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Tax Review

Pre-Week Notes (Summary of Changes in TRAIN law) V.C. Gudani

I. INCOME TAX

CLASSIFICATIONS OF INDIVIDUAL TAXPAYERS UNDER TRAIN


1. Compensation income earner – individuals whose source of income is purely derived from an
employer-employee relationship
2. Self-employed – a sole proprietor or independent contractor who reports income earned from self-
employment.
• Contract of service
• Job order
• Sole income must come from SINGLE PAYOR
• Not exceeding Php 250,000 - Exempted
• Exceeding Php 250,000 – Taxable (VATable if exceeding Php 3 Million)
• Professionals (licensed or unlicensed)
3. Mixed – earning both from employment and from business (i.e. other sources aside from employment)

Rules on 8% income tax rate option:


 Applicable to Self-employed or Mixed Income earner
 Did not exceed the VAT threshold of Php 3 Million
 Signified intention to elect 8% on 1st quarterly income tax return or initial return
 In lieu of income tax and percentage tax
 Basis is actual gross sales/receipts and other non-operating income
 Irrevocable for the taxable year
 If no intention was made, deemed graduated tax rate
 Audited financial statements is not a requirement
 Bookkeeping and Invoicing Rules apply
 Taxpayer is registered and:
• Subject to Percentage tax under Section 116 of the Tax Code, or
• Exempt from VAT or PTs

8% income tax rate is NOT available to:


 Purely compensation income earners
 VAT-registered Taxpayers
 VAT or PT exempt taxpayers whose gross sales and non-operating income exceeded the VAT
threshold
 Taxpayers subject to Other Percentage Taxes
 Partners of a GPP
 Taxpayers enjoying income tax exemption e.g. BMBE
 Taxpayers who opted for OSD
 Taxpayers who did not signify their intent to be taxed at 8%

Income Tax Returns (Individuals, Estates and Trusts)


Pure compensation The income tax return shall be filed on or before April 15 of the succeeding year.
income earner
Income from business Quarterly declarations:
or practice of First quarter May 15 (TRAIN)
profession Second quarter August 15
Third quarter November 15
Final adjusted return April 15 of the succeeding year

Place of filing of return 1) Authorized agent banks;


2) Revenue District Officer;
3) Collection agent;
4) Duly authorized city or municipal Treasurer in which the taxpayer has his legal
residence or principal place of business.
Filing thru: Electronic Filing and Payment System (EFPS) or e-BIR Forms Package
(electronic/manual)

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Tax Review
Pre-Week Notes (Summary of Changes in TRAIN law) V.C. Gudani

During filing season, pre-printed filing of return is allowed only to:


1. Police officers
2. Military officers
3. Bureau of Fire Protection employees
4. Senior Citizens
Payment of tax The tax is paid as the return is filed. Can be paid using credit/debit/prepaid or G-
Cash.
Installment payment of When the tax due is in excess of Two thousand pesos (P2,000.00), the individual
INDIVIDUAL income tax may elect to pay the tax in two (2) equal installments.

1st installment - shall be paid at the time the annual income tax return is filed
2nd installment – shall be paid on or before October 15 (July 15 prior to TRAIN
law) following the close of the calendar year.

If any installment is not paid on or before the date fixed for its payment, the
whole amount of the unpaid tax becomes due and payable, together with the
delinquency penalties to be reckoned on the original date when the tax is
required to be paid.

INDIVIDUALS NOT REQUIRED TO FILE INCOME TAX RETURN


-The following individuals are not required to file income tax return:

A. An individual earning purely compensation income whose taxable income does not exceed Two Hundred
Fifty Thousand pesos (P250,000.00);

The Certificate of Withholding filed by the respective employers, duly stamped “Received” by the Bureau,
shall be tantamount to the substituted filing of income tax returns by said employees.

B. An individual whose income tax has been correctly withheld by his employer, provided that such
individual has only one employer for the taxable year - the Certificate of Withholding filed by the
respective employers, duly stamped "Received" by the Bureau shall be tantamount to the substituted
filing of income tax returns by said employees;

C. An individual whose sole income has been subjected to final withholding tax;

D. A minimum wage earner as defined in these regulations - The Certificate of Withholding filed by the
respective employers, duly stamped "Received" by the Bureau shall be tantamount to the substituted
filing of income tax returns by said employees.

In all cases, all individuals deriving compensation income, regardless of the amount, from two (2) or more
concurrent or successive employers at any time during the taxable year are not qualified for substituted filing.
Thus, they are still required to file a return.

1. Compensation for services in whatever form paid, including but not limited to fees, salaries, wages,
commissions, and similar items

Compensation Income Defined – In general, the term “compensation” means all remuneration for
services performed by an employee for his employer under an employer-employee relationship,
unless specifically excluded by the Code.

The name by which the remuneration for services is designated is immaterial.


• Salaries and wages
• Emoluments
• Honoraria
• Allowances
• Commissions (e.g. transportation, representation, entertainment and the like)
• Fees including director’s fees
• Taxable bonuses
• Fringe benefits (except those which are subject to FBT under Section 33 and the allowable de
minimis benefits)
• Taxable pensions
• Retirement pay
• Unliquidated advances
• Other income of similar nature.
Classification of compensation
Regular compensation – fixed compensation Supplementary compensation – performance
based
Basic salary Commission

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Tax Review
Pre-Week Notes (Summary of Changes in TRAIN law) V.C. Gudani

Fixed allowance for representation Overtime


Fixed allowance for transportation Taxable retirement
Other allowances Taxable bonus
Other taxable benefits

Minimum Wage
Exempt Taxable
Statutory minimum wage (as set by RTWRB) Commissions
Holiday Honoraria
Overtime pay Fringe benefits
Night Shift Differential Benefits in excess of Php 90,000
Hazard pay - shall mean the amount paid by the Taxable allowances
employer to MWEs who were actually assigned to Other taxable income given by employer
danger or strife-torn areas, disease-infested NOTE: Any reduction or diminution of wages for
places, or in distressed or isolated stations and purposes of exemption from income tax shall
camps, which expose them to great danger or constitute misrepresentation and therefore, shall
contagion or peril to life result to the automatic disallowance of expense

13th Month Pay and Other Benefits – provided not to exceed the P90,000 ceiling (Php 82,000 prior to TRAIN
law). Any amount in excess is taxable compensation.
13th Month Pay Other Benefits

Thirteenth month pay equivalent Christmas bonus Other benefits of similar nature
to the mandatory one (1) month actually received
basic salary of official and Productivity incentives Additional Compensation Allowance
employees of the government (ACA)
(whether national or Loyalty award Excess de minimis benefits
local), including government-
owned or controlled
corporations, and/or private Gift in cash or in kind
offices received after the twelfth
month pay

VERY IMPORTANT: READ HAND-OUT NO. 9 – COMPUTATION OF INDIVIDUAL TAXPAYER’S INCOME TAX

II. BUSINESS TAXES

NIRC TRAIN
ZERO-RATED SALE OF GOODS
1. The sale and actual shipment of goods The sale and actual shipment of goods from the
from the Philippines to a foreign country, Philippines to a foreign country, irrespective of
irrespective of any shipping any shipping arrangement, paid for in
arrangement that may be agreed upon acceptable foreign currency or its equivalent in
which may influence or determine the goods or services, and accounted for in
transfer of ownership of the goods so accordance with the rules and regulations of the
exported and paid for in acceptable Bangko Sentral ng Pilipinas (BSP).
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).
2. Sale of raw materials or packaging Sale of raw materials or packaging materials to
materials to a nonresident buyer for a nonresident buyer for delivery to a resident
delivery to a resident local export- local export-oriented enterprise to be used in
oriented enterprise to be used in manufacturing, processing, packing or
manufacturing, processing, packing or repacking and paid for in acceptable foreign
repacking in the Philippines of the said currency and accounted for in accordance with
buyer's goods and paid for in the rules and regulations of the Bangko Sentral
acceptable foreign currency and ng Pilipinas (BSP).*
accounted for in accordance with the
rules and regulations of the Bangko
Sentral ng Pilipinas (BSP).
3. Sale of raw materials or packaging Sale of raw materials or packaging materials to
materials to export-oriented enterprise export-oriented enterprise whose export sales
whose export sales exceed seventy exceed seventy percent (70%) of total annual
percent (70%) of total annual production.*

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Tax Review
Pre-Week Notes (Summary of Changes in TRAIN law) V.C. Gudani

production.

4. Export sales under EO 226 – in addition Export sales under EO 226 – in addition to
to actual export actual export*
a. Sale of export producer to another a. Sale of export producer to another
export producer or to an export export producer or to an export
trader that subsequently export the trader that subsequently export the
same same
b. Even without actual exportation b. Even without actual exportation
1. Sales to bonded manufacturing 1. Sales to bonded manufacturing
warehouses of export-oriented warehouses of export-oriented
manufacturers manufacturers
2. Sales to export processing 2. Sales to export processing
zones (BOI-registered zones (BOI-registered
manufacturers or producers) manufacturers or producers)
3. sales to registered export 3. sales to registered export
traders operating bonded traders operating bonded
trading warehouses supplying trading warehouses supplying
raw materials in the raw materials in the
manufacture of export products manufacture of export products
4. sales to diplomatic missions 4. sales to diplomatic missions
and other agencies and or and other agencies and or
instrumentalities granted tax instrumentalities granted tax
immunities, of locally immunities, of locally
manufactured, assembled or manufactured, assembled or
repacked products whether paid repacked products whether paid
for in foreign currency or not for in foreign currency or not

5. Sales to persons engage in international The sale of goods, supplies, equipment and fuel
shipping or air transport operations (no to persons engaged in international shipping or
domestic operation) international air transport; provided, that the
goods, supplies, equipment and fuel have been
sold and used for international shipping or air
transport operation
6. Sale of gold to the BSP Removed in train law (now VAT exempt)

ZERO-RATED SALE OF SERVICE


1. Processing, manufacturing and Processing, manufacturing or repacking goods
repacking goods for other persons doing for other persons doing business outside the
business outside the Philippines, which Philippines which goods are subsequently
goods are subsequently exported* 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)*
2. other services rendered to a person Services other than those mentioned in the
engaged in business conducted outside preceding paragraph, rendered to a person
the Philippines or to a non-resident engaged in business conducted outside the
person not engaged in business who is Philippines or to a nonresident person not
outside the Philippines when the engaged in business who is outside the
services are performed * 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)
3. transport of passengers and cargo by Transport of passengers and cargo by domestic
domestic air or sea carriers from the air or sea vessels from the Philippines to a
Philippines to a foreign country foreign country

4. sale of power or fuel generated through Sale of power or fuel generated through
renewable sources of energy (biomass, renewable sourced of energy such as but not
solar, wind, hydropower, geothermal limited to biomass, solar, wind, hydropower,
and steam, ocean energy, and other geothermal, ocean energy, and other emerging
emerging sources using technologies energy sources using technologies such as fuel
such as fuel cells and hydrogen fuel) cells and hydrogen fuels.

5. services rendered to persons or entities Services rendered to persons or entities whose


whose exemptions under special laws exemption under special laws or international
or international agreements to which the agreements to which the Philippines is a

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Pre-Week Notes (Summary of Changes in TRAIN law) V.C. Gudani

Philippines is a signatory signatory effectively subjects the supply of such


services to zero percent (0%) rate
6. services rendered to persons engaged Services rendered to persons engaged in
in international shipping or air transport international shipping or international air
operation, including leases of property transport operations, including leases of
for use thereof property for use thereof: provided, that these
services shall be exclusively for international
shipping or air transport operations
7. services performed by subcontractors Services performed by subcontractors and/or
and/or contractors in processing, contractors in processing, converting, or
converting, or manufacturing goods for manufacturing goods for an enterprise whose
an export-oriented enterprise export sales exceed seventy percent (70%) of
total annual production*.
NOTE: With * shall be subject to the 12% VAT
and no longer be considered export sales
subject to 0% VAT upon satisfaction of the
following conditions:
 There is a successful establishment and
implementation of an enhanced VAT
refund system that grants refunds of
creditable input tax within 90 days from
the filing of the VAT refund application
with the Bureau.
 All pending VAT refund claims as of
December 31, 2017 shall be fully paid in
cash by December 31, 2019.

VAT-EXEMPT TRANSACTIONS
Importation of professional instruments and implements, wearing apparel, domestic animals, and
personal household effects.
- (except (subject to VAT) 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 90 days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner,
- that such persons are actually coming to settle in the Philippines and that the change of residence
is bonafide

TRAIN AMENDMENT:
Importation of professional instruments and implements, tools of trade, occupation or employment,
wearing apparel, domestic animals, and personal and household effects belonging to persons
coming to settle in the Philippines or Filipinos or their families and descendants who are now
residents or citizens of other countries, such parties hereinafter referred to as overseas Filipinos, in
quantities and of the class suitable to the profession, rank or position of the persons importing said
items for their own use and not for barter or sale, accompanying such persons, or arriving within a
reasonable time: Provided, That the Bureau of Customs may, upon the production of satisfactory
evidence that such persons are actually coming to settle in the Philippines and that the goods are
brought from their former place of abode, exempt such goods from payment of duties and taxes:
Provided, further, That vehicles, vessels, aircrafts, machineries and other similar goods for use in
manufacture, shall not fall within this classification and shall therefore be subject to duties, taxes
and other charges
Cooperatives – exempt from VAT and Percentage tax
Individuals who availed 8% income tax regime – exempt from VAT and Percentage tax
The following sales of real properties are exempt from VAT, namely:

1. Sale of real property not primarily held for sale to customer or held for lease in the ordinary
course of trade or business.
However, even if the real property is not primarily for sale to customers or held for lease in the
ordinary course of trade or business but the same is used in the trade or business of the seller,
the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main
business;

2. Sale of real property utilized for low-cost


3. Sale of real property utilized for socialized housing (price ceiling for house and lot – P450,000;
for lot only – P180,000);

4. Sale of residential lot valued at P1,919,500 and below and house and lot and other residential

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Tax Review
Pre-Week Notes (Summary of Changes in TRAIN law) V.C. Gudani

dwellings valued at P3,199,200 and below.

TRAIN AMENDMENT:
Sale of real properties not primarily held for sale to customers or held for lease in the ordinary
course of trade or business or real property utilized for low-cost and socialized housing, residential
lot valued at P1,500,000.00 and below; house and lot, and other residential dwellings valued at
P2,500,000.00 and below.

Beginning January 1, 2021:


The VAT exemption shall not anymore apply to:
- Sale of low-cost housing
- Sale of residential lot
The threshold selling price amount for sale of house and lot, and other residential dwellings shall
be P2,000,000.00.

Every 3 years, the threshold amount shall be adjusted to its present value using the Consumer
Price Index, as published by the Philippine Statistics Authority (PSA).

Lease of:
- residential (not commercial) units
- with a monthly rental not exceeding P12,800*
- regardless of the amount of aggregate rentals received by the lessor during the year.

Lease of Residential Units


Monthly Rental Annual Receipts Tax
Monthly rental <P12,800 > P1,919,500 VAT exempt
Monthly rental <P12,800 < P1,919,500 VAT exempt
Monthly rental > P12,800 > P1,919,500 VAT
Monthly rental > P12,800 < P1,919,500 VAT exempt**
** Non-VAT registered (Subject to 3% percentage tax)

Lease of commercial units, regardless of the amount of monthly rental is subject to VAT unless
the lessor is non-VAT registered and annual gross receipts <P1,919,500.

TRAIN AMENDMENT:
Lease of a residential unit with a monthly rental not exceeding P15,000.00*.
Lease of Residential Units
Monthly Rental Annual Receipts Tax
Monthly rental <P15,000 > P3,000,000 VAT and PT exempt
Monthly rental <P15,000 < P3,000,000 VAT and PT exempt
Monthly rental > P15,000 > P3,000,000 VAT
Monthly rental > P15,000 < P3,000,000 PT
Importation of fuel, goods and supplies by persons engaged in international shipping and 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 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 that mentioned in this paragraph, such fuel, goods and supplies shall be subject to 12%
VAT

ADDITIONAL PROVISION IN TRAIN:


Provided, That the fuel, goods, and supplies shall be used for international shipping or air transport
operations.
Sale or lease of goods and services to senior citizens and person with disabilities
Transfer of property under Section 40(C)(2) of the NIRC (Tax-free exchange) – real properties in
exchange for shares of stocks
Collections by homeowners associations and condominium corporations of:
1. Association dues
2. Membership fees
3. Other assessments and charges .
Sale of gold to the BSP (no longer 0-rated sale)
Sale of drugs and medicines (beginning January 1, 2019) prescribed for:
1. Diabetes
2. High cholesterol, and
3. Hypertension

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Pre-Week Notes (Summary of Changes in TRAIN law) V.C. Gudani

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 P3,000,000 (P1,919,500 prior to TRAIN law).

For the purpose of the threshold, the husband and wife shall be considered separate taxpayers.
However, the aggregation rule for each taxpayer shall apply. For instance, if a professional, aside
from the practice of his profession, also derives revenue from other lines of business which are
otherwise subject to VAT, the same shall be combined for purposes of determining whether the
threshold has been exceeded. Thus, the VAT-exempt sales shall not be included in determining the
threshold.

III. PERCENTAGE TAX


1. Cooperatives – Exempt from 3% percentage tax
2. Self-employed and Mixed Income Earners who availed 8% income tax option – Exempt from 3%
percentage tax

DEADLINE OF PAYMENT of Percentage Tax (last day of the month following the close of the
taxable quarter
1st quarter – April 30
2nd quarter – July 31
3rd quarter – October 31
4th quarter – January 31

IV. ESTATE TAX

NIRC (RR 2-2003) TRAIN (RR 12-2018)


TAXPAYER Resident or Non-resident Resident or Non-resident

TAX BASE Net Estate Net Estate

RATES Schedular/Graduated tax rate 6%


EFFECTIVITY January 1, 1998-December 31, 2017 January 1, 2018

VALUATION OF THE GROSS NIRC (RR 2-2003) TRAIN (RR 12-2018)


ESTATE

G.R. Gross estate Fair Market Value at time of Fair Market Value at time of
death death
Exception: Real property Higher of Zonal value or Higher of Zonal value or
Assessed Value Assessed Value

Shares of stocks UNLISTED- Book value Book value (appraisal


COMMON valuation no longer
applicable)
Shares of stocks UNLISTED- Par Value Par Value
PREFERRED

Shares of stocks - LISTED G.R. FMV at the time of G.R. FMV at the time of
death. death.
Ex: Arithmetic Mean Ex: Arithmetic Mean
between the highest and between the highest and
lowest quotation at a date lowest quotation at a date
nearest at the time of death nearest at the time of death
CLUB SHARES No provision Bid price nearest the date of
death published in any
newspaper or publication of
general circulation
RIGHT TO USUFRUCT No provision Probable life of the
beneficiary will be taken into
consideration in accordance
with latest mortality rate to
be approved by Secretary of

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Pre-Week Notes (Summary of Changes in TRAIN law) V.C. Gudani

DOF upon recommendation


of Insurance Commissioner

DEDUCTIONS BY RC, NRC, RA


NIRC (January 1, 1998-December 31, 2017) TRAIN (January 1, 2018 onwards)
ORDINARY DEDUCTIONS
Expenses, Losses, Indebtedness, Taxes, etc. 1. No Funeral Expense
ELITE deductions actually reduce the taxable estate 2. No Judicial Expense
as well as the amount of distributable estate to the 3. Losses - Same rule applies
heirs. They consist of expenses, losses, indebtedness, 4. No Unpaid Taxes
and taxes, etc.
1. Funeral Expenses - The amount of deductible
from gross estate is the 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 200, 000.
a. Components of Actual Funeral Expenses
b. Internment and/ or cremation
c. Mourning apparel of the surviving spouse and
unmarried minor children of the deceased
bought and used on the occasion of the burial
d. Expenses for the decedent’s wake, including
food and drinks before the burial
e. Fees and charges for the rites and ceremonies
incident to the burial. (Related expense such as
prayer, entertainment, and etc. shall not be
allowed as deduction if incurred after the
interment.)
f. Expenses for the death notices published,
telegrams and cable grams sent to the relatives
of the deceased
g. Cost of the burial lot, tombstone or monument
but excluding cost for upkeep unless it is in the
form of legacy for the care of the testator’s
cemetery lot, IF the deceased owns several
burial lots, the value to be deducted is limited to
the value of the plot where he is buried.

Nondeductible Funeral Expenses


a. Funeral expense not supported with receipts or
documentary evidence
b. Any amount in excess of the statutory limit of
funeral expense. It cannot be deducted as
funeral expense and could not be deducted as
claims against the estate
c. Funeral expenses donated or contributed as
assistance by relatives, friends or sympathizers
of the deceased.
d. Expenses incurred after the interment, such as
prayers, masses, entertainment, and the
like (Sec. 6, RR No. 2-2003)

2. Judicial Expenses
Components of Actual Judicial Expenses
a. Fees of executor or administrator
b. Attorney’s fees and court fees
c. Accountant and Appraiser fees, including the
Clerk fees
d. Costs of preserving and distributing the estate
and cost of storing or maintaining property of
the estate
e. Brokerage fees for selling property of the
estate.
Non-deductible Judicial Expenses
a. Expenses primarily incurred by a beneficiary
seeking to establish the extent of his interest in

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NIRC (January 1, 1998-December 31, 2017) TRAIN (January 1, 2018 onwards)


the estate cannot deduct his legal expenses
because it not carried on for the estate’s
benefit.
b. Compensation of a trustee earned, not in the
administration of the estate, but in the
management thereof for the benefit of the
legatees or devisees, is not within the
deductible judicial administration expenses for
estate tax purposes.
c. Judicial expenses not supported by required
documentations
d. Judicial expenses incurred beyond the last day
prescribed by law, or the extension thereof, for
the filing of the estate tax return are not
deductible.
Note: To claim the expenses, the rule does not require
a formal court proceeding but rather extra-judicial
settlement. It is sufficient that the expense must be a
necessary contribution toward the settlement of the
estate. Judicial expenses should be incurred during the
settlement of estate but not beyond the last day
prescribed by law, or the extension thereof, for the filing
of the estate tax return.

3. Losses
There shall also be deducted losses incurred during the
settlement of the estate arising from fires, storms,
shipwreck, or other casualties, or from robbery, theft or
embezzlement, when such losses are not compensated
for by insurance or otherwise, and if at the time of the
filing of the return such losses have not been claimed
as a deduction for income tax purposes in an income
tax return, and provided that such losses were incurred
not later than the last day for the payment of the estate
tax.

Note: The loss should have been incurred (on the


property included in the gross estate) not later than the
last day for the payment of the estate tax which the
amount of loss is:

a. not compensated for by any insurance


b. not claim as deduction from gross income for
income tax purposes.

4. Unpaid Taxes
Deductible Taxes from gross estate
a. Property taxes accrued prior to the decedent’s
death
b. Unpaid taxes on income received by the
decedent before his death
c. Gift taxes on lifetime gifts (donation inter-vivos)
which are unpaid upon death
d. Excise or transfer tax in connection with either
a necessary sale of estate assets or a
distribution in kind. In this manner, the tax is
deductible as judicial expense not as unpaid
taxes.

Not deductible
a. Income tax upon income received after the
death of the decedent
b. Property taxes not accrued before the
decedent’s death
c. Estate tax
Claims Against the Estate Same rule applies
The word “claims” is generally construed to mean debts

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NIRC (January 1, 1998-December 31, 2017) TRAIN (January 1, 2018 onwards)


or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime and
could have been reduced to simple money judgements.
Claims against the estate or indebtedness in respect of
property may arise out of : (1) Contract; (2) Tort; or (3)
Operation of Law.
a. Requisites of Claims against the Estate
b. 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 and
unpaid medical expenses
c. The liability was contracted in good faith and
for adequate and full consideration in money or
money’s worth.
d. The claim must be a debt or claim which is
valid in law and enforceable in court
e. The indebtedness must not have been
condoned by the creditor or the action to collect
from the decedent must not have been
prescribed.

Substantial Requirements
a. The debt instrument must be duly notarized at
the time the indebtedness was incurred.
Except, loans granted by financial institutions
where notarization is not part of the business
practice/policy of the financial institution-lender
b. Duly notarized certification from the creditor as
to the unpaid balance of the debt, including
interest as of the time of death.
c. Proof of financial capacity of the creditor to lend
the amount at the time the loan was granted,
as well as its latest audited balance sheet with
a detailed schedule of its receivable showing
the unpaid balance of the decent-debtor.
d. Statement under oath executed by the
administrator or executor of the estate
reflecting the disposition of the proceeds of the
loan if the said loan was contracted within three
(3) years prior to the death of the decedent.
Claims against Insolvent Person Same rule applies
Essential Requirements
1. The amount of said claims has been initially
included as part of his gross estate
2. The incapacity of the debtor to pay his debt is
proven not merely alleged
Note: Under the Rule on Preference of Credits, the
Government has preference over the asset of an
insolvent person, any residual amount would be
distributed to Employees and the remaining to
the Creditors.

Unpaid mortgages OR indebtedness of property Same rule applies


To be deductible, the property mortgaged must be part
of the gross estate at fair market value gross of any
unpaid mortgage. However, if the decedent owns less
than all of the property covered by a mortgage, only
a proportionate amount is deductible.

Transfer for Public Use Same rule applies


The amount of all bequests, legacies, devices, or
transfers to or for the use of the Government of the
Republic of the Philippine, or any political subdivision
thereof, shall be deductible from gross estate as long
as the said amount is used exclusively for public
purposes.

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NIRC (January 1, 1998-December 31, 2017) TRAIN (January 1, 2018 onwards)


Transfer of Property made by a married decedent must
have a written consent from the other spouse, however,
if the property transferred is not conjugal/absolute the
said TPU is deductible from the exclusive portion of the
estate.
Note: The transfer of property for Public Use should be
through a testamentary succession not merely oral
Vanishing Deductions (Property Previously Taxed) Same rule applies
If the same property is included in the gross estate of
the present decedent its value may be deducted in
computing the net taxable estate, subject to the
following conditions:
a. The present decedent died within five
years from receipt of the property though
gratuitous transfer.
b. The property from which a vanishing deduction
that is being claimed must be located in the
Philippines
c. An estate or donor’s tax must have
been actually paid on such property
d. The property on which vanishing deduction is
being claimed must be identified as the one
received from the prior decedent or donor
e. No similar deduction must have been allowed
for same property in the estate of the prior
decedent.
RATES:
100% - if not more than 1 year
80% - if more than 1 year but not more than 2 years
60% - if more than 2 years but not more than 3 years
40% -if more than 3 years but not more than 4 years
20% - if more than 4 years but not more than 5 years

Value to take P xxx


Less: Mortgage paid by present
Decedent xxx
Initial basis xxx
Less: Proportional deduction
(Initial basis/Gross estate
x Deductions) xxx
Final basis xxx
Rate xxx
Vanishing deduction xxx

Notes:
1) Under conjugal partnership of gains vanishing is a
deduction from exclusive property.
2) Under absolute community of property, vanishing
deduction may be deducted from exclusive property or
community property
SPECIAL DEDUCTIONS
Standard Deduction Same rule applies except the Standard Deduction is
Php 1,000, 000 is allowed in addition to the other Php 5,000,000.00
allowable deductions mentioned above. This deduction
is allowed from the estate of a citizen or
resident without the need of substantiation.
Family Home Same rule applies except the Family Home is at
The amount is equivalent to the current fair market Php 10,000,000.00
value of the decedent’s family, which shall not
exceed 1, 000, 000 allowed by the law to be deducted
from the gross estate. The excess shall be subject to
estate tax (Sec. 86 A4, NIRC)
Note: RR 2-2003 defines “family Home” as 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 by the Brgy.

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NIRC (January 1, 1998-December 31, 2017) TRAIN (January 1, 2018 onwards)


Captain of the locality.

Conditions for the allowance of FAMILY HOME as


deduction
a. The family home must be the actual
residential home of the decedent and his family
at the time of his death, as certified by the
Barangay Captain of the locality where the
family home is situated;
b. The total value of the family home must
be included as part of the gross estate of the
decedent; and
c. Allowable deduction must be in an
amount equivalent to the current fair market
value of the family home as declared or included
in the gross estate, or the extent of the
decedent’s (whether conjugal/community or
exclusive property),

whichever is lower, but not exceeding


P1,000,000.interest (whether conjugal/community or
exclusive property), whichever is lower, but not
exceeding P1,000,000.

Illustration:
Status Classificatio Value Allowed
Illustration:
n of property
Status Classification Value Allowed
1. Unmarrie Exclusive P2 P1
of property
d head of a Million Million
1. Unmarrie Exclusive P30 P10
family
d head of a Million Million
2. Unmarrie Exclusive P800,00 P800,00
family
d head of a 0 0
2. Unmarrie Exclusive P1 Php 1
family
d head of a Million Million
3. Married Exclusive P2 P1
family
with Million Million
surviving 3. Married Exclusive P30 Php 10
with Million Million
spouse
surviving
4. Married Conj/Comm P2 P1
spouse
with Million Million
7. Married Conj/Comm P5 Php 2.5
surviving
with Million Million
spouse
surviving
5. Married Conj/Comm P1.5 P750,00
spouse
with Million 0
surviving 8. Married House – conj House – Php P
with Land -excl 10M 10Million
spouse
exclusive Land 5M (House –
6. Married House – P1 M P500,00
property 5M plus
with conj P400,00 0
5M for
exclusive Land – excl 0 P400,00
land)
property 0
P900,00
0

Medical Expenses No medical expenses


The following rules should be observed:

1. To be deductible, medical expense should be


incurred (whether paid or unpaid) by the
decedent within one year prior to his death
which shall be duly substantiated with receipts.
2. Any amount of medical expenses incurred
within one year from death in excess of 500,
000 shall no longer be allowed as a deduction.

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NIRC (January 1, 1998-December 31, 2017) TRAIN (January 1, 2018 onwards)


Amount Received by the Heirs Under R.A. 4917 Same rule applies
The following items refer to the amount received by the
heirs which are not subject to any tax under this special
law:

1. Retirement benefits received by officials and


employees of private firms, whether individual
or corporate, in accordance with a reasonable
private benefit plan maintained by the employer
2. Benefits granted in case of separation of official
or employee from the service of the employer
due to death, sickness or other physical
disability or for any cause beyond the control of
the said official.
SHARE OF THE SURVIVING SPOUSE Same rule applies
The net share of the surviving spouse in the conjugal or
communal property, net of the obligations properly
chargeable therein, shall be deducted from such
amount to arrive at the net estate. The share of the
surviving spouse in the net conjugal or net community
property is 50% of the net estate.

DEDUCTIONS BY NRA
NIRC (January 1, 1998-December 31, 2017) TRAIN (January 1, 2018 onwards)
The value of the net estate of a non-resident is 1. Standard deduction in the amount of Php
determined by deducting the following from the 500,000.00;
gross estate: 2. Value of:
1. Expenses, losses, indebtedness, and  Claims against the estate
taxes in proportion to the value of entire  Claims against the insolvent person
gross estate situated in the Philippines;  Unpaid mortgages
2. Property previously taxed; In proportion to the value of the entire gross estate
3. Transfers for public use situated in the Philippines
3. Property previously taxed;
4. Transfers for public use

ADMINISTRATIVE REQUIREMENTS
NIRC TRAIN
Notice of Death Required to file within two months No Notice of Death
from death of the decedent
- In all cases of transfers
subject to tax, or
- Where though exempt from
tax, the value of gross estate
exceeds Php 20,000.00
Period to File Within six (6) months from date of Within one (1) year from date of
Estate Tax Return death death
Required to file when:
1. the transfer is subject to tax
2. the gross value of the estate
exceeds P200,000, even if
exempt from tax
3. when gross estate consists of
registered or registrable property,
regardless of the value of the
gross estate – clearance from the
BIR is a condition precedent to
the transfer of title to registrable
property

Registrable Properties includes, but is


not limited, to:
1. real property
2. motor vehicle
3. shares of stock

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Venue/Place of G.R. In City/municipality where the Same


filing decedent is domiciled at the time of
death
Exception:
Non-resident decedent with executor
or administrator in the Philippines, -
Revenue District Office where such
executor or administrator is registered

In case the executor or administrator


is not registered, Revenue District
Office having jurisdiction over the
executor or administrator’s legal
residence.

In case the non-resident decedent


does not have an executor or
administrator in the Philippines, Office
of the Commissioner through RDO
No. 39 – South Quezon City.
Extension of time In meritorious cases, a reasonable Same
to file extension for filing the return, not
exceeding 30 days shall be granted
by the BIR Commissioner or any
authorized Revenue Officer

Any amount paid after the statutory


due date of the tax, but within the
extension period shall be subject to
interest but not to surcharges.
No extension Due to fraud Same
Intentional disregard of the rules
Negligence
Time for payment General Rule: Pay as you file Same
Extension of time When the Commissioner finds that Same
to pay estate tax the payment of the estate tax or any
part thereof would imposed hardship
upon the estate or any of the heirs,
he may extend the time of such tax or
any part thereof –
- Not to exceed five (5) years in
case the estate is settled
through the courts
- Two (2) years in case estate
is settled extra-judicially

Any amount paid after the statutory


date but within the extension
period is subject to interest and
not to surcharge
Posting of bond in Not exceeding double the amount of Not exceeding double the amount of
case of extension estate tax and with such sureties as estate tax and with such sureties as
the CIR deems necessary the CIR deems necessary
CPA Certificate Gross value of estate exceeds Php 2 Gross value of estate exceeds Php 5
Million Million
Information in CPA Itemized assets Itemized assets
Certificate Itemized liabilities Itemized liabilities
Estate tax due Estate tax due
Installment No provision in Tax Code but RDO In case the available cash of the estate
payment practices the following rule: is insufficient to pay the total estate tax
due, payment by installment shall be
In case the available cash of the allowed within two (2) years from the
estate is not sufficient to pay its total statutory date of payments, without civil
estate tax liability, the estate may be penalty and interest
allowed to pay the tax by installment,
provided that: File return within the 1 year period

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1. A clearance shall be released


only with respect to the
property the
corresponding/computed tax
on which has been paid.
2. Any amount paid after the
statutory due date of the tax
shall be imposed the
corresponding applicable
penalty thereto.
However, if the Commissioner or his
duly authorized representative
approves the payment of the tax after
the due date, the imposable penalty
thereon shall only be interest
Payment of tax If a bank has knowledge of the death No transfer of shares, obligations, or
antecedent to the of a person, who maintained a bank bonds without e-CAR
transfer of shares, deposit account alone, or jointly with
bonds, or rights another, it shall not allow any If a bank has knowledge of the death of
withdrawal from the said deposit a person, who maintained a bank
account unless the Commissioner has deposit account alone, or jointly with
certified that the taxes imposed another, it shall allow any withdrawal
thereon have been paid. from the said deposit account, subject
to a final withholding tax of (6%).
Maximum amount that can be
withdrawn without BIR clearance (Php Requirement for withdrawal: duly
20,000) stamped received BIR Form 1904
(Application for TIN of Estate)

V. DOCUMENTARY STAMP TAX (Due 5th day following the month of the transaction) TRAIN
1. Sale of shares of stocks not listed in the stock exchange
i. Par Value – PV/Php200 x Php1.50 or fractional part thereof
Illustration:
Nicanor sold in 2019 his unlisted shares of stocks for Php 200,000.00. The 1000 shares
were acquired at Par Value Php 100. Compute the capital gains tax and DST.
Solution: CGT - Selling price 200,000
Cost 100,000
Net capital gain 100,000
Rate 15%
Capital gains tax 15,000 (seller is liable if no agreement)

DST – Par value x Php 1.50 = 100,000 x 1.50 = Php 750.00 (buyer)
Php200 Php200

ii. No Par Value – 50% of the DST paid upon the original issue of stocks
Illustration:
Nicanor sold in 2019 his unlisted shares of stocks for Php 200,000.00. The no par 1000
shares were subscribed and paid at Php 100,000. The DST paid on subscription is Php
1000.00. Compute the capital gains tax and DST.
Solution: CGT - Selling price 200,000
Cost 100,000
Net capital gain 100,000
Rate 15%
Capital gains tax 15,000 (seller is liable if no agreement)

DST – DST on subscription 1,000.00


Rate 50%
DST Payable 500.00 (buyer is liable if no agreement)

2. Sale of real property classified as capital or ordinary asset


Illustration: Nicanor, a resident citizen, sold a house and lot classified as capital asset:
Other information: Selling price Php 5 Million
Zonal value of land 3 Million
Assessed value – land 2 Million
Assessed value – house 3 Million
Compute the CGT and DST:
Solution: Gross selling price 5 Million
Zonal value of land 3 Million

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Zonal (house) 3 Million (copy from Assessor)


Assessed value – land 2 Million
Assessed value – house 3 Million

Summary (get the highest and multiply by 6%):


GSP 5 Million
Zonal value 6 Million
Assessed value 5 Million

Rates: CGT is 6% whichever is higher –


DST is Higher of the GSP, ZV or AV computed at Php 15 for
every Php 1,000. Fraction of Php 1,000 is equal to Php 15 –
Answer: CGT – Php 360,000 (Php 6 Million x 6%)
DST – Php 90,000 (Php 6 Million x Php 15/Php 1,000)

CGT – seller is liable if no agreement


DST – buyer is liable if no agreement

3. Donation of REAL PROPERTY (TRAIN law)


Illustration: Nicanor donated a new house and lot to his son who is about to get married.
The following are made available:
Zonal value of land 3 Million
Assessed value – land 2 Million
Assessed value – house 3 Million
Compute the Donor’s tax and DST:
Solution: Zonal value of land 3 Million
Zonal (house) 3 Million (copy from Assessor)
Assessed value – land 2 Million
Assessed value – house 3 Million

Summary:
Zonal value 6 Million
Assessed value 5 Million

Higher: Gross gift (Zonal value) 6,000,000


Less: 250,000
Net gift 5,750,000
Rate 6%
Donor’s tax 345,000

Gross gift (Zonal value) 6,000,000


Rate 15/1,000 (1.5% if no fraction)
Documentary stamp tax 90,000

4. Subscription of shares of stocks – Php 2/Php 200 or 1%


Illustration: A, B, C, D and E established XYZ Corporation. The Securities and Exchange
Commission (SEC) issued the Certificate of Registration on March 31, 2019. XYZ Corp.
has authorized capital stock of Php 1,000,000.00 divided into 10,000 shares of stocks.
25% of the capital stock has been subscribed and paid by the stockholders.
Compute the DST Due:
Solution: Subscribed capital stock Php 250,000
Rate Php 2/Php 200
DST Payable Php 2,500.00

5. All debt instruments – Php 1.50/Php 200. Note: If the debt is one year or less, pro-rate the DST
using 365 days
Illustrations:
a. ABC Corp. borrowed Php 1 Million from the bank in July 1, 2018.
b. Nicanor obtained a loan from a corporation in the amount of Php 2M.
c. XYZ Corp has made advances to affiliate ABC Corp of Php 10M.
d. Nicanor mortgaged his property for Php 5M.
Solution:
a. Php 3,781 (Php 1M x 1.50/200 x 184/365)
b. Php 15,000 (Php 2M x 1.50/200)
c. Php 75,000 (Php 10M x 1.50/200)
d. Php 37,500 (Php 5M x 1.50/200)

VI. EXCISE TAX (TRAIN)

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1. Mineral products
a. Domestic or Imported Coal or Coke
Date of effectivity Excise Tax per Metric Ton
January 1, 2018 Php 50.00
January 1, 2019 Php 100.00
January 1, 2020 and onwards Php 150.00
b. All non-metallic minerals and quarry resources
Excise Tax
Locally extracted or produced Four percent (4%) based on the actual
market value of the gross output thereof
at the time of removal
Imported Four percent (4%) based on the value
used by the Bureau of Customs (BOC) in
determining tariff and customs duties net
of excise tax and value-added tax
Locally extracted natural gas and Exempt
liquefied natural gas
c. All metallic minerals
Excise Tax
Locally extracted or produced Four percent (4%) based on the actual
market value of the gross output thereof
at the time of removal
Imported Four percent (4%) based on the value
used by the Bureau of Customs (BOC) in
determining tariff and customs duties net
of excise tax and value-added tax
d. Indigenous petroleum – 6%

2. Petroleum products
3. Tobacco products

4. Automobiles
a. Purely electric – Exempt
b. Hybrid – 50% of the rates below
c. Other than Purely electric and hybrid – rates below shall apply

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5. Sweetened beverages
Subject to excise tax: (SAFE-SOCO)
a. Sweetened tea;
b. All carbonated beverages;
c. Flavored water;
d. Energy and sports drinks;
e. Sweetened juice drinks;
f. Other powdered drinks not classified as milk, juice, tea, and coffee;
g. Cereal and grain beverages; and
h. Other non-alcoholic beverages that contain added sugar
Exempt from excise tax:
a. All milk products including infant & formula milk, soymilk, flavored milk, etc.
b. One Hundred Percent (100%) natural fruit juices w/o added sugar/ caloric sweetener
c. One Hundred Percent (100%) natural vegetable juices w/o added sugar/ caloric
sweetener
d. Meal replacement and medically indicated beverages for oral nutritional therapy
e. Ground, instant soluble and pre-packaged powdered coffee products (3 in 1 coffee)
6. Non-Essential Services (Invasive cosmetic procedure)
Rate: 5% of Gross Receipts
Examples of invasive cosmetic procedure:
a. Abdominoplasty or Tummy Tuck
b. Auto Grafting
c. Breastlift
d. Buccal Fat Reduction
e. Buttocks Augmentation
f. Chin Augmentation
g. Eyelid Surgery
h. Facelift/Necklift
i. Hair Restoration/ Transplantation
j. Liposuction
k. Mammoplasty
l. Otoplasty
m. Rhinoplasty/Alar Trimming
n. Thread Lift
o. Vaginal Plastic Surgery

Examples of Non-invasive procedure (exempted): (ABCDEF-LINP)


a. Acupuncture Rejuvenation Therapy
b. Air Dissector
c. Body Treatments and Contouring Procedures
d. Botulinum Toxin Injection/Treatment
e. Cleanings and Facials
f. Collagen Induction Therapy
g. Dermal Fillers (Crosslinked and Non-Crosslinked)
h. Embedded Protein Threads
i. Fractional CO 2
j. Injectables and Weight Management Treatment
k. Lasers and Light Treatments
l. Non-surgical facelifting & skin tightening using radio frequency, ultrasound, infrared
m. Peelings (Face and Body)

VII. COMPLIANCE REQUIREMENTS


1. Registration
Primary Registration:
a. Application for Taxpayer Identification Number (TIN)
TIN pertain to the system-generated reference index number issued and assigned by the
BIR to each and every person registered in its database. In all of the business and/or
personal transactions of the registered person whether these are with government offices
or otherwise, this reference index number is required to be indicated.

The TIN Card shall contain the following information:

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person);

Notes: possession of multiple TINs is prohibited; TIN is permanent; TIN of living is


different from TIN of estate
 Registration fee is Php 500.00. Each branch is required to pay the Annual Registration Fee (ARF)
of P 500.00. However, storage and production places are liable to the ARF only when sales
operations are conducted thereat. Deadline of ARF is January 31 of each year.
 Taxpayers required to register but are exempt from paying ARF:
o Cooperatives duly registered with the Cooperative Development Authority
o Employees or individual residents earning purely compensation income
o Facility/ies where no sales transactions occur.
o GAIs, in the discharge of their governmental functions
o LGUs, in the discharge of their governmental functions
o Marginal Income Earners
o Non-stock/non-profit organizations not engaged in business
o OCWs/OFWs
o Persons registered under EO 98, series of 1998
o Persons subject to tax under one-time transactions (CGT, Donor’s and Estate Tax)

DEADLINE
SELF-EMPLOYED AND MIXED INCOME INDIVIDUALS: On or before the
a. Single proprietors, mixed income earners commencement of business
b. Professionals where PTR is not required (e.i. Consultants, Agents, or before the lapse of thirty
Artist, Underwriters & the like): (30) calendar days from the
c. Non-Residents issuance of Mayor’s
d. Franchise Holders/Franchisees Permit/PTR by the concerned
LGU, or COR issued by the
Estates (for income tax purposes) and Trusts SEC or the date of its first
sales transaction prior to its
registration.
Corporations (taxable or non-taxable) and Before payment of any tax
ONETT - one time taxpayers (with no previously issued tin) due.
1. Payor of capital gains tax
2. Payor of donor’s tax TIN issued to the individual
3. Payor of estate tax (for purposes of distribution of estate) shall be permanent and may
4. Payor of final tax on winnings be updated for future
transactions of such person
with the BIR, e.g. subsequent
employment, establishing a
business, etc.
Partnerships, Associations, Cooperatives, Government Agencies and Before or upon filing of any
Instrumentalities (GAIs): - applicable tax return,
statement or declaration as
required by the Code, as
amended
Employees Within ten (10) date days
from employment
Applications under EO 98, series of 1998: At any time before they
-securing a TIN to be able to transact with any government office, e.g. LTO, complete their transaction
NBI, DFA, with such government
-opening a bank account agency.
-vehicle registrant

TINs issued under EO 98, series of 1998 shall be permanent and may be
updated for future transactions of such person with the BIR (e.g.,
subsequent employment, establishing a business, etc.).

b. Application for REGISTRATION UPDATE (no need to register again)


 Closure of business
 Change in address
 Change in registered activity
 Change in accounting period
 Change in trade name
 Change in tax type (e.g. from VAT to Non-VAT)

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Secondary Registration:
 Application for Authority to Print (ATP) Receipts / Invoices
 Registration of Manual Books of Accounts
 Application for Permit to use Computerized Accounting System (CAS)
 Application for Permit to use Loose Leaf Accounting Records
 Application for Permit to Use CRM/POS Machines
 Permit to Operate for taxpayers engaged in activities/transactions involving products
subject to excise taxes
SECONDARY REGISTRATION DEADLINE
Application for Authority to Print (ATP) Receipts / Invoices on or before the
commencement of
business
Registration of Manual Books of Accounts Before use
Newly-Registered (In General) – before the deadline of the filing of the
1st quarter ITR

Note: As a general rule, registration of books of accounts shall be


simultaneous with the issuance of Certificate of Registration and approved
Authority to Print.
Application for Permit to use Computerized Accounting System (CAS) or Before the system is used.
components thereof

Computerized Accounting System (CAS) refers to the integration of


different component systems to produce computerized books of accounts
and computer-generated accounting records and documents.
Application for Permit to use Loose Leaf Accounting Records Before the system is used.
Application for Permit to Use CRM/POS Machines, and the like, if Before using Cash Register
applicable Machine (CRM) and/or
Point of Sales Machine
A point-of-sale (POS) terminal is a computerized replacement for a cash (POS)
register.

2. Invoicing
PRINCIPAL RECEIPTS / INVOICES –
a. VAT sales invoice
b. VAT official receipt
c. NON-VAT sales invoices
d. NON-VAT official receipts

SUPPLEMENTARY RECEIPTS / INVOICES - these are also known as COMMERCIAL INVOICES


Supplementary receipts/invoices (as supplementary evidence) includes but are not limited to:

Delivery receipts Order slips


Debit and/or credit memo Purchase order
Job order Provisional/temporary receipt
Acknowledgement receipt Collection receipt
Cash receipt Bill of lading
Billing statement Statement of account
Any other documents, by whatever name it is known or called, whether prepared manually
(handwritten information) or pre-printed/pre-numbered loose-leaf (information typed using excel
program or typewriter) or computerized as long as it is used in the ordinary course of business
being issued to customers or otherwise.

RULES ON ISSUANCE OF RECEIPTS OR INVOICE


1. Section 237 of the Tax Code - For each sale or transfer of merchandise or for services rendered valued at
Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices,
prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of
merchandise or nature of service
NOTE: In TRAIN, the amount is increased to Php 100.00
2. RR 16-2005 - VAT REGISTERED TAXPAYER – For every sale, barter or exchange.
3. Revenue Memorandum Circular (RMC) No. 64-2015 - the following information must be indicated on the
VAT receipts/invoices generated by CRM/POS/Business Machines in case of sales to VAT-registered
persons amounting to at least P1,000:
a. Name of purchaser, customer or client
b. Address
c. TIN
d. Business style, if any.

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4. RR No. 10-2015 - mandated the use of non-thermal paper in generating receipts and invoices to preserve
the clarity and integrity of invoices that are often rendered undecipherable after some time.
5. RR 18-2012 - Supplementary receipts/invoices, for purposes of Value-Added Tax, are not valid proof to
support the claim of Input Taxes by buyers of goods and/or services.
6. RR 18-2012 – Validity of Invoice or receipt - five (5) years from issuance of the permit or full usage,
whichever comes first.
7. RR 18-2012 - Only BIR Accredited Printers shall have the exclusive authority to print principal and
supplementary receipts/invoices.
3. Keeping of Books of Accounts
 Preservation – ten (10) years
 Allowed: Five years hard copy; after five years soft copy

Section NIRC TRAIN


Section 232 -Keeping of books All corporations, companies, All corporations, companies,
of accounts partnerships or persons required partnerships or persons required
by law to pay internal revenue by law to pay internal revenue
taxes shall keep a journal and a taxes shall keep and use
ledger. relevant and appropriate set of
bookkeeping records duly
Those whose quarterly sales, authorized by the Secretary of
earnings, receipts, or output do Finance.
not exceed PHP50,000 shall
keep and use simplified set of
bookkeeping records.

Audit by Independent CPA – Gross quarterly sales, earnings, Gross annual sales, earnings,
When needed receipts or output exceed receipts or output exceed
P150,000 ₱3,000,000

4. Filing of returns and deadlines (SUMMARY)


Return Form Type Deadline Venue
Annual registration fee 0605 If new registrant – upon registration RDO where registered
(Php 500) After registration - January 31 of
each year
Annual ITR Individuals:
Compensation 1700 April 15 after the close of the RDO where employer is
Earner/Employee taxable year registered
Annual ITR for Self- 1701 April 15 after the close of the RDO where registered
Employed and taxable year (Place of business or
Professionals residence)
1st Quarter ITR 1701Q May 15 (TRAIN)
2nd Quarter ITR 1701Q August 15
3rd Quarter ITR 1701Q November 15
Annual ITR Corporation:
Regular Rate (30%) 1702-RT 15th day of the 4th month following
Mixed Rate (regular with 1702-MX the close of the taxable year
preferential tax rate) Ex: June 30, 2018
Exempt Non-individuals 1702-EX Deadline: Oct 15, 2018 RDO where registered -
Ex: Non-stock, non-profit Place of business
1st Quarter ITR 1702Q 60 days from close of TY
2nd Quarter ITR 1702Q Ex: If taxpayer uses calendar
3rd Quarter ITR 1702Q 1st Quarter – May 30
2nd Quarter – August 29
3rd Quarter – November 29
Monthly VAT return 2550M 20th day following close of quarter
Quarterly VAT return 2550Q 25th day following close of quarter RDO where registered -
Percentage Tax Return 2551M 20th day following close of month Place of business
(Prior to TRAIN law)
Percentage Tax Return 2551Q 25th day following close of quarter
(TRAIN law)
Excise Tax – Non- 2200-C 10th day following close of the If with payment - Large
essential Services month Taxpayer Service or
RDO where registered
(Head Office)

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If no payment:
1. Excise Large
Taxpayer Division
2. RDO where registered
3. Excise Tax Area in
Regional Offices
Capital gains tax return 1706 30 days from date of sale RDO where real
(sale of real property (notarization of deed) property is located
classified as capital asset)
Capital gains tax return 1707 30 days from date of sale RDO where TIN of Seller
(sale of unlisted shares) (notarization of deed) is registered (place of
business or residence)
Creditable withholding tax 1606 If real estate dealer: RDO where real
(sale of real property 10th day after the month of sale if property is located
classified as ordinary cash basis (over 25%)
asset)
10th day after the month of
collection under installment basis
(25% or less)

Not engaged in sale of real estate:


30 days from date of sale
(notarization of deed)
Documentary stamp tax 2000 or 5th day following the month of If NOT one-time
2000-OT if transaction transaction (ONETT) -
one-time Ex: RDO where registered
transaction Deed of sale notarized on April 1 –
(e.g. CGT, Deadline is May 5 If ONETT – RDO where
Donation) CGT or Donor’s tax is
paid
Estate tax return 1801 6 mos. after death (prior to TRAIN) G.R. In RDO where the
1 year (TRAIN law) decedent is domiciled at
the time of death
Exception:
Non-resident decedent
with executor or
administrator in the
Philippines, - Revenue
District Office where
such executor or
administrator is
registered

In case the executor or


administrator is not
registered, Revenue
District Office having
jurisdiction over the
executor or
administrator’s legal
residence.

In case the non-resident


decedent does not have
an executor or
administrator in the
Philippines, Office of the
Commissioner through
RDO No. 39 – South
Quezon City.
Donor’s Tax return 1801 30 days from date of sale G.R. Domicile of the
(notarization of deed) Donor
Exception: If non-
resident, consul or
embassy or Office of
CIR under RDO 39
WITHHOLDING TAX RETURNS
Frequency Withholding Tax on Expanded Withholding Tax Final Withholding Tax

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Tax Review
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Due Date Compensation (WTC) (EWT) (FWT)


Monthly 1601-C 1601-E (Prior to TRAIN law) 1601-F (Prior to TRAIN law)
First two mos. 0619-E First two mos. 0619-F
(TRAIN law) (TRAIN law)

Due Date 10th day of the month 10th day of the month 10th day of the month
following withholding following withholding following withholding

Quarterly No quarterly filing 1601-EQ (TRAIN law) 1601-FQ (TRAIN law)


Attachment: Quarterly Attachment: Quarterly
alphalist of payees alphalist of payees

Due Date Before the end of the month Before the end of the month
following close of taxable following close of taxable
quarter quarter
Annually 1604-CF (prior to TRAIN) 1604E- Attachment: Alphalist 1604 – CF (Prior to TRAIN
1604-C (TRAIN law) of Payees law)
Attachment: Alphalist of 1604-F (TRAIN law)
employee Attachment: Alphalist of
Payees

Due Date January 31 following the March 1 following the close of January 31 following the
close of taxable year taxable year close of taxable year
Annually 2316 - Certificate of 2307 – Certificate of 2306 – Certificate of Final
Compensation Payment Creditable Tax Withheld at Tax Withheld at Source
/Tax Withheld for Source
Employees

Due Date January 31 following the 20th day following close of 20th day following close of
close of taxable year quarter OR simultaneous with quarter OR simultaneous
withholding OR upon demand with withholding OR upon
of payee demand of payee
Annually Certified List of Employees
Qualified for Substituted
Filing

Due Date February 28 following the


close of TY
OTHER FINAL WITHHOLDING TAX RETURNS
Transaction Frequency Form/Return Type Deadline
FWT on interest paid on Monthly 1602 (Prior to TRAIN law) 10th day following close
deposit of the month
Quarterly 1602Q (TRAIN law) Before the end of the
month following close of
taxable quarter
Fringe benefits tax Quarterly 1603 (Prior to TRAIN law) - 10th day following close
of quarter

1603Q (TRAIN law) - Before the end of the


month following close of
taxable quarter
Government Money Monthly 1600 10th day following close
Payments of the month
Quarterly 2307 – Certificate of Creditable 20th day following close
Tax Withheld at Source of quarter OR
simultaneous with
withholding OR upon
demand of payee
Quarterly 2306 – Certificate of Final Tax 20th day following close
Withheld at Source (including Final of quarter OR
VAT) simultaneous with
withholding OR upon
demand of payee
NOTE: Even if no payment or exempted from tax, taxpayer is REQUIRED to file the returns. Failure to file
returns will warrant penalties (surcharge, interest and compromise penalty). Returns not filed are called OPEN
CASES.

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VIII. CIVIL PENALTIES OR INCREMENTS (TRAIN)


(A) Penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:
1. Failure to file any return and pay the tax due thereon
2. Unless otherwise authorized by the Commissioner, filing a return with an internal revenue
officer other than those with whom the return is required to be filed (WRONG VENUE)
3. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment
4. Failure to pay the full or part of the amount of tax shown on any return required to be filed, or
the full amount of tax due for which no return is required to be filed, on or before the date
prescribed for its payment.
(B) Penalty equivalent to fifty percent (50%) of the amount due, in the following cases:
1. In case of willful neglect to file the return within the period prescribed
2. in case a false or fraudulent return is willfully made
Note: Prima facie evidence of fraud:
a. More than 30% underdeclaration of taxable sales, receipts or income, or
b. More than 30% overstatement of deductions

RATE OF INTEREST. - There shall be assessed and collected on any unpaid amount of tax, interest at
the rate of double the effective legal interest rate for loans or forbearance of any money in the absence of
an express stipulation as set by the Bangko Sentral ng Pilipinas (BSP) from the date prescribed for
payment until the amount is fully paid.
The rate of interest per BSP Memorandum No. 799 series of 2013 for loans or forbearance of any money
in the absence of an express stipulation is six percent (6%). Thus, the rate of legal interest imposable
under Section 249 of the Tax Code, as amended, shall be twelve percent (12%). Prior to TRAIN law, the
rate is 20%.
1. Deficiency interest - Interest imposed on any deficiency tax due, which interest shall be assessed
and collected from the date prescribed for its payment until:
i. full payment thereof, or
ii. upon issuance of a notice and demand by the commissioner or his authorized
representative, whichever comes first
2. Delinquency interest – Interest imposed on the failure to pay:
i. The amount of the tax due on any return to be filed; or
ii. The amount of the tax due for which no return is required; or
iii. A deficiency tax, or any surcharge or interest thereon on the due date appearing in the
notice and demand of the Commissioner or his authorized representative until the
amount is fully paid, which interest shall form part of the tax.

Note: No double imposition of interest.

Illustration:

Mr. A has been assessed deficiency income tax P1,000,000.00, exclusive of interest and surcharge, for taxable
year 2018. The tax liability has remained unpaid despite the lapse of June 30, 2020, the deadline for payment
stated in the notice and demand issued by the Commissioner. Payment was made by the taxpayer on February
10, 2021. The applicable interest shall be computed as follows:

Basic Tax Due - Income Tax 1,000,000.00


Add: 25% Surcharge for late payment 250,000
12% Deficiency Interest from 04.16.2019 to 06.30.2020 (442 days) 145,315.07 395,315.07
Total Amount Due, June 30, 2020 1,395,315.07
Add: 12% Delinquency lnterest from 07.01.2020 to 02.10.2021 (225 days) 103,215.09
Total Amount Due, February 10, 2021 1,498,530.16
Transitory Period Applicable Interest Type and Rate
For the period up to December 31, 2017 Deficiency / Delinquency Interest - 20%
For the period January 1, 2018 until full payment of the tax liability Deficiency / Delinquency Interest - 12%

Illustration:
A Company has been assessed deficiency income tax of P1,000,000.00, exclusive of interest and surcharge,
for taxable year20i5. The tax liability has remained unpaid despite the lapse of June 30, 2017, the
deadline for payment stated in the notice and demand issued by the Commissioner, Payment was made
by the taxpayer only on February 10, 2018. The civil penalties for late payment shall be computed as
follows:

Basic tax due Php 1,000,000.00


Add: 25% surcharge for late payment Php 250,000.00
20% deficiency interest 4/16/16-6/30/2017 241,643.84 491,643.84

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Tax Review
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Total amount due, June 30, 2017 1,491,643.84


Add: 20% DEFICIENCY interest 7/1/2017-12/31/17* 100,821.92
20% DELINQUENCY interest 7/1/2017-12/31/17** 150,390.39
12% DELINQUENCY interest 1/1/2018-2/10/18** 20,106.54 271,318.85
Total amount due, February 10, 2018 Php 1,762,962.69

*based on Php 1,000,000.00


*based on Php 1,491,643.94

PENALTIES
NIRC TRAIN
Section 254 -
Attempt to evade or defeat tax

Fine P30,000 to P100,000 P500,000 to P10,000,000

Imprisonment 2 years to 4 years 6 years to 10 years


Section 264 - Any person who:
Failure or refusal to issue  fails or refuses to issue
receipts or invoices receipts/invoices
 issues receipts/invoices
that do not fully reflect
required information
 uses multiple or double
receipts or invoices
Upon conviction:
Fine P1,000 to P50,000 P500,000 to P10,000,000

Imprisonment 2 years to 4 years 6 years to 10 years


Any person who:
 Print receipts/invoices Additional punishable offense:
without authority from Printing of other fraudulent
the BIR receipts or sales or commercial
 Print double or multiple invoices
sets of invoices or
receipts
 Print unnumbered
receipts/invoices not
bearing the name,
business style, TIN and
business address of the
entity
Upon conviction:
Fine P1,000 to P50,000 P500,000 to P10,000,000

Imprisonment 2 years to 4 years 6 years to 10 years

IX. BIR Programs


1. Oplan Kandado – Closure of business is minimum of five (5) days even if the taxpayer pays the
tax. Applicable to the following:
i. fraud cases
ii. subjected to surveillance
iii. subjected to inventory stock-taking
iv. unregistered taxpayers
v. those who are not filing VAT and income tax returns
vi. those who are not issuing receipts
vii. Other cases where there is under-declaration of more than 30% of sales/receipts or
overstatement of expenses to more than 30%
2. Run After Tax Evaders (RATE) – tax evasion cases
3. Tax Compliance Verification Drive (TCVD) or Tax Mapping – Verification of registration, invoicing
and bookkeeping and payment of annual registration fee
Note: Certificate of Registration and Ask for Receipt must be displayed otherwise with penalty
4. Revenue Integrity and Protection Service (RIPS) – conduct lifestyle checks

- End -

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