Individual Taxation in the Philippines

Flashcards covering the taxability of individuals, compensation components, de minimis benefits, rent income methods, and filing requirements based on Philippine taxation laws.

Resident Citizen

An individual taxpayer who is subject to tax on income derived from sources both within and outside the Philippines.

Non-Resident Aliens not engaged in Trade or business

Individual taxpayers subject to a $25\%$ final withholding tax on income derived from sources within the Philippines.

Compensation Income

Income arising from an employer-employee relationship, encompassing all remuneration for services such as fees, salaries, wages, and commissions, whether paid in cash or in kind.

Business or Professional Income

Income earned from a sole proprietorship, the practice of a profession, or a share in the income of a general professional partnership.

Passive Income

Income generated without active conduct, such as interest, rents, royalties, dividends, annuities, prizes, and winnings; generally subject to final income tax.

Fringe Benefit Tax (FBT)

A final tax imposed on taxable fringe benefits received by employees in supervisory or managerial positions.

13th Month Pay and Other Benefits Exemption

Benefits that are exempt from tax up to a ceiling of $P90,000$ beginning January 1, 2018; any excess is subject to basic tax.

De Minimis Benefits

Facilities or privileges of relatively small value provided by employers to promote health, goodwill, and efficiency, which are exempt from income tax if within specific ceilings.

Rice Subsidy (RR No. 29-2025)

A de minimis benefit with a non-taxable ceiling of $P2,500\,\text{per month}$ or $P3,333\,\text{rice}$.

Uniform and Clothing Allowance (RR No. 29-2025)

A de minimis benefit with a non-taxable ceiling of $P8,000\,\text{per year}$.

Laundry Allowance (RR No. 29-2025)

A de minimis benefit with a non-taxable ceiling of $P400\,\text{per month}$.

Reasonable Private Benefit Plan Requirements

To be non-taxable, the plan must be BIR-approved, the official must have $10\,\text{years}$ of service with the same employer, and be at least $50\,\text{years}$ old.

Minimum Wage Earner (MWE) Exemptions

Employees in the private sector paid the Statutory Minimum Wage (SMW) are exempt from income tax on SMW, holiday pay, overtime pay, night shift differential, and hazard pay.

Outright Method (Leasehold Improvement)

A method of reporting rent income where the Fair Market Value of the improvement is reported as income in the year of completion.

Spread-out Method (Leasehold Improvement)

A method of reporting rent income annually based on the formula: $\text{Annual Income} = \frac{\text{Book Value at end of lease term}}{\text{Remaining Term of the Lease}}$.

Dividend Situs for Foreign Corporations

Dividend income is treated as from within the PH if at least $50\%$ of gross income for the $3\text{-year}$ period preceding declaration was from PH sources.

Forgiveness of Indebtedness as Compensation

Occurs when a debtor performs services for a creditor who, in return, cancels the debt.

Ordinary Assets

Includes stock in trade, property held primarily for sale to customers, or depreciable property used in trade or business.

Capital Assets

All assets not specifically classified as ordinary assets.

Capital Gain Holding Period (Non-Corporate)

Percentage taken into account is $100\%$ if held for not more than $12\,\text{months}$ and $50\%$ if held for more than $12\,\text{months}$.

BIR Form No. 1700

The Annual Income Tax Return used by individuals earning purely compensation income.

Substituted Filing

A rule where individual taxpayers receiving purely compensation income from a single employer who withheld tax correctly do not need to file their own ITR, as BIR Form $2316$ constitutes the return.

Installment Payment Threshold

Individual taxpayers may pay in two equal installments if the tax due is in excess of $P2,000$.