BIR Updates on Issuances TAX REFORM FOR ACCELERATION AND INCLUSION (REPUBLIC ACT NO )

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1 As of 24/02/18 BUREAU OF INTERNAL REVENUE 1 BIR Updates on Issuances TAX REFORM FOR ACCELERATION AND INCLUSION (REPUBLIC ACT NO )

2 Effec2vity of TRAIN (RA 10963) JANUARY 1, 2018 (transackons starkng Jan 1, 2018) As of 24/02/18 BUREAU OF INTERNAL REVENUE 2

3 BIR Issuances on TRAIN RR on Income Tax (RR ) RR on Automobile Excise Tax (RR ) RR on Documentary Stamp Tax (RR ) RR on Tobacco Excise Tax (RR ) RR on Petroleum Excise Tax (RR ) RR on Mineral Products Excise Tax (RR ) REVENUE REGULATIONS To provide guidelines on the new income tax system for individuals To reflect the increase in excise tax rates; Hybrid vehicles and purely electric vehicles To reflect the double the rate increase in DST; DST on donation of real properties To reflect increase in excise tax rates on tobacco products To reflect increase in excise tax rates on petroleum products; now includes diesel, LPG, bunker fuel oil. To reflect increase in excise tax rates on mineral products For publication / circulation Published in the Manila Bulletin, January 18,2018 Published in the Manila Bulletin, January 18,2018 Published in the Manila Bulletin, January 18,2018 Published in the Manila Bulletin, January 26,2018 Published in the Manila Bulletin, January 18,2018 As of 24/02/18 BUREAU OF INTERNAL REVENUE 3

4 BIR Issuances on TRAIN REVENUE MEMORANDUM CIRCULARS RMC No Provides the transi2on procedures for all efps filers in the filing of tax return affected by the revised Excise Tax rates on cigars and cigareqes, petroleum products, automobiles, non-essen2al services (invasive cosme2cs procedures), sweetened beverages and mineral products pursuant to RA No (TRAIN Law) RMC No Provides the transi2on procedures for all taxpayers affected by the revised tax rates on Documentary Stamp Tax pursuant to the provisions of RA No (TRAIN Law) RMC No Prescribes the transi2on procedures for all taxpayers filing tax returns affected by the revised tax rates pursuant to the provisions of RA No (TRAIN Law) Issued on January 11, 2018 Issued on January 9, 2018 Issued on January 8, 2018 As of 24/02/18 BUREAU OF INTERNAL REVENUE 4

5 BIR Issuances on TRAIN REVENUE MEMORANDUM CIRCULARS RMC No Prescribes the procedures on the use of Withholding Tax Table on Compensa2on Income and advises on the change of Creditable Withholding Tax Rate on certain income payments to individuals RMC No Prescribes the Revised Withholding Table on Compensa2on pursuant to the amendments to the NIRC of 1997 introduced by RA (TRAIN Law) REVENUE MEMORANDUM ORDERS Issued on January 14, 2018 Issued on December 29, 2017 RMO No Crea2ng the ATC Codes for Sweetened Beverage Issued on BIR FORMS BIR Form 2200-S Excise Tax Return for Sweetened Beverages Downloadable for manual filing As of 24/02/18 BUREAU OF INTERNAL REVENUE 5

6 BIR Issuances on TRAIN OPERATIONS MEMORANDUM OM No Taxpayers subject to Excise Tax and using efps are mandated to e-file and e-pay the corresponding Excise Taxes due on removals, effec2ve January 1, OM No Advisory on withholding of Final Tax of 6% on amounts withdrawn from decedent's deposit account. OM No Payment Form for Excise Tax due on sweetened beverages. Dated January 3, 2018 Dated January 3, 2018 Dated December 28, 2017 As of 24/02/18 BUREAU OF INTERNAL REVENUE 6

7 BIR Issuances on TRAIN BIR ADVISORIES Advisory applicable to Na2onal Government Agencies (NGAs) Advisory on filing Percentage Tax including withholding percentage tax and withholding VAT on government money payments Advisory on withholding tax on compensa2on for employee of RHQ, ROHQ, OBU and Petroleum Companies Advisory to remit withholding taxes monthly (0605) while filing of withholding tax at source will be quarterly (1601EQ) February 8, 2018 February 8, 2018 Issued January 31, 2018 Issued January 31, 2018 As of 24/02/18 BUREAU OF INTERNAL REVENUE 7

8 BIR Issuances on TRAIN BIR ADVISORIES Advisory con2nued processing of VAT Zero-ra2ng for effec2vely zero-rated transac2ons Advisory on purely self-employed individuals and/or professional who are VAT-registered taxpayers and whose gross sales/receipts and other non-opera2ng income do not exceed the new VAT threshold of Php3M Advisory on dedicated account for aqachment to Excise Tax Return BIR Form No S (for sweetened beverages) and BIR Form No XC (for cosme2c procedures). Issued January 15, 2018 Issued January 17, 2018 Dated January 5, 2018 Advisory to all edst System Users. Dated December 28, 2017 As of 24/02/18 BUREAU OF INTERNAL REVENUE 8

9 BIR Issuances on TRAIN REVENUE REGULATIONS RR on Value Added Tax (VAT) Public consulta2on held on ; For pre-clearing with DOF 3 versions RR on Estate & Donor s Tax Pre-cleared. Finalizing draj. RR on CosmeKc Procedures Excise Tax Public consulta2on held on ; For pre-clearing with DOF 2 versions RR on Sweetened Beverage Excise Tax Public consulta2on held on ; Finalizing drajs. RR on Withholding Taxes (Amending RR 2-98) RR on Adjustment of the Rate of Stock TransacKon Tax Finalizing draj. For transmiqal to the DOF. As of 24/02/18 BUREAU OF INTERNAL REVENUE 9

10 BIR Issuances on TRAIN REVENUE MEMORANDUM ORDERS Revenue Memorandum Order on the Enhanced VAT refund System RMCs, RMOs or Advisories Finalizing drajs As the need arises As of 24/02/18 BUREAU OF INTERNAL REVENUE 10

11 As of 24/02/18 BUREAU OF INTERNAL REVENUE 11

12 As of 24/02/18 BUREAU OF INTERNAL REVENUE 12

13 Revenue Regula2ons No Numbered last February 20, 2018 Status: For publica2on and circula2on Coverage: Income Taxa2on As of 24/02/18 BUREAU OF INTERNAL REVENUE 13

14 Sec2on 2: Defini2on of Terms CompensaKon Income - in general, means all remunera2on for services performed by an employee for his employer under an employer-employee rela2onship, unless specifically excluded by the Code. The name by which the remunera2on for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, allowances, commissions (e.g. transporta2on, representa2on, entertainment and the like); fees including director's fees, if the director is, at the same 2me, an employee of the employer/corpora2on; taxable bonuses and fringe benefits, except those which are subject to the fringe benefits tax under Sec. 33 of the Code and the allowable de minimis benefits; taxable pensions and re2rement pay; and other income of a similar nature cons2tute compensa2on income. As of 24/02/18 BUREAU OF INTERNAL REVENUE 14

15 CompensaKon Income Earners individuals whose source of income is purely derived from an employer-employee rela2onship. As of 24/02/18 BUREAU OF INTERNAL REVENUE 15

16 Employee an individual performing services under an employer-employee rela2onship. The term covers all employees, including officers and employees, whether elected or appointed, of the Government of the Philippines, or any poli2cal subdivision thereof or any agency or instrumentality. Employer any person for whom an individual performs or performed any service, of whatever nature, under an employer-employee rela2onship. It is not necessary that the services be con2nuing at the 2me the wages are paid in order that the status of employer may exist. Thus, for purposes of withholding, a person for whom an individual has performed past services and from whom he is s2ll receiving compensa2on is an "employer". As of 24/02/18 BUREAU OF INTERNAL REVENUE 16

17 Employer and Employee RelaKonship exists when a person for whom services were performed (employer) has the right to control and direct an individual who performs the services (employee), not only as to the result of the work to be accomplished but also as to the details, methods and means by which it is accomplished. An employee is subject to the control of the employer not only as to what shall be done, but how it shall be done. It is not necessary that the employer actually exercises the right to direct or control the manner in which the services are performed. It is sufficient that there exists a right to control the manner of doing the work. As of 24/02/18 BUREAU OF INTERNAL REVENUE 17

18 Fringe Benefits means any good, service or other benefit furnished or granted in cash or in kind other than the basic compensa2on, by an employer to an individual employee (except rank and file employee as defined herein) such as, but not limited to the following: Housing; Expense account; Vehicle of any kind; Household personnel, such as maid, driver and others; Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted; Membership fees, dues and other expenses borne by the employer for the employee in social and athle2c clubs or other similar organiza2ons; Expenses for foreign travel; Holiday and vaca2on expenses; Educa2on assistance to the employee or his dependents; and Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. As of 24/02/18 BUREAU OF INTERNAL REVENUE 18

19 Gross Receipts refers to the total amount of money or its equivalent represen2ng the contract price, compensa2on, service fee, rental or royalty, including the amount charged for materials supplied with the services, and deposits and advance payments actually or construc2vely received during the taxable period for the services performed or to be performed for another person, except returnable security deposits for purposes of these regula2ons. In the case of VAT taxpayer, this shall exclude the VAT component. As of 24/02/18 BUREAU OF INTERNAL REVENUE 19

20 Gross Sales refers to the total sales transac2ons net of VAT, if applicable, reported during the period, without any other deduc2on. However, gross sales subject to the 8% income tax rate op2on shall be net of the following deduc2ons: Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales; and Discounts determined and granted at the 2me of sale, which are expressly indicated in the invoice, the amount thereof forming part of the gross sales duly recorded in the books of accounts. Sales discount indicated in the invoice at the 2me of sale, the grant of which is not dependent upon the happening of a future event, may be excluded from the gross sales within the same month/quarter it was given. As of 24/02/18 BUREAU OF INTERNAL REVENUE 20

21 Minimum Wage Earner (MWE) refers to a worker in the private sector who is paid with a statutory minimum wage (SMW) rates, or to an employee in the public sector with compensa2on income of not more than the statutory minimum wage rates in the non-agricultural sector where the worker/employee is assigned. Such statutory minimum wage rates are exempted from income tax. Likewise, the exemp2on covers the holiday pay, over2me pay, night shij differen2al pay, and hazard pay earned by an MWE. As of 24/02/18 BUREAU OF INTERNAL REVENUE 21

22 Mixed Income Earner an individual earning compensa2on income from employment, and income from business, prac2ce of profession and/or other sources aside from employment. As of 24/02/18 BUREAU OF INTERNAL REVENUE 22

23 Non-resident alien engaged in trade and business (NRAETB) refers to a non-resident alien who shall come to the Philippines and stay for an aggregate period of more than one hundred eighty (180) days during any calendar year. Non-resident alien not engaged in trade and business (NRANETB) refers to a non-resident alien who shall come to the Philippines and stay for an aggregate period of one hundred eighty (180) days or less during any calendar year. As of 24/02/18 BUREAU OF INTERNAL REVENUE 23

24 Rank and File Employee refers to an employee holding neither managerial nor supervisory posi2on as defined under exis2ng provisions of the Labor Code of the Philippines, as amended. As of 24/02/18 BUREAU OF INTERNAL REVENUE 24

25 Self-employed a sole proprietor or an independent contractor who reports income earned from self-employment. S/he controls who s/he works for, how the work is done and when it is done. It includes those hired under a contract of service or job order, and professionals whose income is derived purely from the prac2ce of profession and not under an employer employee rela2onship. As of 24/02/18 BUREAU OF INTERNAL REVENUE 25

26 Professional a person formally cer2fied by a professional body belonging to a specific profession by virtue of having completed a required examina2on or course of studies and/or prac2ce, whose competence can usually be measured against an established set of standards. It also refers to a person who engages in some art or sport for money, as a means of livelihood, rather than as a hobby. It includes but is not limited to doctors, lawyers, engineers, architects, CPAs, professional entertainers, ar2sts, professional athletes, directors, producers, insurance agents, insurance adjusters, management and technical consultants, bookkeeping agents, and other recipients of professional, promo2onal and talent fees. As of 24/02/18 BUREAU OF INTERNAL REVENUE 26

27 Taxable Income refers to the per2nent items of gross income specified in the Code, less deduc2ons, if any, authorized for such types of income by the Code or other special laws. As of 24/02/18 BUREAU OF INTERNAL REVENUE 27

28 VAT Threshold refers to the ceiling fixed by law to determine VAT registrable taxpayers. The VAT threshold is currently set at three million pesos ( 3,000,000.00). and the same shall be used to determine the income tax liability of self-employed individuals and/or professionals under Sec2ons 24(A)(2)(b) and 24(A)(2)(c)(2) of the Tax Code, as amended. As of 24/02/18 BUREAU OF INTERNAL REVENUE 28

29 NIRC Provision Section 24 Income tax rates on individual citizen and individual resident alien of the Philippines NIRC Taxable income of individuals are subject to the following graduated rates: Tax Schedule Not over P10,000 5% Over P10,000 but not over P30,000 Over P30,000 but not over P70,000 Over P70,000 but not over P140,000 Over P140,000 but not over P250,000 P % of the excess over P10,000 P2, % of the excess over P30,000 P8, % of the excess over P70,000 P22, % of the excess over P140,000 TRAIN Revised personal income tax brackets of : Tax Schedule effective January 1, 2018 to December 31, 2022 Not over P250,000 0%

30 NIRC Provision Sec2on 24 Income tax rates on individual ci2zen and individual resident alien of the Philippines NIRC Taxable income of individuals are subject to the following graduated rates: Over P250,000 but not over P500,000 Tax Schedule P50, % of the excess over P250,000 Over P500,000 P125, % of the excess over P500,000 TRAIN Revised personal income tax brackets of : Tax Schedule effective January 1, 2018 to December 31, 2022 Over P250,000 but not over P Over P400,000 but not over P800,000 Over P800,000 but not over P2million Over P2Million but not over P8Million Over P8Million 20% of the excess over P250,000 P30, % of the excess over P400,000 P130, % of the excess over P800,000 P490, % of the excess over P2Million P2,410, % of the excess over P8Million

31 NIRC Provision Section 24 Income tax rates on individual citizen and individual resident alien of the Philippines NIRC TRAIN Starting Jan 1, 2023 onwards: Tax Schedule effective January 1, 2018 to December 31, 2022 Not over P250,000 0% Over P250,000 but not over P400,000 Over P400,000 but not over P800,000 Over P800,000 but not over P2,000,000 Over P2Million but not over P8Million Over P8Million 15% of the excess over P250,000 P22, % of the excess over P400,000 P102, % of the excess over P800,000 P402, % of the excess over P2Million P2,202, % of the excess over P2Million

32 NIRC Provision Section 24 Income tax of selfemployed and/or professionals NIRC Taxable income is subject to the same graduated rates TRAIN For purely self-employed and/ or professionals whose gross sales/receipt and other nonoperational income do not exceed the VAT threshold of P3Million, the tax shall be, at the taxpayer s option, either: 1. 8% income tax on gross sales or gross receipts in excess of P250,000 in lieu of the graduated income tax rates and the other percentage tax; OR 2. Income tax based on the graduated income tax rates for individuals

33 NIRC Provision NIRC TRAIN Section 24 Income tax of mixed income earners Ta x a b l e i n c o m e i s subject to the same graduated rates For mixed income earners (earning both compensation income and income from business or practice of profession), their income taxes shall be: 1. For income from compensation Graduated income tax rates fro individuals, AND 2. For income from business or practice of profession: a. Gross sales/receipts which do not exceed the VAT threshold of P3Million 8% income tax on gross sales/receipts and other non-operating income OR graduated income tax rates on taxable income, at the taxpayer s option b. Gross sales/receipts and other nonoperating income which exceeds the VAT threshold of P3Million graduated income tax rates for individuals

34 Purely compensa2on earner Taxable income for compensa2on earners is the gross compensa2on income less nontaxable income/benefits such as but not limited to the Thirteenth (13 th) month pay and other benefits (subject to limita2ons, see Sec2on 6(G)(e) of these Regula2ons), de minimis benefits, and employee s share in the SSS, GSIS, PHIC, Pag-ibig contribu2ons and union dues. As of 24/02/18 BUREAU OF INTERNAL REVENUE 34

35 Husband and wife Husband and wife shall compute their individual income tax separately based on their respec2ve taxable income; if any income cannot be definitely aqributed to or iden2fied as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respec2ve taxable income. As of 24/02/18 BUREAU OF INTERNAL REVENUE 35

36 Minimum Wage Earner Minimum wage earners shall be exempt from the payment of income tax based on their statutory minimum wage rates. The holiday pay, over2me pay, night shij differen2al pay and hazard pay received by such earner are likewise exempt. (Illustra2on 1) As of 24/02/18 BUREAU OF INTERNAL REVENUE 36

37 Purely Self Employed or Professional (SEP) Unless the taxpayer signifies the inten2on to elect the 8% income tax rate in the 1 st Quarter Percentage and/or Income Tax Return, or on the ini2al quarter return of the taxable year ajer the commencement of a new business/prac2ce of profession, the taxpayer shall be considered as having availed of the graduated rates under Sec2on 24(A)(2)(a) of the Tax Code, as amended. Such elec2on shall be irrevocable and no amendment of opkon shall be made for the said taxable year. As of 24/02/18 BUREAU OF INTERNAL REVENUE 37

38 The op2on to be taxed at 8% income tax rate is not available to a VAT-registered taxpayer, regardless of the amount of gross sales/receipts, and to a taxpayer who is subject to Other Percentage Taxes under Title V of the Tax Code, as amended, except those subject under Sec2on 116 of the same Title. Likewise, partners of a General Professional Partnership (GPP) by virtue of their distribu2ve share from GPP which is already net of cost and expenses cannot avail of the 8% income tax rate op2on. As of 24/02/18 BUREAU OF INTERNAL REVENUE 38

39 A taxpayer who signifies the inten2on to avail of the 8% income tax rate op2on, and is conclusively qualified for said op2on at the end of the taxable year [annual gross sales/ receipts and other non-opera2ng income did not exceed the VAT threshold ( 3,000,000.00)], shall compute the final annual income tax due based on the actual annual gross sales/receipts and other non-opera2ng income. The said income tax due shall be in lieu of the graduated rates of income tax and the percentage tax under Sec. 116 of the Tax Code, as amended. The Financial Statements (FS) is not required to be aqached in filing the final income tax return. However, exis2ng rules and regula2ons on bookkeeping and invoicing/receip2ng shall s2ll apply. As of 24/02/18 BUREAU OF INTERNAL REVENUE 39

40 A taxpayer shall automa2cally be subject to the graduated rates under Sec2on 24(A)(2)(a) of the Tax Code, as amended, even if the flat 8% income tax rate op2on is ini2ally selected, when taxpayer s gross sales/receipts and other nonopera2ng income exceeded the VAT threshold during the taxable year. In such case, his income tax shall be computed under the graduated income tax rates and shall be allowed a tax credit for the previous quarter/s income tax payment/s under the 8% income tax rate op2on. As of 24/02/18 BUREAU OF INTERNAL REVENUE 40

41 In addi2on, a taxpayer subject to the graduated income tax rates (either selected this as the income tax regime, or failed to signify chosen inten2on or failed to qualify to be taxed at the 8% income tax rate) is also subject to the applicable business tax, if any. Subject to the provisions of Sec2on 8 of these Regula2ons, an FS shall be required as an aqachment to the annual income tax return even if the gross sales/receipts and other non-opera2ng income is less than the VAT threshold. However, the annual income tax return of a taxpayer with gross sales/receipts and other nonopera2ng income of more than the said VAT threshold shall be accompanied by an audited FS. As of 24/02/18 BUREAU OF INTERNAL REVENUE 41

42 Taxable income for individuals earning income from self-employment/prac2ce of profession shall be the net income, if taxpayer opted to be taxed at graduated rates or has failed to signify the chosen op2on. However, if the op2on availed is the 8% income tax rate, the taxable base is the gross sales/receipts and other non-opera2ng income. (Illustra2on 2 & 3) As of 24/02/18 BUREAU OF INTERNAL REVENUE 42

43 Breach of the threshold If the gross receipts exceeded the VAT threshold of 3,000, Taxpayer shall be liable to pay income tax under graduated rates pursuant to Sec2on 24(A)(2)(a) of the Tax Code, as amended. Taxpayer shall be allowed an income tax credit of quarterly payments ini2ally made under the 8% income tax op2on computed net of the allowable deduc2on of 250, granted for purely business income. As of 24/02/18 BUREAU OF INTERNAL REVENUE 43

44 Breach of the threshold Taxpayer is likewise liable for business tax(es), in addi2on to income tax. For this purpose, the taxpayer is required to update his registra2on from non-vat to VAT taxpayer. Percentage tax pursuant to Sec2on 116 of the Tax Code, as amended, shall be imposed from the beginning of the year un2l taxpayer is liable to VAT. VAT shall be imposed prospec2vely. Percentage tax due on the non-vat por2on of the sales/receipts shall be collected without penalty, if 2mely paid on the due date immediately following the month/quarter when taxpayer ceases to be a non-vat. (Illustra2on 4 & 5) As of 24/02/18 BUREAU OF INTERNAL REVENUE 44

45 Percentage Tax other than Sec 116 The taxpayer has no op2on to avail of the 8% income tax rate on his income from business since his business income is subject to Other Percentage Tax under Sec2on 125 of the Tax Code, as amended. Aside from income tax, taxpayer is liable to pay the prescribed business tax, which in this case is percentage tax of 18% on the gross receipts as prescribed under Sec. 125 of the Tax Code, as amended. (Illustra2on 6) As of 24/02/18 BUREAU OF INTERNAL REVENUE 45

46 Mixed Income Earner The provision under Sec2on 24(A)(2)(b) of the Tax Code, as amended, which allows an op2on of 8% income tax rate on gross sales/receipts and other non-opera2ng income in excess of P250, is available only to purely selfemployed individuals and/or professionals. The P250, men2oned is not applicable to mixed income earners since it is already incorporated in the first 2er of the graduated income tax rates applicable to compensa2on income. Under the said graduated rates, the excess of the P250, over the actual taxable compensa2on income is not deduc2ble against the taxable income from business/ prac2ce of profession under the 8% income tax rate op2on. As of 24/02/18 BUREAU OF INTERNAL REVENUE 46

47 The total tax due shall be the sum of: (1) tax due from compensa2on, computed using the graduated income tax rates; and (2) tax due from self-employment/prac2ce of profession, resul2ng from the mul2plica2on of the 8% income tax rate with the total of the gross sales/receipts and other non-opera2ng income. As of 24/02/18 BUREAU OF INTERNAL REVENUE 47

48 Mixed income earner who opted to be taxed under the graduated income tax rates for income from business/prac2ce of profession, shall combine the taxable income from both compensa2on and business/prac2ce of profession in compu2ng for the total taxable income and consequently, the income tax due. (Illustra2on 7) As of 24/02/18 BUREAU OF INTERNAL REVENUE 48

49 The taxpayer has no op2on to avail of the 8% income tax rate on his income from business since his gross sales exceeds the VAT threshold. However, he is s2ll not subject to business tax since the nature of his business transac2ons is VAT exempt. (Illustra2on 8) As of 24/02/18 BUREAU OF INTERNAL REVENUE 49

50 NIRC Provision Section 24 (B) (1) Final tax on winnings NIRC Philippine Charity Sweepstakes and Lotto winnings exempt from the 20% final tax TRAIN P h i l i p p i n e C h a r i t y Sweepstakes and Lotto winnings in excess of P10,000 shall be subject to the 20% final tax Section 24 (B) (1) Final tax on interest on foreign currency deposit Interest income received by an individual taxpayer (except a non-resident individual) from a depository bank under the expanded foreign currency deposit (EFCD) system is subject to 7.5% final tax The rate of final tax on interest income received by resident individual taxpayer under the expanded foreign currency deposit system increased from 7.5% to 15% final tax

51 NIRC Provision Section 24 (C) Capital gains tax on sale of shares not traded through the stock exchange NIRC The capital gains tax on net capital gains realized from sale, barter, or e x c h a n g e o r o t h e r disposition of shares of stock in a domestic corporation not traded t h r o u g h t h e s t o c k exchange is: Not over P100,000 5% On any amount in excess of P100,000 10% TRAIN The final tax rate for net capital gains tax on the sale, barter, exchange or other disposition of shares of stock in a domestic corporation no traded through the stock exchange is increased from 5/10% CGT to a flat rate of 15% CGT

52 Passive Income Interests from any currency bank deposit and yield or any other monetary benefit from deposit subs2tutes and from trust funds and similar arrangements 20%; Interest income received by an individual taxpayer (except a nonresident individual) from a depository bank under the expanded foreign currency deposit system 15%; Proceeds of pre-terminated long-term deposit or investment in the form of savings, common or individual trust funds, deposit subs2tutes, investment management accounts and other investments evidenced by cer2ficates in such form as prescribed by the Bangko Sentral ng Pilipinas (BSP) the final tax shall be based on the remaining maturity of the investment: Four (4) years but less than five (5) years 5% Three (3) years but less than four (4) years 12%; and Less than three (3) years 20% As of 24/02/18 BUREAU OF INTERNAL REVENUE 52

53 Passive Income Royal2es (except royal2es on books and other literary works and musical composi2ons) 20% Royal2es on books and other literary works and musical composi2ons 10%; Prizes (except prizes amoun2ng to P10,000 or less) 20%; Winnings (except Philippine Charity Sweepstakes and LoQo winnings amoun2ng to P 10,000 or less) 20%; Cash and Property Dividends 10%; Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange 15%; Capital Gains from Sale of Real Property located in the Philippines 6%. As of 24/02/18 BUREAU OF INTERNAL REVENUE 53

54 Non Resident Alien Non-resident Alien Engaged in Trade or Business Within the Philippines. In general, the income tax rates applicable to this taxpayer shall be the rates imposed on individual ci2zen and a resident alien individual on the taxable income derived within the Philippines; Non-resident Alien Not Engaged in Trade or Business Within the Philippines Upon the en2re income received from all sources within the Philippines by this taxpayer such as interest, cash and/or property dividends, rents, salaries, wages, premiums, annui2es, compensa2on, remunera2on, emoluments, or other fixed or determinable annual or periodic or casual gains, profits, and income, and capital gains. - 25%; As of 24/02/18 BUREAU OF INTERNAL REVENUE 54

55 RHQ Concerned Employees The preferen2al income tax rate under subsec2on (C), (D) and (E) of Sec2on 25 of the Tax Code, as amended, shall no longer be applicable without prejudice to the applica2on of preferen2al tax rates under exis2ng interna2onal tax trea2es, if warranted. Thus, all concerned employees of the regional or area headquarters and regional opera2ng headquarters of mul2na2onal companies, offshore banking units and petroleum service contractor and subcontractors shall be subject to the regular income tax rate under Sec. 24(A)(2)(a) of the Tax Code, as amended. As of 24/02/18 BUREAU OF INTERNAL REVENUE 55

56 VETO Message In line with this, the overriding considera5on is the promo5on of fairness of the tax system for individuals performing similar work. Given the significant reduc5on in the personal income tax, the employees of these firms should follow the regular tax rates applicable to other individual taxpayers. With the direct veto, all employees of RHQs/ROHQs/OBUs, and Petroleum Service Contractors and Subcontractors shall be subject to regular income tax rate under Sec2on 24(A)(2)(a) of the Tax Code, as amended, without prejudice to the applica2on of preferen2al tax rates under exis2ng interna2onal tax trea2es, if warranted. (Illustra2on 9) As of 24/02/18 BUREAU OF INTERNAL REVENUE 56

57 GOCCs Under Sec2on 27(C) of the Tax Code, as amended, GOCCs, Government Agencies or Instrumentali2es shall pay such rate of tax upon their taxable income as imposed upon corpora2ons or associa2ons engaged in a similar business, industry, or ac2vity, except for the following: Government Service Insurance System (GSIS); Social Security System (SSS); Philippine Health Insurance Corpora2on (PHIC); and Local Water Districts (LWD). As of 24/02/18 BUREAU OF INTERNAL REVENUE 57

58 NIRC Provision Section 32 (B) Tax exempt 13 th month pay Section 33 (A) Tax on fringe benefits given to non-rank and file employees NIRC The amount of tax-exempt 13 th month pay and other benefits is P82,000. ü Fringe benefits given to non-rank and file employees are subject to 32% final tax ü The grossed up monetary value of the fringe benefit given to non-rank and file employees shall be determined by dividing the actual monetary value by 68% TRAIN The amount of tax-exempt 13 th month pay and other benefits is increased to P90,000. ü The Fringe Benefits Tax is increased to 35% effective January 1, 2018 ü The grossed up monetary value of the fringe benefit given to non-rank and file employees shall be determined by dividing the actual monetary value by 65%

59 Deduc2ons In general, there shall be allowed at the op2on of the taxpayer, itemized deduc2ons or an Op2onal Standard Deduc2on (OSD) at the rate of forty percent (40%). In case of individual taxpayers, OSD shall be computed at the rate of forty percent (40%) of gross sales/receipts, as the case may be. Corpora2ons may elect standard deduc2on in an amount not exceeding forty percent (40%) of its gross income. However, no deduc2ons shall be allowed to individual taxpayers earning compensa2on income arising from personal services rendered under an employer-employee rela2onship, and those who opted to be taxed at 8% income tax rate on their income from business/prac2ce of profession. As of 24/02/18 BUREAU OF INTERNAL REVENUE 59

60 Unless the taxpayer, who is taxable under the graduated income tax rate, signifies in the income tax return the inten2on to elect the OSD, it shall be considered as having availed of the itemized deduc2ons. Such elec2on of the op2on, when made in the return, shall be irrevocable for the taxable year for which the return is made. The elec2on to claim either the itemized deduc2ons or the OSD for the taxable year must be signified by checking the appropriate box in the income tax return filed for the first quarter or the ini2al quarter of the taxable year ajer the commencement of a new business/prac2ce of profession. Once the elec2on is made, it must be consistently applied to all the succeeding quarterly returns and in the final income tax return for the taxable year. As of 24/02/18 BUREAU OF INTERNAL REVENUE 60

61 The OSD allowed to individual taxpayers, except non-resident aliens, shall be forty percent (40%) of gross sales/receipts during the taxable year. An individual who is en2tled to and claimed for the OSD shall not be required to submit with the tax return such Financial Statements otherwise required under the Tax Code, as amended. A General Professional Partnership (GPP) may avail of the OSD only once, either by the GPP or the partners comprising the partnership. (Illustra2on 12, 13 & 14) As of 24/02/18 BUREAU OF INTERNAL REVENUE 61

62 OSD for GPP and its Partners GPP is not subject to income tax imposed pursuant to Sec. 26 of the Tax Code, as amended. However, the partners shall be liable to pay income tax on their separate and individual capaci2es for their respec2ve distribu2ve share in the net income of the GPP. The GPP is not a taxable en2ty for income tax purposes since it is only ac2ng as a passthrough en2ty where its income is ul2mately taxed to the partners comprising it. As of 24/02/18 BUREAU OF INTERNAL REVENUE 62

63 Sec2on 26 of the Tax Code, as amended, likewise provides that- For purposes of compu2ng the distribu2ve share of the partners, the net income of the GPP shall be computed in the same manner as a corpora2on. As such, a GPP may claim either the itemized deduc2ons allowed under Sec2on 34 of the Code or in lieu thereof, it can opt to avail of the OSD allowed to corpora2ons in claiming the deduc2ons in an amount not exceeding forty percent (40 %) of its gross income. As of 24/02/18 BUREAU OF INTERNAL REVENUE 63

64 In compu2ng taxable income defined under Sec2on 31 of the Tax Code, as amended, the following may be allowed as deduc2ons: Itemized expenses which are ordinary and necessary, incurred or paid for the prac2ce of profession; OR Op2onal Standard Deduc2on (OSD). As of 24/02/18 BUREAU OF INTERNAL REVENUE 64

65 The distributable net income of the partnership may be determined by claiming either itemized deduc2ons or OSD. The share in the net income of the partnership, actually or construc2vely received, shall be reported as taxable income of each partner. The partners comprising the GPP can no longer claim further deduc2on from their distribu2ve share in the net income of the GPP and are not allowed to avail of the 8% income tax rate op2on since their distribu2ve share from the GPP is already net of cost and expenses. As of 24/02/18 BUREAU OF INTERNAL REVENUE 65

66 If the partner also derives other income from trade, business or prac2ce of profession apart and dis2nct from the share in the net income of the GPP, the deduc2on that can be claimed from the other income would either be the itemized deduc2ons or OSD. (Illustra2on 15 & 16) As of 24/02/18 BUREAU OF INTERNAL REVENUE 66

67 Individuals Not Required to File ITR An individual earning purely compensa2on income whose taxable income does not exceed Two Hundred Fijy Thousand pesos (P250,000.00); The Cer2ficate of Withholding filed by the respec2ve employers, duly stamped Received by the Bureau, shall be tantamount to the subs2tuted filing of income tax returns by said employees. As of 24/02/18 BUREAU OF INTERNAL REVENUE 67

68 An individual whose income tax has been correctly withheld by his employer, provided that such individual has only one employer for the taxable year the Cer2ficate of Withholding filed by the respec2ve employers, duly stamped Received by the Bureau, shall be tantamount to the subs2tuted filing of income tax returns by said employees; As of 24/02/18 BUREAU OF INTERNAL REVENUE 68

69 An individual whose sole income has been subjected to final withholding tax; A minimum wage earner as defined in these regula2ons - The Cer2ficate of Withholding filed by the respec2ve employers, duly stamped Received by the Bureau, shall be tantamount to the subs2tuted filing of income tax returns by said employees As of 24/02/18 BUREAU OF INTERNAL REVENUE 69

70 In all cases, all individuals deriving compensa2on income, regardless of the amount, from two (2) or more concurrent or successive employers at any 2me during the taxable year, are not qualified for subs2tuted filing. Thus, they are s2ll required to file a return. As of 24/02/18 BUREAU OF INTERNAL REVENUE 70

71 Time of Filing ITR (Annual and Quarterly) Individuals engaged in business/prac2ce of profession, regardless of amount of sales/receipts, are required to file quarterly income tax return on or before May 15, August 15 and November 15 for the first, second and third quarters of the current year, respec2vely pursuant to Sec2on 74(A) of the Tax Code, as amended; and to file an annual income tax return, not later than the fijeenth (15 th ) day of the fourth month following the close of the calendar year or April 15 as provided under Sec2on 51(C)(1) of the Tax Code, as amended. As of 24/02/18 BUREAU OF INTERNAL REVENUE 71

72 As of 24/02/18 BUREAU OF INTERNAL REVENUE 72

73 NIRC Provision Section 56 (A) (2) Installment Payment of tax due for i n d i v i d u a l s a n d corporations NIRC When tax due exceeds 2,000, the taxpayer (other than a corporation) may elect to pay the tax in two equal installments. Payment of installments: ü First installment time of filing of return ü Second installment on or before July 15 following the close of the calendar year. TRAIN The new deadline of payment of second installment is October 15 following the close of the calendar year.

74 Registra2on Updates In rela2on to Sec2ons 24(A)(2)(b) and 24(A)(2)(c)(2) of the Tax Code, as amended, rela2ve to the op2on of self-employed individuals and/or professionals to avail of an 8% income tax rate based on gross sales/receipts and other non-opera2ng income, the exis2ng non-vat taxpayer who is contempla2ng to avail of the 8% income tax rate at the beginning of the taxable year or before the due date for filing and/or payment of the percentage tax shall file an Applica2on for Registra2on Informa2on Update (BIR Form No. 1905) to end-date the registered tax type of percentage tax. If the taxpayer is unable to 2mely update the required registra2on, s/he shall con2nue to file the percentage tax return reflec2ng a zeroamount of tax with a nota2on that s/he is availing of the 8% income tax rate op2on for the taxable year. S/he is s2ll required to signify the inten2on to avail the op2on on the ini2al quarterly income tax return for income tax purposes. As of 24/02/18 BUREAU OF INTERNAL REVENUE 74

75 As of 24/02/18 BUREAU OF INTERNAL REVENUE 75

76 On the other hand, if the non-vat taxpayer opted to be taxed under the graduated income tax rates s/he shall con2nue to pay the required percentage tax under Sec. 116 of the Tax Code, as amended. As of 24/02/18 BUREAU OF INTERNAL REVENUE 76

77 A taxpayer who ini2ally presumed that the gross sales/receipts and other non-opera2ng income for the taxable year will not exceed the P3,000, VAT threshold but has actually exceeded the same during the taxable year, shall immediately update his/her registra2on to reflect the change in tax profile from non-vat to a VAT taxpayer. As of 24/02/18 BUREAU OF INTERNAL REVENUE 77

78 S/he shall be required to update registra2on immediately within the month following the month s/he exceeded the VAT threshold. S/ he shall be liable to VAT prospec2vely star2ng on the first day of the month following the month when the threshold is breached. As of 24/02/18 BUREAU OF INTERNAL REVENUE 78

79 The taxpayer shall pay the required percentage tax covering the sales/receipts and other nonopera2ng income, from the beginning of the taxable year or commencement of business/ prac2ce of profession un2l the 2me the taxpayer becomes liable for VAT, without imposi2on of penalty if 2mely paid on the immediately succeeding month/quarter. Thus, there may be an instance when a taxpayer files two (2) business tax returns in a month/quarter i.e., percentage and VAT returns. As of 24/02/18 BUREAU OF INTERNAL REVENUE 79

80 A VAT taxpayer who did not exceed the VAT threshold within the immediately preceding three (3) year period, may opt to be a non- VAT taxpayer and avail of the 8% income tax rate op2on. S/he shall update the registra2on records on or before the first quarter of a taxable year to reflect the change in registra2on. As of 24/02/18 BUREAU OF INTERNAL REVENUE 80

81 However, s/he shall remain liable for VAT for as long as there is no update of registra2on and VAT-registered invoices/receipts are con2nuously issued. Registra2on updates shall be subject to exis2ng rules and regula2ons on updates, verifica2on, inventory and surrender/cancella2on of unused VATinvoices/receipts. As of 24/02/18 BUREAU OF INTERNAL REVENUE 81

82 A non-vat taxpayer who volunteers to be a VAT taxpayer knowing that sales/receipts and other non-opera2ng income will exceed the VAT threshold within the taxable year, shall update the registra2on records. Such taxpayer becomes liable to VAT on the day when such upda2ng is made. In this case, the taxpayer shall automa2cally be subject to the graduated income tax rates if the 8% income tax rate op2on is ini2ally selected. As of 24/02/18 BUREAU OF INTERNAL REVENUE 82

83 Any income tax paid under the said flat 8% income tax rate shall be deducted from the income tax due under the graduated income tax rates. The percentage tax due from the beginning of the taxable year or commencement of business/prac2ce of profession shall be paid on the month/quarter immediately following such registra2on update. However, if the graduated income tax rates is chosen from the beginning, then taxpayer ceases to be liable to percentage tax upon registra2on updates and instead is now liable to VAT. (Illustra2on 18) As of 24/02/18 BUREAU OF INTERNAL REVENUE 83

84 Transitory Provision In connec2on with the provision of Sec2on 24(A) (2)(b) and Sec2on 24(A)(2)(c) of the Tax Code, as amended, all exis2ng VAT registered taxpayers whose gross sales/receipts and other nonopera2ng income in the preceding year did not exceed the VAT threshold of P3,000, shall have the op2on to update their registra2on to non-vat un2l March 31, 2018, following the exis2ng procedures on registra2on updates, and the inventory and surrender/cancella2on of unused VAT invoices/receipts. As of 24/02/18 BUREAU OF INTERNAL REVENUE 84

85 As of 24/02/18 BUREAU OF INTERNAL REVENUE 85

86 Ajer March 31, 2018, exis2ng VAT-registered taxpayers who have not exceeded the threshold for the immediately preceding three years, may opt to update their registra2on to non-vat following rules and regula2ons on registra2on updates, verifica2on, and the inventory and cancella2on of VAT invoices/ receipts. As of 24/02/18 BUREAU OF INTERNAL REVENUE 86

87 As of 24/02/18 BUREAU OF INTERNAL REVENUE 87

88 Let s be partners for change! For more information, For questions, you may directly us at: contact_us@bir.gov.ph ecomplaint@bir.gov.ph train@bir.gov.ph 24/02/18 DEPARTMENT OF FINANCE 88

89 THANK YOU! As of 24/02/18 BUREAU OF INTERNAL REVENUE 89