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Income Tax Description

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

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


property, practice of profession, conduct of trade or business or on the pertinent
items of gross income specified in the Tax Code of 1997 (Tax Code), as amended,
less the deductions if any, authorized for such types of income, by the Tax Code, as
amended, or other special laws.

Who are Required to File Income Tax Returns?

Individuals

• Resident citizens receiving income from sources within or outside the Philippines

1) Employees deriving purely compensation income from two or more


employers, concurrently or successively at any time during the taxable
year

2) Employees deriving purely compensation income regardless of the


amount, whether from a single or several employers during the
calendar year, the income tax of which has not been withheld correctly
(i.e. tax due is not equal to the tax withheld) resulting to collectible or
refundable return

3) Self-employed individuals receiving income from the conduct of


trade or business and/or practice of profession

4) Individuals deriving mixed income, i.e., compensation income and


income from the conduct of trade or business and/or practice of
profession
5) Individuals deriving other non-business, non-professional related
income in addition to compensation income not otherwise subject to
a final tax

6) Individuals receiving purely compensation income from a single


employer, although the income of which has been correctly withheld,
but whose spouse is not entitled to substituted filing

7) Non-resident citizens receiving income from sources within the


Philippines

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


the Philippines

Non-Individuals

1) Corporations including partnerships, no matter how created or


organized.

2) Domestic corporations receiving income from sources within and outside


the Philippines

3) Foreign corporations receiving income from sources within the Philippines

4) Estates and trusts engaged in trade or business

Annual Income Tax For Individuals Earning Purely Compensation


Income (Including Non-Business/Non-Profession Related
Income)

BIR Form 1700 - Annual Income Tax For Individuals Earning Purely Compensation
Income (Including Non-Business/Non-Profession Related Income)

Documentary Requirements

1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316)

2. Duly approved Tax Debit Memo, if applicable

3. Proofs of Foreign Tax Credits, if applicable

4. Income Tax Return previously filed and proof of payment, if filing an amended
return for the same taxable year.

Procedures

1. For Electronic Filing and Payment System (eFPS) Filer

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

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

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


e-payment.

2. For Non-eFPS Filer

a. Fill-up applicable fields in the BIR Form No. 1700 in the downloaded
Electronic Bureau of Internal Revenue Form (eBIRForm) Package
b. Print the duly accomplished BIR Form No. 1700

c. Proceed to the nearest Authorized Agent Bank (AAB) under the jurisdiction
of the Revenue District Office where you are registered and present the
duly accomplished BIR Form 1700, together with the required
attachments and your payment.

d. In places where there are no AABs, proceed to the Revenue Collection


Officer or duly Authorized City or Municipal Treasurer located within the
Revenue District Office where you are registered and present the duly
accomplished BIR Form 1700, together with the required attachments
and your payment.

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

3. For Manual Filer

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

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

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

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

Annual Income Tax For Individuals, Estates, and


Trusts

BIR Form 1701 - Annual Income Tax Return Individuals, Estates and Trusts

Documentary Requirements

1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if


applicable

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


2304), if applicable

3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable

4. Duly approved Tax Debit Memo, if applicable

5. Proof of Foreign Tax Credits, if applicable

6. Income Tax Return previously filed and proof of payment, if filing an amended
return for the same year

7. Account Information Form (AIF) or the Certificate of the independent Certified


Public Accountant (CPA) with Audited Financial Statements if the gross
annual sales, earnings, receipts or output exceed three million pesos
(P3,000,000.00)

8. Account Information Form or Financial Statements not necessarily audited by an


independent CPA if the gross annual sales, earnings, receipts or output do
not exceed P3,000,000.00 and is subject to graduated income tax rates under
Section 24(A)(2)(a)

9. Proof of prior year’s excess tax credits, if applicable

Procedures
1. For eFPS Filer

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

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

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


e-payment.

2. For Non-eFPS Filer

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

b. Print the duly accomplished BIR Form No. 1701

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

d. In places where there are no AABs, proceed to the Revenue Collection


Officer or duly Authorized City or Municipal Treasurer located within the
Revenue District Office where you are registered and present the duly
accomplished BIR Form 1701, together with the required attachments
and your payment.

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

3. For Manual Filer

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

b. Proceed to the Revenue District Office where you are registered or to any
Tax Filing Center established by the BIR and present the duly
accomplished BIR Form 1701, together with the required attachments.
c. Receive your copy of the duly stamped and validated form from the
RDO/Tax Filing Center representative.

Deadline

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

Account Information Form For Self-Employed Individuals, Estates


And Trusts (Including Those With Mixed Income, i.e.,
Compensation Income and Income from Business and/or Practice
of Profession)

BIR Form 1701 AIF - Account Information Form for Self-Employed Individuals,
Estates and Trusts (Including those with Mixed Income, i.e., Compensation Income
and Income from Business and/or Practice of Profession) and Estates and Trusts
(Engaged in Trade or Business)

NOTE: Pursuant to Sec. 71 of RA 10963, otherwise known as Tax Reform


Acceleration and Inclusion Act, amending Sec. 232 of the Tax Code, as amended, in
relation to Revenue Memorandum Circular No. 6 – 2001, corporations, companies
or persons whose gross annual sales, earnings, receipts or output exceed
P3,000,000 may not accomplish this form. In lieu thereof, they may file their annual
income tax returns accompanied by balance sheets, profit and loss statement,
schedules listing income-producing properties and the corresponding income
therefrom, and other relevant statements duly certified by an independent CPA.

Documentary Requirements

None

Procedures

1. Accomplish BIR Form 1701 AIF in triplicate.

2. Attach the same to BIR Form 1701.


Deadline

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

[return to index]

Quarterly Income Tax For Individuals, Estates And Trusts


Including Those With Mixed Income, i.e., Compensation Income
and Income from Business and/or Practice of Profession

BIR Form 1701Q - Quarterly Income Tax Return For Individuals, Estates and Trusts

Documentary Requirements

1. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable

2. Duly approved Tax Debit Memo, if applicable

3. Proof of other payment/s made, if applicable

4. Summary Alphalist of Withholding Agents of Income Payments Subjected to


Withholding Tax at Source (SAWT), if applicable

Procedures

1. For eFPS Filer

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

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

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


payment.
2. For Non-eFPS Filer

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

b. Print the duly accomplished BIR Form No. 1701Q

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

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

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

3. For Manual Filer

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

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

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

Deadlines

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


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

Annual Income Tax For Corporations And


Partnerships

BIR Form 1702 - Annual Income Tax Return (For Corporations and Partnerships)

Documentary Requirements

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


2304), if applicable

2. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable

3. Duly approved Tax Debit Memo, if applicable

4. Proof of Foreign Tax Credits, if applicable

5. Income tax return previously filed and proof of payment, if amended return is filed
for the same taxable year

6. Account Information Form (AIF) or the Certificate of the independent CPA with
Audited Financial Statements, if the gross annual sales, earnings, receipts or
output exceed P3,000,000.

7. Proof of prior year’s excess tax credits, if applicable

Procedures

1. For eFPS Filer

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

b. Pay electronically by clicking the “Proceed to Payment” button and fill-up the
required fields in the “eFPS Payment Form” then click “Submit” button.
c. Receive payment confirmation from eFPS-AABs for successful e-filing and
e-payment.

2. For Non-eFPS Filer

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

b. Print the duly accomplished BIR Form No. 1702

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

d. In places where there are no AABs, proceed to the Revenue Collection


Officer or duly Authorized City or Municipal Treasurer located within the
Revenue District Office where you are registered and present the duly
accomplished BIR Form 1702, together with the required attachments
and your payment.

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

3. For Manual Filer

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

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

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

Deadline

Final Adjustment Return or Annual Income Tax Return - On or before the 15th
day of the fourth month following the close of the taxpayer’s taxable year

Quarterly Income Tax For Corporations And Partnerships

BIR Form 1702Q - Quarterly Income Tax Return (For Corporations and
Partnerships)

Documentary Requirements

1. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable

2. Duly approved Tax Debit Memo, if applicable

3. Previously filed return, if an amended return is filed for the same quarter

Procedures

1. For eFPS Filer

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

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

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


e-payment.

2. For Non-eFPS Filer

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

b. Print the duly accomplished BIR Form No. 1702Q


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

d. In places where there are no AABs, proceed to the Revenue Collection


Officer or duly Authorized City or Municipal Treasurer located within the
Revenue District Office where you are registered and present the duly
accomplished BIR Form 1702Q, together with the required attachments
and your payment.

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

3. For Manual Filer

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

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

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

Deadline

Corporate Quarterly Declaration or Quarterly Income Tax Return - On or


before the 60th day following the close of each of the quarters of the taxable
year
Income Tax Rates

1)For Individual Citizens and Resident Aliens Earning Purely Compensation Income
and Individuals Engaged in Business and Practice of Profession

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

Amount of Net Taxable Income Rate


Over But Not Over
- P250,000 0%
P250,000 P400,000 20% of the excess over P250,000
P400,000 P800,000 P30,000 + 25% of the excess over P400,000
P800,000 P2,000,000 P130,000 + 30% of the excess over P800,000
P2,000,000 P8,000,000 P490,000 + 32% of the excess over P2,000,000
P8,000,000 P2,410,000 + 35% of the excess over P8,000,000
B. For Purely Self-Employed Individuals and/or Professionals Whose Gross
Sales/Receipts and Other Non-Operating Income Do Not Exceed the
VAT Threshold of P3,000,000, the tax shall be, at the taxpayer’s option:

1) 8% Income Tax on Gross Sales or Gross Receipts in Excess of P250,000


in Lieu of the Graduated Income Tax Rates and the Percentage Tax; Or

2) Income Tax Based on the Graduated Income Tax Rates

C. For Individuals Earning Both Compensation Income and Income from


Business and/or Practice of Profession, their income taxes shall be:

1. For Income from Compensation: Based on Graduated Income Tax


Rates; and

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

a. If the total Gross Sales/Receipts Do Not Exceed VAT


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

i. 8% Income Tax on Gross Sales/Receipts and Other Non-


Operating Income in Lieu of the Graduated Income
Tax Rates and the Percentage Tax; Or

ii. Income Tax Based on Graduated Income Tax Rates

b. If the total Gross Sales/Receipts Exceed VAT Threshold of


P3,000,000

i. Income Tax Based on Graduated Income Tax Rates

D. On Certain Passive Income of Individual Citizens and


Resident Aliens

Passive Income Tax Rate


1. Interest from currency deposits, trust funds and deposit substitutes 20%
2. Royalties (on books as well as literary & musical compositions) 10%
- In general 20%
3. Prizes (P10,000 or less ) Graduated
Income Tax
Rates
- Over P10,000 20%
4. Winnings (except from PCSO and Lotto amounting to P10,000 or less ) 20%
- From PCSO and Lotto amounting to P10,000 or less exempt
5. Interest Income from a Depository Bank under the Expanded Foreign 15%
Currency Deposit System
6. Cash and/or Property Dividends received by an individual from a 10%
domestic corporation/ joint stock company/ insurance or mutual fund
companies/ Regional Operating Headquarter of multinational companies
7. Share of an individual in the distributable net income after tax of a 10%
partnership (except GPPs)/ association, a joint account, a joint venture or
consortium taxable as corporation of which he is a member or co-venture
8. Capital gains from sale, exchange or other disposition of real property 6%
located in the Philippines, classified as capital asset
9. Net Capital gains from sale of shares of stock not traded in the stock 15%
exchange
10. Interest Income from long-term deposit or investment in the form of Exempt
savings, common or individual trust funds, deposit substitutes, investment
management accounts and other investments evidenced by certificates in
such form prescribed by the Bangko Sentral ng Pilipinas (BSP)
Upon pre-
termination before the fifth year, there should be imposed on the entire
income from the proceeds of the long-term deposit based on the remaining
maturity thereof:
Holding Period
- Four (4) years to less than five (5) years 5%
- Three (3) years to less than four (4) years 12%
- Less than three (3) years 20%

2) For Non-Resident Aliens Not Engaged in Trade or


Business

A. Tax Rate in General – on taxable income from all sources within same manner as
the Philippines individual citizen
and resident
alien individual
B. Certain Passive Income Tax Rates
1. Interest from currency deposits, trust funds and deposit substitutes 20%
2. Royalties (on books as well as literary & musical compositions) 10%
- In general 20%
3. Prizes (P10,000 or less ) Graduated Income
Tax Rates
- Over P10,000 20%
4. Winnings (except from PCSO and Lotto) 20%
- From PCSO and Lotto exempt
5. Cash and/or Property Dividends received from a domestic corporation/ 20%
joint stock company/ insurance/ mutual fund companies/ Regional
Operating Headquarter of multinational companies
6. Share of a non-resident alien individual in the distributable net income 20%
after tax of a partnership (except GPPs) of which he is a partner or from
an association, a joint account, a joint venture or consortium taxable as
corporation of which he is a member or co-venture
7. Interest Income from long-term deposit or investment in the form of Exempt
savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments evidenced by
certificates in such form prescribed by the Bangko Sentral ng Pilipinas
(BSP)
Upon pre-termination before the fifth year, there should be
imposed on the entire income from the proceeds of the long-term deposit
based on the remaining maturity thereof:
Holding Period
- Four (4) years to less than five (5) years 5%
- Three (3) years to less than four (4) years 12%
- Less than three (3) years 20%
8. Capital from the sale, exchange or other disposition of real property 6%
located in the Philippines classified as capital asset
9. Net Capital gains from sale of shares of stock not traded in the Stock
Exchange
- Not over P100,000 5%
- Any amount in excess of P100,000 10%

For Non-resident Aliens Not Engaged in Trade or Business

1. Gross amount of income derived from all sources within the Philippines 25%
2. Capital gains from the exchange or other disposition of real property located in 6%
the Philippines
3. Net Capital gains from the sale of shares of stock not traded in the Stock
Exchange
- Not Over P100,000 5%
- Any amount in excess of P100,000 10%

For Alien Individuals Employed by Regional Headquarters


(RHQ) or Area Headquarters and Regional Operating
Headquarters (ROH) of Multinational Companies, Offshore
Banking Units (OBUs), Petroleum Service Contractor and
Subcontractor
On the gross income consisting of salaries, wages, annuities, Graduated Income Tax
compensation, remuneration and other emoluments, such as Rates
honoraria and emoluments derived from the Philippines

For General Professional Partnerships

Net Income of the Partnerships 0%

For Domestic Corporations

Rates of Tax on Certain Passive Income of Corporations Tax Rate


1. Interest from currency deposits, trust funds, deposit substitutes 20%
and similar arrangements received by domestic corporations
2. Royalties from sources within the Philippines 20%
3. Interest Income from a Depository Bank under Expanded Foreign 15%
Currency Deposit System
4. Cash and Property Dividends received by a domestic corporation 0%
from another domestic corporation
5. Capital gains from the sale, exchange or other disposition of 6%
lands and/or building
6. Net Capital gains from sale of shares of stock not traded in the 15%
stock exchange
***Beginning on the 4th year immediately following the year in which such corporation
commenced its business operations, when the minimum corporate income tax is greater than
the tax computed using the normal income tax.
For Resident Foreign Corporation

NATURE OF INCOME TRANSACTIONS APPLICABLE RATE


1) a. In General – on taxable income derived from sources within the 30%
Philippines
b. Minimum Corporate Income Tax – on gross income 2%
c. Improperly Accumulated Earnings – on improperly accumulated 10%
taxable income
2) International Carriers – on gross Philippine billings 2½%
3) Regional Operating Headquarters of Multinational Companies– on 10%
taxable income
4.) Regional or Area Headquarters of Multinational Companies exempt
5) Corporation Covered by Special Laws Rate specified under
the respective
special laws
6) Offshore Banking Units (OBUs) 10%
In general – Income derived by OBUs from foreign currency Exempt
transactions with non-residents, other OBUs, local commercial banks
and branches of foreign banks authorized by BSP
On interest income derived from foreign currency loans granted to 10%
residents other than offshore banking units or local commercial banks,
local branches of foreign banks authorized by BSP to transact
business with OBUs
7) Income derived under the Expanded Foreign Currency Deposit
System
Interest income derived by a depository bank under the expanded 7½%
foreign currency deposit system.
On Income derived by depository banks under the expanded foreign exempt
currency deposit systems from foreign currency transactions with non-
residents, OBUs in the Philippines, local commercial banks including
branches of foreign banks that may be authorized by BSP
On interest income derived from foreign currency loans granted by 10%
depository banks under the expanded foreign currency deposit
systems to residents other than offshore banking units in the
Philippines or other depository banks under the expanded system
8.) Branch Profit Remittances – on total profits applied or earmarked 15%
for remittance without any deduction for the tax component thereof
(except those activities which are registered with the Philippines
Economic Zone Authority)
9.) Interest from currency deposits, trust funds, deposit substitutes and 20%
similar arrangements
10. Royalties derived from sources within the Philippines 20%

Related Revenue Issuances


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