TAX CODE, AS AMENDED BY TRAIN LAW REPUBLIC ACT 10963, DECEMBER 19, 2017

SUMMARY OF TAX BASE AND TAX RATES ON INDIVIDUAL TAXPAYERS (2018)

R E S I D E N T N O N R E S I D E N T
CITIZEN ALIEN CITIZEN NRAETB NRANETB
Permanently stayed Stayed in the Stayed outside the Stayed in the Stayed in the
in the Philippines or Philippines for more Philippines for 183 Philippines for more Philippines for 180
may have stayed than 12 months from days or more than 180 days days or less
CATEGORY OF INCOME outside the the date of arrival
Philippines for less
than 183 days
Within the Within the Within the Within the
All sources
Philippines Philippines Philippines Philippines

1. Compensation, Business/Profession

2. Share in the Distributable Income of a General

Professional Partnership
0%-35%
3. Prizes of P10,000 or less
Based on Taxable Income
Graduated Income Tax Rates under Section 24 (A)
4. Foreign Source of Income of Resident Citizens

5. All Other Income Not Subject to a Preferential or

Special Rate
25% Final
Withholding Tax
(FWT) based on
6. Interest from Any Currency Bank Deposit
Gross Income
Within
7. Royalties (In General)

8. Prizes (except prizes of P10,000 or less which shall

20% Final Withholding Tax (FWT) based on Gross Income Within
be subject to graduated income tax rates of 0%-35%)

9. Winnings (except winnings of P10,000 or less from

Philippine Charity Sweepstakes and Lotto which shall
1
be exempt)

10. Royalties on books, literary works, and musical

10% Final Withholding Tax (FWT) based on Gross Income Within
compositions

11. Interest from a Depository Bank under the

15% FWT based on Gross Income Within E X E M P T
Expanded Foreign Currency Deposit System

E X E M P T
In case of pre-termination and the remaining maturity is:
12. Interest from long-term deposit or investment of
4 years to less than 5 years – 5% FWT
at least 5 years
3 years to less than 4 years – 12% FWT
Less than 3 years – 20% FWT
25% FWT based
on Gross Income
13. Cash and/or Property Dividends from a Domestic
Within
Corporation
10% FWT based on Gross Income Within 20% FWT
14. Share in the Distributable Income of a Business
Partnership

15. Capital Gains from Sale of Shares of Stock NOT

15% Final Tax (Capital Gains Tax) based on Net Capital Gains Within
Traded in the Stock Exchange (Domestic Corporation)

16. Sale of Shares of Stock Listed and Traded in the

6/10 of 1% of the Gross Selling Price (Business/Percentage Tax under Section 127)
Stock Exchange

17. Capital Gains from Sale of Real Property (Capital 6% Final Tax (Capital Gains Tax) based on the Gross Selling Price or Current Fair Market Value, whichever is
Assets Located in the Philippines) HIGHER

18. Aliens Employed by Regional or Area

Headquarters and Regional Operating Headquarters 15% on Gross Income Within (Salaries, Wages, Annuities, Compensation, Remuneration and Other
of Multinational Companies Emoluments)

19. Aliens Employed by Offshore Banking Units This tax treatment shall also apply to Filipinos employed and occupying the same position as those of aliens
employed by these multinational companies, offshore banking units, and petroleum service contractor and
20. Aliens Employed by Petroleum Service Contractor subcontractor.
2
and Subcontractor

1
Read: Notes on Winnings
2
Read: Notes on Aliens Employed by existing RHQs/ROHQs, OBUs, or Petroleum Service Contractors and Subcontractors

BY HISHAM NAZZ A. BIRUAR, CPA

TAX CODE, AS AMENDED BY TRAIN LAW REPUBLIC ACT 10963, DECEMBER 19, 2017

OLD TAX NEW TAX

CATEGORY OF INCOME NOTES
RATE (NIRC) RATE (TRAIN)
3
1. Compensation, Business/Profession A. Purely Self-Employed and/or Professionals

In lieu of the graduated income tax rates (0%-35) and the percentage tax (3%)
under Section 116, purely self-employed individuals and/or professionals whose
gross sales or gross receipts does not exceed P3,000,000 shall have the option to
avail of an eight percent (8%) tax on gross sales or gross receipts in excess of
P250,000.
4
B. Mixed Income Earners

Taxpayers earning both compensation income and income from business or

practice of profession shall be subject to the following taxes:

(1) Compensation Income – This is taxed using the graduated income tax rates of 5%-32% 0%-35%
0%-35%.

(2) Income from Business or Practice of Profession – Provided that the total gross
sales or gross receipts does not exceed P3,000,000, the mixed income earner
shall have the option to use the graduated income tax rates of 0%-35% based on
taxable income, OR avail of an eight percent (8%) income tax based on gross sales
or gross receipts in lieu of the graduated income tax rates (0%-35%) and the
5
percentage tax (3%) under Section 116.

If the total gross sales or gross receipts exceeds P3,000,000, the income from
business or practice of profession shall be taxed using the graduated income tax
rates of 0%-35%. The option to use 8% income tax based on gross sales or gross
receipts is no longer available.

2. Share in the Distributable Income of "General professional partnerships" are partnerships formed by persons for the
a General Professional Partnership sole purpose of exercising their common profession, no part of the income of
which is derived from engaging in any trade or business.

As a rule, a general professional partnership shall not be subject to income tax.

However, each partner shall report as gross income his distributive share, actually 5%-32% 0%-35%
6
or constructively received , in the net income of the partnership.

Note: For purposes of taxation, if the partners engage in more than one
profession, the general professional partnership will then be treated as a business
partnership which is taxed like a corporation.

3. Prizes of P10,000 or less Prizes amounting to P10,000 or less are taxed using the graduated income tax
rates of 0%-35%. If the amount exceeds P10,000, such prize will now be taxed 5%-32% 0%-35%
using the appropriate final tax rate.

4. Foreign Source of Income of This includes passive income earned outside the Philippines by a resident citizen.
5%-32% 0%-35%
Resident Citizens

5. All Other Income Not Subject to a

5%-32% 0%-35%
Preferential or Special Rate

6. Interest from Any Currency Bank A final tax at the rate of twenty percent (20%) is hereby imposed upon the
Deposit amount of interest from any currency bank deposit and yield or any other
20% ---
monetary benefit from deposit substitutes and from trust funds and similar
7
arrangements.

7. Royalties (In General) A final tax at the rate of twenty percent (20%) is hereby imposed upon royalties,
except on books, as well as other literary works and musical compositions, which 20% ---
8
shall be imposed a final tax of ten percent (10%).

8. Prizes (except prizes of P10,000 or
less which shall be subject to 0%-35%)
A final tax at the rate of twenty percent (20%) is hereby imposed upon prizes
20% ---
(except prizes amounting to Ten thousand pesos (P10,000) or less which shall be
9
subject to tax under Subsection (A) of Section 24);

9. Winnings (except winnings of
P10,000 or less from Philippine Charity
Sweepstakes and Lotto which shall be
exempt)
A final tax at the rate of twenty percent (20%) is hereby imposed upon the
amount of winnings (except winnings amounting to P10,000 or less from
10 20% ---
Philippine Charity Sweepstakes and Lotto which shall be exempt).
Under NIRC, winnings from Philippine Charity Sweepstakes and Lotto are

3
Section 24 (A) (2) (b)
4
Section 24 (A) (2) (c)
5
Note that when a mixed income earner opts to use 8% income tax based on gross sales or gross receipts, such gross sales or gross receipts is taxable in its entirety. However, if the same option is
availed of by a taxpayer who is purely self-employed and/or professional, only the gross sales or gross receipts in excess of P250,000 is taxed at 8%.
6
Principle of Constructive Receipt
7
Section 24 (B) (1)
8
Section 24 (B) (1)
9
Section 24 (B) (1)
10
Section 24 (B) (1)

BY HISHAM NAZZ A. BIRUAR, CPA

TAX CODE, AS AMENDED BY TRAIN LAW
10. Royalties on books, literary works,
and musical compositions
11. Interest from a Depository Bank
under the Expanded Foreign Currency
Deposit System
12. Interest from long-term deposit or
investment of at least 5 years
13. Cash and/or Property Dividends
from a Domestic Corporation
14. Share in the Distributable Income
of a Business Partnership
15. Capital Gains from Sale of Shares
of Stock NOT Traded in the Stock
Exchange (Domestic Corporation)
16. Sale of Shares of Stock Listed and
Traded in the Stock Exchange
17. Capital Gains from Sale of Real
Property (Capital Assets Located in the
Philippines)
11
Section 24 (B)
12
Section 24 (B) (2)
13
Section 24 (B) (2)
14
Section 24 (C)
15
Section 127 (A)
BY HISHAM NAZZ A. BIRUAR, CPA
REPUBLIC ACT 10963, DECEMBER 19, 2017
exempted in its entirety. However, this rule has been amended by TRAIN Law.
There is already a threshold for exemption in that only winnings of P10,000 or
less from Philippine Sweepstakes or Lotto are exempted.
Observation: By reading Section 6 of the TRAIN Law which amends Section 25
(Tax on Nonresident Individual) of the NIRC, it is clear that the old provisions of
the NIRC have been adopted and retained. Thus, with respect to a Nonresident
Alien Engaged in Trade or Business in the Philippines (NRAETB), winnings from
Philippine Charity Sweepstakes and Lotto, regardless of the amount, are still
exempted.
To my mind, this is an absurdity. Why would the threshold for exemption only
apply to resident citizens, nonresident citizens, and resident aliens but not to
NRAETB?
10% ---
The interest income received by an individual taxpayer (except a nonresident
individual) from a depository bank under the expanded foreign currency deposit 11
7.5% 15%
system shall be subject to a final income tax at the rate of fifteen percent (15%)
of such interest income.
Exempt or
This includes interest income from long-term deposit or investment in the form of
5% or
savings, common or individual trust funds, deposit substitutes, investment
12 % or ---
management accounts and other investments evidenced by certificates in such
20%, as the case
form prescribed by the Bangko Sentral ng Pilipinas (BSP).
may be
A final tax at the rate of 10% shall be imposed upon the cash and/or property
10% or 20% or
dividends actually or constructively received by an individual from a domestic
25%, as the case ----
corporation or from a joint stock company, insurance or mutual fund companies
12 may be
and regional operating headquarters of multinational companies.
A final tax at the rate of 10% shall be imposed upon the share of an individual in
the distributable net income after tax of a partnership (except a general 10% or 20% or
professional partnership) of which he is a partner, or on the share of an individual 25%, as the case ---
in the net income after tax of an association, a joint account, or a joint venture or may be
13
consortium taxable as a corporation of which he is a member or co-venturer.
The provisions of Section 39(B) notwithstanding, a final tax at the rate of 15% is Not over
imposed upon the net capital gains realized during the taxable year from the sale, P100,000 = 5%
barter, exchange or other disposition of shares of stock in a domestic 14
15%
corporation, except shares sold, or disposed of through the stock exchange. On any amount
in excess of
P100,000 = 10%
There shall be levied, assessed and collected on every sale, barter, exchange, or
other disposition of shares of stock listed and traded through the local stock
exchange other than the sale by a dealer in securities, a tax at the rate of six- 15
½ of 1% 6/10 of 1%
tenths of one percent (6/10 of 1%) of the gross selling price or gross value in
money of the shares of stock sold, bartered, exchanged or otherwise disposed
which shall be paid by the seller or transferor.
General Rule: The provisions of Section 39(B) notwithstanding, a final tax of six
percent (6%) based on the gross selling price or current fair market value as
determined in accordance with Section 6(E) of this Code, whichever is higher, is
hereby imposed upon 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, by individuals, including estates and trusts: Provided, That the
tax liability, if any, on gains from sales or other dispositions of real property to the 6% of Gross
government or any of its political subdivisions or agencies or to government- Selling Price or
owned or controlled corporations shall be determined either under Section 24 (A) Current Fair
---
or under this Subsection, at the option of the taxpayer. Market Value,
whichever is
Exception: The provisions of paragraph (1) of this Subsection to the contrary HIGHER
notwithstanding, capital gains presumed to have been realized from the sale or
disposition of their principal residence by natural persons, the proceeds of which
is fully utilized in acquiring or constructing a new principal residence within
eighteen (18) calendar months from the date of sale or disposition, shall be
exempt from the capital gains tax imposed under this Subsection: Provided, That
the historical cost or adjusted basis of the real property sold or disposed shall be
carried over to the new principal residence built or acquired: Provided, further,
That the Commissioner shall have been duly notified by the taxpayer within thirty
TAX CODE, AS AMENDED BY TRAIN LAW
18. Aliens Employed by Regional or
Area Headquarters and Regional
Operating Headquarters of
Multinational Companies
19. Aliens Employed by Offshore
Banking Units
20. Aliens Employed by Petroleum
Service Contractor and Subcontractor
16
Section 24 (D)
17
Section 25 (F)
BY HISHAM NAZZ A. BIRUAR, CPA
REPUBLIC ACT 10963, DECEMBER 19, 2017
(30) days from the date of sale or disposition through a prescribed return of his
intention to avail of the tax exemption herein mentioned: Provided, still further,
That the said tax exemption can only be availed of once every ten (10) years:
Provided, finally, that if 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
16
or disposition shall be subject to capital gains tax.
New provision: The preferential tax of 15% shall NOT be applicable to regional
headquarters (RHQs), regional operating headquarters (ROHQs), offshore banking
units (OBUs), or petroleum service contractors and subcontractors registering
with the Securities and Exchange Commission (SEC) after January 1, 2018:
Provided, however, That existing RHQs/ROHQs, OBUs, or petroleum service
contractors and subcontractors presently availing of preferential tax rates for
TRAIN Law: Still
qualified employees shall continue to be entitled to avail of the preferential tax
17 at 15%
rate for present and future qualified employees.
President’s Veto:
Veto Message of the President: “I am constrained to veto the proviso under
0%-35%
Section 6 (F) of the enrolled bill that effectively maintains the special tax rate of
15 percent of gross income for the aforementioned employees, to wit:
“Given the
significant
Provided, however, That existing RHQs/ROHQs, OBUs, or petroleum service
reduction in the
contractors and subcontractors presently availing of preferential tax rates for
15% personal income
qualified employees shall continue to be entitled to avail of the preferential tax
tax, the
rate for present and future qualified employees.
employees of
these firms
While I understand the laudable objective of the proposal, the provision is
should follow the
violative of the Equal Protection Clause under Section 1, Article III of the 1987
regular tax rates
Constitution, as well as the rule of equity and uniformity in the application of the
applicable to
burden of taxation:
other individual
taxpayers.”
Section 1. No person shall be deprived of life, liberty, or property without due
process of law, nor shall any person be denied the equal protection of the laws.
In line with this, the overriding consideration is the promotion of fairness of the
tax system for individuals performing similar work. Given the significant reduction
in the personal income tax, the employees of these firms should follow the
regular tax rates applicable to other individual taxpayers.”
TAX CODE, AS AMENDED BY TRAIN LAW REPUBLIC ACT 10963, DECEMBER 19, 2017

INCOME TAX SCHEDULE

1997 TAX CODE TRAIN LAW

ANNUAL TAXABLE INCOME TAX RATES ANNUAL TAXABLE INCOME TAX RATES (2018-2022) TAX RATES (2023 ONWARDS)

Not over P10,000 5% Not over P250,000 0% 0%

Over P10,000 but not over P500 + 10% of the excess over Over P250,000 but not over 20% of the excess over 15% of the excess over
P30,000 P10,000 P400,000 P250,000 P250,000
Over P30,000 but not over P2,500 + 15% of the excess Over P400,000 but not over P30,000 + 25% of the excess P22,500 + 20% of the excess
P70,000 over 30,000 P800,000 over P400,000 over P400,000
Over P70,000 but not over P8,500 + 20% of the excess Over P800,000 but not over P130,000 + 30% of the excess P102,500 + 25% of the excess
P140,000 over P70,000 P2,000,000 over P800,000 over P800,000
Over P140,000 but not over P22,500 +25% of the excess Over P2,000,000 but not over P490,000 + 32% of the excess P402,500 + 30% of the excess
P250,000 over P140,000 P8,000,000 over P2,000,000 over P2,000,000
Over P250,000 but not over P50,000 + 30% of the excess P2,410,000 + 35% of the P2,202,500 + 35% of the
Over P8,000,000
P500,000 over P250,000 excess over P8,000,000 excess over P8,000,000
P125,000 + 32% of the excess
Over P500,000
over P500,000

A. COMPENSATION INCOME EARNER18

B. PURELY SELF-EMPLOYED AND PROFESSIONALS (GROSS SALES OR GROSS RECEIPTS DOES NOT EXCEED P3,000,000)19

C. MIXED INCOME EARNERS (GROSS SALES OR GROSS RECEIPTS DOES NOT EXCEED P3,000,000)
st nd
1 Option of Mixed Income Earners 2 Option of Mixed Income Earners

Both compensation income (taxable salary) and income
from business or practice of profession are taxed using the
graduated income tax rates of 0%-35%.
Compensation income (taxable salary) is taxed using the
graduated income tax rates of 0%-35%, while income from
business or practice of profession is taxed at 8% based on
gross sales or gross receipts in lieu of the graduated income
tax rates (0%-35%) and percentage tax (3%) under Section
116.

18
Comparative illustrations were taken from the lecture of Atty. Arnold Apdua, CPA (Resource Person on Tax Updates Seminar)
19
Section 24(A)(2)(b)

BY HISHAM NAZZ A. BIRUAR, CPA