Abitan, Alexandra

Cabral, Hannah Beatriz

Perez, Maria Hannah

RESIDENT AND NON-RESIDENT ALIEN

I. RESIDENT ALIEN

Chris Tiu Yap, a Japanese is residing in the Philippines for two years already. He lives with
Victoria Reyes Yap, his wife and his aged mother, Saichi Yap who is wholly dependent on him
for support. He also has the following dependents:
1. His 25 years old sister Haya, mentally retarded, is likewise dependent on him for
support;
2. His three legitimate children:
A. Leiko, 15 years old;
B. Tami, 17 years old; and
C. Yasahiro, 21 years old, unmarried and not employed; and
3. His illegitimate daughter, Gen, 5 years old.

RULE: An alien who resides in the Philippines is subject to Philippine tax on his/her income
derived from sources within the Philippines and such income is taxed in the same manner as
the income of a Philippine citizen. (SEC. 24, (A), (c), NIRC)

Mr. Yap is the President of Mckinley Corporation, a corporation organized under the
Philippine laws and is duly registered with the Philippine Economic Zone Authority as an export
enterprise engaged in the manufacturing parts of the printer. At the same time, he is also a
Vice-President of Kashieca Corporation, a non-resident foreign corporation based in Japan
wherein he visits there at the most four times a year for 20 days.

Mr. Yap also is an owner of Japanese restaurant in Ayala Mall, Sta. Rosa, Laguna. The
business expenses that he incurred during 2016 are the following:
a. Advertising and Promotions
b. Commissions
c. Communication, Light and Water
d. Fringe Benefits
e. Fuel and Oil
f. Janitorial and Messengerial Services
g. Rental
 h. Repairs and Maintenance - (Labor or Labor & Materials)
i. Repairs and Maintenance - (Materials/Supplies)
j. Representation and Entertainment
k. Royalties
l. Salaries and Allowances

Gross Income of Mr. Yap - SEC 32, NIRC:

The income the Mr. Yap have received from his employment is subject to tax. However,
the compensation income that must be assessed to Mr. Yap is only his compensation with
Mckinley Corporation since it is the only corporation registered under the laws of the
Philippines. As what was mentioned in the rule or in SEC. 24, (A), (c), NIRC, only incomes within
of an alien resident is taxable.

LESS

Exemptions – SEC 35, A and SEC 35, B:

 SEC 35, A – Personal exemption
This personal exemption allowed by law is in the amount of fifty thousand pesos
(P50,0000)

 SEC 35, B – Additional exemption –

The law grants an alien resident of an additional exemption where it amounts to P25,
000 per dependent, which must not be more than four dependents.

and

Deductions - SEC 34, (A) (1) (a)

The business expenses incurred by Mr. Yap are all ordinary and necessary expenses paid
during the taxable year of 2016. These expenses are directly attributable to the development,
management, operation and/or conduct of his restaurant.

Taxable Income: SEC. 24, (A) (2)

Taxable Income is the gross income obtained by Mr. Yap less the personal exemptions,
additional exemptions and the deductions authorized by the NIRC.

The passive income of Mr. Yap is subject to the following:

1. Royalties - SEC. 24, (B) (1)

 Royalties are subject to 10% final tax rate.

2. Prizes – SEC. 24, (B) (1)

The prizes or winnings of Mr. Yap, which is more than P10,000, is subject to 20%
tax rate.

3. Interest on time deposit - SEC. 24, (B) (1)

This is subject to 7 ½ % final tax rate.

 All other passive income that Mr. Yap incurred is subject to final tax rate similar to
resident citizen taxpayer.

The above individual tax calculation also applies to non-resident aliens engaged in trade or business in
the Philippines for their Philippine-source income, except that personal exemptions are allowed only
under certain conditions. As stated under Sec. 35 (D) Personal Exemption Allowable to Nonresident
Alien Individual. - A nonresident alien individual engaged in trade, business or in the exercise of a
profession in the Philippines shall be entitled to a personal exemption in the amount equal to the
exemptions allowed in the income tax law in the country of which he is a subject - or citizen, to
citizens of the Philippines not residing in such country, not to exceed the amount fixed in this Section
as exemption for citizens or resident of the Philippines: Provided, That said nonresident alien should
file a true and accurate return of the total income received by him from all sources in the Philippines,
as required by this Title.

II. NON-RESIDENT ALIEN

A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate
period of more than one hundred eighty (180) days during any calendar year shall be deemed a
nonresident alien engaged in business in the Philippines.

A nonresident alien individual engaged in trade or business in the Philippines shall be subject to income
tax in the same manner as a citizen and a resident alien, on taxable income received from all sources
within the Philippines except on the following items of income which shall be subject to final tax (on the
gross amount):

Cash and/or property dividends from a domestic corporation, joint stock company, insurance or
mutual fund company or regional operating headquarter of a multinational company, or share in
the distributable set income of a partnership (except a general professional partnership), joint
account, joint venture taxable as a corporation or association of which he is a member or co-
venturer - 20%.

Interests - 20%.
 However, interest income from long-term deposit or investment in the form of savings, common
or individual trust funds, deposit substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas
shall be exempt, provided that should the holder of the certificate pre-terminate the deposit or
investment before the 5th year, a final tax shall be imposed on the entire income and shall be
deducted and withheld by the depository bank from the proceeds of the long-term deposit or
investment certificate based on the remaining maturity thereof: 4 years to less than 5 years -
5%; 3 years to less than 4 years - 12%; and less than three (3) years - 20%.

Royalties - 20%.

However, royalties on books as well as other literary works, and royalties on musical
compositions shall be subject to a final tax of 10%.

Prizes and Other Winnings — 20%.

However, prizes amounting to P10,000 or less shall be subject to the schedular tax rates.

Capital gains from sale of shares of stock not traded in the stock exchange - Not over P100,000 -
5%, and, on any amount in excess of P100,000 - 10%.

Capital Gains from Sale of Real Property located in the Philippines and classified as a capital
asset - 6% based on the gross selling price or current fair market value as determined by the
Philippine tax authority, whichever is higher.

III. NON-RESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS WITHIN THE PHILIPPINES

Mr. Yap, (an American citizen) being an expert in business and management was invited to conduct
training at De La Salle Lipa for 2 days. In exchange for the training he conducted, he earned Php
50,000. He also sold his shares of stock in Pak Ganern Corporation worth Php 50,000. The following
income is subject to the final tax computation:

Earnings from the training conducted Php 50,000

FINAL TAX X 25%
TAX DUE PHP 12,500

Sale of his shares of stock Php 50,000

CAPITAL GAINS TAX (NOT OVER 100,000) X 5%
TAX DUE PHP 2,500

TOTAL TAX DUE: PHP 15,000

RULE: A non-resident alien not engaged in trade or business within the Philippines shall be subject
to 25% tax on the gross amount of incomes derived from the Philippines except the following
incomes which shall be subject to final tax (SEC 25 3b)
a. Capital gains from sale of shares of stock not traded in the stock exchange - Not over P100,000 -
5%, and, on any amount in excess of P100,000 - 10%.( SEC 24 C)
b. Capital Gains from Sale of Real Property located in the Philippines and classified as a capital
asset - 6% based on the gross selling price or current fair market value as determined by the
Philippine tax authority, whichever is higher. (SEC 24 D)