Capital Gains Tax is a tax imposed on the gains presumed to

have been realized by the seller from the sale, exchange, or other
disposition of capital assets located in the Philippines, including
pacto de retro sales and other forms of conditional sale.

Documentary Stamp Tax is a tax on documents, instruments,

loan agreements and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, rights, or property
incident thereto.

Donor's Tax is a tax on a donation or gift, and is imposed on the

gratuitous transfer of property between two or more persons who
are living at the time of the transfer.

Estate Tax is a tax on the right of the deceased person to

transmit his/her estate to his/her lawful heirs and beneficiaries at
the time of death and on certain transfers which are made by law
as equivalent to testamentary disposition.

Income Tax is a tax on all yearly profits arising from property,

profession, trades or offices or as a tax on a persons income,
emoluments, profits and the like.

Percentage Tax is a business tax imposed on persons or entities

who sell or lease goods, properties or services in the course of
trade or business whose gross annual sales or receipts do not
exceed P550,000 and are not VAT-registered.

Value-Added Tax is a business tax imposed and collected from

the seller in the course of trade or business on every sale of
properties (real or personal) lease of goods or properties (real or
personal) or vendors of services. It is an indirect tax, thus, it can
be passed on to the buyer.

Withholding Tax on Compensation is the tax withheld from

individuals receiving purely compensation income.

Expanded Withholding Tax is a kind of withholding tax which is

prescribed only for certain payors and is creditable against the
income tax due of the payee for the taxable quarter year.
Final Withholding Tax is a kind of withholding tax which is
prescribed only for certain payors and is not creditable against
the income tax due of the payee for the taxable year. Income Tax
withheld constitutes the full and final payment of the Income Tax
due from the payee on the said income.

Withholding Tax on Government Money Payments is the

withholding tax withheld by government offices and
instrumentalities, including government-owned or -controlled
corporations and local government units, before making any
payments to private individuals, corporations, partnerships and/or
associations.

FREQUENTLY ASKED QUESTIONS

1) Who are required to register with the BIR?

Every person subject to any internal revenue tax shall register

once with the appropriate Revenue District Officer:

1. Within ten (10) days from the date of employment, or

2. On or before the commencement of business, or
3. Before payment of any tax due, or
4. Upon filing of a return, statement or declaration as required
in the NIRC.
5. Death of individual;
6. Full settlement of the tax liabilities of the estate;
7. Discovery of a taxpayer having multiple TINs; and
8. Dissolution, merger or consolidation of juridical person.
2) Are non-resident aliens and non-resident foreign corporations
receiving income from sources within the Philippines required to
register with the BIR?
Yes, Non-Resident Aliens Not Engaged in Trade or Business
(NRANETB) or Non-Resident Foreign Corporations (NRFC) shall be
issued TINs for purposes of withholding taxes on their income
from sources within the Philippines. The withholding agent shall
apply for the TIN in behalf of the NRANETB or NRFC prior to or at
the time of the filing of their monthly withholding tax return as
applicant under EO 98, series of 1998 (Sec.4.1v of RR 7-2012).
3) If the taxpayer is engaged in VATable activity, but the gross
sales or receipts from business or practice of profession is P
1,919,500.00 or below, is he required to register?
Yes, he is required to register as a Non-VAT taxpayer. However, if
his gross sales or receipts is more than P 100,000.00 but does
not exceed P 1,919,500.00, he has the option to register as VAT
taxpayer. In the case of marginal income earners with gross
sales or receipts of P 100,000 and below, they have no other
option but to register as non-VAT taxpayer.
4) Are taxpayers required to register their business annually?
No, taxpayers are required to register only once before
commencing their business. However, they are required to pay
the registration fee of P 500.00 annually.
5) When is the taxpayer required to apply for registration and pay
the registration fee?
New taxpayers shall apply for registration and pay the
registration fee before commencing their business. Thereafter,
taxpayers should pay the annual registration fee not later than
January 31 every year.
6) Where should a taxpayer register?
All taxpayers are required to register with the RDO having
jurisdiction over the head office, branch office, place of
production or storage place where inventory of goods for sale or
use in business are kept.
7) Are branches, storage places and places of production also
required to pay the Annual Registration Fee (ARF) of P 500.00?
Each branch is required to pay the ARF of P 500.00. However,
storage and production places are liable to the ARF only when
sales operations are conducted thereat.
8) Who are required to register without paying the ARF?
a) Cooperatives duly registered with the CDA;
b) Individual residents earning purely compensation income
c) OCWs/OFWs;
d) Marginal Income Earners;
e) GAIs, in the discharge of their governmental functions;
f) LGUs, in the discharge of their governmental functions;
g) Tax exempt corporations such as those enumerated under
Section 30 of the Code, as amended, in pursuance of tax-exempt
activities;
h) Non-stock/non-profit organizations not engaged in business;
i) Persons subject to tax under one-time transactions;
j) Persons registered under EO 98, series of 1998; and
k) Facility/ies where no sales transactions occur.
9) Are taxpayers transferring business address within the year
either within the same district or to another district required to
pay another registration fee of P 500.00?
No, since the ARF is payable annually, they are no longer required
to pay the registration fee to the new district office, provided the
P 500.00 was already paid.
10) After complying with all the requirements for registration,
what document will be issued to the taxpayer as proof of
registration?
Certificate of Registration (BIR Form 2303) for newly registered
taxpayer and validated Payment Form (BIR Form 0605) for every
renewal.
However, Employees, ONETT taxpayers, and/or persons who have
secured a TIN under EO 98, series of 1998 with the BIR shall not
be issued a COR.
11) When will the Certificate of Registration (COR) be issued to
the taxpayer?
The COR (BIR Form 2303) shall be issued within the period/time
prescribed under the existing BIR Citizens Charter together
with the approved Authority to Print and Registered books of
accounts.
12) Who will issue the COR?
The RDO having jurisdiction of the head office or branch shall
issue the COR.
13) How many COR (BIR Form 2303) shall be issued by the
Revenue District Office?
For every Application for Registration, there shall be a
corresponding COR to be issued to the head office and each
branch being registered.
14) What will the taxpayer do with the COR and the Proof of
Payment of ARF?
The original copy of COR and the duly validated BIR Form 0605 as
proof of payment of ARF are required to be displayed in any
conspicuous place in the head office and branch office.
15) What are the instances when a taxpayer can apply for
cancellation of his registration?
The TIN/Registration cancellation shall take place upon:
All taxpayers who filed for cancellation of registration due to
closure/cessation or termination of business, except for
branches, shall be subjected to immediate investigation by the
BIR office concerned to determine the taxpayers tax liabilities.
16) Is there a particular form prescribed for Application for
Cancellation of Registration?
Yes, BIR Form 1905 (Application for Registration Information
Update).
17) Where shall the Application for Registration Information
Update be filed?
It shall be filed with the RDO who issued the COR. For VAT
taxpayer, he shall further notify the RDO where the Home Office
is registered.
18) If a taxpayer is in doubt of his status as VAT taxpayer, what is
he supposed to do?
Go to the RDO who has jurisdiction over his place of business and
seek assistance.

Frequently Asked Questions

1) What is meant by capital asset?

Capital asset means property held by the taxpayer (whether or

not connected with his trade or business), but does not include

a) stock in trade of the taxpayer or other property of a kind which

would properly be included in the inventory of the taxpayer if on
hand at the close of the taxable year; or
b) property held by the taxpayer primarily for sale to customers
in the ordinary course of his trade or business; or
c) property used in the trade or business of a character which is
subject to the allowance for depreciation provided in subsection
(F) of Sec. 34 of the Code; or
d) real property used in trade or business of the taxpayer.

2) What is meant by ordinary asset?

Ordinary asset refers to all properties specifically excluded from

the definition of capital assets under Sec. 39 (A)(1) of the NIRC.
3.) What is meant by "Stock classified as Capital Asset"? (Sec
2(a) of RR 6-2008)

This refers to stocks and securities held by taxpayers other than

dealers in securities.

4.) What is meant by "Dealer in Securities"? (Sec 2(b) of RR 6-

2008)

Dealer in Securities refers to 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 merchant buys securities and re-sells them to customers
with a view to the gains and profits that may be derived
therefrom. "Dealer in securities" means any person who buys and
sells securities for his/her own account in the ordinary course of
business (Sec. 3.4, SRC).

5.) What is meant by real property?

Real property shall have the same meaning attributed to that

term under Article 415 of Republic Act No. 386, otherwise known
as the Civil Code of the Philippines.

6.) What does a real estate dealer refer to?

A real estate dealer refers to any person engaged in the business

of buying and selling or exchanging real properties on his own
account as a principal and holding himself out as a full or part-
time dealer in real estate.

7.) What does a real estate developer refer to?

Real estate developer refers to any person engaged in the

business of developing real properties into subdivisions, or
building houses on subdivided lots, or constructing residential or
commercial units, townhouses and other similar units for his own
account and offering them for sale or lease.

8.)What does a real estate lessor refer to?

Real estate lessor refers to any person engaged in the business
of leasing or renting real properties on his own account as a
principal and holding himself out as a lessor of real properties
being rented out or offered for rent.

9.) Who are considered engaged in the real estate business?

Taxpayers who are considered engaged in the real estate

business refer collectively to real estate dealers, real estate
developers and/or real estate lessors. A taxpayer whose primary
purpose of engaging in business, or whose Articles of
Incorporation states that its primary purpose is to engage in the
real estate business shall be deemed to be engaged in the real
estate business.

10.) Who are considered not engaged in the real estate business?

Taxpayers who are considered not engaged in the real estate

business refer to persons other than real estate dealers, real
estate developers and/or real estate lessors.

11.) Who are considered habitually engaged in the real estate

business?

Real estate dealers or real estate developers who are registered

with the Housing and Land Use Regulatory Board (HULRB) or
HUDCC

12.) How can you determine whether a particular real property is

a capital asset or an ordinary asset?

a) Real properties shall be classified with respect to taxpayers

engaged in the real estate business as follows:

i) All real properties acquired by the real estate dealer shall be

considered as ordinary assets.

ii) All real properties acquired by the real estate developer,

whether developed or undeveloped as of the time of acquisition,
and all real properties which are held by the real estate
developer primarily for sale or for lease to customers in the
ordinary course of his trade or business or which would properly
be included in the inventory of the taxpayer if on hand at the
close of the taxable year and all real properties used in the trade
or business, whether in the form of land, building, or other
improvements, shall be considered as ordinary assets.

iii) All real properties of the real estate lessor, whether land,
building and/or improvements, which are for lease/rent or being
offered for lease/rent, or otherwise for use or being used in the
trade or business shall likewise be considered as ordinary
assets.

iv) All real properties acquired in the course of trade or business

by a taxpayer habitually engaged in the sale of real property shall
be considered as ordinary assets.

Note: Registration with the HLURB or HUDCC as a real estate

dealer or developer shall be sufficient for a taxpayer to be
considered as habitually engaged in the sale of real estate.

If the taxpayer is not registered with the HLURB or HUDCC as a

real estate dealer or developer, he/it may nevertheless be
deemed to be engaged in the real estate business through the
establishment of substantial relevant evidence (such as
consummation during the preceding year of at least six (6)
taxable real estate sale transactions, regardless of amount;
registration as habitually engaged in real estate business with
the Local Government Unit or the Bureau of Internal Revenue,
etc.

A property purchased for future use in the business, even though

this purpose is later thwarted by circumstances beyond the
taxpayers control, does not lose its character as an ordinary
asset. Nor does a mere discontinuance of the active use of the
property change its character previously established as a
business property. (Sec 3(a)(4)of RR 7-2003)

b) In the case of taxpayer not engaged in the real estate

business, real properties, whether land, building, or other
improvements, which are used or being used or have been
previously used in trade or business of the taxpayer shall be
considered as ordinary assets.

c) In the case of taxpayers who changed its real estate business

to a non-real estate business, real properties held by these
taxpayer shall remain to be treated as ordinary assets.

d) In the case of taxpayers who originally registered to be

engaged in the real estate business but failed to subsequently
operate, all real properties acquired by them shall continue to be
treated as ordinary assets.

e) Real properties formerly forming part of the stock in trade of a

taxpayer engaged in the real estate business, or formerly being
used in the trade or business of a taxpayer engaged or not
engaged in the real estate business, which were later on
abandoned and became idle, shall continue to be treated as
ordinary assets. Provided however, that properties classified as
ordinary assets for being used in business by a taxpayer engaged
in business other than real estate business are automatically
converted into capital assets upon showing proof that the same
have not been used in business for more than two years prior to
the consummation of the taxable transactions involving said
properties

f) Real properties classified as capital or ordinary asset in the

hands of the seller/transferor may change their character in the
hands of the buyer/transferee. The classification of such property
in the hands of the buyer/transferee shall be determined in
accordance with the following rules:

i) Real property transferred through succession or donation to

the heir or donee who is not engaged in the real estate business
with respect to the real property inherited or donated, and who
does not subsequently use such property in trade or business,
shall be considered as a capital asset in the hands of the heir or
donee.

ii) Real property received as dividend by the stockholders who

are not engaged in the real estate business and who do not
subsequently use such property in trade or business, shall be
considered as a capital asset in the hands of the recipients even
if the corporation which declared the real property dividends is
engaged in real estate business.

iii) The real property received in an exchange shall be treated as

ordinary asset in the hands of the case of a tax-free exchange by
taxpayer not engaged in real estate business to a taxpayer who
is engaged in real estate business, or to a taxpayer who, even if
not engaged in real estate business, will use in business the
property received in exchange.

g) In the case of involuntary transfers of real properties,

including expropriations or foreclosure sale, the involuntariness
of such sale shall have no effect on the classification of such real
property in the hands of the involuntary seller, either as capital
asset or ordinary asset as the case may be.

13.) What is the basis in the valuation of property?

The value of the real property will be based on the selling price,
fair market value as determined by the Commissioner (zonal
value) or the fair market value as shown in the schedule of values
of the Provincial or City Assessor, whichever is higher.

If there is no zonal value, the taxable base is whichever is higher

of the gross selling price per sales documents or the fair market
value that appears in the latest tax declaration.

If there is an improvement, the FMV per latest tax declaration at

the time of the sale or disposition, duly certified by the
City/Municipal Assessor shall be used. No adjustments shall be
added on the said value, provided that the tax declaration bears
the upgraded fair market value of the said property pursuant to
Section 219 of R.A. No. 7160, otherwise known as the Local
Government Code of 1991 and the last paragraph of the Local
Assessment Regulations No. 1-92 dated October 6, 1992.

In case the tax declaration being presented was issued three (3)
or more years prior to the date of sale or disposition of the real
property, the seller/transferor shall be required to submit a
certification from the City/Municipal Assessor whether or not the
same is still the latest tax declaration covering the said real
property. Otherwise, the taxpayer shall secure its latest tax
declaration and shall submit a copy thereof duly certified by the
said Assessor. (RAMO 1-2001)

For shares of stocks, it will be based on the net capital gains

realized from the sale, barter, exchange or other disposition of
shares of stocks in a domestic corporation, considered as capital
assets not traded through the local stock exchange.

14.) What is meant by "Net Capital Gains"? (Sec 2(o) of RR 6-

2008)

"Net Capital Gain" means the excess of the gains from sales or
exchanges of capital assets over the losses from such sales or
exchanges.

15.) What are the rules for the determination of amount and
recognition of gain or loss in the sale, barter, or exchange of
shares of stock not traded through the Local Stock exchange?
(Sec 7(c ) of RR 6-2008)

(A.) Determination of Selling Price. In determining the selling

price, the following rules shall apply:

(a.1) In the case of cash sale, the selling price shall be the total
consideration per deed of sale.
(a.2) If the total consideration of the sale or disposition consists
partly in money and partly in kind, the selling price shall be sum
of money and the fair market value of the property received.
(a.3) In the case of exchange, the selling price shall be the fair
market value of the property received.
(a.4) In case the fair market value of the shares of stock sold,
bartered, or exchanged is greater than the amount of money
and/or fair market value of the property received, the excess of
the fair market value of the shares of stock sold, bartered or
exchanged over the amount of money and the fair market value of
the property, if any, received as consideration shall be deemed a
gift subject to the donor's tax under sec. 100 of the Tax Code, as
amended.
(B.) Definition of "fair market value" of the Shares of Stock.

(b.1) In the case of listed shares which were sold, transferred or

exchanged outside of the trading system and/or facilities of the
Local Stock Exchange, the closing price on the day when the
shares are sold, transferred, or exchanged. When no sale is made
in the Local Stock Exchange on the day when the Listed shares
are sold, transferred, or exchanged, the closing price on the day
nearest to the date of sale, transfer or exchange of the shares
shall be the fair market value. Sec 2 of RR 6-2013
(b.2) In the case of shares of stock not listed and traded in the
local stock exchanges, the value of the shares of stock at the
time of sale shall be the fair market value. In determining the
value of the shares, the Adjusted Net Asset Method shall be used
whereby all assets and liabilities are adjusted to fair market
values. The net of adjusted asset minus the liability values is the
indicated value of the equity.

The appraised value of real property at the time of sale shall be

the higher of

(1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of valued fixed
by the Provincial and City Assessors, or
(3) The fair market value as determined by Independent
Appraiser.

(b.3) In the case of a unit of participation in any association,

recreation or amusement club (such as golf, polo, or similar
clubs), the fair market value thereof shall be its selling price or
the bid price nearest published in any newspaper or publication
of general circulation, whichever is higher.

(C.) Determination of Gain or Loss from Sale or Disposition of

Shares of Stock. The gain from the sale or other disposition
Stock. The gain from the sale or other disposition of shares of
stock shall be the excess of the amount realized therefrom over
the basis or adjusted basis for determining gain, and the loss
shall be the excess of the basis or adjusted basis for determining
loss over the amount realized. The amount realized from the sale
or other disposition of property shall be the sum of money
received plus the fair market value of the property (other than
money) received, if any.

16.) What are the applicable tax rates of Capital Gains Tax under
the National Internal Revenue Code of 1997?

a) Real Properties - 6 %

b) For Shares of Stocks not Traded in the Stock Exchange, on the

net Capital Gains

- Not over P100,000 - 5%

- Any amount in excess of P100,000 - 10%

17.) Who are required to file the Final Capital Gains Tax return?

Every person, whether natural or juridical, resident or non-

resident, including estates and trusts, who sells, transfers,
exchanges or disposes real properties located in the Philippines
classified as capital assets, including pacto de retro sales and
other forms of conditional sales or shares of stocks in domestic
corporations not traded through the local stock exchange
classified as capital assets.

18.) What is the procedure in the filing of Final Capital Gains Tax
return?

File the Final Capital Gains Tax return in triplicate (two copies for
the BIR and one copy for the taxpayer) with the Authorized Agent
Bank (AAB) in the Revenue District where the seller or transferor
is registered, for shares of stocks or where the property is
located, for real property. In places where there are no AAB, the
return will be filed directly with the Revenue Collection Officer or
Authorized City or Municipal Treasurer.

19.) Who/what are considered exempt from the payment of Final

Capital Gains Tax?

Dealer in securities, regularly engaged in the buying and
selling of securities
 An entity exempt from the payment of income tax under
existing investment incentives and other special laws
An individual or non-individual exchanging real property
solely for shares of stocks resulting in corporate control
A government entity or government-owned or controlled
corporation selling real property
If the disposition of the real property is gratuitous in nature
Where the disposition is pursuant to the CARP law
20.) Who are conditionally exempt from the payment of Final
Capital Gains Tax?
Natural persons who dispose their principal residence, provided
that the following criteria are met:

The proceeds of the sale of the principal residence have
been fully utilized in acquiring or constructing new
principal residence within eighteen (18) calendar months
from the date of sale or disposition;
The historical cost or adjusted basis of the real property
sold or disposed will be carried over to the new principal
residence built or acquired;
The Commissioner has been duly notified, through a
prescribed return, within thirty (30) days from the date of
sale or disposition of the persons intention to avail of the
tax exemption;
Exemption was availed only once every ten (10) years; and
There is no full utilization of the proceeds of sale or
disposition. The portion of the gain presumed to have been
realized from the sale or disposition will be subject to
Capital Gains Tax.
In case of sale/transfer of principal residence, the
Buyer/Transferee shall withhold from the seller and shall
deduct from the agreed selling price/consideration the 6%
capital gains tax which shall be deposited in cash or
managers check in interest-bearing account with an
Authorized Agent Bank (AAB) under an Escrow Agreement
between the concerned Revenue District Officer, the Seller
and the Transferee, and the AAB to the effect that the
amount so deposited, including its interest yield, shall only
be released to such Transferor upon certification by the
said RDO that the proceeds of the sale/disposition thereof
has, in fact, been utilized in the acquisition or construction
of the Seller/Transferors new principal residence within
eighteen (18) calendar months from date of the said sale
or disposition. The date of sale or disposition of a property
refers to the date of notarization of the document
 evidencing the transfer of said property. In general, the
term Escrow means a scroll, writing or deed, delivered by
the grantor, promisor or obligor into the hands of a third
person, to be held by the latter until the happening of a
contingency or performance of a condition, and then by
him delivered to the grantee, promise or obligee.
21.) What is a Certificate Authorizing Registration?
Certificate Authorizing Registration (CAR) is a certification
issued by the Commissioner or his duly authorized representative
attesting that the transfer and conveyance of land,
buildings/improvements or shares of stock arising from sale,
barter or exchange have been reported and the taxes due
inclusive of the documentary stamp tax, have been fully paid.
With the implementation of the Electronic Certificate Authorizing
Registration (eCAR) System, the CAR shall now be electronically
generated.
22.) What is eCAR System?
eCAR stands for Electronic Certificate Authorizing Registration. A
web-based facility that automates the generation of CAR with
barcode, eCAR will also enable electronic linkage between the
BIR and the Land Registration Authority. (Participant Guide)
eCARs shall have a validity of one (1) year from date of issue. For
other manually issued CARs that are outstanding and not yet
presented to the Register of Deeds, i.e., CARs more than one (1)
year from the date of issuance which are due for revalidation and
expired CARs which are more than two (2) years from the date of
issuance, are not anymore valid for presentation to the Registry
of Deeds. The said CARs shall be replaced with an eCAR by the
concerned Revenue District Offices or Large Taxpayers Divisions.
A certification fee shall be charged for each released eCAR
issued/reprinted after affixture of P15.00 Documentary Stamp Tax
on Certificates (Sec 188 of the NIRC of 1997) and the prescribed
Certification Fee of One Hundred Pesos (P100.00) under
Executive Order No. 197 to the taxpayer/authorized
representative.
23.) How do we determine the fair market value of shares of stocks not traded through the Local Stock
Exchange?
In determining the value of the shares, the Adjusted Net Asset Method shall be used whereby all assets
and liabilities are adjusted to fair market values. The net of adjusted asset minus the adjusted liability
value is the indicated value of the equity.
For purposes of this item, the appraised value of real property at the time of sale shall be the highest
among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors, or
(c) The fair market value as determined by Independent Appraiser. (RR NO. 6-2013)
Frequently Asked Questions

1) Who are required to file Documentary Stamp Tax Declaration

Return?

a) In case of constructive affixture of documentary stamps, by

the persons making, signing, issuing, accepting or transferring
documents, instruments, loan agreements and papers,
acceptances, assignments, sales and conveyances of the
obligation, right or property incident thereto wherever the
document is made, signed, issued, accepted or transferred when
the obligation or right arises from Philippine sources or the
property is situated in the Philippines at the same time such act
is done or transaction had;

b) By using the web-based Electronic Documentary Stamp Tax

(eDST) System in the payment/remittance of its/his/her DST
liabilities and the affixture of the prescribed documentary stamp
on taxable documents; and

c) By Revenue Collection Agent, for remittance of sold loose

documentary stamps.

Note: Wherever one party to the taxable document enjoys

exemption from the tax imposed, the other party who is not
exempt will be the one directly liable to file Documentary Stamp
Tax Declaration and pay the applicable stamp tax.

2) Where is the Documentary Stamp Tax Declaration Return filed?

In the Authorized Agent Bank (AAB) within the territorial

jurisdiction of the RDO which has jurisdiction over the residence
or principal place of business of the taxpayer or where the
property is located in case of sale of real property or where the
Collection Agent is assigned. In places where there is no
Authorized Agent Bank, the return will be filed with the Revenue
Collection Officer or duly authorized City or Municipal Treasurer
where the taxpayer's residence or principal place of business is
located or where the property is located in case of sale of real
property or where the Collection Agent is assigned.

3) What are the documents/papers not subject to Documentary

Stamp Tax? (sec. 9, RR No. 13-2004)

Policies of insurance or annuities made or granted by a

fraternal or beneficiary society, order, association or
cooperative company, operated on the lodge system or
local cooperation plan and organized and conducted solely
by the members thereof for the exclusive benefit of each
member and not for profit
Certificates of oaths administered by any government
official in his official capacity or acknowledgement by any
government official in performance of his official duty
Written appearance in any court by any government official
in his official capacity
Certificates of the administration of oaths to any person as
to the authenticity of any paper required to be filed in court
by any person or party thereto, whether the proceedings be
civil or criminal
Papers and documents filed in court by or for the national,
provincial, city or municipal governments
Affidavits of poor persons for the purpose of proving poverty
Statements and other compulsory information required of
persons or corporations by the rules and regulations of the
national, provincial, city or municipal government
exclusively for statistical purposes and which are wholly for
the use of the Bureau or office in which they are filed, and
not at the instance or for the use or benefit of the person
filing them
Certified copies and other certificates placed upon
documents, instruments and papers for the national,
provincial, city or municipal governments made at the
instance and for the sole use of some other branch of the
national, provincial, city or municipal governments
Certificates of the assessed value of lands, not exceeding
P200 in value assessed, furnished by the provincial, city or
municipal Treasurer to applicants for registration of title to
land
 Borrowing and lending of securities executed under the
Securities Borrowing and Lending Program of a registered
exchange, or in accordance with regulations prescribed by
the appropriate regulatory authority: Provided, however,
That any borrowing or lending of securities agreement as
contemplated hereof shall be duly covered by a master
securities borrowing and lending agreement acceptable to
the appropriate regulatory authority, and which agreement
is duly registered and approved by the Bureau of Internal
Revenue (BIR)
Loan agreements or promissory notes, the aggregate of
which does not exceed Two hundred fifty thousand pesos
(P250,000), or any such amount as may be determined by
the Secretary of Finance, executed by an individual for his
purchase on installment for his personal use or that of his
family and not for business or resale, barter or hire of a
house, lot, motor vehicle, appliance or furniture: Provided,
however, That the amount to be set by the Secretary of
Finance shall be in accordance with a relevant price index
but not to exceed ten percent (10%) of the current amount
and shall remain in force at least for three (3) years
Sale, barter or exchange of shares of stock listed and
traded through the local stock exchange (R.A 9648)
Assignment or transfer of any mortgage, lease or policy of
insurance, or the renewal or continuance of any agreement,
contract, charter, or any evidence of obligation or
indebtedness, if there is no change in the maturity date or
remaining period of coverage from that of the original
instrument.
Fixed income and other securities traded in the secondary
market or through an exchange.
Derivatives: Provided, That for purposes of this exemption,
repurchase agreements and reverse repurchase
agreements shall be treated similarly as derivatives
Interbranch or interdepartmental advances within the same
legal entity
All forebearances arising from sales or service contracts
including credit card and trade receivables: Provided, That
the exemption be limited to those executed by the seller or
service provider itself.
 Bank deposit accounts without a fixed term or maturity
All contracts, deeds, documents and transactions related to
the conduct of business of the Bangko Sentral ng Pilipinas
Transfer of property pursuant to Section 40(C)(2) of the
National Internal Revenue Code of 1997, as amended
Interbank call loans with maturity of not more than seven
(7) days to cover deficiency in reserves against deposit
liabilities, including those between or among banks and
quasi-banks
4) What are the implications of failure to stamp taxable
documents?
The untaxed document will not be recorded, nor will it or
any copy thereof or any record of transfer of the same be
admitted or used in evidence in court until the requisite
stamp or stamps have been affixed thereto and cancelled
No notary public or other officer authorized to administer
oaths will add his jurat or acknowledgment to any
document subject to Documentary Stamp Tax unless the
proper documentary stamps are affixed thereto and
cancelled.
5) What is Electronic Documentary Stamp Tax (eDST) System?
(sec. 5 (1), RR No. 7-2009)
The eDST is a web-based application created for taxpayers and
the BIR that is capable of affixing a secured documentary stamp
on the taxable documents as defined under the appropriate
provisions under Title VII of the National Internal Revenue Code
of 1997, as amended, thru the use of a computer unit, any laser
printer with at least 1200 dpi resolution, and Internet Explorer 7.0
It is also capable of providing a 3-layer watermark on stamps for
added security.
6) Is DST Law applicable on Electronic Documents? (sec. 10, RR
No. 13-2004)
The DST rates as imposed under the Code, as amended by R.A.
9243 shall be applicable on all documents not otherwise
expressly exempted by the said law, notwithstanding the fact
that they are in electronic form. As provided for by R.A. 8792,
otherwise known as the Electronic Commerce Act, electronic
documents are the functional equivalent of a written document
under existing laws, and the issuance thereof is therefore
tantamount to the issuance of a written document, and therefore
subject to DST.
7) What are the inclusions of a debt instrument? (sec. 5, RR No.
13-2004)
Debt Instrument shall mean instruments representing
borrowing and lending transaction including but not limited to:

debentures,
certificates of indebtedness,
due bills,
bonds,
loan agreements, including those signed abroad wherein
the object of the contract is located or used in the
Philippines,
instruments and securities issued by the government or
any of its instrumentalities,
deposit substitute debt instruments,
certificates or other evidences of deposits that are drawing
instrument significantly higher than the regular savings
deposit taking into consideration the size of the deposit
and the risks involved,
certificates or other evidences of deposits that are drawing
interest and having a specific maturity date,
promissory notes, whether negotiable or non-negotiable,
except bank notes issued for circulation.
8) Is any document, transaction or arrangement entered into
under Financial Lease subject to Documentary Stamp Tax? (RMC
No. 46-2014)
Financial lease is akin to a debt rather than a lease. A nature of
an obligation than a lease of personal property. The mere act of
extending credit is already a means of facilitating an obligation
or advancing in behalf of the lessee certain property in lieu of
cash in exchange for a definitive amortization to be paid to the
lessor with profit margin included. Section 179 of the NIRC, as
amended, covers all debt instruments. Therefore, being a nature
of an obligation, any document, transaction or arrangement
entered into under financial lease is subject to DST under such
Section of the NIRC, as amended.

Frequently Asked Questions

1. Who are required to file the Donors Tax Return?

Every person, whether natural or juridical, resident or non-
resident, who transfers or causes to transfer property by gift,
whether in trust or otherwise, whether the gift is direct or
indirect and whether the property is real or personal, tangible or
intangible.

2. What donations are tax exempt?

A. In the Case of Gifts made by a Resident (Sec. 101 (A), NIRC as

amended)

Dowries or donations made on account of marriage before
its celebration or within one year thereafter, by parents to
each of their legitimate, recognized natural, or adopted
children to the extent of the first P10,000
Gifts made to or for the use of the National Government or
any entity created by any of its agencies which is not
conducted for profit, or to any political subdivision of the
said Government
Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited
non-government organization, trust or philantrophic
organization or research institution or organization,
provided not more than 30% of said gifts will be used by
such donee for administration purposes
B. In the Case of Gifts Made by a Nonresident not a Citizen of the
Philippines (Sec. 101 (B), NIRC as amended)

Gifts made to or for the use of the National Government or
any entity created by any of its agencies which is not
conducted for profit, or to any political subdivision of the
said Government
Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited
non-government organization, trust or philantrophic
organization or research institution or organization,
provided not more than 30% of said gifts will be used by
such donee for administration purposes
C. Tax Credit for Donor's Taxes Paid to a Foreign Country (Sec.
101 (C), NIRC as amended)

In General. - The tax imposed by this Title upon a donor
who was a citizen or a resident at the time of donation
 shall be credited with the amount of any donor's tax of any
character and description imposed by the authority of a
foreign country.
Limitations on Credit. - The amount of the credit taken
under this Section shall be subject to each of the following
limitations:
- The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax against
which such credit is taken, which the net gifts situated within
such country taxable under this Title bears to his entire net gifts;
and
- The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken, which
the donor's net gifts situated outside the Philippines taxable
under this title bears to his entire net gifts.
3. What are the bases in the valuation of property?
If the gift is made in property, the fair market value at that time
will be considered the amount of gift.
In case of real property, the taxable base is the fair market value
as determined by the Commissioner of Internal Revenue (Zonal
Value) or fair market value as shown in the latest schedule of
values fixed by the provincial and city assessor (MV per Tax
Declaration), whichever is higher. (Sec. 88 and 102, NIRC as
amended)
If there is no zonal value, the taxable base is the fair market
value that appears in the tax declaration at the time of the gift
4. For purposes of Donors Tax, what does the term Net Gift
mean?
For purposes of the donors tax, NET GIFT shall mean the net
economic benefit from the transfer that accrues to the donee.
Accordingly, if a mortgaged property is transferred as a gift, but
imposing upon the donee the obligation to pay the mortgage
liability, then the net gift is measured by deducting from the fair
market value of the property the amount of mortgage assumed.
(sec. 11, RR No. 2-2003)
5. Under R.A. No. 7166, any contribution in cash or in kind to any
candidate or political party or coalition of parties for campaign
purposes shall not be subject to the payment of any gift tax.
What instance will it be subject to Donors Tax?
Those contributions in cash or in kind NOT duly reported to the
Commission on Elections (COMELEC) shall not be subject to
donors tax.
Section 99 (C) of the Tax Code, as amended, provides that any
contribution in cash or in kind for campaign purposes shall be
governed by R.A. No. 7166 or the Election Code.
Section 13 of the R.A. No. 7166 specifically states that any
provision of law to the contrary notwithstanding any contribution
in cash or kind to any candidate or political party or coalition of
parties for campaign purposes, duly reported to the Commission
shall not be subject to the payment of any gift tax (donors tax).
Accordingly, the BIR can impose donors tax on contributions of
this nature. (Q-14, RMC No. 63-2009)
6. For purposes of Donors Tax, is a legally adopted child
considered stranger?
A legally adopted child is entitled to all the rights and obligations
provided by law to legitimate children, and therefore, donation to
him shall not be considered as donation made to stranger. (sec.
10, RR No. 2-2003)
7. For purposes of Donors Tax, are donations between businesses
considered donations made between strangers?
Donation made between business organizations and those made
between an individual and a business organization shall be
considered as donation made to a stranger. (sec. 10, RR No. 2-
2003)
8. Are gratuitous donations to Homeowners Associations subject
to Donors Tax?
Gifts, donations, and other contributions received by the
Homeowners Associations (Associations) are subject to the
payment of donors tax pursuant to Section 98 and 99 of the Tax
Code, as amended. Endowment or gifts received by such
associations are not exempt from donors tax considering that
gifts to Associations are not qualified for exemption under
Section 101(A)(3) of the Tax Code. (II, RMC No. 53-2013)
9. Is an onerous donation or donation in exchange for goods,
services or use or lease of properties to Homeowners
Association subject to Donors Tax?
Pursuant to RMC No. 9-2013, Associations are subject to the
corresponding internal revenue taxes imposed under the Tax
Code of 1997 on their income of whatever kind and character. In
this regard, contributions to associations in exchange for goods,
services and use of properties constitute as other
assessments/charges from activity in exchange for the
performance of a service, use of properties or delivery of an
object. As such, these fees are income on the part of the
associations that are subject to income tax under Section 27 of
the Tax Code, as amended. (III, RMC No. 53-2013)
10. What is the proper treatment for transactions involving
transfer of property other than real property referred to in
Section 24 (D) for less than adequate and full consideration?
Where property, other than real property referred to in Section 24
(D) of the NIRC, as amended, is transferred for less than
adequate and full consideration in money or moneys worth, then
the amount by which the fair market value of the property
exceeded the value of the consideration shall, for the purpose of
Donors Tax, be deemed a gift, and shall be included in computing
the amount of gifts made during the calendar year. (Sec. 100,
NIRC, as amended)
11. What entities are considered exempted from Donors Tax
under special laws?
The list below consists of entities considered Donors Tax exempt
under special laws including, but not limited to the following:

Rural Farm School (Sec. 14, R.A. No. 10618)
Peoples Television Network, Incorporated (Sec. 15, R.A. No.
10390)
Peoples Survival Fund (Sec. 13, R.A. No. 10174)
Aurora Pacific Economic Zone and Freeport Authority (Sec.
7, R.A. No. 10083)
Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)
Philippine Red Cross (Sec. 5, R.A. No. 10072)
Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)
National Commission for Culture and the Arts (Sec. 35, R.A.
No. 10066)
Philippine Normal University (Sec. 7, R.A. No. 9647)
University of the Philippines (Sec. 25, R.A. No. 9500)
National Water Quality Management Fund (Sec. 9, R.A. No.
9275)
Philippine Investors Commission (Sec. 9, R.A. No. 3850)
Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676)
Philippine-American Cultural Foundation (Sec. 4, P.D. 3062)
International Rice Research Institute (Art. 5(2), PD 1620)
Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419)
 National Social Action Council (Sec. 4, P.D. 294)
Aquaculture Department of the Southeast Asian Fisheries
Development Center (Sec. 2, P.D. 292)
Development Academy of the Philippines (Sec. 12, PD 205)
Integrated Bar of the Philippines (Sec. 3, PD 181)
12. How do we determine the fair market value of the unlisted
stocks?
In determining the value of the shares, the Adjusted Net Asset Method
shall be used whereby all assets and liabilities are adjusted to fair
market values. The net of adjusted asset minus the adjusted liability
value is the indicated value of the equity.
For purposes of this item, the appraised value of real property at the
time of sale shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by
the Provincial and City Assessors, or
(c) The fair market value as determined by Independent Appraiser.
(RR NO. 6-2013) (Annex U)

Frequently Asked Questions

1. Who are required to file the Estate Tax return?

a) The executor or administrator or any of the legal heirs of the

decedent or non-resident of the Philippines under any of the
following situation:

- In all cases of transfer subject to Estate Tax;

- Where though exempt from Estate Tax, the gross value of the
estate exceeds two hundred thousand P 200,000.00; and

- Where regardless of the gross value, the estate consists of

registered or registrable property such as real property, motor
vehicle, share of stocks or other similar property for which a
clearance from the Bureau of Internal Revenue (BIR) is required
as a prerequisite for the transfer of ownership thereof in the
name of the transferee. (part II par.(1.#3) of RMC No. 34-2013)

b) Where there is no executor or administrator appointed,

qualified and acting within the Philippines, then any person in
actual or constructive possession of any property of the
decedent must file the return.

c) The Estate Tax imposed under the Tax Code shall be paid by
the executor or administrator before the delivery of the
distributive share in the inheritance to any heir or beneficiary.
Where there are two or more executors or administrators, all of
them are severally liable for the payment of the tax. The estate
tax clearance issued by the Commissioner or the Revenue
District Officer (RDO) having jurisdiction over the estate, will
serve as the authority to distribute the remaining/distributable
properties/share in the inheritance to the heir or beneficiary.

d) The executor or administrator of an estate has the primary

obligation to pay the estate tax but the heir or beneficiary has
subsidiary liability for the payment of that portion of the estate
which his distributive share bears to the value of the total net
estate. The extent of his liability, however, shall in no case
exceed the value of his share in the inheritance.

2. What are included in gross estate?

For resident alien decedents/citizens:

a) Real or immovable property, wherever located
b) Tangible personal property, wherever located
c) Intangible personal property, wherever located
For non-resident decedent/non-citizens:
a) Real or immovable property located in the Philippines
b) Tangible personal property located in the Philippines
c) Intangible personal property - with a situs in the Philippines
such as:
- Franchise which must be exercised in the Philippines
- Shares, obligations or bonds issued by corporations organized or
constituted in the Philippines
- Shares, obligations or bonds issued by a foreign corporation
85% of the business of which is located in the Philippines
- Shares, obligations or bonds issued by a foreign corporation if
such shares, obligations or bonds have acquired a business situs
in the Philippines ( i. e. they are used in the furtherance of its
business in the Philippines)
- Shares, rights in any partnership, business or industry
established in the Philippines
3. What are excluded from gross estate?
GSIS proceeds/ benefits
Accruals from SSS
Proceeds of life insurance where the beneficiary is
irrevocably appointed
Proceeds of life insurance under a group insurance taken by
employer (not taken out upon his life)
War damage payments
Transfer by way of bona fide sales
Transfer of property to the National Government or to any of
its political subdivisions
Separate property of the surviving spouse
Merger of usufruct in the owner of the naked title
Properties held in trust by the decedent
Acquisition and/or transfer expressly declared as not
taxable
4. What will be used as basis in the valuation of property?
The properties subject to Estate Tax shall be appraised
based on its fair market value at the time of the decedent's
death.
The appraised value of the real estate shall be whichever is
higher of the fair market value, as determined by the
Commissioner (zonal value) or the fair market value, as
shown in the schedule of values fixed by the Provincial or
City Assessor.
If there is no zonal value, the taxable base is the fair market
value that appears in the latest tax declaration.
If there is an improvement, the value of improvement is the
construction cost per building permit or the fair market
value per latest tax declaration.
5. What are the allowable deductions for Estate Tax Purposes?
Applicable for deaths occurring after the effectivity of RA 8424
which is January 1, 1998
For a citizen or resident alien
A. Expenses, losses, indebtedness and taxes
(1) Actual funeral expenses (whether paid or unpaid) up to the
time of interment, or an amount equal to five percent (5%) of the
gross estate, whichever is lower, but in no case to exceed
P200,000.
(2) Judicial expenses of the testamentary or intestate
proceedings.
(3) Claims against the estate.
(4) Claims of the deceased against insolvent persons where the
value of the decedents interest therein is included in the value of
the gross estate; and,
(5) Unpaid mortgages, taxes and casualty losses
B. Property previously taxed (Vanishing Deduction) (Section 86(2)
of the NIRC as amended by Republic Act No. 8424)
An amount equal to the value specified below of any property
forming a part of the gross estate situated in the Philippines of
any person who died within five (5) years prior to the death of the
decedent, or transferred to the decedent by gift within five (5)
years prior to his death, where such property can be identified as
having been received by the decedent from the donor by gift, or
from such prior decedent by gift, bequest, devise or inheritance,
or which can be identified as having been acquired in exchange
for property so received:
One hundred percent (100%) of the value, if the prior decedent
died within one (1) year prior to the death of the decedent, or if
the property was transferred to him by gift within the same
period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more
than one (1) year but not more than two (2) years prior to the
death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more
than two (2) years but not more than three (3) years prior to the
death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more
than three (3) years but not more than four (4) years prior to the
death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died
more than four (4) years but not more than five (5) years prior to
the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death;
These deductions shall be allowed only where a donors tax or
estate tax imposed was finally determined and paid by or on
behalf of such donor, or the estate of such prior decedent, as the
case may be, and only in the amount finally determined as the
value of such property in determining the value of the gift, or the
gross estate of such prior decedent, and only to the extent that
the value of such property is included in the decedents gross
estate, and only if in determining the value of the estate of the
prior decedent, no Property Previously Taxed or Vanishing
Deduction was allowable in respect of the property or properties
given in exchange therefor. (Section 6 & 7 of RR 2-2003)
C. Transfers for public use
D. The family home - fair market value but not to exceed
P1,000,000.00
The family home refers to the dwelling house, including the land
on which it is situated, where the husband and wife, or a head of
the family, and members of their family reside, as certified to by
the Barangay Captain of the locality. The family home is deemed
constituted on the house and lot from the time it is actually
occupied as a family residence and is considered as such for as
long as any of its beneficiaries actually resides therein. (Arts. 152
and 153, Family Code)
E. Standard deduction A deduction in the amount of One Million
Pesos (P1,000,000.00) shall be allowed as an additional
deduction without need of substantiation.
F. Medical expenses All medical expenses (cost of medicines,
hospital bills, doctors fees, etc.) incurred (whether paid or
unpaid) within one (1) year before the death of the decedent shall
be allowed as a deduction provided that the same are duly
substantiated with official receipts. For services rendered by the
decedents attending physicians, invoices, statements of account
duly certified by the hospital, and such other documents in
support thereof and provided, further, that the total amount
thereof, whether paid or unpaid, does not exceed Five Hundred
Thousand Pesos (P500,000).
G. Amount received by heirs under Republic Act No. 4917-Any
amount received by the heirs from the decedents employer as a
consequence of the death of the decedent-employee in
accordance with Republic Act No. 4917 is allowed as a deduction
provided that the amount of the separation benefit is included as
part of the gross estate of the decedent.
H. Net share of the surviving spouse in the conjugal partnership
or community property
For a non-resident alien
A. Expenses, losses, indebtedness and taxes
B. Property previously taxed
C. Transfers for public use
D. Net share of the surviving spouse in the conjugal partnership
or community property
No deduction shall be allowed in the case of a non-resident
decedent not a citizen of the Philippines, unless the executor,
administrator, or anyone of the heirs, as the case may be,
includes in the return required to be filed in the Section 90 of the
Code the value at the time of the decedents death of that part of
his gross estate not situated in the Philippines.
Please note that the allowable deductions will vary depending on
the law applicable at the time of the decedents death.
6. What does the term "Funeral Expenses" include? (Sec 6 (A)(1)
of RR 2-2003)
The term "FUNERAL EXPENSES" is not confined to its ordinary or
usual meaning. They include:
(a) The mourning apparel of the surviving spouse and unmarried
minor children of the deceased bought and used on the occasion
of the burial;
(b) Expenses for the deceaseds wake, including food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives
of the deceased;
(e) Cost of burial plot, tombstones, monument or mausoleum but
not their upkeep. In case the deceased owns a family estate or
several burial lots, only the value corresponding to the plot where
he is buried is deductible;
(f) Interment and/or cremation fees and charges; and
(g) All other expenses incurred for the performance of the rites
and ceremonies incident to interment.
Expenses incurred after the interment, such as for prayers,
masses, entertainment, or the like are not deductible. Any portion
of the funeral and burial expenses borne or defrayed by relatives
and friends of the deceased are not deductible. Actual funeral
expenses shall mean those which are actually incurred in
connection with the interment or burial of the deceased. The
expenses must be duly supported by official receipts or invoices
or other evidence to show that they were actually incurred.
7. What does the term "Judicial Expenses" include? (Sec 6 (A)(2)
of RR 2-2003)
Expenses allowed as deduction under this category are those
incurred in the inventory-taking of a assets comprising the gross
estate, their administration, the payment of debts of the estate,
as well as the distribution of the estate among the heirs. In short,
these deductible items are expenses incurred during the
settlement of the estate but not beyond the last day prescribed
by law, or the extension thereof, for the filing of the estate tax
return. Judicial expenses may include:
(a) Fees of executor or administrator;
(b) Attorneys fees;
(c) Court fees;
(d) Accountants fees;
(e) Appraisers fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining property of the estate; and
(i) Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses
claimed under Judicial Expenses should be supported by a
sworn statement of account issued and signed by the creditor.
8. What are the requisites for deductibility of claims against the
Estate? (Sec 6(A)(3) of RR 2-2003)
(a) The liability represents a personal obligation of the deceased
existing at the time of his death except unpaid obligations
incurred incident to his death such as unpaid funeral expenses
(i.e., expenses incurred up to the time of interment) and unpaid
medical expenses which are classified under a different category
of deductions pursuant to these Regulations;
(b) The liability was contracted in good faith and for adequate
and full consideration in money or moneys worth;
(c) The claim must be a debt or claim which is valid in law and
enforceable in court;
 (d) The indebtedness must not have been condoned by the
creditor or the action to collect from the decedent must not have
prescribed.
9. How do we determine the fair market value of the unlisted stocks? (RR NO. 6-2013) (Annex U)
In determining the value of the shares, the Adjusted Net Asset Method shall be used whereby all assets
and liabilities are adjusted to fair market values. The net of adjusted asset minus the adjusted liability
value is the indicated value of the equity.
For purposes of this item, the appraised value of real property at the time of sale shall be the highest
among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors, or
(c) The fair market value as determined by Independent Appraiser.

Frequently Asked Questions

1) What is income?

Income means all wealth, which flows into the taxpayer other
than as a mere return of capital.

2) What is Taxable Income?

Taxable income means the pertinent items of gross income

specified in the Tax Code as amended, less the deductions and/or
personal and additional exemptions, if any, authorized for such
types of income, by the Tax Code or other special laws.

3) What is Gross Income?

Gross income means all income derived from whatever source.

4) What comprises gross income?

Gross income includes, but is not limited to the following:

Compensation for services, in whatever form paid,
including but not limited to fees, salaries, wages,
commissions and similar item
Gross income derived from the conduct of trade or
business or the exercise of profession
Gains derived from dealings in property
Interest
Rents
Royalties
 Dividends
Annuities
Prizes and winnings
Pensions
Partner's distributive share from the net income of the
general professional partnerships
5) What are some of the exclusions from gross income?
o
Life insurance
Amount received by insured as return of premium
Gifts, bequests and devises
Compensation for injuries or sickness
Income exempt under treaty
Retirement benefits, pensions, gratuities, etc.
Miscellaneous items
o
oincome derived by foreign government
oincome derived by the government or its political
subdivision
o prizes and awards in sport competition
o prizes and awards which met the conditions set in
the Tax Code
o 13th month pay and other benefits
o GSIS, SSS, Medicare and other contributions
o gain from the sale of bonds, debentures or other
certificate of indebtedness
o gain from redemption of shares in mutual fund
6) What are the allowable deductions from gross income?
Except for taxpayers earning compensation income arising from
personal services rendered under an employer-employee
relationships where the only deduction provided that the gross
family income does not exceed P250,000 per family is the
premium payment on health and/or hospitalization insurance, a
taxpayer may opt to avail any of the following allowable
deductions from gross income:
a)Optional Standard Deduction - an amount not exceeding 40% of
the net sales for individuals and gross income for corporations;
or
b) Itemized Deductions which include the following:

Expenses
Interest
Taxes
Losses
 Bad Debts
Depreciation
Depletion of Oil and Gas Wells and Mines
Charitable Contributions and Other Contributions
Research and Development
Pension Trusts
In addition, individuals who are either earning compensation
income, engaged in business or deriving income from the
practice of profession are entitled to personal and additional
exemptions as follows:
Personal Exemptions:
For single individual or married individual judicially decreed as
legally separated with no qualified
dependentsP 50,000.00
For head of familyP 50,000.00
For each married individual *P 50,000.00
Note: In case of married individuals where only one of the
spouses is deriving gross income, only such spouse will be
allowed to claim the personal exemption.
Additional Exemptions:

For each qualified dependent, an P25,000 additional
exemption can be claimed but only up to 4 qualified
dependents
The additional exemption can be claimed by the following:

The husband who is deemed the head of the family unless
he explicitly waives his right in favor of his wife
The spouse who has custody of the child or children in case
of legally separated spouses. Provided, that the total
amount of additional exemptions that may be claimed by
both shall not exceed the maximum additional exemptions
allowed by the Tax Code.
The individuals considered as Head of the Family
supporting a qualified dependent
The maximum amount of P 2,400 premium payments on health
and/or hospitalization insurance can be claimed if:

Family gross income yearly should not be more than P
250,000
For married individuals, the spouse claiming the additional
exemptions for the qualified dependents shall be entitled
to this deduction
7) Who are required to file the Income Tax returns?

Individuals
Resident citizens receiving income from sources within or
outside the Philippines

o employees deriving purely compensation income from 2
or more employers, concurrently or successively at
anytime during the taxable year
o employees deriving purely compensation income
regardless of the amount, whether from a single or
several employers during the calendar year, the income
tax of which has not been withheld correctly (i.e. tax
due is not equal to the tax withheld) resulting to
collectible or refundable return
o self-employed individuals receiving income from the
conduct of trade or business and/or practice of
profession
o individuals deriving mixed income, i.e., compensation
income and income from the conduct of trade or
business and/or practice of profession
o individuals deriving other non-business, non-
professional related income in addition to compensation
income not otherwise subject to a final tax
o individuals receiving purely compensation income from
a single employer, although the income of which has
been correctly withheld, but whose spouse is not
entitled to substituted filing
o marginal income earners

Non-resident citizens receiving income from sources within
the Philippines
Aliens, whether resident or not, receiving income from
sources within the Philippines
Corporations no matter how created or organized including
partnerships

o domestic corporations receiving income from sources
within and outside the Philippines
o foreign corporations receiving income from sources
within the Philippines
o taxable partnerships

Estates and trusts engaged in trade or business
8) Who are not required to file Income Tax returns?
a. An individual who is a minimum wage earner
b. An individual whose gross income does not exceed his total
personal and additional exemptions
c. An individual whose compensation income derived from one
employer does not exceed P 60,000 and the income tax on which
has been correctly withheld
d. An individual whose income has been subjected to final
withholding tax (alien employee as well as Filipino employee
occupying the same position as that of the alien employee of
regional headquarters and regional operating headquarters of
multinational companies, petroleum service contractors and sub-
contractors and offshore-banking units, non-resident aliens not
engaged in trade or business)
e. Those who are qualified under substituted filing. However,
substituted filing applies only if all of the following requirements
are present :

the employee received purely compensation income
(regardless of amount) during the taxable year
the employee received the income from only one employer
in the Philippines during the taxable year
the amount of tax due from the employee at the end of the
year equals the amount of tax withheld by the employer
the employees spouse also complies with all 3 conditions
stated above
the employer files the annual information return (BIR Form
No. 1604-CF)
the employer issues BIR Form No. 2316 (Oct 2002 ENCS
version ) to each employee.
9) Who are exempt from Income Tax?
Non-resident citizen who is:
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 a 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 who has been previously considered as a non-
resident citizen and who arrives in the Philippines at any time
during the year to reside permanently in the Philippines will
likewise be treated as a non-resident citizen during 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.
Overseas Filipino Worker, including overseas seaman
An individual citizen of the Philippines who is working and
deriving income from abroad as an overseas Filipino worker is
taxable only on income 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 will be treated as an overseas Filipino worker.
NOTE: A Filipino employed as Philippine Embassy/Consulate
service personnel of the Philippine Embassy/consulate is not
treated as a non-resident citizen, hence his income is taxable.
10) What are the procedures in filing Income Tax returns (ITRs)?
For with payment ITRs (BIR Form Nos. 1700 / 1701 /
1701Q / 1702 / 1702Q / 1704)
File the return in triplicate (two copies for the BIR and one copy
for the taxpayer) with the Authorized Agent Bank (AAB) of the
place where taxpayer is registered or required to be registered.
In places where there are no AABs, the return will be filed
directly with the Revenue Collection Officer or duly Authorized
Treasurer of the city or municipality in which such person has his
legal residence or principal place of business in the Philippines,
or if there is none, filing of the return will be at the Office of the
Commissioner.
For no payment ITRs -- refundable, break-even, exempt and
no operation/transaction, including returns to be paid on
2nd installment and returns paid through a Tax Debit
Memo(TDM)
File the return with the concerned Revenue District Office (RDO)
where the taxpayer is registered. However, "no payment" returns
filed late shall be accepted by the RDO but instead shall be filed
with an Authorized Agent Bank (AAB) or Collection
Officer/Deputized Municipal Treasurer (in places where there are
no AABs), for payment of necessary penalties.
11) How is Income Tax payable of individuals (resident citizens
and non-resident citizens)computed?
Gross Income P ___________

Less: Allowable Deductions (Itemized or Optional) ___________

Net Income P ___________

Less: Personal & Additional Exemptions ___________

Net Taxable Income P ___________

Multiply by Tax Rate (5 to 32%) ____________

Income Tax Due: Tax withheld (per BIR From 2316/2304) P ___________

Income tax payable P____________

12) How is Income Tax paid?

Through withholding
o
o
o Generally 10% or 15% if the gross annual business or
professional income exceeds P720,000 per year
o 20% - Fees paid to directors who are not employees
and 20% of professional fees paid to non-individuals
o Other withholding tax rates

Pay the balance as you file the tax return, computed as
follows:
Income Tax Due P ___________

Less: Withholding Tax ___________

Net Income Tax Due P ___________

13) Is the Minimum Corporate Income Tax (MCIT) an addition to

the regular or normal income tax?
No, the MCIT is not an additional tax. An MCIT of 2% of the gross
income as of the end of taxable year (whether calendar or fiscal
year, depending on the accounting period employed) is
imposed on a corporation taxable under Title II of the Tax Code,
as amended, beginning on the 4th taxable year immediately
following the taxable year in which such corporation commenced
its business operations when the MCIT is greater than the regular
income tax. The MCIT is compared with the regular income tax,
which is due from a corporation. If the regular income is higher
than the MCIT, then the corporation does not pay the MCIT but
the amount of the regular income tax.
Notwithstanding the above provision, however, the computation
and the payment of MCIT, shall likewise apply at the time of filing
the quarterly corporate income tax as prescribed under Section
75 and Section 77 of the Tax Code, as amended. Thus, in the
computation of the tax due for the taxable quarter, if the
computed quarterly MCIT is higher than that quarterly normal
income tax, the tax due to be paid for such taxable quarter at the
time of filing the quarterly income tax return shall be the MCIT
which is two percent (2%) of the gross income as of the end of
the taxable quarter. In the payment of said quarterly MCIT,
excess MCIT from the previous taxable year/s shall not be
allowed to be credited. Expanded withholding tax, quarterly
corporate income tax payments under the normal income tax,
and the MCIT paid in the previous taxable quarter/s are allowed
to be applied against the quarterly MCIT due.
14) Who are covered by MCIT?
The MCIT covers domestic and resident foreign corporations
which are subject to the regular income tax. The term regular
income tax refers to the regular income tax rates under the Tax
Code. Thus, corporations which are subject to a special
corporate tax system do not fall within the coverage of the MCIT.
For corporations whose operations or activities are partly
covered by the regular income tax and partly covered by the
preferential rate under special law, the MCIT shall apply on
operations by the regular income tax rate. Newly established
corporations or firms which are on their first 3 years of
operations are not covered by the MCIT.
15) When does a corporation start to be covered by the MCIT?
A corporation starts to be covered by the MCIT on the 4th year of
its business operations. The period of reckoning which is the
start of its business operations is the year when the corporation
was registered with the BIR. This rule will apply regardless of
whether the corporation is using the calendar year or fiscal year
as its taxable year.
16) When is the MCIT reported and paid? Is it quarterly?
The MCIT is paid on an annual basis and quarterly basis. The
rules are governed by Revenue Regulations No. 12-2007.
17) How is MCIT computed?
The MCIT is 2% of the gross income of the corporation at the end
of the year.
Gross income means gross sales less sales returns, discounts
and cost of goods sold. Passive income, which have been subject
to a final tax at source do not form part of gross income for
purposes of the MCIT.
Cost of goods sold includes all business expenses directly
incurred to produce the merchandise to bring them to their
present location and use.
For trading or merchandising concern, cost of goods sold means
the invoice cost of goods sold, plus import duties, freight in
transporting the goods to the place where the goods are actually
sold, including insurance while the goods are in transit.
For a manufacturing concern, cost of goods manufactured and
sold means all costs of production of finished goods such as raw
materials used, direct labor and manufacturing overhead, freight
cost, insurance premiums and other costs incurred to bring the
raw materials to the factory or warehouse.
For sale of services, gross income means gross receipts less
sales returns, allowances, discounts and cost of services which
cover all direct costs and expenses necessarily incurred to
provide the services required by the customers and clients
including:
o
Salaries and employees benefits of personnel, consultants
and specialists directly rendering the service;
Cost of facilities directly utilized in providing the service
such as depreciation or rental of equipment used;
Cost of supplies
Interest Expense is not included as part of cost of service,
except in the case of banks and other financial institutions.
Gross Receipts means amounts actually or constructively
received during the taxable year. However, for taxpayers
employing the accrual basis of accounting, it means amounts
earned as gross income.
18) What is the carry forward provision under the MCIT?
Any excess of the MCIT over the normal income tax may be
carried forward on an annual basis and be credited against the
normal income tax for 3 immediately succeeding taxable years.
19) How would the MCIT be recorded for accounting purposes?
Any amount paid as excess minimum corporate income tax
should be recorded in the corporations books as an asset under
account title Deferred charges-MCIT
20) How long can we amend our income tax return?
There is no prescription period for amending the return. When the
taxpayer has been issued a Letter of Authority, he can no longer
amend the return.
21) Can a benefactor of a senior citizen claim him/her as
additional dependent in addition to his/her 3 qualified dependent
children at P 25,000 each?
No, pursuant to Revenue Regulations 2-94, the benefactor of a
senior citizen cannot claim the additional exemption.
22) What is a tax treaty?
A tax treaty formally known as convention or agreement for the
avoidance of double taxation and the prevention of fiscal evasion
with respect to taxes on income (and on capital) could be defined
in terms of its purpose. First, a tax treaty is intended to promote
international trade and investment in several ways, the most
important of which is by allocating taxing jurisdiction between
the Contracting States so as to eliminate or mitigate double
taxation of income. Second, a tax treaty is intended to permit
the Contracting States to better enforce their domestic laws so
as to reduce tax evasion. These purposes are in fact
incorporated in the title and the preamble.
23) What are the effective Philippine tax treaties?
The Philippines has thirty-seven (37) effective tax treaties. The
following tax treaties and their dates of effectivity as as follows:
Effective Philippine Tax Treaties (as of June 2010)
Country Date of Date and Venue of Signature
Effectivity

1. Australia January 1, May 11, 1979, Manila,

1980 Philippines

2. Austria January 1, April 4, 1981, Vienna, Austria

1983

3. Bahrain January 1, November 7, 2001, Manila,

2004 Philippines

4. Bangladesh January 1, September 8, 1997, Manila,

2004 Philippines

5. Belgium January 1, October 2, 1976, Manila,

1981 Philippines

6. Brazil January 1, Sept. 29, 1983, Brasilia,

1992 Brazil

7. Canada January 1, March 11, 1976, Manila,

1977 Philippines
8. China January 1, November 18, 1999, Beijing,
2002 China

9. Czech January 1, November 13, 2000, Manila,

2004 Philippines

10. Denmark (Renegotiated) January 1, June 30, 1995, Copenhagen,

1998 Denmark

11. Finland January 1, October 13, 1978, Manila,

1982 Philippines

12. France January 1, January 9, 1976, Kingston,

1978 Jamaica

13. Germany January 1, July 22, 1983, Manila,

1985 Philippines

14. Hungary January 1, June 13, 1997, Budapest,

1998 Hungary

15. India January 1, February 12, 1990, Manila,

1995 Philippines

16. Indonesia January 1, June 18, 1981, Manila,

1983 Philippines

17. Israel January 1, June 9, 1992, Manila,

1997 Philippines

18. Italy January 1, December 5, 1980, Rome,

1990 Italy

19. Japan January 1, February 13, 1980, Tokyo,

1981 Japan

20. Korea January 1, February 21, 1984, Seoul,

1987 Korea

21. Malaysia January 1, April 27, 1982, Manila,

1985 Philippines

22. Netherlands January 1, March 9, 1989, Manila,

1992 Philippines

23. New Zealand January 1, April 29, 1980, Manila,

1981 Philippines

24. Norway January 1, July 9, 1987, Manila,

1998 Philippines

25. Pakistan January 1, February 22, 1980, Manila,

1979 Philippines

26. Poland January 1, September 9, 1992, Manila,

1998 Philippines

27. Romania January 1, May 18, 1994, Bucharest,

1998 Romania

28. Russia January 1, April 26, 1995, Manila,

1998 Philippines

29. Singapore January 1, August 1, 1977, Manila,

1977 Philippines
30. Spain January 1, March 14, 1989, Manila,
1994 Philippines

31. Sweden (Renegotiated) January 1, June 24, 1998, Manila,

2004 Philippines

32. Switzerland January 1, June 24, 1998, Manila,

2002 Philippines

33. Thailand January 1, July 14, 1982, Manila,

1983 Philippines

34. United Arab Emirates January 1, September 21, 2003, Dubai,

2009 UAE

35. United Kingdom of Great Britain and January 1, June 10, 1976, London,
Northern Ireland 1979 United Kingdom

36. United States of America January 1, October 1, 1976, Manila,

1983 Philippines

37. Vietnam January 1, November 14, 2001, Manila,

2004 Philippines

24) What office can we inquire about the said tax treaties?
The International Tax Affairs Division (ITAD).
25) What taxes are covered by Philippine tax treaties?
Income taxes imposed by the domestic laws of the Contracting
States, including substantially similar taxes that may be imposed
later, in addition to, or in place, are covered by the tax treaties. In
the Philippines, this is generally limited to Title II (Tax on Income)
of the National Internal Revenue Code of 1997, as amended.
26) How is business income treated under our tax treaties?
The business profits of a resident of a Contracting State shall not
be taxable in the Philippines unless that enterprise of a resident
of a Contracting State carries on business in the Philippines
through a permanent establishment.
27) What is the concept of permanent establishment (PE) as used
in tax treaties?
PE is defined as a fixed place of business through which the
business of the enterprise is wholly or partly carried on. The
concept of permanent establishment is used to determine the
rights of a Contracting State to tax the business profits of
enterprises of the other Contracting State. Under this concept,
profits of an enterprise of a Contracting State are not taxable by
the other Contracting State, unless the enterprise carries on
business through a permanent establishment situated in the
other Contracting State.
A list of places, circumstances, and activities which constitute a
permanent establishment is provided under the different tax
treaties which the Philippines has with other countries.
28) What is the Most-Favored-Nation clause (MFN)?
The appearance of the MFN clause in the tax treaty means that a
Contracting State will grant to a resident of the other Contracting
State the same lower rate of tax or exemption the former has
granted to a resident of a third State.
29) What is the tax treatment on immovable property?
Income from an immovable property is taxable in the Contracting
State where the property is situated. This term is generally
defined under the domestic laws of the Contracting States.
However, this is further defined in the tax treaties.
30) How are capital gains taxed under our tax treaties?
Gains from the alienation of immovable property or movable
property forming part of the business property of a permanent
establishment or pertaining to a fixed base are taxed in the
Philippines if the immovable property or permanent
establishment or fixed base is located here.

Percentage tax is a business tax imposed on persons or entities/transactions:

a.
1. Who sell or lease goods, properties or services in the course of trade or business and are
exempt from value-added tax (VAT) under Section 109 (w) of the National Internal
Revenue Code, as amended, whose gross annual sales and/or receipts do not exceed
Php 1,919,500 and who are not VAT-registered; and
2. Engaged in the following industries/ transactions:
a. Cars for rent or hire driven by the lessee, transportation contractors, including persons who transport
passengers for hire, and other domestic carriers of
passengers by land (except owners of animal-drawn two-wheeled vehicle) and keepers of garages
b. International air/shipping carriers doing business in the Philippines on their gross receipts derived from
transport of cargo from the Philippines to
another country
c. Franchise grantees of



radio and/or television broadcasting whose gross annual receipts for the
preceding year do not exceed Php 10,000,000.00 and did not opt to
register as VAT taxpayers
gas and water utilities
d. Overseas dispatch, message or conversation transmitted from the Philippines, except those transmitted
by the Philippine government, any embassy
and consular offices of a foreign government, public international organizations enjoying exemptions
pursuant to an international agreement and new
messages to a bona fide correspondent furnishing general news service
e. Banks and non-bank financial intermediaries performing quasi-banking functions
f. Other non-bank financial intermediaries (including pawnshops)
g. Person, company or corporation (except purely cooperative companies or associations) doing life
insurance business
h. Fire, marine or miscellaneous agents of foreign insurance companies
I. Proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional
basketball games, Jai-Alai and racetracks,
including videoke bars, karaoke bars, karaoke televisions, karaoke boxes and music lounges
j. Winnings in horse races
h. Sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through
initial public offering

[return to index]

Who are required to file Percentage Tax Returns monthly?

Every person/entity subject to percentage tax as enumerated in items 1, 2.a, 2.b, 2.c, 2.e, 2.f, 2.g
and 2.h above

Who are required to file Percentage Tax Returns quarterly?

1.
1. Operator, manager or person in charge of:
cockpits,
cabarets, day or night clubs, videoke bars, karaoke bars,
karaoke televisions, karaoke boxes and music lounges
boxing exhibitions
professional basketball games
Jai-alai and race tracks
2. Telephone and communication companies on their overseas dispatch, message or
conversation originating and transmitted from the Philippines

FREQUENTLY ASKED QUESTIONS

I. General VAT Queries

Who are liable to register as VAT taxpayers?

Any person who, in the course of trade or business, sells, barters

or exchanges goods or properties or engages in the sale or
exchange of services shall be liable to register if:

a. His gross sales or receipts for the past twelve (12) months,
other than those that are exempt under Section 109 (A) to (U),
have exceeded One Million Five Hundred Thousand Pesos
(P1,500,000.00): or
b. There are reasonable grounds to believe that his gross sales
or receipts for the next twelve (12) months, other than those that
are exempt under Section 109 (A) to (U), will exceed One Million
Five Hundred Thousand Pesos (P1,500,000.00).

When is a new VAT taxpayer required to apply for registration and

pay the registration fee?

New VAT taxpayers shall apply for registration as VAT Taxpayers

and pay the corresponding registration fee of five hundred pesos
(P500.00) using BIR Form No. 0605 for every separate or distinct
establishment or place of business before the start of their
business following existing issuances on registration.

Thereafter, taxpayers are required to pay the annual registration

fee of five hundred pesos (P500.00) not later than January 31,
every year.

What compliance activities should a VAT taxpayer, after

registration as such, do promptly or periodically?

The following compliance activities must be performed by a VAT-

registered taxpayer:

a. Pay the annual registration fee of P500.00 for every place of

business or establishment that generates sales;

b. Register the books of accounts of the

business/occupation/calling, including practice of profession,
before using the same;

c. Register the sales invoices and official receipts as VAT-

invoices or VAT official receipts for use on transactions subject
to VAT. (If there are other transaction not subject to VAT, a
separate set of non-VAT invoices or non-VAT official receipts need
to be registered for use on transactions not subject to VAT);

d. Filing of the Monthly Value-added Tax Declaration on or before

the 20th day following the end of the taxable month (for manual
filers)/on or before the prescribed due dates enunciated in RR No.
16-2005 (for e-filers) using BIR Form No. 2550M and of the
Quarterly VAT Return on or before the 25th day following the end
of the taxable quarter using BIR Form No. 2550Q, reflecting
therein gross receipts (for seller of service)/ gross sales (for
seller of goods) and output tax (VAT on sales); purchases of
goods and services made in the course of trade or
business/exercise of profession and input tax (VAT on purchases),
other allowable tax credits as in the case of advance VAT
payment and VAT withheld by government payors, and VAT
payable or excess input VAT, whichever is applicable, with the
accredited agent banks (AABs) of the BIR or Revenue Collection
Officers (RCOs) of the BIR (in areas without AAB), for returns
with payment, or with the RDO/LTDO having jurisdiction over the
taxpayer (home RDO/LTDO), for returns without payment. (The
monthly VAT Declaration and the Quarterly VAT Return shall
reflect the consolidated total for all the taxable lines of activity
and all the establishments - head office and branches);

e. Submit with the RDO/LTDO having jurisdiction over the

taxpayer, on or before the deadline set in the filing of the
Quarterly VAT Return, the soft copy of the Quarterly Schedule of
Monthly Sales and Output Tax (if the quarterly sales exceed
P2,500,000.00), and the soft copy of the Quarterly Schedule of
Monthly Domestic Purchases and Input Tax/ the soft copy of the
Schedule of Transactional/Individual Importation ( if the quarterly
total purchases exceed P1,000,000.00), reflecting therein the
required data prescribed under existing revenue issuances.

How do we determine the main or principal business of a

taxpayer who is engaged in mixed business activities?

In determining the main or principal business of a taxpayer, we

apply the predominance test. Under this test, if more than fifty
(50%) of its gross sales and/or gross receipts comes from its
business/es subject to VAT, its main/principal business falls within
the VAT system making its status as a VAT person. Otherwise, he
can not be considered as a VAT person eligible for the election
provided for under Section 109(2) of the Tax Code.

What is the liability of a taxpayer becoming liable to VAT and did

not register as such?
Any person who becomes liable to VAT and fails to register as
such shall be liable to pay the output tax as if he is a VAT-
registered person, but without the benefit of input tax credits for
the period in which he was not properly registered.

Who may opt to register as VAT and what will be his liability?

1. Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not
required to register for VAT may, in relation to Sec. 4.109-2, elect
to be VAT-registered by registering with the RDO that has
jurisdiction over the head office of that person, and pay the
annual registration fee of P500.00 for every separate and distinct
establishment.

2. Any person who is VAT-registered but enters into transactions

which are exempt from VAT (mixed transactions) may opt that the
VAT apply to his transactions which would have been exempt
under Section 109(1) of the Tax Code, as amended [Sec. 109(2)].

3. Franchise grantees of radio and/or television broadcasting

whose annual gross receipts of the preceding year do not exceed
ten million pesos (P10,000,000.00) derived from the business
covered by the law granting the franchise may opt for VAT
registration. This option, once exercised, shall be irrevocable.
(Sec. 119, Tax Code).

4. Any person who elects to register under optional registration

shall not be allowed to cancel his registration for the next three
(3) years.

The above-stated taxpayers may apply for VAT registration not

later than ten (10) days before the beginning of the calendar
quarter and shall pay the registration fee unless they have
already paid at the beginning of the year. In any case, the
Commissioner of Internal Revenue may, for administrative reason
deny any application for registration. Once registered as a VAT
person, the taxpayer shall be liable to output tax and be entitled
to input tax credit beginning on the first day of the month
following registration.
What are the instances when a VAT-registered person may cancel
his VAT registration?

1. If he makes a written application and can demonstrate to the

commissioner's satisfaction that his gross sales or receipts for
the following twelve (12) months, other than those that are
exempt under Section 109 (A) to (U), will not exceed one million
five hundred thousand pesos (P1,500,000.00); or

2. If he has ceased to carry on his trade or business, and does

not expect to recommence any trade or business within the next
twelve (12) months.

When will the cancellation for registration be effective?

The cancellation for registration will be effective from the first

day of the following month the cancellation was approved.

What is the invoicing/ receipt requirement of a VAT-registered

person?

A VAT registered person shall issue :

1. A VAT invoice for every sale, barter or exchange of goods or

properties; and

2. A VAT official receipt for every lease of goods or properties and

for every sale, barter or exchange of services.

May a VAT-registered person issue a single invoice/ receipt

involving VAT and Non-VAT transactions?

Yes. He may issue a single invoice/ receipt involving VAT and non-
VAT transactions provided that the invoice or receipt shall clearly
indicate the break-down of the sales price between its taxable,
exempt and zero-rated components and the calculation of the
Value-Added Tax on each portion of the sale shall be shown on
the invoice or receipt.

May a VAT- registered person issue separate invoices/ receipts

involving VAT and Non-VAT transactions?
Yes. A VAT registered person may issue separate invoices/
receipts for the taxable, exempt, and zero-rated component of its
sales provided that if the sales is exempt from value-added tax,
the term "VAT-EXEMPT SALE" shall be written or printed
prominently on the invoice or receipt and if the sale is subject to
zero percent (0%) VAT, the term "ZERO-RATED SALE" shall be
written or printed prominently on the invoice or receipt.

How is the Value-Added Tax presented in the receipt/ invoice?

The amount of the tax shall be shown as a separate item in the

invoice or receipt.

Sample:

P
Sales
100,000.
Price
00
VAT 12,000.00
Invoice Amount 112,000.00

What is the information that must be contained in the VAT invoice

or VAT official receipt?

1. Name of Seller

2. Business Style of the Seller

3. Business Address of the Seller

4. Statement that the seller is a VAT-registered person, followed

by his TIN

5. Name of Buyer

6. Business Style of Buyer

7. Address of Buyer

8. TIN of buyer, if VAT- registered and amount exceed P1,000.00

9. Date of transaction
10. Quantity

11. Unit cost

12. Description of the goods or properties or nature of the

service

13. Purchase price plus the VAT, provided that:

The amount of tax shall be shown as a separate item in
the invoice or receipt;
If the sale is exempt from VAT, the term "VAT-EXEMPT
SALE" shall be written or printed prominently on the
invoice or receipt;
If the sale is subject to zero percent (0%) VAT, the term
"ZERO-RATED SALE" shall be written or printed
prominently on the invoice receipt; and
If the sale involves goods, properties or services some
of which are subject to and some of which are zero-
rated or exempt from VAT, the invoice or receipt shall
clearly indicate the breakdown of the sales price
between its taxable, exempt and zero-rated
components, and the calculation of the VAT on each
portion of the sale shall be shown on the invoice or
receipt.
14. Authority to Print Receipt Number at the lower left corner of
the invoice or receipt.
What is the liability of a taxpayer not registered as VAT and
issues a VAT invoice/ receipt?
The non-VAT registered person shall, in addition to paying the
percentage tax applicable to his transactions, be liable to VAT
imposed in Section 106 or 108 of the Tax Code without the
benefit of any input tax credit plus 50% surcharge on the VAT
payable (output tax). If the invoice/ receipts contain the required
information, purchaser shall be allowed to recognize an input tax
credit.
What is the liability of a VAT-registered person in the issuance of
a VAT invoice/ receipt for VAT-exempt transactions?
If a VAT-registered person issues a VAT invoice or VAT official
receipt for a VAT-exempt transaction but fails to display
prominently on the invoice or receipt the words "VAT-EXEMPT
SALE", the transaction shall become taxable and the issuer shall
be liable to pay the VAT thereon. The purchaser shall be entitled
to claim an input tax credit on his purchase.
What is "output tax"?
Output tax means the VAT due on the sale, lease or exchange of
taxable goods or properties or services by any person registered
or required to register under Section 236 of the Tax Code.
What is "input tax"?
Input tax means the VAT due on or paid by a VAT-registered on
importation of goods or local purchase of goods, properties or
services, including lease or use of property in the course of his
trade or business. It shall also include the transitional input tax
determined in accordance with Section 111 of the Tax Code,
presumptive input tax and deferred input tax from previous
period.
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and
intangible objects, which are capable of pecuniary estimation
and shall include, among others:
a. Real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business;
b. The right or the privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
c. The right or privilege to use in the Philippines of any
industrial, commercial or scientific equipment;
d. The right or the privilege to use motion picture films, films,
tapes and discs; and
e. Radio, television, satellite transmission and cable television
time.
What comprises "sale or exchange of services"?
The term "sale or exchange of services" means the performance
of all kinds of services in the Philippines for others for a fee,
remuneration or consideration, whether in kind or in cash,
including those performed or rendered by the following:
a. Construction and service contractors;
b. Stock, real estate, commercial, customs and immigration
brokers;
c. Lessors of property, whether personal or real;
d. Persons engaged in warehousing services;
e. Lessors or distributors of cinematographic films;
f. Persons engaged in milling, processing, manufacturing or
repacking goods for others;
g. Proprietors, operators or keepers of hotels, motels, rest
houses, pension houses, inns, resorts, theatres, and movie
houses;
h. Proprietors or operators of restaurants, refreshment parlors,
cafes, and other eating places, including clubs and caterers;
i. Dealers in securities;
j. Lending investors;
k. Transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for
hire and other domestic common carriers by land relative to their
transport of goods or cargoes;
l. Common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines
to another place in the Philippines;
m. Sales of electricity by generation, transmission, and/or
distribution companies;
n. Franchise grantees of electric utilities, telephone and
telegraph, radio and/or television broadcasting and all other
franchise grantees, except franchise grantees of radio and/or
television broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos (P10,000,000.00),
and franchise grantees of gas and water utilities;
o. Non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and
p. Similar services regardless of whether or not the performance
thereof calls for the exercise of use of the physical or mental
faculties.
The phrase "sale or exchange of services" shall likewise include:
a. The lease of use of or the right or privilege to use any
copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property
or right;
b. The lease or the use of, or the right to use of any industrial,
commercial or scientific equipment;
c. The supply of scientific, technical, industrial or commercial
knowledge or information;
d. The supply of any assistance that is ancillary and subsidiary
to and is furnished as a means of enabling the application or
enjoyment of any such property, or right or any such knowledge
or information;
e. The supply of services by a nonresident person or his
employee in connection with the use of property or rights
belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such non-resident
person;
f. The supply of technical advice, assistance or services
rendered in connection with technical management or
administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;
g. The lease of motion picture films, films, tapes and discs; and
h. The lease or the use of or the right to use radio, television,
satellite transmission and cable television time.
What is a zero-rated sale?
It is a sale, barter or exchange of goods, properties and/or
services subject to 0% VAT pursuant to Sections 106 (A) (2) and
108 (B) of the Tax Code. It is a taxable transaction for VAT
purposes, but shall not result in any output tax. However, the
input tax on purchases of goods, properties or services, related
to such zero-rated sales, shall be available as tax credit or refund
in accordance with RR No. 16-2005.
What transactions are considered as zero-rated sales?
The following services performed in the Philippines by VAT-
registered person shall be subject to zero percent (0%) rate:
a. Processing, manufacturing or repacking goods for other
persons doing business outside the Philippines which goods are
subsequently exported where the services are paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
b. Services other than processing, manufacturing or repacking
rendered to a person engaged in business conducted outside the
Philippines or to a non-resident person engaged in business who
is outside the Philippines when the services are performed, the
consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);
c. Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such
services to zero percent (0%) rate;
d. Services rendered to persons engaged in international
shipping or air transport operations, including leases of property
for use thereof; Provided, however, that the services referred to
herein shall not pertain to those made to common carriers by air
and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the
Philippines, the same being subject to twelve percent (12%) VAT
under Sec. 108 of the Tax Code starting Feb. 1, 2006;
e. Services performed by subcontractors and/or contractors in
processing, converting, or manufacturing goods for an enterprise
whose export sales exceeds seventy percent (70%) of total
annual production;
f. Transport of passengers and cargo by domestic air or sea
carriers from the Philippines to a foreign country. Gross receipts
of international air carriers doing business in the Philippines and
international sea carriers doing business in the Philippines are
still liable to a percentage tax of three percent (3%) based on
their gross receipts as provided for in Sec. 118 of the Tax Code
but shall not be liable to VAT; and
g. Sale of power or fuel generated through renewable sources of
energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal and steam, ocean energy, and other
shipping sources using technologies such as fuel cells and
hydrogen fuels; Provided, however that zero-rating shall apply
strictly to the sale of power or fuel generated through renewable
sources of energy, and shall not extend to the sale of services
related to the maintenance or operation of plants generating said
power .
The following sales by VAT-registered persons shall be subject to
zero percent (0%) rate:
a. Export sales

The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon
which may influence or determine the transfer of
ownership of the goods so exported, paid in
acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance
 with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
The sale of raw materials or packaging materials to
a non-resident buyer for delivery to as resident local
export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods, paid for in
acceptable foreign currency, and accounted for in
accordance with the rules and regulations of the
BSP;
The sale of raw materials or packaging materials to
an export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual
production;
Sale of gold to the BSP;
Transactions considered export sales under
Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, and other
special laws; and
The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or
international air transport operations; Provided, that
the same is limited to goods, supplies, equipment
and fuel pertaining to or attributable to the
transport of goods and passengers from a port in
the Philippines directly to a foreign port, or vice-
versa without docking or stopping at any other port
in the Philippines unless the docking or stopping at
any other Philippine port is for the purpose of
unloading passengers and/or cargoes that originated
from abroad, or to load passengers and/or cargoes
bound for abroad; Provided, further, that if any
portion of such fuel, goods or supplies is used for
purposes other than the mentioned in this
paragraph, such portion of fuel, goods and supplies
shall be subject to twelve percent (12%) output VAT.
b. Foreign Currency Denominated Sales
The sale to a non-resident of goods, except those mentioned in
Sections 149 and 150 of the Tax Code, assembled or
manufactured in the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the
BSP.
c. Sales to Persons or Entities Deemed Tax-exempt under Special
Law or International Agreement
Sale of goods or property to persons or entities who are tax-
exempt under special laws or international agreements to which
the Philippines is a signatory, such as, Asian Development Bank
(ADB), International Rice Research Institute (IRRI), etc.
Where will taxpayers file their applications for VAT zero-rating?
Taxpayers shall file their application directly with the Audit
Information, Tax Exemption and Incentives Division (AITEID)
under the Assessment Service, or with the LTAID I and II, BIR
National Office, as the case may be.
What is a Contractor's Final Payment Release Certificate and
where should taxpayers file their application for this?
The Contractor's Final Payment Release Certificate is issued by
the BIR before a government contractor is fully paid for his
contract with the government. Taxpayers may file their
application at the BIR National Office at the Audit Information,
Tax Exemption and Incentives Division (AITEID)
What transactions are considered deemed sales?
The following transactions are considered as deemed sales:
a. Transfer, use or consumption, not in the course of business, of
goods or properties originally intended for sale or for use in the
course of business. Transfer of goods or properties not in the
course of business can take place when VAT-registered person
withdraws goods from his business for his personal use;
b. Distribution or transfer to:

Shareholders or investors as share in the profits of
the VAT-registered person; or
Creditors in payment of debt or obligation
c. Consignment of goods if actual sale is not made within sixty
(60) days following the date such goods were consigned.
Consigned goods returned by the consignee within the 60-day
period are not deemed sold;
d. Retirement from or cessation of business, with respect to all
goods on hand, whether capital goods, stock-in-trade, supplies or
materials as of the date of such retirement or cessation, whether
or not the business is continued by the new owner or successor.
The following circumstances shall, among others, give rise to
transactions "deemed sale";

Change of ownership of the business. There is a
change in the ownership of the business when a
 single proprietorship incorporated; or the proprietor
of a single proprietorship sells his entire business.
Dissolution of a partnership and creation of a new
partnership which takes over the business.
What is VAT-exempt sale?
It is a sale of goods, properties or service and the use or lease of
properties which is not subject to output tax and whereby the
buyer is not allowed any tax credit or input tax related to such
exempt sale.
What are the VAT-exempt transactions?
a. Sale or importation of agricultural and marine food products in
their original state, livestock and poultry of a kind generally used
as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefore;
b. Sale or importation of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other
animals considered as pets);
c. Importation of personal and household effects belonging to
residents of the Philippines returning from abroad and non-
resident citizens coming to resettle in the Philippines; Provided,
that such goods are exempt from custom duties under the Tariff
and Customs Code of the Philippines;
d. Importation of professional instruments and implements,
wearing apparel, domestic animals, and personal household
effects (except any vehicle, vessel, aircraft, machinery and other
goods for use in the manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to settle in
the Philippines, for their own use and not for sale, barter or
exchange, accompanying such persons, or arriving within ninety
(90) days before or after their arrival, upon the production of
evidence satisfactory to the Commissioner of Internal Revenue,
that such persons are actually coming to settle in the Philippines
and that the change of residence is bonafide;
e. Services subject to percentage tax under Title V of the Code,
as amended;
f. Services by agricultural contract growers and milling for
others of palay into rice, corn into grits, and sugar cane into raw
sugar;
g. Medical, dental, hospital and veterinary services except those
rendered by professionals;
h. Educational services rendered by private educational
institutions duly accredited by the Department of Education
(DepED), the Commission on Higher Education (CHED) and the
Technical Education and Skills Development Authority (TESDA)
and those rendered by the government educational institutions;
i. Services rendered by individuals pursuant to an employer-
employee relationship;
j. Services rendered by regional or area headquarters
established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-
Pacific Region and do not earn or derive income from the
Philippines;
k. Transactions which are exempt under international
agreements to which the Philippines is a signatory or under
special laws except those granted under P.D. No. 529 - Petroleum
Exploration Concessionaires under the Petroleum Act of 1949;
l. Sales by agricultural cooperatives duly registered and in good
standing with the Cooperative Development Authority (CDA) to
their members, as well as of their produce, whether in its original
state or processed form, to non-members, their importation of
direct farm inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the
production and/or processing of their produce;
m. Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered and in good standing with
the Cooperative Development Authority;
n. Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with and in good standing with CDA;
Provided, that the share capital contribution of each member
does not exceed Fifteen Thousand Pesos (P15,000.00) and
regardless of the aggregate capital and net surplus ratably
distributed among the members;
o. Export sales by persons who are not VAT-registered;
p. The following sales of real properties are exempt from VAT,
namely:
1. Sale of real properties not primarily held for sale to customers
or held for lease in the ordinary course of trade or business;
2. Sale of real properties utilized for low-cost housing as defined
by RA No. 7279, otherwise known as the "Urban Development and
Housing Act of 1992" and other related laws, such as RA No. 7835
and RA No. 8763;
3. Sale of real properties utilized for specialized housing as
defined under RA No. 7279, and other related laws, such as RA
No. 7835 and RA No. 8763, wherein price ceiling per unit is
P225,000.00 or as may from time to time be determined by the
HUDCC and the NEDA and other related laws;
4. Sale of residential lot valued at One Million Five Hundred
Thousand Pesos (P1,500,000.00) and below, or house and lot and
other residential dwellings valued at Two Million Five Hundred
Thousand Pesos (P2,500,000.00) and below where the instrument
of sale/ transfer/ disposition was executed on or after July 1,
2005; Provided, that not later than January 31, 2009 and every
three (3) years thereafter, the amounts stated herein shall be
adjusted to its present value using the Consumer Price Index, as
published by the National Statistics Office (NSO); Provided,
further, that such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each year.
q. Lease of residential units with a monthly rental per unit not
exceeding Ten Thousand Pesos (P10,000.00), regardless of the
amount of aggregate rentals received by the lessor during the
year; Provided, that not later than January 31, 2009 and every
three (3) years thereafter, the amount of P10,000.00 shall be
adjusted to its present value using the Consumer Price Index, as
published by the NSO;
r. Sale, importation, printing or publication of books and any
newspaper, magazine, review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is
not devoted principally to the publication of paid advertisements;
s. Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine equipment and spare parts thereof for
domestic or international transport operations; Provided, that the
exemption from VAT on the importation and local purchase of
passenger and/or cargo vessels shall be limited to those of one
hundred fifty (150) tons and above, including engine and spare
parts of said vessels; Provided, further, that the vessels to be
imported shall comply with the age limit requirement, at the time
of acquisition counted from the date of the vessel's original
commissioning, as follows: (a) for passenger and/or cargo vessel,
the age limit is fifteen (15) years old, (b) for tankers, the age limit
is ten (10) year old, and (c) for high-speed passengers crafts, the
age limit is five (5) years old; Provided, finally, that exemption
shall be subject to the provisions of Section 4 of Republic Act No.
9295, otherwise known as "The Domestic Shipping Development
Act of 2004";
t. Importation of life-saving equipment, safety and rescue
equipment and communication and navigational safety
equipment, steel plates and other metal plates including marine-
grade aluminum plates, used for shipping transport operations;
Provided, that the exemption shall be subject to the provisions of
Section 4 of Republic Act No. 9295, otherwise known as "The
Domestic Shipping Development Act of 2004".
u. Importation of capital equipment, machinery, spare parts, life-
saving and navigational equipment, steel plates and other metal
plates including marine-grade aluminum plates to be used in the
construction, repair, renovation or alteration of any merchant
marine vessel operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the provisions of
Section 19 of Republic Act No. 9295, otherwise known as the
"The Domestic Shipping Development Act of 2004".
v. Importation of fuel, goods and supplies engaged in
international shipping or air transport operations; Provided, that
the said fuel, goods and supplies shall be used exclusively or
shall pertain to the transport of goods and/or passenger from a
port in the Philippines directly to a foreign port, or vice-versa,
without docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine port is for
the purpose of unloading passengers and/or cargoes that
originated form abroad, or to load passengers and/or cargoes
bound for abroad; Provided, further, that if any portion of such
fuel, goods or supplies is used for purposes other that the
mentioned in the paragraph, such portion of fuel, goods and
supplies shall be subject to 12% VAT;
w. Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank financial
intermediaries, such as money changers and pawnshops, subject
to percentage tax under Sections 121 and 122, respectively of the
Tax Code; and
x. Sale or lease of goods or properties or the performance of
services other than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts do not exceed
the amount of One Million Five Hundred Thousand Pesos
(P1,500,000.00). Provided, that not later than January 31, 2009
and every three (3) years thereafter, the amount of P1,500,000.00
shall be adjusted to its present value after using the Consumer
Price Index, as published by the NSO.
What are the previously exempt transactions that are now
subject to VAT?
Medical services such as dental & veterinary services rendered
by professionals;
Legal services;
Non-food agricultural products;
Marine and forest products;
Cotton and cotton seeds;
Coal and natural gas;
Petroleum products;
Passenger cargo vessels of more than 5,000 tons;
Work of art, literary works, musical composition;
Generation, transmission and distribution of electricity including
that of electric cooperatives;
Sale of residential lot valued at more than P1,500,000.00;
Sale of residential house & lot/dwellings valued at more than
P2,500,000.00;
Lease of residential unit with a monthly rental of more than
P10,000;

II. RELIEF-Related Queries

What is "RELIEF"?
RELIEF means Reconciliation of Listing for Enforcement. It
supports the third party information program of the Bureau
through the cross referencing of third party information from the
taxpayers' Summary Lists of Sales and Purchases prescribed to
be submitted on a quarterly basis.
Who are required to submit Summary List of Sales?
VAT taxpayers with quarterly total sales/receipts (net of VAT),
exceeding Two Million Five Hundred Thousand Pesos
(P2,500,000.00) are required to submit a Summary List of Sales.
Who are required to submit Summary List of Purchases?
VAT taxpayers with quarterly total purchases (net of VAT) of
goods and services, including importation exceeding One Million
Pesos (P1,000,000.00) are required to submit Summary List of
Purchases.
What are the Summary Lists required to be submitted?

Quarterly Summary List of Sales to Regular Buyers/
Customers Casual Buyers/ Customers and Output Tax
Quarterly Summary of List of Local Purchases and Input
tax; and
Quarterly Summary List of Importation.
When is the deadline for submission of the above Summary Lists?
The Summary List of Sales/Purchases, whichever is applicable,
shall be submitted on or before the twney-fifth (25th) day of the
month following the close of the taxable quarter -- calendar
quarter or fiscal quarter.
What are the penalties for failure to submit the Summary Lists?

For failure to file, keep or supply a statement, list or
information required on the date prescribed shall pay and
administrative penalty of One Thousand Pesos (P1,000.00)
for each such failure, unless it is shown that such failure is
due to reasonable cause and not to willful neglect; and
An aggregate amount to be imposed for all such failures
during a taxable year shall not exceed Twenty-Five
Thousand Pesos (P25,000.00).

III. What is the treatment for Withholding of VAT on Government

Money Payments?

The goverment or any of its political subdivisions,
instrumentalities or agencies, including government-owned
or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and/or
services taxed at twelve percent (12%) VAT pursuant to
Sections 106 and 108 of the Tax Code, deduct and withhold
a Final VAT due at the rate of five percent (5%) of the gross
payment.
The five percent (5%) final VAT withholding rate shall represent
the net VAT payable of the seller. The remaining seven percent
(7%) effectively accounts for the standard input VAT for sales of
goods or services to government or any of its political
subdivisions, instrumentalities or agencies including GOCCs in
lieu of the actual input VAT directly attributable or ratably
apportioned to such sales. Should actual input VAT attributable to
sales to government exceeds seven percent (7%) of gross
payments, the excess may form part of the sellers' expense or
cost. On the other hand, if actual input VAT attributable to sale to
government is less than seven percent (7%) of gross payment,
the difference must be closed to expense or cost.

The government or any of its political subdivisions,
instrumentalities or agencies including GOCCs, as well as
private corporation, individuals, estates and trusts,
whether large or non-large taxpayers, shall withhold twelve
percent (12%) VAT with respect to the following payments:
1. Lease or use of properties or property rights owned by non-
residents; and
2. Other services rendered in the Philippines by non-residents.

IV. In what grounds can the Commissioner of Internal Revenue

suspend the business operations of a taxpayer?
The Commissioner or his authorized representative is empowered
to suspend the business operations and temporarily close the
business establishment of any person for any of the following
violations:
(a) In the case of a VAT-registered Person:

Failure to issue receipts or invoices;
Failure to file a value-added-tax return as required
under Section 114; or
Understatement of taxable sales or receipts by thirty
percent (30%) or more of his correct taxable sales or
receipts for the taxable quarter.
(b) Failure to any Person to Register as Required under Section
236

The temporary closure of the establishment shall be
for the duration of not less than five (5) days and
shall be lifted only upon compliance with whatever
requirements prescribed by the Commissioner in the
closure order.

Frequently Asked Questions

1) What are the types of Withholding Taxes?

There are two main classifications or types of withholding tax.
These are:

a) Creditable Withholding Tax

- Withholding Tax on Compensation

- Expanded Withholding Tax
- Withholding of Business Tax (VAT and Percentage)

b) Final Withholding Tax

2) What is compensation?

It means any remuneration received for services performed by an

employee from his employer under an employee-employer
relationship.

3) What are the different kinds of compensation?

a) Regular compensation - includes basic salary, fixed allowances

for representation, transportation and others paid to an employee

b) Supplemental compensation - includes payments to an

employee in addition to the regular compensation such as but not
limited to the following:

- Overtime Pay
- Fees, including director's fees
- Commission
- Profit Sharing
- Monetized Vacation and Sick Leave
- Fringe benefits received by rank & file employees
- Hazard Pay
- Taxable 13th month pay and other benefits
- Other remunerations received from an employee-employer
relationship

4) What are exempted from Withholding Tax on Compensation?

1. Remuneration as an incident of employment, such as the

following:
a. Retirement benefits received under RA 7641

b. Any amount received by an official or employee or by his heirs

from the employer due to death, sickness or other physical
disability or for any cause beyond the control of the said official
or employee such as retrenchment, redundancy or cessation of
business

c. Social security benefits, retirement gratuities, pensions and

other similar benefits

d. Payment of benefits due or to become due to any person

residing in the Philippines under the law of the US administered
by the US Veterans Administration

e. Payment of benefits made under the SSS Act of 1954, as

amended

f. Benefits received from the GSIS Act of 1937, as amended, and

the retirement gratuity received by the government official and
employees

2. Remuneration paid for agricultural labor and paid entirely in

products of the farm where the labor is performed

3. Remuneration for domestic services

4. Remuneration for casual labor not in the course of an

employer's trade or business

5. Compensation for services by a citizen or resident of the

Philippines for a foreign government or an international
organization

6. Payment for damages

7. Proceeds of Life Insurance

8. Amount received by the insured as a return of premium

9. Compensation for injuries or sickness

10. Income exempt under Treaty

11. Thirteenth (13th) month pay and other benefits (not to exceed
P 30,000)

12. GSIS, SSS, Medicare and other contributions

13. Compensation Income of Minimum Wage Earners (MWEs) with

respect to their Statutory Minimum Wage (SMW) as fixed by
Regional Tripartite Wage and Productivity Board
(RTWPB)/National Wage and Productivity Commission (NWPC),
including overtime pay, holiday pay, night shift differential and
hazard pay, applicable to the place where he/she is assigned.

14. Compensation Income of employees in the public sector if the

same is equivalent to or not more than the SMW in the non-
agricultural sector, as fixed by RTWPB/NWPC, including overtime
pay, holiday pay, night shift differential and hazard pay,
applicable to the place where he/she is assigned.

5) What are De Minimis Benefits?

- These are facilities and privileges of relatively small value and

are offered or furnished by the employer to his employees merely
as means of promoting their health, goodwill, contentment or
efficiency. The following shall be considered "De Minimis"
benefits not subject to income tax, hence not subject to
withholding tax on compensation income of both managerial and
rank and file employees:

Monetized unused vacation leave credits of private employees

not exceeding ten (10) days during the year;

Monetized value of vacation and sick leave credits paid to

government officials and employees.

Medical cash allowance to dependents of employees, not

exceeding P750.00 per employee per semester or P125.00 per
month;
 Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month
amounting to not more than P1,500;

Uniform and clothing allowance not exceeding P5,000 per

annum;

Actual medical assistance, e.g. medical allowance to cover

medical and healthcare needs, annual medical/executive check-
up, maternity assistance, and routine consultations, not
exceeding P10,000 per annum;

Laundry allowance not exceeding P300.00 per month;

Employees achievement awards, e.g., for length of service or

safety achievement, which must be in the form of a tangible
personal property other than cash or gift certificate, with an
annual monetary value not exceeding P10,000 received by the
employee under an established written plan which does not
discriminate in favor of highly paid employees;

Gifts given during Christmas and major anniversary celebration

not exceeding P5,000.00 per employee perannum;

Daily meal allowance for overtime work and night/graveyard

shift not exceeding twenty-five percent (25%) of the basic
minimum wage on a per region basis;

6) What is substituted Filing of income tax returns (ITR)?

Substituted Filing of ITR is the manner by which declaration of

income of individuals receiving purely compensation income the
taxes of which have been withheld correctly by their employers.
Instead of the filing of Individual Income Tax Return (BIR Form
1700), the employers annual information return (BIR Form No.
1604-CF) duly stamped received by the BIR may be considered as
the substitute Income Tax Return (ITR) of the employee,
inasmuch as the information provided therein are exactly the
same information required to be provided in his income tax return
(BIR Form No. 1700). However, said employees may still file ITR at
his/her option.
7) Who are qualified to avail of the substituted filing of ITR?

Employees who satisfies all of the following conditions:

a. Receiving purely compensation income regardless of amount;

b. Working for only one employer in the Philippines for the

calendar year;

c. Tax has been withheld correctly by the employer (tax due

equals tax withheld);

d. The employees spouse also complies with all three (3)

conditions stated above.

e. The employer files the annual information return (BIR Form No.
1604-CF)

f. The employer issues BIR Form No. 2316 to each employee.

Note: For those employees qualified under the substituted filing,

the employer

8) What income payments are subject to Expanded Withholding

Tax?

a) Professional fees / talent fees for services rendered by the

following:

- Those individually engaged in the practice of professions or

callings such as lawyers; certified public accountants; doctors of
medicine; architects; civil, electrical, chemical, mechanical,
structural, industrial, mining, sanitary, metallurgical and geodetic
engineers; marine surveyors; doctors of veterinary science;
dentist; professional appraisers; connoisseurs of tobacco;
actuaries; interior decorators, designers, real estate service
practitioners (RESPs), (i. e. real estate consultants, real estate
appraisers and real estate brokers) requiring government
licensure examination given by the Real Estate Service pursuant
to Republic Act No. 9646 and all other profession requiring
government licensure examinations and/or regulated by the
Professional Regulations Commission, Supreme Court, etc.
- Professional entertainers such as but not limited to actors and
actresses, singers, lyricist, composers and emcees

- Professional athletes including basketball players, pelotaris and

jockeys

- Directors and producers involved in movies, stage, radio,

television and musical productions

- Insurance agents and insurance adjusters

- Management and technical consultants

- Bookkeeping agents and agencies

- Other recipient of talent fees

- Fees of directors who are not employees of the company paying

such fees whose duties are confined to attendance at and
participation in the meetings of the Board of Directors

b) Professional fees, talent fees, etc for services of taxable

juridical persons

c) Rentals:

- Rental of real property used in business

- Rental of personal properties in excess of P 10,000 annually

- Rental of poles, satellites and transmission facilities

- Rental of billboards

d) Cinematographic film rentals and other payments

e) Income payments to certain contractors

- General engineering contractors

- General building contractors

- Specialty contractors

- Other contractors like:

1. Filling, demolition and salvage work contractors and operators

of mine drilling apparatus

2. Operators of dockyards

3. Persons engaged in the installation of water system, and gas

or electric light, heat or power

4. Operators of stevedoring, warehousing or forwarding

establishments

5. Transportation Contractors

6. Printers, bookbinders, lithographers and publishers, except

those principally engaged in the publication or printing of any
newspaper, magazine, review or bulletin which appears at regular
intervals, with fixed prices for subscription and sale

7. Advertising agencies, exclusive of payments to media

8. Messengerial, janitorial, security, private detective, credit

and/or collection agenciesand other business agencies

9. Independent producers of television, radio and stage

performances or shows

10. Independent producers of "jingles"

11. Labor recruiting agencies and/or labor-only contractors

12. Persons engaged in the installation of elevators, central air

conditioning units, computer machines and other equipment and
machineries and the maintenance services thereon

13. Persons engaged in the sale of computer services, computer

programmers, software developer/designer, etc.

14. Persons engaged in landscaping services

15. Persons engaged in the collection and disposal of garbage

16. TV and radio station operators on sale of TV and radio

airtime, and

17. TV and radio blocktimers on sale of TV and radio commercial

spots

f) Income distribution to the beneficiaries of estates and trusts

g) Gross commissions of customs, insurance, stock, immigration

and commercial brokers, fees of agents of professional
entertainers and real estate service practitioners (RESPs), (i. e.
real estate consultants, real estate appraisers and real estate
brokers) who failed or did not take up the licensure examination
given by and not registered with the Real Estate Service under
the Professional Regulations Commission

h) Income payments to partners of general professional

partnerships

i) Payments made to medical practitioners

j) Gross selling price or total amount of consideration or its

equivalent paid to the seller/owner for the sale, exchange or
transfer of real property classified as ordinary asset

k) Additional income payments to government personnel from

importers, shipping and airline companies or their agents

l) Certain income payments made by credit card companies

m) Income payments made by the top 20,000 private

corporations to their purchase of goods and services from
local/resident suppliers other than those covered by other rates
of withholding

n) Income payments by government offices on their purchase of

goods and services, from local/resident suppliers other than
those covered by other rates of withholding
o) Commission, rebates, discounts and other similar
considerations paid/granted to independent and exclusive
distributors, medical/technical and sales representatives and
marketing agents and sub-agents of multi level marketing
companies.

p) Tolling fees paid to refineries

q) Payments made by pre-need companies to funeral parlors

r) Payments made to embalmers by funeral parlors

s) Income payments made to suppliers of agricultural products

(suspended per RR 3-2004)

t) Income payments on purchases of mineral, mineral products

and quarry resources

u) On gross amount of refund given by MERALCO to customers

with active contracts as classified by MERALCO;

v) Interest income on the refund paid through direct payment or

application against customers' billing by other electric
Distribution Utilities in accordance with the rules embodied in
ERC Resolution No. 8 series of 2008 dated June 4, 2008
governing the refund of meter deposits which was approved and
adopted by ERC in compliance with the mandate of Article 8 of
the Magna Carta for Residential Electricity Consumers and
Article 3.4.2 of DSOAR exempting all electricity consumers,
whether residential or non-residential from the payment of meter
deposit.

w) Income payments made by the top 5,000 individual taxpayers

to their purchase of goods and services from their local/resident
suppliers other than those covered by other rates of withholding

x) Income payments made by political parties and candidates of

local and national elections of all their campaign expenditures,
and income payments made by individuals or juridical persons for
their purchases of goods and services intended to be given as
campaign contribution to political parties and candidates
y) Interest Income derived from any other debt instruments not
within the coverage of deposit substitutes and RR No. 14-2012

z) Income payments subject to Withholding Tax received by Real

Estate Investment Trust (REIT) (Sec.12 of RR No. 13-2011)

9) What income payments are subject to Final Withholding Tax?

a) Income Payments to a Citizen or to a Resident Alien Individual:

- Interest on any peso bank deposit

- Royalties
- Prizes [except prizes amounting to P10,000 or less which is
subject to tax under Sec. 24(A)(1) of the Tax Code]
- Winnings (except winnings from Philippine Charity Sweepstake
Office and Lotto)
- Interest income on foreign currency deposit
- Interest income from long term deposit (except those with term
of five years or more)
- Cash and/or property dividends
- Capital Gains presumed to have been realized from the sale,
exchange or other disposition of real property

b) Income Payments to a Non-Resident Alien Engaged in Trade or

Business in the Philippines

- On Certain Passive Income

- cash and/or property dividend
- Share in the distributable net income of a partnership
- Interest on any bank deposits
- Royalties
- Prizes (except prizes amounting to P10,000 or less which is
subject to tax under Sec. 25(A)(1) of the Tax Code.
- Winnings (except from Philippine Charity Sweepstake Office and
Lotto)
- Interest on Long Term Deposits (except those with term of five
years or more)
- Capital Gains presumed to have been realized from the sale,
exchange or other disposition of real property
c) Income Derived from All Sources Within the Philippines by a
Non-Resident Alien Individual Not Engaged in Trade or Business

- On gross amount of income derived from all sources within the

Philippines

- On Capital Gains presumed to have been realized from the sale,

exchange or disposition of real property located in the Philippines

d) Income Derived by Alien Individual Employed by a Regional or

Area Headquarters and Regional Operating Headquarters of
Multinational Companies, Income Derived by Alien Individual
Employed by Offshore Banking Units and Income of Aliens
Employed by Foreign Petroleum Service Contractors and
Subcontractors

e) Income Payment to a Domestic Corporation

- Interest from any currency bank deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund
and similar arrangements derived from sources within the
Philippines

- Royalties derived from sources within the Philippines

- Interest income derived from a depository bank under the

Expanded Foreign Currency Deposit (FCDU) System

- Income derived by a depository bank under the FCDU from

foreign transactions with local commercial banks

- On capital gains presumed to have been realized from the sale,

exchange or other disposition of real property located in the
Philippines classified as capital assets, including pacto de retro
sales and other forms of conditional sales based on the gross
selling price or fair market value as determined in accordance
with Sec. 6(E) of the NIRC, whichever is higher

f) Income Payments to a Resident Foreign Corporation

- Offshore Banking Units

- Tax on branch Profit Remittances

- Interest on any currency bank deposits and yield or any other

monetary benefit from deposit substitute and from trust funds
and similar arrangements and royalties derived from sources
within the Philippines

- Interest income on FCDU

- Income derived by a depository bank under the expanded

foreign currency deposits system from foreign currency
transactions with local commercial banks

g) Income Derived from all Sources Within the Philippines by a

Non-Resident Foreign Corporation

- Gross income from all sources within the Philippines such as

interest, dividends, rents, royalties, salaries, premiums (except
re-insurance premiums), annuities, emoluments or other fixed
determinable annual, periodic or casual gains, profits and income
or capital gains;

- Gross income from all sources within the Philippines derived by

a non-resident cinematographic film owner, lessor and distributor

- On the gross rentals, lease and charter fees derived by a non-

resident owner or lessor of vessels from leases or charters to
Filipino citizens or corporations as approved by the Maritime
Industry Authority

- On the gross rentals, charter and other fees derived by a non-

resident lessor of aircraft, machineries and other equipment

- Interest on foreign loans contracted on or after August 1, 1986

h) Fringe Benefits Granted to the Employee (except Rank and

File)

- Goods, services or other benefits furnished or granted in cash

or in kind by an employer to an individual employee (except rank
and file) such as but not limited to the following:
- Housing
- Vehicle of any kind
- Interest on loans
- Expenses for foreign travel
- Holiday and vacation expenses
- Educational assistance to employees or his dependents
- Membership fees, dues and other expense in social and athletic
clubs or other
- similar organizations
- Health insurance

i) Informers Reward

j) Cash or property dividends paid by a Real Estate Investment

Trust (REIT) pursuant to Section 13 of RR 13-2011

10) Aside from the required withholding of income tax by

government agencies and instrumentalities on their payments to
their suppliers of goods and services, what other tax types must
be withheld by them.

a) Value Added Tax on all income payments subject to VAT

b) Percentage Tax on all payments subject to percentage tax

such as payments to the following:

- Any person engaged in business whose gross sales or receipts

do not exceed P1,919,500 (RR 3-2012) and who are not VAT-
registered persons. (Persons exempt from VAT under Sec. 109V of
the Tax Code)

- Domestic carriers and keepers of garages, except owners of

bancas and owners of animal drawn two wheeled vehicle

- Operators of international carriers doing business in the

Philippines.

- Franchise grantees of electric, gas or water utilities

- Franchise grantees of radio and/or television broadcasting

companies whose gross annual receipts of the preceding year do
not exceed Ten Million (P10,000,000.00) Pesos and did not opt to
register as VAT Taxpayers

- Communication providers with regards to overseas dispatch,

messages or conversation from the Philippines

- Banks and non-bank financial intermediaries and finance

companies

- Life insurance companies

- Agents of foreign insurance companies

- Proprietor, lessee, or operator of cockpits, cabarets, night or day

clubs, videoke/karaoke bars, karaoke television, karaoke boxes,
music lounges and other similar establishments, boxing
exhibitions, professional basketball games, jai-alai and race
tracks

- Winners in horse races or owner of winning race horses

- Every stock broker who effected a sale, barter, exchange or

other disposition of shares of stock listed and traded through the
Local Stock Exchange (LSE) other than the sale by a dealer in
securities

- A corporate issuer/stock broker, whether domestic or foreign,

engaged in the sale, barter, exchange or other disposition through
Initial Public Offering (IPO) /secondary public offering of shares
of stock in closely held corporations

11) Who is a withholding agent?

A withholding agent is any person or entity who is required to

deduct and remit the taxes withheld to the government.

12) What are the duties and obligations of the withholding agent?

The following are the duties and obligations of the withholding

agent:
a) To Register - withholding agent is required to register within
ten (10) days after acquiring such status with the Revenue
District office having jurisdiction over the place where the
business is located

b) To Deduct and Withhold - withholding agent is required to

deduct tax from all money payments subject to withholding tax

c) To Remit the Tax Withheld - withholding agent is required to

remit tax withheld at the time prescribed by law and regulations

d) To File Annual Return - withholding agent is required to file the

corresponding Annual Information Return at the time prescribed
by law and regulations

e) To Issue Withholding Tax Certificates - withholding agent shall

furnish Withholding Tax Certificates to recipient of income
payments subject to withholding

13) Who are considered TOP 20,000 Corporate Taxpayers?

Top twenty thousand (20,000) private corporations shall include a

corporate taxpayer who has been determined and notified by the
Bureau of Internal Revenue (BIR) as having satisfied any of the
following criteria:

a) Classified and duly notified by the Commissioner as a large

taxpayer under Revenue Regulation No. 1-98, as amended, or
belonging to the top five thousand (5,000) private corporations
under RR 12-94, or to the top ten thousand (10,000) private
corporations under RR 17-2003, unless previously de-classified as
such or had already ceased business operations (automatic
inclusion);

b) VAT payment or payable whichever is higher, of at least

P100,000 for the preceding year;

c) Annual income tax due of at least P200,000 for the preceding

year;
d) Total percentage tax paid of at least P100,000 for the
preceding year;

e) Gross sales of P10,000,000 and above for the preceding year;

f) Gross purchases of P5,000,000 and above for the preceding

year;

g) Total excise tax payment of at least P100,000 for the

preceding year.

14) What are the obligations of Top 20,000 Corporate Taxpayers?

a) In addition to the above responsibilities of a withholding agent,

Top 20,000 private corporations shall withhold the one percent
(1%) creditable expanded withholding tax on the purchase of
goods and two percent (2%) on the purchase of services (other
than those covered by other withholding tax rates) from local
suppliers where it regularly makes purchases. However, casual
purchase of goods shall not be subject to withholding tax unless
the amount of purchase at any one time involves P10,000 or
more, in which case, it shall then be required to withhold the tax.
The same rule apply to local/resident supplier of services other
than those covered by separate rates of withholding tax.
Provided, however, that for purchases involving agricultural
products in their original state, the tax required to be withheld
shall only apply to purchases in excess of the cumulative amount
of P300,000 within the same taxable year. For this purpose,
agricultural products in their original state shall only include
corn, coconut, copra, palay, rice cassava, sugar cane, coffee,
fruits, vegetables, marine food products, poultry and livestocks.

b) Taxes withheld shall be remitted using BIR Form 1601-E on a

monthly basis thru the use of the Electronic Filing and Payment
System (EFPS) on the dates prescribed for e-filers. Filing shall be
done on a staggered basis provided under RR 26-2002 and
payment shall be made every 15thday following the end of the
month for Jan-Nov and Jan. 20 of the following year for the month
of December.
c) Certificate of Creditable Tax Withheld at Source (BIR Form No.
2307) shall be issued to the payees within twenty (20) days
following the close of such payees taxable quarter or upon
demand of the payees;

d) A list of regular supplier of goods and/or services shall be

submitted on a semestral basis through e-submission facility or
as an attachment under Electronic Filing and Payment System
(EFPS). Deadline for submission of the list is not later than July
31 and January 31 of each year. However, initial list of regular
suppliers should be submitted within fifteen (15) days from actual
receipt hereof.

15) Who are considered TOP 5,000 Individual Taxpayers?

Top 5,000 Individual Taxpayers shall refer to individual taxpayers

engaged in trade or business or exercise of profession who have
been determined and notified by the Bureau of Internal Revenue
(BIR) as having satisfied any of the following criteria:

a) VAT payment or payable whichever is higher, of at least

P100,000 for the preceding year;

b) Annual income tax due of at least P200,000 for the preceding

year;

c) Total percentage tax paid of at least P100,000 for the

preceding year;

d) Gross sales of P10,000,000 and above for the preceding year;

e) Gross purchases of P5,000,000 and above for the preceding

year;

f) Total excise tax payment of at least P100,000 for the preceding

year.

16) What are the obligations of Top 5,000 Individual Taxpayers?

a) In addition to the obligations of a withholding agent, Top 5,000

Individual Taxpayers shall withhold the one percent (1%)
creditable expanded withholding on the purchase of goods and
two percent (2%) on the purchase of services (other than those
covered by other withholding tax rates) from local suppliers
where it regularly makes purchases. However, casual purchase of
goods shall not be subject to withholding tax unless the amount
of purchase at any one time involves P10,000 or more, in which
case, it shall then be required to withhold the tax. The same rule
apply to local/resident supplier of services other than those
covered by separate rates of withholding tax. Provided, however,
that for purchases involving agricultural products in their original
state, the tax required to be withheld shall only apply to
purchases in excess of the cumulative amount of P300,000 within
the same taxable year. For this purpose, agricultural products in
their original state shall only include corn, coconut, copra, palay,
rice cassava, sugar cane, coffee, fruits, vegetables, marine food
products, poultry and livestocks.

b) Taxes withheld shall be remitted under BIR Form 1601-E on a

monthly basis thru the Electronic Filing and Payment System
(EFPS) facility within the prescribed period.

c) Certificate of Creditable Tax Withheld at Source (BIR Form No.

2307) shall be issued to the payees within twenty (20) days
following the close of such payees taxable quarter or upon
demand of the payees;

d) A list of regular supplier of goods and/or services shall be

submitted on a semestral basis through e-submission facility or
as an attachment under Electronic Filing and Payment System
(EFPS). Deadline for submission of the list is not later than July
31 and January 31 of each year. However, initial list of regular
suppliers should be submitted within fifteen (15) days from actual
receipt hereof.

17) Who are the responsible officials in the government offices

charged with the duty to deduct, withhold and remit withholding
taxes?

The following officials are duty bound to deduct, withhold and

remit taxes:
a) For Office of the Provincial Government-province- the Chief
Accountant, Provincial Treasurer and the Governor;

b) For Office of the City Government-cities- the Chief Accountant,

City Treasurer and the City Mayor;

c) For Office of the Municipal Government-municipalities- the

Chief Accountant, Municipal Treasurer and the Mayor;

d) Office of the Barangay-Barangay Treasurer and Barangay

Captain

e) For NGAs, GOCCs and other Government Offices, the Chief

Accountant and the Head of Office or the Official holding the
highest position.

EXCISE TAX BASIC CONCEPT:

Excise Tax is a tax on the production, sale or consumption

of a commodity in a country.
APPLICABILITY:
On goods manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition;
and
On goods imported.
TYPES OF EXCISE TAX:
Specific Tax refers to the excise tax imposed which is
based on weight or volume capacity or any other physical
unit of measurement
Ad Valorem Tax refers to the excise tax which is based on
selling price or other specified value of the goods/articles
MANNER OF COMPUTATION:
Specific Tax = No. of Units/other measurements x Specific
Tax Rate
Ad Valorem Tax = No. of Units/other measurements x Selling
Price of any specific value per unit x Ad Valorem Tax Rate
MAJOR CLASSIFICATION OF EXCISABLE ARTICLES AND RELATED
CODAL SECTION:
1. Alcohol Products (Sections 141-143)
a. Distilled Spirits (Section 141)
b. Wines (Section 142)
c. Fermented Liquors (Section 143)
2. Tobacco Products (Sections 144-146)
a. Tobacco Products (Section 144)
b. Cigars & Cigarettes (Section 145)
c. Inspection Fee (Section 146)
3. Petroleum Products (Section 148)
4. Miscellaneous Articles (Section 149-150)
a. Automobiles (Section 149)
b. Non-essential Goods (Section 150)
5. Mineral Products (Sections 151)
PERSONS LIABLE TO EXCISE TAX:
In General:
a. On Domestic or Local Articles


Manufacturer
Producer
Owner or person having possession of articles
removed from the place of production without the
payment of the tax

b. On Imported Articles


Importer
Owner
Person who is found in possession of articles which
are exempt from excise taxes other than those
legally entitled to exemption
Others:
On Indigenous Petroleum


Local Sale, Barter or Transfer
o
o First buyer, purchaser or transferee
Exportation
o
o Owner, lessee, concessionaire or operator of
the mining claim
GENERAL AUDIT PROCEDURES AND DOCUMENTATION

1. When does the audit process begin?The audit process

commences with the issuance of a Letter of Authority to a
taxpayer who has been selected for audit.

2. What is a Letter of Authority? The Letter of Authority is an

official document that empowers a Revenue Officer to examine
and scrutinize a Taxpayers books of accounts and other
accounting records, in order to determine the Taxpayers correct
internal revenue tax liabilities.

3. Who issues the Letter of Authority? Letter of Authority, for

audit/investigation of taxpayers under the jurisdiction of National
Office, shall be issued and approved by the Commissioner of
Internal Revenue, while, for taxpayers under the jurisdiction of
Regional Offices, it shall be issued by the Regional Director.

4. When must a Letter of Authority be served? A Letter of

Authority must be served to the concerned Taxpayer within thirty
(30) days from its date of issuance, otherwise, it shall become
null and void. The Taxpayer shall then have the right to refuse the
service of this LA, unless the LA is revalidated.

5. How often can a Letter of Authority be revalidated? A Letter of

Authority is revalidated through the issuance of a new LA.
However, a Letter of Authority can be revalidated

Only once, for LAs issued in the Revenue Regional Offices or the
Revenue District Offices; or

Twice, in the case of LAs issued by the National Office.

Any suspended LA(s) must be attached to the new LA issued

(RMO 38-88).

6. How much time does a Revenue Officer have to conduct an

audit?A Revenue Officer is allowed only one hundred twenty (120)
days from the date of receipt of a Letter of Authority by the
Taxpayer to conduct the audit and submit the required report of
investigation. If the Revenue Officer is unable to submit his final
report of investigation within the 120-day period, he must then
submit a Progress Report to his Head of Office, and surrender the
Letter of Authority for revalidation.

7. How is a particular taxpayer selected for audit?Officers of the

Bureau (Revenue District Officers, Chief, Large Taxpayer
Assessment Division, Chief, Excise Taxpayer Operations Division,
Chief, Policy Cases and Tax Fraud Division) responsible for the
conduct of audit/investigation shall prepare a list of all taxpayer
who fall within the selection criteria prescribed in a Revenue
Memorandum Order issued by the CIR to establish guidelines for
the audit program of a particular year. The list of taxpayers shall
then be submitted to their respective Assistant Commissioner for
pre-approval and to the Commissioner of Internal Revenue for
final approval. The list submitted by RDO shall be pre-approved by
the Regional Director and finally approved by Assistant
Commissioner, Assessment Service (RMOs 64-99, 67-99, 18-2000
and 19-2000).

8. How many times can a taxpayer be subjected to examination

and inspection for the same taxable year? A taxpayers books of
accounts shall be subjected to examination and inspection only
once for a taxable year, except in the following cases:

When the Commissioner determines that fraud, irregularities, or

mistakes were committed by Taxpayer;

When the Taxpayer himself requests a re-investigation or re-

examination of his books of accounts;

When there is a need to verify the Taxpayers compliance with

withholding and other internal revenue taxes as prescribed in a
Revenue Memorandum Order issued by the Commissioner of
Internal Revenue.

When the Taxpayers capital gains tax liabilities must be verified;

and

When the Commissioner chooses to exercise his power to obtain

information relative to the examination of other Taxpayers (Secs.
5 and 235, NIRC).
9. What are some of the powers of the Commissioner relative to
the audit process?In addition to the authority of the
Commissioner to examine and inspect the books of accounts of a
Taxpayer who is being audited, the Commissioner may also:

Obtain data and information from private parties other than the
Taxpayer himself (Sec.5, NIRC); and

Conduct inventory and surveillance, and prescribe presumptive

gross sales and receipts (Sec. 6, NIRC).

10. What is a Notice for Informal Conference ?A Notice for

Informal Conference is a written notice informing a Taxpayer that
the findings of the audit conducted on his books of accounts and
accounting records indicate that additional taxes or deficiency
assessments have to be paid.
If, after the culmination of an audit, a Revenue Officer
recommends the imposition of deficiency assessments, this
recommendation is communicated by the Bureau to the Taxpayer
concerned during an informal conference called for this purpose.
The Taxpayer shall then have fifteen (15) days from the date of
his receipt of the Notice for Informal Conference to explain his
side.

11. Within what time period must an assessment be made?An

assessment must be made within three (3) years from the last
day prescribed by law for the filing of the tax return for the tax
that is being subjected to assessment or from the day the return
was filed if filed late. However, in cases involving tax fraud, the
Bureau has ten (10) years from the date of discovery of such
fraud within which to make the assessment.
Any assessments issued after the applicable period are deemed
to have prescribed, and can no longer be collected from the
Taxpayer, unless the Taxpayer has previously executed a Waiver
of Statute of Limitations.

12. What is "Jeopardy Assessment"? A Jeopardy Assessment is a

tax assessment made by an authorized Revenue Officer without
the benefit of complete or partial audit, in light of the ROs belief
that the assessment and collection of a deficiency tax will be
jeopardized by delay caused by the Taxpayers failure to:
Comply with audit and investigation requirements to present his
books of accounts and/or pertinent records, or

Substantiate all or any of the deductions, exemptions or credits

claimed in his return.

13. What is a Pre-Assessment Notice (PAN)? The Pre-Assessment

Notice is a communication issued by the Regional Assessment
Division, or any other concerned BIR Office, informing a Taxpayer
who has been audited of the findings of the Revenue Officer,
following the review of these findings.

If the Taxpayer disagrees with the findings stated in the PAN, he

shall then have fifteen (15) days from his receipt of the PAN to
file a written reply contesting the proposed assessment.

14. Under what instances is PAN no longer required? A

Preliminary Assessment Notice shall not be required in any of the
following cases, in which case, issuance of the formal
assessment notice for the payment of the taxpayers deficiency
tax liability shall be sufficient:

When the finding for any deficiency tax is the result of

mathematical error in the computation of the tax appearing on
the face of the tax return filed by the taxpayer; or

When a discrepancy has been determined between the tax

withheld and the amount actually remitted by the withholding
agent; or

When a taxpayer who opted to claim a refund or tax credit of

excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable year; or

When the excise tax due on excisable articles has not been paid;
or

When an article locally purchased or imported by an exempt

person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred
to non-exempt persons.

15. What is a Notice of Assessment/Formal Letter of Demand?

A Notice of Assessment is a declaration of deficiency taxes

issued to a Taxpayer who fails to respond to a Pre-Assessment
Notice within the prescribed period of time, or whose reply to the
PAN was found to be without merit. The Notice of Assessment
shall inform the Taxpayer of this fact, and that the report of
investigation submitted by the Revenue Officer conducting the
audit shall be given due course.

The formal letter of demand calling for payment of the taxpayers

deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and the notice of
assessment shall be void.

TAXPAYERS OBLIGATIONS AND PRIVILEGES

16. What is required of a taxpayer who is being audited?A

Taxpayer who is being audited is obliged to:

Duly acknowledge his receipt of the appropriate Letter of

Authority upon its presentation by the Revenue Officer authorized
to conduct the audit by affixing in the Letter of Authority the
name of the recipient and the date of receipt.

Present within a reasonable period of time, his books of accounts

and other related accounting records that may be required by the
Revenue Officer; and

Submit the necessary schedules as may be requested by the

Revenue Officer within a reasonable amount of time from his
(Taxpayers) receipt of the Letter of Authority.

17. What is the recourse of a Taxpayer who cannot submit the

documents being required of him within the prescribed period of
time? If a Taxpayer, believing that he cannot present his books of
accounts and/or other accounting records, intends to request for
more time to present these documents in order to avoid the
issuance of a Jeopardy Assessment, the Taxpayer may execute
what is referred to as a Waiver of the Statute of Limitations.

18. What is a Waiver of the Statute of Limitations? The Waiver of

the Statute of Limitations is a signed statement whereby the
Taxpayer conveys his agreement to extend the period within
which the Bureau may validly issue an assessment for deficiency
taxes. If a Taxpayer opts to execute a Waiver of the Statute of
Limitations, he shall likewise be, in effect, waiving his right to
invoke the defense of prescription for assessments issued after
the reglementary period.

No Waiver of the Statute of Limitations shall be considered valid

unless it is accepted by a duly authorized Bureau official.

19. If a Taxpayer does not agree with the assessment made

following an audit, can he protest this Assessment?Yes, he can. A
Taxpayer has the right to contest an assessment, and may do so
by filing a letter of protest stating in detail his reasons for
contesting the assessment.

20. What are the characteristics of a valid protest? A protest is

considered valid if it satisfies the following conditions:

It is made in writing, and addressed to the Commissioner of

Internal Revenue;

It contains the information, and complies with the conditions

required by Sec. 6 of Revenue Regulations No. 12-85; to wit:

a.) Name of the taxpayer and address for the immediate past
three (3) taxable year.

b.) Nature of request whether reinvestigation or reconsideration

specifying newly discovered evidence he intends to present if it
is a request for investigation.

c.) The taxable periods covered.

d.) Assessment number.

e.) Date of receipt of assessment notice or letter of demand.

f.) Itemized statement of the findings to which the taxpayer

agrees as a basis for computing the tax due, which amount
should be paid immediately upon the filing of the protest. For this
purpose, the protest shall not be deemed validly filed unless
payment of the agreed portion of the tax is paid first.

g.) The itemized schedule of the adjustments with which the

taxpayer does not agree.

h.) A statement of facts and/or law in support of the protest.

The taxpayer shall state the facts, applicable law, rules and
regulations or jurisprudence on which his protest is based,
otherwise, his protest shall be considered void and without force
and effect on the event the letter of protest submitted by the
taxpayer is accepted, the taxpayer shall submit the required
documents in support of his protest within sixty (60) days from
date of filing of his letter of protest, otherwise, the assessment
shall become final, executory and demandable.

It is filed within thirty (30) days from the Taxpayers receipt of the
Notice of Assessment and formal Letter of Demand.

21. In the event the Commissioners duly authorized

representative denies a Taxpayers protest, what alternative
course of action is open to the Taxpayer? If a protest filed by a
Taxpayer be denied by the Commissioners duly authorized
representative, the Taxpayer may request the Commissioner for a
reconsideration of such denial and that his tax case be referred
to the Bureaus Appellate Division. The Appellate Division serves
as a "Court", where both parties, i.e. the Revenue Officer on one
hand, and the Taxpayer on the other, can present testimony and
evidence before a Hearing Officer, to support their respective
claims.

22. What recourse is open to a Taxpayer if his request for

reconsideration is denied or his protest is not acted?
Should the Taxpayers request for reconsideration be denied or
his protest is not acted upon within 180 days from submission of
documents by the Commissioner, the Taxpayer has the right to
appeal with the Court of Tax Appeals (CTA).

Any appeal must be done within thirty (30) days from the date of
the Taxpayers receipt of the Commissioners decision denying
the request for reconsideration or from the lapse of the 180 day
period counted from the submission of the documents. (Sec. 228
of the Tax Code, as amended).

23. If the Taxpayer is not satisfied with the CTAs decision, can he
appeal the decision to a higher Court? Yes, he can. Decisions of
the Court of Tax Appeals may be appealed with the Court of
Appeals within fifteen (15) days from the Taxpayers receipt of
the CTAs decision. In the event that the Taxpayer is likewise
unsatisfied with the decision of the Court of Appeals, he may
appeal this decision with the Supreme Court.

24. Can a Taxpayer claim a refund or tax credit for erroneously or

illegally collected taxes? Yes, he can. The Taxpayer may file such
a claim with the Commissioner of Internal Revenue (Sec.229,
NIRC), within two (2) years from the payment of the tax or
penalty sought to be refunded. Failure of the Taxpayer to file such
a claim within this prescribed period shall result in the forfeiture
of his right to the refund or tax credit.

25. If a Taxpayer has filed a claim for refund and the Bureau has
yet to render a decision on this claim, can the Taxpayer elevate
his claim to the CTA?

Yes, he can, if the two (2) year period stated above is about to
end, and the Commissioner has yet to render a decision on the
claim. (Gibbs v. Collector, L-13453, February 29, 1960).

REMEDIES OF THE BUREAU IN THE AUDIT PROCESS AND

COLLECTION OF DELINQUENT ACCOUNTS

26. What means are available to the Bureau to compel a Taxpayer

to produce his books of accounts and other records? A Taxpayer
shall be requested, in writing, not more than two (2) times, to
produce his books of accounts and other pertinent accounting
records, for inspection. If, after the Taxpayers receipt of the
second written request, he still fails to comply with the
requirements of the notice, the Bureau shall then issue him a
Subpoena Duces Tecum.

27. What course of action shall the Bureau take if the Taxpayer
fails to comply with the Subpoena Duces Tecum?

If, after the Taxpayer fails, refuses, or neglects to comply with

the requirements of the Subpoena Duces Tecum, the Bureau may:

File a criminal case against the Taxpayer for violation of Section

5 as it relates to Sections 14 and 266, of the NIRC, as amended;
and/or

Initiate proceedings to cite the Taxpayer for contempt, under

Section 3(f), Rule 71 of the Revised Rules of Court.

28. What alternatives are open to Government for the collection

of delinquent accounts?

Once an assessment becomes final and demandable, the

Government may employ any, or all, of the following remedies for
the collection of delinquent accounts:

Distraint of personal property;

Levy of real property belonging to the Taxpayer;

Civil Action; and

Criminal Action.

29. What is "Distraint of Personal Property"? Distraint of personal

property involves the seizure by the Government of personal
property - tangible or intangible - to enforce the payment of
taxes, followed by the public sale of such property, if the
Taxpayer fails to pay the taxes voluntarily.
30. What is "Levy of Real Property"? Levy of real property refers
to the same act of seizure, but in this case of real property, and
interest in or rights to such property in order to enforce the
payment of taxes. As in the distraint of personal property, the
real property under levy shall be sold in a public sale, if the taxes
involved are not voluntarily paid following such levy.

31. In what time period must collection be made? Any internal

revenue tax, which has been assessed within the period
prescribed shall be collected within three (3) years from date of
assessment. However, tax fraud cases may be collected by
distraint or levy or by a court proceeding within five (5) years
from assessment of the tax or from the last waiver.

PENALTIES FOR LATE FILING OF TAX RETURNS

A. For late filing of Tax Returns with Tax Due to be paid, the following penalties will be
imposed upon filing, in addition to the tax due:

1. Surcharge

NIRC SEC. 248. - Civil Penalties.

(A) There shall be imposed, in addition to the tax required to be paid, a penalty
equivalent to twenty-five percent (25%) of the amount due, in the following cases:

(1) Failure to file any return and pay the tax due thereon as required under the
provisions of this Code or rules and regulations on the date prescribed; or

(2) Unless otherwise authorized by the Commissioner, filing a return with an internal
revenue officer other than those with whom the return is required to be filed; or

(3) Failure to pay the deficiency tax within the time prescribed for its payment in the
notice of assessment; or

(4) Failure to pay the full or part of the amount of tax shown on any return required to
be filed under the provisions of this Code or rules and regulations, or the full amount of
tax due for which no return is required to be filed, on or before the date prescribed for
its payment.

2. Interest

NIRC SEC. 249. Interest. -

(A) In General. - There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%) per annum, or such higher rate as may be
prescribed by rules and regulations, from the date prescribed for payment until the
amount is fully paid.

3. Compromise

NIRC SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax
Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any
person required under this Code or by rules and regulations promulgated thereunder to
pay any tax make a return, keep any record, or supply correct the accurate information,
who willfully fails to pay such tax, make such return, keep such record, or supply
correct and accurate information, or withhold or remit taxes withheld, or refund excess
taxes withheld on compensation, at the time or times required by law or rules and
regulations shall, in addition to other penalties provided by law, upon conviction
thereof, be punished by a fine of not less than Ten Thousand Pesos (P 10,000) and
suffer imprisonment of not less than one (1) year but not more than ten (10) years.

Any person who attempts to make it appear for any reason that he or another has in
fact filed a return or statement, or actually files a return or statement and
subsequently withdraws the same return or statement after securing the official
receiving seal or stamp of receipt of internal revenue office wherein the same was
actually filed shall, upon conviction therefor, be punished by a fine of not less than Ten
Thousand Pesos (P 10,000) but not more than Twenty Thousand Pesos (P 20,000) and
suffer imprisonment of not less than one (1) year but not more than three (3) years.

In addition, Annex A of Revenue Memorandum Order (RMO) No. 7-2015 provides for the
Revised Consolidated Schedule of Compromise Penalties for Violations of the
National Internal Revenue Code (NIRC), which can be accessed via this link: Annex

From page 5 of Annex A of RMO No. 7-2015

TAX
NATURE OF CRIMINAL PENALTY
CODE AMOUNT OF COMPROMISE
VIOLATION IMPOSED
SEC

255 Failure toFine of not less than If the amount of tax unpaid
file and/or payP10,000 and
But does
any internal reven imprisonment of not Compromis
Exceeds not
ue tax at the timeless than one (1) year e is
exceed
or but not more than 10
times required by years P xx
law or regulation P 5,000 P 1,000
x

5,000 10,000 3,000

10,000 20,000 5,000

20,000 50,000 10,000

50,000 100,000 15,000

100,000 500,000 20,000

500,000 1,000,00 30,000

0
 1,000,0 5,000,00
40,000
00 0

5,000,0
xxx 50,000
00

B. For late filing of Tax Returns with NO Tax Due to be paid, the compromise penalty
will be imposed upon filing of the Tax Return based on the following:

1. For violations of the NIRC provisions which are subject to compromise, the reference
is found in page 4 of Annex A of RMO No. 7-2015.

TAX
CRIMINAL
COD NATURE OF
PENALTY AMOUNT OF COMPROMISE
E VIOLATION
IMPOSED
SEC

255 Failure toFine of not less If gross sales, earnings or

make/file/submit than P10,000 and receipts; or gross estate or
any return orimprisonment of gift (based on the subject
supply correctnot less than one returns/information for
information at the(1) year but not filing/submission)
time or timesmore than ten (10)
But does Compromise
required by law oryears Exceeds
not exceed is
regulation
P xxx P 50,000 P 1,000

50,000 100,000 3,000

100,000 500,000 5,000

500,000 5,000,000 10,000

5,000,00
10,000,000 15,000
0

10,000,0
25,000,000 20,000
00

25,000,0
xxx 25,000
00

2. For violations of the NIRC provisions which may be the subject of criminal actions,
Section 250 of the NIRC will apply as follows:

NIRC SEC. 250. Failure to File Certain Information Returns. - In the case of each failure
to file an information return, statement or list, or keep any record, or supply any
information required by this Code or by the Commissioner on the date prescribed
therefor, unless it is shown that such failure is due to reasonable cause and not to
willful neglect, there shall, upon notice and demand by the Commissioner, be paid by
the person failing to file, keep or supply the same, One Thousand Pesos ( P 1,000) for
each failure: Provided, however, That the aggregate amount to be imposed for all such
failures during a calendar year shall not exceed Twenty-Five Thousand Pesos
(P 25,000).
C. For late filing of Statements/Reports required to be filed with NO Tax Due to be
paid, the compromise penalty will be imposed upon filing of the Tax Return based on
the following:

NIRC SEC. 275. Violation of Other Provisions of this Code or Rules and Regulations in
General.- Any person who violates any provision of this Code or any rule or regulation
promulgated by the Department of Finance, for which no specific penalty is provided by
law, shall, upon conviction for each act or omission, be punished by a fine of not more
than One Thousand Pesos (P 1,000) or suffer imprisonment of not more than six (6)
months, or both.