TAXATION 1 Transcripts | Atty. KMA | A.Y.

2020 - 2021

MODULE 4 corporate, when the taxpayer is directly or

indirectly a beneficiary under such policy.
As you can see here, we are discussing Discussion: #4 talks about premium paid on any
non-deductible items. Eventually, we will life insurance policy, it can be illustrated as
discuss personal income taxation. Again, non-deductible because it is just a temporary
non-deductible items include (1) Personal living placement of money of the taxpayer on the life
or family expenses; (2) Amount paid for new insurance policy because the beneficiary is also
buildings or permanent improvement, or the spare itself. If the beneficiary of this life
betterment to increase the value of any property insurance policy is a third party, or if the
or estate; (3) Any amount expanded in restoring beneficiary is a heir of the employee, or any
property or in making good the exhaustion person interested in the trade or business carried
thereof for which an allowance is or has been on by the taxpayer, then that would be
made; or (4) Premium paid on any life insurance considered as deduction.
policy covering the life of any officer or employee
or of any person financially interested in any (5) Losses from sales or exchanges of property
trade or business carried on by the taxpayer, directly or indirectly.
individual or corporate, when the taxpayer is Exceptions:
directly or indirectly a beneficiary under such 1. Between members of a family (brother, sister
policy. (5) Losses from sales or exchanges of of half or full blood, spouse, ascendants, lineal
property directly or indirectly. descendants)
2. Except in case of distributions in liquidation
(1) Personal living or family expenses; between an individual and a corporation – more
Discussion: This is non-deductible because this than 50% in value of the outstanding stock of
has nothing to do with your trade or business which is owned directly, by or for such an
income. In personal income taxation, the first individual
P250,000 of the compensation is subject to 0% 3. Except in case of distributions in liquidation,
tax. That alone compensates the personal living between 2 corporations – more than 50% in value
or family expenses. of the outstanding stock of each of which is
owned, directly or indirectly, by or for same
(2) Amount paid for new buildings or permanent individual, if either one of such corporation is a
improvement, or betterment to increase the value personal holding company or a foreign personal
of any property or estate; (3) Any amount holding company
expanded in restoring property or in making good 4. Between the grantor and a fiduciary of any trust
the exhaustion thereof for which an allowance is Discussion: These are non-deductible primarily
or has been made; because it pertains to entities who have the
Discussion: #2 and #3 are non-deductible items capacity to influence pricing. The lawmakers
because these consider capital expenses. When made interpretation not an arms-length
it comes to deduction, what is allowed is a transaction. If you look at the enumeration, it
deduction on business expenses. If you look at includes between members of a family or
#2, it refers to construction or improvement or between a corporation and an individual, where
betterment. Its capital because it increases the that individual owns more than 50% of the stock
life of the asset or the useful life of the asset to of the corporation. Basically, it has a controlling
the property exceeds more than one year. Being interest in the corporation or between two
a capital asset, it has to be recorded first as a corporations that have a common shareholder or
property, and then staggered on a yearly basis interlocking shareholder owning more than 50%.
that will recognize depreciation. Same thing for Meaning, the same shareholder owns more than
#3 because it is a capital expense because these 50% in both corporate entities and he has
pertains to major repairs, as compared to minor controlling interest in both corporations. He has a
repairs which are deductible right then and there. say when it comes to pricing, so it is not
considered an arms-length transaction.
(4) Premium paid on any life insurance policy
covering the life of any officer or employee or of Take note, however, for the Exceptions #2 and
any person financially interested in any trade or #3, even if there is a law, it is still considered a
business carried on by the taxpayer, individual or deductible if it is pursuant to liquidation
proceedings prior to dissolution.

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TAXATION 1 Transcripts | Atty. KMA | A.Y. 2020 - 2021

- Citizen of the Phils having permanent

Exception #4 pertains between the grantor and home or place of abode in the Phils
a fiduciary of any trust, and again, it is - Kung muingon ka na Citizen, you have to
non-deductible, because there is no transfer of recap the definition of Filipino Citizen
ownership here. Fiduciary is just an administrator under the Consti. (naturalized person,
of the trust. Later on, we will discuss what this one whose mother or father is a filipino or
trust is all about and we will compare trust and those born on the old consti, elects to
estate. have filipino citizenship, )
- When we talk of residency, we are
Exception #5 is between a fiduciary of a trust, referring to the place or abode of the
and it is non-deductible because the fiduciary is filipino citizen. Dili kinahanglan nagpuyo
not the owner of the trust, only an administrator. gyud siya the entire year in the Phils.
The trust belongs to the same grantor but the Even if he or she is absent for business
transfer happens only among administrators, or pleasure, the citizen has the intention
they are not owners. The law says they cannot to return to the Phils, then he can still be
claim it as deduction. considered as a Resident Citizen.

Exception #6 is between a fiduciary and a Issues under RC:

beneficiary because the owners have the same 1. what if dual citizen si taxpayer?
reason, the fiduciary is just an administrator and
not an owner of the trust. If there is a loss when For Philippine Taxation, we look at only the
they transfer it to the beneficiary, it is Filipino Citizenship. So even if naa na shay
non-deductible. If there is a loss that can be foreign passport, but so long as he has filipino
deducted in this case, it would come from the citizenship, he is still registered in the Phils as a
transfer from the grantor to the beneficiary filipino citizen residing here then we classify
because in a trust, there can be some conditions him/her as a resident citizen.
that would have to be met by the beneficiary.
That presupposes that the grantor is not the 2. Assignment/secondment abroad of a
beneficiary because sometimes the trustor is also filipino citizen
the beneficiary. Trustor is at the same time the Its common man among multinational
beneficiary, then the loss there becomes a companies. Si multinational company, naa siyay
deductible loss. performing maayo empleyado and gipadala niya
sa branch niya somewhere else, but the term of
We move on to taxable individuals. This is more employment is secondment. SO when we say
important. First, please look at your outline. It has secondment, it means to say that employed
6 taxable individuals, resident citizen, gihapon si employee sa Phil Company, its just
non-resident citizen, resident alien, non-resident that temporarily assigned siya outside of the Phils.
alien, special employees, estates & trust. Common example is Lexmark, or this BPO
Companies. They have sister companies abroad.
Naa nja silay ipadala nga Pinor didto and mu
For special employees, we will not anymore work for example for 1 year or 2 years. So the
discuss on that because we will discuss later on thing now is, later on inig discuss nato sa NRC,
under the TRAIN LAW, the special treatment of you will learn there that if a Filipino works abroad
these employees are already been removed. for more than 183 days, taht Pinoy could be
considered na as NRC.
They are so called special employees because
they are employed in a so called “special However, when it comes to assignment or
corporation”. They are called special because secondment abroad, it is ruled by the BIR and
they have a preferential low rate as compared to even by the Tax Court, that, that citizen is still
the regular employees but then again this was considered as RC. I will discuss later on why.
amended under the TRAIN Law and will further Why do we need to know the classification of an
be amended. individual whether as RC or NRC, RA or NRA?
- Primarily for us to determine whether the
We will focus on the first 5 . income is taxable here in the Phils or
We have the Resident Citizen (RC) taxable within and without or ang net

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TAXATION 1 Transcripts | Atty. KMA | A.Y. 2020 - 2021

income ba lang niya ang i-subject to tax permanent employment, this is

or ang gross income. Mao na its very not just a mere contractual of 1
important for us to classify properly. year or 2 years, so you really
process your visa abroad,
Aside from RC, we discussed man before that an working visa or you married
RC is taxable for income within and without. somebody abroad, you intend to
reside abroad then you fall under
The other one is the NOn Resident Citizen (NRC) number 2 as permanent
- This is taxable only for the income employee.
earned within the Phils
- However, ang similarity nila is, si RC, In number three, usual cases, diri ma complicate
taxed in net income. Si NRC, is also kung NRC ka or RC. Because if you look at
taxed in net income but only for income number 3:
earned within the Phils. Dire ang
technicalities sa NRC because it is 3. A citizen of the Philippines who works and
defined specifically under the tax code derives income from abroad and whose
on the definition that is a bit complicated. employment thereat requires him to be
physically present abroad most of the time
There are basically 4 instances when a citizen during the taxable year.
can be considered as NRC:
Most of time - quantified into more than 183
1. A citizen who establishes in the days.
satisfaction of his commissioner the fact
of his physical presence abroad with a However for no. 3, you don't just look at for the
definite intention to reside therein. number of days nagstay siya abroad. That 183
- If you look at number 1, this has days is aggregate, it need not be consecutive but
nothing to do with work aggregate in one taxable year.
assignment. Rather this is an
intention to transfer residence TAKE NOTE: Individual taxpayer - Calendar
abroad. TN: ang gi transfer lang year it begins January 1 and ends to December
is ang residence not the 31.
nationality. Definite intention to
reside aborad is more like an Just look at the passport of that citizen and add
immigrant. Mu migrate abroad all his travels abroad during that particulr year
but the filipino retains his filipino and if it exceeds 183 days, then sulod na siya sa
citizenship. requirement "most of the time" during the taxable
- Ofc, there are formalities man on year. However, that was not the sole criteria, it
that when you’re going to also indicates employment thereat.
migrate abroad. That alone are
the requirements to establish to Criteria:
the satisfaction of the 1. Employed abroad
commissioner that you have the 2. Requires him to be physically present abroad
intention to reside abroad. most of the time during the taxable year or more
- If you earn income abroad, then than 183 days
as an NRC, it will not be
subjected to tax here in the Phils. If you are a Filipino citizen and you are being sent
abroad on an assignment good for 1 year but the
2. A citizen of the Philippines who leaves one paying your salary is still a Philippine
the Philippines during the taxable year to company. Based on employer-employee
reside abroad, either as an immigrant or relationships, you are employed by the Philippine
for employment on a permanent basis. company. Interpretation there is you are still a
resident citizen not nonresident citizen even if
- This now talks permanent you stayed abroad most of time during the
employment. When we talk on taxable year. Because you are not employed

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TAXATION 1 Transcripts | Atty. KMA | A.Y. 2020 - 2021

abroad, this is important, ang employment nimo

during a taxable year. Student: But what if the employer is local but it's
a foreign corporation?
In one case, it even involved a Filipino, employed
by a Philippine government worked sa ASEAN Atty: Let's say for example that foreign
and office niya was abroad but his salary is being corporation has a branch here in the Philippines,
paid by the Philippine government. There was a amuna nga situation?
question whether he is RC or NRC. Then the
interpretation of the Bureau, the citizen is still RC. Student: Yes, atty.
The consequence is sweldo niya gikan sa
Pilipinas, but if for example naa siya extra income Atty: So ginpadala siya sang head office abroad.
abroad, technically, that is still taxable in the Same rule basically, if that EE stll appears in the
Philippines. Alpha list of the branch here, pwede gihapon ma
interpret that he’s being employed locally; rather
Student: Ang gimention mo atty, na extra income than being employed by the foreign entity. If
abroad bisan sideline lang siya? you’re being employed abroad already, you
should not appear in the Alphalist of your local
Atty: Yes. Technically and theoretically, that is ER registered here for you to be considered as
taxable because his classification is a resident NRC.
citizen because his employer is Philippine.
REMEMBER:
For you to become noresident citizen na taxable Par. 1 need not require employment. Ganahan
lang for income earned within dapat you must be lang gyud ka mo transfer ug residence abroad.
employed abroad by a foreign employer and you
are physically present abroad more than 183 Par. 2 employment on a permanent basis not
days or most of the time during a taxable year. contractual, w/c necessitates transfer ka sa
abroad.
Student: Atty, is it more than 183 days or at least So, 1 and 2 you’re retaining your citizenship.
183 days?
Par. 3 employment abroad, contractual AND
Atty: Sorry. At least 183 days. stayed abroad 183 days or more during the
calendar/taxable year.
Student: 183 days ba counted ang trainings?
Par. 4 usually bar q fave. A hybrid definition of a
Atty: Yes, technically. Supposedly, if you are NRC to cater contractual OFWs. IT refers to a
already employed abroad and earning citizen who has been previously considered as
compensation. Counted na siya. NRC and who arrives in the PH at any time during
the taxable yr to reside permanently in the PH
Student: Kani 183 days, this refers to working shall likewise be treated as a NRC for the taxable
days or calendar days lang? yr in w/c he arrives in the PH w/ respect to his
income derived from sources abroad until the
Atty: It refers to calendar days. date of his arrival in the PH.

By the way, at least 183 days or more. This is basically related to no. 3. In essence, this
pertains more to OVERSEAS CONTRACT
Student: Assignment abroad paid by local WORKERS who expected to have long contract
employment at least 183 days or more, still employment abroad pero na cut short for
resident citizen? whatsoever reason (ex.: nag abroad w/ the
understanding for 2yrs and then gi repat due to
Atty: Yes. Even if more than 183 days, still COVID and wala paka nag more than 6mos
considered a resident citizen. Because dili niya abroad)
ma meet ang requirement na the citizen must be
employed abroad because ang employer niya is 2019 - ni larga ka.
still the Philippine employer. Feb 2020 - came home to PH

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TAXATION 1 Transcripts | Atty. KMA | A.Y. 2020 - 2021

Majority of the days for the taxable yr 2020 kay

nag stay ka sa PH. If this provision does not
exists, your classification will be RC as you’ll not
fall either 1,2 or 3. Thing is, possible that you’ve What if more than 183
received salary in months of January and Feb days in the
abroad. ka y RC man ka and if wala si no. 4, Philippines?
supposedly ma subject to tax sa PH ang income
earned abroad in mos. of Jan and Feb. That’s not 2020
attractive to OFWs to encourage them to return.
Dili nalang sila mo return early part of the yr if Jan 1 ßà May 30 ßà
ever. That’s why we have this no. 4. December 31

Example: Witho
ut
YEAR 2018 Within

Jan. 1 - Aug.1 naa paka diri Pinas.

Aug 1 - Dec 31 nag Dubai ka. Home
What’s your classification in 2018? So you’re coming
classified as RC kay Aug. 1 naman ka nigawas
for employment purposes. Basically you stayed
here in the PH around 7 mos.

YEAR 2019 What if earlier ka nipauli? What if instead of

coming home July 30, you went back May 30. So,
Jan 1 - Dec 31 you’re in Dubai. So classified as if you look at it, 5 months ka didto sa Dubai, but
NRC. Only those income you earned within the from May 30 to December 31, naa ka sa Pilipinas
PH will be subject to tax. If wala, way problema and you’re staying permanently.
kay what you earn outside is not taxable man
being a NRC. Definitely di na ka mufall sa number 3. Because
di naman ma meet ang requirement na employed
Remember the 4 types of NRC. If you look @ for at least 183 or more abroad. So, if wala si
2019, you’re more of a NRC type no. 3 - staying Number 4 classification of non-resident citizen,
abroad more than 183 days, contractual. and mahitabo by 2020, your classification will
become RC (Resident Citizen). So, what’s the
YEAR 2020 consequence if ma-RC ka? If wala tung
classification sa number 4, you shall declare your
Jan 1 - Jul 30 Dubai paka. salaries earned abroad. Alkansi ka. Kay ngaman?
Jul 30 - Dec 31 balik ka Pinas. Kay gi-declare nimo imo salary from January to
May 30 abroad, taxable naman ka within and
7 mos stayed abroad or 183 days more outside without.
the country. July to Dec. diri ka sa Pinas. So, for
2020, your classification will be non-resident Meaning, kung ako OFW and wala na ang
citizen gyapon, falling under number 3. Because high-breed definition ni NIRC under number 4, di
more than 183 days or at least 183 days that you gyud ko muoli. Siguraduhon jud nako na at least
were in Dubai. 183 days, I’ve stayed abroad, which is impractical.
Because there are so many occasions from
January to May 30 – fiesta , valentine’s – you
have to go home.

So, diri musulod and definition or classification ni

number 4. If you look at that classification, in this
case, you are a returning non-resident citizen –
why returning non-resident citizen? Because,

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TAXATION 1 Transcripts | Atty. KMA | A.Y. 2020 - 2021

remember, the entire year 2019 you were in So, again, you must be a returning NRC. Let’s
Dubai. So, 2019 your classification is say for example, 2018 ang classification RC, what
non-resident citizen. And since you are a if niuli ka magka 2019 – May 30 2019. What will be
returning non-resident citizen on May 30 with your classification for 2019? It would be Resident
intent to permanently reside here in the Citizen. Because di ka mufall under number 4.
Philippines, at least during the taxable year na Why? Because if niuli ka 2019, then you are not a
wala pa kay kontrata pagawas, unsa mahitabo? returning non-resident citizen, but rather, a
The income earned outside, you are deemed as returning resident citizen. So, mu-continue ang
non-resident citizen. Meaning, your income prior classification nimo as resident citizen.
to your income to the PH, you are classified as
NRC, so, your income earned abroad (Jan-May Question: Is this because wala ka niabot ng
30) will not be subjected to tax; only those income 183 sa 2019?
earned within the PH will be taxable.
Atty: Yes! Because wala ka niabot ug 183 days
However, mao na niiingon ta ug high-breed, sa 2019.
because for the rest of the year (June 1-
December 31), your classification would now be a Example: Niuli ka March 30 2019. So, basically,
resident citizen. So, kung naa kay income earned for the entire year 2019, your classification is RC.
on June 1 to December 31 within and without, it is Because di ka mu fall under number 1, 2 or 3 type
now taxable. of NRC because di man ka kung 183 days ug di
pud ka sa number 4 cause you are not a returning
Balikan nato ang definition para maklaro: non-resident citizen.

1. You must be previously considered as Clarification/Question: if returning

non-resident citizen non-resident citizen, then pagka-2020 kay
more than 183 days siya abroad but decided
2. Arrives anytime in the Philippines at to permanently stay in the Philippines, any
any time during the taxable year income derived abroad from the date of his
arrival is non-taxable, Atty? is he still
3. Intent to reside permanently classified as non-resident citizen?

4. Treated as a non-resident citizen for Atty: yes, for the whole taxable year because
the taxable year in which he arrives in the when he went to the Philippines, his stay in the
PH with respect to his income derived other country is more than 183 days. So, it falls
from sources abroad until the date of his under number three.
arrival in the PH.
Student: uh, is it regardless of the intention to
So, mao na na high-breed. Because if you arrived stay permanently in the Philippines, Atty?
in May 30, your income from Jan – May 30, NRC
ang classification nimo. So, only income within Atty: well, the intention will always matter but
ang taxable. But, the income earned from June 1, nonetheless, for example you are the taxpayer
after May 30, to December 31, because tan-awon and you went home to the Philippines August, so,
raman nato per calendar year basis individual. So, more that 183 days you’re abroad. What is
if naa pa kay income ma earn during that favorable to you is non resident citizen number 3,
calendar period, then, taxable na diri sa Pilipinas. rather than classification non resident citizen
number 4. Why? Because in number 3, you will
Question: Mu-apply ba gyapon na if 2019 be classified as non-resident citizen or the entire
non-resident citizen ka, then Jan 1 2020, year (from January to December 31). Why?
niabot ka sa Pilipinas. Because you exceeded the 183 days—meaning,
you’ve stayed abroad at least 183 days. So,
Atty: If Jan 1 2020 ka ni-arrive, then you are number 3 is favorable than number 4 because
only considered as NRC for January 1, 2020 what happens in number 4 is that if you follow the
income nimo. But, for January 2 to December classification, we are only non-resident citizen
31, you’re now considered as RC. from the time you are abroad until such time that

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TAXATION 1 Transcripts | Atty. KMA | A.Y. 2020 - 2021

you return to the Philippines. The remaining time, Atty: Yes, even if different employers, so long as
you are already a resident citizen. So, in this it is pursuant to employment, if we are talking
situation, you went home to the Philippine July 30, about number 3 pursuant *inaudible*. By the way
you are a non-resident citizen the entire year BIR is strict about this because that interpretation
because at least 183 days, you were staying actually came up around 2011, during the time of
abroad. Henares. They are strict about this not only to
focus on the number of days but one must also
Number 4 applies only if the situation is the be employed because that’s what the law said,
opposite—you are staying more than 183 days in “employment thereat”. Because before, they
the Philippines. In such a case, you are a can get away with it because example for 30 days
non-resident citizen so far as your income from tourist visa abroad, they have business or they
January 1 to May 30. But your income from June have sideline abroad, balik sa Pilipinas, larga na
1 to December 31, you are already considered a sad. You can do it man diba? Balik2x lang ka
resident citizen because you already have an didto as tourist but you are generating income
intention to reside permanently from May 30 up to there. You are doing business ilegally kumbaga.
December 31, at least. Unya mo depensa dayon "More than 183 days
man ko abroad so I am a non-resident citizen."
Student: is it okay, Atty, to make another scenario? That cannot be done. You are still considered
For example, if you are in and out of the country NRC or non-resident citizen because you are not
(uli uli), will it not be considered as disturbance in employed.
your 183 days?
Student: If ang employment niya abroad ni end
Atty: no, because the counting of the 183 days is na before 183 days but ni stay gihapon siya sa
aggregate. BIR will count whether you’ve abroad nya nilapas na ug 183 days before siya ni
reached 183 days of stay abroad and if it is the return sa Philippines, classified gihapon as NRC
opposite—you’ve stayed in the Philippines more for the whole taxable year?
than 183 days you can be included under
category number 4. By the way, to be clear, this Atty. KMA: If ni end ang employment niya prior to
classification for non-resident citizen, this applies the lapse of the 183 days, you have to check if
to contractual employment abroad. So, when we nag earn pa ba gihapon siya ug income or wala
talk of contractual employment abroad, we are because insofar as the viewpoint of the BIR is
referring to a situation where the filipino concerned, dapat magkuyug ang employment
contractual worker goes through the normal and the period of 183 days. So even if you stayed
employment overseas process and not with TNT. abroad for more than 183 days but you are not
If you are under the TNT situation, you don’t fall anymore employed, if ako si BIR, pwede ko mo
under the category of any non-resident citizen argue that you are a resident citizen and that you
because you are not formally employed abroad. do not qualify under the definition of NRC so you
Remember, you must be: 1) you migrated, you taxable for your income earned within and
must have proper working visa there also. So, if without. But practically, how will the BIR prove
you are just TNT, in so far as Philippine that? So it's a question na karon of administration.
Government is concerned, your government Kay diba ang employer biya nimo abroad, di biya
classification will still be resident citizen. na naga-report sa BIR. But kung gukoron gyud ka,
the BIR can basically request for information on
Student: is 183 days aggregate, Atty? Does it the taxing authority abroad (if the BIR really
have to be continuous? wants to prove that you are a RC but you are
employed for less than 183 days abroad). But
Atty: yes, aggregate. It need not be continuous. technically, para ma NRC, kailangan magkuyug
So, you add basically the total. If it reaches 183 toh employment + most of the time (183 days or
abroad, then you can be classified as more). Did I answer you question, Madame?
non-resident citizen number 3.
Student: Yes, Atty. Thank you.
Student: Atty, even are ifferent employers within
the 183 days aggregate? Student: Ako, Atty. Naa ko'y another question.
Medyo similar sa previous scenario pero bali siya.

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TAXATION 1 Transcripts | Atty. KMA | A.Y. 2020 - 2021

Let's say naa kay contrata for 250 days. Lock in uli man ka sa Pilipinas prior to the 183 days. So if
contract and more than 183 days. On the 160th I am BIR, I would say you are a RC.
day, due to certain circumstances beyond your
control, nag close ang companya nga imong Student: Thank you, Atty.
gitrabaho-an sa gawas pero gibayran gihapon ka
sa imong tibuok na 250 days. And on the 170th NOTE: Do not use shortcuts or acronyms
day, ni uli na ka. NRC gihapon ka? during exams. If you do so, make sure you
spell out in the first sentence (open close
Atty. KMA: Kung ako si BIR, RC na ka. Nganu parenthesis).
man? Because if ako si BIR, I will say that you are
not physically present. Because diba, remember Moving forward, we have Resident Alien (RA). So
the requirement - employment thereat requires again, a RA is not a citizen of the Philippines.
him to be physically present abroad most of the Meaning alien or foreigner but whose residence
time during the taxable year. So kung ingon ana is within the Philippines.
na situation, mas malipay ko kung gibayran ko
good for 250 days pero good for 160 or 170 days This is defined also in regulations issued by the
ra gyud. Pero you are considered RC because ni BIR, as a foreigner who lives in the Philippines
uli man ka. with no definite intention as to length of stay, but
who is not a mere sojourner or transient.
Student: Kung wa ko ni uli, Atty.?
- Not a mere sojourner or transient: came
Atty. KMA: Pwede ka ma NRC pero kung i-prove to the Philippines not pursuant to a tourist visa
gyud ni BIR, adto na sad siya mo igo nga dili ka but pursuant to some other types of visa
employed most of the time during the year. So
mao na to kaganina nga it's up to the BIR to look - Tourist Visa: usual entry visa required of
for evidence. Like mangayo ba siya sa taxing foreigners
authority abroad nga kutob ra gyud ang
employment nimo on the 160th/170th day. But - But not all foreign nationals require visa
then again, it's a question on implementation. because some of them can go in and out of the
Kay kung wa ka ni uli, lisod pag probar sa BIR Philippines whenever they want. This is where
kay wa man ta'y filing diri sa Pilipinas. Okay? the complication enters – whether these foreign
nationals are resident aliens or non-resident
Student: Sige, Atty. Thank you, Atty. You're the aliens. So, there is a need to look at the intention
best! of that foreign national.

Atty. KMA: Any question before I move on? Intention of a resident alien: to reside and stay in
the Philippines
Student: So Atty., therefore, in analyzing number
3, contract prevails over the physical/actual - Intention is a state of the mind.
physical presence? IOW, if the employment
contract requires you to be physically present for - In cases resolved by the CTA and SC,
more than 183 days but actually you were not the courts have to resort to this so called
physically present, what prevails - is it the manifestations for an alien to be configured as a
contract or the physical presence? resident alien or non-resident alien.

Atty. KMA: If the contract requires you to be - Question: Why do we have to know the
physically present supposedly but you are not difference between a resident alien and a
actually physically present abroad because na non-resident alien?
cut short ang contract nimo, then I should go to
your presence abroad. Ang question is - were o In order to know the taxability of their
you present pursuant to your contract or not? income and their tax base.
Bottom line, kung maputol ang contract then you
do not meet the requirement under number 3 o For taxability of income, they are just the
because you were not present abroad because ni same. Resident alien and non-resident alien are

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only taxed for the income earned within the non-resident alien engaged in trade or
Philippines. business
- Marriage visa: alien is now tagged as a
o However, their tax base are different resident alien
because there are some methods of deductions
that can be claimed by a resident alien but not a Non-Resident Alien
non-resident alien, or vice-versa.
Definition
o Tax base
- not a citizen and not a resident of the
for resident alien = net income for income Philippines
earned within the Philippines
Classification
for non-resident alien not engaged in
trade or business = gross income 1. Non-resident Alien Engaged in Trade or
Business (NRA-ETB) - Comes to the
o A resident alien is required to file his tax Philippines for a definite purpose or who
return, otherwise, failure to do so would mean has stayed for an aggregate period of
that he can be assessed by the BIR more than 180 days
a. Definite purpose: a foreigner
o They also have different tax rates. was sent to the Philippines as an
EXPAT to work in a local
o In terms of tax treaties, it will be easier for company
a non-resident alien to avail of tax exemptions b. If there is no definite purpose,
compared to a resident alien. that is when we look at the
number of days that an alien
This is the reason why foreigners are stayed in the Philippines.
careful so as not to be tagged as resident aliens. 2. Non-resident Alien Not Engaged in
For instance, in acquiring properties in the Trade or Business (NRA-NETB)- On
Philippines, these foreigners do not acquire such temporary visitors/tourist visa
properties under their name but rather acquire it
under the name of their company and the You have a working visa good for one year or
company will just assign such property to them good for two years as the case may be. Your
while they are still connected with the company. If classification is NRA-ETB.
there is no ownership of property in the
Philippines, the alien can be classified as a Sir, what if walay purpose? Dili employed etc.
non-resident alien engaged in trade or business. That’s when we go to the number of days pila
ka days siya nagstay sa Philippines. Is it more
Manifestations (that a foreigner is a resident than 180 days? Take note, aggregate period
alien): gihapon siya. Even if not employed, not doing
business whatsoever in the Philippines, visa lang
1. Investment in Philippines gihapon pero ga balik balik kay ma renew
manang tourist visa usually 90 days, lupad lag
2. Acquisition of properties kadyot nya uli nya balik tourist visa na sad so
kung tan awon nimo ang passport, more than 180
- Example: a foreigner buying days na gyud. In such case, the classification
condominium as residence would still be non-resident alien engaged in
trade or business or NRA-ETB. Mao na nga
3. Marries a Filipino/a and changes his visa ang tendency kung kaduha or katulo na mobalik
si afam sa Philippines using tourist visa pangutan
- Tourist visa: no intention to reside in the on na na siya sa immigration, “is this for leisure or
Philippines is this for business?” kay pwede man ka tourist
- Business visa: with intention to engage in visa for business purposes like nangita lang kag
business in the Philippines as a potential business partners sa Philippines or

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suppliers sa Philippines. You usually come and Q: Is there a reason why the NRA-ETB is only
go for a short span of time, in such case, your 180 days while the NRC is 183 days? Is there
classification would be NRA-ETB. something that we should take note?

If you earn income here in the Philippines, Atty: There’s really no definite reason ngano
then you are subject to tax here in the PH based 183 or 180 but if you look at the logic lang
on your net income. siguro, making it 180 for an alien to be
considered…kuan man gud ni, if you look at it
If your classification is NRA not engaged in the NIRC, this was based by the 1997 at the
trade or business, or NRA-NETB, mao ni ang height of Asian Financial Crisis ba, ubos gyud
katong basic temporary visitors or tourist visa kaayo ang foreign reserves nato. So, during
for leisure purposes, and ang stay sa Pilipinas that time, we really wanted to have inflows of
will not exceed 180 days. foreign currencies in the PH which is why if
you look at it, in NRA-ETB mas lower ang
NRA-ETB - the BIR do not expect you to earn days niya 180 strictly for him to be considered
income here in the PH but if you earn income taxable immediately sa Pilipinas nga required
then still subject to tax. Ang usual method lang of na gyud to file tax return. On the side of
collecting income earned by NRA-NETB is Filipino citizens, if you look at it, at least
through the so called financial withholding and if there’s a difference of 3 days at least 183 days
you are NRA-NETB, you are not allowed to make for the citizens to be considered non resident
any deduction on your income rather you are citizen kay ngano man? Because in such case,
subject to tax on your gross income which is at mas favorable man on the side of the PH if the
the rate of 25%. Gross income basically at the Filipino is considered resident citizen rather
rate of 25%. than NRC so mao na nga if you look at it mas
dugay si Filipino citizen nga non resident
If you are NRA-ETB, that’s based on your net kaysa kang alien ma consider nga engaged in
income still at the normal graduated rate of 0-25%, trade or business. It’s really more on the
but there is just a variation here in riving at the interest but when you talk of formal reason
figure of your net income kay kung NRA ka diba gyud which is settled in Jurisprudence, wala.
to get the net income that’s basically your gross So they just use at least 183 and more than
receipts or gross sales minus the deductions and 180.
when we talk of deductions, there are two types
of deduction: 1) Itemized; 2) OSD. The difference
is if you are NRA-ETB, you are not allowed to
claim or use the OSD. The only method of NOTE: It’s more on the interest. But when you
deduction that you can claim is itemized talk of formal reason, those which are settled in
deduction. However, if you are a RA, of course it jurisprudence, there is none. What is just being
is still based on the net income at 0-35% same used is 183 days OR more. On the other hand,
with NRC, for the income earn within, you can more than 180 days is used in the NRA-ETB. <-
claim deductions incurred also within the PH DO NOT INTERCHANGE THIS.
using method either itemized or OSD or Optional
Standard Deduction. NOTE: In NRA-ETB, before looking at the
number of days, look first if there is a definite
So kung tan awon ninyo when it comes to the purpose in coming to the Philippines.
number of days, this is very crucial. Resident
citizen, walay number of days tan awon. But non EXAMPLE: Purpose -> Contractual Employment
resident citizen, take note of the 4 types of NRC = Definite Purpose
and take note of most of the time which equals to
at least 183 days or more. RA, wala definite EXAMPLE: Original contract of employment is for
number of days because it has intent to reside in 1 year only, but then the contract was cut short to
the PH. But NRA-ETB, you have another number 5 months. Still, the classification of the
of days nga tan awon, aggregate period gihapon foreigner is NRA-ETB. This is because when
during the calendar year more than 180 days dili the foreigner came to the Philippines, it was for a
na 183 days. definite purpose - employment purposes.

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CLARIFICATORY QUESTION (raised by a

NOTE: But if the purpose of the foreigner in
student): With regards to NRA-ETB, would it
coming to the Philippines is not clear, that is
only fall under the definition “more than 180
when the counting of the number of days that the
days”, and not “180 days exactly”? So to
foreigner is staying in the Philippines is resorted
speak, on the 180th day, the foreigner is not yet
(more than 180 days).
classified as a NRA-ETB?

WITH A DEFINITE PURPOSE IS NOT ATTY. KMA: Yes and yes. So, when it says
PURPOSE CLEAR “more than 180 days”, that is basically 181 days
AND/OR more.
Classification is Count the number of
automatically days the foreigner is
NRA-ETB. staying in the
Philippines. ESTATES AND TRUST

ESTATE TRUST
CLARIFICATORY QUESTION (raised by a
student): In the manifestation of investments, is refers to the mass of a right to the property,
this strictly equity investments or are debts properties left by a whether real or
included? *inaudible* I’m confused because it deceased person. personal, held by one
talked about officers. person for the benefit
of another.
ATTY. KMA: Not necessarily. In general, what
is included are investments. But according to TAXABLE ENTITIES TAXABLE ENTITIES
the example I presented, in the Philippines, the OF AN ESTATE OF A TRUST
ruling is more on equity investments -
Investment in a Corporation which is not Rules on Taxability When Trusts are
listed and not traded in the stocks of Estate Taxable Entities
exchange.
An estate under A trust, the income of
WHY? administration or which is to be
Because, investments in the Philippine judicial settlement is a accumulated.
Stocks Exchange (PSE) doesn’t necessarily taxable entity.
make an alien a resident alien. (Common where the A trust in which the
deceased died with a fiduciary may, at his
ILLUSTRATION (previously cited by Atty. will) discretion, either
KMA): An alien made investments in a distribute accumulate
company not listed and not traded in the stocks An estate, the the income.
exchange. The business herein was a settlement of which is
manufacturing business. Additionally, the not the object of
foreigner was elected as an officer of the judicial testamentary
company. Thus, the BIR ruled that the or intestate
foreigner is by all means considered as a proceedings is not a
resident alien. Because an officer is taxable entity.
expected to run the day to day operations (Extrajudicial
of the company. settlement) The
income thereof is
NOTE: Re: Investments in the Philippines in taxable directly to the
relation to the above mentioned illustration. It heir or beneficiary.
is a different story if the investment was
made in a BPO company. What is subject to income tax are (1) the
income earned by the estate and (2) the

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income earned by the trust, NOT the estate

What if kani nga situation not a taxable entity?
itself and NOT the trust itself.
Kani kung nay extrajudicial settlement class
ang subject to tax, basically are the heirs,
EXAMPLE: The
because in this case the heirs are considered
decedent died. The
as co-owners, ma-trace naman ni because in
properties left by the
the extrajudicial settlement, they will specify
decedent are parcels
naman to whom this particual property will go to.
of land, buildings, etc.
Let’s say for example: that the property in colon
These buildings are
will go to heir #3 and responsible na, insofar as to
being rented out.
filings and payments taxes on that particular
Thus, the rents are
building will now be on Heir 3 that on estate.
considered taxable
income.
For trust it is defined as a right to the property
where the real or personal held by one person
for the benefit of another. So mao ni akong
Ang focus lng nato karon is the estate under gi-ingon na there is the trustor , there is the
administration or judicial settlement, nganu fiduciary or the administrator and the beneficiary
maconsider man siya as a taxable entity because so basically in a trust agreement or trustor is
the judicial process or the administration process telling the fiduciary to improve something para
could sometime, before it is distributed to the ma-improve and trust niya or para mas mokita
heirs, especially if there is a will, there could be ang trust niya kay because ang beneficiary is an
conditions involve, e-prove pana nga kani nga expert or knowledgeable in running that trust.
handwriting is the handwriting of the testator. But (Discussing about Netflix series)
during this time, the estate is earning income na,
so nay taxable entity, wala pmn na gi-distribute, Kanus-a ma-consider nga taxable entity si trust ?
so ang taxable entity mismi is the estate itself. Trust the income of which is to be accumulated,
considered taxable entity ang trust mismo kung
Kinsa ang mopa-register? Kinsa ang mo-remit sa gibalik ang income sa trust and gi-reinvest.
taxes? It is the administrator or the executor Another is, if a trust, the fiduciary by his discretion
of the estate. If under administration or judicial either distribute or accumulate the income. So in
settlement, as a rule is subject to income tax to such case, kung ang term sa trust nimo is, all the
an individual on the undistributed estate income, income, profit earned goes back to the trust, then
because of course, if the undistributed income is the trust itself is considered as a taxable entity,
distributed to the Heirs then, non-taxable na ang but if the term of the agreement is, you’re giving
heirs mismo. So ang pasabot ani, ang estate the fiduciary a freehand/handle the profit or
income nibalik or gi-keep or gi-retain lang sa income then the taxable entity, in such case,
estate so it has to be declared by the estate. would be the fiduciary (it is the fiduciary is
primarily responsible in filing and paying the
So, unsa d-ay ang mahitabi if mamatay ang trust).
individual? If an individual mamatay man gud Irrevocable v. Revocable
class, remember kung taxpayer ka naa kay TIN,
once an individual dies that TIN also dies Mo matter man if the trust is irrevocable or if the
together with the individual. If regular ga-earn ug trust is revocable. If trust is irrevocable basically
income ang estate, and then wala nagkasinabot the trust is a taxable entity, however, if the trust is
ang mga Heirs, they cannot execute an revocable then is such case it is the fiduciary is
extrajudicial settlement, they resorted to court, the one who is primarily responsible for the tax
nag earn mana ug income, monthly, let’s say for liability.
example: Administrator (absence of a will) or
executor (presence of a will) which has to be
Irrevocable Revocable
appointed by the court has to register the estate
as a taxable entity before the BIR and get another
TIN with the BIR and file a corresponding tax A trust, the income of A trust in which the
return.

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which is to be fiduciary may, at his

accumulated. discretion, either
distribute accumulate
the income.

Distributions were made in 2020.

If the estate is in the hands of the executor, that

means that under judicial settlement. Because if
you say there is an executor, it means there is a
will. If there is a will it is a requirement (further
discussion in Succession) that you have to go
The area here the Corpus or Principal of the through a probate court. That has to be confirmed
Estate this is the properties left behind by the by a court, mao ng nay executor. If there’s no will
decedent. Mao ni ang mo earn og income. If and you go to a court, that’s when the court will
edistribute kani nga Principal sa Estate in 2020, appoint the administrator/administratrix
there’s no income tax. Because this is some sort
of your capital. But rather this is subject to estate Take note the corpus of the estate is P5, 000, 000.
tax which is a separate discussion under Tax 2. If Pero ni earn siya og income for the year P500,
you earned an income in 2019 and you earned in 000 and corresponding expenses P100, 000.
2020, the former income was not distributed to the
heirs but gibalik nimo estate, understandably this P500, 000 and P100, 000 → They are taxable.
should have been subjected to tax in 2019. The
taxable individual is the estate, because you And they should be reported by the Estate as
didn’t distribute it to the heirs during 2019 kay ang taxable.
distribution nimo made paman in 2020. So if you
distribute this earned income in 2019 which is
subjected to tax in 2019 it will not be taxed in 2020. Y’s income and expenses of P305, 000 and P80,
For the income earned 2020, distribution is made 000 = Should be declared as taxable also but only
in 2020 out of the income of 2020, meaning wala Mr. Y will declare.
nimo gibalik sa corpus or sa estate it goes to the
heir so the taxpayer, and mo declare and na The executor distributed to Mr. Y the following:
income and mubayad sa income tax will be the ● From properties (called the corpus) =
heir. But if the amount of income earned in 2020 P125, 000 (this is not subject to income
retained by the estate it will be subjected to tax tax because this is taken from the corpus.
and the one should declare is the Estate under In short the distribution in 2020 <<balik sa
judicial settlement. pie graph>> out of the corpus of the
estate diri <<Corpus or Principal of the
Computation: Estate>> to ang P125, 000, that’s why dili
ang taxable)
● From the current year’s income = 75,
000 (which was taken from P100, 000, this
is taxable but it is Mr. Y who will declare
75, 000 as taxable. This means that we
will get 75, 000 fom P500, 000 kay gi
distribute man na ngadto ni Mr. Y)

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And income nya is P500, 000 gikuhaan nya so the

heir received P75, 000. So basically the
responsible for the declaration and payment of
income tax portion is the heir. So what will
happen is:

Is it necessary that the grantor is a different

person as the beneficiary? No.

If the income (not the property because property

is the capital) is distributed to the beneficiary then
it is taxable to the beneficiary.
You may ask if you read there is a personal
exemption na P20, 000 for estate, take note wala If the income is given to the grantor then it is
nana sya under the TRAIN Law effective 2018. taxable to the grantor.

Still Y, will report an income tax kay heir man siya If the income is retained by the trust then it is
so… taxable to the trust.

The TIN in the Tax Return is not the TIN of the

fiduciary rather it is the TIN of the trust as a
taxable entity.

Illustration:
A taxable trust, administered in the Philippines,
had gross income from the property held in trust
of P650,000, and expenses of P350,000.150 It is
provided in the trust instrument that P30,000 of
each year’s net income shall be used for the
payment of premium on the life insurance of the
AGAIN, what is only subject to income tax, only
grantor. For the year, it distributed P60,000 out of
the income of the estate.
the year’s income to the beneficiary.

Shown below would be the computation of

Taxable Individual : Trust
income tax of the trust, the grantor and the
beneficiary.

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Kani mao ni ang old class(pink table), kani mao ni

ang new(green table). This is only up to
December 31, 2022. By January 1, 2023, it will be
different na ang tax base. Karon we have 0-35%,
0 then 25, 30, 32, then 35. So how are we going to
use this table? So if you look at this, mao ni ilang
gipanghambos sa TRAIN law. Ngano man? Sa
In essence, what is the portion of the income una, before amendment, if you’re earning over
which is distributed to the beneficiary or to the 500,000php, that’s already 32%. Unya middle
grantor will not be anymore recorded as taxable income earner pa baya ta nganha. Okay? Karon,
income by the trust. It is because that the grantor it’s favorable to those middle class citizens,
will be the one who will report the said matter. because those earning 400k to 800k, instead of
being taxed at 32%, is now taxed at 25%. And it
PERSONAL INCOME TAX will go even lower to 20% by 2023. If you heard
the news before, mao ni ang gibanner ni DOF
nga dapat iamend. Ngano man? Because more
1. Employees than 80% daw of those employed are considered
2. Business or Self-Employed Individuals middle class income earner. So they will be taxed
3. Mixed Income Earner at 25% nalang instead of 32%. However, if you
look at this revised Tax Table, this does not
COMPENSATION INCOME necessarily address the light of the so called
Source “minimum wage earner” noh.
1.Labor through Employer-employee relationship
The response of the DOF on that is for minimum
Mode of Income Tax Payment wage earner, naa man gihapon 0%, not
1. Creditable Withholding Tax (CWT) exceeding to 50. Niingon si DOF na well for
minimum wage earner, there is a Special Law
Doctrine which basically exempts them from taxation and
1. Cash Equivalent Doctrine even from filing. But really the issue is, on the
-If you are paid in property or in kind, increased prices. Because with the amendment
you determine the cash value of the under the Train Law, they did not reduce this rate,
payment of that particular property or but they’ve also introduced size taxes and
payment in kind and that value will be they’ve increased some of the excess taxes. So
added to your total compensation subject mao to it has become an issue for quite some
to income tax. time. Although now they’re trying to connect it
especially with the proposal to pass the CITIRA
Wherein we have to check how much is Law. But nevertheless the excess taxes are
the market value of the property in kind already there.
received as payment or compensation by
the employee. Okay? So unsaon pag gamit? So you have this column
taxable income. Ang una nimo buhaton,
Kani Tax Table. Karon pa ni nako na discuss sa determine how much is the taxable income of the
inyoha. individual. Okay? By the way ha, kani nga Table
this is useful not only for those earning

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compensation income. But also, for those unsa nalang ang ideduct sa salary ni employee?
earning business income who avails the rate nga Ang ideduct nalang ang contribution ni employee
0 - 35%. So what happens is once you have the to the SSS, PhilHealth, Pag-ibig, and the union
taxable income, you just have to look at this dues or the mandatory contributions. Okay? Now,
column asa ka nga range masulod, so if the because of the removal of the additional personal
taxable income is, let’s say for example 500k plus, exemption, there is no more need for the
then dire ka nga range masulod. This one, this is taxpayer earning compensation to update the
already the formula, how to compute you tax BIR if naa’y additional dependent or if nanganak
payable. So that’s 30k plus 25% in excess of 400k. ang asawa. Ngano man? Because d naman siya
So kung ang gross income is 500k, that would maka avail sa 25k additional personal exemption
mean: for the child. However class, take note, if there is
a change in your civil status, or there is a change
500k - 400k x 25% + 30k in employer, you still need to inform the BIR.
Ngano man? Because if your civil status is
Ang difference is 100k man na times 25%, so that changed from single to married, mumatter mana
gives you 55k,
35k plus 30k, so that gives you a total ang civil status nimo if muqualify pa ba ka for
tax liability of 55k. But for compensation income ______ (choppy si atty ani nga part). So mao na
earners, Kung pila ang macompute nato nganha, nga you have to update, you use BIR Form 1905,
that’s not the amount you will remit to the BIR. if there is a change in your employer, you also
Because remember ang manner of collecting the use BIR Form 1905.
tax for compensation income is through
creditable withholding. And as what I’ve Tax on Compensation (RR No. 08-2018)
discussed, this is an advance payment. So
whatever amount is computed here, ideduct or
iminus basically ang tax nga gi withhold ni
employer everytime the employer will pay the
salary or will pay the compensation to the
employee. So if the withholding is sakto, then the
tax due payable to the government becomes zero
at the end of the year.

Questions so far? Clarificaiton?

So we have the Exclusionary Threshold. I think

nadiscuss na ni nato before. Before it’s 82,000
now it’s 90,000. This covers sa 13th month pay and
other benefits such as productivity incentives and Q: How do we compute?
Christmas bonus.
A: So, you have Gross Compensation then less
Deductions the Non-taxable Bonus which is P90,000. The
SSS, Philhealth, HDMF Contributions, no more
Again, for compensation, wala na ang personal personal exemptions, no more premium
and additional exemption. So if mabasa pa na payments, Less the De minimis Benefits within
ninyo sa libro, please change your book na the threshold which we will discuss later on.
because that is no longer applicable. Now, ang Whatever is the result, that’s your Net Taxable
gipuli again sa legislator is that 250k. Remember Compensation or kung tanawon nato ang BIR
first 250k subject to 0% tax. So niingon sila na di Form 1700, ang term ana is GROSS Taxable
lang maghatag 50, automatic na first 250k subject Compensation. Basta naa ang word na Taxable
to 0% tax. Because sa una manggud class, the kay kani (Non-taxable Bonus) non-taxable man ni,
rate begins at 5% even if you’re earning less than kani sad (De minimis Benefits) non-taxable sad ni,
10k. So they changed it, but then giremove also basta it is within the so-called threshold or the
for deductions for personal exemption. So as it is, so-called limit when it comes to this De minimis

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Benefits. Once you have the Net or Gross

Taxable Compensation, usually ang
SSS/PHIC/HDMF Contributions later pa man ni
i-deduct. So, kung gi deduct na na you will now
have the Net Taxable Compensation. That’s
when you go to the Graduated Rate of 0%-35%.
Before, it was 5%-32%, but not it is changed to
0%-35%, so you go now to the Tax Table.

Alright so let’s just illustrate lang para mas ma

picture out ninyo. Although, as what I have
mentioned in the examination, there will be no
computation but there will be identification.
Questions like: which of this is taxable, which of
this is a deduction and etc.

The threshold which was P82,000 (Less:

Non-taxable Bonus) is now increased to P90,000.
The Rice allowance is still the same which is
P18,000kay ang threshold limit is P24,000 man so
it is well within the limit. The SSS (P15,000) of
course automatic deductible because this is
mandated under the law. So, ang Taxable
Compensation Income nimo karon from P728,000
medyo ni saka to P795,000 under Train. However
the tax rates as revised ni taas naman sad so,
saona subject ka at these amounts which is at
32% so mao na before ang tax payable nimo
P197,960 but because of the amendment under
Train, ang ta rate nalang nimo is at 25% and on
Let’s say for example we have Mr. A, married excess which is P795,000-P400,000) x 25%. So,
with one child, before mu matter if pila kabuok P30,000-P98,750, the tax due is P128,750 which is
anak but now wala na. Ang least mahibawan way lower than P197,960. So, kana pa lang daan
dapat is ang Civil Status because mu matter ni if is favorable on the part of the income earner.
the employee qualifies for Substituted Filing
which we will discuss later on. The basic salary of Q: So now, kaning P128,750, mao ba ni ang
Mr. A is P800,000, naa siyay 13th month pay i-remit sa BIR?
which is another bonus of P100,000, A: NO. Ang P128,750, this will still have to be
Contributions of SSS/PHIC/HDMF which is reduced by your withholding tax na gi withhold ni
P15,000 and Rice allowance which is P18,000. De employer. So, ang na withhold ni employer also
minimis man ni ang rice allowance karon is amounts to P128,750 so kung minus P128,750
P2,000/month or P24,000/year, so if you look at ang tax due nimo with the BIR will eventually be
the illustration the P10,000 is still within the 0%. 0 tax payable by April 15 of the following year
P24,000 limit or threshold. upon deadline.
So, just to give you an idea, before Train Law, Q: Asa mu fall ang hazard pay?
mao na ang mahitabo, there are exemptions but A: Hazard pay is considered supplemental
under Train Law, sauna naa ni siya (Personal compensation. Kay kung compensation income
and Additional Exemptions = P75,000) but now earner man gud ka there is what we call as the
wala na. regular compensation and there is what we call
also as supplemental compensation. The hazard
pay is under supplemental so taxable gihapon
siya basically.

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TAXATION 1 Transcripts | Atty. KMA | A.Y. 2020 - 2021

fringe benefits tax. We have to understand what

MODULE 5 fringe benefits are.

First, when we say fringe benefits, these refer to

any good, service, or other benefit furnished
or granted by an employer in cash or in kind,
in addition to basic salaries, to an individual
employee (except rank-and-file employee).
These fringe benefits are in addition to the basic
salary or compensation which have already been
subjected to the 0%-35% tax.

Who can receive the fringe benefits? Only the

managerial or supervisory employees. A
Just a quick recap, last meeting we discussed tax common example of fringe benefits are housing,
and compensation. We said that compensation is vehicles, scholarship etc.
the amount that you receive in an
employer-employee relationship and to compute You may ask, “Sir, if rank-and-file employee is
your net taxable compensation income, that given that, is it still fringe benefit?”
would be gross compensation income less the
exclusions/deductions. If you look at it, there is no The answer is yes. But its not subject to Fringe
more personal exemption or premium payments, Benefits Tax rather, it is subject to the 0-35%
more on exclusions. As what I’ve mentioned, benefit tax considered as Supplementary or
before TRAIN, the term is net taxable Supplemental Income on the rank and file
compensation. Why? There were deductions employee.
before for basic personal as well as additional
personal. The FBT is a tax imposed on the fringe
benefits granted by the employer to its
If you recall our discussion on exclusions from managers and supervisors. This is an
gross income, what you can deduct is the additional benefit to a manager or supervisor.
exclusionary threshold and the employees Why? The nature of a fringe benefits tax is that of
contribution to SSS, PHIC, HDMF and of De a final tax and the one who is primarily liable in
minimis benefits, which are all exclusions. paying for FBT is not the manager or the
supervisor but its the employer. If one or some of
If you look at BIR Form 1700, instead of calling it you becomes a corporate lawyer later on, this is
net taxable income, the form now terms it as one that you have to bear in mind.
Gross Taxable Compensation Income or
Gross Taxable Income. The difference is it’s all Is the company giving Fringe Benefits to its
gross because the reduction is only exclusion Executive officers? And for this fringe benefits,
and no deduction for compensation income. did the company paid the corresponding fringe
That’s why it’s called Gross Taxable benefits tax? Because if there is no payment for
Compensation Income. Once you get the gross BIR will not got after the officer or the manager,
taxable compensation income, before it’s rather the BIR would go after the employer.
multiplied to 5%-32%. But because of the TRAIN
law amendment, it is now multiplied to 0%-35% If employee ang recipient, ang mudala sa burden
that we discussed last meeting on how to in paying the tax is the employee mismo, so its
calculate. not called FBt. rather it is called lang the TAx On
Compensation Income. This is what i’ve been
For today, we discuss the Fringe Benefits which trying to say. If you are a rank and file employee
are related to the amounts you receive under an and you receive a fringe benefit, pwede lang
employer-employee relationship but the gihapon, its just that it is being subject to the
difference is, these fringe benefits are not subject graduated rates of 0-35%. But if you are a
to the usual 0%-35% which is a tax compensation Manager or supervisor, for the compensation
income. These fringe benefits are subject to nimo, that is subject to the rate of 0-35% and the

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one who bears the burden of paying the tax is the say for example si citizen, RA or NRA
manager or supervisor. If you receive Fringe engage in trade or business.
benefits, then its subject to FBT at 35% of the - If non resident alien not engaged in trade
grossed up monetary value. Kinsa ang mu bear or business, the FBT is 25%
sa burden? It is not the employee but the
employer.
Because si NRA NETB, the fixed rate for NRA
Essentially, i don’t need to discuss the definition NETB, is at 25%. So the FBT rate is also at 25%
of Managerial, Supervisory, and Rank and file
employee because you already have this in your You might ask, “Sir pwede diay na ma
labor law. managerial or supervisory si NRA NETB? The
answer is pwede sha ma interpret ni BIR as
Student: when providing for fringe benefits Atty Fringe Benefit subject to 25% not necessarily
ba, kinahanglan na nimo i-declare as fringe tagging that there is employee-employer
benefits gyud? What if iagi na sha thru relationship but simple finding that the one who is
allowances? given the benefit, example the one who use the
house and lot or to use the vehicle is a
Atty: it need not be explicitly termed gyud but it nonresident alien not engaged in trade and
depends on the conditions. That;s a good point, business, everytime magbisita sa Pilipinas
what if iagi sha as allowances? It can be done. pwede ma subject sa Fringe Benefits Tax at 25%.
Kung muingon ta nga iagi as allowances,lets say
fro example, instead of giving vehicles to your The common is the 35%. Asa imultiply ang 35%?
managers or supervisors,ang iprovide sa At grossed up monetary value.
company is subsidy. Its very common man nga
muingon ang company nga hatagan lang mo Grossed-up Monetary Value (GMV) - Example
namo ug 10k on top sa montly salary ninyo if your ang benefit na gihatag sa imo balay kay president
currently buying a car. That can be done and is ka sa kumpanya, ang nagbayad ang kumpanya.
considered a benefit. If gi course-through lang The value of balay is 10 Million pesos, that 10
class as subsidy or allowance, then that simply million is deemed to be the net of fringe benefits
forms part of the compensation of the manager tax.
or supervisor subject to 0-35% tax. But its
different if it is the company who will purchase the Value of the Benefit = 10 Million (65%) + 35% of
vehicle and have it being paid on installment by Fringe Benefits Tax. The total benefit given to
the employee which is very common on Med rep. the employee is termed as Grossed-up monteary
These pharmaceutical companies have that value.
agreement. They have pool of cars. Sa na
experience nako before the BPI, naa silay mga To get the grossed up monetary value -
creditline. They take the car loan in the name of 10 million divided by 65% multiply to 35%
the pharmaceutical company and issue it to a
particular med rep, and the med rep will be 65% = 10 Million Pesos
paying a fixed amount of money and eventually if 35% = ?
ma full pay, dira pa itransfer sa name sa medrep. ___________________________________
In that case, it can be construed gyud a s fringe 100% - Grossed-up monetary Value
benefit which may be subjected to FBT.
To get the 35% is to multiply sa grosse-up
Karon sa Train law, duha nalang ang rate nga monetary value. Since we don't know pila ang
tan awon nato class grossed-up monetary value, we divide 10 million
by 65%.
- 35%
- 25% Again, the FBT rate of 35% is only applicable to
Diba 0-35% man and ang maximum is 35%. taxpayers subject to 0-35% graduated rates.

- Ang FBT rate is at 35% If subject to EXAMPLE:

graduated rate, si manager or supervisor,

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Company B purchased a residential house and (XPT: membership on business assoc, DA 278-03,
transferred ownership to Employee A. The Aug 22, 2003);
acquisition cost of the property is P 1, 000, 000. E - xpenses for foreign travel;
Meaning to say si B ang nagbayad then gitransfer H - oliday and vacation expenses;
ang ownership kay A, lahi istorya kung gipaulian E - education assistance to
ni B kay employee A because in this case there is employee/dependents;
no Fringe Benefit to speak of. L - ife/health insurance and other non-life
insurance premiums. (on top of the SSS
FBT computation: contributions etc.)

GMV = Monetary Value of the Benefit/ 65% Note that this is an EXPRESS PROVISION
= P 1, 000, 000/ 0.65 UNDER THE LAW, better memorize it.
= 1, 538, 461. 54 (100%)
NON-TAXABLE FRINGE BENEFITS
FBT = P 1, 538, 461. 54 x 35% ● Exclusionary threshold of 90K - That’s
= P 538, 461.54 - amount you will be paying to the 13th MP and bonuses;
BIR ● Employer contributions to retirement,
insurance & hospitalization benefits
How much you will claim Fringe Benefits plans; (wherein it’s a group coverage)
expense? ● Benefits to RnF employees, whether or
not granted under the CBA (but this is
Total would be 1, 538, 461. 54, composed of the taxable as a supplementary income or if
monetary value of the house plus the fringe it exceeds the threshold of 90K);
benefits tax which was shouldered by company ● De Minimis Benefits;
B. ● Benefits required by the nature of the
trade/business; and
If you will be asked how to compute FBT, that ● Benefits granted for the convenience of
would simply be: the employer. (ex: in-house/staff housing
FBT = GMV x 35% for the benefit of the employer so the
To compute GMV: employees can report early --- usually,
GMV = MV of the benefit / 65% there should be NO DISTINCTION
65% is constant because the employee is subject whether RnF or managerial. Everyone
to the 35% FBT. can avail of the staff housing privileges
that’s within reasonable distance from
Q: What if NRA-NETB ? employer’s business).
A: since FBT is 25% your divisor will not be 65 but
will be 75% to get the GMV. FACILITIES, as discussed in Labor law, if it's for
the advantage of the employer, there can be not
In the exam, if there’s no mention of NRA NETB, taxable FB.
assume the employee is either RC, NRC, RA, or BENEFITS DEEMED FOR THE CONVENIENCE OF THE EMPLOYER
NRA ETB, therefore subject to 35% of the GMV. EXAMPLE: Mobile phone allowance
Managers and directors are NOT subject to FBT
TAXABLE FRINGE BENEFITS [HEVHIMEHEL] and tax on compensation, NO substantiation
H - ousing privilege; required as it is required by the nature of their job
E - expense account; like in a call center company operating 24/7.
M - otor Vehicle;
H - household expenses; (grocery items) But for other companies who are giving mobile
I - nterest on loan @ less than market rate; (gipa phone allowances, subject already to tax as it is
utang w/o interest or instead of giving 12% ang considered supplementary income. UNLESS,
gihatag lang is 5% and the difference bet. 12 and there’s a favorable ruling in favor of the company.
5 is considered FB)
M - membership fees, dues, other expenses in EXAMPLE: Company outing/Christmas party in
social and athletic clubs & similar organizations connection gyapon to the benefits deemed for the
convenience of the employer.

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Benefits deemed for the convenience of the company ang nagbayad sa renta. Ginpapuyo
employer lang sya rent-free, but after the assignment
ginpahawa na sya without transferring the
Company outing/Christmas Party – Annual ownership. As a rule, if there is no transfer of
Christmas party and company outings ownership at the time the manager or employee
sponsored by the company to foster goodwill is enjoying the benefit, 50% of the FMV will be
and camaraderie among the employees. considered as MV subject to the FBT.

Redound to the convenience of the employer, Example on housing benefits:

hence, are exempt from FBT and not subject
to withholding tax (BIR Ruling Nos. DA Specific Rules on valuation (please see your
3335-03 & DA 343-07) hand-out for the table)

Common man na. mag-outing ang company to 1. If the employer leases a residential
foster good will and camaraderie. Non-taxable property for the use of his employee then
na. rental is paid on the property as
evidenced by the lease contract, then
Besides, these company outing or Christmas MV is 50%
Party, although na tay budget per head of the
employee, but the amount do not go to the · So, kung ang rent is 50,000 per
payrolls of these employees. It is spent as month, since there is no transfer of
departmental budget of the company. So, ownership, then MV will just be 50%
exempted. Deemed for the benefit of the of 50,000. So, MV = 25,000.
employer.
· Unsay butahaton sa 25,000?
So, for fringe benefit, how do we determine the Divide that by 65% to get the GMV.
value? Because the question ngadto is, to get the
grossed up monetary value, just to refresh your · The moment you get the GMV,
memory, it’s monetary value divided by 65%. So, multiply that to 35% to get the FBT.
the question now is how to compute for monetary
value. · Kinsa mubayad sa FBT= it is the
employer. It is also the employer who
RULES OF VALUATION OF FRINGE BENEFIT remits it to the BIR.

General Rules: 2. If employer owns the residential

property (okay, this time around, it talks
· In money, or paid directly to employee – about ownership) pero gipagamit niya sa
value is the amount granted employee niya rent-free. 5% of the
market value of land improvement as
· In property and ownership is transferred – declared in the RPT Declaration Form
value is FMV of property at least at the time of (Tax Dec) or zonal value thereof,
the transfer of ownership. The fair market value whichever is higher is considered the MV.
therefore becomes the monetary value which will Multiply that by 50%
be divided by 65% to get the GMV.
· Ex. If sa Tax Dec = 1 million ang
Note: “value” is the basis of valuation. value sa property; then zonal
“Monetary Value” is the value subject to tax valuation (zonal per BIR, makita ni
sa BIR website) is 900,000 lang. So,
Also take note of this: isubject lang nimo ang whichever is higher, so ang basehan
entire amount to Fringe Benefit if ownership is is 1M.
transferred. Now, what if gipahulam lang.
· 1M should be multiplied by 5%
Ex: temporary gi-assign si manager sa certain kay gipagamit raman, gi-assign
location with temporary residence na ang raman to the employee. So 1M x 5%

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= 50,000. This amount is not yet the

MV kay gipagamit raman; no transfer
of ownership.

The Monetary Value lang will be 25,000. Once

you get the 25,000 which is essentially the same
process, you just divide it by 65% then you get the
Monetary Value and then you now get the Fringe
Benefit Tax.

By the way you may ask na kung mu ingon ta

residential property kailangan ba house and lot?
Dili, this could also cover even condominium
units and I tell you, based on the Revised Zonal
Valuation of the BIR naa na sila specific zonal
valuation for well-known condominium buildings
in Cebu. For example, 1M lang kay pre-selling,
mas barato, pero pag inspection ni BIR, complete
na tanan etc. Based sa zonal valuation niya ang
zonal value is 2M, the basis in getting the
monetary value is 2M. So, 100% man na so to get
the Grossed Up Monetary Value. 2M divided by
So basically, parepareho ra ni siya class, it’s like 65% and once you get that Grossed Up Monetary
transfer of ownership 100%, transfer of ownership Value multiply it by 35%. Basically, you get the
50%. So kani, if employer purchases property on Fringe Benefits Tax.
installment basis and allows the use thereof by its
employee, 5% of the acquisition cost, exclusive of Next, if the employer purchases a residential
interest is the valuation of the benefit pero in property and transfer ownership thereof in the
getting the Monetary Value kay wala man name of the employee at a price less than the
transfer of ownership, 50% lang imong i-consider. employer’s acquisition cost. Ang difference
Mao to ang i-divide ug 65% and etc. between the fair market value or zonal value
whichever is higher, and the cost of the property
If the employer owns the residential property and to the employee will be considered as the
this time around, transfers ownership in the name Monetary Value kay naa man transfer of
of the employee. Then, acquisition cost or zonal ownership mao na 100%.
value which is based on the BIR valuation,
whichever is higher, the entire amount will be
considered Fringe Benefit.

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Actually, this in on a case to case basis. Ang gi

butang lang sa IRR is 50 meters, if you want to
For example ang cost gi uli-an ni employee ug 1M,
make it 100 meters or more than the 50 meters,
ang Fair Market Value is 1.5M, Zonal Value is 2M.
you can get a ruling from the BIR and when you
So, ang benefit lang ni employee is not the entire
get the ruling, you can submit an application and
1.5M or the entire 2M but rather the
state there the reasons why ang unit nimo medyo
DIFFERENCE lang, whichever is higher between
layo layo sa workplace or sa factory. In several
the fair market value or the zonal. So, kung ang
cases, the BIR extends the distances due to
zonal higher kay 2M, ang gi uli-an is 1M, ang ma
health reasons. In one case, manufacturer ug
consider lang na benefit ni employee is the
pintal (paint manufacturer) so of course, 50
difference of 1M kay mao ra man ang gihatag
meters that’s too near and very harmful that is
nimo sa empleyado and since there is transfer of
why gi allow sa BIR ang 100 meters and the
ownership so 100%, you immediately divide that
Housing privilege was not subjected to Fringe
to 65% to get that Grossed Up monetary value,
Benefits Tax. The other exception is if it is a
you multiply that with 35% for you to get the
temporary housing for an employee for up to 3
Fringe Benefit
months

Ellema (part 5.1) 42:00-49:00

gipaulian
Anyhow, if we state it differently, if ang house
…usually, these are the employees doing what
equivalent to the fair market value or zonal
we call as fieldwork. Example, Internal Auditor of
valuation of the house, it means wala kay Fringe
the company, visits all the branches of the
Benefit Tax na bayaran or walay tax na bayaran
company to check its operations. As long as it
si company.
does not exceed 3 months, it is exempted and not
subject to fringe benefits tax.
Take note of the EXEMPTION wherein a Housing
Privilege is not deemed taxable benefit, kato ako
In one case, it was ruled by the BIR that Housing
gi mention kaganina if the housing unit is situated
privilege us subject to Fringe Benefits Tax,
inside or adjacent 50 meters from the perimeter of
whether lease contract is under the name if the
the business premises. There is presumption that
employer or employee (the name of the lease will
this is under the employer’s convenience
not matter. The one that will matter is who is the
because this is under the Employer’s
one who’s paying it. So, if the one who’s paying
Convenience Rule, then it is not subject to Fringe
the lease is the employer and the one leasing it is
Benefits Tax.
a managerial or a supervisory employee, then it
could be subject to FBT).

Where the amount of lease is less than the fixed

allowance, only the actual amount of the lease is

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subject to FBT, and the difference shall be exclusive of interest, divided by 5 years but has
treated as compensation subject to income tax 100% will be considered taxable.
and consequently to Withholding tax. (now this
one involves a fixed allowance of housing, for If the employer shoulders a portion of the
example to managerial or supervisory employee. purchase price of a motor vehicle, the ownership
So, this is a situation wherein the fixed housing of which is placed in the name of the employee,
allowance on a monthly basis is 50k for example, then 100%, it is taxable on the amount is
but your lease is just 30k—so, there is a shouldered by the employer. One might ask that
difference of 20k. So, in so far as the 30k is as what you have said earlier that the employee
concerned, this is of course subject to FBT. So, will be given a subsidy or allowance by the
what will you do with the 30k? Not the entire company, can’t it be included in this situation?
amount will be subject to FBT, only 50%. But the Yes, it can be included in this situation but, this is
20k which is the excess if the fixed housing actually a gray area that the company can legally
allowance will be subject to withholding tax on avoid tax. Why? By simply not declaring that
compensation. This will be considered as subsidy, as subsidy for car purchase, it will just
additional or supplementary compensation. have to be declared as a simple allowance and
not for the purchase necessarily of the vehicle
Next, this is another ruling exempting the which will be transferred in the name of the
company form following the 50-meter perimeter employee. So, point is, what matters most is how
rule for safety and health consideration. So, in did you record it in the books of the company—of
this case, 3 kilometers. Why? Because the you will only lodge it under allowances, without
business is a power plant generating electrical specifying what kind of “allowances” it is, then, by
current of up to 600 MW due to safety and health all means subject to compensation. But, if the
reasons. company wants, because at the end of the day,
the decision lies on the company’s tax payer. If
Second, is on motor vehicle. the company really wants to pamper the manager
and the supervisor, that they will not let it
Same rule for housing. When I say same rule, shoulder… (pa-shoulderon is the last word)
when it comes to valuation—meaning, the one
who pays for the vehicle is the employer and is Fernandez (part 5.1) 49:00-56:00
being used by the employee for free or is bought
by the employee from the employer at a lower ...Pa shoulderon ug tax si Manager or Supervisor.
price. And, there is transfer of ownership, 100% is Then by all means, the company has to record it
considered as taxable monetary value. But if as subsidy for tax deferentials etc. to be
there is no transfer of ownership, same in subjected by fringe benefits tax *inaudible*. But if
housing, only 50% will be considered in the the company wants the manager or supervisor to
computation of the monetary value. For example, share in the cost, then it will not be simply be
in this case, the employer purchases the motor recorded as purchase of motor vehicle for the
vehicle in the name of the employee, so the entire employee.
acquisition is 100% --it will be divided by 65% to
get the gross top monetary value. And, once you So basically, kani kato wala na'y transfer in
get the gross top monetary value, you multiply ownership, so 50%. Kato, for the medtech, the
that by 35%. employer owns and maintains a fleet of motor
vehicles, gipagamit lang niya. Ang acquisition
If the employer provides the employee with cash cost divided by 5 years x 50 % that's your
for the purchase of a motor vehicle and monetary value. If nag lease si employer pero
ownership thereof is placed in the name of the gipa use sa business ug sa employee, then the
employee, same 100% of the cash received by rental paid for the motor vhicle x 50 % ang
the employee because there is transfer of monetary value.
ownership.
So ang use of yacht whether owned and
If the employer purchases the car on installment maintained or leased by the employer, ang
basis and ownership thereof is placed in the depreciation gamiton is 20 years x 100% .
name of the employee, acquisition cost,

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the more mahal the vehicle is, the higher

depreciation expense one can claim.

So eventually, na notice na ni BIR especially

paglingkod ni Kim Genares (2010). Mao na ang
una gi-target niya. Because there are so many
companies na isa ka manager, lima kabuok
assigned vehicles. All these vehicles are under
the name of the company. The company is
claiming depreciation expense. So ni ana si
Genares nga - Taymsa. Dili na ni maayo. So
nagpagawas siya ug revenue regulation
sometime in 2011 which is until now, heavily
questioned by many business owners who are
presumed affected by this regulation. In her
For motor vehicle, this is another thing na pwede regulation, she limited the number of vehicle.
buhaton sa company to legally avoid (I am not Deductibility of depreciation on motor vehicles.
saying evade)... So essentially niingon si Kim Genares na kung
ganahan ka mopagamit ug duha ka motor vehicle
Some companies what they will do is that the sa manager nimo, then fine, you pay the fringe
motor vehicle will just be declared as a fleet for benefits tax if you want to. But there is a limit
use of the company. In short, dili niya i-tag that when it comes to the depreciation that you will
this vehicle is for the exclusive use of this claim. As a rule, only one vehicle for land
particular manager. Rather, it will be tagged as transport is allowed for the use of an official or
vehicle which can be used by anybody in the employee, the value of which should not exceed
company. In such case, it does not come under P2.4M.
the definition of a taxable fringe benefit to a
particular manager or to a particular supervisor.

Or if a particular vehicle is used as a carpool. In short, kung ang gipagamit nimo sa manager
Meaning to say, although gidala na ni manager nimo or official nimo is Subaru or Mercedez Benz
sa balay niya, but the manager is expected to (I really have no idea how much these high end
pick-up along the way co-workers niya in going to motor vehicles cost), ang limit lang na pwede ma
the company using it as a carpool. In such case, claim nimo is P2.4M valuation.
there is no such thing as exclusivity in the use of
the vehicle. So pwede maka void when it comes
to the payment of this so-called fringe benefits
tax. Clarification:

"Sir, what if Mercedes Benz or Subaru, or kaning During the early implementation ani (2011), dili
mga mahalon kaayo na mga vehicles ang gyud mosugot si BIR na more than P2.4M ug
gi-purchase kay common man na sa mga depreciation. But then eventually, ni give in ang
dagkong companya?" BIR. Even if the value of the vehicle is more than.
P2.4M, but pursuant to the RR, the depreciation
Ang mahitabo nganha, class, is you will be is limited only to P2.4M. So kung ang value sa
paying high fringe benefits tax. So mo ingon ang Mercedes Benz is P10M, instead of getting a
companya - okay ra magbayad ta sa fringe depreciation...
benefits tax basta ang ownership remains with
the - say for example, or dili nato ni i-declare for Georfo: Module 5.1: 56:00-1:03:00
use ani, i-record lang nato under the name of the
company. Because if we record under the name ... based on 10 million, you will only be getting a
of the company, at least, we can claim for depreciation based on 2.4 million pesos. Let’s say
depreciation expense. So ang buhaton sa uban,
for example, ang estimated, kay ang depreciation
mopalit ug mahalon kaayo na vehicle. Because

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kay i-divide man na nimo sa useful life. So kung

Traveling Cost of ticket 100%
ang useful life, i-estimate nimo is 10 years. That is
expenses of and all other
a normal vehicle used by the company not
the family expense
specifically assigned to an official or employee.
member of
Even though it’s 10 million, you divide that by 10
the employee
years, you can deduct depreciation expense of 1
which are
million every year.
paid by the
employer
However, if you assign that vehicle specifically to
an official or employee, limit lang, ang threshold
lang is 2.4M. So that would be 2.4 million divided · If employee is given a first class airplane
by 10 years, ang ma-claim lang nimo every year ticket, 30% of the cost of the ticket is subject to
is 240K. fringe benefit tax.

So the consequence is if you are deducting 1 · If the traveling expenses of the family
million depreciation, tendency is BIR will disallow member of the employee are paid by the
the difference of around 760K. Why is 760K employer, 100% of the cost of ticket and all other
disallowed? It is because of the 2.4 million expense are subject to fringe benefit tax.
threshold.
Business Related Foreign Travel
Walay prohibition nga dapat kini lang ang value
sa car nga ipagamit nimo. Pwede mahalon nga l Subject to presentation of proof of actual
occurrence of business
car, but when it comes to computation of
meeting/convention including official
depreciation, the maximum limit of valuation invitation/communications - that is not
allowed by BIR is 2.4M, and only one car per subject to fringe benefits tax
official or employee.
l Up to $300 inland expenses (food,
For fringe benefit tax purposes, ang basehan beverage, local transportation) except
nato is the 10 million. Now gipa-use ra man ni, so lodging cost - in excess of that, that will
meaning to say times 50%, dili mu-matter ang be subject to fringe benefits tax but up
to that amount no fringe benefits. TN:
2.4M. The 2.4M is only for the deductibility of The $300 do not include lodigng cost.
depreciation expense.

Specific Rules on Valuation – Foreign Travel

EXAMPLE: That foreign travel is business related
What if it is the employer who would shoulder the also unya gi shoulder ni employer ang pamilite ni
expenses for foreign travel? employee then exmpted from fringe benefits tax
pero kung ang ticket ni employee is a first class
· The rule on monetary value is as follows: airplane ticket then only 70% is exempted, the
30% would be subject to fringe benefits tax. So
Foreign travel Valuation of Monetary pasabot lang anhi is kung magpadal ka ug
benefit value convention ug employee to attend foreign
convention abroad, ayaw pasakya first class
If employee is Cost of the 30% either economy or business class kay according
given a first first class to the regulation [inaudible] dili ko familiar what’s
the difference between first class and business
class airplane airplane ticket class but if business class or economy everything
ticket there is not subject to fringe benefits tax. If
nagkuyog ug family member si employee and gi
pletehan gihapon ni employer, then the entire

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100% will be subject to fringe benefits tax. partner because this is very common among
Exempted but family members subject to fringe law firms, they go abroad to do the partners’
benefits tax meeting and part of the partner’s meeting is
of course the tour. I can very well justify that I
NOTE: The exemption of fringe benefits tax is went there to observe the business climate or
applicable only if it is business related foreign to meet a potential client and that is being
travel. If it has nothing to do with business at all, done, I tell you esp in accounting terms, if
then kani nga exemption sa fringe benefits tax they have business meetings abroad, let’s
including the fair, everything will be subject to say for example ang nakabutang sa itinerary
fringe benefits, dapat naay proof of actual nila 10 days but really the meeting is only
occurrence of business meeting, convention good for 1 day but the rest of the days, that’s
including official invitation or communication. considered supposedly leisure time, ang
buhaton ana nila, they will set siguro mga 1
Kanus a na I-present? Of course Ipresent na meeting per every other day in one location or
nimo the moment you are being audited by the one visit on this particular firms abroad. That
BIR, so in the mean time, inig file pa nimo sa mga is still considered business related. Mao na
ITR, dili pa nimo iattach sa tax return. There is a nga usahay justifiable ra gyud siya except if
disclosure somewhere in your financial statement the BIR would really follow you there or
ba ka ron pertaining to this business related somebody will really narrate what you are
foreign travel. doing there nga ga laroy laroy or ga suroy
suroy ra ka.
Kung laag laag lang, everything is subject to
fringe benefits tax.
EXAMPLE: In a business or partners’ meeting,
Q: Mo matter ba if half vacation, half business the itinerary is 10 days. But in actual, the meeting
trip ang gasto sa employer? Like kanang is only good for one day. The rest of the days are
buhaton usahay sa manager after the considered “leisure time.” Now, what these
business trip kay mo laag lang gamay then pa people do is, for example, set a meeting every
reimburse lang under representation other day to visit other (accounting) firms abroad.
expense? But this is still considered as “business related”
and is justifiable.
Atty: Theoretically speaking, mo matter siya.
Meaning to say, kung ang conference kani CLARIFICATORY QUESTION (raised by a
nga day, after sa conference ni extend mog student): Re: travel expenses of the
stay didto like two days or three days to do employee’s family members paid by the
the laag and still everything mga gasto ninyo employer. What if the employee paid 50% of
during that time except sa pamilite ha kay ang these expenses and the employer paid 50%,
pamilite nimo back and forth exemption mana would it still be 100%?
pero ang sa inland expenses nimo during the
extension supposedly that is not anymore ATTY. KMA: In this case, the entire 50%
covered by the exemption from the fringe shouldered by the employer shall be
benefits because mao mana nga mangayo if considered as 100%.
ever iaudit ka, mangayo si BIR asa ang
invitation, unsa kadugay ang convention or EXAMPLE: The travel expenses amounted to
event because that is where the computation 50,000 pesos and the 25,000 of which was
comes in dapat ang gi claim nga expense, mo shouldered by the employer, the entire 25,000
match sa number of days that the convention pesos shall be considered as the 100%
was being held. Mao na karon, diha mosulod monetary value subject for FBT.
ang tax avoidance. Unsay mahitabo? Mao ni
kani ipa reimburse nalang under
representation expense. Pwede ba na CLARIFICATORY QUESTION (raised by a
buhaton? Yes because in reality, the BIR will student): In insurance companies, it is common
not go there with you during the foreign travel to award international trips to employees or
or the foreign trip so if I am the manager or the

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Business expense, Not FB (Fringe Benefit

insurance advisors upon achieving a quota, is
Tax)
this covered?
It is not considered, it is not subject to Fringe
ATTY. KMA: Personally, I am not well aware
Benefit stocks though if the expense account
as to how these insurance companies award
is duly receipted for in the name of the
such trips, but, off-hand, if we look at it,
employer and do not partake the nature of a
supposedly, that could be considered taxable.
personal expense attributable to the
This is because they are not there to attend a
employee. So this now more on the liquidation of
convention or it is not business related at all.
the employee, so if the expense account pertains
to or is related to the work of the employee; say
EXAMPLE: If the one who is awarded is a unit
for example meal/lunch, while the employee is on
manager, then most likely, the BIR will subject
field work duly receipted and the name in the
it to FBT.
receipt is not in the name of the employee but in
the name of the employer, walay Fringe Benefit
NOTE: (Relate to Labor Law) An agent under a
Stocks. Mao na nga very important to orient the
particular unit has is no employer-employee
employee ug unsa ang expenses pwede
relationship with the supposed employer. In the
e-charge to the employer and kinahanglan
first place, there is no FBT to speak of because
mangayo ug O.R. (Official Receipt).
such agent is not a managerial or supervisory
employee. Second, there is also no tax on
Example:Let’s say for example; mopalit si
compensation income because that cannot be
employee ug sabon or personal nga palitunon
considered as supplemental income. BUT,
giparesibo-an niya under the name of the
most likely, there is a withholding tax,
employer, definitely that cannot be configured as
supposedly, on prizes and winnings which is
business expense which is exempted from Fringe
considered as a final withholding tax from the
Benefit Stocks, pero kung transportation expense,
valuation of the prize or winnings.
or meals mao na ang pinaka-common nga
business expenses, for meals para resibohan in
Further, insurance companies claim expenses
the name of the employer, transportation
from these prizes or winnings awarded to its
expenses there is an exemption to it when it
agents. The insurance company has to explain
comes to the issuance of official receipts, kanang
to the BIR these expenses and that there is no
magpanotario, pa-resiboan in the name of the
employer-employee relationship. (These
employer. There must be proof that these are
withholding taxes on prizes and winnings shall
ordinary and necessary business expenses.
be discussed soon.)
Educational Assistance

EXPENSE ACCOUNT -Generally subject to Fringe Benefit Tax.

The personal expenses of the employee being
shouldered by the employer, whether paid -Exempt if:
directly by the employer or paid for by the ● Educational assistance to employees is
employee but to be reimbursed by the employer. directly connected to the business of the
employer and there is a service contract
GENERAL RULE: In general, this expense ● Educational assistance to dependents of
account is subject to 100% FBT. employee is provided through a
competitive scheme under the
EXCEPTION: Fixed and regular representation company’s scholarship program –RR
and transportation allowance - considered as a 03-98; & BIR Ruling No. 189-99
supplemental compensation subject to the RETURN SERVICE CLAUSE
0%-35% tax on compensation. Meaning to say there is no limit – dependent lang
ni manager or supervisor, meaning patake-on
NOTE: These representation and transportation sila ug exam base on the result of the
allowances are common in big law firms. examination they’re being rank, etc., under the
company’s scholarship program then that is

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generally exempted from Fringe Benefit stocks. So how do we determine the value? Na-specify
Ex: BPO Companies naman nato to ganiha ang housing ug vehicle. If it
is household expense, kung pila ang gibayad ni
Life or Health Insurance and other Non-life employer class, then katong entire amount is
Insurance premiums considered subject to FBT.

-Generally subject to FBT Romitman 1:24:00-1:31:00

● Nganu man? because this is beyond Gipaloan ka walay interest at lower than 12% so
what is required under the law. the difference is subject to FBT.

-Exempt if:
● Required under the law (SSS/GSIS, etc.)
● Group life or health and other non-life
insurance premiums

Required under the law (SSS/GSIS, etc.)

● Take Note: Ma-subject to FBS if the life
or health and other non-life insurance is
taken specifically in the name of the
manager or the supervisor. Kung nikuha
ug life insurance si company, nya si
company ang nibayad sa premium for
the life of its manager unya ang benefit
will go to the beneficiary of the manager it Membership fees/Dues in Social and Athletic
can be deemed as a subject to Fringe Clubs, kung pila ang gi shoulder ni employer
Benefit Stocks, because the benefit is then the entire amount is subject to FBT. Take
specific to that particular manager or under this, the name of the membership is under
supervisor. However, if that was a group the name of the manager or supervisor. Because
life or health and other non-life insurance when it comes to clubs, naa man ni sila corporate
premium kani bitawng mukuha ug account or membership. And in that corporate
grepa-life (group-life for all employees) membership naa silay some sort of assignee
without specifically naming kung kisna kung kinsa ang authorized. Kung kani nga
nga employee that is not subject FBT. arrangement there’s no FBT because gipagamit
Nganu man – di man nimo raman na niya. Gi assign raman na niya for a
ma-specifically ma-tag or ma-associate particular period for that particular officer. But if
to a particularly manager or supervisor. it’s in the name of the manager/supervisor
specifically and the one paying the dues is the
Group life or health and other non-life insurance company that is being subjected to FBT.
premiums Example: Cebu Country Club naa man na silay
● The term group insurance is essentially a corporate members like Taiheiyo Cement and
single insurance contract providing kung kinsa ang Presidente sa taiheiyo man na
coverage for many individual. The usually ang assignan nya to use that corporate
coverage terms for group insurance are membership or account.
usually stated in master agreement on
policy issued by the insurer to a For Holiday and Vacation Expenses is subject
representative of the group or to an to 100% FBT.
administrator of the program such as the
employer.
● Ex.Gikuha lang na ang benefit ni
employee if namatay siya while
employed by the employer, so in that
case dili na siya exempted
ma subject from FBT (not
sure putol2x si atty)

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Before, with the Special Employees, the FBT is

15% and the Divisor is 85%. But because of the
TRAIN Law, there is no more special treatment to
these types of employees. So there are only two;
1.General
2.Non-Resident Alien Not Engaged in Trade or
Business (NRANETB) Within the Philippines

Example
ABC Corporation paid for the monthly rental of a
So, if quarterly there are 3 months. Kay monthly residential house of its branch manager
mani so 65, 000 * 50%. BUT quarterly man ang Employee D amounting to P65,000.
gipangayo so 65, 000 * 3 (because of 3 months) to
get 195, 000. Since there’s no transfer of How much is the quarterly fringe benefit tax due
ownership man, the taxable portion is only 50%. on the housing privilege?
But to get a grossed-up monetary value so 195,
000 / 65% * 50% or pwede pud 195, 000 * 50% /
65% you get 150, 000. To get Quarterly fringe Quarterly rental for P195,000.00
benefits tax due is 150, 000 * 35% so you get P52, the residential house
500(this is the amount that you will pay in one (P65,000 times 3
quarter) months)

Grossed-up monetary P150,000.00

Why quarterly? Because the filing of benefit granted
FBT-Return is every quarter. (P195,000 divided by
65% factor times 50%
*Non- EPS - 10 days after end of each quarter taxable portion)
*Electronic Filing and Payment (EFPS) -15 days
after end of each quarter Quarterly fringe P52,500.00
TAKE NOTE: It is considered FINAL TAX. So dili benefit tax due
siya creditable. Dili siya ma deduct sa income tax (P150,000 times 35%)
payable sa corporation ang final tax nga gi
withhold ni employer or gi remit ni employer sa
BIR. (Refer to the Form 1603 Q of BIR Forms to fill-up
the form)

Monetary Value of Fringe Benefits - P195,000.00

Tax Base Grossed-up Monetary Value under

65%(Percentage Divisor) - P150,000.00

Tax Withheld (Formula: (Q) = (E x F))

E- Tax Base Grossed-up Monetary
Value
F - Tax Rate ( 35% or 25%)

P150,000.00 x 35% Tax Rate =

What was revised in the TRAIN Law are the rates. P52,500.00
(Refer to the Percentage Divisor - 65% and 75%)
Income Tax: De Minimis Benefits
Percentage Divisor
65% relating to Tax Rate (F) 35%
75% relating to Tax Rate (F) 25% De Minimis - minimal benefits

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Who receives De Minimis Benefits? Both

10. Daily meal allowance for overtime work and
Managerial or Supervisory Employee and Rank
night/graveyard shift not exceeding 25% of the
and File Employees
basic minimum wage on a per region basis
Is De Minimis taxable? No. It is tax exempt
11. Benefits received by an employee by virtue
provided it is within the threshold limit set by law.
of a CBA and productivity incentive schemes
(be familiar of the De Minimis Benefits)
provided that the total annual monetary value
received from both CBA and productivity
Incentive schemes do not exceed P10,000 per
1. Monetized unused vacation leave credits of employee per taxable year (RR 1-15)
private employees not exceeding 10 days
during the year
TN: RR 08-2011 - All other benefits given by
employers which are not included in the above
enumeration shall not be considered as “de
2. Monetized value of vacation and sick leave
minimis" benefits, and hence, shall be subject to
credits paid to government officials and
income tax as well as withholding tax on
employees
compensation income.
3. Medical cash allowance to dependents of
employees not exceeding P1,500 per 1. Monetized unused vacation leave credits of
employee per semester or P3,000 per annum private employees not exceeding 10 days
(RR 11-18) during the year
-Does not include sick leave credits
Upto the company if liquidated -If you are a private rank and file
employee and you avail of your
4. Rice subsidy of P2,000 or 1 sack of 50kg rice monetized amount of your unused sick
per month amounting to not more than P2,000 leave credits, are you exempted
(RR 11-18) from fringe benefit tax? Yes, because
you are a rank and file employee, not a
5.Uniform and clothing allowance not managerial or supervisory employee.
exceeding P6,000 per annum (RR 11-18) However, you will be subject to ordinary
income
6. Actual medical assistance, e.g. medical tax.
allowance to cover medical and healthcare
needs, annual medical/executive check-up, Update on De minimis Benefits (RR No.
maternity assistance, and routine 08-2018)
consultations, not exceeding P10,000 per
annum

7.Laundry allowance not exceeding P300.00

per month;

8. Employees achievement awards, e.g. for

length of service or safety achievement, which
must be In the form of a tangible personal
property other than cash or gift certificate, with
an annual monetary value not exceeding
P10,000 received by the employee under an
established written plan which does not Semester = 6 months
discriminate in favor of highly paid employees;
That’s basically six months, its now increased to
9. Gifts given during Christmas and major 1,500 or 250 per month. Now, why do we need to
anniversary celebration not exceeding be familiar of the threshold? Because so long as
P5,000.00 per employee per annum dili mulapas ani nga mga threshold class, there is

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no tax. But the moment mulapas ani nga So illustration, last for tonight. Rice subsidy
threshold, there could be tax. Meaning to say, dili nalang ato gamiton. So for rice subsidy class, say
definite nga taxable siya. Nganong there could be for example, ang rice subsidy gihatag is 3k per
man? Because the moment nga mulapas ani nga month. So kung 3k per month times 12, pila na
threshold, by the way, this is per annum ha. John? That would be 36k. Diba? But the
Tanawa so kung ang uban per month, so kung threshold or the limit, for it to be considered as de
per month ni, to get the per annum, that’s minimis, de minimis is only 24k. So kani, up to 24k,
basically times 12 months. Kung per semester na that’s tax exempt. Whether you are managerial or
which is 6 months, to get the per annum, that supervisorial employee. The excess class of 12k
would be times 2 semesters in a year to get the may now be taxable. Unsay buhaton nimo sa 12k?
per annum figure. What if ni exceed sa threshold? Determine first, isud nimo siya una sa 90k
Is the excess automatically taxable? The answer threshold if covered or masud sa 90k together
is DILI. Because the excess class will only with the 13th month pay, then exempt. But if dili
become taxable if it exceeds already the 90k na, nag exceed na sa 90k, that’s the time either
exclusionary threshold. Okay? So kani lang sa subject to FBT or 0-35% tax. Depende kung kinsa
ang rule para mas magkasinabot ta ha. ang recipient. Kung ang recipient managerial or
supervisory, or kung rank-and-file employee. Do
On Taxation of de minimis benefits. you follow?

RULE 1 - if the amount conforms to the ceiling, So next question. Sir, is the de minimis list an
total amount is NOT SUBJECT TO FBT OR exclusive list? The answer is YES. So kung
INCOME TAX of both managerial and nagbuot buot ug hatag ug benefit ang employer,
rank-and-file employees. wala kani nga lista. From 1-11, naa pay kulang
ana government company, then that’s automatic
Meaning, for those de minimis vicevi
receive managerial supplemental income. If you want to avail the tax
or supervisory, dili subject to FBT. For those de exemption pertaining to de minimis benefit, it
minimis vicevi rank-and-file, dili subject to income must come from this list and it must be within the
tax. threshold of indicated in the list. Are we clear

So that’s it for tonight. Next meeting we will

discuss taxation of minimum wage earner as well
RULE 2 - If the amount exceeds to de minimis as self employed or professional earner.
ceiling, take note, excess shall be considered
taxable “other benefits”, so kay “other benefits” Student: Atty, I have a question.
man, musulod siya class sa threshold nga 90k.
KMA: Yes what is it?

Student: Atty, regarding special employees, are

So duha ka basket basically ang gitanaw nato. alien individuals no longer entitled to the 15%
First, is on the de minimis threshold, the second rate?
basket is on the 90k threshold. Kung nilapas or ni
exceed sa de minimis threshold here, isud sa KMA: Apparently, wala. Apparently duha nalang
nimo una sa 90k threshold. If mulapas sa 90k ang gi cover sa RR that will only be 75…
threshold, then that’s the time nga you subject it
to the 0-35% tax on compensation. Because rule
3 states that, if the taxable benefit exceeds
P90,000, then subject to income tax for MODULE 5.2
rank-and-file employee and fringe benefits tax
to managerial or supervisory employee. 0-35%
for rank-and-file, 35% for managerial employee. We are still on personal income taxation, but
Okay? today we will focus on self-employed individuals
as well as mixed earner individuals since we’ve

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already discussed compensation income if the law states P2,000/month, it means that there
earners. is a need to give a per annum figure here (P2,000
x 12). For example, if it is P1,500 per semester
We’ve discussed the revised tax table, which is and a semester is 6 months, we need to discuss
now at 0%-35%, we’ve also discussed fringe the per annum (P1,500 x 2) because we need to
benefits tax which is applicable to fringe benefits check if it can still fit the P90,000 exclusionary
given to managerial or supervisory employees. threshold. If you lump the excess, and only the
Fringe benefits tax is a final tax at 35% of the excess, with the 13th month pay and it exceeds
grossed up monetary value, in short, if you’re a the P90,000, then that is the time that the excess
manager/supervisor receiving fringe benefits will be subjected to tax 0%-35%.
from your employer, this amount should not form
part of your compensation subject to 0%-35% tax Rule on taxation of de minimis benefits
because this is subject to fringe benefit tax. RULE 1. If the amount conforms to de minimis
ceiling, the total amount is not subject to FBT or
When it comes to the rate of fringe benefit tax, income tax of both managerial and rank-and-file
there are 2 rates, 35% and 25%. To get the employees.
grossed up monetary value, we divide the
monetary value by 65% or by 75% if the tax rate RULE 2. If the amount exceeds the de minimis
applicable is 25% and that applies to non-resident ceiling, the excess shall be considered as taxable
alien not engaged in trade or business. “other benefits”, but may still be exempt provided
that it, together with the bonuses/13th month pay,
The last part we’ve discussed is on de minimis productivity incentives, does not exceed P90,000.
benefit, and we said de minimis benefits are
minimal benefits. De minimis benefits could be RULE 3. If the taxable benefit exceeds the
given to all employees, regardless of the rank. P90,000 ceiling of “other benefits”, the excess
May it be rank-and-file, may it be managerial, shall be taxable to the employee.
may it be supervisory. In fringe benefits tax, and
for fringe benefits, you have to check who the Managerial or supervisory employees - FBT
recipient is-- whether managerial or supervisory. Rank-and-file employees - IT subject to WT
For de minimis benefits, it does NOT matter.
The rule applies to ALL employees regardless Discussion: Basta within the threshold, it is not
of position as long as there is an subject to FBT. If it exceeds the de minimis
employer-employee relationship. ceiling, then the excess shall be considered as
taxable “other benefits” and it will be included in
What we need to remember in de minimis benefit the P90,000 basket. If it fits the P90,000 basket,
is that this is still a perk or additional benefits but there is no problem, it is stille exempted.
they are just of minimal amount or value, and as However, if in excess of the P90,000 basket, it is
long as the monetary value will not exceed now taxable. If the one receiving is a rank-and-file
the threshold set under the law, it is exempt employee, income tax is subject to withholding ta
from taxation. (0%-35%). Be careful, if the recipient is a
managerial or supervisory employee, it is subject
We’ve also discussed the change and update on to fringe benefits tax which is generally at 35%.
de minimis benefits effective 2018. For uniform
and clothing allowance, it is now P6,000 per Sir how about during exams?
annum, rice subsidy is now P2,000 per month. Be Atty: as long as i’m concerned, there will be no
careful if it is per annum or per month, because if computations but what if in the exam, it is not
the de minimis benefits exceed the threshold, it specified if what is the rank of the employee? Is
does not necessarily mean that it is taxable. Why? de minimis benefits taxable? The answer will be
Because you still include it in the P90,000 No, it is not taxable so long as the amount benefit
exclusionary threshold. is within the threshold. But if the amount of the
benefit exceeds the threshold, what will be the
If you recall, the P90,000 exclusionary threshold tax treatment? That’s when you go to Rule
pertains to 13th month pay and other benefits. number 2 or you go to Rule number 3 and that’s
However, P90,000 is per annum basis, meaning,

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when the position of the employee becomes pasabot, dili na taxable ang entire earnings. So
crucial. when it comes to the basic minimum wage pay, it
would still be exempted.
If the position is given in the problem, if gihatag is
managerial supervisory, mu mention lang ka When it comes to exemption of a Minimum Wage
subject to Fringe benefits tax but if wala gihatag, Earner, it covers:
ofc you can very well say that it is taxable. That
would still be correct.but the best thing to do there - Basic minimum wage plus
is to delineate the managerial supervisory FBT, - Holiday/Overtime pay because this is
Rank and file employee income tax subject to related to your work plus
withholding tax or the 0-35% Graduated tax rate. - Night differential/Hazard pay that is
That’s all de minimis benefit. also related to your work.

So we go to Minimum Wage Earners still on

Individual Earning Compensation Income. I think Even if in totality if i-total na namo nimo kung nag
you are very well familiar with the minimum wage sige kag overtime, or sge kag trabaho on holiday,
earners Act. in that special law, ir provides that a ni exceed ka sa Statutory Minimum Wage, you’re
minimum wage earner so long as he is receiving still considered as minimum wage earner,
a salary not exceeding the minimum wage in this therefore the total of this figures here should still
region, he is exempted to taxation. Prior to the be exempt from taxation.
train law where different treatment of this
minimum wage earners. Before, if the taxpayer is Even if it is already beyond 250k because if you
a statutory minimum wage earner, earning on top recall, first 250k, 0% tax. Nganong first 250k man?
of the basic holiday pay, overtime pay, hazard Kay mao na usually ang gi set for minimum wage
pay, de minimis within the ceiling not exceeding earners. SO if your basic minimum wage for
90k the exclusionary threshold, entire amount is example is 250k, obviously it is not taxable. But if
exempt. However, before the Soriano Case, the you have a holiday pay for a year for example of
treatment of the BIR is, if you are a Satutory 50k plus Night differential of another 50k, that will
minimum wage earner, earning Holiday pay, give you a total of 350k. This amount if you look at
hazard pay, overtime, or given de minimis, 0-35%, taxable naman na nag 350k, but the point
beyond the limit and over the exclusionary is you are a minimum wage earner. And because
threshold of 90k, and buhaton ni BIR before, oif that, the entire amount of 350k would still be
entire earnings nimo is taxable. Same is true if exempt from being taxed.
you are a minimum wage earner and you are
earning other income, commission, or as well as
business income, the entire earnings is taxable. During the time of Henares, different ang
treatment, once you exceed the total amount for
However, as settled in the Soriano Case, The SC a minimum wage earner everything is taxable but
declared that even if you are earning this holiday it was questioned before the supreme court and
pay, overtime pay, etc, that does not make you a the supreme court ruled that is not the right
non-minimum wage earner. So mao na ang interpretation of the law granting exemption to the
nahitabo as clarified under the Revenue minimum wage earner.
Regulation issued under 2018, if a minimum wage
earner, receives, de minimis benefits and How does the BIR or if I am the employer do I
bonuses not exceeding 90k, ofc exempted pero if need to report to the BIR who are my
nagdawat sha ug overtime pay or holiday pay, so minimum wage employees? Yes. In documents
ang ending ang madawat niya nga wage is higher that you will be submitting to the BIR, there is this
than the minimum wage, so niingon si Internal "Alpha List of Employees", here you will identify
Revenue Regulation , only the additional kung kinsa ang minimum wage employees nimo.
compensation such as commission, fringe If the employee is listed as a minimum wage
benefits, honoraria, benefits/bonuses in excess employee, automatic exempted siya from filing
of 90k, taxable allowances and other income shall tax return si employee. Except if that employee
be subject to withholding tax using the tax table. earns other income.
In short, there is a change of treatment. Buot

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TAKE NOTE: Taxable income shall be subject to Commission income - P 25, 000
withholding tax using the tax table.
If we apply the BIR treatment before the
What if naa siya commission or other clarification in the Soriano case, once the
business income? That is taxable. The tax is minimum wage earner earns another income, the
0-35%. If he used the tax table, the first P250, 000 entire amount of Basic Minimum wage, Overtime,
would still be exempted. Same rule as when you night differential, Hazzard and holiday pay and
are computing normally. commission income becomes taxable. But under
the Soriano case as clarified by the SC, what
Minimum Wage Earner remains exempt from should be subjected to tax lang is the other
income tax: income.
1. Basic Minimum wage
2. Holiday/Overtime pay Gross Compensation Income - P 294, 000.00
3. Night differential/Hazard pay LESS:
Basic Minimum Wage - P 175, 000
Ilustration: Overtime, night differential, Hazzard and
Employee: Mr. C, a minimum wage earner holiday pay - P 65, 000
SSS/PHIC/HDMF Contributions - P 5, 000
Basic Minimum wage - P 225, 000 Rice Allowance - P 24, 000
Overtime, night differential, Hazzard and Taxable Compensation Income - P 25, 000
holiday pay - P 40, 000 (equivalent to your commission income)
SSS/PHIC/HDMF Contributions - P 5, 000 Tax Due [Not over P 250, 000 (P 25, 000 x 0%)] =
(exclusion and should be taken out from the 0
gross)
Rice Allowance - P 24, 000 (De Minimis and the NOTE: This format is for 1700 form filing of the
threshold for rice allowance is P 2, 000 per month BIR
but if you multiply that by 12 months = P 24, 000, it
means it is within the threshold and exempt) So pareha lang, I'll just make sure na dili ko
mulapas sa P 250, 000 but I have other income
Gross Compensation Income - P 294, 000.00 other than my salary? Not necessarily. Because if
LESS: you are purely compensation income earner,
Rice Allowance - P 24, 000 basic minimum wage, you are exempt from filing
SSS/PHIC/HDMF Contributions - P 5, 000 tax returns but the moment that you've become a
Taxable Compensation Income - P 265, 000 mixed income earner even if you are a minimum
Tax Due - EXEMPT wage income earner for your salary, you are
already mandated to file a tax return as a Mixed
Why is the tax due exempt when P 265, 000 is income earner. That’s where the difference lie.
higher than P 250, 000? Because
C is a minimum wage earner. This basic On the liability, if it does not exceed 250 that
minimum wage and Overtime, night differential, would still be zero. BUT on the compliance
Hazzard and holiday pertains to his salary as a aspect, it becomes entirely different.
minimum wage earner, therefore he is exempted
even if it is higher than P 250, 000. Illustration 3

What if lahi lahi ang income? Employee: Mrs. E, a MWE and a part-time real
estate agent
Illustration:
Employee: Ms. D, a minimum wage earner Basic Min. Wage = 155 000

Basic Minimum wage - P 175, 000 OT, NSD, Hazard, & Holiday pay = 35 000
Overtime, night differential, Hazzard and (EXEMPT)
holiday pay - P 65, 000
SSS/PHIC/HDMF Contributions - P 5, 000 Commission income = 125 000
Rice Allowance - P 24, 000

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TRAIN EMPLOYEES OF ROHQ, RHQ, OBU, &

PETROLEUM CONTRACTORS
Gross Compensation 315 000
Income ROHQ = Regional Operating Headquarter -
pertains to a MNC having operation here,
Less: Basic MW 155 000 meaning they have sales agents, earning
revenue and incurring expenses here in the PH.
35 000
OT, NSD, Hazard, & RHQ = Regional Area Headquarters - still
Holiday pa related to MNC companies; difference is, RHQ
does not have any license to do business here.
It’s license is for admin purposes, for facilitation
Taxable 125 000 services/customer service. No sales. No income.
Compensation
Income OBU = Offshore Banking Unit - unit in a
multinat’l bank w/c deals with offshore accounts,
Tax Due [NOT over - 0- foreign currencies and earning income.
250K (250k x 0%)]
Petroleum contractors & subcontractors.
Tax Due under - 0-
graduated income tax
Before TRAIN law, all these were considered
regime: [NOT over
special corporations. Well, until now bec wala pa
250k (125000 x 0%)]
napasa ang CITIRA bill. Point is, as special
corporations, they have a certain preferential rate,
Tax due under 8% tax 10 000
w/c is lower than the regular corporate income
regime: (125 000 x 8%)
tax.

As part time real estate agent, mahulog nga Bec. they’re so special, this extends to their
self-employed (unlike in the previous illustration employees. There was this provision before in
nga ang other income is from the same employer the Tax code that their employees are given the
so pursuant to employment gihapon. There’s no option to be taxed at a lower rate of 15% w/
option to be taxed at 8%.) here, Mrs. E has the conditions. During that time (1997), gvt wants to
option. encourage investments.

If she chooses 8% of the gross of 125K then she Under TRAIN law, it’s changed. Preferential rates
will have a liability of 10K. to its employees were vetoed by the President
and was not override by Congress. It’s not
If she chooses 0-35%, she’ll have a liability of 0 anymore imposed/honored by the executive dept.
because the other income of 125k do not exceed That’s why there’s NO MORE SPECIAL
250k. EMPLOYEE. Their employees are now subject to
income tax rates of 0-35%.
This is matter of decision on the part of the
taxpayer. So, there is no more need for us to study on what
are the conditions for an employee to avail of the
WRAP UP: MWE’s basic pay, hazard pay, OT, 15% preferential rate. But, if you will ask me, kay
holiday pay in relation to the employment, even if duha man ni ka taxing entity, the employee and
it exceeds 250k, that’s still qualifies you as a the ROHQ, RHQ, OBU, the corporate entity, not
MWE, therefore exempt from income taxation. much change as of now, since naa pa man to sa
The moment the MWE earns other income from CITERA, so naa pa gyapon to ang preferential
whatsoever sources, that’s when taxation comes rate. But for employees, it is already applicable: 0
in. If the applicable tax rate is still 0-35%, then to 35% tax.
follow the graduation.
RR no. 08-2018

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· All employees of RHQ, ROHQ, OBUs and

petroleum contractors are now subject to regular
income tax rates Before man gud, pwede ni sila maka avail ng
lower rate of 15%, but now, effective 2018, the
· Withholding tax taxable as per RMC 1-2018 taxable income will now be subject to 0-35%, no
shall be applied. more preferential rate of 15%. Concern ra gyapon
nimo is if RC, RA, NRA. Di na nimo problemahon
if naa bay special rate, what you need to look at is
diin niya girender ang service or na –earn, sa
So, if you notice, in your hand out and in our Pilipinas or sa gawas. Rc or NRC ba siya? Kay if
discussion, we don’t discuss anymore about girender nya sa Pilipinas and RC siya, then
special employees kay essentially wala na to taxable: 0-35% basta employee.
effective 2018.

To wrap up on compensation earner:

So, for this illustration, gi-elaborate lang under
the illustration unsa ang tax treatment: Again, it covers all income earned whether
in-kind or in money earned under
Withholding Tax on Compensation: employee-employer relationship. The doctrine of
Employees of ROHQ, RHQ, OBUs, and cash equivalent applies if the employee receives
petroleum contractors compensation in kind. The manner of collecting
the tax under employer-employee relationship is
Illustration 9: Ms. CCF, an alien employed in through withholding tax. Take note lang of the
MCUD Corporation that is a Petroleum Service special benefits:
Contractor, received compensation income of
P5,000,000 for 2018, inclusive of P400,000, 13th 1. Exclusionary benefit of 90,000 na
month pay, and other benefits. dili nimo i-tax for 13th month pay and
other benefits.

2. Fringe benefits which are given

to managerial or supervisorial
employees which is subject to FBT

3. The HEVHIMEHEL: it is not

Compensation Income - P5,000,000 subject to 0-35%, but rather, since it
is fringe benefit, then it is subject to
Less: Non-taxable 13th fringe benefit tax.
month pay and other
benefits (max) - P90,000 · Exemption to fringe
benefit: if it is a de minimis
TaxableCompensation benefit. Basta within sa
Income = P4,910,000 threshold. However, if mulapas
sa threshold, then isulod una sa
Tax Due: 90,000 exclusionary benefit,
dinha pa ka makaingon is
On P2,000,000 P490,000 subject to FBT siya or sa 0-35% if
mu-exceed siya sa 90K
On excess exclusionary threshold
(P4,910,000-P2,000,000)x32%
P931,200 · Employer’s Convenience
rule – so, if the granted benefit is
Total Tax Due P1,421,200 not for the benefit of the

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employee entirely, but it is for the A: Because now the threshold to determine
benefit of the employer. whether you are VATable or not VATable is only
of 3M.
· Contributions of the
employer for the benefit of the Although concern na nato inig Tax 2, I’ll inform
retirement, insurance, and you nalang daan. So, the point there is your
hospitalization of employee, Gross Receipts, gross is meaning to say wala pa
especially if it is group benefits deduction. Ang deduction lang nganha are the
plan, that is not also subject to “returns” or “allowances”.
FBT

· Those Fringe Benefit that

are exempted or authorized by
special laws.

BUSINESS OR PROFESSIONAL INCOME

EARNER:

Still on personal or individual taxation, we divide

our discussion into 2:
So, if the gross does not exceed 3M that’s where
1. Self-employed individuals and then option to be taxed at 8% or 0%-35% comes
professionals in. However, if more than 3M or exceeding 3M
already, no more option to be taxed at 8%.
2. Mixed income earner Automatically, the option that the taxpayer can
use is 0%-35%.

8% on gross sales/receipts or other income,

The rule here is slightly different, especially for because this is gross pasabot there is no
Self-employed individuals and professionals deduction. However, under the law there is an
because, just to give you an overview, under the amount nga pwede nimo i-exclude and that’s
TRAIN Law, these type of taxpayers are given P250,000. Ang ma subjected lang to 8% is the in
the option to be taxed either at 0-35% or 8%, excess amount of P250,000. So meaning if naa
under certain conditions. kay gross sales/receipts, ang ma deduct lang
nimo na figure is 250K.
Self-employed individuals and professionals
Q: What is good with this 8% option?
First thing that you have to remember here: there
must be no employer-employee relationship. A: It’s simple, you don’t need to account for your
expenses, you don’t need to worry for
Step one is to determine how much is the gross substantiation of your expenses because no
sales or gross receipts in business income earner expenses needed to be deducted. Second, this
the professionals. Sale pertains to goods and option is in lieu of graduated income tax tax rate
Receipts, this could pertain to sale of service. So, and percentage tax.
if you’re a professional etc., you are earning
receipts. Kailangan ang THRESHOLD ang Pasabot wala na kay bayaran na business tax
tanawon which is 3M. because that is in lieu of personal graduated
income tax. Usa nalang imong bayaran na tax sa
Q: Ngano 3M man? BIR, it is only your quarterly income tax return.

Q: So, unsa ni ang business tax?

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A: If you are a self-employed individual or a bayaran nalang nimo which is based on gross
practicing professional, you are considered to be would only be 3% instead of 8% so, at the end of
engaged in business. When it comes to filing and the day, it’s a matter of checking unsa ang dagan
payment of taxes, other than the local taxes, sa negosyo or unsay dagan sa firm because is
you’re primarily subject or obliged to pay National you have too many expenses for this year, then
Taxes which are the income tax and the business might as well avail of the 0%-35%. Meaning
tax. The income tax, this is a tax on your Net pwede ka ma loss, at least maka benefit ka maka
Income or Net Profit. The BUSINESS TAX, this legally avoid ka sa tax. Otherwise, you may
is a tax on your privilege in doing business or choose the 8%. Now, still on this side, when I am
practicing your profession. It means that kani going to say that I will choose 8% or 0 to 35%?
si Income Tax, naa lang kay liability if naa kay Net That option must be stated in your first quarterly
Income, after deductions. But BUSINESS TAX, filing. When is the first quarterly filing? The first
even if you don’t have any Net Income, even if quarterly filing, the deadline is May 15. So, it is
you are at a loss, because you are doing important that in the first quarterly filing, you have
business, you will still have to pay business already indicated whether you avail 8% or
tax and there are 2 types of business tax, whether you avail the 0 to 35%. And that
either PERCENTAGE TAX or VAT. Once you indication is good for the entire taxable year—it is
exceed 3M, you’re already mandatorily not allowed to change it in the middle of the year
covered unde the VAT system but if you do or by the end of the year. What if towards the end
not exceed 3M, you are covered under the of the year, the gross sales exceeded 3 million?
Percentage tax system, although you can What will happen to me? It will be discussed later
voluntarily register under the VAT system. on, although as an overview, if it exceeds 3
million towards the end of the year, definitely you
So the point here is, kung wala pa ni ang 8% will be out of the 8% option—you will
option, if we base it on the previous law, kung ako automatically be on the 0 to 35% for your income
practicing professional, dili ko empleyado, duha for the entire taxable year. Again, we are talking
ka tax return ang i-file nako, primarily. My income about individual. So, the periods are from
tax return and my percentage tax return, kung ni January to December.
exceed ko ug 3M annually, if ang basehan nato is
ang previous year, income tax return and VAT Is the 8% option applicable to corporate tax payer?
return ang i-file. This is complicated man before No. this is individual. There is even no 0 to 35%
kay ang filing sa income tax before is monthly, for corporate tax payer.
same is true for VAT return. Although, they made
changes under TRAIN law, ang percentages gi Again, if you exceed 3 million, you will no longer
quarterly na nila, ang VAT gi monthly though have the 8% option—it is automatically on 0 to
there will be a year na ma quarterly na sad an 35%, so, this is one return and this is another
siya but that is a different discussion. The point return.
here is you will be filing UP two BIR forms and so
to simplify, you have that option. Rules in electing the 8% income tax

The other option is the 0%-35% Graduated Tax base = gross sales/receipts and other
Income Tax Rate naa kay expense deduction income not subjected to final tax
nganhi and the 3% percentage tax return, this is
the business tax that I am talking about. What is meant by other income? These are what
we call as incidental income which were not
You would ask diri nalang ko sa option 1 (8%) kay subjected to final tax. Supposedly, the example
ang option 2 (0%-35%), obviously hassle kay I will of “other income” is interest income. But if the
be filing 2 BIR forms. Take note, under option 1, interest income is already subject to tax, you no
this is based on gross, wala kay expenses so longer need to report it as other income.
pasabot under option 1, your tax liability will really
be positive. Unless, wala kay operations gyud on Gross sales – all sales transactions reported in
the particular year but in option 2, if you have too the period subject to the following deductions:
many expenses for that year then pwede zero (0) sales return; discount granted at the time of sale
or loss ang imong i-report na income, ang (meaning, it is unconditional), expressly indicated

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in the invoice, amount forming part of sales

recorded in the books of accounts, not dependent
upon happening of a future event.

Gross receipts – amount of money or its

equivalent actually or constructively received
(clients deposits which is supposedly your out of
the package expenses that are deposited in your
account) during the period, including deposits
and advance payments.

To be clear, for self-employed professionals, how So isa lang ka tax return ang i-file and bayaran
do we determine if they are allowed to avail the nimo.
8% option?
So what I'm trying to point out here is dili pwede
First question that they will have to ask is that are magkuyug si 12% VAT ug si 8% income tax
you a business/professional income earner? option. There is no instance na magkuyug sila.
If the answer is no, then, no option to be taxed at Nganu man? Because ang kuyug ni 8% option in
8 percent. Automatically, you are subject to excess of P250K, ang kuyug niya always is si 3%
graduated income tax rate of 0-35%. percentage tax. (And we will discuss about
percentage tax and VAT as we move along.)
If yes, then the next question is, did the
gross sales or gross receipts exceeded 3 For self-employed professionals, if we are going
million? to further dig in on the available options. In the
applicable tax rates, duha na to ang option niya. If
If no, the next question is, are you you recall, we also discuss on the deduction kay
VAT-registered? Because when it comes to naa man deduction si self-employed or the
VAT registration, this can be voluntary. Meaning, professional income earner diba? Sa deduction,
even if you did not exceed the 3 million, you are another option also kung mag itemized ba siya or
allowed to voluntary register under the VAT mag OSD. And same rule basially on whether to
system. choose itemized or OSD kung kanus-a nimo
i-inform si BIR by ticking a particular portion in the
But, if your answer to it is yes, your VAT then return at the or during the filing of the first quarter
wala kay option sa 8%. Automatic ang income tax return. And same rule in the middle of the taxable
nimo is graduated income tax rate 0-35% and year, you cannot change from one option to
12% VAT. another option.

If your gross sales/receipts exceeds 3M, then no

option for 8%.
So if you look at it, class, if you are a
However, if wala ni exceed ang gross self-employed professional, if your gross
sales/receipts nimo ug 3M, and you are not sales/receipts do not exceed 3M, you basically
mandatorily or voluntarily registered under the have 3 options: whether you will be taxed at 8%
VAT system, that's when the option comes in. (and if you will be taxed at 8%, no need to choose
You can pay income tax 0-35% + 3% percentage whether OS or itemized. Nganu man? Because
tax. Or you can pay income tax of 8% on GR/RS wala na man kay deduction on that. Ang
in excess of P250K, no need of business tax. deduction nimo is only the P250K. No need of
whatsoever substantiation. Automatic na nah sa
BIR.

But if your option is 0 to 35%, that's where the

second option comes in whether mag OSD ba or

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mag itemized. Nevertheless, whether itemized or nimo is 8%. If ang choice nimo is 0-35%, up to the
OSD, you really have to pay the percentage tax. last ang choice nimo is 0-35%.If wala kay gi-click
So that's where simulation comes in. na choice nimo, ang default is 0-35%. Same sa
method of deduction, if wala kay gi-click na
method of deduction, default is itemized method
of deduction for the entire year.
"Sir, what's the point of determining which option
is better nga wala pa man mi kibaw sa result sa
operation namo for the taxable year?"
Now, what if, sa gihatag nako na scneario
It could be difficult at the start of your business. kaganina, middle or towards the end of the year,
But if you've been doing business for quite some you were able to earn more than P3M (nilapas)?
time, you can very well have a basis based on
your historical revenue and historical expenses The rule is if the taxpayer opted for 8% income
incurred based on your prior year's performance tax but exceeds the VAT threshold during the
and based on your potential clients in the coming year, the taxpayer will have to pay 3% prcentage
year. Kung naa kay gi-think na mosulod nga dako tax on the first P3M receipts, compute the income
kaayo na project for that year, medyo swerte na tax on accumulated income using graduated
ka nganha, perhaps it might not be wise for you to income tax rates, and deduct the 8% income tax
choose 8%. But if more or less parehas ra as last paid from previous quarter and pay the VAT on
year, wala ra kaayo kay expenses involved unya succeeding receipts.
di ka ganahan ma hassle kay wala kay
bookkeeper, then perhaps you might want to Instead of getting a depreciation based on 10
choose 8%. million, you will only be getting a depreciation
based on 2.4 million pesos. Let’s say for example,
ang estimated, kay ang depreciation kay i-divide
man na nimo sa useful life. So kung ang useful
If the gross sales or receipts exceeds 3M, wala
na kay option to choose the 8% as what we've life, i-estimate nimo is 10 years. That is a normal
previously discussed. But still, the method of vehicle used by the company not specifically
deduction is prsent - itemized or OSD, the assigned to an official or employee. Even though
taxpayers can still choose plus of course the BIR it’s 10 million, you divide that by 10 years, you can
return for 12% VAT. deduct depreciation expense of 1 million every
year.

However, if you assign that vehicle specifically to

an official or employee, limit lang, ang threshold
lang is 2.4M. So that would be 2.4 million divided
by 10 years, ang ma-claim lang nimo every year
is 240K.

So the consequence is if you are deducting 1

million depreciation, tendency is BIR will disallow
the difference of around 760K. Why is 760K
disallowed? It is because of the 2.4 million
Now, what if I do not exceed 3M and I chose 8% threshold.
income tax?
Walay prohibition nga dapat kini lang ang value
Again, you must not be VAt registered para maka sa car nga ipagamit nimo. Pwede mahalon nga
avail ka. And as what I've mentioned, the choice car, but when it comes to computation of
must be made in the 1st quarter return. If ang depreciation, the maximum limit of valuation
choice nimo is 8%, up to the 4th quarter choice

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allowed by BIR is 2.4M, and only one car per So unsa ang mahitabo? The rule here is that the
official or employee. moment you exceed the 3 million within 30 days.
For the first quarter, you elect 8%. But say for
For fringe benefit tax purposes, ang basehan example, in this illustration, in July 31, na-breach
nato is the 10 million. Now gipa-use ra man ni, so na nimo ang 3 million, alangan man sad nga
meaning to say times 50%, dili mu-matter ang ihunong ang negosyo kay naka-abot na sa 3
2.4M. The 2.4M is only for the deductibility of million, so you have to continue. This is barely
depreciation expense. more than half a year, more than 5 months pa.
The rule is that within 30 days from July 31, when
you breach the 3 million, you must be able to
update your Certificate of Registration (CoR) with
Specific Rules on Valuation – Foreign Travel the BIR and it must be indicated there that you
are already liable to pay for the VAT. Thus, for the
first 3 million, you need to pay percentage tax,
while for the succeeding amounts, you will pay
What if it is the employer who would shoulder the
the VAT. Take note, from January 1 to July 31,
expenses for foreign travel?
you are paying the 8%. But for the entire year,
you will be assessed using the graduated income
· The rule on monetary value is as follows:
tax rates of 0%-35% because you already
Foreign travel Valuation of Monetary exceeded 3M, you can no longer avail the 8%
benefit value option.

If employee is Cost of the 30% So what happens to the 8% income tax that you
given a first first class already paid from January 1 to July 31?
class airplane airplane ticket
ticket - You will just deduct that figure from the
figure computed using the 0%-35%
Traveling Cost of ticket 100% graduated income tax rate for the total of
expenses of and all other 5 million. So, for the 5M, deduct the 8%
the family expense that you already paid which is for the 3
member of million. Whatever is the excess there,
the employee that remains to be your tax payable to the
which are BIR.
paid by the
employer

What will happen if you did not pay percentage

tax from January to July, but it was stated that
· If employee is given a first class airplane you are still required to pay 3% percentage tax?
ticket, 30% of the cost of the ticket is subject to When should you pay the percentage tax?
fringe benefit tax.
- It should be paid within 30 days, the
· If the traveling expenses of the family moment that you breached the 3M
member of the employee are paid by the threshold. And moving forward, on a
employer, 100% of the cost of ticket and all other monthly basis going to December 31, you
expense are subject to fringe benefit tax. will be paying the 12% VAT.

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Illustration: - 1.1M - 600k (cost of

sales) - 200k (operating
Gross Sales – P800,000 expenses = 300k (taxable
Convenience Store income)
- 300k x 0%-35%
- Income tax = P10,000
Gross Receipts – P300,000 - Percentage tax =
Bookkeeping services P33,000
- Tax due = P43,000

Cost of sales P600,000 · Let’s try graduated income tax rate – OST
- 1.1M - 40% (gross
receipts) = 660k (taxable
Operating Expenses P200,000 income)
- 660k x 0%-35%
- For gross sales and gross receipts, you - Income tax = P95,000
already have 1.1M - Percentage tax =
- Thus, you have 3 options. You must P33,000
choose the best option. - Tax due = P128,000
- First option: 8%
- Second option: graduated income tax · Thus, in this case, the better option is try
rate - OST graduated income tax rate – itemized
- Third option: graduated income tax rate –
itemized · Point: if your business has a very high
- In this case, the better option for the tax allowable deduction might as well entertain
payer is the option where his tax payable graduated income tax using itemized deduction
is lowest. but then again we go back to the issue there of
kung mo substantiate ba ka ana nga expenses or
if questionon ka ni BIR ana later on, maka
depensa ba ka sa expenses nga gi claim nimo,
and do you have the necessary man power ba to
do the filing and the monitoring because again
duha ang bayaran nimo anha, income tax and
business tax.

· Let’s try 8%:

- 1.1M - 250k = 850k
(taxable income)
- 850k x 8% = P68,000 (tax
due)
- No business income
because there is no percentage Kani pa lang, this gives you the idea that the
tax taxpayer is already VAT registered. So, wala na
ang option to be taxed at 8%. Ang option nalang
nimo nganhi is whether mag OSD ba ka or
· Let’s try graduated income tax rate – itemized

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whether mag itemized. But definitely, zero to 35 the better option is itemized deduction. I will say
graduated. So if you do itemize, ang mahitabo perhaps because there is always that exposure
deduct the custom sales, deduct the operating nga idisallow ni BIR ang kani nga particular
expenses of 400,000. Tax due nimo P506, 000 expense and there are so many reasons nga
(This is under 0-35%, tax table na basically). VAT pwede niya idisallow. Primary reason is failure to
payable P134, 000 (12% of 3.2M). withhold. Usual reason also is failure to
substantiate.

Unsa maning input VAT nga nganong wala man

gi deduct ang input VAT? Kaning input VAT, mao
ni ang VAT nga gi bayaran niya for the purchases
niya nga pwede niya ma claim as tax credit
against the output VAT.

POINT: This input VAT is not an allowable

deduction by default.

Again, in this case, when the gross receipts Q: If on the following year, you fall below the
exceeds 3M, no more option to avail 8% 3M threshold, can you go back to being non
automatic your option nalang is whether itemized VAT? Dili na dba?
or OSD.

Atty: Dili na. (Supposedly that’s for tax 2) If

Given the illustration, under itemized minus karon nga year let’s say for example no ni
750,000, minus 400,000, so your tax due is exceed ka sa 3M, you are mandatorily covered
P506,000 and VAT payable is P134,000. na under the VAT system, the following year,
ang gross sales of receipts nimo niubos
below 3M, it’s not automatic nga ma non VAT
naka. You can deregister under the VAT
Kung OSD, 40% man. So, 1,920,00 ang taxable system but what the BIR will look at is your 3
income. Go to the tax table 466,000, 12% of the prior year or 3 years performance nga wala ka
gross sales of 3.2M is 124,000. Obviously in this ni exceed sa threshold nga 3M and of course
case, the better option is OSD or Optional if yould request for deregistration under the
Standard Deductions. Ngano man? Gamay ra ka VAT system, you will be subjected to
ug mabayaran ang tax due nimo only 466,00 verification audit by the BIR. Mao na nga
compared to 506,000. essentially,kung ma VAT registered ka,
mahulog na gyud na nga forever although
technically pwede ka magpa deregister, but
you have to prove and present audited
financial statements for the past three years
and be ready for audit verification.

In relation to that, mao sad diay ni ang nahitabo

because prior to the train law if I may mention, the
threshold was not 3M, it’s only 1.9M. So there are
so many practitioners prior to the train law who
are already earning more than 1.9M, earning 2M
When do you know again nga as maayo mag but not more than 3M.
OSD? Look at the percentage of the expenses
over the sales. If the expenses over the sales do Ang nahitabo, prior to the train law, na register na
not even exceed 40%, then better mag OSD sila under the VAT system because they’re
because the OSD is 40%. But the moment, the earning siguro mga 2M-2.5M but not beyond 3M.
expenses exceed 40%, 50% or 60% then perhaps, When the train law took effect in 2018, the

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threshold was increased from 1919 to 3M. So tax rate the following taxable year. BUT one
these practitioners who are earning mga around cannot opt to change in the middle of the year.
2M lang or 2.5M would want nga magpa The same is true for OSB and itemized deduction
deregister under the VAT system. Can they do so? - good for one taxable year and one can change
YES. During the early days of implementing the the following year. BUT it is different when it
train law, one year lang ang tan awon ni BIR. But comes to VAT registration or non-registration.
after a particular work around period or transitory
period ang tan awon na ni BIR is 3 years. Q1:
● Total Sales = P500,000
● Availed of the 8% option
Caveat: You can be audited by the BIR.
Q2:
This is why there were a number of practitioners ● Total Sales = P500,000
who, instead of deregistering, opted not to
proceed with deregistering under the VAT Total of Q1 and Q2 = P1,000,000
System so as to avoid being audited by the BIR.
Q3
● Total Sales = P2,000,000
2019 Status of Voluntary VAT System
Registered Practitioners who did not
Total of Q1, Q2, and Q3 = P3,000,000*
exceed 3 Million
*reached the 3 million threshold
CANNOT AVAIL OF THE 8% OPTION
because they are VAT registered
Q4
● Total Sales = P3,000,000
EXAMPLE: Towards the end of the year, the
practitioner exceeded 3 million. Even if the TOTAL of Q1, Q2, Q3, and Q4 = P6,000,000
practitioner opted for the 8%, in the filing of its
annual tax return, he/she is subjected to the Here, Ms. JMLH cannot avail of the 8% option.
0%-35%. For the entire year, she will be subject to the
0%-35% tax on the P6,000,000.
ILLUSTRATION: Ms. JMLH signified her
intention to be taxed at 8% income tax rate on BUT since MS. JMLH already paid 8% during Q1,
gross sales in her 1st Quarter Income Tax Return. there is no need to get the taxable income for Q1.
However, her gross sales during the taxable year
has exceeded the VAT threshold. Input VAT for The 8% for Q1 will be based on P500,000. The 8%
the fourth quarter is P100,000. (with updated for Q2 will be based on P500,000. And the 8% for
registration to VAT) DO NOT GET INTIMIDATED Q3 will be based on P2,000,000. The 8% tax paid
BY THE FIGURES. We will only look at the total can be claimed as a credit.
sales.
So, this is what will happen.

NOTE: The 8% tax rate is good for one taxable The taxable income will be P1,560,000.
year. Hence, one can opt to change to 0%-35%

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Step 1:
Get the 0%-35% tax rate of P1,560,000.
Which in this case, it is P358,000. (BUT
this is not yet the income tax liability
because there is a credit.)
Step 2:
The 8% income tax paid for Q1, Q2, and
Q3 will be deducted from P358,000. This
credit amounted to P220,000.
Step 3:
Deduct the P220,000 from the P358,000.
Now, the Annual Income Tax Payable of
Ms. JMLH is P138,000.
. . . Purely Self-employed or Professional income
NOTE: For business tax, there are two payments earner = Di man nimo ma-claim ang input VAT for
- Percentage tax (3%) and VAT (12%). the first three quarters, nganu man? Kay you are
subject to percentage tax on that quarter. Ang
Step 4: mahulog gyud ang imong bayaran nganhi will be
Compute for the percentage tax which, in income tax of 138 thousand for the entire year,
this case (3% of the total sales for Q1, 3% percentage tax of 90 thousand and, VAT 108
for Q2, and 3% for Q3) is computed at Thousand. Why 108K that is basically output VAT
P90,000. of 208k – input VAT of 100k which pertains to your
Step 5: purchases.
And compute for the 12% VAT, in this
case, for the total sales of Q4, which is Why are you considered mixed income earner?
computed at P208,000. Because you are earning compensation
income there is employer and employee
NOTE: You DO NOT compute the 12% VAT from relationship and business or professional
the P6,000,000 and just deduct the 3% income where there is no employer and
percentage tax from the product of the VAT employee relationship. For Mixed income
computation. This is because business tax is earner the option to be taxed at 8% in excess of
computed differently. Business tax is computed 250K on your gross receipt or gross sale can still
on a quarterly basis - per quarter computation is be availed but the difference is there is no more
an independent computation. 250k ang option nalang nimo is 8% on your gross
sale or gross receipts.
The 12% VAT computation is applicable only to
Q4 because the amount of P208,000 is NOT the
amount to be paid to the BIR. The VAT input is
still to be deducted. And the VAT input is the
P100,000 given in the illustration above. However,
Ms. JMLH cannot claim the VAT input for the first
three quarters because she is subjected to
percentage tax on those quarters.

Step 6:
Deduct input VAT of P100,000 from the
output VAT of P208,000.
Step 7: Ang compensation income nimo is still 0-35% dili
Ms. JMLH’s Payables: to ma apil sa option na 8%, ang available lang for
Income tax = P138,000 (for the entire the 8% is only be your business income or
year) professional income and still we apply the
Percentage tax = P90,000 threshold. If your threshold do not exceed 3
VAT = P108,000 (P208,000 output VAT - million that’s when you can avail of 8%
P100,000 input VAT) income tax on your business income, plus

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0-35% on your compensation income. In your then you computed tax liability in your
tax return, there is no problem because lahi ang compensation income, kay diba this is 0-35, if you
presentation for business income lahi pud ang can recall in our discussion the 0% here is for the
presentation for compensation income so e-total first 250K, so ni-ingon si legislator nga nagamit
lng nimo sa ubos kung pila ang tax payable nimo. nana nimo ang 250 when you computed the tax
Of course, the other option is to tax everything, on your compensation income so no more benefit
both your business and compensation income at if you avail of the 8%. Although ug ako imo
0-35% however, for your business income subject pangutan-on murag alkansi ka, because
ta to the three (3) percentage tax. If you notice in inig-compute baya nimo sa tax on the
this case no more percentage tax because 8% compensation income that is only your
option man ang gi-choose nimo. If the gross compensation/salary wala pa nimo gi-add ang
receipts or sale exceeds three (3) million, no business.
option for 8%, everything will be subject to
0-35 graduated income tax rate plus 12% VAT.

For the compensation income you have Total

LESS Non-taxable bonus you get taxable income
So let us say for example you have Mr. Mag a for P1, 410, 000 and this is the time you go to the
financial controller of Jag Company has the tax table to 0-35% so you get an income tax P313,
following income: Gross Sales 2.4 million, Cost of 000. So ang total annual income nimo is would be
Sales 1 million, there is Taxable income 900,000 200, 000(tax due) + 313, 000 (income tax) = P513,
this is from business. 000. If you avail of the 8% option on your business
income.
Maka-avail ba siya sa 8% option? –Yes, wala
man ni exceed ug 3 million ang total sales
niya. Its 2.4 mil + other income na 100 the total is
only 2.5 not exceeding 3. Basic Salary niya
1,380,000; 13month 120,000 (ang 120 in excess of
the 90) but the point is naa bay option 8%, dili
automatic 0-35% because this is his income as
financial controller of Jag Company.

How are we going to present it? For the business

income na 2.5 kay plus other income, if mo-avail
siya ug 8% income tax class, then that is 2.5
times 8% (2.5x8) so tax due there would be
200,000. Now, you will ask, Sir dili d-ay What if gi graduate rate nimo tanan: 0-35%. Mas
mag-deduct pa ta ug 250K because, if you recall dali although you need to choose whether mag
in our previous discussion if your are purely itemized ka or Option Standard Deduction (OSD).
self-employed or purely professional income This Itemized deduction and OSD matter for your
earner before multiplying it by 8% the gross sale business income, not much of an issue for your
or receipt will automatically be reduced paman by compensation income.
250K, but in this case class, wala na because you
are a mixed income earner and according to the If your business income you used Itemized
law automatic na-avail nana nimo ang first 250 Deduction that would basically be 1, 500,

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000(total gross income) – 600, 000( operation If you choose between Itemized and OSD, better
expenses) so you get 900, 000(net taxable ang Itemized. But between 8% and 0-35% mas
income). advantageous if you choose 8% of your business
income because and total bayaran nimo is only
P513, 000. Kay in lieu man ni sa percentage tax
so wala nani percentage tax bayaran.

Total would be P2, 310, 000, and go to your tax

table 0-35% then you will get P589, 200 and then
percentage tax 3% of your P2, 500, 000(see 8%
Income Tax Rate picture above) then you get P72, Whereas if you choose the 0-35% you will still
000. have this amount of payment for percentage tax.

If nag OSD ka mas dako, P781, 000 because ang

net taxable nimo is 60% man basically ang ma AGAIN, what makes mixed income earners
subject to tax kay only 40% ang deduction. You different from purely self-employed or profession
get P2, 910, 000, income tax P781, 000 and income earned is if the mixed income earned will
Percentage Tax P72, 000. choose the 8% option on his business income.
He cannot anymore deduct 250, 000 because that
is deemed deducted already in taxing the
compensation income of the mixed income
earner.

Other conditions will still apply:

The 8% option will apply only to the business
income or professional income of the taxpayer.
The gross thereof must not exceed P3, 000, 000
and the taxpayer must not be registered under
the VAT system

For the filing of Compensation Income Earner. Is

the employee required to file a tax return? NO.
Because pure compensation income earner
there is what we call a substituted filing wherein it

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will be the employer who will file on behalf of the Atty: Supposedly mixed income earner for
employee. The BIR Form that would be remitted taxation purposes.
by the employer will be considered substantial
compliance already in so far as the filing of the Where can we find BIR rulings? The BIR rulings
employee is concerned. na updated is in CD Asia. I don’t know if you still
have the access, but the last time I check, naa sa
CAVEAT: there are instances where an library. If you want there are also tax notes which
employee does not qualify for substituting filing. are being issued by firms, you can do that. But
ingani manggud. Basically if you base it on BIR
Balikan nato ang the filing. For the business ruling, dili kaayo siya mumatter in the BAR
income earners or professional income earners,
examination, so we still go back gyud to Supreme
Court rulings. If ever I iwll be mentioning BIR
Requirement to file an ITR
rulings, the purpose there is primarily just to
BEFORE TRAIN expound the discussion. Just to relate it to the
current position of the BIR.
Filing/payment Filing/payment
deadline deadline
-Annual ITR: April 15 -Annual ITR: April 15
-1st quarter ITR: April -1st quarter ITR: May MODULE 6
15 15

Annual Income tax Annual Income tax We will start our discussion on the concept of
Return Return withholding taxes. Let’s discuss in detail what
-4 page – purely -4 page – purely transactions and types of income are subject to
compensation income compensation income withholding tax and creditable withholding tax.
earner earner We start with FWT and CWT, later on we move to
-12 page- self -4 page return - self income tax preparations. We will try to prepare
employed/professiona employed/professiona income tax for compensation income earners,
ls/mixed income ls/mixed income mixed income earners, and withholding tax forms.
earner earner If we have time, we move on to corporate income
taxation.
Installment payment Installment payment
of Tax due of more of Tax due of more For taxation at source, we know there are 2
than P2,000 than P2,000 classes-- final withholding tax (FWT) and
-1st installment – April -1st installment – April creditable withholding tax (CWT). This is also
15 15 known as the “pay as you earn” system.
-2nd installment – July -2nd installment –
15 October 15 When we talk of withholding tax, it is not a tax.
It is a method of collecting the income tax.
The purpose of the BIR in simplifying (refer to the Taxes withheld should be maintained in a
4-page return-self-employed/ professionals or separate account and are considered as trust
mixed income earner) is to encourage voluntary funds until remitted to the government. The
compliance by the taxpayers. withholding agent is not expected to use that
amount, but rather to remit it to the BIR.

Tax due can be paid on installments upon Why do we have withholding tax? This was
approval of the BIR. formalized when the 1997 tax code was
mandated. Prior to that, doing the withholding tax
Question from a student: What if talent is a is more regulatory and not mandatory for a
sideline and also an employee. What is that particular transaction. If you recall, there was one
called? Mixed income? case even questioning the constitutionality of the
imposition of the creditable withholding tax
pertaining to real property developers.

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Why is the withholding tax being implemented by to get a copy kay mao ni ang pinaka bible
the government? Primarily, for 3 reasons: (1) To basically of the 1997 NIRC. but as we very well
provide BIR Audit Trail; (2) Convenience to know, it was amended for personal income
the taxpayer; (3) Government’s Cash Flow. taxation by the Train Law effected last 2018. Now
we have the 11-2018 and RR 1-2019. But you will
(1) First, it is easier for BIR to monitor who is still see provisions there in the latest RR whcih
the buyer or the seller. Kung pila na amount gi pertains to the Old revenue Regulation 2-98.
declare ni seller, should be the amount gi declare
sa expense ni buyer and vice versa. If the amount Who are required to withhold?
declared by any of the two parties in that sales
transaction differs, then that’s when the BIR As what we’ve discussed before, the withholding
comes in. There will be deficiency assessments. agent is the buyer or the client. As withholding
agent, he is primarily responsible in the collection
(2) Second, is convenience for the taxpayer. and remittance of tha tax to the BIR. Hence the
Why is it convenient for the taxpayer? Because if withholding agent merely holds the money
that transaction is subject to withholding tax, if it collected in the trust for the government.
is a creditable withholding tax system, it is
considered as an advance payment. In an I have already mentioned this before, what
advance payment, it means that come year end, compels the agent to the withholding or what is
it is not anymore a very hefty payment on one the compelling reason for the buyer or payor to
particular period. It is as if it is paid on a do the withholding? Ofc for the government but if
staggered basis. Although we compute the tax we rely on that reason merely, many will not
liability on an annual basis, it does not withhold. Mao na nga gibutang ang punishment
necessarily mean that the amount computed or the negative consequence of the failure to
there is the amount that has to be remitted to the withhold. And as what we’ve discussed, its a
BIR because if that transaction is subject to requirement for you to claim an expense. If you
withholding tax, those taxes withheld will fail to withhold that particular outlawed, there is a
have to be claimed as tax credit. tendency that the government will disallow your
claim for expenses on that particular item which
(3) Third, it is the government’s cash flow. you failed to withhold.
Under normal circumstances, there are the
withholding taxes required to be remitted on a Who can be a withholding agent?
monthly basis, so in short, the government is
ensured that they will have inflows on a monthly - Person (having controll over the payment
basis for whatever expenses that the government and who, at the same time, claims the
will have to spend. expense ((we are referring to a business
transaction)) because if it is for personal
The primary basis of withholding tax provisions is expense, it is non deductible.
of course the NIRC Provision on WT. We have - Juridical Persons and Individuals (for
sections 57 down to details on withholding taxes payments made in connection with trade
on compensation that is laid out under provisions or business)
78 to 83 of the tax code. Our discussion will be a
combination of the NIRC provision, because the What’s your obligation as payor or buyer?
NIRC provision is just very general, so we have to - Withhold the income payment to the
discuss the provisions under the Revenue seller
Regulation and Revenue Memorandum Circular, - Issue the appropriate BIR forms 2307,
taking into consideration jurisprudences and 2306, etc.
rulings issued by the BIR. The topic on
withholding tax is a very broad and dynamic topic When we talk of payor, dili income earner, kani
so it’s difficult to say this and that without looking na payor could be a :
at the regulations. And not the NIRC. first is on - Corporation
the implementing rule for withholding taxes. We - Joint venture
Have Revenue regulation 2-98 as amended by - GPP, cooperative
RR No 1-2019. For RR 2-98, i hope you were able - Non-profit organization

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Payor: Corporation A or the witholding agent but

Basta kung kani sila ang buyer, they are obliged on behalf of the payor an Agent acts, so X acts on
to withhold for a particular transaction nga behalf of the payor, he could be a broker or officer
requirement and withholding. Dili man sad tanan or employee of the company, in dealing with the
transaction ang required na withholdan. The only payee. Payee example is B. In this situation, ang
time when it becomes mandatory nga mubayad sang kwarta si Payor A to B, but the
kinahanglan ka mu withhold, once the person payment goes first to the Agent which is Agent X
becomes a top withholding agent or TWA which to the payee B.
will be discussed later on.
What is the obligation of Payee (B), the
But remember that there are only specified service provider:
transactions that you need to withhold. Sir diba Issue an official receipt under payor's name (not
niingon ka last meeting na ang GPP and even agent). Insofar as remittance of witholding, BIR
non profit orgs, if you recall, these are exempt Form 2307, the payor is the one who prepares it.
from income taxation but are they exempt from The name indicated there as payor is A and
withholding? The answer is no. they’re exempt payee is B. No where in the BIR Form 2307 where
on the income the’ve earned. So pasabot if ang ni the name of X appears. Dapat magbangga man
render sa service is a GPP, that’s exempt from na, ang ibangga ni BIR is the BIR Form 2307
the regular corporate income tax, therefore dili na versus the OR.
withholding income. Pero kung ang nag deal sa
service ni supplier or ang customer is a GPP or Example: si A gireport niya na P 100 ang
coop or non profit, and require under the law nga expense, supposedly dapat ang gireport na sales
withholdan na nga transaction, then there has to ni B magbangga. Unsa ang evidence of P 100
have proper withholding. To be done by that expense and P 100 income? It's the OR which is
particular exempt entity. given by B to A and 2307 which is given by A to B.
The problem now is if the OR is in the name of the
Second, another entity required to withhold is the agent, muhitabo naay ma hulog na naay expense
Agent of the payor. Who is this agent of the si A which is not appropriately evidenced by an
payor? official receipt. Why not appropriate? Because
ang nakabutang na buyer/client is not A, ang
This is the person making the first on the proper nakabutang X.
withholding agent on behalf of the real client. So
the withholding agent is the payor on payments Kung real estate broker ka, although you are the
made to broker or agents authorized by payee to one who will do the actual withholding perhaps,
receive payments. The agent of the payor merely you will do the actual remittance to the BIR, but
acts on behalf of the payor but when it comes to you should not indicate there that you are that
the documents,resibo or BIR forms evidencing payor or client.
the withholding, it should still be the name of the
payor or the name of the withholding agent to In 2018 case: Confederation for Unity,
whom the broker of the agent is representing. Recognition and Advancement of
Government Employees (COURAGE) - an
Nganong in ana man? Because the one who will organization of court employees and local
ultimately claim that outlaw as expenditure, is not executives questioning a Revenue Memorandum
the agent. It’s the payor. There are so many Order (RMO) issued by Henares, when the RMO
cases reaching CTA and SC nga gi disallow ang calls for withholding payments or salary they
expense/ ngano man? Ang rpoof nga gihatag of received from the government. Said RMO, also
the receipt for example, ang nakabutang nga punished local executives (Mayors, Governors)
name sa resibo, instead of tax payer who dared when there is failure to withhold on the salaries,
the burden or is the withholding agent instead honoraria, allowances that these government
ang nakabutang ang name sang ahente or name employees received from the government.
sang broker, of course that should not be the
case. As to the issue kung sakto ba na gipataxsan ni
Henares ang mga bonuses, allowances, of
Example: course salary given naman ang taxsa. But in

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Judiciary man gud and even in some jurisdictions Employee - covers all employees, including
they are quite creative sa amount na mareceive officers and employees, whether elected or
nila, so pwede pangalanan nila honoraria, bonus appointed, of the Government of the Philippines,
or allowances. But the issue, is it exempt? and or any political
as of this stage, ang ma exempt is kung it is subdivision thereof or any agency or
under the exclusive list of De Minimis or kung instrumentality.
maunder sa exclusive threshold na other benefits
na P 90, 000. Because there was this argument na government
employees man mi, etc
So naa na sila 100 year anniversary bonus, so We should be given exemption, BUT SUCH IS
ang question is subject na sa tax? Henares said it NOT THE CASE!
is subject to tax, therefore there should be a
withholding tax. On the side of the employer/withholding agent,
SC also said that this embraces NOT only an
SC in this case agreed with the RMO, sakto man individual or organization engaged in
na ang RMO because under the Tax Code, business but also organizations exempt from
every form of compensation for services, income tax -- bec. They’re just withholding
whether paid in cash or in kind, is generally agent. It’s not their income that’s being taxed;
subject to income tax and consequently to rather, the income of their employee. So even
withholding tax. The name designated to the if you’re a religious, charitable institution, gvt of
compensation income is immaterial. Thus, the Ph, there has to have proper withholding of
salaries, wages, emoluments, and honoraria, taxes.
allowances, commissions, fees (including
director’s fees, if the director is, at the same In this case also, a portion of the RMO 23-2014
time, an employee of the employer or the was invalidated. It was mentioned that if the
corporation), bonuses, fringe benefits (except Governor, City/Municipal Mayor, Brgy. Capt, &
those subject to the fringe benefits tax under Heads of the GOCCs including its President, the
Section 33 respondeat superiors ba, fails to withhold and
of the Tax Code), pensions, retirement pay, remit, they will be held liable. That’s why it was
and other income of a similar nature, questioned. It’s just a mere RMO, w/c as a rule
constitute compensation income that are must conform w/ the RR and the law & the Consti.
taxable and subject to withholding.
Under the RR 2-98, there was no mention of
What is this director's fee? This is a situation those officers that can be held liable for
where you are a member of the board of the non-withholding. What’s provided are only the
company and at the same time an officer of the City/Provincial/Municipal/Brgy/GOCC Treasurers
company, employee ka man. So if you received a & Chief Accountant can only be held liable. That’s
directors fee as a director/officer/employee is why that portion of the RMO was invalidated by
considered as compensation income subject to the SC for being inconsistent w/ the existing RR.
withholding tax on compensation. So if you are Only those persons [those mentioned treasurers]
not an officer or you are not an employee, you are are required to deduct & withhold the appropriate
just a mere director, you just go there during taxes on income payments, NOT necessarily
directors meeting then that is considered as salaries, made by the gvt.
professional fee, subject to withholding tax on
professional income. WRAP UP: Whether for profit/non, or exempt, so
long as that particular outflow/transaction
In this case the SC clarified who are covered as requires you to thhold, then withhold -- like
employees subject to withholding tax and who compensation to employees; lease, etc.
are covered as employer required to withhold,
kay si employer man na ang payor when it comes PERSONS EXEMPT FROM WITHHOLDING
to employee-employer relationship. So the SC RULE: person exempt from income taxation = is
said: exempt from withholding on your income tax

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EXAMPLE: if you are an entity exempt from transaction. So, as a rule, that is also exempt
income taxation under the Consti//under the Tax from withholding.
Code/under SPL, that will NOT ALSO BE
SUBJECT TO WITHHOLDING Tax by you BOI registered companies during Income Tax
payor/client/customer. Holidays (ITH) are exempt from withholding.

❖ National GOVERNMENT, Because again, when we say tax holiday,

agencies/instrumentalities - not pasabot, wala syay income tax during the period.
subject to WT on INCOME EARNED. Pasabot, wala sad kay withholding for BOI
BUT it can be a Withholding agent on the registered companies. Again, the company here
income earned by its employees. is the income earner. Duha man ang imo
❖ GPPs - whatever income earned is tan-awon dira: unsa man ni na kompanya, for this
exempt. The subject of taxation here are transaction, income ba ni niya or expense ba ni?
the partners.
❖ Corporations exempt under
Sec.30,NIRC - caveat tho on the 2nd par
of Sec. 30 as discussed in DLSU case. Cooperatives are exempt from withholding on
❖ Exempt Joint Venture on registered activity with certificate of
construction/Consortium w/ gvt on exemption
energy projects. - these construction
projects, as a rule, must be PCAB
registered and for the consortium,
exempted bec ang ka deal is the gvt w/c They are also exempt from withholding, but there
inherently exempt from taxation. has to be a certificate of exemption. Per
❖ PEZA-registered companies - exempt experience, for BOI companies, there has to
on the income generated on its have also a confirmatory ruling or certificate from
registered activity, whether subject to the BIR on this, although there is already
Income Tax Holiday or 5% preferential mentioned in the BOI registration, but the BIR
income tax rate. requires a ruling or certification gyapon for the
exemption of the company from withholding.
NOTE: only exempt if it’s the payee; otherwise, if
payor pwede na ma withholding agent esp if the
transaction requires withholding.
Under RR 11-2018, there is a new exempt entity
EXAMPLE: employee ko ni PEZA-registered co., from withholding and that pertains to individual
the latter is the payor of my salary and thus payee with lone income payor with gross
withholding agent on the compensation that I income not exceeding P250K in one year.
earned. But on the income earned by the PEZA in
a registered activity, NO WT. Besides, it’s
impractical to do so bec. the clients/payors of
PEZA are usually based abroad as they're Why exempted? If you recall, 0-35%, P0 on the
usually on export enterprises. first 250,000. So let’s say for example, karenderya
ra ko, ginagmay ra kayo na baligya. My income
for a year will not even exceed P200,000. Nya
musupply ko in one company. Labi na kung top
You also have this HLURB or HUDCC withholding agent and customer nako. Pwede ba
registered enterprises are exempt from na isubmit to withholding tax of 1% or 2% -
withholding provided within the ceiling or depending on your agreement? Pwede ba ko
threshold muingon na ayaw nako isubmit because I am an
individual payee and you are my only customer,
I know you’ve met these words, kani bitaw mga and my income do not exceed P250,000 a year.
socialized housing wherein the price thereof do And that’s under RR 11-2018.
not exceed P250,000, that is exempt from income

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This applies, however, only to individual. This

does not apply to corporate tax payer.
What if nag sworn declaration ka, because
this is the start of the year, na dili mu exceed
ng P250,000, but ultimately ni-exceed ka. What
What’s the procedure: would Waterfront do?

The procedure is, the individual payee on or

before January 15, every start of the taxable year,
will have to execute and submit to the lone Waterfront will simply disregard the previous
payor – one customer, usa lang gisuplayan niya – sworn declaration, and the moment ni-exceed na
an Income Payor’s Sworn Declaration of Gross sya ng P250,000, that’s when Waterfront needs to
Receipts/Sales. Unsa ang iswear niya? Na di sya withhold na appropriately. Excess lang of the
mu exceed ug P250,000 during the year. P250,000. Like P250,000 lang initially, but at the
end of the year, lami ang cookies niya, so
gidugangan, until it reached a million, ang
dugang lang didto maoy isubmit to withholding
Pwede diay na sir? Yes, especially if on-going tax.
ang business kay kahibalo naman ka in one year
and because you only have one payor or
customer man. So, definitely, you know already
pila ang proceed. Again, what compels the Waterfront to withhold?
We very well know, failure to withhold, especially
So, in that case, the sworn declaration will have if you're a top withholding agent could be a
to be submitted to the lone payor and the lone ground to disallow that particular expenditure…
payor/customer will be the one to submit/attach
that usually to Withholding Agent’s Sworn
Declaration which will be submitted to the BIR
every January 31st or 15th day of the following So, if we are to summarize from persons exempt
month upon receipt of the sworn declaration or from withholding until again, as a rule, entities
gross receipts. So, in that case, di na niya earning income who are exempt from income tax
kailangan withholdan. are also exempt from withholding tax. But that
doesn’t mean that they are the payor, they are
also exempted from being a withholding agent.

Para mas masabtan: Let’s say for example, si Exempt from withholding tax on
lone payor kay si Waterfront. Ang gisupply nimo compensation:
kay Waterfront kay, let’s say, cookies that you
baked. Normal, Waterfront as a large taxpayer,
mupalit na siya, for every purchase of goods, it
has to be subjected to 1% withholding tax. But if
you, supplier of cookies, based on past
experiences, even based on your contract for 1
year, wala ni exceed sa P250,000 ang agreement
ninyo sa value for the supply of cookies to the
Waterfront, puydi ka mingon na ayaw ko
withholdi ug 1%. Why? Useless man if withholdan
ka 1% and your income does not exceed
P250,000. Because annually that will not be
subject to tax. In short, that will be subjected lang
to 0% tax rate or wala kay tax liability. So, mas
ma hassle pa ka kung withholdan. So, that’s the
use of the Sworn Declaration.

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Note: under the RCC (effective 2019), a domestic

corporation may grant donation to political party.

In this case, if the Corporation A gave 1 million to

PDP, who will withhold? The one who will
withhold the 5% is Corporation A to claim the
expense.

Timing of Withholding

When should you withhold? Because I tell you,

even in practice, not only accountants but even
lawyers are sometimes confused when to
withhold or when can it be subjected to
withholding tax. As a rule, the obligation of the
payor to deduct and withhold the tax under
Section 2.57 (FWT and CWT) of these
Regulations arise at the time an income
payment is paid or is payable, or the income
payment is accrued or recorded as an
expense or asset, whichever is applicable, in
the payor’s books. Payor is the client

Since these are deemed exclusions or not within The customer or the buyer, whichever comes
the ambit of taxable income, it is also exempt first.
from withholding taxes on compensation.
Payable refers to the date the obligation
Just to be clear on number 14, actual, moral, becomes due, demandable or legally enforceable.
exemplary, and nominal damages—these are not So what do you mean by this? Whichever comes
the backwages that we’ve mentioned. Because if first kung kanus-a siya paid or payable. Meaning
it is back wages, that is considered taxable to say, kung ni advance payment si cliente,
compensation. pwede na ba na niya i-subject to withholding?
The answer is YES. Or kung wa pa ka bayari
unya payable na to. Ni accrue na to. Pwed na ba
ka mag subject to withholding? The answer is
Campaign contributions to election also YES.
candidate/political party
Kanus-a nimo dapat i-report ang withholding tax?
Not subject to income tax and donor’s tax
provided: It would be whichever comes first - when you
actually paid or deemed payable. Provided,
a. Received during official campaign period however, that where income is not yet paid or
payable but the same has been recorded as an
b. Fully utilized for campaign expenditures expense or asset, whichever is applicable, in the
payor's books, the obligation to withhold shall
c. Candidate/party files SOCE arise in the last month of the return period in
which the same is claimed as an expense or
d. Withholding tax of 5% is withheld and amortized for tax purposes.
remitted to BIR
So in short, kung kanus-a nimo siya gi-record sa
e. Donations made by foreign CORP are in libro. Kung mo ingon ta ug asset, naa man gud
violation of Revised Corp. Code, thus, subject to ta'y gitawag na advance tax payment. Usually
IT/DT gina record na siya as prepaid expense which is
an asset. So the moment you input that amount in

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your books *inaudible* which is an asset, it is 2019 so didto ninyo gisulod for the following year.
expected that there should be appropriate But still support that (proof: bill of lading).
withholding already.
So what is the consequence if you fail to withhold
Ang timing of withholding, this is not much of an other than pwede i-disallow ang expense? Then
issue if it's middle of the year, or if it falls within you have this penalties for non-filing of
one taxable year. This becomes a huge issue the withholding tax P1,000 for each failure with
moment molapas siya to another year or another aggregate amount not to exceed P25,000 during
taxable period. Nganu man? Possible nga other the calendar year.
party nag report na sa expense pero ikaw kay
wala pa ka naka collecta, wala pa kay gi-report Violation of submission requirement shall be
na income. I hope you see the picture here. ground for mandatory audit of violator’s income
tax liabilities. (Sec. 2.83.3, RR 02-98, as
Like let's say for example 2019. Ang transaction
amended)
ninyo nahitabo December 2019. Gibayaran ka ni
customer December 15. So si customer, nag
withhold na December 15, 2019, nag claim na ug This is the reason why some, if there is a law
expense for the year 2019. But on your end, let's granting income tax incentive, they would use all
say wa to nimo nadawat 2019. Ni clear to sa possible means to avail of that law because that
banko and nadawat nimo pagka January. So means that they can avoid the complexities
unsa'y mahitabo on your end? Because you’ve brought about by the withholding taxes.
received that January, ang tendency i-report
nimo as income January the following year. Si
Remember, BIR forms pertaining to withholding
BIR mo tan-aw sa 2019 books (as what I've
mentioned the purpose of withholding books is to taxes are different from BIR forms pertaining to
compare) for year 2019 naa siya makita expense income tax. Income tax is quarterly and annual
an gi-claim ni client na wa kay gi-report na but withholding taxes are done on a monthly
income. So what happens now? It depends. On basis, on a quarterly basis.
the side of the BIR, kung kinsa ang gi-assess
niya. Kung ang gi-assess niya si client, ang Penalties on withholding tax violations
mahitabo, pwede to i-assss ni BIR nga over (Disallowance of expense from gross income
declaration of expenses. It could lead to
of tax payer) – under RR 6-2018
disallowance, or additional tax assessment
because you have an undeclared income. Point
is - there could be finding. No Voluntary deductible
withholding payment of
was made correct
amount of
withholding
tax including
penalties
before audit
investigation

Deficiency Payment of deductible

"Sir, kung dili gyud na mahitabo, modawat ra ba withholding deficiency
ug explanation si BIR?"
was made withholding
The answer is YES. Because there really could tax including
be timing differences. Like in transit pa. There is penalties at
no way for you to determine the amount in the time of
December and naabtan mo ug close sa libro in

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Compromise Penalty
audit or
investigation/
The compromise penalty ranges from lowest of
reconsideratio
P1,000 up to maximum of P25,000 in lieu of
n
imprisonment.

Imprisonment – Aside from additions to the tax,

criminal liabilities shall likewise be imposed for
This simply means that if there was no withholding tax violations. This may be settled
withholding, expense is still deductible provided through compromise.
that you make voluntary payment of correct
amount of withholding tax including penalties Note: The schedule of compromise penalties for
before audit investigation. criminal violations is provided under RMO 19-07,
as amended by RMO 7-2015.
If there was deficiency withholding (meaning
kulangan ang gi-withhold nimo, like instead 5% Compromise penalty is usually computed based
ang i-withhold nimo, nagwithhold lang kag 2%), on the gross sales or assets of the company
expense is still deductible provided that you pay
the deficiency withholding tax plus penalties, This is termed as compromise because
interests, surcharges and compromise penalty. supposedly you can be sent to jail by BIR, there is
a corresponding penalty. But since it is not the
Surcharge and Interest mandate of BIR to file criminal cases, its mandate
is to raise revenue, so you are just asked to pay
for compromise penalty instead of sending you to
Surcharge Not due to 25%
prison.
willful neglect

Due to willful 50%

TYPES OF WITHHOLDING TAXES
neglect
1. Final Withholding Taxes (FWT)
Interest 12% per annum starting - Full payment of income
January 1, 2018 (previously tax due
20%) - Liability is final
- No further obligation to
file an ITR and/or pay additional
tax
- Pertains to passive
For the interest, it is 12% per annum starting
income which are not in the
January 1, 2018 because it is twice the legal
course of trade or business
interest. The legal interest before COVID-19 was
6%, which is why it is 12%. 2. Creditable/Expanded Withholding Tax
(C/EWT)
Now that BSP has reduced the legal interest, it is
- Estimated tax due
only 2.5%. If we follow the provision of twice the
withheld at source
legal interest, then it will only be 5% instead of
- This is termed as
12% during the COVID-19 times.
expanded because this pertains

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to additional transactions which

are still subject (no audio) Prizes 20% 20% 20% 20% 25%
(except
Final withholding is applied in taxing non-resident
10k and
aliens not engaged in trade or business and
below)
non-resident foreign corporations because they
are non-residents, meaning they are only doing
isolated transaction in the Philippines. If it is just a Winnin 20% 20% 20% 20% 25%
normal commercial transaction, then they are no gs
longer non-residents. So if it is an isolated (except
transaction, like he only has shares in the 10k and
Philippines that he would like to sell, so the below
manner in collecting the tax is through FWT. from
PCSO
Examples of FWT: and
Lotto)
1. Prizes and winnings
- Prizes (except 10k and
below) Interest 20% 20% 20% 20% 25%
- Winnings (except PCSO ,
and Lotto winning not exceeding Regular
10k)

2. Interest income Interest 15% -- 15% -- --

- From bank deposits , FCDU

3. Fringe benefits
- Subject to fringe benefit Interest -- -- -- -- 25%
tax , LT, TF,
DS
PASSIVE INCOME

Dividen 10% 10% 10% 20% 25%

RC NRC RA NR NRA- ds
(with (with (wit A-E NET
in or in) hin) TB B
with (wit (with Shares 10% 10% 10% 20% 25%
out) hin) in) in a TP

Royalties
Royalti 20% 20% 20% 20% 25%
es, all
For it to be considered as passive income, that
others
royalty must pertain to an isolated transaction. In
short, that royalty must not pertain to something
Royalti 10% 10% 10% 10% 25% which you create in order for it to be available
es, LW, over-the-counter.
B, MC

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Example: Microsoft developed a software to be nga kung mo apil ka ug contest, ang presyo 1M,
sold to the general market. For you to avail of that unyay walay nakabutang nga tax free, ang
software, you have to pay royalties to Microsoft. pasabot anha ang mo shoulder sa withholding
tax si winner. So and madawat gyud nimi anha
kung 20% na, ang madawat ra gyud nimo
That royalty is not anymore passive, that is
effectively is around 800,000. The rate more or
already an ordinary income or it can be franchise
less is the same for royalties.
fees, mcdo, julies, thirsty, ni franchise ka, the
franchise fee is covered under the concept of
royalty usually intangibles mani but the point is
[inaudible] the answer is dili because that is being
actively pursued. If it’s just isolated or one time For winnings, there is a different rule here. Btw,
pwede siya mosulod under passive income. unsa ang kalahian sa prizes ug winnings?

Prizes - if you look at the nature of prizes, there is

active participation on the part of the winner in
order to have that prize e.g. singing contest,
2 types of Royalties:
beauty contest or sports competition wherein
there is a monetary prize.
1) Royalties pertaining to preferential activities or
preferred activities which has something to do
with publishing a book, literary work or musical
composition - preferred activity mani so medjo
ubos ang final withholding tax but royalties for all Winnings - more on betting, one time scratch, or
other activities are subject as a rule to a higher one time hug lang kag numero whatsover. You
withholding tax, a final withholding of 20%. do nothing, it’s just everything depends on luck
lang gyud.

2) Royalties, all others 20, 20, 20, 20 but

NRA-NETB it’s 25%. Royalties, LW, B, MC 10, 10, But nevertheless, more or less same ang rate
10, 10 but NRA-NETB it’s 25%. If you look at it nila. Mao na nga if you look at the codal provision,
everything under NRA-NETB is at a uniform rate it’s termed as prizes and winnings.
of 25%, so there’s not much to remember.

But why do we need to separate them? Because

ang kani man gud PCSO and lotto, these are
considered winnings. What’s the rule now for
PCSO and lotto winnings? It is now taxable under
the train law except if the amount that you have
won does not exceed 10,000. So kato mga daog
nimos swertres nga 1,000 or 5,000 up to 10,000 no
withholding tax. But for PCSO and lotto winnings,
in excess of 10,000 that is already subject to
withholding tax.
Prizes except 10,000 and below. Ngano man?
Kay kung 10,000 and below, unsa man to ang rule?
It is exempted from income taxation. Dili pasabot
Prizes except 10,000 and below this is not exempt
ang excess ha, ang total prize. So, if the prize
but it is rather subject to the regular tax rate of
that you received is let’s say for example 5,000
0-35% but of course ma exempt gud ni kay kinsa
lang, no need to declare for income taxation
man mo declare ani. For prizes 10,000 and below,
purposes, no need to withhold. But kung ang
it is not subject to final withholding tax nga 20,
prize nimo kay let’s say for example 100,000,
well exempt gihapon from final withholding tax of
there has to have withholding tax there, mao na
20,20,20, 25. Ngano exempt man? Because it is

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subject to ordinary income tax of 0-35% pasabot, RULE: Resident Income Earner has to report
you are expected to declare it as part of your such income as part of his/her ordinary income,
ordinary income subject to 0-35%. subject to 0%-35% income tax.

ILLUSTRATION 1: Mr. X, a Resident Citizen (RC),

composed a musical composition. Mr. Y, an
For PCSO and lotto winnings, is different NRA-NETB, paid a 1 million royalty to Mr. X for
because ang not exceeding 10,000 winnings nimo him to use Mr. X’s song.
that is under the train law that is exempted from
income taxation and of course from withholding In this case, the payor is Mr. Y, the NRA-NETB.
tax. Only when your winnings exceed 10,000 ma And the payee is Mr. X, the one earning the
subject ka to the final withholding tax of 20, 20, 20 income. In other words, Mr. X earned a royalty of
and 25%. 1 million on a musical composition.

Now, before concluding that Mr. X’s 1 million

royalty is subject to 10%. Determine first if the
[inaudible grabe ka putol putol DMD transaction is subject to final withholding tax.
tabangGggg] Here, the transaction is not subject to final
withholding tax because the payor, Mr. Y, is a
non resident alien not engaged in trade or
business (NRA-NETB) in the Philippines OR a
This income have been earned within the PH foreigner not based in the Philippines.
[inaudible] meaning to say the one earning the
royalties must be corporation [inaudible] However, even if there is no FWT, the income
earned by Mr. X from a foreign client is still
subject to income tax of 0%-35% by reporting
such income as part of his ordinary income.
Ngano man? Because the [inaudible] one in the
income is based abroad, he is already outside the ILLUSTRATION 2: Mr. X, an NRA-NETB,
territorial jurisdiction of the PH. Let’s say for composed a musical composition. Mr. Y, a
example, nakadaog ka ug winnings sa Macao ni Resident Citizen (RC), paid a 1 million royalty to
taya ka didto or ni daog kas sweepstakes abroad, Mr. X for him to use Mr. X’s song.
will it be subject to final withholding tax of 20,20,20,
25? Dili because the payor the one who gives you In this case, the payor is Mr. Y, the Resident
the winnings is outside the Philippine territorial Citizen (RC). And the payee is Mr. X, an
jurisdiction, there is no way for the government to NRA-NETB, the one earning the income. In other
compel the payor [inaudible]. In such case, words, Mr. X earned a royalty of 1 million on a
moingon mo nga kung kana nga royalties, prizes musical composition.
or winnings generated from abroad, it will not be
subject to tax? It depends kung kinsa ang ni earn Here, the transaction is subject to final
because if the one earning the income is a withholding tax of 25% because the income
resident citizen or is a domestic corporation if the earner, Mr. X, is a non resident alien not engaged
royalties, prizes, and winnings are generated in trade or business (NRA-NETB) earns income
abroad MAY or MAY NOT be subjected to tax isolated within the Philippines because this
depending on who earned such income. NRA-NETB entered into an agreement with a
resident citizen of the Philippines, Mr. Y.

RESIDENT CITIZEN or DOMESTIC

CORPORATIONS - subject to income tax but not
subject to withholding tax (because the payor is
based abroad who may not be doing business in
the Philippines).

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a non-resident citizen or non-resident alien

we do not subject it to tax. Anyhow once that
account is converted into Philippine Peso that
can becomes taxable already. Kay kung e-tax
sad na nimo nya e-convert tax-san sad nimo
ma-doble, itwill discourage foreign investments.
So ang e-subject lang to tax are those interest
income need by resident citizens or resident
alien. Preferential rate of 15 % pursuant to the
train law before the amendment under the train
law this was 7.5% but confident naman ang
government that time that we have enough
In this case, the payor, Mr. Y, can be compelled foreign reserves we don’t need that much foreign
to withhold because the payor is within the reserves so they increase it to 15%.
territorial jurisdiction of the Philippines.
PRIZES (Table M6)
ILLUSTRATION 3: An LA Casino paid Mr. X a
sum of money for winning. The LA Casino is a
non resident foreign corporation; while Mr. X is a
Resident Citizen (RC).

In this case, there is no final withholding tax

because the payor is not based in the Philippines,
hence, the income is not earned in the
Philippines. On the other hand, there is income
tax - Mr. X must declared the income as part of
his ordinary income subject to 0%-35%. Will there
be income tax? Yes, all that X will do is declare
the income as part of his ordinary income subject Interest in long-term deposit trust funds deposit
to 0-35%. or substitute it is exempt from final withholding
tax. It is not subject to final withholding except if
Does it apply to all other passive income here? the income earner is NRA-NETB that is subject
Yes. For interest, you just have to remember to 25% provided there is no or there was no
what type of interest is it regular meaning walay pre-termination.
naka-specify na FCDU, when we say FCDU this
is an interest income earned under the foreign Kanus-a ka maka-ingon na long-term deposit na
currency deposit unit or deposit system of a bank,
siya if it is terminated after 5 year? If it was
also under the interest of a long-term trust funds pre-terminated prior to the 5 year period, as rule
deposit or substitute. So kung nakabutang there is a corresponding final withholding tax
foreign currency deposit unit there is a ranges from 5-20%. less than 3 years long-term
preferential . . . exempted kung ang income unta pero gipa-pre-terminate nimo less than 3
earner is a non-resident of the Philippines. years pa subject to the usual 20% final
Nangu man? withholding. 3-4 years / less than 4 years
gipa-pre-terminate nimo final withholding of 12%.
When we talk about foreign currency deposit 4 to less than 5 years final withholding tax of 5%.
system it is in a foreign currency account But if you did not pre-terminate it then that will be
(dollar/euro account). Under this foreign exempt from final withholding tax.
currency deposit system there is a
presumption that foreign account is just an
extension of a foreign territory where the
money comes from because after all it is not
converted to Philippine Peso. So if there is an
interest income thereon earned by somebody
who is not a resident of Philippine or whether

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Kinsa dapat ang mag-issue sa mga dividend

para ma-subject to final withholding tax? It must
be a dividend issued by a domestic corporation
for it to be subject to dividend final withholding
tax referred in the table. Kung foregin corp this is
a corp registered abroad, although duha ka klasi
sa foreign its either RFC or NRFC but
nevertheless even if you’re RFC you just have
license to do business anhi sa Pilipnas. When it
comes to composition of shareholders nimo as
well as the distribution of the dividends you don’t
disclose it here in the Philippines you disclose in
Take Note : there is only
one type passive income na in the foreign country where the foreign
exempted si foreigner, this interest income on corporation is registered.
FCDU. There is a NRA-NETB subject to 25%
final withholding tax. If it is regular interest Where the foreign corporation is registered…
income meaning peso deposit not necessarily
long-term, trust fund, nor deposit substitute,
Regular rate is 20% for NRA-NETB 25%. There
are around 4 rates ( 10,15,20,25%).

Remember (1) passive income (meaning it is

not in a normal business transaction; (2) payor
must be here in the Philippines para nay final
withholding tax dapat nay presence sa
Philippines and not not engaged in business; (3)
Rate [common-20%, royalties -10%, interest 15%,
NRA-NETB-25%] the only instance that the
NRA-NETB will not be subject to tax if he earns
interest income . . . Kinsa usually nag-offer aning
FCDU? This is offered by Mao nang there could be no final withholding tax
multi-national/universal banks. because the foreign corporation even if resident
naa kay negosyo diri sa Pilipinas, corporate laws,
corporate matters apply to it is the corporate laws
of the foreign country.
Dividends received by individual its subject to
final withholding tax (refer table M6). Sir kanus-a So this provision pertains only to dividends
makadawat ug dividend? If the individual is a issued by domestic corporations.
shareholder in a corporation, there are two
types of corporation: Domestic Corporation What kind of dividend? This primarily pertains to
and Foreign Corporation. cash dividend and property dividend, not stock
dividend. Because for stock dividends, upon
Domestic Corporation meaning registered and declaration this is not subject to income tax,
established here in the Philippines regardless of especially if the stock dividends are declared
the composition of your shareholders, even if available for all stockholders and wala gi buy
100% are owned by foreign nationals but if it is back ni corporate entity for a particular amount of
registered here in the Philippines through the money. When can it be subject to final
SEC that’s a domestic corporation. withholding tax? If the dividend is issued by a
domestic corporation
Foreign Corporation is registered or established
abroad even if all of its shareholders are Filipinos
and is registered abroad that is a foreign
corporation. Shares in a TP(Taxable Partnership). There are
two types of partnership: we have General

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Professional Partnership (GPP) which is exempt

from taxation and General Co-Partnership (GCP)
which is subject to income tax. The other term for
GCP is Taxable Partnership or Business
Partnership which is taxed similar to a corporate
entity or corporation. That’s why if naa kay
madawat na share, and if you are a resident
citizen or resident alien same it will be subjected
to final withholding tax of 10% similar to receiving
dividends in a corporate entity. Example of GCP
is kanang maghimo kag restaurant, partnership
mo. That is subject to final withholding tax.
Nganong dili man creditable withholding tax?
Because ang sharing ninyo is as an investor man.
Lahi sad ang taxability kung ikaw mismo ang
industrial partner, the point is the share ninyo as
investor in the corporation. That is considered as
an isolated investment on your end that is
subject to final withholding tax.

AGAIN, to be clear although we call this as

passive income kay isolated. These terms
royalties, etc. may also be an active income.

CREDITABLE/EXPANDED WITHHOLDING
TAX (C/EWT)

This is an advance or partial payment of income

tax due usually pertaining to ordinary income or
expenses for example Compensation Income
under ER-EE relationship commonly known as
Withholding Tax Compensation (WTC),
Professional Fee payments to PRC/IBP License
holders for service rendered NOT as EEs
Withholding tax rate depends on whether
individual or juridical income earner, except, if
the professional forms a GPP because again
exempted sya from Withholding Tax because a
GPP is not taxable, and Contractors when there
is no ER-EE relationship subject to C/EWT.

Under the C/EWT, balik ta sa Concept of

Withholding:

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To be issued to payee on or before the 20th day

of the month following the close of the taxable
quarter. Upon request of the payee, the payor
must furnish such statement to the payee
simultaneously with the income payment.

Ang OR ni supplier would be good for P112.00.

But ang actual cash na madawat niya is P111.00.
It is because the P1.00 goes to the BIR.

On the part of the purchaser/buyer, that will be

We have the Purchaser/Buyer mupalit sya from recorded as expense and it will be P112.00.
the Supplier/Payee/Income Earner. The income
earner will provide the good and services that is On the part of the supplier, that will be recorded
there usual and simple transaction. Let’s say for as income and it will be P112.00.
example the selling price is P100, plus VAT P12,
so toal selling price is P112. So ang ebayad ni BIR Forms
Purchaser will be P111. Monthly: BIR Form 0619E
Quarterly: BIR Form 1601EQ
Annually: BIR Form 1604E

On the part of the supplier, mag submit na siya og

Summary of Withholding Tax (SAWT).

Selling Price = P100.00

VAT = P12.00
Total Selling Price = P112.00

Example
There is an expanded withholding tax(EWT) of
1%, for example in goods. (Kuhaan og 1% ang
i-remit sa supplier because that one 1% is i-remit
ni purchaser to the BIR) The question here is, asa
ko mag compute or asa ko mag base sa 1%? On
the 100 or 112?

Base the 1% in the Selling Price which is P100.00

kay wala may labot si VAT. Tax man si VAT. 1%
of 100 is P1.00. So, minusan ang i-remit sa
supplier will be the net of withholding tax and that
is P111.00. It is because P1.00 represents the
expanded withholding tax (EWT) which you will
remit to the BIR.

The proof of remittance or withholding is the BIR

Form 23O7.

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nimog 2% is the interest and service charges of

the company. Ngano ingana man? Because if
there is a corporate credit card, it’s as if the
company, Citibank, let’s say for example, who is
the one making transaction with that particular
supplier? And you as a taxpayer, you are making
transaction with Citibank. So it’s as if nalamp ang
transaction nimo so there is only one withholding
there on the interest and service charge of the
credit card company.

Some examples of transactions, subject to

withholding taxes, hotels, motels, hospitals,
1. Withholding tax base is the net amount of VAT magazines, newspaper subscription, HMO,
which is why you do not include the VAT movie and concert ticket, payment made by Ad
regardless whether or not the top withholding
Agency to News paper publishers for print
agent is VAT registered.
advertisment. These are transactions which
could be subject to withholding taxes for
2. As a rule, the higher rate of 2% will have to be
applied. So, apply 2% withholding tax on interest topwithholding agent. Now, Sir, what if dili ko top
and services charges if any. withholding agent pero naa koy business. I have
exepenses. Do I need to withhold? The answer is
YES. Asa ko makakita sa lista? It’s listed class in
the Revenue Regulation. But for use of reference,
you can go immediately to the BIR website. Taas
na nga lista of transactions subject to creditable
withholding tax even if you are not top
withholding agent and I’ve repeatedly mentioned
some of this. Kato withholding tax on
compensation to your employees. That’s
subject to withholding tax. There is a withholding
tax applicable there. The withholding tax on
rent, lease. Even if your not a top withholding
agent, you’re required to withhold 5%. I don’t
know I think some of which is specified also in the
Revenue Regulation that I sent to you. Interest
income - these are some of the transactions
which are subject to creditable withholding taxes
and service charges if any, this pertains to what? even if you’re not a top withholding agent.
This pertains to credit card transaction.Ngano
man? Because one way of avoiding class the 1%
or 2%, because okay ra na kung dili kaayo ka
daghan ug supplier. But if let’s say for example Question on creditable withholding and final
you have many suppliers because the natur of withholding before I move on to Capital gains?
your business is restaurant business. Diba? Naa lang koy very few items na wala namention
Kana palang daan maglisod naka ug trace. So for Capital Gains.
one way of avoiding the complicated procedure is
through the use of corporate credit card. So in
such case, no need to withhold 1% or 2% on
every purchase of yours. Ang mawithholdan ra Capital Gains

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So for Capital Gains, we’ve discussed this “nearest” to the day of sale or exchange and
already. Diba? 3 types of Capital Gains etc. Just these figures can be found of course in the
to make it clear on the basis of the fair market website of the Philippines Stocks Exchange or in
value for real property class whichever is higher a newspaper business section.
noh between the fair market value as determined
by the CIR zone evaluation based it in the BIR If NOT listed or NOT traded, this is where the
website assess your tax declaration or (choppy adjusted net asset method comes in, and I think
jud si atty ani na part. Sorry huhu.) I’ve mentioned this to you already that
determination of a fair market value as a rule
whichever is higher between the Zonal Fair
Market Value Evaluation, the assessor’s fair
For shares of stock, this is to determine, market evaluation as reflected in the factsTax
namention naman nko last time nga kung declaration or the appraiser’s market value as
regarding property, must be located within the indicated in the appraiser’s certificate.
Philippines. For sales of shares of stocks, I
mentioned kaganiha diba? 2 types of corporation
as a rule. You have Domestic Corporation and
you have Foreign Corporation. Unsa ni nga sales Exemtion from CGT
of shre of stocks? Take note class, it must be
shares of a stocks by a domestic or a domestic Kani lang exemption from CGT, we have the so
corporation not of a foreign corporation. called exemption from capital gains tax and full
exemption. Kanus-a ka conditionally exempted
from Capital Gains Tax? If it pertains to the sale
or disposition of your principal residence and
Domestic corporation is subject to 15% capital there is no full utilization of the proceeds. So ang
gains tax of the net capital gain. Sir kung shares kato lang portion nga na utilize nimo in acquiring
of stock of a foreign corporation, pinoy ang your new principal residence, upon proper
shareholder, is it subject to 15%? The answer is notification to the BIR within 30 days, can be
DILI. If ever there is a gain in that transaction, it exempted from capital gains tax. Ang portion of
will just be subject to the 0-35% ordinary income the gain presumed to have been realized from
tax. Ngano man? Because the purpose of paying the sale will be subject to capital gains. What do
this capital gain is to process (choppy si atty. we mean by this? Let’s say for example naa kay
Peaceyow. Huhu) para mtransfer dire sa existing residential house ba, because this
pilipinas. pertains to principal place of business. Naa kay
existing residential house and ang gibuhat nimo
gibaligya nimo ang residential house nimo, ang
gain nimo pagbaligya, let’s say for example, naka
Kung foreign corporation na class ang gain ka 10 million. Selling price less cost
processing of the, if ever there is an equivalent to whatsoever. Ang gain nimo kay 10 million but ang
this car, ang processing happens abroad man. gibuhat nimo kay ang 5 million gigamit nimo to
So it will be their own tax and corporate rule construct a modest house. Nag simple living
abroad where that foreign corporation is naka. Niadto ka sa bukid. This 5 million exempted
registered ang applicable. partially basta mameet ni nimo nga requirements.
Only the excess nga 5 million ang ma subject to
For the fair market value of the shares however, CGT. Provided, you’ve availed, you’ve utilized
remember again, it depends if the issuing the 5 million to acquire or construct a new
domestic corporation is listed or not listed. If principal place or residential place within 18
listed, but not traded in the local stocks exchange, months, there was 30 days notification to the BIR.
the fair market value is based on the “closing
rate” on the day when the shares are sold. If there
is no sale on that day kay it’s holiday or Sunday,
let’s say for example, then the closing rate

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3. The proceeds in the sale of your old principal

residence must be used within 18 months to
acquire or construct your new principal residence

4. There must be notification from the BIR within

30 days nga magpa exempt ka

5. And the historical cost and the adjusted basis

must be carried over to the new principal
residence

6. And you can only avail these conditional

Exemption, full exemption comes in of course, dili
exemptions once every 10 years
musulod sa definition ni capital asset. Natural
walay capital gains tax. If its shares is sold by its
dealers or securities, ordinary asset man na.
Through the Philippine Stocks Exchange. There
Sir in practice common na? The answer is DILI.
is an existing investment incentive or special law
Although you have this provision it’s very
or if it is an individual exchanging real property for
complicated. Before the BIR class will grant an
shares of stocks resulting into corporate control,
exemption, the BIR requires the parties to enter
so this rule is under Section 40 of the NIRC, so as
into Escrow Agreement. Meaning to say,
a rule it is exempt from income taxation, so it
pawithholdan gihapon na ni BIR from the buyer or
follows exempt from Capital Gains Tax. GOCC or
transferee, magwithhold gihapon 6%. Paniguro
instrumentality selling the property, if the sale is
ba. Uhm withholdan 6%, the amount 6% isud nila
gratuitous, of course it is exempt from CGT
into Escrow account, it’s some sort of a trust fund.
because as a rule it that’s subject to owner’s tax.
Murag bond. And that escrow account will only be
CARP Law, as provided in the special law or
released if there is a certification coming from the
there is full utilization of the sale within 18
RDO nga na fully utilized ang proceeds within 18
calendar months from the date of sale or
months. In order to do so, the escrow account
disposition.
goes to the government. So hassle noh. Mao na
nga ang uban, unsay buhaton, diretso diretso
Again class, the date of sale or disposition is the
nalang. Bayad nalang diretso, Capital Gains Tax.
date of notarization in so far as this conditional
exemption of sale of a principal residence noh.
MAo na nga inig notaryo ninyo, you have to be OTHER INCOME
careful. Ngano man? Because kung gi
For other income let me just check on this, time
notaryohan na nimo diretso niya wa pa nag
check, it’s 6:59pm, so for other income we have:
construct or acquire, then nagsugod nag
counting ang 18 calendar months.
Rent income - subject to regular rates, net of
expenses if you are the lessor, you need to
For the full exemption to be availed of however,
disclose ypur tenants to the BIR and you are
there are conditions. Mahulog gihapon siya nga
subject to withholding tax.
conditional exemptions? What are the
exemptions?
Interest income - can be ordinary or it can be
passive.
1. there has to have a barangay certification as to
your residence
Kung passive, subject to final withholding tax. As
what we have discussed, again the payor must
2. it must be located in the Philippines be within Philippine jurisdiction to be subjected to
accountability.

Dividend Income

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Again, this can be Ordinary or it can be Passive. 3. Compensation for private property
expropriated
Passive - kato ato gi discuss, 10, 10, 10, 20, 25 for
individual taxpayer which applies as a rules to 4. Damages
Stock dividends or properties issued by a
Domestic Corporation. Again, for stock dividends 5. Cancellation of indebtedness
as what we have discussed, it is exempt from
Income Taxation. 6. Gains from gambling

Q: When does a dividend income become Q: Under both bad debts recovered and tax
ordinary or active income subject to the regular refunds, are they taxable?
rate? A: IT DEPENDS. We use the TAX BENEFIT
RULE for bad debts recovered and tax refunds.
A: Usually, this applies if the one earning the This is under Revenue Regulation 4-99.
dividend income is a holding company or an
investment company. This is common among ● Section 4. Tax Benefit Rule. - The
Umbrella Corporations like mga Ayala recovery of bad debts previously allowed
Corporations, they have ultimate company listed as deduction in the preceding year or
like for example in the Philippine Stock Exchange years shall be included as part of the
and that ulit,ate holding company has no other taxpayer's gross income in the year of
income but coming from its dividend income such recovery to the extent of the income
declaration coming from its subsidiaries. So, tax benefit of said deduction.
usually it is subject to the regular rate.

Q: So, kanusa nimo siya ma subject to tax?

A: If in the previous year, na deduct nimo siya
and it causes a reduction in your tax liability.

Example: If in the year the taxpayer

claimed deduction of bad debts
written-off, he realized a reduction of the
income tax due from him on account of
the said deduction, his subsequent
recovery thereof from his debtor shall be
treated as a receipt of realized taxable
income. Conversely, if the said taxpayer
did not benefit from the deduction of the
said bad debt written-off because it did
not result to any reduction of his income
tax in the year of such deduction (i.e.
where the result of his business
operation was a net loss even without
deduction of the bad debts written-off),
So, for Other Income, we have the following: then his subsequent recovery thereof
1. Bad debts recovered - these are utang shall be treated as a mere recovery or a
na nag tuo ka na di na mabayaran. So, gi return of capital, hence, not treated as
declare nimo as bad debt so gi write off receipt of realized taxable income.
nimo but then a miracle happened, the
debtor comes back and paid you, mao na Pasabot kung naka recover ka sa bad debt ug na
ang bad debts recovered. refund ka sa tax unya gi claim na nimo in the
2. Tax Refunds - these are taxes also nga previous year as a deduction, resulting in a
na over collect, na sobra an ug collect or reduction in your tax liability, pag recover nimi
nasayop ug collect mao na gi refund ka. nganha naa kay tax benefit, so naa kay taxable
So, naa kay na dawat na in flow. income.

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deduct ka ug bad debts which is P100,000 so ang

So, let's illustrate. Say for example, year 2018 nag nahitabo your net loss now is P50,000. Zero
record ka bad debts of P100,000 because you gihapon imong tax. In this case, was there tax
were thinking, you cannot recover that anymore. benefit?
So, because of the bad debts ang net income A: YES. The tax benefit is only partial, only upto
nimo which is supposedly P200,000 minis the bad P50,000.
debts (P100,000). The taxable income becomes
only P100,000. So ang mahitabo kung 30% na. So kung ang na recover nimo is P100,000 and so
You paid only P30,000 for tax and supposedly if not the entire amount ma subject to tax, only the
wa kay na record na bad debts in that year, P50,000 nga na recover kay diri ra ka naka
imong tax would have been P60,000. Naka recover sa previous year.
benefit ka sa bad debts nimo sa 2018.
Q: Kung wala gyud nag deduct ug bad debt?
Bad debts are accounts receivable written-off. Unya naay gi bayad pag 2019.
This is different from Doubtful Accounts, wala pa A: No need to subject to income tax.
ni nimo na write-off kay nag duha duha pa ka if
ma recover ni nimo. Sa Tax Refund, same rule. Kung naka deduct
kas tax and that caused a reduction in your tax
So now, 2019 let's say for example you recovered liability. The following year, it is refunded then it is
the P100,000 bad debts. In this case, out flow taxable. But if there was no deduction on the tax
man ni and na minus man sa 2018. But pag 2019, the previous year because it was a
ang bad debts na P100,000 na recover na non-deductible tax in the first place, gi refund ka,
nimo,the question now is, kaning P100,000 during then that refund is not taxable.
2019 is there taxable income?
A: YES. Following the Tax Benefit Rule, since Kaning local tax, let's say for example P10,000 ,
you benefited the previous year and in 2019 when this is deductible pero kung mu ingon kag VAT
there was a realized taxable income it will now be worth P100,000 , VAT is non-deductible. If the tax
subjected to tax which is 30%. So, i-declare ni is non-deductible, then there can be no tax
nimo and mu bayad ka P30,000 and in effect kung benefit to speak of. So kung gi refund ka on that
na recover na nimo sa 2019, ang bad debts na gi non-deductible type of tax, there is no taxable
record nimo in 2018, ma wagtang. So ang total na income to speak of.
gi tax-an gihapon is the P200,000.
If that type of tax is a deductible tax and you've
Q: What if wala ka naka benefit? deducted it and when you used it as a reduction
A: Ang net income nimo was already a loss, you in your tax liability then, then the moment it is
recorded bad debts of P100,000 and it resulted to refunded, that becomes taxable. There is taxable
a Net Loss of P200,000. In so far as your tax is income.
concerned it will be zero (0).
It is very important when it com Tax Refunds to
Q: Why zero? know if that type of tax is deductible or
A: At a loss man ka, di man na mu refund ang non-deductible. It's very important to check the
government if naa kay losses. previous year's tax return if it was claimed as an
expenditure.
Q: So, you recover the same P100,000 in 2019, si
bad debts recovered in 2018. Was there tax The principle that you need to remember is the
benefit on your part? Tax Benefit Rule. If there is no tax benefit the
A: WALA. Because wala na reduce imong tax previous year then no taxable income upon
liability in 2018. recovery or upon receipt of funds.

Q: So, is this taxable? Q: Is Gains from gambling taxable?

A: No. A: YES because even it is illegal, income tax is
source blind.
Q: What if only a portion, like for example Net
Income nimo is P50,000. Positive pero nag

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Q: The problem is naa ba kay deduction gains

from gambling nimo?
A: WALA but the losses from gambling you can
however offset it or deduct if from your gains from
gambling

So, kaning Cancellation of Indebtedness, subject

to income tax if the cancellation is due yo service
rendered or with consideration. However, if the
consideration is due to love, affection, gratuitous
in the first place, it is not subject to income tax.

We have discussed also if loss profit, it is not

subject to income tax, or if breach of contract or
back wages that becomes taxable.

So, Compensation for Private Property

Expropriated, as a rule it is subject to Capital
Gains Tax. However we have recently passed in
2016, RA 10752 (Right-of-Way Act).

Q: So unsa ang cotent sa ROW Act?

A: Basically in ROW Act, gi differentiate niya ang
manner of expropriation or getting the private
property to make it a passage. We have two
types:
1. NEGOTIATED SALE - CGT shall be paif
for the account of the seller by the
government. (This is without any
involvement of the SolGen or of the
Court)

2. EXPROPRIATION - CGT shall be

shouldered by the owner. (There is
involvement of the Court)

So, the point now is, in a Negotiated Sale, Capital

Gains Tax is a way to lure the owner to sell. It will
be paid by the government on the account of the
seller. Naa gihapon CGT but it will be shouldered
by the buyer which is the government for/in
behalf of the seller because in CGT it can be
agreed by the parties gyud kung kinsa ang mu
shoulder. In so far sa the BIR is concerned, it
looks at the transferor or the seller.

If magpa gahi gahi si owner, that's when

expropriation happens and the CGT shall be
shouldered by the owner.

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