TAX ON INDIVIDUALS 09/08/2020

NOTES IN TAX ON INDIVIDUALS

1. Income subject to tax and types of tax

 Taxable Income - Normal Tax

 Passive Income - Final Tax
 Capital Gain - Capital gain tax

2. Rates

A. For taxable income

A) Tax Schedule Effective January 1, 2018 until December 31, 2022.

On the taxable income of: The tax is:  

Not over P250,000 0%
Over P250,000 but not over P400,000 20% of the excess over P250,000
Over P400,000 but not over P800,000 P 30,000 +25% of the excess over P400,000
Over P800,000 but not over P2,000,000 130,000 +30% of the excess over P800,000
Over P2,000,000 but not over P8,000,000 490,000 +32% of the excess over P2,000,000
Over P8,000,000 2,410,000 +35% of the excess over P8,000,000
Tax Schedule Effective January 1, 2023 and onwards:

On the taxable income of: The tax is:  

Not over P250,000 0%
Over P250,000 but not over P400,000 15% of the excess over P250,000
Over P400,000 but not over P800,000 P 22,500 +20% of the excess over P400,000
Over P800,000 but not over P2,000,000 102,500 +25% of the excess over P800,000
Over P2,000,000 but not over P8,000,000 402,500 +30% of the excess over P2,000,000
Over P8,000,000 2,202,500 +35% of the excess over P8,000,000
NOTES:

1) For married individuals, the husband and wife, shall compute separately their individual income tax based on their respective total
taxable income. If any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the
spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income.

2) Minimum wage earners shall be exempt from the payment of income tax on their taxable income. Holiday pay, pay received by such
minimum wage earners shall likewise be exempt from income tax.

B) RATE OF TAX ON INCOME OF PURELY SELF-EMPLOYED INDIVIDUALS AND/OR PROFESSIONALS

WHOSE GROSS SALES OR RECEIPTS AND OTHER NON-OPERATING INCOME DOES NOT EXCEED THE
VALUE ADDED TAX (VAT) THRESHOLD (the gross annual sales and/or receipts do not exceed the amount of
P3,000,000) –

Self-employed individuals and/or professionals shall have the OPTION to avail of an eight percent (8%) tax on gross
sales or gross receipts and other non-operating income IN EXCESS of TWO HUNDRED FIFTY THOUSAND
PESOS (P250,000) in lieu of the graduated income tax rates under Sec. 24 (A)(2)(a) and the percentage tax under
Section 116.

C) RATE OF TAX FOR MIXED INCOME EARNERS –

Taxpayers earning both compensation income and income from business or practice of profession shall be subject to
the following taxes:

(1) All income from Compensation – The rates prescribed under Sec. 24(A)(2)(a).

(2) All income from Business or Practice of Profession –

(a) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Do Not Exceed the VAT
Threshold – The rates prescribed under Sec. 24(A)(2)(a) or eight percent (8%) income tax based on gross
sales and/or gross receipts and other non-operating income in lieu of the graduated income tax rates.

(b) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Exceeds the VAT Threshold
– The rates prescribed under Sec. 24(A)(2)(a).

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 TAX ON INDIVIDUALS 09/08/2020

B. For Passive Income

A. Interest from any currency bank deposit 20%

B. Royalties, other than on books literary works and musical compositions 20%
C. Royalties on books literary works and musical compositions 10%
D. Prizes (except prizes amounting to P10,000 or less)
Prizes amounting to P10,000 or less shall be subject to rates under Sec. 24(A)(2)(a) 20%
E. Other winnings (except winnings amounting to P10,000 or less from Philippine Charity
Sweepstakes and Lotto which shall be exempt) 20%
F. Interest income received by an individual taxpayer (except a nonresident
Individual) from a depository bank under the expanded foreign currency deposit
System 15%
G. Interest income from long-term deposit or investment Exempt
H. Cash and/or property dividends actually or constructively received by an individual from a
domestic corporation 10%

NOTES:

1) The NIRC defines long term deposits or investments as deposits or investments in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other investments with a maturity
period of not less than five (5) years, issued by banks only (not by nonbank financial intermediaries and finance
companies) to individuals in denominations of Ten Thousand Pesos (P10,000) and other denominations as may be
prescribed by the BSP.

2) Interest income from long term deposit or investment is exempt from final tax. Should the holder of the certificate pre-
terminate the deposit or investment before the fifth (5 th) year, a final tax shall be imposed on the entire income and shall
be deducted and withheld by the depository bank from proceeds of the long term deposit or investment certificate based
on the remaining maturity thereof:

Four (4) years to less than five (5) years 5%

Three (3) years to less than four (4) years 12%
Less than three (3) years 20%

3) Only passive income derived within the Philippines shall be subject to final tax.

C. For Capital Gain

 CAPITAL GAIN FROM SALE OF SHARES OF STOCK NOT TRADED IN THE STOCK EXCHANGE
FIFTEEN PERCENT (15%) upon the net capital gains realized.

 CAPITAL GAIN FROM SALE OF REAL PROPERTY

6% of the gross selling price or the fair market value, whichever is HIGHER.

NOTES:

1) The capital gain tax on the sale of shares of stock shall be imposed upon the net capital gains realized during the taxable
year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold,
or disposed of through the stock exchange.

2) The capital gain tax on sale of real property shall be imposed upon capital gains presumed to have been realized from
the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including
pacto de retro sales and other forms of conditional sales.

For sale of real property to the government, the gain or the presumed gain shall be subject to capital gain tax or normal
tax under Sec. 24-A, at the option of the taxpayer.

3) Capital gain tax shall be imposed on gain arising from transactions involving capital assets.

3. Individual taxpayers and respective income taxes

Resident citizen:

TAX BASE RATE

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 TAX ON INDIVIDUALS 09/08/2020

A. Taxable Income (A)

B. Passive Income (B)
C. Capital Gain (C)

Notes:

1) Taxable income shall include income from all sources.

2) Passive income shall include income derived within the Philippines.

Non-resident citizen and Resident alien:

TAX BASE RATE

A. Taxable Income (A)
B. Passive Income (B)
C. Capital Gain (C)

Notes:

1) Taxable income shall include income derived from sources within the Philippines.

2) Passive income shall include income derived within the Philippines. There is no final tax on interest income received by
a nonresident individual taxpayer from a depository bank under the expanded foreign currency deposit system.

Non-resident alien – engaged in business

TAX BASE RATE

A. Taxable Income (A)

B. Passive Income (B)

a. Interests 20%
b. Royalties, other than on books literary works and musical compositions 20%
c. Royalties on books literary works and musical compositions 10%
d. Prizes (except amounting to P10,000 or less) 20%
Prizes amounting to P10,000 or less shall be subject to rates under Sec. 24(A)(2)(a)
e. Other winnings (except Philippine Charity Sweepstakes and Lotto Winnings) 20%
f. Gross income of cinematographic films 25%
g. Interest income from long-term deposit or investment Exempt
h. Cash and/or property dividends actually or constructively received by an individual from a domestic 20%
corporation

C. Capital Gain (C)

Notes:

1) Taxable income shall include income derived from sources within the Philippines.

2) Passive income shall include income derived within the Philippines. The same rules on pre-termination apply on interest
income on long-term deposits or investments.

Non-resident alien – not engaged in business:

TAX BASE RATE

A. Taxable Income (Gross income) 25%
B. Passive Income (Gross income) 25%
C. Capital Gain (C)

Notes:

1) Taxable income shall include income derived from sources within the Philippines.

2) Passive income shall include income derived within the Philippines.

4. Special rules for aliens employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational
Companies; Offshore Banking Units; Petroleum Service Contractor and Subcontractor.

EMPLOYER TAX BASE RATE

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TAX ON INDIVIDUALS 09/08/2020

A. Regional or Area Headquarters and Regional Operating Headquarters of Gross Income 15%
Multinational Companies
B. Offshore Banking Units Gross Income 15%
C. (Foreign service contractor or subcontractor) Petroleum Service Gross Income 15%
Contractor and Subcontractor

Notes:

1) The preferential tax treatment provided in shall not be applicable to regional headquarters (RHQs), regional operating
headquarters (ROHQs), offshore banking units (OBUs) or petroleum service contractors and subcontractors registering
with the Securities and Exchange Commission (SEC) after January 1, 2018. Existing RHQs/ROHQs, OBUs or
petroleum service contractors and subcontractors presently availing of preferential tax rates for qualified employees shall
continue to be entitled to avail of the preferential tax rate for present and future qualified employees.

2) The term “Gross Income” covers salaries, wages, annuities, compensation, remuneration and other emoluments, such as
honoraria and allowances.

3) The term “multinational company” means a foreign firm or entity engaged in international trade with affiliates or
subsidiaries or branch offices in the Asia-Pacific Region and other foreign markets.

4) Filipinos employed and occupying the same position as those of aliens employed by Regional or Area Headquarters and
Regional Operating Headquarters of Multinational Companies. Offshore Banking Units and Petroleum Service
Contractor and Subcontractor shall be subject to the same tax.

5) Any income earned from all other sources within the Philippines by the alien employees referred to above shall be
subject to the pertinent income tax, as the case may be, imposed under the NIRC.

********** END ********

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