Terms

• Income tax - a tax imposed on the privilege of earning income whether from compensation income or from practice of profession
• Income tax is generally regarded as an excise tax, and not a tax on property, levied upon the right of person or entity to received income or profits
• Direct tax - the tax is exacted from the very person who, it is intended or desired should pay it
• Progressive in nature - the tax rates increase as the tax base increases; founded on the ability to pay principle
• Comprehensive tax situs - it adopts the citizenship principle, residence principle, the source principle and territoriality principle to justify the imposition of tax
• Semi-schedular and semi-global - the NIRC of 1997, as amended, adopts both this system of income taxation
• Citizenship principle - under this principle, the basis of imposition of income is the taxpayers citizenship
• Residence principle - basis of the imposition of tax is the residence of the taxpayer
• Source principle - basis of imposition of tax is based on source of the income
• Income - defined as an amount of money coming to a person or corporation within specified time
• Income - can be defined as profits or gains
• Existence of income - when the income actually or constructively exist
• Realization of income - when the income is actually or constructively received or where the taxpayer has been paid and has received in cash or near cash the taxable income
• Recognition of income - when the income is recognized already in the financial statements such as when the transaction that is the source of income is consummated
• Realization test - test in order to determine whether income has already been earned, there must have been a realized gain already after an exchange has taken place. This test determine whether the income us actually or constructively received by the taxpayer
• Actual receipt of income - means income is physically received in cash or in kind
• Constructive receipt of income - means the income is received not in the form of cash or in kind but in the form of promissory notes
• Economic benefit test, doctrine proprietary interest - this test determines when the recipient has already derived economic benefit that can be quantified in terms of money generated such as net income or revenues
• Severance test - this test determines wether the income recipient can already spend or part away with the said income, gain or profit
• Resident citizen - citizen of the Philippines residing therein
• Nonresident citizen - citizen of the Philippines who is physically present abroad either for employment or for residence purposes
• Resident alien - an individual whose residence is within the Philippines and who is not citizen thereof
• If he lives in the Philippines and has no intention to stay, he is a resident alien
• Nonresident alien - an individual whose residence is not within the Philippines and who is not citizen thereof
• Nonresident alien engaged in trade or business within the Philippines - an alien individual who is engaged in trade or business in the Philippines and stay therein for aggregate period of 181 days or more during any calendar year
• Nonresident alien not engaged in trade or business within the Philippines - a nonresident alien individual is deemed not engaged in trade or business in the Philippines if his stay does not exceed aggregate period of 180 days
• Special alien employees - alien individuals employed by RHQs or ROHQs of Multinational Companies. Employed by OBUs. Employed by Petroleum Service Contractors and Subcontractors. Employed in offshore gaming license and service providers
• Domestic corporations - is a corporation created or organized in the Philippines or under its laws.
• Resident foreign corporation - applies to a foreign corporation organized, authorized or existing under the laws of any foreign country but engaged in trade or business within the Philippines
• Nonresident foreign corporation - applies to a foreign corporation organized, authorized or existing under the laws of any foreign country but not engaged in trade or business within the Philippines
• Individual taxpayers - are natural persons with income derived from within the territorial jurisdiction of a taxing authority
• A Filipino citizen taxpayer not classified as nonresident citizen is considered a resident citizen for tax purposes.
• Alien - is a foreign born person who is not qualified to acquire Philippine citizenship by birth or after birth.
• resident alien - an individual whose residence is within the Philippines and who is not a citizen thereof.
• nonresident alien - an individual whose residence is not in the Philippines and who is not a citizen thereof.
• Classification of the taxpayer - 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.
• Source 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 while others are

  taxable only on their income derived from sources within the Philippines.
• Ordinary or regular income - refers to income such 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
• Passive income - subject to final withholding taxes are certain passive income from sources within the Philippines as enumerated under Section 24(B) of the Tax Code.
• Self-employed - is defined under RA10963 (Train Law) as a sole proprietor or an independent contractor who reports income earned from self- employment.