CHAPTER II: GENERAL PRINCIPLES 1.

Domestic corporation
Section 23 - General Principles of Income Taxation in the
o Taxable on all income derived from sources
Philippines
within and without the Philippines
Key Taxation Rules Based on Citizenship and Residency:
2. Foreign corporation (Engaged or not in
1. Citizen of the Philippines residing therein trade/business in the Philippines)
o Taxable on all income derived from sources o Taxable only on income derived from sources
within and without the Philippines within the Philippines
2. Nonresident citizen Chapter III - Tax on Individuals
Section 24 - Income Tax Rates
o Taxable only on income derived from sources
within the Philippines (A) Rates of Income Tax on Individual Citizens and
Individual Resident Aliens of the Philippines
3. Overseas contract worker (OCW)
1. Imposition of Income Tax:
o Taxable only on income derived from sources
Income tax is imposed on the taxable income defined
within the Philippines in Section 31 of this Code, except for income subject
o Exception: to tax under Subsections (B), (C), and (D) of this
Section.
o Seaman who is a citizen of the Philippines
Taxable Individuals:
o Receives compensation for services
rendered abroad 1. Individual citizen of the Philippines residing therein

o Works as a member of the complement of a o Taxable on all income derived from sources
vessel engaged exclusively in international within and without the Philippines
trade 2. Individual citizen of the Philippines residing
o Treated as an OCW outside the Philippines
 Taxable only on income derived from sources within
4. Alien individual (Resident or Nonresident)
the Philippines
 Taxable only on income derived from sources within
 Includes overseas contract workers (OCWs) as
the Philippines
defined in Subsection (C) of Section 23
Taxation Rules Based on Corporation Type:
 Individual alien who is a resident of the Philippines Over P2,000,000 but not over
 Taxable only on income derived from sources within
P8,000,000…………………... P490,000 + 32% of the
the Philippines excess over P2,000,000

(2) Rates of Tax on Taxable Income of Individuals:

 The tax shall be computed in accordance with and at Over P8,000,000
the rates established in the prescribed schedule. ……………………………………………............…..
P2,410,000 + 35% of the excess over P8,000,000
(a) Tax Schedule Effective January 1, 2018 until
December 31, 2022 [4]:
Tax Schedule Effective January 1, 2023 and onwards:
Not over
P250,000………………………………………..........………
Not over
0%
P250,000………………………………………….........…….
0%
Over P250,000 but not over
P400,000……………………….. 20% of the excess over
Over P250,000 but not over
P250,000
P400,000……………………….. 15% of the excess over
P250,000
Over P400,000 but not over
P800,000……………………….. P30,000 + 25% of the
Over P400,000 but not over
excess over P400,000
P800,000……………………….. P22,500 + 20% of the
excess over P400,000
Over P800,000 but not over
P2,000,000…………………….. P130,000 + 30% of the
Over P800,000 but not over
excess over P800,000
P2,000,000…………………….. P102,500 + 25% of the
excess over P800,000
  Hazard pay

Over P2,000,000 but not over Taxation of Self-Employed Individuals and Professionals
P8,000,000…………………... P402,500 + 30% of the  If gross sales/receipts and non-operating income
excess over P2,000,000 do not exceed the VAT threshold under Section
109(BB), two options:
1. Graduated income tax rates under Section 24(A)(2)
Over P8,000,000
(a)
……………………………………………............…..
P2,202,500 + 35% of the excess over P8,000,000 2. Flat 8% tax on gross sales/receipts and non-operating
income in excess of ₱250,000, in lieu of graduated
rates and percentage tax under Section 116
Chapter III - Tax on Individuals Taxation of Mixed Income Earners
Section 24 - Income Tax Rates
 Tax on Compensation Income
Taxation of Married Individuals
o Rates prescribed under Section 24(A)(2)(a)
 Husband and wife shall compute their individual
income tax separately based on total taxable  Tax on Business or Professional Income
income.  If gross receipts do not exceed the VAT threshold
 If any income cannot be exclusively attributed to under Section 109(BB)
either spouse, it shall be divided equally for tax o Choose between graduated rates under
purposes.
Section 24(A)(2)(a) or 8% tax on gross
Tax Exemption for Minimum Wage Earners receipts

 Minimum wage earners, as defined in Section  If gross receipts exceed the VAT threshold
22(HH), are exempt from income tax.
 Use graduated rates under Section 24(A)(2)(a)
 Exempt income includes:
(B) Tax on Certain Passive Income
 Holiday pay
1. Interests, Royalties, Prizes, and Winnings
 Overtime pay
 Final tax rates:
 Night shift differential pay
  Interest on deposits/substitutes/trust funds: 20%  Share in net income after tax of associations, joint
accounts, joint ventures, or consortia taxable as
 Royalties (except books/literary works/music
corporations
compositions): 20%
(C) Capital Gains from Sale of Shares of Stock (Not Traded
 Royalties on books/literary works/music
in the Stock Exchange)
compositions: 10%
 Final tax rate: 15%
 Prizes exceeding ₱10,000: 20%
 Applies to net capital gains realized from
 Winnings exceeding ₱10,000 (except Philippine
sale/barter/exchange/disposition of shares in a
Charity Sweepstakes and Lotto): 20%
domestic corporation not traded on the stock
 Interest from expanded foreign currency deposits exchange
(excluding nonresident individuals): 15%
(D) Capital Gains from Sale of Real Property
 Interest from long-term deposits/investments
 Final tax rate: 6%
(exempt if held for ≥5 years)
 Computed on the higher of:
 4 to : 5%
o Gross selling price
 3 to : 12%
o Fair market value under Section 6(E)
 : 20%
 Applies to capital gains from
2. Cash and Property Dividends
sale/exchange/disposition of real property located
 Final tax rate: 10% in the Philippines, classified as capital assets

 Applies to:  If sale is to the government or its agencies or

GOCCs, tax is computed under either Section 24(A) or
 Cash/property dividends received from domestic this subsection, at taxpayer’s discretion.
corporations
Chapter III - Tax on Individuals
 Share in distributable net income after tax of
partnerships (excluding general professional Section 25 - Tax on Nonresident Alien Individuals
partnerships) (Continued)
(E) Alien Individual Employed by Petroleum Service
Contractors and Subcontractors
  Tax rate: 15% on salaries, wages, annuities, Here's your structured reviewer while keeping the original
compensations, and other emoluments received from terminology intact:
foreign service contractors/subcontractors engaged in
Reviewer on Taxation of Individuals in the Philippines
petroleum operations in the Philippines.
Chapter III - Tax on Individuals
 Filipino employees in the same position receive the
same tax treatment. Section 25 - Tax on Nonresident Alien Individuals
(Continued)
 Income from other sources within the Philippines
(for aliens under Subsections C, D, and E) is subject to (G) Alien Individuals Employed by Offshore Gaming
relevant income tax rates. Licensees and Service Providers
(F) Revocation of Preferential Tax Treatment for Certain  Final withholding tax: 25% on gross income.
Entities
 Minimum tax per taxable month: ₱12,500.00
 Preferential tax treatment does not apply to:
 Gross income includes:
o RHQs, ROHQs, OBUs, petroleum service
contractors/subcontractors registered after o Basic salary/wages, annuities,
January 1, 2018. compensations, honoraria, allowances

 TRAIN Law Amendment Vetoed by the President:  Tax Compliance Measures:

 The President vetoed a provision maintaining the 15% o Offshore gaming licensees/service providers
preferential tax rate for existing and future employees must submit notarized employment contracts
of these entities. to the Bureau of Internal Revenue (BIR).

 Reason: Violates the Equal Protection Clause and o Failure to withhold/remit taxes can result in
uniformity in taxation, requiring all similar workers to blacklisting/barred entry for the alien
follow regular tax rates. employee.

(G) Alien Individuals Employed by Offshore Gaming o Agencies (BI, DOLE, SEC, PAGCOR, etc.) will
Licensees and Service Providers issue joint regulations to enforce compliance.

 Final withholding tax: 25% on gross income.  Tax Identification Number (TIN) Requirement:

 Minimum tax per taxable month: ₱12,500.00 o All foreign employees must have a TIN.
 o Employers violating this rule will face a ₱20,000  Applies to taxable income derived from all sources
fine per non-compliant employee. within and without the Philippines

o Non-compliant employers may face license  Lower tax rate of 20% applies to corporations that
revocation and hiring bans. meet both conditions:

 Income from other sources within the Philippines is 1. Net taxable income ≤ ₱5,000,000
subject to applicable tax rates under the Code.
2. Total assets ≤ ₱100,000,000 (excluding land
Section 26 - Tax Liability of Members of General used for business operations)
Professional Partnerships
 Registered business enterprises under the
General Professional Partnership Tax Treatment: enhanced deductions regime (Section 249(C)) are
taxed at 20% on taxable income from registered
 General professional partnerships (GPPs) are not projects/activities.
subject to income tax under this Chapter.
 Fiscal-year accounting method:
 Tax liability is imposed on individual partners rather
than the partnership entity.  Income and expenses are equally distributed
throughout the fiscal year.
Computation of Partner’s Distributive Share:
 Tax computation formula:
 Net income of the partnership is computed in the same
manner as a corporation.  (Months covered by new rate × taxable income for the
period) ÷ 12
 Each partner must report their distributive share of
net income, whether actually or constructively (B) Proprietary Educational Institutions and Hospitals
received, as part of their gross income.
 Tax rate: 10% (if nonprofit)
Chapter IV - Tax on Corporations
 Temporary reduction: 1% (July 1, 2020 – June 30,
Section 27 - Rates of Income Tax on Domestic
2023)
Corporations
 Condition:
(A) General Tax Rate for Domestic Corporations
o If gross income from ‘unrelated trade,
 Standard income tax rate: 25% (effective July 1,
business, or other activity’ exceeds 50% of
2020)
total income, standard corporate tax rate (25%)
applies.
  Definition: (3) Tax on Income Derived Under the Expanded Foreign
Currency Deposit System
 ‘Proprietary’ means private hospitals and schools
with permits from DepEd, CHED, or TESDA.  Income from foreign currency transactions involving
nonresidents, offshore banking units, and local
(C) Tax on Government-Owned or -Controlled
commercial banks is exempt from all taxes.
Corporations, Agencies, or Instrumentalities
 Exception:
 All government-owned or -controlled corporations
are subject to corporate tax rates applicable to o Interest income from foreign currency loans
private businesses. granted to residents (excluding offshore
banking units or other depository banks) is
 Exceptions:
taxed at 10%.
 GSIS, SSS, HDMF (Pag-IBIG), PHIC, local water
 Income of Nonresidents (Individuals or
districts are exempt from corporate tax.
Corporations) from Transactions with Depository
(D) Tax Rates on Certain Passive Income Banks:

(1) Interest from Deposits, Deposit Substitutes, Trust  Exempt from income tax.
Funds, and Royalties
Here's your structured reviewer while keeping the original
 Final tax rate: 20% on interest earned from deposits terminology intact:
and monetary benefits from deposit substitutes, trust
funds, and similar arrangements.
Reviewer on Taxation of Corporations in the Philippines
 Exception:
Chapter IV - Tax on Corporations
 Interest income from a depository bank under the
Section 27 - Rates of Income Tax on Domestic
expanded foreign currency deposit system is taxed
Corporations
at 15%.
(D) Intercorporate Dividends
(2) Capital Gains Tax on Sale of Shares (Not Traded in
Stock Exchange)  Tax exemption for dividends received by domestic
corporations.
 Final tax rate: 15% on net capital gains from
sale/exchange/disposition of shares in a domestic  Foreign-sourced dividends are exempt if:
corporation not traded through the stock exchange.
 1. Funds are reinvested in the domestic (1) Imposition of Tax
corporation’s business operations within the
 2% of gross income at the end of the taxable year.
next taxable year.
 Applies starting the fourth taxable year after
2. Usage of reinvested funds is limited to:
business operations begin.
 Working capital
 If minimum tax is greater than regular tax under
 Capital expenditures Section 27(A), the higher amount applies.
 Dividend payments  Temporary reduction: 1% (effective July 1, 2020 –
June 30, 2023).
 Investments in domestic subsidiaries
(2) Carryforward of Excess Minimum Tax
 Infrastructure projects
 Excess minimum tax over normal tax can be carried
3. Domestic corporation must directly hold at
forward and credited against normal income tax for
least 20% of the foreign corporation’s
three succeeding taxable years.
outstanding shares.
(3) Relief from Minimum Corporate Income Tax
4. Must have held shares for a minimum of two
years before dividend distribution.  Secretary of Finance may suspend imposition if
corporation suffers:
(E) Capital Gains from Sale of Lands and Buildings
o Prolonged labor disputes
 Final tax rate: 6%
o Force majeure
 Applies to capital assets not used in the corporation’s
business operations. o Legitimate business losses
 Taxable base: (4) Definition of Gross Income
o Higher of gross selling price or fair market  Gross sales less returns, discounts, allowances,
value under Section 6(E). and cost of goods sold.
 Cost of Goods Sold (COGS) Includes:
(E) Minimum Corporate Income Tax on Domestic o Trading/Merchandising: Invoice cost, import
Corporations duties, freight, insurance.
 o Manufacturing: Raw materials, direct labor,  IT solutions
overhead, freight, insurance.
 Gaming software
o Service Providers: Salaries, employee
 Data provision
benefits, rental/depreciation of equipment,
supplies.  Payment solutions
o Banks: Interest expense included in cost of  Live studio streaming
services.

Section 28 - Rates of Income Tax on Foreign Corporations

(F) Offshore Gaming Licensees
(A) Tax on Resident Foreign Corporations
 Non-gaming revenues of offshore gaming licensees
are taxed at 25% of taxable income.  Standard tax rate: 25% (effective July 1, 2020).

 Licensees are regulated by:  Registered business enterprises under enhanced

deductions regime (Section 294(C)) taxed at 20% on
o Philippine Amusement and Gaming registered projects.
Corporation (PAGCOR)
(2) Minimum Corporate Income Tax for Resident Foreign
o Special economic zones, tourism zones, Corporations
freeport authorities
 Same conditions as Section 27(E):
(G) Accredited Service Providers to Offshore Gaming
o 2% of gross income unless regular tax is
Licensees
higher.
 Not subject to gaming tax under Section 125-A.
o Temporary reduction: 1% (July 1, 2020 – June
 Taxed at corporate rate under Section 27(A). 30, 2023).
 Definition of Accredited Service Provider: (3) Tax on International Carriers
o A juridical/natural person providing ancillary  Final tax rate: 2.5% on Gross Philippine Billings.
services to offshore gaming licensees.
Definition of Gross Philippine Billings:
o Services include:
 International Air Carrier:
 Customer and technical support
 o Gross revenue from carriage of passengers, (2) Minimum Corporate Income Tax
baggage, cargo, mail originating from the
 Tax rate: 2% of gross income (same conditions as
Philippines.
Section 27(E)).
o Includes revalidated, exchanged, or
 Temporary reduction: 1% (July 1, 2020 – June 30,
endorsed tickets if the passenger boards in
2023).
the Philippines.
(3) Tax on International Carriers
o If flight originates from the Philippines, but
transshipment occurs abroad, only the portion  Tax rate: 2.5% on Gross Philippine Billings, defined
flown from the Philippines is taxable. as:
 International Shipping: o Air Carriers: Gross revenue from transport of
passengers, baggage, cargo, mail originating
o Gross revenue from passenger, cargo, mail
from the Philippines.
originating from Philippines to final destination.
o Shipping: Gross revenue from passenger,
o Tax applies regardless of place of ticket/freight
cargo, mail transported from the Philippines to
document sale/payment.
final destination.
Here's your structured reviewer while keeping the original
 Exemption via Reciprocity or Treaties:
terminology intact:
 An international carrier may qualify for tax
Reviewer on Taxation of Corporations in the Philippines
exemption if its home country exempts Philippine
Chapter IV - Tax on Corporations carriers from income tax or if there is a tax treaty in
Section 28 - Rates of Income Tax on Foreign Corporations place.

(A) Tax on Resident Foreign Corporations (4) Tax on Branch Profits Remittances

(1) General Taxation  Tax rate: 15% on profits remitted by a branch to its
head office.
 Tax rate: 25% of taxable income derived within the
Philippines.  Taxable amount includes all profits applied or
earmarked for remittance.
 Registered business enterprises under enhanced
deductions regime (Section 294(C)) taxed at 20% on  Exclusions:
registered projects/activities.
 o Activities registered with the Philippine  Tax exemption for income from foreign currency
Economic Zone Authority (PEZA). transactions with nonresidents, offshore banking units,
and other depository banks under the system.
 Certain incomes of foreign corporations are NOT
treated as branch profits unless they are effectively  Exception:
connected with business operations in the Philippines:
o Interest income from foreign currency loans
 Interest, dividends, rents, royalties, technical service to Philippine residents taxed at 10%.
remuneration, salaries, wages, annuities, capital gains.
 Income of nonresidents from transactions with
(5) Regional or Area Headquarters and Regional Operating depository banks under this system is exempt from
Headquarters of Multinational Companies tax.
 Regional or area headquarters (Section 22(DD)) – (c) Capital Gains from Sale of Shares of Stock (Not Traded
Exempt from income tax. in Stock Exchange)
 Regional operating headquarters (Section 22(EE)) –  Final tax rate: 15% on net capital gains from
10% tax rate until January 1, 2022, after which they sale/barter/exchange/disposition of shares in domestic
are taxed at regular corporate income tax rates. corporations not traded on the stock exchange.
(6) Tax on Certain Income Received by Resident Foreign (d) Intercorporate Dividends
Corporations
 Dividends received by resident foreign
(a) Interest from Deposits, Deposit Substitutes, Trust corporations from domestic corporations are tax-
Funds, and Royalties exempt.
 Final tax rate: 20% on interest and royalties from (7) Offshore Gaming Licensees
Philippine sources.
 Non-gaming revenues earned within the Philippines
 Exception: by foreign-based offshore gaming licensees are taxed
at 25% of taxable income.
 Interest income from depository banks under the
expanded foreign currency deposit system is taxed (B) Tax on Nonresident Foreign Corporations
at 15%.
(1) General Taxation
(b) Income Under Expanded Foreign Currency Deposit
 Tax rate: 25% of gross income received from
System
Philippine sources.
  Taxable income includes:  Final withholding tax: 20% on interest from foreign
loans contracted on or after August 1, 1986.
 Interests, dividends, rents, royalties, salaries,
premiums (except reinsurance premiums), annuities, (b) Intercorporate Dividends
emoluments.
 Final withholding tax: 15% on cash/property
 Capital gains, except those taxed under Section dividends received from a domestic corporation.
28(A)(6)(c).
 Condition:
(2) Tax on Nonresident Cinematographic Film Owners,
 The nonresident corporation’s home country must
Lessors, Distributors
allow a tax credit equivalent to 15% (difference
 Tax rate: 25% of gross income earned from all between regular corporate tax and the dividend tax).
Philippine sources.
 Effective July 1, 2020, the credit must equal the
(3) Tax on Nonresident Owners/Lessors of Vessels difference between the regular corporate tax rate
Chartered by Philippine Nationals under Section 28(B)(1) and the 15% dividend tax.
 Tax rate: 4.5% of gross rentals, lease, or charter fees. (c) Capital Gains from Sale of Shares of Stock (Not Traded
in the Stock Exchange)
 Approval by the Maritime Industry Authority is
required.  Final tax rate: 15% on net capital gains realized from
sale/exchange/disposition of shares in a domestic
Reviewer on Taxation of Corporations in the Philippines
corporation, except those sold through the stock
Chapter IV - Tax on Corporations exchange.
Section 28 - Rates of Income Tax on Foreign Corporations
Section 29 - Repealed
(4) Tax on Nonresident Owners or Lessors of Aircraft,
Section 30 - Exemptions from Tax on Corporations
Machineries, and Other Equipment
The following organizations are exempt from taxation on
 Tax rate: 7.5% on gross rentals, charters, or other
income received in their official capacity:
fees.
1. Labor, agricultural, or horticultural organizations
(5) Tax on Certain Incomes Received by a Nonresident
(not principally for profit).
Foreign Corporation
2. Mutual savings banks & cooperative banks (without
(a) Interest on Foreign Loans
capital stock).
3. Beneficiary societies, orders, or associations, 11. Farmers' associations (operating as sales agents,
including: returning sales proceeds to members).
o Fraternal organizations under the lodge Limitation on Tax Exemptions
system
 Any income generated from properties
o Mutual aid associations (real/personal) or profit-driven activities by these
organizations is subject to regular taxation under the
o Nonstock corporations for employee welfare Code.
(life, sickness, accident benefits, etc.)
4. Cemetery companies (owned & operated exclusively
for members).
5. Nonstock corporations or associations exclusively
for:
o Religious, charitable, scientific, athletic,
cultural purposes
o Rehabilitation of veterans

o Provided that no income/assets benefit any

member/officer
6. Business leagues, chambers of commerce, boards
of trade (not for profit).
7. Civic organizations (not for profit, focused on social
welfare).
8. Nonstock & nonprofit educational institutions.
9. Government educational institutions.
10. Mutual insurance, irrigation, telephone, or similar
local associations (funded solely by member dues for
operational expenses).