a) Professional fees / talent fees for services rendered by the following:
- Those individually engaged in the practice of professions or callings such as lawyers; certified
public accountants; doctors of medicine; architects; civil, electrical, chemical, mechanical,
structural, industrial, mining, sanitary, metallurgical and geodetic engineers; marine surveyors;
doctors of veterinary science; dentist; professional appraisers; connoisseurs of tobacco;
actuaries; interior decorators, designers, real estate service practitioners (RESPs), (i. e. real
estate consultants, real estate appraisers and real estate brokers) requiring government
licensure examination given by the Real Estate Service pursuant to Republic Act No. 9646 and
all other profession requiring government licensure examinations and/or regulated by the
Professional Regulations Commission, Supreme Court, etc.
- Professional entertainers such as but not limited to actors and actresses, singers, lyricist,
composers and emcees
- Professional athletes including basketball players, pelotaris and jockeys

- Directors and producers involved in movies, stage, radio, television and musical productions
- Insurance agents and insurance adjusters
- Management and technical consultants
- Bookkeeping agents and agencies
- Other recipient of talent fees
- Fees of directors who are not employees of the company paying such fees whose duties are
confined to attendance at and participation in the meetings of the Board of Directors
b) Professional fees, talent fees, etc for services of taxable juridical persons
c) Rentals:
- Rental of real property used in business
- Rental of personal properties in excess of P 10,000 annually
- Rental of poles, satellites and transmission facilities
- Rental of billboards
d) Cinematographic film rentals and other payments
e) Income payments to certain contractors
- General engineering contractors
- General building contractors
- Specialty contractors
- Other contractors like:
1. Filling, demolition and salvage work contractors and operators of mine drilling apparatus
2. Operators of dockyards

3. Persons engaged in the installation of water system, and gas or electric light, heat or power
4. Operators of stevedoring, warehousing or forwarding establishments
5. Transportation Contractors
6. Printers, bookbinders, lithographers and publishers, except those principally engaged in the
publication or printing of any newspaper, magazine, review or bulletin which appears at regular
intervals, with fixed prices for subscription and sale
7. Advertising agencies, exclusive of payments to media
8. Messengerial, janitorial, security, private detective, credit and/or collection agenciesand other
business agencies
9. Independent producers of television, radio and stage performances or shows
10. Independent producers of "jingles"
11. Labor recruiting agencies and/or labor-only contractors
12. Persons engaged in the installation of elevators, central air conditioning units, computer
machines and other equipment and machineries and the maintenance services thereon
13. Persons engaged in the sale of computer services, computer programmers, software
developer/designer, etc.
14. Persons engaged in landscaping services
15. Persons engaged in the collection and disposal of garbage
16. TV and radio station operators on sale of TV and radio airtime, and
17. TV and radio blocktimers on sale of TV and radio commercial spots
f) Income distribution to the beneficiaries of estates and trusts
g) Gross commissions of customs, insurance, stock, immigration and commercial brokers, fees
of agents of professional entertainers and real estate service practitioners (RESPs), (i. e. real

estate consultants, real estate appraisers and real estate brokers) who failed or did not take up
the licensure examination given by and not registered with the Real Estate Service under the
Professional Regulations Commission
h) Income payments to partners of general professional partnerships
i) Payments made to medical practitioners
j) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner
for the sale, exchange or transfer of real property classified as ordinary asset
k) Additional income payments to government personnel from importers, shipping and airline
companies or their agents
l) Certain income payments made by credit card companies
m) Income payments made by the top 20,000 private corporations to their purchase of goods
and services from local/resident suppliers other than those covered by other rates of withholding
n) Income payments by government offices on their purchase of goods and services, from
local/resident suppliers other than those covered by other rates of withholding
o) Commission, rebates, discounts and other similar considerations paid/granted to independent
and exclusive distributors, medical/technical and sales representatives and marketing agents
and sub-agents of multi level marketing companies.
p) Tolling fees paid to refineries
q) Payments made by pre-need companies to funeral parlors
r) Payments made to embalmers by funeral parlors
s) Income payments made to suppliers of agricultural products (suspended per RR 3-2004)
t) Income payments on purchases of mineral, mineral products and quarry resources
u) On gross amount of refund given by MERALCO to customers with active contracts as
classified by MERALCO;

v) Interest income on the refund paid through direct payment or application against customers'
billing by other electric Distribution Utilities in accordance with the rules embodied in ERC
Resolution No. 8 series of 2008 dated June 4, 2008 governing the refund of meter deposits
which was approved and adopted by ERC in compliance with the mandate of Article 8 of the
Magna Carta for Residential Electricity Consumers and Article 3.4.2 of DSOAR exempting all
electricity consumers, whether residential or non-residential from the payment of meter deposit.
w) Income payments made by the top 5,000 individual taxpayers to their purchase of goods and
services from their local/resident suppliers other than those covered by other rates of
withholding
x) Income payments made by political parties and candidates of local and national elections of
all their campaign expenditures, and income payments made by individuals or juridical persons
for their purchases of goods and services intended to be given as campaign contribution to
political parties and candidates
y) Interest Income derived from any other debt instruments not within the coverage of deposit
substitutes and RR No. 14-2012
z) Income payments subject to Withholding Tax received by Real Estate Investment Trust (REIT)
(Sec.12 of RR No. 13-2011)
9) What income payments are subject to Final Withholding Tax?
a) Income Payments to a Citizen or to a Resident Alien Individual:
- Interest on any peso bank deposit
- Royalties
- Prizes [except prizes amounting to P10,000 or less which is subject to tax under Sec. 24(A)(1)
of the Tax Code]
- Winnings (except winnings from Philippine Charity Sweepstake Office and Lotto)
- Interest income on foreign currency deposit
- Interest income from long term deposit (except those with term of five years or more)
- Cash and/or property dividends
- Capital Gains presumed to have been realized from the sale, exchange or other disposition of
real property

b) Income Payments to a Non-Resident Alien Engaged in Trade or Business in the Philippines


- On Certain Passive Income
- cash and/or property dividend
- Share in the distributable net income of a partnership
- Interest on any bank deposits
- Royalties
- Prizes (except prizes amounting to P10,000 or less which is subject to tax under Sec. 25(A)(1)
of the Tax Code.
- Winnings (except from Philippine Charity Sweepstake Office and Lotto)
- Interest on Long Term Deposits (except those with term of five years or more)
- Capital Gains presumed to have been realized from the sale, exchange or other disposition of
real property
c) Income Derived from All Sources Within the Philippines by a Non-Resident Alien Individual
Not Engaged in Trade or Business
- On gross amount of income derived from all sources within the Philippines
- On Capital Gains presumed to have been realized from the sale, exchange or disposition of
real property located in the Philippines
d) Income Derived by Alien Individual Employed by a Regional or Area Headquarters and
Regional Operating Headquarters of Multinational Companies, Income Derived by Alien
Individual Employed by Offshore Banking Units and Income of Aliens Employed by Foreign
Petroleum Service Contractors and Subcontractors
e) Income Payment to a Domestic Corporation
- Interest from any currency bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements derived from sources within the
Philippines
- Royalties derived from sources within the Philippines
- Interest income derived from a depository bank under the Expanded Foreign Currency Deposit
(FCDU) System

- Income derived by a depository bank under the FCDU from foreign transactions with local
commercial banks
- On capital gains presumed to have been realized from the sale, exchange or other disposition
of real property located in the Philippines classified as capital assets, including pacto de retro
sales and other forms of conditional sales based on the gross selling price or fair market value
as determined in accordance with Sec. 6(E) of the NIRC, whichever is higher
f) Income Payments to a Resident Foreign Corporation
- Offshore Banking Units
- Tax on branch Profit Remittances
- Interest on any currency bank deposits and yield or any other monetary benefit from deposit
substitute and from trust funds and similar arrangements and royalties derived from sources
within the Philippines
- Interest income on FCDU
- Income derived by a depository bank under the expanded foreign currency deposits system
from foreign currency transactions with local commercial banks
g) Income Derived from all Sources Within the Philippines by a Non-Resident Foreign
Corporation
- Gross income from all sources within the Philippines such as interest, dividends, rents,
royalties, salaries, premiums (except re-insurance premiums), annuities, emoluments or other
fixed determinable annual, periodic or casual gains, profits and income or capital gains;
- Gross income from all sources within the Philippines derived by a non-resident
cinematographic film owner, lessor and distributor
- On the gross rentals, lease and charter fees derived by a non-resident owner or lessor of
vessels from leases or charters to Filipino citizens or corporations as approved by the Maritime
Industry Authority

- On the gross rentals, charter and other fees derived by a non-resident lessor of aircraft,
machineries and other equipment
- Interest on foreign loans contracted on or after August 1, 1986
h) Fringe Benefits Granted to the Employee (except Rank and File)
- Goods, services or other benefits furnished or granted in cash or in kind by an employer to an
individual employee (except rank and file) such as but not limited to the following:
- Housing
- Vehicle of any kind
- Interest on loans
- Expenses for foreign travel
- Holiday and vacation expenses
- Educational assistance to employees or his dependents
- Membership fees, dues and other expense in social and athletic clubs or other
- similar organizations
- Health insurance
i) Informers Reward
j) Cash or property dividends paid by a Real Estate Investment Trust (REIT) pursuant to Section
13 of RR 13-2011
10) Aside from the required withholding of income tax by government agencies and
instrumentalities on their payments to their suppliers of goods and services, what other tax types
must be withheld by them.
a) Value Added Tax on all income payments subject to VAT
b) Percentage Tax on all payments subject to percentage tax such as payments to the
following:
- Any person engaged in business whose gross sales or receipts do not exceed P1,919,500 (RR
3-2012) and who are not VAT-registered persons. (Persons exempt from VAT under Sec. 109V
of the Tax Code)

- Domestic carriers and keepers of garages, except owners of bancas and owners of animal
drawn two wheeled vehicle
- Operators of international carriers doing business in the Philippines.
- Franchise grantees of electric, gas or water utilities
- Franchise grantees of radio and/or television broadcasting companies whose gross annual
receipts of the preceding year do not exceed Ten Million (P10,000,000.00) Pesos and did not opt
to register as VAT Taxpayers
- Communication providers with regards to overseas dispatch, messages or conversation from
the Philippines
- Banks and non-bank financial intermediaries and finance companies
- Life insurance companies
- Agents of foreign insurance companies
- Proprietor, lessee, or operator of cockpits, cabarets, night or day clubs, videoke/karaoke bars,
karaoke television, karaoke boxes, music lounges and other similar establishments, boxing
exhibitions, professional basketball games, jai-alai and race tracks
- Winners in horse races or owner of winning race horses
- Every stock broker who effected a sale, barter, exchange or other disposition of shares of stock
listed and traded through the Local Stock Exchange (LSE) other than the sale by a dealer in
securities
- A corporate issuer/stock broker, whether domestic or foreign, engaged in the sale, barter,
exchange or other disposition through Initial Public Offering (IPO) /secondary public offering of
shares of stock in closely held corporations
11) Who is a withholding agent?
A withholding agent is any person or entity who is required to deduct and remit the taxes
withheld to the government.

12) What are the duties and obligations of the withholding agent?
The following are the duties and obligations of the withholding agent:
a) To Register - withholding agent is required to register within ten (10) days after acquiring such
status with the Revenue District office having jurisdiction over the place where the business is
located
b) To Deduct and Withhold - withholding agent is required to deduct tax from all money
payments subject to withholding tax
c) To Remit the Tax Withheld - withholding agent is required to remit tax withheld at the time
prescribed by law and regulations
d) To File Annual Return - withholding agent is required to file the corresponding Annual
Information Return at the time prescribed by law and regulations
e) To Issue Withholding Tax Certificates - withholding agent shall furnish Withholding Tax
Certificates to recipient of income payments subject to withholding

13) Who are considered TOP 20,000 Corporate Taxpayers?


Top twenty thousand (20,000) private corporations shall include a corporate taxpayer who has
been determined and notified by the Bureau of Internal Revenue (BIR) as having satisfied any of
the following criteria:
a) Classified and duly notified by the Commissioner as a large taxpayer under Revenue
Regulation No. 1-98, as amended, or belonging to the top five thousand (5,000) private
corporations under RR 12-94, or to the top ten thousand (10,000) private corporations under RR
17-2003, unless previously de-classified as such or had already ceased business operations
(automatic inclusion);
b) VAT payment or payable whichever is higher, of at least P100,000 for the preceding year;

c) Annual income tax due of at least P200,000 for the preceding year;
d) Total percentage tax paid of at least P100,000 for the preceding year;
e) Gross sales of P10,000,000 and above for the preceding year;
f) Gross purchases of P5,000,000 and above for the preceding year;
g) Total excise tax payment of at least P100,000 for the preceding year.
14) What are the obligations of Top 20,000 Corporate Taxpayers?
a) In addition to the above responsibilities of a withholding agent, Top 20,000 private
corporations shall withhold the one percent (1%) creditable expanded withholding tax on the
purchase of goods and two percent (2%) on the purchase of services (other than those covered
by other withholding tax rates) from local suppliers where it regularly makes purchases.
However, casual purchase of goods shall not be subject to withholding tax unless the amount of
purchase at any one time involves P10,000 or more, in which case, it shall then be required to
withhold the tax. The same rule apply to local/resident supplier of services other than those
covered by separate rates of withholding tax. Provided, however, that for purchases involving
agricultural products in their original state, the tax required to be withheld shall only apply to
purchases in excess of the cumulative amount of P300,000 within the same taxable year. For
this purpose, agricultural products in their original state shall only include corn, coconut, copra,
palay, rice cassava, sugar cane, coffee, fruits, vegetables, marine food products, poultry and
livestocks.
b) Taxes withheld shall be remitted using BIR Form 1601-E on a monthly basis thru the use of
the Electronic Filing and Payment System (EFPS) on the dates prescribed for e-filers. Filing
shall be done on a staggered basis provided under RR 26-2002 and payment shall be made
every 15th day following the end of the month for Jan-Nov and Jan. 20 of the following year for
the month of December.
c) Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) shall be issued to the
payees within twenty (20) days following the close of such payees taxable quarter or upon
demand of the payees;

d) A list of regular supplier of goods and/or services shall be submitted on a semestral basis
through e-submission facility or as an attachment under Electronic Filing and Payment System
(EFPS). Deadline for submission of the list is not later than July 31 and January 31 of each year.
However, initial list of regular suppliers should be submitted within fifteen (15) days from actual
receipt hereof.
15) Who are considered TOP 5,000 Individual Taxpayers?
Top 5,000 Individual Taxpayers shall refer to individual taxpayers engaged in trade or business
or exercise of profession who have been determined and notified by the Bureau of Internal
Revenue (BIR) as having satisfied any of the following criteria:
a) VAT payment or payable whichever is higher, of at least P100,000 for the preceding year;
b) Annual income tax due of at least P200,000 for the preceding year;
c) Total percentage tax paid of at least P100,000 for the preceding year;
d) Gross sales of P10,000,000 and above for the preceding year;
e) Gross purchases of P5,000,000 and above for the preceding year;
f) Total excise tax payment of at least P100,000 for the preceding year.
16) What are the obligations of Top 5,000 Individual Taxpayers?
a) In addition to the obligations of a withholding agent, Top 5,000 Individual Taxpayers shall
withhold the one percent (1%) creditable expanded withholding on the purchase of goods and
two percent (2%) on the purchase of services (other than those covered by other withholding tax
rates) from local suppliers where it regularly makes purchases. However, casual purchase of
goods shall not be subject to withholding tax unless the amount of purchase at any one time
involves P10,000 or more, in which case, it shall then be required to withhold the tax. The same
rule apply to local/resident supplier of services other than those covered by separate rates of
withholding tax. Provided, however, that for purchases involving agricultural products in their
original state, the tax required to be withheld shall only apply to purchases in excess of the
cumulative amount of P300,000 within the same taxable year. For this purpose, agricultural
products in their original state shall only include corn, coconut, copra, palay, rice cassava, sugar
cane, coffee, fruits, vegetables, marine food products, poultry and livestocks.

b) Taxes withheld shall be remitted under BIR Form 1601-E on a monthly basis thru the
Electronic Filing and Payment System (EFPS) facility within the prescribed period.
c) Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) shall be issued to the
payees within twenty (20) days following the close of such payees taxable quarter or upon
demand of the payees;
d) A list of regular supplier of goods and/or services shall be submitted on a semestral basis
through e-submission facility or as an attachment under Electronic Filing and Payment System
(EFPS). Deadline for submission of the list is not later than July 31 and January 31 of each year.
However, initial list of regular suppliers should be submitted within fifteen (15) days from actual
receipt hereof.
17) Who are the responsible officials in the government offices charged with the duty to deduct,
withhold and remit withholding taxes?
The following officials are duty bound to deduct, withhold and remit taxes:
a) For Office of the Provincial Government-province- the Chief Accountant, Provincial Treasurer
and the Governor;
b) For Office of the City Government-cities- the Chief Accountant, City Treasurer and the City
Mayor;
c) For Office of the Municipal Government-municipalities- the Chief Accountant, Municipal
Treasurer and the Mayor;
d) Office of the Barangay-Barangay Treasurer and Barangay Captain
e) For NGAs, GOCCs and other Government Offices, the Chief Accountant and the Head of
Office or the Official holding the highest position.

BASIC CONCEPT:

Excise Tax is a tax on the production, sale or consumption of a commodity in a country.

APPLICABILITY:

On goods manufactured or produced in the Philippines for domestic sale or consumption


or for any other disposition; and
On goods imported.

TYPES OF EXCISE TAX:

Specific Tax refers to the excise tax imposed which is based on weight or volume
capacity or any other physical unit of measurement
Ad Valorem Tax refers to the excise tax which is based on selling price or other
specified value of the goods/articles

MANNER OF COMPUTATION:

Specific Tax = No. of Units/other measurements x Specific Tax Rate


Ad Valorem Tax = No. of Units/other measurements x Selling Price of any specific value
per unit x Ad Valorem Tax Rate

MAJOR CLASSIFICATION OF EXCISABLE ARTICLES AND RELATED CODAL SECTION:


1. Alcohol Products (Sections 141-143)

a. Distilled Spirits (Section 141)


b. Wines (Section 142)
c. Fermented Liquors (Section 143)
2. Tobacco Products (Sections 144-146)
a. Tobacco Products (Section 144)
b. Cigars & Cigarettes (Section 145)
c. Inspection Fee (Section 146)
3. Petroleum Products (Section 148)
4. Miscellaneous Articles (Section 149-150)
a. Automobiles (Section 149)
b. Non-essential Goods (Section 150)
5. Mineral Products (Sections 151)
PERSONS LIABLE TO EXCISE TAX:
In General:
a. On Domestic or Local Articles

Manufacturer
Producer
Owner or person having possession of articles removed from the
place of production without the payment of the tax

b. On Imported Articles

Others:

Importer
Owner
Person who is found in possession of articles which are exempt
from excise taxes other than those legally entitled to exemption

On Indigenous Petroleum

Local Sale, Barter or Transfer

o First buyer, purchaser or transferee


Exportation

o Owner, lessee, concessionaire or operator of the mining


claim
TIME OF PAYMENT:
In General
o

On domestic products

o Before removal from the place of production


On imported products

o Before release from the customs' custody

EXCISE TAX RATES:


A. ALCOHOL PRODUCTS
PARTICULARS

NEW TAX RATES based on Republic Act No. 10351


2013

2014

2015

2016

2017

Remarks
2018

A. DISTILLED SPIRITS, AD VALOREM & SPECIFIC TAX


1) AD VALOREM TAX
RATE - Based on the Net
Retail Price (NRP) per
proof
(excluding
the
excise and value-added
taxes);
and

15%

15%

20%

20%

20%

20%

2) SPECIFIC TAX - Per

Php20

Php20

Php20

Php20.80

Php21.63

Effective

1/1/2016, the
specific tax
rate shall be
increased by
4% every
year
thereafter

proof liter

B. WINES, per liter of volume capacity


1)
Sparkling
wines/
champagnes, where the
NRP (excluding the excise
and VAT) per bottle of 750ml
volume capacity, regardless
of proof is:
Php500.00 or less

Php250

Php260

Php270.40

Php281.22

Php292.47

More than Php500.00

Php700

Php728

Php757.12

Php787.40

Php818.90

2)
Still
wines
and
carbonated wines containing
Php30.00
14% of alcohol by volume or
less

Php31.20

Php32.45

Php33.75

Php35.10

3)
Still
wines
and
carbonated wines containing
more than 14% (of alcohol Php60.00
by volume) but not more
25% of alcohol by volume

Php62.40

Php64.90

Php67.50

Php70.20

4) Fortified wines containing


more than 25% of alcohol by
volume

Effective
1/1/2014, the
specific tax
rate shall be
increased by
4% every
year
thereafter

Taxed as distilled spirits

C. FERMENTED LIQUORS , per liter of volume capacity


1) If the NRP (excluding
excise and VAT) per liter of
volume capacity is:
Php 50.60 and below

Php15.00

Php17.00

Php19.00

Php21.00

Php23.50

More than Php 50.60

Php20.00

Php21.00

Php22.00

Php23.00

Php23.50

2) If brewed and sold at


microbreweries or small
establishments such as Php28.00
pubs
and
restaurants,
regardless of the NRP

NOTE:

Php29.12

Php30.28

Php31.50

Php32.76

Effective
1/1/2018, the
specific tax
rate shall be
increased by
4% every
year
thereafter
Effective
1/1/2014, the
specific tax
rate shall be
increased by
4% every
year
thereafter

IN CASE OF FERMENTED LIQUORS AFFECTED BY THE "NO DOWNWARD RECLASSIFICATION "


PROVISION, THE 4% INCREASE SHALL APPLY TO THEIR RESPECTIVE APPLICABLE TAX RATES

B. TOBACCO PRODUCTS

PARTICULARS

NEW TAX RATES based on Republic Act No. 10351


2013

2014

2015

2016

2017

Php1.82

Php1.89

Php1.97

Php2.05

Remarks
2018
onwards

A. TOBACCO PRODUCTS, per kilogram


1. Tobacco Products
(a) Tobacco twisted by hand
or reduced into a condition to
be consumed in any manner
other than the ordinary mode
of drying and curing;

Php1.75

(b) Tobacco prepared or


partially prepared with or
without the use of any
machine or instrument or
without being pressed or
sweetened; and

Php1.75

Php1.82

Php1.89

Php1.97

Php2.05

(c) Fine-cut shorts and refuse,


scraps, clippings, cuttings,
stems, midribs and sweepings
of tobacco;

Php1.75

Php1.82

Php1.89

Php1.97

Php2.05

2.
Chewing
tobacco
unsuitable for use in any other
manner

Php1.50

Php1.56

Php1.62

Php1.68

Php1.75

Effective
1/1/2014, the
specific tax
rate shall be
increased by
4% every year
thereafter

B. CIGARS, per cigar


3. Cigars
(a) Based on the NRP per
cigar (excluding the excise
and value-added taxes), and
(b) Per cigar

Effective
1/1/2014, the
specific tax
rate shall be
increased by
4% every year
thereafter

20%

20%

20%

20%

20%

Php5.00

Php5.20

Php5.41

Php5.62

Php5.85

Php21.00

Effective
1/1/2018, the
specific tax
Php30.00 rate shall be
increased by
4% every year
thereafter

C. CIGARETTES , per pack

1. Cigarettes packed by hand

Php12.00

Php15.00

Php18.00

2. Cigarettes packed by
machine, where the NRP
(excluding excise and VAT)
per pack is:
(a) Php11.50 and below

Php12.00 Php17.00

Php21.00

Php25.00

Php30.00

(b) More than Php11.50

Php25.00

Php28.00

Php29.00

Php30.00

Php27.00

INSPECTION FEE - There shall be collected inspection fees on leaf tobacco, scrap, cigars,
Cigarettes and other manufactured tobacco and tobacco products as follows:
PRODUCT TYPE

INSPECTION FEE

(1) Cigars

P 0.50 per thousand pieces or fraction thereof

(2) Cigarettes

P 0.10 per thousand sticks or fraction thereof

(3) Leaf Tobacco

P 0.02 per kilogram or fraction thereof

(4) Scrap and other manufactured tobacco

P 0.03 per kilogram or fraction thereof

C. PETROLEUM PRODUCTS
PRODUCT TYPE

TAX RATES

Lubricating oils and greases, including but not limited to base stock for
lube oils and greases, high vacuum distillates, aromatic extracts and
other similar preparations, and additives for lubricating oils and
greases, whether such additives are petroleum based or not

P 4.50 per liter

Processed gas

P 0.05 per liter

Waxes and petrolatum

P 3.50 per kilogram

Denatured alcohol, if used for motive power [i.e. one hundred eighty
(180) proof ninety percent (90%) absolute alcohol]. Provided, that
unless otherwise provided by special laws, if the denatured alcohol is
mixed with gasoline, the excise tax which has already been paid, only
the alcohol content shall be subject to tax

P 0.05 per liter

Naphtha, regular gasoline and other similar products of distillation

P 4.35 per liter

Naphtha used as raw material in the production of petrochemical


products or as replacement fuel for natural gas-fired combined cycle
power plant, in lieu of locally-extracted natural gas during the nonavailability thereof

P 0.00 per liter

Leaded premium gasoline

P 5.35 per liter

Unleaded premium gasoline

P 4.35 per liter

Aviation turbo jet fuel

P 3.67 per liter

Kerosene

P 0.00 per liter

Kerosene used as aviation fuel

P 3.67 per liter

Diesel fuel oil, and on similar fuel oils having more or less the same
generating power

P 0.00 per liter

Liquefied Petroleum Gas ; Provided, that if used for motive power, it


shall be taxed at the equivalent rate as the Excise Tax on diesel fuel oil

P 0.00 per liter

Asphalt

P 0.56 per kilogram

Bunker fuel oil, and on similar fuel oils having more or less the same
generating power

P 0.00 per liter

D. MINERALS AND MINERAL PRODUCTS


PRODUCT TYPE

TAX RATES

On coal and coke

Ten Pesos (P10.00) per metric ton

All mineral and mineral products (non-metallic), quarry


resources

Two percent (2%) bases on the actual market


value, in the case of those locally-extracted or
produced; and, in the case of importation or the
value used by the Bureau of Customs in
determining tariff and customs duties, net of
Excise Tax and Value-Added Tax.

On locally-extracted natural gas and liquefied natural gas P0.00


On indigenous petroleum

Three percent (3%) of the fair international


market price thereof

NOTE:
In the case of mineral concentrates not traded in commodity exchanges in the Philippines or abroad, such
as copper concentrate, the actual market value shall be the world price quotations of the refined mineral
products content thereof prevailing in the said commodity exchanges, after deducting the smelting, refining
and other charges incurred in the process of converting the mineral concentrates into refined metal traded
in those commodity exchanges.
On minerals and mineral products sold or consigned abroad, the actual cost of ocean freight and insurance
shall be deducted from the tax base.
E. AUTOMOBILES AND OTHER MOTOR VEHICLES

OVER

UP TO

RATE

P 600,000

2%

P600,000

P 1,100,000

P 12,000 + 20% in excess of P 600,000

P1,100,000

P2,100,000

P112,000+ 40% in excess of P1,100,000

P2,100,000

over

P512,000 + 60% in excess of P2,100,000

F. NON-ESSENTIAL GOODS

Twenty percent (20%) based on the wholesale price or the value of


importation used by the Bureau of Customs in determining Tariff and
Customs Duties, net of Excise and Value-Added taxes

I. RELATED REVENUE ISSUANCES


A. ALCOHOL PRODUCTS
RMC 18-2013 Further Clarifying the Taxability of Distilled Spirits Provided under Revenue Memorandum
Circular No. 3-2013
RMC 3-2013

Clarifying Certain Provisions of Revenue Regulations No. 17-2012 Implementing the


Provisions of Republic Act No. 10351 as well as the Provisions of Revenue Memorandum
Circular No. 90-2012 Providing the Initial Tax Classifications of Alcohol and Tobacco
Products

RMC 90-2012 Revised Tax Rates of Alcohol and Tobacco Products Under Republic Act No. 10351
RR 17-2012

Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco
Products Pursuant to the Provisions of Existing Revenue Regulations

RR 2-97

Revenue Regulations Governing Excise Taxation on Distilled Spirits, Wines and Fermented
Liquors

RR 3-2006

Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco
Products pursuant to the Provisions of Republic Act No. 9334, and Clarifying Certain
Provisions of Existing Revenue Regulations Relative Thereto

B. TOBACCO PRODUCTS
RMO 23-2013 Guidelines and Procedures for the Implementation of the Electronic Official Register Book
(eORB) System
RR 3-2013

Prescribing the Use of Electronic Official Register Book for Manufacturers of Tobacco
Products and Regulated Raw Materials

RMC 3-2013

Clarifying Certain Provisions of Revenue Regulations No. 17-2012 Implementing the


Provisions of Republic Act No. 10351 as well as the Provisions of Revenue Memorandum
Circular No. 90-2012 Providing the Initial Tax Classifications of Alcohol and Tobacco
Products

RMC 90-2012 Revised Tax Rates of Alcohol and Tobacco Products Under Republic Act No. 10351
RR 17-2012

Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco
Products Pursuant to the Provisions of Existing Revenue Regulations

RR 3-2006

Prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco
Products pursuant to the Provisions of Republic Act No. 9334, and Clarifying Certain
Provisions of Existing Revenue Regulations Relative Thereto

RR 1-97

Revenue Regulations Governing the Excise Taxation of Cigars and Cigarettes

C. Petroleum Products
RMC 50-2014 Reiteration and Clarification on the Requirement of Issuance of Withdrawal Certificate for
Every Removal of Petroleum or Petroleum Products
RR 2-2012

Tax Administration Treatment of Petroleum and Petroleum Products Imported into the
Philippines Including those Coming in Through Freeport Zones and Economic Zones and
Registration of All Storage Tanks, Facilities, Depots and Terminals

RR 8-2006

Prescribing the Implementing Guidelines on the Taxation and Monitoring of the Raw
Materials Used and the Bioethanol-Blended Gasoline (E-Gasoline) Produced under the Fuel
Bioethanol Program of the Department of Energy (DOE)

RR 8-96

An Act Restructuring the Excise Tax on Petroleum Products, Reclassifying Natural Gas and
Liquefied Natural Gas under Non-Metallic Mineral and Quarry Resources and Reducing the
Excise Tax on Indigenous Petroleum

RR 13-77

Petroleum Products Regulation

D. Miscellaneous Articles
D.1 automobiles:
RMO 21-2013 Amending the Provisions of Revenue Memorandum Order (RMO) No. 35-2002, as
Amended by RMO No. 20-2006 Prescribing the Guidelines and Procedures in the
Processing and Issuance of Authority to Release Imported Goods (ATRIG) for Excise Tax
Purposes
RMO 20-2006 Amendment to Certain Sections of RMO No. 35-2002
RMC 60-2003 Clarifying Certain Issues Raised Relative to the Implementation of Revenue Regulations
No. 25-2003 Governing the Imposition of Excise Tax on Automobiles Pursuant to Republic
Act No. 9224
RR 25-2003

Amended Revenue Regulations Governing the Imposition of Excise Tax on Automobiles


pursuant to the Provisions of Republic Act No. 9224, an Act Rationalizing the Excise Tax on
Automobiles, Amending for the Purpose the NIRC of 1997, and for Other Purposes

RR 4-2003

Amending Certain Section of Revenue Regulations No. 14-97, as Amended by Revenue


Regulations No. 14-99, Otherwise Known as the Revenue Regulations Governing the
Imposition of Excise Tax on Automobiles

RR 14-99

Amending Section 2 of Revenue Regulations No. 14-97 Otherwise known as Revenue


Regulations Governing the Imposition of Excise Taxes on Automobiles and Other Motor
Vehicles

RR 14-97

Revenue Regulations Governing the Imposition of Excise Tax on Automobiles and Other
Motor Vehicles

D.2 NON-ESSENTIAL GOODS:


RMC 33-2004 Revised Rules and Regulations Implementing Republic Act No. 8502, Otherwise Known As
The Jewelry Industry Development Act Of 1998

RMC 17-2002 Green Cross Baby Cologne and All Other Cologne Products
RR 1-99

Rules and Regulations Implementing the Tax Incentives Provided under Section 3 (b) and
(d) of Republic Act No. 8502 Otherwise known as the Jewelry Industry Development Act of
1998

RR 8-84

Cosmetic Products Regulations

E. MINERAL PRODUCTS
RR 7-2008 Taxation on the Sale to the Bangko Sentral ng Pilipinas of Gold and Other Metallic Mineral
Products Extracted or Produced by Small-scale Miners and further Amending Section 2.57.2 (t)
of Revenue Regulations No. 2-98, as amended
RR 13-94

Revenue Regulations Governing the Imposition of Excise Tax on Minerals and Mineral
Products

F. OTHERS (COMMON ISSUANCES FOR ALL EXCISABLE PRODUCTS)


RMO 14-2014 Guidelines and Procedures for the Processing and Issuance of An Electronic Authority to
Release Imported Goods (eATRIG) for Excise Tax Purposes
RMC 10-2013 Transition Procedures for all Electronic Filing and Payment System (eFPS) Filers in Filing
Tax Returns Affected by the Revised Tax Rates on Alcohol and Tobacco Products Pursuant
to the provisions of Republic Act No. 10351, An Act Restructuring the Excise Tax on
Alcohol and Tobacco Products by Amending Sections 141, 142, 143, 144, 145, 8, 131 and
288 of Republic Act No. 8424, Otherwise Known as the National Internal Revenue Code of
1997, as Amended by republic Act No. 9334, and for Other Purposes
RMO 38-2003 Prescribing Uniform Guidelines and Procedures in the Processing of Various Permits for
Excise Tax Purposes
RMO 35-2002 Prescribing the Guidelines and Procedures in the Processing and Issuance of Authority to
Release Imported Goods (ATRIG) for Excise and Value-Added Tax Purposes

II. CODAL REFERENCE:


PARTICULAR

SECTION IN THE NIRC OF 1997,


AS AMENDED

ALCOHOL PRODUCTS

141-143

TOBACCO PRODUCTS

144-147

PETROLEUM PRODUCTS
MISCELLANEOUS ARTICLES
MINERAL PRODUCTS

148
149-150
151