PLEASESHUT-OFFYOURCELL -PHONES

OPENING PRAYERS

* Our Father* Hail Mary* Glory Be

EXCLUSIONS GROSS INCOME

FINAL TAXESPassive incomeCapital GainsTrans.Tax

•Passive income- Final tax- Concept

•Other income- Schedular tax

GROSS INCOME

Interests Royalties Prizes and other winnings Capital gains Dividends

PASSIVE INCOME

Phil. CurrencyEFCDYield - Deposit substitutes - Trust funds, similar arrangements

INTERESTS

Banker’s acceptancesPromissory notesREPOs, Reverse REPOsCert. of assignment or participation

DEPOSIT SUBSTITUTES

Others with recourse

Continuation

Peso deposits- Citizens, res. aliens = 20%- Non-res. aliens, NET=25%

EFCD- Citizens, res. Aliens =71/2%- Non-res. Aliens, NET=25%

RATES

- Corps. not depository bankso Domestic, resident

foreign = 7 1/2% - Corps. depository bankso Domestic, resident

foreign = 10%

Continuation …….

Corporations- Domestic, foreign

resident = 20%- Foreign non-resident = 32%

Continuation …….

Long-term deposit or investment certificates- Savings, common or

individual trust funds, IMA, deposit substitutes

EXEMPT INTEREST

Maturity not less than five yearsBSP FormBank – IndividualNot less than P 10,000.00

CERTIFICATES

Rate = 20%- Citizens, resident aliens, non-resident aliens ETs - EXCEPT Books, literary and musical = 10%

ROYALTIES

Continuation…….

- Domestic and resident foreign corporationsNon-res. Foreign corp NET = 32%

More than P10,000Not PCSO or LOTTODerived within Phils.Tax treatment if less than P10,000

PRIZES

ConceptKinds

- Liquidating- Cash- Stock- Property

DIVIDENDS

SOURCE – From within- Domestic corporation- Foreign corporations –

not less than 50% for 3 years

DIVIDENDS

RECEIVED BY INDIVIDUALSCash or property dividends- Domestic Corporation- Joint stock company- Insurance company

Continuation …….

- Mutual fund company- Regional operating hqs

of multinational cosShare in prtnrshp incomeShare in assn, joint acct. joint venture, consortium

Domestic/DomesticForeign Resident/ Domestic

Nonresident/Domestic 15% subject to tax credit

CORPORATIONS

Concept - reasonable needs of business The tax = 10% of IAE

IMPROPERLY IMPROPERLY ACCUMULATED ACCUMULATED EARNINGS TAXEARNINGS TAX

Continuation …...

• Who are liable- Corp. form to avoid tax- By not dividing profits

- Only domestic corps.• IAET not applicable

CORPS IAET NOT APPLICABLE

• Banks and other non-bank financial intermediaries

• Insurance companies

Continuation …….

• Publicly-held corps. - Not public, closely held 50% of outstanding or total combined voting

owned not more than 20 individuals

Continuation …….

• Taxable partnerships• General professional partnerships

• Non-taxable joint ventures

Continuation …….

• PEZA and Bases Conversion registrants or SEZs enjoying special tax rate

TESTS FOR REASONABLEACCUMULATION• Immediacy test• “2 to 1” rule• Bardahl formula = optg cycle concept

REASONABLE ACCUMULATION

• Increase up to 100% paid-up

• Definite board approved corporate expansion

Continuation …….

• Buildings, plants or equipt. acquisition approved by Board

• Compliance with any loan covenant or pre-existing obligation

Continuation …….

• Required by law or regltns. to be retained or legally prohibited from distributing

• Subsidiaries of foreign corporations, if intended or reserved for investments within Phils.

PRIMA FACIEUNREASONABLE

• Investments of substantial earnings in unrelated business

• Investment in bonds and other long-term securities

Continuation …….Continuation …….

• Accumulation of earnings in excess of 100% paid-up unless for reasonable needs

TAXPAYERSWHY WHY

CLASSIFIED ?CLASSIFIED ?

Income taxable Deductions Exemptions Taxable rates

WHY CLASSIFY?

• Individuals • Trusts • Estates • Corporations

TAXPAYERS

• Citizenship • Residency • Civil status • Employment

INDIVIDUALS

Citizens

Aliens

CITIZENSHIP

Citizens–Resident–Nonresident

Aliens–Resident–Nonresident

RESIDENCY

Stays in the Philippines

No intention to transfer

RESIDENT CITIZEN

BIR satisfactionPhysical presence abroad Definite intention to reside abroad

NONRESIDENT CITIZEN

• Leaves Phil. during taxable year• To reside abroad• Works and derives income from abroad• Physical presence abroad required

Continuation …….

• Previous nonresident • Arrives during taxable year• Reside permanently in Phil.

Continuation …….

• Not mere transient or sojourner

• No definite intention to• Definite purpose extended stay

RESIDENT ALIEN

•Mere transient or sojourner

•Definite purpose accomplished

NONRESIDENT ALIEN

•Locally employed•Overseas contract workers

•Seamen

CITIZENS

•RESIDENTS–Locally employed–Employed by regnl or

area hgs., and regnl optg hqs. of multint’ls, OBUs, petroleum svc. contractrs

ALIENS

•Single, unmarried, legally separated

•Head of family•Married

CIVIL STATUS

•Revocability•Place of administration•Distribution of benefits

TRUSTS

•Domestic•Foreign

– Resident– Nonresident

CORPORATIONS

CORPORATIONS

•Partnerships•Joint stock companies•Joint accounts•Associations

CORPORATIONS

•General professional•Joint venture or consortium– Construction, energy– Service contract

NOT CORPORATIONS

•Not taxable entity•Partners taxed on their distributive share in net income

G.P.P.

INCOME TAX EXEMPT

TAX EXEMPT INCOME• Labor, agricultural or horticultural organization not organized principally for profit

Continuation …….

• Mutual savings bank and coop banks w/o capital stock

• Beneficiary society, order or association for exclusive benefit of members

Continuation …….

• Mutual aid association or nonstock corp organized by employees providing for the payment of life, sickness, accident, etc.

Continuation …….

• Cemetery company owned and operated exclusively for the members

• Nonstock organized for religious, charitable, scientific, athletic or cultural purposes, rehab of veterans

Continuation …….

• Business league, chamber of commerce, board of trade

• Civic league or org.not for profit promotion of social welfare

• Nonstock and nonprofit educational institution

Continuation …….

• Farmers; or other mutual typhoon or fire insurance, mutual ditch or irrigation, mutual or coop telephone company of purely local character

Continuation …….

• Farmers’, fruit growers, etc. as sales agents• Government

- GSIS- SSS- Phil. Health Insurance

Continuation …….

- PCSO / PAGCOR- Govt. educational

institutions

• Rates • Gross taxation • MCIT• IAET• Branch profits taxes• Other % taxes

CORPORATIONS

• Domestic = 32% Educational institutions

= 10%• Foreign

–Resident = 32%–Nonresident = 32% gross

CORPORATIONS

• 2% of gross income or• 32% reduced rate whichever is higher

• Beg. on 4th tax year

MINIMUM CORP. INCOME TAX

Gross salesLess: Sales Returns and Allowances COGS

GROSS INCOME

MERCHANDISING• Invoice COGS• Import duties• Freight• Insurance

COST OF GOODS SOLD

MANUFACTURING• All costs of prodctn, r.m. d.l. and mfg. OH• Freight cost, ins. & other costs to bring r.m.

COST OF GOODS MFG. AND SOLD

ALL DIRECT COSTS • Salaries and benefits• Cost of facilities, deprcn, rental, cost of supplies• Banks + interest expense

COST OF SERVICES

•Losses•Prolonged labor •Force majeure •Legitimate business reverses

SUSPENSION

No. of mos. using reduced rate x taxable income divided by 12

REDUCED RATES FOR FISCAL YR.

•SOF recommends to the President•January 1, 2000•Optional

GROSS INCOME TAXATION

•Tax effort ratio of 20% to G.N.P.•Ratio of 40% income tax to total tax revenues

CONDITIONS

Continuation…

• VAT effort of 4% of G.N.P. • 9% Ratio of CPSFP to G.N.P.

•Within/Without•Schedular

– Optional standard– Itemized– Personal/additional

RES. CITIZENS

•Within•Schedular

– Itemized – Personal and additional

NONRES. CITIZENS

•Within•Same as resident citizens

RES. ALIENS

•E.T.B. •Within•Schedular

– Itemized– P.A.E. - reciprocity

NONRES. ALIEN

•N.E.T.B.•Within•No deductions•Taxed on gross

NONRES. ALIEN

CAPITAL GAINSand DEDUCTIONS

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