TAXATION

SCHEMES AND RECONCILIATIONS

GAAP net income xx
Income concept xx(xx)
Expense concept xx(xx)
Income subject to tax xx → Gross income
Income subject to FIT (xx) 1. FIT
Income subject to CGT (xx) 2. CGT
Taxable income xx 3. RIT
→ GI xx
Deductions (xx)
Taxable income xx

GROSS INCOME
1. Return on capital – exchange transaction only
2. Realized benefit – ability to pay
3. Not exempted by law
4. Situs and taxability of taxpayer
5. Income tax benefit
6. Accounting methods
6.1. Advanced income is taxable upon receipt – service income
6.2. Prepayments are not deductible – defer and amortize
6.3. Installment method – allowed only if IP/SP ≤ 25%; XPN: dealers of movables can always use
installment
6.4. No fair value accounting
6.5. Tax benefit rule – past deduction → recovered → reverted back to GI

DEDUCTIONS FROM GROSS INCOME

1. Principles of deductions
a. Legal, Ordinary, Actual, and Necessary (LOAN)
b. Matching principle
c. Related party rule – not allowed to deduct losses, interest, and bad debts to related party
d. Withholding rule – no withholding, no deduction
 Withholding tax on compensation
 Final WH Tax
 Expanded WH Tax
2. Deduction limit
a. Interest expense – arbitrage limit
b. Pension expense – PSC / 10 years
c. Contribution expense – individual (10%); corporation (5%)
d. EAR expense – goods (1/2 x 1% net sales); services (1% x net receipts)
3. Deduction incentive – SAID
4. Carryforwards – NOLCO

FINAL INCOME TAX

1. Interest income from banks
 Individual, except Corporation, except
Interest income on banks
NRANETB NRFC
Short-term 20% 20%
Peso
Long-term ≥ 5 yrs Exempt 20% *
Foreign Resident 15% 15%
currency Non-resident Exempt Exempt

Individual, except Corporation, except

*Deposit substitute
NRANETB NRFC
Short-term 20% 20%
Bank
Long-term ≥ 5 yrs Exempt 20%
Short-term 20% 20%
Non-bank
Long-term ≥ 5 yrs Exempt RIT

2. Dividends
a. Dividends from domestic corporation
 Individual – 10%
 DC and RFC – Exempt
 NRFC – 25% or 15% due to tax sparring rule
b. Dividends from foreign corporation
 Individual – RIT
 DC – RIT, except predominance test: compute GI-Philippines / GI-World of the last 3 years
excluding this year
a. If ≥ 50% = % x Div = w/in
b. If < 50% = 100% x Div = w/o
Rule:
 If ≥ 50% = Exempt
 If < 50% = Exempt if
a. Shareholdings ≥ 20%
b. Holding period ≥ 2 years
c. Full utilization of dividends
Example: FC declared 100K dividend
PD RC RA DC RFC
60% 100K 60K Exempt 60K
40% 100K 0 100K 0

3. Royalties
Individual, except Corporation, except
Royalties
NRANETB NRFC
In general 20% 20%
Books, MC, & LW 10% 20%

4. Prizes – effort
Individual, except Corporation, except
Prizes
NRANETB NRFC
>10K 20% RIT
 ≤10K RIT RIT

5. Winnings
Individual, except Corporation, except
Interest income on banks
NRANETB NRFC
>10K 20% 20%
PCSO/Lotto
≤10K Exempt Exempt
Others 20% RIT

6. Share in net income of business partnership

 Individual – 10% FIT
 DC and RFC – RIT
 NRANETB and NRFC – 25% FIT

7. Informer’s reward – 10% any person

8. Fringe benefits of managers or supervisors

9. Tax-free covenant bonds – xx / 70% x 30%

10. Income payments to petroleum service sub-contractors – 8%

CAPITAL GAINS TAX – dealings in properties

1. Ordinary asset – inventory, supplies, PPE
a. Ordinary gain – RIT GI
 Accrual
 Installment – initial payment does not exceed 25% of SP, except dealers of movables
b. Ordinary loss – RIT deduction
2. Capital asset – business assets and personal assets
 CGT lump sum
 CGT installment – initial payment does not exceed 25% of SP
a. Domestic stocks
X Through PSE – no income tax (60% of 1% of GSP = STT)
 Directly to buyer – 15% CGT for all taxpayers
b. Real properties – 6% CGT for all individuals and DC only; basis: FMV or GSP w/c higher
 FMV
Zonal FV-assessor
House X 
Lot  
 Exemption – sale of principal residence for reacquisition of another principal residence, full
utilization of proceeds, citizen or resident alien, within 18 months, tax must be deposited in escrow,
cost basis of the old property must be carried to the new, and once in every 10 years
 Alternative – CGT or RIT (seller is individual; buyer is govt/GOCC)
c. Other capital assets – capital gains less capital loss
 Net capital gain – RIT GI
X Net capital loss – not deductible
 Individual Corporation
Holding period (Acq date - date of
disposal) ✓ X
≤ 1 year (short-term) 100% 100%
> 1 year (long-term) 50% 100%
Net capital loss carry over ✓ X
1 year only
Limit:
a. NI in year sustained
b. NCG in the following year

LEASEHOLD INOME
1. Outright method = cost
2. Spread out method = residual value / remaining lease term

TRANSACTIONS CONSIDERED EXCHANGE – RIT

1. Retirement of bonds, debentures, notes or certificates, and other evidence of indebtedness
2. Short selling of properties
3. Failure to exercise or option to buy or sell property that is a capital asset
4. Security becoming worthless
5. Receipt of liquidating dividends
6. Receipt of final liquidation from a partnership
7. Redemption of shares for cancellation or requirement
8. Voluntary buy-back of shares

WASH SALES RULE – capital loss on securities

 Fake sale
 61-day rule
 30 days before & 30 days after
GROSS INCOME

EMPLOYER-EMPLOYEE BENEFITS
1. Compensation – RIT
1.1. Regular CI less mandatory deductions – 100% taxable
1.2. Supplemental CI less exemptions – 100% taxable
1.3. 13th month pay and other benefits – 90K threshold
2. Fringe benefits
3. Share-based compensation
3.1. Rank and file – compensation income
3.2. Managerial and supervisory – fringe benefit

FRINGE BENEFITS – paid quarterly

1. De minimis benefits
De minimis Exemption limit
1 Private employees - vacation leave 10 days
2 Government employees - VL and sick leave No limit
3 Rice subsidy 2K/month; 24K/year
4 Uniform and clothing allowance 6K/year
5 Laundry allowance 300/month; 3,600/year
6 Anniversary gift 5K/year
7 Actual medical benefits 10K/year
8 Medical cash assistance to dependents 3K/year
9 Employee achievement award (in kind) 10K/year; if cash = excess
10 Overtime meal 25% of basic minimum wage
11 Collective bargaining agreement/productivity incentive bonus 10K/year, if exceeds = all excess

2. Other fringe benefits

 Step 1: Monetary value
 Step 2: Gross up MV
a. RC – / 65%
b. NRANETB – / 75%
 Step 3: Compute FBT
a. RC – x 35%
b. NRANETB – x 25%
2.1. Housing MV 2.2. Vehicles MV
Rent for use Rent x 50% Rent for use Rent x 50%
Own for use 5% of FMV x 50% Own for use AC / 5 x 50%
Acquire for use 5% x AC x 50% Acquire for use AC / 5 x 50%
AC or FMV, w/c
Acquire and transfer higher Cash and transfer Cash
Acquire and transfer w/
payment FMV - payment Shoulder a portion Amount shouldered

2.3. Expense accounts

2.4. Maids, drivers, etc.
2.5. Membership fees
 2.6. Travels
2.7. Educational assistance

3. Exempt fringe benefits

3.1. Mandatory benefits
 SSS, PHIC, HDMF
 Retirement and hospitalization plans
 Group insurance
3.2. De minimis benefits
3.3. Convenience of the employer rule
3.4. Necessity of the employer rule

DE MINIMIS BENEFITS
 Within list and limits – exempt
 Excess above limits – taxable under 13th month pay and other benefits

OTHER FRINGE BENEFITS

 Managerial or supervisory = subject to final FBT
 Rank and file – taxable under 13th month pay and other benefits

MINIMUM CORPORATE INCOME TAX

 2% Total GI-RIT (1% July 1, 2020 – June 30, 2023)
 Subject: those with RCIT (25% or 20%)
 Excess MCIT – tax credit
 Timing: X + 4th year

INCLUSIONS IN GROSS INCOME

1. Compensation for services in whatever form paid
2. Gross income from the conduct of trade, business, or exercise of a profession
3. Gains derived from dealings in properties
4. Interest
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pensions
11. Partner’s distributive share from the net income of GPP
12. Income distribution of exempt JV or co-ownership
13. Recovery of past deductions
14. Reimbursement of expenses
15. Cancellation of indebtedness for a consideration

EXCLUSIONS IN GROSS INCOME

1. Proceeds of life insurance policy
2. Amount received by the insured as a return of premium
3. Gift, bequest, devise, or descent
4. Compensation for injuries or sickness
5. Income exempt under treaty
6. Retirement benefits, pensions, gratuities, etc. – 1-10-50 and 5-60 rule
7. Income in the PH of foreign government or foreign GOCCs
8. Income of the government and its political subdivisions
9. Prized and awards in recognition of religious, charitable, scientific, educational, artistic, literary, or civic
achievements
10. Prizes and awards in athletic sports competitions
11. Contributions to GSIS, SSS, Philhealth, Pag-ibig, and union dues
12. Employer’s contribution to PERA
13. PERA investment income and PERA distributions
14. 13th month pay and other benefits not exceeding 90K
15. Gains from sale of bonds, debentures, or certificates of indebtedness with maturity of more than 5 years
16. Gains from redemption of shares in mutual fund
17. Income derived from the sale of gold pursuant to RA7076 or the People’s Small-Scale Mining Act of 1991
18. Minimum wage and certain benefits of MWE
19. COVID-19 benefits under Bayanihan to Heal as One Act
20. Income of BMBE
21. Income of cooperatives and non-stock, non-profit entities
22. Income of qualified employee trust funds and PERA accounts
23. Lifetime monthly gratuity to Medal of Valor awardee
ALLOWABLE DEDUCTIONS
 Individuals – engaged in business and mixed income earners
 Corporation – DC and RFC

ITEMIZED DEDUCTIONS
REGULAR ALLOWABLE ITEMIZED DEDUCTIONS
1. Interest expense
 Must be stipulated in writing
 Must be due
 Must not be incurred to finance petroleum operation
 Must not come from related taxpayers
 Check for tax arbitrage
 Who has tax arbitrage? Check regular income tax rate
 Individuals: tax table – always reduced
 DC 25% – reduce
 DC 20% - do not reduce
 RFC 25% - reduce
 NRFC – cannot deduct IE
 IE is reduced by 20% of interest income subject to FIT (IE – TA from II = Deductible IE)

2. Taxes
2.1. Deductible
 FBT
 DST
 OPT, except STT
 Local tax, except special assessment
 Others
 Interest expense from delinquent related to deductible taxes
2.2. Non-deductible
 PH income taxes
 Estate and donor’s tax
 Special assessment on land
 Stock transaction tax
 Foreign taxes claimed as tax credits
 VAT

3. Losses
 Actual
 Not compensated by insurance
 Related to business
 Property used
 From fire, shipwrecks, etc.
 45 days from discovery
 Not claimed in estate tax return

4. Bad debts
 Existing
 Connected with business
 Not between related parties
 Actual write-off
  Worthless
 Recovery – taxable income if there is tax benefit (as is)

5. Depreciation
 Reasonable
 Business
 Limited EUL
 During the year

6. Charitable and other contribution

6.1. Full
 Government for priority programs
 Accredited NGO
 Certain foreign institutions
6.2. With limit
 Government for public purpose
 NGO
 Social welfare organization
 Accredited domestic corporation/association
 Rate: 5% corporation, 10% individual
 Base: business income before charitable deductions and other contributions

7. Pension cost
7.1. Defined contribution
7.2. Defined benefit – actuarial assumptions
 Past service cost – prorated over 10 years
 Current service cost – full

8. Research and development

 Prorated not less than 60 months from benefits

9. Foreign taxes
 Who? RC and DC
 Option whether deduction or tax credit
 If deduction – no limit
 If tax credit – limit: actual vs statutory limitations
 SL#1 per country: (TNI FC / TNI world) x TD vs actual
 SL#2: per total foreign country: (TNI TFC/TNI world) x TD vs actual

10. Ordinary and necessary expenses

 Ordinary and necessary
 Per year
 Related to business
 Substantiated with proof
10.1. Entertainment, amusement, and representation (EAR) expense
 Limit vs actual
 Goods limit: ½ of 1% of net sales
 Services limit: 1% of net receipts
SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS
a. Special expenses – with outflow
1. Income distribution of estates and trusts
2. Transfer to reserve funds of insurance companies (RAID under CREATE)
3. Transfer to reserve funds of cooperatives
4. Dividend distribution of real estate investment trusts
5. Discounts to senior citizens and PWDs – 20% or actual, w/c lower

b. Additional deduction incentives

1. Additional compensation expense of:
1.1. SC – 15%
1.2. PWD – 25%
2. PWD facilities – 50%
3. Additional training expense for jewelry industry – 50%
4. Contributions to “Adopt a School Program” – 50%
5. Rooming-in or breastfeeding – 100%
6. Free legal assistance – actual vs limit, w/c lower
 Must be outside the 60 hours required by law
 Limit: 10% of gross income related to legal service
7. Productivity incentives – 50%
8. Additional training for apprenticeship program – 50% vs limit
 Training from public high school, state u, TESDA
 Limit: 10% of DL

OPTIONAL STANDARD DEDUCTION

1. Individuals – 40% base on
1.1. Goods – gross sales, net of returns, allowances, and discounts
1.2. Services – gross receipts, net of allowances and discounts
 Cannot deduct COGS/COS, RAID, SAID, and NOLCO
2. Corporation – 40% base on Total GI-RIT
 Cannot deduct RAID, SAID, and NOLCO
 COGS/COS deductible
INDIVIDUAL TAXPAYER

TAX COMPLIANCE – INDIVIDUAL

Income tax Business tax
Purely compensation income earner  X
Annual (1700)
Purely business/professional  
income earner 3Q (1701Q) 45 days EOQ Non-VAT – 4 2251Q
1 annual (1701/1701A) or
VAT – 4 2550Q
Mixed income earner  
3Q (1701Q) 45 days EOQ Non-VAT – 4 2251Q
1 annual (1701/1701A) or
VAT – 4 2550Q

CWT/EWT
1. Rent – 5%
2. Sale of goods – 1%
3. Sale of services – 2%

FIT – RC/RA/NRC
RC/RA NRC NRAETB NRANETB
Interest from long-term
Exempt Exempt Exempt
deposit/investment
25%
Dividends from DC 20%
10% 10%
Royalties from copyright 10%
Interest from FCDU 15% Exempt Exempt Exempt
Interest from deposit/deposit substitute
Other royalties
20% 20% 20% 25%
Prizes (≤10K – RIT)
Winnings (PCSO/lotto ≤ 10K – exempt)

NET CAPITAL GAINS (LOSS) NOT SUBJECT TO CGT

1. Holding period rule
 Long-tem > 12 months – 50%
 Short-term ≤ 12 months – 100%
 Applies only to individuals and not in corporation
2. Limitation on capital loss
 Deductible to the extent of capital gain
 Applies to both individuals and corporation
3. Net capital loss carry over
 Succeeding taxable year
 100%, no holding period rule
 Applies only to individuals and not in corporation

SALE OF PRINCIPAL RESIDENCE

1. Full utilization of SP (acquire new PR) – exempt CGT
1.1. Underutilization: FMV > SP – (utilized / SP) x 6% = CGT
 1.2. Underutilization: FMV ≤ SP – utilized x 6% = CGT
2. Within 18 months
3. Barangay certification
4. Notice BIR within 30 days from sale
5. Cost / CA old – new PR

8% FLAT RATE
1. January 1, 2018 onwards
2. Tax base: net sales/receipts together with other income
3. Cost and expensed not accounted
4. NS/R + OI ≤ 3M
5. Purely business and profession – exempt 250K
6. Mixed income earner
a. Compensation income – graduated income tax/RIT
b. Income – B/P
i. NS/R + OI ≤ 3M
 8% – no exempt 250K – separate computation
 GIT/RIT – consolidated with compensation
ii. NS/R + OI > 3M – GIT/RIT – consolidated with compensation
7. Audited FS (not required for 8%), book of accounts, and receipts/invoices
8. Exemption – 3% OPT
9. 8% ≠ VAT
10. First quarter, irrevocable for the taxable year – but if NS/R ≥ 3M, then GIT/RIT

E-COMMERCE
 1% x ½ x sales/receipt
 S/R > 500K
CORPORATE TAXATION
DC RFC NRFC
25% of global TI 25% of PH gross income (gross
RCIT 25% of PH TI
20% of global TI (MSME) receipts) - FIT
Special corporations (10%/1% or International carriers (2.5% of gross
Vessel (4.5% of GR)
RCIT) * PH billings) *****
1. Private educational inst. OBU (RCIT) **** A, M, & OE (7.5% of GR)
2. Nonprofit hospital ROHQ of MNCs (RCIT)
Exempt corporations (0% and
RAH/RHQ (exempt)
RCIT) **
Exceptions 1. Gov't agencies
2. NPO (XPN: NPO school) ***

3. Exempt GOCCs (GSIS, SSS,

PHIC, HDMF, & local water
district)
4. Cooperatives
≥ 50% (10% or 1%)
* GI related act / GI all sources
< 50% (RCIT)
NI-related (0%)
** Classification
AND NI-unrelated (RCIT)
School Hospital
Private 10% RCIT
Non-profit Exempt*** 10%
Government Exempt Exempt

*** NI-R and NI-U are exempt provided all income are actually, directly, and exclusively used for educational
or charitable purposes.
Domestic bank **** RF bank
FCDU OBU
EFCDU EFCDU

Resident FCDU/EFCDU/OBU Exempt

FCDU/EFCDU Resident others 10% FIT
Non-resident Exempt
Resident FCDU/EFCDU/OBU RCIT
OBU Resident others RCIT
Non-resident Exempt
 Reciprocity rate
***** XPN w/c ↓
Treaty rate

***** Transhipment
Same airline: all taxable
Foreign transhipment PH - Indo - Malaysia
Diff: Only PH to Indo is taxable
Same airline: > 48 hrs = taxable
Domestic transhipment Japan - PH - Malaysia Same airline: XPN FE
Different airline: taxable
PARTNERSHIP, JOINT VENTURE, ESTATE AND TRUST TAXATION

TAXATION OF PARTNERSHIPS
1. Ordinary – taxed as a corporation
1.1. Final tax
1.2. CGT
1.3. RIT (25%/20%)
Distributive share
TNI xx
Less: TD (xx)
TNI after tax xx
Add: exempt income xx
Income - FIT (net) xx
Income - CGT (net) xx
Total distributable income* xx
*Final tax (as if dividend) - 10% / 20% / 25%

2. GPP
2.1. FIT
2.2. CGT
2.3. RIT (Exempt)
Distributive share Note
Gross income xx
Allowable deductions (xx)
Net income xx Declared by partners as part of GI (RIT)
Add: Income - FIT (net) xx
Income - CGT (net) xx
Total distributable net income xx Distributed (subject to CWT)
a. GI ≤ 720K = 10%
b. GI > 720K = 15%

TAXATION OF JOINT VENTURES

1. Taxable JVs
1.1. Taxed as corporation (25%/20%)
1.2. Distribution – dividend
2. Nontaxable JVs (as if GPP)
2.1. Construction projects
a. Formed for purposes of undertaking construction projects
b. Involved pooling resources by licensed local contractors
c. LCs must be engages in construction business
d. LCs must be duly licensed by PCAB
2.2. Engaged in petroleum, geothermal, coal, and other energy operations under a service contract with
government

TAXATION OF ESTATE
TAXABLE ESTATES – taxable in the same manner as individuals
Gross income xx
Deductions
Regular deductions (xx)
Distributed to heirs/beneficiaries (xx) Part of taxable income of H/B
TNI xx

TAXATION OF TRUST
THREE PARTIES
1. Trustor
2. Trustee
3. Beneficiary

Gross income xx
Deductions
Basic (xx)
Distributed to beneficiaries (xx) Part of taxable income of B
TNI xx

CONSOLIDATION OF TRUSTS
1. 2 or more trust with income
2. Same trustor
3. Same beneficiary
TRANSFER TAX

MORTIS CAUSA – ESTATE TAX

TAXPAYER
1. Resident/Citizen – global properties
2. Non-resident/Alien – Philippine properties
 XPN: intangible personal property (reciprocity)
 IPP – financial assets and intangible assets

SITUS
1. Tangibles – physical location
2. Intangibles
2.1. Securities (stocks, bonds, and loans)
a. Domestic – w/in
b. Foreign – w/o; XPN: 85% business rule & acquisition of situs w/in
2.2. Claims/Receivables – residence of debtor
2.3. Business interest – place of organization
2.4. Other intangibles – where employed

VALUATION
1. Timing – date of death
2. Rules:
2.1. Real property – FV per assessor or zonal value, w/c higher
2.2. Stocks
a. Listed – (H + L) / 2
b. Not listed – book value
2.3. Other property – fair value

COMPUTATION
Gross estate xx* – taxable properties + TICOD
Deductions (xx)*****
Net taxable estate xx
Tax rate 6%
Estate tax xx

*Physical count xx
Less: not owned (xx)**
Exempted prop (xx)***
Taxable present prop xx
Taxable transfers xx****
Gross estate xx

**Not owned
1. Held as usufructuary
2. Held as fiduciary estate
3. Held under SPA/agent
4. Proceeds of life insurance irrevocably designated to beneficiaries other than estate, administrator, and
executor – admin: court appointed; executor: decedent appointed
5. Separate property of the surviving spouse
***Exempted properties
1. GSIS and SSS benefits
2. Accruals from SSS
3. Bank deposits withdrawal from the decedent account that is subject to 6% final tax
4. Personal Equity Retirement Account (PERA)
5. Proceeds of group insurance
6. Donation to NPO/NGO (30% limit)
7. USVA benefits and war damage payments

****Taxable transfers
1. Revocable transfers
2. Conditional transfers
3. Property passing under general power of appointment
4. TICOD
5. With insufficient consideration

Separate property
*****Deductions Note Note if NRA Common property Total
- decedent

Ordinary deductions:
Must occur w/in 1 yr global LIT x (GE PH / (xx) (xx)
Losses (casualty) (xx)
after death GE world) either either
(xx)
Must occur before global LIT x (GE PH /
Indebtedness/Taxes if family benefit (xx)
death GE world)
rule/silent
(xx) (xx)
TFPU deduct if prop w/in (xx)
either/should be either
Prop previously taxed
(xx)
Vanishing deductions (donation/inheritance deduct if prop w/in
should be per BIR
w/in 5 yrs b4 death)
Special deductions:
max 10M for head of
fam and married;
Family home X (xx)
prorated H&L and
consider SP & CP
Standard deductions 5M 500K (xx)
Single - 100%
RA 4917 X (xx)
Married - 50%
Share of surviving
Statutory deduction / (xx)
spouse

******Vanishing deductions
Initial value xx – value @ inheritance/donation v. value @ death, w/c lower
Less: obligations assumed and paid (xx)
Initial basis xx
Less: prorated deduction (xx) – (Initial basis / gross estate) x other ordinary deductions
Final basis xx
Percentage %
Vanishing deductions xx
Up to 1 yr – 100%
Up to 2 yrs – 80%
Up to 3 yrs – 60%
Up to 4 yrs – 40%
Up to 5 yrs – 20%

PROPERTY REGIME/RELATIONS
1. Absolute Separation of Property (ASP)
 No common property
2. Conjugal Partnership of Gains (CPG)
 Default before August 3, 1988
 Prospective
 Before marriage – SP
 During marriage: gains/fruits/income – CP
 During marriage: gratuitous acquisition – SP; unless designated to both – CP
3. Absolute Community of Property (ACP)
 Default now
 Retrospective
 Before marriage – CP
 Before marriage: gratuitous acquisition – CP
 Before marriage XPN: Properties for exclusive use – SP; XPN: jewelry – CP
 Before marriage XPN: Properties of spouse with a descendant by a prior marriage – SP
 During marriage: gains/fruits/income – CP; XPN: fruits of SP – SP
 During marriage: gratuitous acquisition – SP; unless designated to both – CP
 During marriage: properties acquired for exclusive use – SP; XPN: jewelry – CP
4. Tailor

DONOR’S TAX
1. Gratuitous act
2. Inter-vivos

ELEMENTS OF DONATION
1. Form required – only in direct donation
1.1.Personal property
 Less than or equal 5,000 – can be oral or writing; if oral, needs simultaneous delivery
 More than 5,000 – must be in writing
 Intangibles – public instrument
1.2. Real property – must be in public instrument (notarized)
2. Donative intent
3. Donative act
4. Capacity of donor
5. Acceptance by done – only in direct donation

FACTORS TO CONSIDER
1. Citizenship
1.1. Resident/citizen – world
1.2. NRA – within PH
2. Residence
3. Location/situs
 4. Status/property relation
5. Type of property

COMPUTATION
1. Cumulative basis – 1 year
2. Separate – husband and wife
3. 6% of net gift
Value of gift xx
Exemptions/deductions (xx)
Net gift xx
4. Exempt 250K

EXEMPTIONS
1. Obligations assumed by done
2. Void or prohibited donations
3. Campaign contributions to politicians, parties, or coalitions
4. Insufficient consideration involving sale, exchange, and other disposition of real property/capital asset
5. Diminution – donor
6. Donation to government for public purpose
7. Donation for religious, educational, charitable institutions, etc. – not more than 30% must be used for
administrative purposes
8. Others
 General renunciation of inheritance
 Donation with reserved powers
 Foreign donations by NRA
 Donation of intangible property exempt under reciprocity
CONSUMPTION TAX

VAT ON IMPORTATION
 12% of landed cost (goods), exempt VAT-exempt person or exempt goods
Dutiable value (offshore) xx
Customs’ duties (specific and ad valorem) xx
Other in-land costs xx
Landed cost before excise tax xx
Excise tax (specific and ad valorem) xx
Landed cost xx
 VAT of importation of service – 12% final WH vat = 12% contract price

EXEMPT GOODS
1. Agricultural or marine food products in original state
2. Inputs for production of human food products in original state
3. Books, newspapers, and magazines
4. Prescription medicines and drugs prescribed for diabetes, high cholesterol, hypertension, cancer, mental
illness, tuberculosis, and kidney diseases
5. Passenger or cargo vessels and aircrafts

EXEMPT IMPORTERS
1. International shipping or air transport operators
2. Cooperative for direct farm inputs and machineries and equipment for processing members production
3. PEZA locators on import of goods or services
4. Persons with direct or indirect tax exemptions

BUSINESS TAXATION
TYPES OF GROSS SALES
1. Exempt sales/receipts – no VAT and no % tax; no business tax
1.1. Goods – SECRET Tax-free Gold
(1) Medical goods to senior citizen or PWD
(2) Exempt goods
(3) Cooperatives (except electric cooperatives)
(4) Residential dwellings (Php 3,199,200 or 3,600,000 per unit)
(5) Export sale by non-VAT person
(6) Treaty-exempt sales of goods
(7) Tax-free exchange of property
(8) Sale of gold to the BSP
1.2. Services – SEARCH2 V/A TRIPS
(1) Schools
(2) Employees
(3) Agricultural contract growers and millers
(4) Residential leasing (≤ 15K monthly per unit)
(5) Cooperatives
(6) Hospitals (in-patient or outpatient sales of revenue; medical professional fees)
(7) Homeowner’s association or condominium corporations
(8) Cargo vessels and aircraft leasing
(9) Treaty exempt services
(10) Regional area headquarters (RHQs) of multinational companies
(11) International carriers
 (12) Printers and publishers
(13) Certain services to senior citizens and PWDs
- Restaurant, transportation services, hotels and lodging, medical services
- Places of leisure or amusement (theater, cinema houses, concert halls, carnivals)
- Funeral services
1.3. Other exempt sales/receipts
(1) Non-VAT taxpayers
- Sale of ordinary assets held for use
- Deemed sales of goods does not apply
(2) Sales covered by special laws
- Registered business enterprises under incentive period of SCIT
- Theater and cinema – LGC
(3) Sales by any person not engaged in business

2. SALES SPECIFICALLY SUBJECT TO % TAX (OPT)

2.1. BICAP FLOW
(1) Bank and non-bank financial intermediaries – gross receipt tax
- Interest income from loans maturing short term (≤ 5 years) – 5%
- Interest income from loans maturing long term (> 5 years) – 1%
- Dividends – 0%
- Others (rentals and gains) – 7% or 5% (for financial intermediaries)
- Exemption: BSP
(2) International carriers
- International carriers’ tax
- By air/water on transport of non-people – 3%
(3) Domestic carriers by land on transport of people
- 3% CCT
(4) Amusement tax
- Professional boxing – 10% (except world or oriental championship_
- Professional basketball – 15%
- Cockpit, cabaret, and clubs – 18%
- Jai-alai and horse racetrack – 30%
(5) Sale of stocks through PSE
- 60% of 1% of the sales price STT
(6) Franchise tax
- TV or radio – 3% on vatable receipts (if annual gross receipts do not exceed 10M)
- Gas or water – 2% on sale of water only
(7) Life insurance
- 2% premiums tax on direct insurance
- 4% for agents of foreign insurance companies
- 5% for owners of property obtaining foreign insurance directly
(8) Overseas communication tax
- 10% OCT on gross receipts
- Outgoing dispatch of messages by telcos
- Except DING
(9) Winning tax
- Winnings from straight bets on horse racetracks including owners of winning horses (jai-alai –
none in recent regulations)
- 10% of winnings, net of the cost of winning ticker
- Exception: double forecast, daily double, trifecta, quinella, perfecta, exacta
  4% of winnings net of the cost of winning ticket

3. Vatable sales – 3M threshold

3.1. VAT – 12% VAT
3.2. Non-VAT – 3% general tax

VAT
Output VAT xx
Input VAT (xx)
Vat due xx
Tax credit (xx)
Vat still due xx

SOURCES OF OUTPUT VAT

1. Domestic sales/receipts – regular sales (12%)
1.1. Vatable goods – 12% of SP (exclusive); XPN: unreasonably lower (SP < 30% FV) – 12% of FV
1.2. Vatable services – 12% of GR
1.3. Vatable real properties – 12% of GR; GR = FV vs. SP, w/c higher
 If FV > SP – exclusive; xx x 12%
 If FV < SP – inclusive; xx x 12% / 112%
1.4. Transactions deemed sale – 12% of FV
a. Consignment if not withdrawn in 60 days
b. Consumption not in the course of business
c. Retirement/cessation of business
d. Cancellation of VAT registration
2. Zero-rated sales of goods and services (0%)
a. Direct export sales
b. Sale of goods, supplies, equipment, and fuel to persons engaged in international shipping or
international transport operations
c. Sales to persons or entities whose exemption from direct and indirect taxes under special laws or
international agreements
d. Sales of raw materials, inventories, supplies, equipment, packaging materials, and goods to a registered
export enterprise
e. Services other than processing, manufacturing, or repacking of goods rendered to a person engaged in
business conducted outside PH or to a NRANETB
f. Services rendered to persons or entities whose exemption from direct and indirect taxed under special or
international agreements
g. Sale of services, including provision of basic infrastructure, utilities, and maintenance, repair, and
overhaul of equipment to a registered export enterprise
h. Services rendered to persons engaged in international shipping or air transport operations
i. Transport of passengers and cargo by domestic air or sea vessels from PH to a foreign country
j. Sale of power or fuel generated through renewable sources of energy

TIMING OF OUTPUT VAT RECOGNITION

1. Sale of v goods – quarter sold
2. Sale of v services – quarter collected
3. Sale of v RP – quarter sold or by installment (initial payment ≤ 25% SP)

TYPES OF INPUT VAT – regular sales and zero-rated sales

1. Transitional – vatable beg inventory of goods and supplies x 2% or actual VAT in BI, w/c higher
 2. Regular (12%)
2.1. Goods – claim in quarter purchased
2.2. Service – quarter paid
2.3. Capital goods (depreciable) – quarter purchased
3. Imputed/presumptive (4%) – SaMaMiCoPaRe (sardines, mackerel, milk, cooking oil, packed noodles,
refined sugar)
4. Amortization of deferred input VAT
5. Input VAT carry-over

CREDITABLE INPUT VAT

1. Input VAT traceable to regular sales
a. Sales to government or GOCCs subject to 5% withholding tax
b. Sales to domestic private buyers
2. Input VAT traceable to export sales that are not claimed as tax credit or tax refund

NON-CREDITABLE INPUT VAT

1. Input VAT on exempt sales (cost/expense)
2. Input VAT on zero-rated sales alternatively claimed through tax refund or tax credit
3. Deferred input VAT, end

TAX CREDIT
1. 5% creditable VAT withheld by the government or GOCCs
2. Advanced VAT paid by owners or sellers of refined sugar, flour, and naturally grown and planted timber
products
3. VAT payments in the case of an amended VAT return
4. Optional monthly VAT payments through BIR form 2550M

KEYWORDS
1. Invoice/billing/payment/collection – VAT inclusive
2. Selling price/purchase price/fair value/advance – VAT exclusive; XPN: SP of RP

PERCENTAGE TAX
1. Specific % tax (60% of 1% to 30%)
2. General % tax (3% of sale or receipt) – XPN: 1% (July 1, 2020 – June 30, 2023)
DST AND EXCISE TAX

DOCUMENTARY STAMP TAX

 What: a tax on the transaction arising from a legal relationship as evidenced by a document
 Type: tax on privilege; arises independently from status of contract/underlying transactions
 When: 10th (5th day per regulation) day following close of the month
 Who: persons executing the transaction
 Where: within the PH
 Effect if not paid: still valid but less effective
a. Can’t register
b. Can’t use in court
c. No jurat

RATES
to government SP / 1K x 15
Sale/conveyance/donation of RP
others SP or FMV ↑ / 1K x 15
Lease of RP first 8K – 6 pesos; for every 1K thereafter – 2 pesos
w/par par / 200 x 2
Original issuance of shares
w/o par consideration / 200 x 2
Stock dividend declaration value presented / 200 x 2
Subsequent sale of domestic w/par par / 200 x 1.5
share w/o par 50% of DST orig issuance
Sale of foreign stock par / 200 x 1.5
Sale of listed stock exempt
Debt instruments face / 200 x 1.5 x (# / 365)
Checks 3 pesos per check
SPA 10 per document
Certificates 30 per certificate

EXCISE TAX
 What: tax on specific goods produced, manufactured, or consumed in PH
 Type: Business tax
 Who: Business
 When: Before removal from production/extraction

Protect Goods
Sin tax Health Alcoholic bev, tobacco products, sweetened bev
Green/quarry tax Environment Petroleum products, minerals
Vanity/sumptuary tax Self against excessiveness Miscellaneous items, non-essential services

TAPMNMS
Excise tax Rate
Tobacco products Specific
(59 per proof liter) + (22% of net retail
Distilled spirits
Alcoholic beverages price)
Wines Specific
 Fermented Liquor Specific
Tuba, basi, tapuy Exempt
Petroleum Gas, kerosene, LPG, etc. Specific
Metallic/non-metallic 4% of actual MV
Indegineous petroleum 6% of actual MV
Minerals
Small scale mines, natural gas Exempt
Coal and coke 150/ton
Non-essential services
Invasive cosmetic procedures 5%
*
Jewelry, perfumes, yacht, toilet water 20% of wholesale price
Automobiles (0 - 600K) 4%
> 600K - 1M 10%
> 1M - 4M 20%
Miscellaneous items
< 4M 50%
Mass transpo, specific utlility, 100%
Exempt
electric
Hybrid 50%
High fructose corn syrup 12
Caloric sweetener 6
Sweetened beverages Coconut sap, steviol glycocide Exempt
Coffee, milk, natural fruit juices, natural
Exempt
vegetable juices, meal replacement

*IS THE SERVICE VATABLE?

 Private practitioner – vatable
 Hospital – exempt
 Excise TB – vat exclusive
 VAT TB – excise inclusive
TAX REMEDIES
REMEDIES OF THE GOVERNMENT
1. Assessment (FAN)
 3 years after the deadline/filing and payment w/c is later
Deadlines:
a. Income tax – 15th day of 4th month EOY
b. CGT – 30 days from date of sale
c. Donor’s tax – 30 days from date of donation
d. Estate tax – 1 year from date of death
e. % tax/VAT – 25 days EOQ
f. DST – 5 days EOM
g. Excise tax –
 10 years from discovery of non-filing/fraudulent return
2. Collection
 3 years from date of FAN (w/ assessment)
a. Summary of remedies
 Levy – real property
 Distraint – personal property
b. Judicial action
 Civil case
 Criminal case
 5 years from deadline/filing w/c is late (w/o assessment)
a. Judicial action only

ASSESSMENT
1. Delinquency assessment
Tax due xx
Tax credit - CWT (xx)
Tax credit - EQTP (xx)
TSD xx
Delinquency surcharge
Willful neglect (50%) xx w/ BIR notice
Simple neglect (25%) xx no notice
Delinquency interest xx tax payable x 12% x (default/365)
Compromise (table) xx
Total delinquency assessment xx

Compromise table
Up to 5K = 1K
>5K - 10K = 3K
>10K - 20K = 5K
>20K - 50K = 10K
>50K - 100K = 15K
>100K - 500K = 20K
>500K - 1M = 30K
>1M - 5M = 40K
>5M = 50K
 2. Deficiency assessment
Tax due per audit xx
Tax due per return (xx)
Deficiency tax xx
Penalty xx
Deficiency interest xx def tax x 12% x (default/365)
Compromise xx
Total deficiency assessment xx

3. Other penalties
3.1. Wrong venue filing – 25% basic tax/TSD
3.2. Fraud penalty (GI ↓ 30% or Ded ↑ 30%) – 50%

REMEDIES OF THE TAXPAYER

1. Disputing an assessment
Notice of discrepancy → Attend discussion of discrepancy → PAN → Written reply (15 days not required)
→ FLD/FAN → Protest (30 days)* →180 days → Inside 180 days there may be BIR adverse decision →
Seek judicial review before CTA (30 days) → SC (15 days)

OR

Notice of discrepancy → Attend discussion of discrepancy → PAN → Written reply (15 days not required)
→ FLD/FAN → Protest (30 days)* →180 days lapse → Petition for review before CTA (30 days) or wait
if there is BIR adverse decision → SC (15 days)

*Protest
 Reconsideration – no new evidence
 Reinvestigation – new facts/documents (w/in + 60 days)

2. Recovery of erroneously paid tax – within 2 years

2.1. File for claims for refund/credit
2.2. BAD → CTA 30 days (must be w/in 2 years) → SC 15 days (can be outside 2 years)
LOCAL AND PREFERENTIAL TAXATION

LOCAL TAX
INTERNAL REVENUE ALLOTMENT
1. Republic of the Philippines – 60%
2. Local Government Unit – 40%
National Government Local Government Unit
FV of property Zonal or FV assessor, w/c ↑ FV assessor only
Timing of taxation Post-activity Pre-activity
Accounting period M, Q, & A Annual - calendar only
Goods - gross sales
Basis of business tax G/S - GSR = GR = collection
Services - gross receipts
Self assessment method No SAM
Tax compliance
Withholding method No withholding

PROVINCIAL TAX
1. Real property tax – accrue on Jan 1; due on March 31
FV x AL = assessed level tax rate (city/MMA – 2%; province – 1%)
Residential Agricultural Commercial Industrial
Land 20% 40% 50% 50%
Improvements Table
Machineries & Equipment Table
Early payment Before Jan 1: 20% discount
Prompt payment Jan 1 - Jan 31: 10% discount
Gov't and school properties, condonation/reduction of
Exceptions
RPT for calamities affecting agri products
P35%, M40%, B25%
RPT distribution
C70%, B30%
**Edit (04/11/24) for machineries and equipment: 40%, 50%, 80%, and 80%
**Prompt payment: January 1 – March 31
**Exempt properties: gov’t properties, REC (doctrine of use), electric/water/utilities district,
cooperative, and pollution equipment
2. Special education fund tax and idle land tax
 SEF - +1% on AV (local school board)
 Idle land tax - +5% on AV
P50%, M50%
SEF distribution
P0%, C100%
 Special assessment
3. Transfer tax
 Sale: FV assessor or SP, w/c ↑
 Donation/succession: FV assessor
 City/MMA – 75% of 1%
 Province – 50% of 1%
 XPN: CARP disposition – exempt
4. Privilege tax (D FAG Prof Prints)
 Delivery van/truck – 500 each/year
  Franchise tax – non-BIR; legislative franchise (telco, electric, internet service provider, mass transport
system)
o City/MMA – 75% of 1%
o Province – 50% of 1%
 Amusement tax – 10%; non-BIR (boxing stadium non pro, cinemas, circus, concert; XPN: traditionals)
 Gravel and sand tax – 10% of the value in the locality; public quarry
 Professional tax – 300 per profession; IBP or PRC; XPN: pure gov’t employee
 Printers and publishers’ business tax
o City/MMA – 75% of 1%
o Province – 50% of 1%
o XPN: TESDA/CHED-prescribed textbooks

MUNICIPAL TAX
1. Community tax – deadline February 28/29
Basic Additional
Individual ≥ 18y/o 5/head 1/1,000 of income (GR) * round down
Corporation 500/corpo 2/5,000 of AV of RPT % GSR of LBT; max 10K
Optional community tax 1
2. Local business tax – deadline January 20
Manufacturers Wholesalers Retailers
Sale of goods tax table tax table 1st 400K: 2% + excess: 1%
Seller of essential comodities 1/2 tax
Exporters 1/2 tax

Sale of services
City/MMA - 75% of 1%
Bank or insurance
Province - 50% of 1%
Job order - tax table
Contractors
Non-professional services - tax table
Others 2%
Peddlers – 50/year

SITUS OF GSR
1. Fixed place of business (sales outlet) – head office and branch
2. Route sales – head office
3. Factory – 70% of HO sales
4. Plantation – 40%

EXEMPT COMMUNITY TAX

1. Diplomats
2. Transient visitors (<3 months)

EXEMPT LBT
1. Petroleum business
2. Transportation
3. PEZA and BOI enterprises
4. BMBE
BARANGAY TAX
1. Tax on small retailers – 1% GS/R
 City ≤ 50K
 Municipality ≤ 30K
 If more than the threshold, city and municipality will tax

CITY – separate from province; higher ≤50% except professional tax (300) and amusement tax (10%)
1. Highly urbanized city (if silent)
2. Independent component city
3. Component city – not independent

PREFERENTIAL TAX
PWD AND SENIOR CITIZENS
1. 20% discount +
2. VAT exemption
2.1. Goods – medical goods, med supplies, and medical equipment
2.2. Services – lodging, restaurant, fare, leisure, medical services, and funeral
3. 5% discount – basic necessities and prime commodities
4. Employers – +SAID
4.1. PWD – +25%
4.2. SC – +15% (Note: PWD and SC must be below the poverty line)

BARANGAY MICRO BUSINESS ENTERPRISE

1. ITH on income from operation
2. Qualifications:
 Non-professionals
 Not connected to big business
 Total asset ≤ 3M excluding land where building is situated
 Has authority to operate as BMBE

DOUBLE TAXATION AGREEMENT (NRANETB & NRFC)

1. Royalty, interest, and dividends
1.1. Certificate of residency
1.2. Withholding agent – apply treaty rate outright
2. Others
2.1. File tax treaty relief application to BIR ITAD
2.2. Confirmation ruling (retroactive)

ECOZONE ENTERPRISES (EXPORT)

1. 5% GIT in lieu of all taxes (limit of 10 years)

BOI ENTERPRISES (OTHER FIELDS)

1. ITH (limit of 4-7 years)

REGISTERED BUSINESS ENTERPRISE

1. Export enterprise – production (≥70% exported) or BPO/IT with foreigner clients
2. Domestic market enterprise
 ITH (4-7 years) Tier 1 Tier 2 Tier 3
Import substituting R&D/Commercialization
activities of new knowledge
NCR 4 5 6
Metro Cebu/Davao 5 6 7
Others 6 7 7
locating in less developed areas +2 years
Bonus year ITH
moving out of NCR + 3 years

EE 10 years of 5% SCIT or enhanced deduction

1st graduation from ITH
DME 5 years of enhanced deduction
SCIT no other tax
Enhanced deduction w/ income tax, business tax, and local tax
2nd graduation normal enterprise

ENHANCED DEDUCTION (NODILAPORE TRAIN RD DEPN)

1. NOLCO for 1st 3 years – 5 years carry over period
2. Domestic inputs (RM) – +50%
3. Domestic labor – +50%
4. Power – +50%
5. Reinvestment of profits – +50%
6. Training of R&F – +100%
7. R&D – +100%
8. Depreciation of building – + 10% & M&E – +20%