Income Tax

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
Annual Income Tax For Individuals Earning Purely Compensation Income (Including Non-
Business/Non-Profession Related Income) and For Marginal Income Earners Tax Form
BIR Form 1700 - Annual Income Tax Return (For Individual Earning Purely Compensation Income
Including Non-Business/Non-Profession Related Income)
Documentary Requirements
1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316)
2. Waiver of the Husbands right to claim additional exemption, if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Proof of Foreign Tax Credits, if applicable
5. Income Tax Return previously filed and proof of payment, if filing an amended return for the same
taxable year
Procedures
1. Fill-up BIR Form 1700 in triplicate.
2. If there is payment:
Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where
you are registered and present the duly accomplished BIR Form 1700, together with the
required attachments and your payment.
In places where there are no AABs, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office where you are
registered and present the duly accomplished BIR Form 1700, together with the required
attachments and your payment.
Receive your copy of the duly stamped and validated form from the teller of the
AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3. For "No Payment" Returns including refundable returns, and for tax returns qualified for second
installment:
Proceed to the Revenue District Office where you are registered or to any Tax Filing Center
established by the BIR and present the duly accomplished BIR Form 1700, together with the
required attachments.
Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center
representative.
Deadline
On or before the 15th day of April of each year covering taxable income for the preceding taxable
year
Annual Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those With
Mixed Income, Compensation Income and Income from Business and/or Practice of Profession)
Tax Form
BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts
Including Those With Both Business and Compensation Income)
1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
4. Waiver of the Husbands right to claim additional exemption, if applicable
7. Income Tax Return previously filed and proof of payment, if filing an amended return for the same
year
8. Account Information Form (AIF) or the Certificate of the independent CPA with Audited Financial
Statements if the gross quarterly sales, earnings, receipts or output exceed P 150,000.00
9. Proof of prior years excess tax credits, if applicable
Procedures
1. Fill-up BIR Form 1701 in triplicate copies.
registered and present the duly accomplished BIR Form 1701, together with the required
AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer
3. For "No Payment" including refundable/ creditable returns, returns with excess tax credit carry
over, and returns qualified for second installment:
Proceed to the Revenue District Office where you are registered or to any established Tax
Filing Centers established by the BIR and present the duly accomplished BIR Form 1701,
together with the required attachments.
representative.
Deadline
Final Adjustment Return or Annual Income Tax Return - On or before the 15th day of April of each
year covering income for the preceding year
Account Information Form For Self-Employed Individuals, Estates And Trusts (Including Those
With Mixed Income , I.E., Compensation Income and Income from Business and/or Practice of
Profession)
Tax Form
BIR Form 1701 AIF - Account Information Form For Self-Employed Individuals, Estates and Trusts
(Including those with Mixed Income, i.e., Compensation Income and Income from Business and/or
Practice of Profession) and Estates and Trusts (Engaged in Trade or Business)
NOTE: Pursuant to Revenue Memorandum Circular No. 6 2001, corporations, companies or
persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not
accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by
balance sheets, profit and loss statement, schedules listing income-producing properties and the
corresponding income therefrom, and other relevant statements duly certified by an independent
CPA.
None
Procedures
1. Accomplish BIR Form 1701 AIF in triplicate.
2. Attach the same to BIR Form 1701.
Deadline
Same deadline as BIR Form 1701 - On or before the 15th day of April of each year covering taxable
income for the preceding year
Quarterly Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those With
Mixed Income, I.E., Compensation Income and Income from Business and/or Practice of
Profession)
Tax Form
BIR Form 1701Q - Quarterly Income Tax Return For Self-Employed Individuals, Estates and Trusts
(Including those with both Business and Compensation Income)
1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
4. Previously filed return, if an amended return is filed for the same quarter
Procedures
1. Fill-up BIR Form 1701Q in triplicate.
you registered and present the duly accomplished BIR Form 1701 Q, together with the required
registered and present the duly accomplished BIR Form 1701Q, together with the required
3. For "No Payment" Returns including refundable/ creditable returns with excess tax credit carry
over and returns qualified for second installment:
established by the BIR and present the duly accomplished BIR Form 1701Q, together with the
representative.
Deadlines
April 15 for the first quarter
August 15 for the second quarter
November 15 for the third quarter
Annual Income Tax For Corporations And Partnerships
Tax Form
BIR Form 1702 - Annual Income Tax Return (For Corporations and Partnerships)
1. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304), if applicable
2. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
5. Income tax return previously filed and proof of payment, if amended return is filed for the same
taxable year
6. Account Information Form (AIF) and/or the Certificate of the independent CPA with Audited
Financial Statements, if the gross quarterly sales, earnings, receipts or output exceed P150,000.00
7. Proof of prior years excess tax credits, if applicable
Procedures
registered and present the duly accomplished BIR Form 1702 with the required attachments
and your payments.
3. For "No Payment" Returns including refundable/ creditable returns and returns with excess tax
credit carry over:
established by BIR and present the duly accomplished BIR Form 1702, together with the
representative
Deadline
Final Adjustment Return or Annual Income Tax Return - On or before the 15th day of the fourth
month following the close of the taxpayers taxable year
Account Information Form For Corporations And Partnerships

Tax Form
BIR Form 1702 AIF - Account Information Form (For Corporations and Partnerships)
NOTE: Pursuant to Revenue Memorandum Circular No. 6 2001, corporations, companies or
persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not
accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by
balance sheets, profit and loss statement, schedules listing income-producing properties and the
corresponding income therefrom, and other relevant statements duly certified by an independent
CPA.
None
Procedures
1. Accomplish BIR Form 1702 AIF in triplicate.
2. Attach the same to BIR Form 1702.
Deadline
Same deadline as BIR Form 1702 - On or before the 15th day of the fourth month following the close
of the taxpayers taxable year
Quarterly Income Tax For Corporations And Partnerships
Tax Form
BIR Form 1702 Q - Quarterly Income Tax Return (For Corporations and Partnerships)
1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304), if applicable
4. Previously filed return, if an amended return is filed for the same quarter
Procedures
1. Fill-up BIR Form 1702 Q in triplicate.
you are registered and present the duly accomplished BIR Form 1702 Q, together with the
registered and present the duly accomplished BIR Form 1702 Q.
3. For Refundable Returns and for those returns with second installment:
Proceed to the Revenue District Office where you are registered and present the duly
accomplished BIR Form 1702 Q, together with the required attachments.
Receive your copy of the duly stamped and validated form from the RDO representative.
Deadline
Corporate Quarterly Declaration or Quarterly Income Tax Return - On or before the 60th day
following the close of each of the quarters of the taxable year
Improperly Accumulated Earnings Tax For Corporations
Tax Form
BIR Form 1704 - Improperly Accumulated Earnings Tax Return (For Corporations)
1. Photocopy of Annual Income Tax Return (BIR Form 1702) with Audited Financial Statements
and/or Account Information Form of the covered taxable year duly received by the BIR; and
2. Sworn declaration as to dividends declared taken from the covered year's earnings and the
corresponding tax withheld, if any
Procedures
registered and present the duly accomplished BIR Form 1704
3. If there is no payment:
Proceed to the Revenue District Office where you are registered and present the duly
accomplished BIR Form 1704, together with the required attachments.
Receive your copy of the duly stamped and validated form from the RDO representative
Deadline
Within fifteen (15) days after the close of the taxable year
Annual Income Information Form for General Professional Partnerships

Sec. 55. Returns of General Professional Partnership (Tax Code of 1997, as amended)
Every general professional partnership shall file, in duplicate, a return of its income, except income
exempt under Section 32 (B) of this Title, setting forth the items of gross income and of deductions
allowed by this Title, and the names, Taxpayer Identification Numbers (TIN), addresses and shares of
each of the partners.
TAX RATE
A. For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and
Practice of Profession
Amount of Net Taxable Income Rate
Over But Not Over
P10,000 5%
P10,000 P30,000 P500 + 10% of the Excess over P10,000
P30,000 P70,000 P2,500 + 15% of the Excess over P30,000
P500,000 P125,000 + 32% of the Excess over P500,000 in 2000 and onward
Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the
first installment to be paid at the time the return is filed and the second installment 15 of the same year at
on or before July the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office
(RDO) where the taxpayer is registered.
Tax Rate Taxable Base
1. Domestic Corporations:
a. In General 30% (effective Jan. Net taxable income from all sources
1, 2009)
b. Minimum Corporate Income Tax* 2% Gross Income
c. Improperly Accumulated Earnings 10% Improperly Accumulated Taxable Income
2. Proprietary Educational Institution 10% Net taxable income provided that the
gross income from unrelated trade,
business or other activity does not exceed
50% of the total gross income
3. Non-stock, Non-profit Hospitals 10% Net taxable income provided that the
gross income from unrelated trade,
business or other activity does not exceed
50% of the total gross income
4. GOCC, Agencies & Instrumentalities
a. In General 30% Net taxable income from all sources
5. National Gov't. & LGUs
6. Taxable Partnerships
7. Exempt Corporation
a. On Exempt Activities 0%
b. On Taxable Activities 30% Net taxable income from all sources
8. General Professional Partnerships 0%
9. Corporation covered by Special Laws Rate specified under
the respective
special laws
10. International Carriers 2.5% Gross Philippine Billings
11. Regional Operating Head 10% Taxable Income
12. Offshore Banking Units (OBUs) 10% Gross Taxable Income On Foreign
Currency Transaction
30% On Taxable Income other than Foreign
13. Foreign Currency Deposit Units 10% Gross Taxable Income On Foreign
(FCDU) Currency Transaction
30% On Taxable Income other than Foreign
*Beginning on the 4th year immediately following the year in which such corporation commenced its
business operations, when the minimum corporate income tax is greater than the tax computed using the
normal income tax.
Passive Income
1. Interest from currency deposits, trust funds and deposit substitutes 20%
2. Royalties (on books as well as literary & musical composition) 10%
- In general 20%
3. Prizes (P10,000 or less ) 5%
- In excess of P10,000 20%
4. Winnings (except from PCSO and lotto) 20%
5. Interest Income of Foreign Currency Deposit 7.5%
6. Cash and Property Dividends
- To individuals from Domestic Corporations 10 %
- To Domestic Corporations from Another Domestic Corporations 0%
7. On capital gains presumed to have been realized from sale, exchange or other
6%
disposition of real property (capital asset)
8. On capital gains for shares of stock not traded in the stock exchange
- Not over P100,000 5%
- Any amount in excess of P100,000 10%
9. Interest Income from long-term deposit or investment in the form of savings,
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates
Upon pretermination before the fifth year , there should be imposed on the entire Exempt
income from the proceeds of the long-term deposit based on the remaining maturity
thereof:
Holding Period
- Four (4) years to less than five (5) years 5%
- Three (3) years to less than four (4) years 12%
- Less than three (3) years 20%
B. For Non-Resident Aliens Engaged in Trade or Business
1. Interest from currency deposits, trust funds and deposit substitutes 20%
2. Interest Income from long-term deposit or investment in the form of savings,
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificatesUpon pretermination
Exempt
before the fifth year, there should be imposed on the entire income from the
proceeds of the long-term deposit based on the remaining maturity thereof:Holding
Period:
-Four (4) years to less than five (5) years 5%
-Three (3) years to less than four (4) years 12%
-Less than three (3) years 20%
3. On capital gains presumed to have been realized from the sale, exchange or
6%
other disposition of real property
4. On capital gains for shares of stock not traded in the Stock Exchange
- Not over P100,000 5%
C) For Non-Resident Aliens Not Engaged in Trade or Business
1. On the gross amount of income derived from all sources within the Philippines 25%
2. On capital gains presumed to have been realized from the exchange or other
6%
disposition of real property located in the Phils.
3. On capital gains for shares of stock not traded in the Stock Exchange
- Not Over P100,000 5%
D) On the gross income in the Philippines of Aliens Employed by Regional Headquarters (RHQ) or
Area Headquarters and Regional Operating Headquarters (ROH), Offshore Banking Units (OBUs),
Petroleum Service Contractor and Subcontractor
On the gross income in the Philippines of Aliens Employed by Regional 15%
Headquarters (RHQ) or Area Headquarters and Regional Operating Headquarters
(ROH), Offshore Banking Units (OBUs), Petroleum Service Contractor and
Subcontractor
E) General Professional Partnerships
General Professional Partnerships 0%
F) Domestic Corporations
1) a. In General on net taxable income 30%
b. Minimum Corporate Income Tax on gross income 2%
c. Improperly Accumulated Earnings on improperly accumulated taxable income 10%
2) Proprietary Educational Institution and Non-profit Hospitals 10%
- In general (on net taxable income) 10%
- If the gross income from unrelated trade, business or other activity exceeds 50%
30%
of the total gross income from all sources
4) GOCC, Agencies & Instrumentalities
a. In General - on net taxable income 30%
5) Taxable Partnerships
a. In General on net taxable income 30%
6) Exempt Corporation
a. On Exempt Activities 0%
b. On Taxable Activities 30%
8) Corporation covered by Special Laws Rate specified under
the respective
special laws
G) Resident Foreign Corporation
1) a. In General on net taxable income 30%
2) International Carriers on gross Philippine billings 2.50%
3) Regional Operating Headquarters on gross income 10%
4) Corporation Covered by Special Laws Rate specified under
the respective
special laws
5) Offshore Banking Units (OBUs) on gross income 10%
6) Foreign Currency Deposit Units (FCDU) on gross income 10%
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?
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 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:
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 Date and Venue of Signature
Effectivity
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 January 1, 1979 June 10, 1976, London, United
Ireland 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.

Income Tax

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Income Tax

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Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of

Who Are Required To File Income Tax Returns

Annual Income Tax For Corporations And Partnerships

Account Information Form For Corporations And Partnerships

Quarterly Income Tax For Corporations And Partnerships

Improperly Accumulated Earnings Tax For Corporations

Annual Income Information Form for General Professional Partnerships

FREQUENTLY ASKED QUESTIONS

2) What is Taxable Income?

3) What is Gross Income?

4) What comprises gross income?

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

6) What are the allowable deductions from gross income?

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

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

9) Who are exempt from Income Tax?

12) How is Income Tax paid?

14) Who are covered by MCIT?

15) When does a corporation start to be covered by the MCIT?

16) When is the MCIT reported and paid? Is it quarterly?

17) How is MCIT computed?

18) What is the carry forward provision under the MCIT?

19) How would the MCIT be recorded for accounting purposes?

20) How long can we amend our income tax return?

22) What is a tax treaty?

23) What are the effective Philippine tax treaties?

Effective Philippine Tax Treaties (as of June 2010)

25) What taxes are covered by Philippine tax treaties?

26) How is business income treated under our tax treaties?

28) What is the Most-Favored-Nation clause (MFN)?

29) What is the tax treatment on immovable property?

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