TAXATION
Individual and Corporate
Income Taxpayers
Definition of Terms:
(A) The term 'person' means an individual, a trust, estate
or corporation.
(B) The term 'corporation' shall include partnerships, no
matter how created or organized, joint-stock companies,
joint accounts (cuentas en participacion), association, or
insurance companies, but does not include general
professional partnerships and a joint venture or consortium
formed for the purpose of undertaking construction
projects or engaging in petroleum, coal, geothermal and
other energy operations pursuant to an operating
consortium agreement under a service contract with the
Government. 'General professional partnerships' are
partnerships formed by persons for the sole purpose of
exercising their common profession, no part of the income
of which is derived from engaging in any trade or business.
(C) The term 'domestic,' when applied to a corporation,
means created or organized in the Philippines or under its
laws.
(D) The term 'foreign,' when applied to a corporation,
means a corporation which is not domestic.
(E) The term 'nonresident citizen' means:
(1) A citizen of the Philippines who establishes to the
satisfaction of the Commissioner the fact of his physical
presence abroad with a definite intention to reside therein.
(2) 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.
(3) 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.
(4) A citizen who has been previously considered as
nonresident 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 nonresident
citizen for the taxable year in which he arrives in the
Philippines with respect to his income derived from sources
abroad until the date of his arrival in the Philippines.
(5) The taxpayer shall submit proof to the Commissioner
to show his intention of leaving the Philippines to reside
permanently abroad or to return to and reside in the
Philippines as the case may be for purpose of this
Section.(F) The term 'resident alien' means an individual
whose residence is within the Philippines and who is not a
citizen thereof.
(G) The term 'nonresident alien' means an individual
whose residence is not within the Philippines and who is
not a citizen thereof.
(H) The term 'resident foreign corporation' applies to a
foreign corporation engaged in trade or business within the
Philippines.
ATTY. MACMOD, C.P.A.
(I) The term 'nonresident foreign corporation'applies
to a foreign corporation not engaged in trade or business
within the Philippines.
(J) The term 'fiduciary' means a guardian, trustee,
executor, administrator, receiver, conservator or any
person acting in any fiduciary capacity for any person.
(K) The term 'withholding agent' means any person
required to deduct and withhold any tax under the
provisions of Section 57.
(L) The term 'shares of stock' shall include shares of
stock of a corporation, warrants and/or options to
purchase shares of stock, as well as units of participation
in a partnership (except general professional
partnerships), joint stock companies, joint accounts, joint
ventures taxable as corporations, associations and
recreation or amusement clubs (such as golf, polo or
similar clubs), and mutual fund certificates.
(M) The term 'shareholder' shall include holders of a
share/s of stock, warrant/s and/or option/s to purchase
shares of stock of a corporation, as well as a holder of a
unit of participation in a partnership (except general
professional partnerships) in a joint stock company, a joint
account, a taxable joint venture, a member of an
association, recreation or amusement club (such as golf,
polo or similar clubs) and a holder of a mutual fund
certificate, a member in an association, joint-stock
company, or insurance company.
(N) The term 'taxpayer' means any person subject to tax
imposed by this Title.
(O) The terms 'including' and 'includes', when used in a
definition contained in this Title, shall not be deemed to
exclude other things otherwise within the meaning of the
term defined.
(P) The term 'taxable year' means the calendar year, or
the fiscal year ending during such calendar year, upon the
basis of which the net income is computed under this Title.
'Taxable year' includes, in the case of a return made for a
fractional part of a year under the provisions of this Title or
under rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the commissioner, the
period for which such return is made.
(Q) The term 'fiscal year' means an accounting period of
twelve (12) months ending on the last day of any month
other than December.
(R) The terms 'paid or incurred' and 'paid or accrued'
shall be construed according to the method of accounting
upon the basis of which the net income is computed under
this Title.
(S) The term 'trade or business' includes the
performance of the functions of a public office.
(T) The term 'securities' means shares of stock in a
corporation and rights to subscribe for or to receive such
shares. The term includes bonds, debentures, notes or
certificates, or other evidence or indebtedness, issued by
any corporation, including those issued by a government
or political subdivision thereof, with interest coupons or in
registered form.
(U) The term 'dealer in securities' means a merchant of
stocks or securities, whether an individual, partnership or
corporation, with an established place of business,
regularly engaged in the purchase of securities and the
resale thereof to customers; that is, one who, as a
merchant, buys securities and re-sells them to customers
with a view to the gains and profits that may be derived
therefrom.
(V) The term 'bank' means every banking institution, as
defined in Section 2 of Republic Act No. 337, as amended,
otherwise known as the General banking Act. A bank may
either be a commercial bank, a thrift bank, a development
bank, a rural bank or specialized government bank.
(W) The term 'non-bank financial intermediary'means
a financial intermediary, as defined in Section 2(D)(C) of
Republic Act No. 337, as amended, otherwise known as
the General Banking Act, authorized by the Bangko Sentral
ng Pilipinas (BSP) to perform quasi-banking activities.
(X) The term 'quasi-banking activities' means
borrowing funds from twenty (20) or more personal or
corporate lenders at any one time, through the issuance,
endorsement, or acceptance of debt instruments of any
kind other than deposits for the borrower's own account,
or through the issuance of certificates of assignment or
similar instruments, with recourse, or of repurchase
agreements for purposes of relending or purchasing
receivables and other similar obligations: Provided,
however, That commercial, industrial and other non-
financial companies, which borrow funds through any of
these means for the limited purpose of financing their own
needs or the needs of their agents or dealers, shall not be
considered as performing quasi-banking functions.
(Y) The term 'deposit substitutes' shall mean an
alternative from of obtaining funds from the public (the
term 'public' means borrowing from twenty (20) or more
individual or corporate lenders at any one time) other than
deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrowers own
account, for the purpose of relending or purchasing of
receivables and other obligations, or financing their own
needs or the needs of their agent or dealer. These
instruments may include, but need not be limited to
bankers' acceptances, promissory notes, repurchase
agreements, including reverse repurchase agreements
entered into by and between the Bangko Sentral ng
Pilipinas (BSP) and any authorized agent bank, certificates
of assignment or participation and similar instruments with
recourse: Provided, however, That debt instruments issued
for interbank call loans with maturity of not more than five
(5) days to cover deficiency in reserves against deposit
liabilities, including those between or among banks and
quasi-banks, shall not be considered as deposit substitute
debt instruments.
(Z) The term 'ordinary income' includes any gain from
the sale or exchange of property which is not a capital
asset or property described in Section 39(A)(1). Any gain
from the sale or exchange of property which is treated or
considered, under other provisions of this Title, as
'ordinary income' shall be treated as gain from the sale or
exchange of property which is not a capital asset as
defined in Section 39(A)(1). The term 'ordinary loss'
includes any loss from the sale or exchange of property
which is not a capital asset. Any loss from the sale or
exchange of property which is treated or considered, under
other provisions of this Title, as 'ordinary loss' shall be
treated as loss from the sale or exchange of property
which is not a capital asset.
(AA) The term 'rank and file employees' shall mean all
employees who are holding neither managerial nor
supervisory position as defined under existing provisions of
the Labor Code of the Philippines, as amended.
(BB) The term 'mutual fund company' shall mean an
open-end and close-end investment company as defined
under the Investment Company Act.
(CC) The term 'trade, business or profession' shall not
include performance of services by the taxpayer as an
employee.
(DD) The term 'regional or area headquarters' shall
mean a branch established in the Philippines by
multinational companies and which headquarters do not
earn or derive income from the Philippines and which act
as supervisory, communications and coordinating center
for their affiliates, subsidiaries, or branches in the Asia-
Pacific Region and other foreign markets.
(EE) The term 'regional operating headquarters'shall
mean a branch established in the Philippines by
multinational companies which are engaged in any of the
following services: general administration and planning;
business planning and coordination; sourcing and
procurement of raw materials and components; corporate
finance advisory services; marketing control and sales
promotion; training and personnel management; logistic
services; research and development services and product
development; technical support and maintenance; data
processing and communications; and business
development.
(FF) The term 'long-term deposit or investment
certificates' shall refer to certificate of time deposit or
investment in the form of savings, common or individual
trust funds, deposit substitutes, investment management
accounts and other investments with a maturity period of
not less than five (5) years, the form of which shall be
prescribed by the Bangko Sentral ng Pilipinas (BSP) and
issued by banks only (not by nonbank financial
intermediaries and finance companies) to individuals in
denominations of Ten thousand pesos (P10,000) and other
denominations as may be prescribed by the BSP.
 Summary of New Income Tax Rules
for Individual and Corporate Income Taxpayers
PASSIVE RC / RA / NRA ETB NRA NOT
TAXPAYER TAXBASE TAXRATE/(S) INCOME NRC ETB
1. Resident Citizens a. Taxable 5% - 32% Interest Income
income, World from Phil. bank
b. Passive income 20%; 7.5% - deposits
5% - 12%
20%; 10%; 6 Yields from
- 8 - 10% deposit
c. Special Income 6%; 5% & substitutes
10%
Royalty Income
2. Non-Resident a. Taxable same 1-a
Citizens/ income, Phils. Awards / Prizes
Resident Aliens b. Passive income same 1-b ( over P10T )
c. Special income same 1-c
Winnings (
3. Non-Resident a. Taxable same 1-a except from
Alien engaged income, Phils. PC80 )
in trade or b. Passive income same 1-b but
business without 6 8 Dividend
10% & 7.5% income from
c. Special Income same 1-c domestic corp

4. Non-Resident a. Gross income, 25% final tax Distributive

Alien not engaged Phils (including share of a
passive income) partner NIAT
in trade or b. Special income same 1-c Of a taxable
business partnership

5. Special Alien
Employees: Format of computation of Taxable income:
a. Multinational a. Gross 15% final tax a. Pure compensation income earner
Corporations compensation
income, Phils. Gross compensation income Pxxx
b. Offshore b. Other gross 25% final tax Less: Basic personal exemption Pxxx
banking units income, Phils. Additional exemption xxx
including passive Health insurance premiums xxx xxx
income Taxable compensation income Pxxx
c. Petroleum c. Special income same 1-c
Contractors/ Income tax due [ Sec.24 (A) ] Pxxx
subcontractors Less: Tax withheld from compensation xxx
Income tax payable Pxxx
Note:
1. The following are non-resident citizen:
a. One who establishes to the satisfaction of the b. Pure business/professional income earner
commissioner the fact of his physical presence
abroad with a definite intention to reside therein; Gross business income Pxxx
b. One who leaves Philippines during the taxable year Less: Deductions allowed (Sec.34) xxx
to reside abroad; Income before personal exemptions Pxxx
c. One who works and derives income from abroad Less: Basic personal exemption Pxxx
whose job there requires him to be physically Additional exemption xxx xxx
abroad most of the time (during the taxable year). Taxable Net income Pxxx
Income tax due [ Sec.24 (A) ] Pxxx
2. A non-resident alien individual who comes to the Less: Creditable withholding tax at source xxx
Philippines and stays therein of an aggregate period of Income tax payable Pxxx
more than 180 days during any calendar year shall be
deemed a non-resident alien doing business in the c. Mixed income earner ( compensation from employment
Philippines. and business/professional income ).
Rates of Income Tax on Individual Citizen and
Individual Resident Alien of the Philippines Gross business income Pxxx
Sec.24 (A) The tax shall be computed on taxable income Gross compensation income xxx
in accordance with and at the rates established in the Total xxx
following schedule: Less: Deduction allowed [ Sec. 34 ] xxx
Income before personal exemptions xxx
But not The tax Plus Of excess Less: Basic personal exemption Pxxx
Over over shall be over Additional exemption xxx xxx
- P10,000 5% - - Taxable Net income Pxxx
P10,000 30,000 P500 10% P10,000
30,000 70,000 2,500 15% 30,000 Income tax due [ Sec.24 (A) ] Pxxx
70,000 140,000 8,500 20% 70,000 Less: Tax withheld from compensation Pxxx
140,000 250,000 22,500 25% 140,000 Creditable withholding tax at source xxx xxx
250,000 500,000 50,000 30% 250,000 Income tax payable Pxxx
500,000 - 125,000 32% 500,000
Simplified Summary Rules for Corporations c.
KINDS TAX BASE TAX RATE d.
Ordinary Corporations: e.
1. Domestic Taxable Net 38%
Corporations income, World 3. But corporations subject to 2% MCIT may still ask for
2. Resident Foreign Taxable Net the same relief or exemption under the following:
Corporations income, Phils. a.
3. Non-Resident Foreign Gross Income, the same b.
Corporations Phils. c.

Special Corporations: Improperly Accumulated Earnings Tax ( IAET )

1. Private Educational Taxable Net 10%
Institutions & Non- income, World 1. Imposed on corporations starting January 1,1998 on
Stock/Non-Profit (unless Resident their improperly accumulated earnings (accumulated
Hospitals Corp.) Retained Earnings which are not declared/distributed
2. Resident International Gross Billings, 2% as dividends without justifiable reasons).
Carriers Phils.
3. Non-Resident Gross Income, 25% 2. Not applicable to the following:
Cinematographic Film Phils. a.
Owner/Lessor b.
4. Non-Resident Gross income 4% c.
Owner/Lessor of from rentals, d.
Vessels leases, charter, e.
fees, Phils.
5. Non-Resident The same (#4) 7% 3. Certain circumstances indicating Improper
Owner/Lessor of accumulation of profits:
Aircrafts, Machineries a. Substantial changes to corporate officers who are
and Equipment stockholders at the same time/Personal loans.
6. Offshore Banking Interest income 10% b. Radical change in the nature of business after a
Units from Foreign considerable surplus has been accumulated.
Currency c. Investment is unrelated business or activity.
transactions d. Substantial expenditures of corporations for the
personal benefit of stockholders only.
IMPORTANT NOTES TO REMEMBER:
For Private Educational Institutions and Hospitals: 4. In general, an accumulation of earnings or profits is
If their gross income from unrelated trade or business unreasonable or improper if it is not required for the
exceed 50% of their gross income from all sources the rule purposes of the business.
on ordinary corporation (30% rates) shall apply. a. If to be used as working capital needed by the
business.
For Resident Corporations: b. If needed for plant expansion of the business.
Subject to additional tax of 15% for every profit c. If, in accordance with contractual obligations,
remittance made to their head office abroad. (exempt if placed to the credit of a sinking fund for the
registered with EPZA). purpose of retiring bonds issued by the
corporation.
For Non-Resident Corporations:
Unless, otherwise, provided a foreign corporation not 5. Formula for IAET
engaged in trade or business in the Philippines shall pay a Taxable Net income Pxxx
tax equal to 35% of the gross income received during the Add: Passive Income Pxxx
taxable year from all sources within the Philippines such as Special income xxx
interests, rents, salaries, premium (except reinsurance Tax-exempt income xxx xxx
premiums), annuities, emoluments, or other fixed or Total Pxxx
determinable annuities. Periodical or casual gains, profits
and income and capital gains, except income subject to Less: All taxes paid (not claimed as xxx
Capital gains tax. deductions)
Dividends paid/declared xxx
Formula for computation: Appropriations of Retained xxx xxx
Earnings
Gross Income ( within the Philippines ) Pxxx Improperly Accumulated Earnings Pxxx
Multiplied by: Tax rate 30% Multiplied by 10%
Income tax due Pxxx Improperly Accumulated Earnings tax Pxxx

Minimum Corporate Income tax rule ( MCIT ) beginning F. Special and passive income for Corporations:
January 1, 1998 corporations which are already in their 4th Domestic Resident Non-resident
year of operations, shall be subject to income tax of 30% Special income
on their taxable net income or 2% of their gross income 1. Sale of shares 5% and 10% of
whichever is higher. of stocks of a the Net Capital
domestic Corp. Gains
1. With tax credit benefits for the excess of the 2% MCIT held as capital
over the normal/regular income tax (Deductible vs. assets, not thru
Normal income tax in the succeeding three years). Local stock
exchange.
2. 2% MCIT is not applicable to the following 2. Sale of Real 6% of the GSP SP-Cost x
corporations. Property in the or FMV (higher) 30%
a. Philippines held (included in
b. as capital asset. other income)
 Passive income
1. Interest income from Phil.
Bank deposits 20% 20% 30%
2. Yields, monetary benefits
from deposits substitutes 20% 20% 30%
3. Royalty income 20% 20% 30%
4. Intercorporate dividends Exempt Exempt 15%
5. Interest income from
expanded foreign currency
deposit 1.5% 1.5% Exempt
G. The following corporations are exempted from tax on
corporations:
1. Labor, agricultural or horticultural organization not
organized principally for profit;
2. Mutual savings bank not having a capital stock
represented by share, and cooperative bank
without capital stock organized and operate for
mutual purposes and without profit;
3. A beneficiary society, order or association
operating for the exclusive benefit of the members
such as fraternal organization operating under the
lodge system, or a mutual and association or a
nonstick corporation organized by employees
providing for the payment of life, sickness,
accident, or other benefits exclusively to the
members of such society, order, or association, or
nonstick corporation or their dependents;
4. Cemetery company owned and operated
exclusively for the benefits of its members;
5. Non-stock corporation or association organized and
operated exclusively for religious, charitable,
scientific, athletic or cultural purposes, or for the
rehabilitation of veterans, no part of its net income
or asset shall belong to or inure to the benefit of
any member organizer, officer or any specific
person;
6. Business league, chamber of commerce, or board
of trade, not organized for profit and no part of the
net income of which inures to the benefit of any
private stockholder or individual;
7. Civic league or organization not organize for profit
but operated exclusively for the promotion of social
welfare;
8. A non-stock and non-profit educational institution;
9. Government educational institution;
10. Farmers or other mutual typhoon or fire insurance
company, mutual ditch or irrigation company,
mutual or cooperative telephone company, or like
organization of a purely local character, the income
of which consists solely of assessments, dues, and
fees collected from members for the sole purposes
of meeting its expenses; and
11. Farmers, fruit growers or like association
organized and operated as a sales agent for the
purpose of marketing the products of its members
and turning back to them the proceeds of sales,
less the necessary selling expenses on the basis of
the quantity of products finished by them;
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from any of
their properties, real or personal, or from any of their
activities conducted for profit regardless of the
disposition made of such income, shall be subject to
tax imposed under the Tax Code.
QUARTERLY CORPORATE INCOME TAX RETURN
Corporation are required to file in duplicate a quarterly,
summary declaration of its gross income and deductions
on a cumulative basis. The tax so computed shall be
decreased by the amount with tax previously paid or
assessed during the preceding quarter.
Time of filing Quarterly returns shall be filed within 60
days following the close of each of the first three quarters.
Final returns shall be filed on or before the 15th of the
fourth month following the closed of the taxable (fiscal or
calendar year).
Income Taxation
Multiple Choice: Choose the best possible answer.
1. One of them is not considered non-resident citizen.
a. A citizen of the Philippines who establishes to the
satisfaction of the Commissioner the fact of his
physical presence abroad with a definite intention
to reside therein.
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 permanent basis.
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.
d. A citizen of the Philippines who went on a business
trip abroad and stayed therein most of the time
during the year.
2. DINA, nonresident citizen, arrived in the Philippines on
July 1, 2000 to reside here permanently after working
as nurse in the United States of America for many
years.
Which of the following statements is correct with
respect to her classification for income tax purposes?
a. She shall be classified as nonresident citizen for
the year 2000 with respect to her income derived
from sources abroad from January 1,2000 until
the date of her arrival in the Philippines.
b. She shall be classified as nonresident citizen for
the whole year of 2000.
c. She shall be classified as resident citizen for the
whole year 2000.
d. She shall be classified as neither resident nor
nonresident citizen for the year 2000.
3. JESS, an expert American Physicist was hired by a
Philippine corporation to assist in its organization and
operation for which he had to stay in the Philippines for
an indefinite period. His coming to the Philippines was
for a definite purpose which in its nature would require
an extended stay and to that end makes his home
temporarily in the Philippines for around 300 days
during the calendar year. The American management
expert intends to leave the Philippines as soon as his
job is finished.
For income tax purposes, the American management
expert shall be classified as:
a. Resident alien.
b. Nonresident alien engaged in trade or business.
c. Nonresident alien not engaged in trade or
business.
d. Resident citizen.
4. ASSUNTA, an American singer, was engaged to sing
for one week at the Western Philippine Plaza after
which she returned to USA. For income tax purposes,
she shall be classified as:
a. Resident alien.
b. Nonresident alien engaged in trade or business.
c. Nonresident alien not engaged in trade or
business.
d. Resident citizen.
5. SITUS OF TAXATION IS WORLD/GLOBAL TAXATION?
a. Resident alien c. Nonresident alien
 b. Nonresident citizen d. Resident citizen
6. It is important to know the source of income for
income tax purposes (i.e. from within and without the
Philippines) because:
a. Some individuals and corporate taxpayers are
taxed on their worldwide income while others are
taxable only upon income from sources within the
Philippines.
b. The Philippine imposes income tax only on income
from sources within.
c. Some individual taxpayers are citizens while others
are aliens.
d. Export sales are not subject to income tax.
7. An exemption allowed to a taxpayer who has qualified
legitimate, illegitimate or legally adopted children.
a. Additional exemption.
b. Special additional personal exemption.
c. Optional standard deduction.
d. Basic personal exemption.
8. The following except one may claim personal
exemption.
a. Nonresident alien not engaged in trade or
business.
b. Nonresident alien engaged in trade or business.
c. Resident alien.
d. Citizens.
9. Which of the following taxpayers whose personal
exemption is subject to the law on reciprocity under
the Tax Code?
a. Nonresident citizen with respect to his income
derived from outside the Philippines.
b. Nonresident alien who shall come to the Philippines
and stay herein for an aggregate period of more
than 180 days during any calendar year.
c. Resident alien deriving income from a foreign
country.
d. Nonresident alien not engaged in trade or business
in the Philippines whose country allows personal
exemption to Filipinos who are not residing but are
deriving income from said country.
10. Under the Tax Code, who of the spouse is the proper
claimant of the additional exemption with respect to
any of the dependent children?
a. The husband if his income is higher than the
income of the wife.
b. The spouse who has the bigger income.
c. The husband.
d. The wife if her income is higher than the income of
the husband.
11. Taxpayer, married, supports the following:
a. Vanessa, legitimate child, 21 years old.
b. Arli, recognized natural child, 18 years old.
c. Lorelie, stepchild, daughter of wife by a former
marriage, 23 years old.
d. Widowed mother of her wife, 62 years old.
For income tax purposes, the taxpayer can claim:
Basic personal exemption Additional exemption
a. P50,000 P100,000
b. P50,000 P 75,000
c. P50,000 P 50,000
d. P50,000 P 0
12. One of the following is not a head of the family for
income tax purposes:
a. Unmarried taxpayer supporting his mother, 50
years old.
b. Married but legally separated taxpayer supporting
a legitimate child, 6 years old.
c. Legally separated taxpayer supporting a brother,
27 years old, physically incapacitated.
d. Widower supporting his mother in law, 55 years
old.
13. A taxpayer, single has the following dependents who
live with him:
a. Tony, brother, 25 years old taking up Engineering
course.
b. Inday, sister, 16 years old.
c. Lina, adopted child, gainfully employed.
d. Berto, not related to taxpayer, 65 years old,
qualified senior citizen.
For income tax purposes, the taxpayer can claim:
Basic personal exemption Additional exemption
a. P50,000 Zero
b. P50,000 P25,000
c. P50,000 P50,000
d. P50,000 P75,000
14. The taxpayer is a married nonresident alien engaged in
business in the Philippines with two (2) qualified
dependent children. His country gives a nonresident
Filipino with income therefrom a basic personal
exemption of P20,000 & P4,000 additional personal
exemption for each qualified dependent child. He is
entitled to total personal exemptions of:
a. P50,000 c. P28,000
b. P75,000 d. P100,000
15. One of the following is not qualified as dependent for
income tax purposes.
a. Illegitimate child, 16 years old, living in the United
States due to his studies.
b. Legitimate child, 21 years old, with a monthly
income of P2,000, living with the taxpayer in
Manila.
c. Senior citizen, not related to the taxpayer, with a
yearly income of P80,000, living with and taken of
by the taxpayer.
d. Brother, 24 years old, incapable of self support
because of physical disability.
16. Life insurance premiums paid by an individual taxpayer
is deductible from gross income for a maximum
amount of P2,400 provided the familys gross income
for the year does not exceed P250,000.
The premium on health and/or hospitalization
insurance is deductible by the spouse who claimed the
additional exemption in case of married taxpayers.
a. True, True c. False, False
b. True, False d. False, True
17. Which of the following will change the status of the
taxpayer?
a. Marriage of a dependent within the taxable year.
b. Dependent becoming 21 years old during the year.
c. Dependent gaining employment during the year.
d. Marriage of taxpayer himself during the year.
18. Filipino as well as alien employees of regional or area
headquarters established in the Philippines by
multinational companies shall be subject to final tax of
15% on the gross business income in the Philippines.
Generally, nonresident aliens not engaged in trade or
business are subject to 25% creditable withholding tax
on their gross income in the Philippines.
a. True, True c. True, False
b. False, False d. False, True
19. Global system of income taxation means:
a. All types of income except those subject to final
tax are aggregated to arrive at gross income.
 b. Separate graduated rates are imposed on different a. Interest income from long term deposit is exempt
types of income. from income tax.
c. Capital gains are exclude in determining gross b. Winnings from Philippine Charity Sweepstakes are
income. exempt from income tax.
d. Compensation income and business/professional c. Royalties on books, literary works and musical
income are taxed at different places in the world. composition are subject to 10% non-creditable
withholding tax.
20. Which of the following income of an individual taxpayer d. A prize of P10,000 is subject to 20% final tax.
is subject to final tax?
a. P10,000 prize in Manila won by a resident citizen. 27. Cash and/or property dividends received from
b. Dividend received by a resident citizen from a domestic corporation by a nonresident alien not
resident corporation. engaged in trade or business are subject to 25% final
c. Shares in the net income of a general professional tax.
partnership received by a resident alien.
d. Dividend received by a non-resident alien from a Share of an individual in the distributed net income
domestic corporation. after tax of a general professional partnership is
subject to final tax.
21. Interest received by nonresident individuals from a a. True, True c. False, False
depository bank under the expanded foreign currency b. True, False d. False, True
deposit system is exempt from tax.
28. 1st Statement Nonresident individual taxpayer are
Passive income received by a resident citizen from also subject to 7.5% final tax on their income from
sources outside the Philippines shall be generally expanded foreign currency deposit.
subject to Section 24 (A) and not to final tax.
a. True, True c. False, False 2nd Statement- There can be a 6% capital gains tax on
b. True, False d. False, True sale of a real property in USA.
a. True, True c. False, False
22. A nonresident alien deriving income from Philippine b. True, False d. False, True
sources claims that he is entitled to personal
exemptions. Which of the following is not a condition 29. Which is covered by gross income taxation?
for the allowance of personal exemptions to said a. Resident alien
taxpayer? b. Nonresident alien engaged in trade or business
a. That he has stayed in the Philippines for an without reciprocity law.
aggregate period of more than 180 days. c. Nonresident alien not engaged in trade or
b. That his country has an income tax law that allows business.
personal exemptions to Philippines not residing d. Nonresident citizen
therein.
c. That he has filed a true and accurate return of his 30. Which is governed by modified gross income taxation?
total income from all sources within the a. A resident Filipino with compensation income only.
Philippines. b. NRA-engaged in trade or business with the benefit
d. That he is married to a Filipina. of reciprocity law.
c. A non-resident citizen with business income only.
23. Which of the following statements is incorrect? d. A resident citizen who is considered a mixed
a. To be subject to final tax passive income must be income earner.
from Philippine sources.
b. An income which is subject to final tax is excluded 31. Mr. Valdez, resident Filipino taxpayer single supporting
from the computation of income subject to Section three minor (illegitimate) children one of them living
24 (A). abroad showed the following data for taxable year
c. Lotto winnings in foreign countries are exempt 200A.
from income taxation in the Philippines. Salary from ABC Co. (net of P40,000
d. An income which is subject to non creditable withholding tax) P350,000
withholding tax is excluded in the computation of Professional fee from various schools
income subject to Section 24 (A). (net of 10% withholding tax) 135,000
Expenses incurred-practice of profession
24. Proceeds of sale of real property classified as capital (Living expenses including tuition fees of
asset are exempt from the 6% capital gains tax if used children 25% thereof) 80,000
to build a new principal residence within 18 months Health and/or hospitalization insurance
from the date of sale or of disposition. premium paid 5,000

Gain from sale of real property classified as capital The income tax due after tax credit if any is:
asset to the Government may be taxed under Section a. P51,700 c. P43,300
24 (A) at the option of the individual taxpayer. b. P49,300 d. P34,000
a. True, True c. False, False
b. True, False d. False, True 32. Based on the above problem, his taxable income
assuming his salary from ABC Co. is P80,000 (gross):
25. One of the following is not a deposit substitute. a. P126,600 c. P121,000
a. Bakers acceptance. b. P129,000 d. P67,600
b. Promissory notes.
c. Repurchase agreements. 33. Benjie sold his residential house to Ms. Papaya for
d. Debt instruments issued for interbank call loans P5,000,000. Its FMV when he inherited it was
with maturity of not more than 5 days to cover P6,000,000 although its presents FMV is P8,000,000.
deficiency in reserves against deposit liabilities. The tax on the above transaction is:
a. P360,000 capital gains tax
26. Which of the following statements is not correct? b. P480,000 capital gains tax
c. 30% donors tax
 d. Value added tax Mr. and Mrs. (net of 10% withholding
tax) 450,000
34. But assuming that Benjie used of the proceeds of Expenses professional practice 120,000
the said house to buy a new principal residence 10 Rental income (net of 5% withholding
days after the above sale and he properly informed tax 190,000
BIR about it, the tax shall only be: Rental expenses 80,000
a. P120,000 capital gains tax Other income, Mr. 80,000
b. P240,000 capital gains tax
c. P360,000 capital gains tax 20% of the other income is non-taxable while 15% of
d. P480,000 capital gains tax the professional expenses is non-deductible. They have
12 minor children.
35. Continuing no. 35, but assuming the residential house
is located abroad, the capital gains tax is: The taxable income of Mr. is:
a. P360,000 c. P120,000 a. P173,000 c. P266,000
b. P480,000 d. P0 b. P275,000 d. P234,000

36 to 41 are based on the following data: 43. The taxable income of Mrs. is:
a. P371,000 c. P419,000
Mr. Pogi, married supporting 10 minor children 7 of which b. P357,000 d. P410,000
are gainfully employed had the following data for taxable
year 2010: ($1-P50). 44. Mr. Dimple Pastrana had the following data for taxable
Philippines Abroad year 2015: (Exchange rate $1-P40)
Business income P1,000,000 $20,000
Professional Philippines Abroad
income 400,000 10,000 Salaries P165,000 $2,000
Salaries (net of Income from merchandise 450,000 6,000
P18,500 Business expenses 120,000 1,500
withholding Interest income:
Tax) 181,500 Personal receivable 10,000
Business and From expanded FCDS $2,500
professional On bank deposits (20%
expenses 250,000 8,000 long-term) 25,000 3,000
Income tax paid Royalty income (20% from
abroad: 4,000 2,575,000 books) 22,000 1,000
354,245 Prize won in contest 10,000
Dividend income:
36. If Mr. Pogi is a resident citizen, his income tax due From domestic
after tax credit is: corporation 7,000
a. P789,000 c. P589,000 From resident corporation 5,000
b. P570,500 d. P490,500 From non-resient 8,000
37. If he is a resident alien, his income tax due after tax Winnings from Charity
credit, if any is: sweepstakes 80,000
a. P360,580 c. P384,380 Shares of stocks of
b. P358,020 d. P 338,500 domestic corp. sold to a
buyer (cost P10,000) 30,000
38. If he is a non-resident citizen, his income tax due after
tax credit, if any is: Mr. Dimple is married with the following children as
a. P360,580 c. P384,380 dependents:
b. P358,020 d. P338,500
Haze, born March 15,1990, Diane, born April 5,1992,
39. If he is a non-resident alien engaged in trade or Christine and Pat, born May 6,1995, and Batman, born
business in the Philippines but without the benefit of February 27,1998.
Reciprocity Law, the income tax due after tax credit, if
any is: He also sold a condominium unit in Manila (residential)
a. P397,000 c. P405,500 for P2,000,000 although its FMV is P3,000,000 but
b. P378,500 d. P338,500 with a zonal value of P4,000,000.

40. If he is a Non-resident alien not engaged in trade or The taxable income of Mr. Dimple is:
business, disregarding professional & business data, a. P798,000 c. P724,000
the income tax still due is: b. P892,000 d. P716,000
a. P50,000 c. P31,500
b. P18,500 d. P338,500 45. Mr. Dimples total final taxes on his passive income is:
a. P16,160 c. P15,460
41. And if he is a Special Alien Employee, disregarding b. P16,020 d. P8,520
professional and business data the income tax that
should be withheld from his income is: 46. His total capital gains taxes is:
a. P18,500 c. P11,500 a. P241,000 c. P240,000
b. P30,000 d. None b. P251,720 d. P257,000

42. Mr. and Mrs. Robino, both CPAs and residents of the 47. If he is a Non-resident citizen his total final tax on
Philippines had the following data for taxable year passive income is:
2000: a. P16,020 c. P16,160
Salaries, Mrs. P150,000 b. P15,460 d. P8,520
Bonus (13th month pay), Mrs. 94,000
Income from practice of Profession,
48. If he is a Non-resident alien not engaged in trade or a. P780,000 c. P880,000
business his total combined taxes on all income from b. P832,000 d. P480,000
Philippines is: (excluding business income)
a. P83,000 c. P324,000 58. If it is a private educational institution like FEU, its
b. P241,000 d. P340,000 income tax after tax credit:
a. P730,000 c. P275,000
49. A Malaysian who is an employee in the regional area b. P832,000 d. P150,000
headquarter of a multinational corporation had the
following data for taxable year 2009. 59. If it is non profit hospital, its income tax after tax
Salaries received P120,000 credit is:
Other emoluments 50,000 a. P730,000 c. P275,000
Interest income from Philippine Bank b. P832,000 d. P150,000
Deposit 20,000
Winnings from Lotto 50,000 60. If it is a resident international carrier, its income tax
Winnings from Tournament 100,000 is:
Gain from sale of shares of stock sold a. P100,000 c. P37,000
directly to a buyer (stocks of a b. P10,000 d. P125,000
domestic corporation) 175,000
61. If it is a non-resident cinematographic film
The capital gains tax is: owner/lessor, its income tax is:
a. P12,000 c. P7,500 a. P1,000,000 c. P300,000
b. P12,500 d. P17,500 b. P100,000 d. P128,000

50. The total combined taxes on all other income from 62. If it is non-resident lessor of vessel, its income is:
Philippines is: a. P100,000 c. P300,000
a. P23,500 c. P68,000 b. P180,000 d. P128,000
b. P42,500 d. P80,500
63. If it is a non-resident lessor of aircrafts, machineries
51. Mr. de Vega, married, left Philippines in the middle of and equipment, its income tax is:
the year on July 1,2014 to go abroad and work there a. P100,000 c. P300,000
as a contract worker for two years, the following data b. P180,000 d. P128,000
were provided as of December 31,2014: (Assume all
data from abroad only) 64. If it is a resident corporation but its expenses within
Gross Income Deductions and without is P3,000,000, unallocated (disregard
January 1 to June 30 P300,000 P100,000 original data on expenses), its income tax is:
July 1 to December 31 P1,000,000 P125,000 a. P600,000 c. P480,000
b. P320,000 d. P128,000
His taxable income is: ($1-P50)
a. P150,000 c. P843,000 65. If it is a resident corporation and it remitted 60% of its
b. P1,403,000 d. P200,000 net profit to its head office abroad, it total tax liability
is: (ORIGINAL DATA)
52. If , assuming he arrived from abroad on July 1,2014 to a. P544,500 c. P196,000
permanently resettle in the Philippines, after working b. P571,800 d. P676,000
abroad for 2 years, his taxable income as of December
31,2009 is: 66. If it is a private educational institution but P3,500,000
a. P168,000 c. P843,000 of its total gross income is from lease & restaurant
b. P1,043,000 d. P825,000 business, its income tax is:
a. P730,000 c. P150,000
53. If he did not leave Philippines at all, his taxable income b. P675,000 d. P832,000
is:
a. P168,000 c. P843,000 67. If it is a domestic corporation but its total expenses is
b. P1,043,000 d. P1,025,000 P5,800,000 (disregard original data on expenses), its
income tax is:
The Rainbow Corporation provided the following data a. P730,000 c. P120,000
for calendar year ending December 31, 2015: ($1-50) b. P64,000 d. P85,000
Philippines Abroad
Gross Income P4,000,000 $40,000 68. If under # 67, but the domestic corporation is a non-
Deductions P2,500,000 $15,000 profit hospital, (disregard tax paid abroad) its income
Income tax paid 3,000 tax is:
a. P20,000 c. P10,909
54. If it is a domestic corporation, its income tax after tax b. P64,000 d. P120,000
credit is:
a. P675,000 c. P880,000 69. If the corporation is a non-stock educational institution
b. P832,000 d. P480,000 which uses all its revenues or income for educational &
charitable purpose, its income tax is:
55. If is a resident corporation, its income tax is: a. P0 c. P120,000
a. P450,000 c. P880,000 b. P730,000 d. P64,000
b. P1,280,000 d. P480,000
70. For purposes of computing the MCIT, which will not
56. If it is a non-resident corporation, its income tax is: form part of cost of goods sold for traders:
a. P1,200,000 c. P880,000 a. Invoice cost c. Freight
b. P1,280,000 d. P480,000 b. Import duties d. Wharfage

57. Under # 54 but it opts to claim the tax paid abroad as 71. Under # 70, but the taxpayer is a manufacturer:
deductions from gross income,its income tax is: a. Raw materials used
 b. Direct labor and overhead b. False, False d. False, True
c. Freight and insurance
d. Import duties 84. The improperly accumulated earnings tax shall not
apply to the following, except:
72. Under # 70, but the taxpayer is a seller of services: a. Insurance companies
a. Salaries and supplies b. Corporations formerly registered with PEZA
b. Employee benefits c. Publicly held corporations
c. Depreciation and rental expenses d. Bank and Non-bank Financial Intermediaries
d. Interest expense
85. 1st Statement: Domestic corporation not falling
73. The MCIT is only effective in the 5th year following the under the definition of closely held corporations are
year in which the corporation commenced its business. considered publicly held corporations.
2nd Statement: A closely held corporation under the
Non-resident corporation are also covered by MCIT. Tax Code and a close corporation under the
a. True, True c. False, True Corporation Code are the same.
b. False, False d. True, False a. True, True c. True, False
b. False, False d. False, True
74. Non-resident corporations need not file any income tax
returns. 86. It is a test used in determining the reasonable needs of
Tax-exempt corporations are also required to file an a business to justify the accumulation of earnings
ITR for administrative purposes only. which will exempt the corporation from paying
a. True, True c. False, True Improperly accumulated earnings tax:
b. False, False d. True, False a. Urgency test c. Immediacy test
b. Reasonable needs test d. Control test
75. To record MCIT, the account deferred charges MCIT is:
a. Debited c. Memo entry only 87. The improperly accumulated earnings tax is essentially
b. Credited d. No entry required a:
a. General tax c. Regulatory or Penalty tax
76. To record application of excess MCIT vs. NORMAL b. Property tax d. Excise tax
income tax, what account is credited?
a. Income tax payable c. Retained earnings 88. Zaidia Corporation, a domestic corporation had the
b. Cash in bank d. Deferred charges MCIT following data for taxable year 2010:
Sales P5,000,000
77. To record expired portion of MCIT, what account is Cost of goods sold 2,000,000
debited: General selling and administrative
a. Retained earnings c. Deferred charges MCIT expenses 500,000
b. Income tax payable d. Provision for income tax Interest income from Philippine bank
deposit 100,000
78. One of the following is not accepted basic relief from Rental income (net of 5% withholding
the MCIT: tax) 190,000
a. Prolonged labor dispute Dividend Income:
b. Force majeure problems From domestic corporation 60,000
c. Legitimate business reverse From foreign corporation 50,000
d. Law suits filed by the company Winnings from charity sweepstakes 1,000,000
Capital gains from sale of domestic
79. Which is not a characteristics of corporate income tax: shares of stocks sold Directly to
a. Progressive tax c. General tax buyer 75,000
b. Direct tax d. National tax Dividend declared and paid during the
year 500,000
80. 1st Statement: Non-stock/non-profit corporations are Retained earnings, beginning of the
tax-exempt from their income from all operations. year (subjected to Improperly
2nd Statement: Intercorporate dividends are tax- accumulated earnings tax last year) 1,000,000
exempt if the recipient is a foreign corporation.
a. True, True c. False, True Note: The board of directors approved a resolution
b. False, False d. True, False reserving P1,500,000 of its net profit for the year for
plant expansion.
81. Which is governed by gross income taxation.
a. Domestic corporation
The income tax due after tax credit if any is:
b. Resident corporation
a. P825,000 c. P899,200
c. Non-resident corporation
b. P815,000 d. P819,200
d. Educational institutions
89. Based on the foregoing problem, the Improperly
82. One of the following corporations cannot claim tax
accumulated earnings tax is:
credit for foreign taxes paid abroad.
a. P208,125 c. P113,625
a. Private educational institutions
b. P108,125 d. P105,125
b. Resident International Carriers
c. Investment companies
90. Haidia corporation, an educational institution provided
d. Domestic Hospitals
the following data for the current year:
Income from tuition fees P3,500,000
83. 1st Statement: Foreign income tax may be treated by a
School miscellaneous fees 1,500,000
taxpayer as tax credit but not as deduction from gross
Dividend income:
income under the new law.
Domestic corporation 2,000,000
2nd Statement: Being a holding company is conclusive Foreign corporation 2,000,000
evidence of improper accumulation of profit. Rent income (net of 5% withholding
a. True, True c. True, False tax) 1,900,000
 Operating expenses 4,000,000 a. P435,200 c. P403,000
b. P450,000 d. P423,350
The income tax due of the school is:
a. P1,600,000 c. P1,500,000 97. And if it is a non-resident corporation, its total
b. P1,500,000 d. P1,400,000 combined taxes is:
a. P485,450 c. P517,450
91. MEDINA corporation, a resident corporation provided b. P515,200 d. P485,600
the following data for taxable year 2010:
Philippines USA 98. A corporation has the following data for the current
Gross income P40,000,000 P20,000,000 year:
Dividends from: Gross income, Phil. P1,000,000
Domestic corporation 5,000,000 Gross income, USA 500,000
Foreign corporation 4,000,000 Gross income, Japan 500,000
Business expenses 12,000,000 8,000,000 Expenses, Phil. 300,000
Expenses, USA 200,000
The corporation remitted to its head office the Expenses, Japan 100,000
P5,000,000 dividend income and 40% of its net profit Other income:
to its head office in USA. Dividend from San Miguel
Corp. 70,000
The corporations total tax liability including the tax on Dividend from Ford Motors,
the profit remitted is: USA 120,000
a. P10,944,000 c. P15,960,000 Gain on sale of San Miguel
b. P11,545,600 d. P12,475,000 shares directly to buyers 150,000
Royalties, Phils. 50,000
92. In the foregoing problem, if it is registered with EPZA, Royalties, USA 100,000
its BPRT: Interest (other than from
a. P10,240,000 c. P11,545,600 banks) 60,000
b. P 9,600,000 d. P 0 Rent, land in USA 250,000
Other rent income 100,000
93. The following data were taken from the financial Prize, contest in Manila 200,000
statement of Topnotcher Kah corporation for taxable Land sold in Philippines 2,000,000
for the current year:
Philippines Abroad The cost of the land not used in business is
Gross sales P950,000 P2,000,000 P1,000,000, its FMV is P3,000,000.
Sales returns 25,000
Cost of goods sold 425,000 300,000 Its total tax liability as a domestic corporation is:
Interest income from a. P733,600 c. P963,600
trade receivable 10,000 50,000 b. P913,600 d. P869,000
Interest income from
bank deposits, Phil. 20,000 99. Based on # 100, its total tax liability if it is a resident
Dividend income from corporation:
domestic corporation 15,000 a. P539,200 c. P659,200
Dividend income from b. P679,200 d. P638,000
foreign corporation 25,000
Royalty income 20,000 100. And if it is a non-resident corporation, its total tax
Sale of shares of stocks of liability is:
domestic corp. held as a. P471,700 c. P791,200
capital asset thru local b. P791,700 d. P743,500
stock exchange 70,000
Operating expenses 250,000 300,000 101. A domestic corporation has the following data for the
Income from money year 2015 (fourth year of operation):
market placement 35,000 100,000 Sales P5,000,000
Sale of real property in Cost of sales 1,500,000
the Phil. not used in 5,000,000 Business expenses 800,000
business, cost P4,000,000 Dividend from domestic corporation 50,000
30% of the operating Selling price of land classified as
expenses is non- capital asset(cost, P3,500,000) 4,000,000
deductible Interest on Philippine currency bank
deposit 40,000
The FMV of the real property sold was P8,000,000 at Dividend declared and paid 500,000
the time of the sale. Tax paid for the first three quarters 550,000
Its income tax on ordinary taxable income is:
The BIR, upon investigation, found out that there is
a. P640,000 c. P680,000
improper accumulation of earnings.
b. P600,000 d. P580,000
The Improperly accumulated earnings tax is:
94. Its total tax on passive income is:
a. P167,800 c. P517,800
a. P15,000 c. P4,000
b. P187,000 d. P173,200
b. P8,000 d. P11,000
102. The income tax still due in the final return is:
95. Its capital gains tax is:
a. P260,000 c. P410,000
a. P480,000 c. P300,000
b. P433,200 d. P510,000
b. P495,000 d. P60,000
103. STAR Corporation, a domestic corporation, had the
96. Based on the above problem, its total combined tax
following data:
liability if it is a resident corporation:
YEAR GROSS INCOME DEDUCTIONS
2011 P1,000,000 P1,200,000 The taxable income in 2015 is:
2012 2,000,000 1,900,000 a. P380,000 c. P100,000
2013 3,000,000 2,950,000 b. P0 d. P50,000
2014 1,000,000 1,100,000
2015 980,000 500,000

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