BAM 127: Income Taxation for BA

Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Lesson title: Taxation for Individual Taxpayers Materials:

Lesson Objectives: Text book:
At the end of this module, I should be able to: Income Taxation by Rex
1. Enumerate the different classifications of taxpayers and Banggawan
discuss their taxability. References:
www.bir.gov.ph

Productivity Tip: Take breaks, there’s a limit to how long anybody can devote deep focus to a task.

A. LESSON PREVIEW/REVIEW

Give a brief recap of the topics from module 4. Call 2-3 students to recite and share his/her
takeaways from the latter. Also, ask if there are some questions or clarification from your previous
modules/topic.

Relate the Gross Income and the Situs of income to today’s lesson objectives.

One of the inherent limitations of the power to tax is territoriality. It means that Philippine tax
laws can only be enforced within the Philippine Territory. In today’s module, we will discuss the
different classes of taxpayers, as defined by NIRC, and identify who among them will be subjected
to Philippine Tax laws.

Activity 1- What I Know Chart (3 mins)

Try answering the questions below by writing your ideas under the first column What I Know. It’s
okay if you write keywords or phrases that you think are related to the questions.

What I Know Questions: What I Learned

1 What are the different types of

taxpayers?

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 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

2. Is Manny Pacquiao liable to

pay his income tax from his
earnings in his boxing matches
in Las Vegas, Nevada?

B. MAIN LESSON

Activity 2 – Content Notes

LO 1: ENUMERATE THE DIFFERENT TYPES OF TAXPAYERS AND DISCUSS THEIR TAXABILITY

INDIVIDUALS
a. Residents of the Philippines [Secs. 23 (A) and 24 (A)]
Citizens of the Philippines b. Not Residents of the Philippines [Secs. 23 (B) and 24 (A)]
c. OFW and Seaman [Sec. 23 (C) and 24 (A)]
a. Residents of the Philippines
Aliens b. Not Residents of the Philippines [Secs. 22 (G); 23 (D); 25 (A) and
(B)
c. Aliens employed by multinational companies, offshore banking
units, and petroleum contractors and subcontractors
An estate, in common law, is the net worth of a person at any point
in time alive or dead. It is the sum of a person's assets – legal rights,
interests, and entitlements to property of any kind – less all liabilities
Estates and Trusts at that time. The issue is of special legal significance on a question of
bankruptcy and the death of the person

A trust is a three-party fiduciary relationship in which the first party,

the trustor or settlor, transfers ("settles") a property (often but not
necessarily a sum of money) upon the second party (the trustee) for
the benefit of the third party, the beneficiary

CLASSIFICATION OF INDIVIDUALS

1. Resident Citizen – A Filipino citizen residing in the Philippines.

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 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

2. Non-resident Citizen - A Filipino citizen residing abroad.

3. Resident Alien – a person who resides in the Philippines but is not a citizen thereof. The
intention is material for the determination. An alien who stays in the Philippines for more than 1
year is considered a resident.

4. Non-resident Alien – a person who does not resides in the Philippines and not a citizen
thereof.
4.1 Non-resident Alien – ETB – Stays for more than 180 days during the taxable year.
4.2 Non-resident Alien – NETB - Stays 180 days at most during the taxable year.

CORPORATIONS

Domestic Corporations Domestic Corporations are liable to pay corporate income tax from
(Sec. 27) sources within or without.
a. Resident Corporations - foreign corporations engaged in trade
Foreign Corporations or business in the Philippines; Not Residents of the Philippines
[Secs. 22 (G); 23 (D); 25 (A) and (B)
b. Non-resident corporations - foreign corporations not engaged
in business or trade in the Philippines.
Partnerships a. Taxable Partnership
b. Exempt Partnership
- General Professional Partnership (GPP)
- Joint Venture or Consortium…

CLASSIFICATION OF CORPORATIONS

1. Domestic Corporation –a corporation created and organized under the law of the Philippines;

2. Foreign Corporations – are those which are created and organized under foreign laws:
a. Resident – having a permanent establishment/branch in the Philippines, acquiring residency for
tax purposes; b. Non-resident – no permanent establishment in the Philippines; not regularly
engaged in trade or business in the Philippines

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 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

General Principles of Taxation

SEC. 23. General Principles of Income Taxation in the Philippines. - Except when otherwise provided in this
Code:

(A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without
the Philippines;
(B) A nonresident citizen is taxable only on income derived from sources within the Philippines;
(C) An individual citizen of the Philippines who is working and deriving income from abroad as an overseas
contract worker is taxable only on income derived from sources within the Philippines: Provided, That a seaman
who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of
the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract
worker;
(D) An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from
sources within the Philippines;
(E) A domestic corporation is taxable on all income derived from sources within and without the Philippines; and
(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on
income derived from sources within the Philippines.

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Taxability of Individuals

Individual Taxpayers Earned within the Earned outside the

Philippines Philippines
Resident Citizens Taxable Taxable
Non-Resident Citizens Taxable Not Taxable
Resident Alien Taxable Not Taxable
Non-Resident Aliens Taxable Not Taxable

Note: For simplicity, resident citizens are taxable on their worldwide income, while all the rest (Non-
resident Citizens and Aliens [whether resident or non-resident) are taxable only on their income from
sources within the Philippines.

Taxability of Corporations

Corporate Taxpayers Earned within the Earned outside the

Philippines Philippines
Domestic Corporation Taxable Taxable
Resident Foreign Taxable Not Taxable
Corporation
Non-resident Taxable Not Taxable
Foreign Corporation

Activity 3: Skill-building Activities

Let’s practice! After completing each exercise, you may refer to the Key to Corrections for feedback.
Try to complete each exercise before looking at the feedback.

Exercise 1: General Income Tax Rule

Check the box that properly corresponds to the taxability of the following taxpayers:

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 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

N Taxpayer World Income Philippine Income

o
1 Non-resident citizen
2 Resident Alien
3 Non-resident alien engaged in trade or
business
4 Resident Foreign Corporation
5 Resident Citizen
6 Non-resident alien not engaged in trade
or business
7 Non-resident Foreign Corporation
8 Domestic Corporation
9 Taxable trust established by a Filipino
citizen in the Philippines
10 Taxable estate of a non-resident citizen
judicially administered abroad

ACTIVITY 4: What I Know Chart – Part 2 (3 mins)

It’s time to answer the “what I learned” column in the What I Know chart in Activity 1.

ACTIVITY 5: ‘Check for understanding’, Income Taxpayer Classification

Indicate the appropriate classification for each of the following taxpayers:
RC – Resident Citizen DC – Domestic Corporation
NRC – Non-resident Citizen RFC – Resident Foreign Corporation
RA – Resident Alien NRFC – Non-resident Foreign Corporation
NRA–ETB – Non-resident Alien Engaged in Trade or Business
NRA–NETB – Non-resident Alien NOT Engaged in Trade or Business

No Person or Entity Classificatio

. n

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 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

1 A fat Mexican tourist

2 A hardworking overseas Filipino worker
3 An expatriate employee
4 A Filipino who is privately employed in the Philippines
5 An unemployed Filipino residing in the Philippines
6 A Chinese businessman who has his domicile in the Philippines for 6
months
7 A Japanese who married a beautiful Filipina and residing in the
Philippines for 2 years
8 A 2nd year Korean college student studying in the Philippines
9 A Corporation incorporated under Philippine Law
10 A Foreign Corporation doing business in the Philippines
11 Trust Designated by the donor as irrevocable
12 Trust Designated by the donor as revocable
13 A business partnership
14 A joint venture organized under a foreign law and is not operating in the
Philippines
15 An estate of a Filipino Citizen judicially administered in Japan.

C. LESSON WRAP-UP

Congratulations for finishing day 3! Consistency is key, keep it up! Shade the number of the module that you

finished.

Did you have challenges learning the concepts in this module? If none, which parts of the module helped you
learn the concepts?
____________________________________________________________________________________________________________________
____________________________________________________________________________________________

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Some question/s I want to ask my teacher about this module is/are:

____________________________________________________________________________________________________________________
____________________________________________________________________________________________

FAQs

1. Who are citizens of the Philippines –Under Sec. 1, Art. IV of the 1987 Constitution, the
following are citizens of the Philippines.
(1) Those who are citizens of the Philippines at the time of the adoption of this Constitution;
(2) Those whose fathers or mothers are citizens of the Philippines;
(3) Those born before January 17, 1973, of Filipino Mothers, who elect Philippine citizenship
upon reaching the age of majority; and
(4) Those who are naturalized in accordance with law.

2. Who are Non-resident citizen

a. A citizen of the Philippines whose physical presence abroad is with a definite intention to reside
therein – to the satisfaction of the Commissioner of Internal Revenue.

b. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad,
either as an immigrant or for employment on a permanent basis. A good example would be
Overseas Contract Workers (OCW) or Overseas Filipino Workers (OFW) who were issued an
overseas employment permit. For purposes of income tax, a seaman is considered an OCW.

c. A citizen of the Philippines who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time during the taxable year.
“Most of the time” meaning at least 183 days. (Sec. 2 of RR No. 1-79)

d. A citizen who has been previously considered a non-resident citizen and who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines shall
likewise be treated as a non-resident citizen for the taxable year with respect to his income
derived from sources abroad until the date of his arrival in the Philippines. (Sec. 22[E] of the Tax
Code)

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 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

3. Who are Resident Alien?

a. An alien who lives in the Philippines with no definite intention as to his stay (floating intention);
b. One who comes to the Philippines for a definite purpose which in its nature would require an
extended stay and to that end makes his home temporarily in the Philippines;
c. An alien who has acquired residence in the Philippines and retains his status as such until he
abandons the same and actually departs from the Philippines.

4. Who are Non-resident alien (NRA)

a. An alien who comes to the Philippines for a definite purpose which in its nature may be
promptly accomplished.
b. One who may either be a:
i. NRA engaged in trade or business (NRAETB) in the Philippines or
ii. NRA not engaged in trade or business (NRANETB) in the Philippines. An NRA who shall
come to the Philippines and stay for an aggregate of more than 180 days shall be deemed a
NRAETB.

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 6

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Key to Corrections:

Exercise 1

Exercise 2

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