Income Tax of Individuals

Income Tax of Individuals
Individual Taxpayers
• Individual Taxpayers are natural persons with
income derived within the territorial
jurisdiction of a taxing authority. These
individual taxpayers are classified as citizens
and aliens.
Individual Taxpayers
• Under Section 1, Art. III of the Philippine Constitution, a
Filipino Citizen is he who is/has:
a. born (by birth) with father and/or mother as Filipino
citizens;
b. born before January 17, 1973 of Filipino mother who elects
Philippine citizenship upon reaching the age of majority; or
c. acquired Philippine citizenship after birth (naturalized) in
accordance with the Philippine laws.
An alien is a foreign-born person who is not qualified to
acquire Philippine citizenship by birth or after birth.
Classifications of Citizens
Citizens are classified into (a) Resident Citizen and (b)
Non-Resident Citizen.
1. Resident Citizen (RC) is a Filipino citizen who stayed
permanently in the Philippines or stayed outside the
Philippines for less than 183 days during the taxable
year.
A citizen of the Philippines residing therein is taxable

for all income derived from sources within and without
the Philippines.
Classifications of Citizens
2. Nonresident Citizen is a Filipino citizen who
stayed outside the Philippines for 183 days or
more during the taxable year and has established
proof to the BIR Commissioner of his definite
intention to reside outside the Philippines on a
permanent basis as an immigrant or employee.
A nonresident citizen is taxable only on income

derived from sources within the Philippines.
Illustration
During 2009, Mr. Dongdi Perio, a Filipino Citizen,
worked and earned P200,000 in Saudi Arabia. Before
the end of year 2009, he returned to the Philippines
and earned P80,000 salary from his employment here.
How much would be his gross taxable income for year

2009 as basis for Philippine income tax computation
under each of the following independent
assumptions?
Assumption 1:
Mr. Perio went abroad on January 2009 and
returned to the Philippines on March 2009.
Assumption 2:
Mr. Perio was in Saudia Arabia since June 1,
2009 and returned to the Philippines on March
2010.
Assumption 3:
Mr. Perio went to Saudi on March 1, 2009 and
returned to the Philippines on December 5,
2009.
Classifications of Aliens
Classification of Aliens
• As a rule, an Alien Individual, whether a
resident or not of the Philippines, is taxable
only for income derived from sources within
the Philippines.
Aliens are classified as either a Resident Alien or

Nonresident Alien.
1. Resident Alien (RA) are persons who are not
citizens of the Philippines but are residing
within the Philippines including foreign
individuals who have stayed in the Philippines
for more than one year from date of arrival.
2. Nonresident Aliens (NRA) are foreign
individuals whose residences are not within
the Philippines. Sec. 22G of the NIRC classifies
Nonresident Aliens as follows:
a. Those engaged in trade or business within
the Philippines (NRAETB). Those who have
stayed within the Philippines for more than
180 days during the taxable year shall be
deemed nonresident aliens doing business in
the Philippines also belongs to this group.
b. Those not engaged in trade or business within
the Philippines (NRAETB)
They are nonresident foreign individuals who

have stayed within the Philippines for only 180
days or less, and have no business income
derived within the Philippines.
Summary Application
CLASSIFICATION OF TAXPAYERS AND SITUS OF INCOME
TAXPAYERS WITHIN OUTSIDE

Citizens:
Resident citizen Taxable Taxable
Nonresident citizen Taxable Nontaxable
Aliens:
Resident alien, NRAETB Taxable Nontaxable
AND NRANETB
Special Taxpayers:
Citizen Taxable Taxable
Aliens Taxable Nontaxable
Special Taxpayers
• Special Taxpayers are those alien individuals or
Filipino citizens who are taxed with a fifteen
(15%) tax rate based on their gross compensation
income when the following conditions are met:
1. They are employed occupying managerial and/or
technical positions with regional or area
headquarters of multi-national corporations,
petroleum service contractors and subcontractors,
or offshore banking units.
Special Taxpayers
2. If the special taxpayer is an alien, all of his gross
compensation income received is subject to 15% final
tax.
3. If the taxpayer is a Filipino citizen, he has the option
to be taxed at 15% final tax based on his gross
compensation income received or at a regular income
tax rate (5% to 32%) based on the net taxable
compensation income if his gross annual taxable
compensation is at least P975,000 (whether or not
actually received).
Activity # 1
• Mr. E opted to be taxed at 15% final tax, the
amount of final tax on his gross compensation
income would be:
Annual salary (70,000 x 12mos.) 840,000
Annual cost of living allowance
(7,000 x 12mos.) 84,000
13th month pay (840,000/12) 70,000
Gross annual compensation income P994,000
Multiplied by final tax of 15%
Final tax on gross income at 15% P149,100
Mr. E opted to be taxed at regular tax rate, the
amount of normal income tax due would be:
Gross annual compensation income
Less: Nontaxable 13th month pay
Taxable compensation before personal
exemption
Less: Personal exemption
Net taxable income
Tax on P500,000
Tax on excess (P414,000 x 32%)
Normal income tax due
Personal Exemptions
Personal Exemptions may be classified into:
1. Basic personal exemption is a deductible
allowance granted by the law to reduce the
taxable income of an individual taxpayer.
The new RA 9504 provides that the basic personal

exemption for individual taxpayer amounts to
P50,000 whether he/she is married, head of family
or single.
Personal Exemptions
In the case of married individual, only the spouse
deriving income is allowed to deduct personal
exemption.
Mr. Tanada, a Filipino citizen with income within,

married to Miss Smith, an American Citizen
residing in USA, has compensation income of
P150,000 in the Philippines. He would like to
know their personal exemptions.

Income Tax of Individuals

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Income Tax of Individuals

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Income Tax of Individuals

A citizen of the Philippines residing therein is taxable

A nonresident citizen is taxable only on income

How much would be his gross taxable income for year

Aliens are classified as either a Resident Alien or

They are nonresident foreign individuals who

TAXPAYERS WITHIN OUTSIDE

The new RA 9504 provides that the basic personal

Mr. Tanada, a Filipino citizen with income within,

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