Income Tax Classification of Expatriates in Philippines

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By; Tax and Accounting Center Philippines For foreign investors, one consideration on foreign investments in the Philippines is the payroll tax of its expatriates employees who will man the operations in the Philippines. For income tax purposes, an expatriate employee in the Philippines may be taxed as follows: Non-resident alien/expatriate in the Philippines An non-resident alien/expatriate in the Philippines is one who is not a citizen of the Philippines and who is not a resident of the Philippines but deriving income as employee in the Philippines. He is classified either as a non-resident alien: Not engaged in trade or business, or, Engaged in trade or business The determining factor is the aggregate length of presence in the Philippines. Under Section 25(A)(1) of the Philippines Tax Code, a non-resident alien who stayed an aggregate period of more than 180 days during any calendar year shall be deemed a non-resident alien doing

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Features of Minimum Corporate Income Tax in Philippines

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By: Tax and Accounting Center Philippines Under the Tax Code of the Philippines, a minimum corporate income tax (MCIT) in the Philippines of two percent (2%) of the gross income is imposed upon any domestic or resident foreign corporation beginning the fourth (4th) taxable year immediately following the taxable year in which such corporation commenced its business operations. The MCIT shall be imposed whenever such corporation has zero or negative taxable income or whenever the amount of minimum-corporate income tax is greater than the normal income tax due from such corporation. For better appreciation of MCIT in the Philippines, let us share you some of its features as follows: A corrective measure to ensure minimum contribution Prior to Republic Act No. 8424 that took effect January 1, 1998, the legislators had noticed the low income tax compliance of corporate taxpayers in the Philippines by simply declaring net loss to evade

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Waiver from the Defense of Prescription in Philippines

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By: Tax and Accounting Center Philippines As a matter of right under Section 203 of the Tax Code of the Philippines, as amended (Tax Code), the Bureau of Internal Revenue (BIR) has the power to examine the books of accounts and other accounting records of the taxpayers and make an assessment within three years, and we quote: “SECTION 203.   Period of Limitation Upon Assessment and Collection. — Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes

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Deductible Interest Expense for Income Tax in Philippines

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By: Tax and Accounting Center Philippines Interest expense is what the taxpayer pays for borrowed funds in the conduct of trade or practice of profession. It refers to the payment for the use or forbearance or detention of money, regardless of the name it is called or denominated. It includes the amount paid for the borrower’s use of money during the term of the loan, as well as for his detention of money after the due date for its repayment. Here are the requirements for deductibility of interest expense from taxable income laid down in Revenue Regulations No. 13-2000: There must be an indebtedness; There should be an interest expense paid or incurred upon such indebtedness; The indebtedness must be that of the taxpayer, The indebtedness must be connected with the taxpayer’s trade, business or exercise of profession. The interest expense must have been paid or incurred during the taxable

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Deductible Depreciation Expense for Income Tax in Philippines

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By: Tax and Accounting Center Philippines Depreciation expense in the Philippines refers to the reasonable allowance for the exhaustion, wear and tear (including reasonable allowance for obsolescence) of property used in the trade or business. This allowable deduction for income tax in the Philippines would allow taxpayer to recover the cost of its property, plant and equipment throughout the useful life of the property, plant, and equipment in the Philippines. As a result of the depreciation expense deduction in the Philippines, the taxable net income of a taxpayer (corporate or individual income taxpayer) will be reduced by the amount of depreciation expense deduction resulting to a tax benefit on the part of the taxpayer. In general, the taxpayer is given freedom to make reasonable estimates on the depreciation expenses as to useful life, depreciation method, and salvage value after the life of the depreciable asset. Useful life for depreciation expenses

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Withholding Taxes of Top 20,000 Corporations in Philippines

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By: Tax and Accounting Center Philippines Withholding tax of top 20,000 corporations in the Philippines notified by the Bureau of Internal Revenue (BIR or Tax Authorities) is the most misunderstood tax rule in the Philippines. As such, let us drop some lines and share our understanding of the withholding tax rules in the Philippines for top 20,000 taxpayers (TTC). Withholding tax on regular items The tax rules and regulations has provided withholding tax rules in the Philippines applicable to all taxpayers engaged in business or practice of profession with respect to certain income payments that they claim as deductible expense for income tax purposes. These rules apply also to top 20,000 corporations and the same rates are required to be withheld upon payment or accrual of top 20,000 corporations. Hereunder are some of them enumerated in Revenue Regulations No. 2-98, as amended: Rental or lease payments – 5% Professional fees

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Classification of Large Taxpayers in the Philippines

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By: Tax and Accounting Center Philippines Large Taxpayer is a taxpayer who has been classified as such in accordance with the criteria under Revenue Regulations No. 1-1998 (RR No. 1-98), and has been duly notified by the Commissioner of Internal Revenue (BIR). This would mean that the two (2) requirements must be complied with before a taxpayer could be classified as large taxpayer in the Philippines. Once notified by the BIR, it shall continue to be classified as large taxpayer in the Philippines until notified by the BIR to be reclassified as a non-large taxpayer in the Philippines. In reality, being large as to volume of operations is quite best, but being a large taxpayer for tax purposes may not be the best thing a taxpayer would wish for. First, the taxpayers have their own large taxpayer’s office where they have to coordinate with and it is a specialized office

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3 Tax Deductible Expenses with Limitations in Philippines

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By: Tax and Accounting Center Philippines As a rule, business expenses in the Philippines that is ordinary and necessary to the conduct of trade, business, or practice of profession in the Philippines is deductible to the extent of actual payments. In general, there is no limitation on deductible amount under the itemized deductions (as compared to optional standard deduction in the Philippines that is only up to 40% of gross income), except that is has to be reasonable. Under the following expenses however, the rules provides a limitation as to the amount deductible: Limitation on deductible Interest Expense in the Philippines Interest expense is what you pay for borrowed funds legitimately used in business. In the past, this has been used as a tax planning scheme where taxpayer would simply borrow funds from banks or financing institutions in order to generate deductible interest expense in the Philippines. The funds borrowed

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Exemptions from Documentary Stamp Tax in Philippines

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By: Tax and Accounting Center Philippines Documentary stamp tax in the Philippines is imposed upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, and shall be paid by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time such act is done or transaction had. Whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. However, out of the specific transactions and documents subject to documentary stamp tax in the Philippines, the tax rules in the Philippines provides for some exemptions. Under Section 199

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Value Added Tax Exemptions in the Philippines

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By: Tax and Accounting Center Philippines As a rule, any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax. Being an indirect tax that sellers may pass-on, prices would tend to escalate with the application of value added tax in the Philippines with respect to prime commodities, basic needs, and other preferred goods and services. For this reason, the value added tax rules in the Philippines provide for exemptions from value added tax applications. Under Section 109 of the tax Code, as amended, the following transactions shall be exempt from the value added tax: (A)   Sale or importation of agricultural and marine food products in their original state, livestock and poultry of or king generally used as, or yielding or producing foods for human consumption; and breeding

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