Taxation individual tax

• Classification of Individuals for tax purposes in the Philippines:

  • Citizens of the Philippines under the 1987 Constitution:

  1. Citizens at the time of the adoption of the Constitution

  2. Those with Filipino parents

  3. Born before January 17, 1973 of Filipino mothers who elect Philippine citizenship upon reaching the age of majority

  4. Naturalized citizens

  • Modes of acquiring Philippine citizenship:

  1. Filipino by birth:

  • Jus soli (right of soil)
  • Jus sanguinis (right of blood)

  2. Filipino by naturalization
• Resident citizens (RC) are citizens of the Philippines residing therein
• Non-resident Citizens (NRC) include citizens who establish to the satisfaction of the Commissioner their physical presence abroad with a definite intention to reside there, those who leave the Philippines during the taxable year to reside abroad, and those who work and derive income from abroad
• Aliens are individuals who are not Filipino citizens:

  • Resident aliens are individuals whose residence is within the Philippines and who are not citizens thereof
  • Non-resident aliens can be engaged in trade or business in the Philippines or not engaged in trade or business in the Philippines
• Aliens employed by an Offshore Gaming Licensee and Service Providers in the Philippines are subject to a final withholding tax of 25% on their gross income
• Special considerations due to COVID-19 for aliens in the Philippines:

  • Exempt compensation criteria include the employee not being present in the Philippines for more than 183 days in the year of income and remuneration being paid by a non-resident employer
  • Taxable compensation criteria include the employee being present for more than 183 days and the employer being a resident of the Philippines
• Income from a foreign employer is not taxable in the Philippines
• For income to be taxed in the Philippines, it must be from a Philippine source
• If a non-resident alien is stranded over 183 days in the Philippines but gets paid while working remotely, his income will not be taxed if:

  • There are no other connections to the Philippines
  • He leaves the country as soon as circumstances permit
• Income derived from Philippine-based contents is generally taxable for resident aliens
• Allowable deductions for social media influencers may include: filming expenses, computer equipment, subscription and software licensing fees, internet and communication expenses, home office expenses, office supplies, business expenses, depreciation expense, bank charges, and shipping fees
• Social media influencers (SMIs) may opt for Optional Standard Deduction (OSD) and avail tax treaty benefits by obtaining a Tax Residency Certificate
• Payments by YouTube to social media influencers are treated as royalties
• If a Filipino social media influencer residing in the Philippines does not inform the income payor of their residency, their earnings from YouTube will be subjected to tax at the maximum rate of 24%
• Under the Philippines-US tax treaty, royalties derived by a resident of the Philippines may be taxable in the US but such tax shall not exceed 15% of the gross amount of royalties
• Credit for taxes paid in a foreign country shall be limited to that paid or accrued in the said foreign country
• An estate refers to the mass of all property, rights, and obligations of a person not extinguished by death, while a trust is a right on property held by one party for the benefit of another
• Kinds of trusts include express trusts created by the acts of the parties and implied trusts created by operation of law
• Implied trusts include resulting trusts and constructive trusts
• General rule: Estates and trusts are taxable, with exceptions for certain employee trusts
• An estate is a taxpayer for income tax purposes if it is under settlement or administration and derives income
• A trust is a taxpayer if under its terms the fiduciary must accumulate the income or may accumulate or distribute it at their discretion
• When an estate or trust is a taxpayer, a distribution of the year’s income to an heir or beneficiary is a special item of deduction for the estate/trust and a special item of income to the heir/beneficiary
• Persons acting in any fiduciary capacity shall file the income tax return for an estate or trust, including conservators, administrators, receivers, executors, guardians, trustees, and other persons or corporations acting as fiduciaries
• In taxation of individual taxpayers:

  • 8% preferential tax does not apply to compensation income earners
  • Non-VAT individuals engaged in trade and who practice their profession can opt to be taxed at 8%
  • Mixed income earners have the option to be taxed either at 8% or graduated tax rates
• For a resident citizen taxpayer, the taxable income subject to regular tax is Php 13,000,000
• Tax is paid as the return is filed
• Manual Payment allows tax payment using cash or acceptable checks (e.g., manager’s, corporate, etc.)
• Installment Payments:

  • When the tax due is over Two thousand pesos (P2,000.00), individuals can pay in two equal installments:
  • 1st installment: paid when the annual income tax return is filed
  • 2nd installment: paid on or before October 15 following the close of the calendar year (use Payment Form 0605)
  • If any installment is not paid on time, the whole amount of the unpaid tax becomes due and payable, along with delinquency penalties
• Individuals not required to file income tax return:

  • An individual earning purely compensation income with taxable income not exceeding Two Hundred Fifty Thousand pesos (P250,000.00)
  • An individual whose income tax has been correctly withheld by the employer, provided there is only one employer for the taxable year
  • An individual whose sole income has been subjected to final withholding tax
  • A minimum wage earner
  • Individuals deriving compensation income from two or more employers during the taxable year are not qualified for substituted filing and must file a return