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Classification of Individual Taxpayer

This document discusses individual income taxpayers in the Philippines. It defines individual taxpayers as natural persons obligated to pay taxes, and classifies them as resident citizens, nonresident citizens, resident aliens, and nonresident aliens. It explains how these classifications are determined and their tax treatment. For example, resident citizens are taxable on worldwide income while nonresidents are only taxable on Philippine-source income. The document also outlines the different types of individual income - ordinary, passive, and capital gains - and how they are taxed.

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188 views4 pages

Classification of Individual Taxpayer

This document discusses individual income taxpayers in the Philippines. It defines individual taxpayers as natural persons obligated to pay taxes, and classifies them as resident citizens, nonresident citizens, resident aliens, and nonresident aliens. It explains how these classifications are determined and their tax treatment. For example, resident citizens are taxable on worldwide income while nonresidents are only taxable on Philippine-source income. The document also outlines the different types of individual income - ordinary, passive, and capital gains - and how they are taxed.

Uploaded by

Jj helterbrand
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Overview

An income taxpayer may be an individual (natural person) or business entity


(Juridical Person/Artificial Person) that is obligated to pay taxes it is the obligation of
everyone to contribute as the law required. It is important that as individual we must
know how tax is applied in our country because it has big impact on our finances. For a
typical wage earner or entrepreneur, taxes are not particularly difficult to understand
because in the latest revision of the Tax Code under the TRAIN Law the application of
tax is becomes easier, so there is no reason to dread and fear also no reason to cheat and
commit illegal action but it just a matter of educating yourself and avoid ignorance to
tax laws. In this Module we will learn how tax is applied on income and the right
practices on how to compute tax.
Learning Outcomes 
 Define individual taxpayers and its classifications
 Identify different types of Income

Topic Presentation
Individual Taxpayers
Individual Taxpayers are natural persons with income derived from within the
territorial jurisdiction of a taxing authority. Under the tax code, individual
taxpayers are classified as:
1. Resident Citizen (RC)
2. Nonresident Citizen (NRC)
3. Resident Alien (RA) \
4. Non-Resident Aliens
 Engage in trade and business (NRA-ETB)
 Not engage in trade or business (NRA- NETB)

Citizens of the Philippines Under section I, Article III of the Philippine


Constitution, A Filipino Citizen is a natural person who is/has
1. Born (by birth) with father and/or mother as Filipino Citizens;
2. Born before January 17, 1973 of Filipino Citizens who elects Philippine
citizenship upon reaching the age of majority
3. Acquired Philippine citizenship after birth (naturalized) in accordance with
Philippine Laws.

 Resident Citizen- Resides or stays in the Philippines permanently or stay

outside the Philippines for less than 183 days during a particular Taxable

year

 Non-resident Citizen of the Philippines (NRC) is a citizen who:

1. Establishes, to the satisfaction of the Commissioner of internal revenue, the


fact of his physical presence abroad with a definite intention to reside
therein;

2. Leaves the Philippines during the taxable year (January-December) to reside


abroad

 As an immigrant; or

 For employment on a permanent basis; or

 For work and derives income from abroad and whose employment thereat
requires him to be physically abroad most of the time during the taxable year.

3. A citizen of the Philippines who shall have stayed outside the Philippines for
one hundred eighty-three (183 for Filipino) or more by the end of the year.
 Alien
An alien is a foreign-born person who is not qualified to acquire
Philippine who is not to acquire Philippine Citizenship

 Resident Aliens
Section 22F of the Tax Code defines alien as an individual whose
residence is within the Philippines and who is not a citizen thereof.

Aliens who are actually present in the Philippines and who are not mere
transient(impermanent.) or sojourners (a temporary resident) are classified as
resident aliens. An alien who lives in the Philippines with no definite
intention as to his stay is also a resident alien.

 Non-Resident Aliens

The term “non-resident alien” under section 22G of the Tax Code means
an individual whose residence is not in the Philippines and who is not a
citizen thereof. They are aliens who have definite purpose, which in its
nature may be promptly accomplished. They are alien who mere transient
accomplished are. They are aliens who are mere transients or non-resident,
hence, classified as non-resident alien. Aliens who stayed in the Philippines for
an aggregate period of more than 180 days during taxable year and/or aliens
who have business income in the Philippines are considered as non-resident
aliens engaged in trade or business. Under section 22S of the tax code, “trade
or business include performance of the functions of a public office or
performance of personal service in the Philippines (except performance of the
service by the taxpayer as an employee). If an alien stays in the Philippines for
only 180 days or less, or he is not deriving business income in the
Philippines, he is considered to as a non-resident alien not engaged in trade
or business.

Applicable Taxes and Tax rates


The applicable taxes for individuals depend on several factors such as but
not limited to:
 Classification of the taxpayers
 Source of income
Type of Income

Classification of the taxpayers


It is important to properly classify individual taxpayers because resident
citizens are taxable on their income derived from sources within and without
the Philippines while other taxpayers are taxable only on their income
derived from Philippines sources. Moreover, individual taxpayers classified
as non-resident aliens not engaged in trade or business (NRANETB) are
taxable based on their “gross income” while other are taxable based “net
income”.

Sources of Income
It is important to know the source of income for tax purposes (income
derived from within or without the Philippines) because as resident
citizens are taxable based on their worldwide income (within and without
the Philippines) while others are taxable only on their income derived from
sources within the Philippines

Types of Income
 Ordinary or Regular Income
 Passive Income derived from Philippine source
 Capital Gains subject to capital gains tax

Ordinary Income Refers to income such as compensation income (salaries or


wages), Business Income, Income from practice of profession, income from sale and/or
dealings of property and miscellaneous income and passive income other than those
subject to final taxes under Section 24(B) and capital gains tax under Section 24(C)
and (D) of the tax code. Regular income is subject to graduated tax table

Passive Income Subject to final withholding taxes are certain passive incomes
from the sources within the Philippines as enumerated under Section 24(B) of the Tax
Code. This passive income is not subject to graduated tax table but to specific final
withholding tax rates. The specific passive incomes derived from Philippines sources
subject to final withholding taxes are as follows:
 Interest income
 Dividend income
 Royalties
 Prizes; and
 Other winnings
Incomes from sale of capital assets subject to capital gains tax (CGT)
1. Capital gains from sale of shares of stocks of a domestic corporation not traded in
the local stock exchange
2. Capital gains from sale of real property in the Philippines

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