Taxes Common to Taxpayers. Income Tax, VAT, Other Percentage Tax, Withholding Taxes. 18 July 2012

Transcription

1 : Income Tax, VAT, Other Percentage Tax, Withholding Taxes 18 July 2012 Discussion Outline Income Tax General Principles Taxability of Individuals Taxability of Corporations Gross Income Allowable Deductions from Gross Income Unallowable Deductions from Gross Income Filing of Returns and Administrative Requirements Slide 2 Page 1

2 Discussion Outline Value-Added Tax General Principles Input VAT on Capital Goods Treatment of Excess Input VAT Filing of Returns and Administrative Requirements Other Percentage Taxes Persons Subject to Percentage Tax and Percentage Tax Rates Filing of Returns and Administrative Requirements Withholding Taxes Nature of Different Common Withholding Taxes Withholding Agents Withholding Tax Rates Filing of Returns and Administrative Requirements Slide 3 Income Tax Slide 4 Page 2

3 General Principles Slide 5 General Principles Individuals Resident citizen: taxable on all income derived from sources within and without the Philippines Non-resident citizen: taxable only on income derived d from sources within the Philippines Corporations Domestic corporation - taxable on all income derived from sources within and without the Philippines Foreign Corporations (resident and non-resident) taxable only on Philippine-sourced income Slide 6 Page 3

4 Taxability of Individuals Slide 7 Taxability of Individuals Graduated tax rates: Over But Not Over Amount / Rate Of Excess Over Not over 10,000 5% - 10,000 30, % 10,000 30,000 70,000 2, % 30,000 70, ,000 8, % 70, , ,000 22, % 140, , ,000 50, % 250, ,000 over 125, % 500,000 Married individuals: Husband and Wife compute separately individual income tax Income which cannot be directly attributed to either of the spouse, divided equally between them. Slide 8 Page 4

5 Taxability of Individuals Personal exemptions: Basic personal exemption - P50,000 for each individual taxpayer Additional personal exemption - P25,000 for each dependent not exceeding four (4) Husband proper claimant of additional personal exemption for children except: a. Husband is unemployed b. Husband is non-resident citizen deriving income from foreign sources c. Husband waives his right to claim the exemptions of children (waiver should be for all children) in a sworn statement to be attached to his Application for Registration (BIR Form No. 1902) and that of his wife's Slide 9 Passive Income Subject to Final Tax for Individuals Interests, royalties, prizes and other winnings 20% final tax, except if prizes does not exceed P10,000 Royalties on books literary works and musical compositions 10% final tax Interest income received by an individual taxpayer from a depository bank under the expanded foreign currency deposit system 7.5% final tax Interest income from long term investment held for more than 5 years and in accordance with the prescribed rules exempt Cash and/or property dividends 10% final tax Capital gains from sale of shares of stocks not traded in the stock exchange 5% for not over P100,000 and 10% for in excess of P100,000 Capital gains from sale of real property 6% based on the gross selling price or current fair market value, whichever is higher. Slide 10 Page 5

6 Taxability of Corporations Slide 11 Taxability of Corporations Domestic corporation: 30% Regular Corporate Income Tax (RCIT) based on taxable income derived during each taxable year from all sources within and without the Philippines. 2% Minimum Corporate Income Tax (MCIT) Applicable if greater than 30% RCIT Beginning on the fourth taxable year immediately following the year in which such corporation commenced its operation. Slide 12 Page 6

7 Taxability of Corporations 2% MCIT (cont d): Excess MCIT over RCIT Carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years. Secretary of Finance - authorized to suspend imposition of MCIT on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverses. Computed in quarterly income tax return and annual income tax return. Slide 13 Passive Income Subject to Final Tax for Corporations Interests, royalties, prizes and other winnings 20% final tax Interest income received by an domestic corporation from a depository bank under the expanded foreign currency deposit system 7.5% final tax Intercorporate t dividends id d dividends id d received by a domestic corporation from another domestic corporation shall not be subject to tax Capital gains from sale of shares of stocks not traded in the stock exchange a final tax on the net capital gains realized as follows: Not over P100,000 5% Amount in excess of P100,000 10% Capital gains from sale of real property 6% based on the gross selling price or current fair market value, whichever is higher. Slide 14 Page 7

8 10% Improperly Accumulated Earnings Tax (IAET) 10% of the improperly accumulated taxable income Applies to every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders h or the shareholders h of any other corporation by permitting earnings and profits to accumulate instead of being divided or distributed. Exempt from IAET Banks and other non-bank financial intermediaries Insurance companies Publicly-held l ld corporations Taxable partnerships Slide 15 10% Improperly Accumulated Earnings Tax (IAET) Exempt from IAET (cont d): Non-taxable joint ventures PEZA-registered enterprises BCDA-registered enterprises Other entities registered under special economic zones enjoying special tax rates on their registered operations or activities in lieu of other taxes, national or local Branches of a foreign corporation or resident foreign corporation. Closely-held corporations Corporations at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than 20 individuals. Domestic corporations not falling under this definition considered publiclyheld corporations. Slide 16 Page 8

9 10% Improperly Accumulated Earnings Tax (IAET) Evidence of purpose to avoid income tax: Prima Facie Evidence Mere holding company or investment company Evidence Determinative of Purpose Earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business (i.e., retained earnings is in excess of 100% of paid up capital) unless proven to the contrary. Paid-up capital Par value of the shares of stock (RMC No ) Slide 17 Gross Income Slide 18 Page 9

10 Gross Income All income derived from whatever source, except certain items as provided by the Tax Code, including (but not limited to) the following: Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items Gross income derived from the conduct of trade or business or the exercise of a profession Gains derived from dealings in property Interests (except those already subject to final tax or exempt from income tax) Rents Royalties Dividends (except those already subject to final tax or exempt from income tax) Annuities Prizes and winnings (except those already subject to final tax or exempt from tax) Pensions Partner's distributive share from the net income of the general professional partnership. Slide 19 Gross Income Exclusions: Life insurance however, interests, if any, shall be included in the gross income Amounts received by the Insured as return of premiums paid under life insurance Gifts, bequests and devices Compensation for injuries and sickness including the amounts of any damages received, whether by suit or agreement, on account of such injuries and sickness Income exempt under Treaty Retirement benefits, pensions, gratuities, etc. Prizes and awards provided that the recipient was selected without any action on his part to enter the contest or proceeding and the recipient is not required to render substantial future services as a condition to receiving the prize or award Gains from the sale of bonds, debentures or other certificate of indebtedness with a maturity of more than 5 years (applicable to individuals only) Gains from redemption of shares in mutual fund Slide 20 Page 10

11 Allowable Deductions from Gross Income Slide 21 Allowable Deductions from Gross Income Expenses Ordinary and necessary expenses paid or incurred during the taxable year Directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession Interests Paid or incurred during the taxable year Related to indebtedness in connection with the taxpayer's profession, trade or business If taxpayer has interest income subject to final tax Amount of interest expense reduced by 33% of such interest income. Interests paid to related parties not allowable deduction Slide 22 Page 11

12 Allowable Deductions from Gross Income Taxes Paid or incurred within the taxable year Related to taxpayer's profession, trade or business Exception Income tax under Title II of the Tax Code Income taxes imposed by authority of any foreign country Estate and donor s taxes Taxes assessed against local benefits of a kind tending to increase the value of the property assessed. Taxes allowed as deduction (e.g., not among the exceptions above) are refunded or credited Part of gross income in the year of receipt subject to tax benefit doctrine Slide 23 Allowable Deductions from Gross Income Losses actually sustained during the taxable year not compensated for by insurance or other forms of indemnity Incurred in trade or business Property connected with trade or business (loss arising from fires, storms, shipwreck, or other casualties, or from robbery, etc.) Sworn declaration of loss submit to BIR within 45 days from discovery of the casualty or robbery, theft or embezzlement Net Operating Loss Carry-Over (NOLCO) deductible for the next 3 consecutive taxable years immediately following the year of such loss. Provided: taxpayer is not exempt from income tax during the year of the loss, and no substantial change in ownership of the business or enterprise Slide 24 Page 12

13 Allowable Deductions from Gross Income Capital losses Deductible up to the extent of capital gains Individuals: any excess capital losses over the capital gains (in an amount not in excess of the net income for such year), after considering the allowable percentage of deduction, may be carried over for not more than 12 months. Wash sales of stocks or securities Wagering losses Arising from wagers/betting games (other than those already subject to other percentage tax, such as illegal gambling, endings, etc.) Deductible only up to the extent of gains from such transaction Abandonment losses Slide 25 Allowable Deductions from Gross Income Depreciation Depletion of oil and gas wells and mines Charitable and other contributions Individuals not in excess of 10% of taxable income before donation Corporations not in excess of 5% of taxable income before donation Deductible in full donations to: Government Certain foreign institutions or international organization Accredited nongovernment organization subject to compliance with certain requirements Certificate/s of Donation required as proof for deductibility Slide 26 Page 13

14 Allowable Deductions from Gross Income Research and development Pension trusts Additional requirements for deductibility of certain payments properly subjected to appropriate withholding taxes (e.g., expanded withholding tax, final withholding tax, etc.) Optional Standard Deduction (OSD) Slide 27 40% Optional Standard Deduction (OSD) Available to: Individuals subject to the graduated tax rates (i.e., individuals who does not purely derive income from compensation) 40% of his gross sales or gross receipts Corporations 40% of its gross income. Intention to avail of the OSD must be disclosed in 1 st quarter ITR Irrevocable for the taxable year Individuals availing of OSD not required to submit financial statements as attachment to ITR Records pertaining to gross sales/receipts or gross income must still be kept Slide 28 Page 14

15 Unallowable Deductions from Gross Income Slide 29 Unallowable Deductions from Gross Income Personal, living or family expenses Any amount paid out for new buildings or for permanent improvements, or betterments made to increase the value of any property or estate Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy Losses from sales or exchanges of property directly or indirectly Between members of a family Between an individual and a corporation more than 50% in value of the outstanding stock of which is owned by the individual Slide 30 Page 15

16 Filing of Returns and Administrative Requirements Slide 31 Filing of Returns and Administrative Requirements Individuals (cont d): Where to file AAB, RDO, Collection Agent or duly authorized Treasurer of the city or municipality in which such person has his legal residence or principal p place of business in the Philippines, or if there be no legal residence or place of business in the Philippines, with the Office of the Commissioner. When to file and pay: Declaration of income tax Every individual receiving self-employment income On or before April 15 of the same taxable year. Slide 32 Page 16

17 Filing of Returns and Administrative Requirements Individuals (cont d): When to file and pay (cont d): Quarterly income tax return payment shall be made in 4 installments. 1 st installment: at the time of the declaration (on or before April 15) 2 nd installment: on or before August 15 of the current year 3 rd installment: on or before November 15 of the current year 4 th installment: on or before April 15 of the following calendar year Annual income tax return - Lump sum payment: on or before April 15 of the following calendar year Installment payment: applicable if tax due is in excess of P2,000 1 st installment: at the time the return is filed 2 nd installment: on or before July 15 following the close of the calendar year. Slide 33 Filing of Returns and Administrative Requirements Individuals (cont d): Married individuals, whether citizens, resident or nonresident aliens, who do not derive income purely from compensation file a return for the taxable year to include the income of both spouses, If impracticable for the spouses to file one return each spouse may file a separate return of income BIR shall consolidate the filed returns for verification Income of unmarried minors derived from property received from a living parent shall be included in the return of the parent, except: when the donor's tax has been paid on such propertyp when the transfer of such property is exempt from donor's tax Slide 34 Page 17

18 Filing of Returns and Administrative Requirements Corporations: Deadline for filing and payment: Quarterly income tax return (BIR Form No. 1702Q): 60 days after the close of each of the first 3 quarters of the taxable year. Annual income tax return (BIR Form No. 1702): 15 th day of the 4 th month following the end of the year Required attachments upon filing to the BIR: Audited financial statements Statement of Management Responsibility Original copies of creditable withholding taxes (CWT), if any Hard or softcopy of the summary alphalist li of withholding taxes (SAWT), as applicable Other supporting schedules, if applicable Slide 35 Value Added Tax (VAT) Slide 36 Page 18

19 General Principles Slide 37 General Principles Imposed on any person who sells, barters, exchanges, leases goods or properties and renders services in the course of trade or business Imposed on any person who imports goods. Indirect tax- amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. In the course of trade or business (Rule of Regularity) regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person or government entity. Incidental something necessary, appertaining to, or depending upon another which is termed the principal, something incident to the main purpose. Annual sales and/or receipts does not exceed P1,919,500 not subject to VAT, but subject to percentage tax. Slide 38 Page 19

20 General Principles VAT Rates Taxable General Rate: 12% Special Rate: 0% Exempt Zero-rated Sales Subject to VAT at 0% rate. Input taxes allocable/ attributable to the zero-rated sale may be claimed as input tax credit Exempt Sales Not subject to VAT Input taxes allocable/ attributable to the VAT exempt sale cannot be claimed as input tax credit but shall form part of costs. Slide 39 General Principles VAT Base Sale of goods gross selling price Less: sales returns and allowances and sales discounts Add: charges for packaging, delivery & insurance Add: excise taxes if goods are subject to excise tax Sale of services gross receipts Slide 40 Page 20

21 Substantiation Requirements VAT invoice for sale, barter or exchange of goods or properties VAT OR for lease of goods or properties, and every sale, barter or exchange of services The amount of VAT shall be shown as a separate item in the invoice or receipt VAT-exempt sale shall be written or printed prominently on the invoice or receipt for VAT exempt transactions Zero-rated sale shall be written or printed prominently on the invoice or receipt for zero-rated transactions Slide 41 Supporting documents for claiming input tax Domestic purchases of goods or properties made in the course of trade or business VAT invoice Domestic purchase of services VAT OR Importation Original import entry internal revenue declaration (IEIRD) or other equivalent document showing actual payment of VAT on importation Transitional input tax inventory of goods as shown in a detailed list to be submitted to the BIR Deemed sale transactions required invoices Payments to non-residents (such as for services, rentals or royalties) Monthly WVAT Return (BIR Form 1600) filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due which was withheld by the payor Slide 42 Page 21

22 Input VAT on Capital Goods Slide 43 Input VAT on depreciable Capital Goods Computation of input tax if the aggregate acquisition cost (exclusive of VAT) in a calendar month, regardless of acquisition cost of each capital good, shall: Exceed P1 million: - If estimated useful life of a capital good is 5 years or more: Monthly Input Total Input Tax Tax 60 Months - If estimated useful life of a capital good is less than 5 years Monthly Input Total Input Tax Tax Estimated Useful Life in Months NOT exceed P1 million: - Total input tax allowed as credit against output tax in the month of acquisition Slide 44 Page 22

23 Treatment of Excess Input VAT Slide 45 Treatment of Excess Input VAT Carried-over Claimed as Refund Claimed as Tax Credit Certificate (TCC) Period of application: Zero-rated and effectively zero-rated sales Within 2 years after the close of taxable quarter when such sales were made Cancellation of VAT registration Registration is cancelled due to retirement from, cessation of business, or due to changes in or cessation of status t as VAT taxpayer Within 2 years from date of cancellation Slide 46 Page 23

24 Filing of Returns and Administrative Requirements Slide 47 Filing of Returns and Administrative Requirements If manual: Monthly VAT declaration: within 20 days following the end of each month Quarterly VAT return: within 25 days following the close of each taxable quarter Quarterly returns should reflect the cumulative totals of the sales, purchases, output tax and input tax for the taxable quarter Withholding VAT return: on the 10 th day of the following month If through Electronic Filing and Payment System (EFPS): Monthly VAT declaration: Filing: depends on the industry classification of the taxpayer Payment: 25 days from the end of the month Quarterly VAT return: same as the deadline for manual Withholding VAT return: same as the deadline for manual Slide 48 Page 24

25 Filing of Returns and Administrative Requirements Quarterly Summary Lists of Sales (QSLS) and Quarterly Summary Lists of Purchases (QSLP) are required for the following: Persons liable for VAT Before January 1, 2012 Required for taxpayers with quarterly purchases not exceeding P1,000,000 and quarterly sales not exceeding P2,500,000 are not required to submit QSLS/P Beginning January 1, 2012 All taxpayers Slide 49 Filing of Returns and Administrative Requirements Manner of Submission: Manual: USB/CD/DVD to the RDO or LTDO or LTAD within 25 days following the close of each taxable quarter EFPS Through EFPS within 30 days following the close of each taxable quarter Slide 50 Page 25

26 Other Percentage Taxes Slide 51 Persons Subject to Percentage Tax and the Applicable Percentage Tax Rates Tax on persons exempt from VAT Gross annual sales and/or receipts do not exceed P1,500,000, and not VAT-registered Threshold h increased from P1,500, to P1,919,500 beginning i January 1, 2012 pursuant to RR No Cooperatives exempt from the 3% gross receipts tax. Rate: 3% of his gross monthly sales or receipts Slide 52 Page 26

27 Filing of Returns and Administrative Requirements Slide 53 Filing of Returns and Administrative Requirements Payment: not be later than the 20 th day following the end of each month. For person retiring from a business notify nearest RDO, file return and pay the tax due thereon within 20 days after closing of business Filing shall be made with: Authorized Agent Bank (AAB) within the territorial jurisdiction of the Revenue District Office where the taxpayer is required to register/conducting business. In case no AABs with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer within the Revenue District Office where the taxpayer is required to register/conducting business. Consolidated return for head office and branches Required for large taxpayers Others may opt to file either consolidated or individual returns Slide 54 Page 27

28 Withholding Taxes Slide 55 Different Kinds of Common Withholding Taxes Kinds Expanded Withholding Tax Final Withholding Tax Withholding Value-Added Tax (VAT) Fringe Benefit Tax Withholding Tax on Wages Nature Income tax withheld on income payments creditable against income tax due from payee Income tax withheld on income payments full payment of income tax due from payee VAT withheld may be final or creditable against VAT liability of payee Income tax withheld on benefits of officers full payment of related income tax due from officers Income tax withheld on compensation of employees payment of income tax due on compensation to employees Slide 56 Page 28

29 Who are Withholding Agents? Any juridical person, whether or not engaged in trade or business; An individual, with respect to payments made in connection with his trade or business. In exchanges or transfers of real property, the buyers, whether or not engaged in trade or business, are constituted as withholding agents. In any case, no Certificate Authorizing Registration (CAR)/ Tax Clearance Certificate (TCC) shall be issued to the buyer unless the withholding tax due on the sale, transfer or exchange of property has been duly paid. All government offices including government-owned owned or controlled corporations, as well as provincial, city, and municipal governments and barangays; Slide 57 Who are Withholding Agents? Agents, employees, or any person purchasing goods or services/paying for and in behalf of the aforesaid withholding agents Provided that the ORs of payment/sales invoice shall be issued in the name of the person whom the former represents and the corresponding certificate of taxes withheld (BIR Form No. 2307) shall immediately be issued upon withholding of the tax. (RR dated December 12, 2003) Person having control over the payment and who, at the same time, claims the expenses Slide 58 Page 29

30 When the obligation to withhold arises At the time an income payment is: Paid, or Payable,, or Accrued or recorded as an expense or asset, whichever is applicable, in the payors books whichever comes first (Section of RR No as amended by Section 4 of RR No ) Slide 59 Expanded Withholding Tax (EWT) Slide 60 Page 30

31 Basic Principles Only payments enumerated under the EWT regulations are subject to EWT. Payee and the payor must be residents of the Philippines (except payments to non-resident aliens engaged in trade or business in the Philippines). Not a final tax. EWT Base: Gross billing on payments made to a Non-VAT registered supplier of goods or services; Gross amount paid exclusive or net of VAT on payments made to a VAT-registered supplier of goods and services CWT Certificate (BIR Form 2307) Furnished in triplicate within 20 days following the close of the taxable quarter employed by the payee in filing his/its quarterly ITR unless requested by the payee to be submitted simultaneously with the income payment. Slide 61 Payments to which entities are not subject to withholding Section of RR 2-98 A. National government and its instrumentalities and barangays except government-owned and controlled corporations. B. Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following: 1. Sales of real property by a corporation which is registered with and certified by the Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed P180,000 in Metro Manila and other highly urbanized areas and P150,000 in other areas or such adjusted amount of selling price for socialized housing as may later be determined and adopted by the HLURB, as provided under R.A. No and its implementing regulations (Underscored phrase amendment introduced by RR No ) Slide 62 Page 31

32 Payments to which entities are not subject to withholding 2. Corporations duly registered with the BOI, PEZA and SBMA enjoying exemption from income tax 3. Corporations which are exempt from the income tax under Section 30 of the Tax Code: Government Service Insurance System (GSIS); Social Security System (SSS); Philippine Health Insurance Corporation (PHIC); Philippine Charity Sweepstakes Office (PCSO); and However, the income payments arising from any activity which is conducted for profit or income derived from real or personal property shall be subject to a withholding tax as prescribed in these regulations. 4. General Professional Partnerships (RR ) 5. Joint ventures or consortia formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal & other energy operations pursuant to an operating or consortium agreement under a service contract with the government (RR ) (Underscored phrase amendment introduced by RR No ) Slide 63 EWT Rates Taxable Individuals Payee Tax Base Tax Rate Gross professional, promotional and talent fees, or any other form of remuneration (Fees, per diems, allowances, and any other form of income payments NOT subject to withholding tax on compensation) 15 %* -- if the current year s gross income of payee exceeds P 720, %* -- if the current year s gross income of payee does not exceed P 720,000 10% - if without sworn declaration stating that his gross income has exceeded P720,000 15% - if without sworn declaration that its gross income did not exceed P720,000 starting July 1 15% - for the subsequent payments if accumulated payments within the year exceeding P720,000 to a particular payee, Slide 64 Page 32

33 EWT Rates Taxable Juridical Persons Payee Tax Base Tax Rate Gross professional, promotional and talent fees or any other form of remuneration for services Lessors of: a. Real Properties Gross rental 5% b. Personal Properties c. Poles, satellites, and transmission facilities d. Billboards 15% -- if the current year s gross income of payee exceeds P720, % -- if the current year s gross income of payee does not exceed P720,000 (refer to previous slide) Slide 65 Rentals of Real Property 5% Rentals of Real Properties Income Payments EWT Application 1. Advance Rentals Subject to EWT at the time of payment (RR No. 2-98, as amended) 2. Subsequent Rental Payments Subject to EWT at the time paid, payable, or accrued (last month of the quarter claimed as expense), whichever comes first (RR No. 2-98, as amended) 3. Security Deposits Subject to EWT at the time applied as rentals (BIR Ruling UN dated January 24, 1988) 4. Real Property Taxes If paid by the lessee in behalf of the lessor subject to EWT (RR No. 2) Slide 66 Page 33

34 EWT Rates Payee Tax Base Tax Rate Cinematographic film owners, lessor, or distributors, whether individual or corporate General Engineering/ Building/ Specialty Contractors Gross payment 5% Gross payment 2% Other Contractors Gross payment 2% Slide 67 RMC No dated January 22, 2007 Tax treatment of agency fees and salaries of security guards Tax Type Treatment Income Tax Agency fees and salaries of the guards - deductible from gross income (subject to withholding tax rules) Amount deductible should be net of VAT (except if taxpayer is not VAT registered) Value-Added Tax Withholding Tax Can claim input tax on agency fees, if supported by VAT ORs (except if taxpayer is non-vat) Generally, no input VAT claimable on salaries of the guards Agency fee subject to 2% EWT Salaries of guards not subject to EWT if certain conditions are met Slide 68 Page 34

35 EWT Rates Payee Tax Base Tax Rate Customs, insurance, Gross commissions 10% stock, real estate, immigration and commercial brokers and agents of professional entertainers or service fees (RR ) Business establishments on payments made by credit card companies for sale of goods/services by each business entity to cardholders One-half (1/2) of gross payments 1% Slide 69 EWT Rates Payee Tax Base Tax Rate Medical practitioners (including doctors of medicine, veterinarians Professional fees 15% -- if the income payments to medical practitioner exceeds and dentists) P720,000 10% -- if the income payments to medical practitioner does not exceed P720,000 Slide 70 Page 35

36 EWT Rates Payee Tax Base Tax Rate Income payments by Top 20,000 private corporations* to their local/resident suppliers of goods and services other than those covered by other rates of withholding tax a. Supplier of goods Gross Selling Price, or total amount of goods or its equivalent 1% b. Supplier of goods Gross Payments 2% * If notified by the BIR as Top 20,000 Corporation (TTC) Slide 71 EWT Clarifications in RMC No Payments to Meralco by TTC/GO/LT- EWT base: current amount due appearing in the billing statement. Payments to telecommunication companies by TTC/GO/LT on overseas dispatch, message or conversation originating in the Philippines EWT rate: 2% EWT base: amount paid less the overseas communications tax. Payment to Meralco and telecommunications companies by the TTC/GO/LT EWT rate: 2% as payment for services Payment for movie/concert tickets EWT rate: 2% as payment for services Payment of interest on bank loans by the TTC/GO/LT and other fees paid to the bank EWT rate: 2% Slide 72 Page 36

37 EWT Clarifications in RMC No Payments for life and non-life insurance premium by the TTC/GO/LT to domestic/resident foreign insurance companies EWT rate: 2% as payment for services Premium payments to insurance companies through h brokers or agents or any other person authorized to receive/collect payment on behalf of the insurance company EWT rate: 2% Withholding agent: payor or person having control over the payment. However, payor is required to issue the certificate of taxes withheld (BIR Form No. 2307) in the name of the insurance company, not in the name of the insurance broker. Payment made to Health Maintenance Organizations (HMOs) by TTC/GO/LT EWT rate: 2% as payment for services Slide 73 Final Withholding Tax (FWT) Slide 74 Page 37

38 Basic Principles Full and final payment of the income tax due from the payee on a particular type of income subject to FWT (e.g., interest on deposits, royalties, etc.) Limited only to the payee s income tax liability and does not extend to other taxes that may be imposed on said income. Liability for the payment of the tax rests primarily on the payor as withholding agent. Payee is not required to file an income tax return for the particular income subjected to FWT. Slide 75 Commonly used FWT Rates Income Payment Tax Rate Payee Gross income derived from all sources within the Philippines such as interests, t dividends, id d rents, royalties, annuities emoluments, or other fixed or determinable annual, periodic or casual gains, profits and income and capital gains (except capital gains realized from sale, exchange, disposition of shares of stock in any domestic corporation which h is subject to CGT). 30% Non-resident Foreign Corporation Interest income on Foreign Loans contracted on or after August 1, % Non-resident Foreign Corporation Slide 76 Page 38

39 Tax Treaty Relief RMO No The following Tax Treaty Relief Applications (TTRAs) forms shall henceforth be adopted to implement this RMO: Form No. BIR Form No P BIR Form No T BIR Form No D BIR Form No I BIR Form No R BIR Form No C BIR Form No S BIR Form No O For Business Profits Purpose For Profits from Shipping and Air Transport For Dividend Income For Interest Income For Royalty Income For Capital Gains For Income from Services For Other Income Earnings Slide 77 Tax Treaty Relief Applications: RMO Shall only be submitted to and received by the International Tax Affairs Division (ITAD). Must be made BEFORE the transaction or before the first taxable event. Disqualification failure to file with ITAD within the prescribed period Slide 78 Page 39

40 Fringe Benefit Tax (FBT) Slide 79 Basic Principles Fringe benefits furnished or granted to: Rank and file employees part of the employee s gross compensation income subject to WTW. Non-rank and file employees subject to FBT. EMPLOYER is liable to FBT. Slide 80 Page 40

41 Fringe Benefit Tax Rate and Base FBT Rate and FBT Base Generally FBT rate = 32%; FBT base = monetary value of benefit divide by 68% Non-resident alien individual who is not engaged in trade or business in the Philippines i FBT rate = 25%; FBT base = monetary value of benefit divide by 75% If given to: (1) an alien individual employed by regional or area headquarters of a multinational company or by regional operating headquarters of a multinational company; (2) an alien individual employed by an offshore banking unit of a foreign bank established in the Philippines; (3) an alien individual employed by a foreign service contractor or by a foreign service subcontractor engaged in petroleum operations in the Philippines; and (4) any of their Filipino individual employees who are employed and occupying the same position as those occupied or held by the alien employees. FBT rate =15%; FBT base = monetary value of benefit divide by 85% Gross Monetary Value (GMV) = Value of Benefit + FBT Slide 81 Fringe Benefits NOT Subject to FBT 1. Fringe benefits which are authorized and exempted from income tax under the Code or under any special law; 2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; 3. Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; 4. De minimis benefits as will be discussed in detail in later slides; 5. If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or 6. If the grant of the fringe benefit is for the convenience or advantage of the employer. If fringe benefit is exempt from FBT may still form part of employee s gross compensation income subject to WTW Slide 82 Page 41

42 Valuation of Fringe Benefits (FB) 1. If FB is granted in money, or is directly paid for by the employer 2. If the FB is granted or furnished by the employer in property other than money and ownership is transferred to the employee 3. If the FB is granted or furnished by the employer in property p other than money but ownership is not transferred to the employee The value of the FB is the amount granted or paid for. The value of the FB shall be equal to the FMV of the property as determined in accordance with Section 6(E) of the Tax Code (Authority of the Comm. To Prescribe Real Property Values). The value of FB is equal to the depreciation value of the property. p Slide 83 Valuation of Fringe Benefits (FB) Computation of the FBT would entail: 1. valuation of the benefit granted; and 2. determination of the proportion or percentage of the benefit which is subject to FBT Nature of benefit given Valuation of Fringe Benefit 1. If FB is granted in money, or is Amount granted or paid for directly paid for by the employer 2. If the FB is granted or furnished by FMV of the property as determined in the employer in property other accordance with Section 6(E) of the than money and ownership is Tax Code (Authority of the Comm. To transferred to the employee Prescribe Real Property Values) 3. If the FB is granted or furnished by Depreciation of the property the employer in property other than money but ownership is not transferred to the employee Slide 84 Page 42

43 Common Benefits Housing Expense account Motor vehicle of any kind Household expenses Interest on loans 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 employee in social and athletic clubs or other similar organizations Foreign travel expenses Holiday and vacation expenses Educational assistance to the employee and his dependents Life or health insurance and other non-life insurance premiums Stock options Slide 85 Housing Privileges NRF Housing Privilege a. Lease of residential property for residential use of employees b. Assignment of residential property for use of employee as his usual place of residence Monetary Value MV = 50% x rental payments Where: MV = monetary value of FB MV = [5% (FMV or ZV, whichever is higher)] x 50% Where: FMV = ZV = Fair market value of the land improvement, as declared in the Real Property Tax Declaration Form Zonal Value as determined by the Commissioner of Internal Revenue Slide 86 Page 43

44 Housing Privileges NRF Housing Privilege c. Purchase of residential property on installment basis for use of employees and ownership is not transferred to employees d. Purchase of residential property and ownership is transferred in the name of the employees e. Purchase of residential property and transfer of ownership to employees for residential use, at a price less than the employer s acquisition cost Monetary Value MV = 5% x AC x 50% Where: AC = Acquisition iti Cost, exclusive of interest MV = AC or ZV, whichever is higher MV = FMV or ZV, (whichever is higher) - Cost to the employees Slide 87 Motor Vehicle NRF Motor vehicles provided by the employer to its employees shall be treated as follows: Motor Vehicle a. Purchase of motor vehicle in the name of the employee Monetary Value MV = AC b. Cash is given to the employee for the purchase of the vehicle, ownership is placed in the name of the employee c. Purchase of car on installment basis, the ownership of which is placed in the name of the employee MV = Cash Received by the Employee However, if the cash given by the employer to its employee is subjected to WTW, the same shall not be subject to FBT. MV = AC / 5 Where: AC = Acquisition Cost, exclusive of interest Slide 88 Page 44

45 Motor Vehicle NRF Motor vehicles provided by the employer to its employees shall be treated as follows: Motor Vehicle Monetary Value d. Employer shoulders a portion of the MV = Amount shouldered by the purchase price, the ownership of which employer is placed in the name of the employee e. Employer owns and maintains a fleet of motor vehicles for use of the business and the employees f. Employer leases and maintains a fleet of motor vehicles for the use of the business and the employees Slide 89 MV = (AC/5) x50% Exceptions: Motor vehicles in the fleet which are used for sales, freight, delivery, service and other non-personal use. MV = 50% x rental payments Exceptions: Motor vehicles in the fleet which are used for sales, freight, delivery, service and other non-personal use Motor Vehicle NRF Motor vehicles provided by the employer to its employees shall be treated as follows: Motor Vehicle g. The use of aircraft (including helicopters) owned and maintained by the employer shall be treated as used for business h. Use of yacht, whether owned or maintained or leased by the employer Monetary Value N/A (Not subject to FBT) MV = Depreciation over estimated useful life of 20 years For a to d The entire MV of the benefit shall be treated as taxable fringe benefit regardless of whether the motor vehicle is used by the employee partly for his personal purpose and partly for the benefit of his employer. Slide 90 Page 45

46 Withholding Tax on Wages (WTW) Slide 91 Basic Principles Compensation All remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Tax Code. Even if the relationship of employer and employee does not exist any longer at the time when payment is made Slide 92 Page 46

47 WTW rate Rates for computation of Annualized Income* Over But Not Amount Rate Of Excess Over Over not over 10, % 10,000 30, % 10,000 30,000 70,000 2,500+15% 30,000 70, ,000 8,500+20% 70, , ,000 22,500+25% 140, , ,000 50,000+30% 250, ,000 over 125,000+32% 500,000 * Note that there are different tax tables for monthly/ semi-monthly/ weekly/ bi-weekly rates depending on the payroll period. Slide 93 List of De Minimis Benefits: RR No a) Monetized unused vacation leave credits of private employees not exceeding 10 days during the year; b) Monetized value of vacation and sick leave credits paid to government officials and employees; c) Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month; d) Rice subsidy of P1,500 or 1 sack of 50 kg rice per month amounting to not more than P1,500; e) Uniform and clothing allowance not exceeding P4,000 per annum; (Now P5,000 effective January 1, 2012 per RR No ) f) Actual medical assistance, e.g., medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000 per annum; g) Laundry allowance not exceeding P300 per month; Slide 94 Page 47

48 List of De Minimis Benefits h) Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000, received by the employee under an established written plana which does not discriminate in favor of highly paid employees; i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum; j) Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum wage on a per region basis. Benefits given that are not enumerated above Not considered as de minimis benefits, Shall be subject to income tax as well as withholding tax on compensation income (shall mean FBT if given to NRF employees) Slide 95 Employees Qualified for Substituted Filing a) Receiving purely compensation income (regardless of amount) during the taxable year b) Receiving the income only from one employer in the Philippines during the taxable year c) Amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer d) Spouse also complies with all 3 conditions stated above. e) Employer files the annual information return (BIR Form No CF) f) Employer issues BIR Form 2316 (Oct 2002 ENCS) version to each employee Slide 96 Page 48

49 Employees NOT Qualified for Substituted Filing A. Deriving compensation from two or more employers concurrently or successively at anytime during the taxable year. B. Deriving i compensation income, regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return. C. Whose gross compensation income do not exceed the statutory minimum wage or Five Thousand Pesos (P5,000.00) per month (Sixty Thousand Pesos [PHP 60,000] a year, whichever is higher, including employees of the government of the Philippines, or any of its political subdivisions, agencies or instrumentalities, with salary grades 1 to 3. Slide 97 Employees NOT Qualified for Substituted Filing D. Deriving other non-business, non-profession-related income in addition to compensation income not otherwise subject to a final tax. E. Receiving i purely compensation income from a single employer, although h the income tax of which has been correctly withheld, but whose spouse falls under Section 2.83A(A), (B), (C) and (D) of these Regulations. F. Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income, or compensation income and other non-business, non-profession-related income. Slide 98 Page 49

50 Filing of Returns and Administrative Requirements Slide 99 Deadlines for Filing and Payment of WT Information Manual EFPS 1. Monthly Return (BIR Form 1601)* Filing - Within 10 days after the end of each month except for taxes withheld for the month of December each year, which shall be filed on or before January 15 of the following year Filing - Within 15 days after the end of each month except for taxes withheld for the month of December each year, which shall be filed on or before January 20 of the following year Payment - within 10 days after the end of each month, except for taxes withheld for the month of December each year, which shall be paid on or before January 15 of the following year Payment - within 15 days after the end of each month, except for taxes withheld for the month of December which shall be paid on or before January 20 of the following year * Pursuant to Revenue Regulation (RR) No , taxpayers enrolled in the EFPS shall observe the staggered filing deadlines of their tax returns of taxpayers based on industry classification. Slide 100 Page 50

51 Deadlines for Filing and Payment of WT Information Manual EFPS 2. Monthly Alphalist of Payees (MAP) Whose Income Received ed Have Within 10 days after the end of each month except for taxes withheld for the Within 15 days after the end of each month except for taxes withheld for the Been Subjected to Withholding Tax 3. Semestral List of Regular Suppliers of Goods and Services** month of December each year, which shall be filed on or before January 15 of the following year On or before January 31 and July 31 of each year. month of December each year, which shall be filed on or before January 20 of the following year On or before January 31 and July 31 of each year. ** Only applicable to Companies that are considered as one of the Top 10,000 (Now Top 20,000) Private Corporations Slide 101 Deadlines for Filing and Payment of WT Information Manual EFPS 4. Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income d)/i Payments Exempt from Withholding Tax (BIR Form 1604-E) 5. Certificates of Creditable Tax Withheld (BIR Form No. 2307) - to be issued by the payor to the payee 6. Annual Information Return of Taxes Withheld (BIR Form No CF) On or before March 1 of the following year On or before March 1 of the following year payee Within twenty (20) days following the close of the taxable quarter employed by the payee in filing his quarterly income tax return. Within twenty (20) days following the close of the taxable quarter employed by the payee in filing his quarterly income tax return. to be filed with the revenue district office on or before January 31 of the following year in which payments were made. to be filed with the revenue district office on or before January 31 of the following year in which payments were made. Slide 102 Page 51

52 Deadlines for Filing and Payment of WT Information Manual EFPS 7. Withholding VAT Return (BIR Form 1600) Deadline of filing and payment: 10 th day of the following month Deadline of filing and payment: 10 th day of the following month 8. Fringe Benefit Tax (BIR Form 1603) - Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other than Rank and File Deadline of filing and payment: 10 th day of the following month Deadline of filing and payment shall be five (5) days later than the deadline set under the manual filing and payment system Slide 103 Question and Answers Slide 104 Page 52