Taxes and Regulations

Know what taxes you need to pay and what you are exempted from. Taxes and Regulations of the Philippines discussed here

Philippine Taxes and Regulations

 

What will be discussed:

 

What is Taxation?

What are the Different Taxes in the Philippines?

Who should pay taxes?

Who are those exempted in paying taxes?

 

What is Taxation?

Taxation is a mode by which the Government takes a part of your income in order to support their existence and carry out their legitimate (no thanks to corruption) objectives. Given this, taxation is the vastest and strongest of all powers of the government. Basically taxes are the lifeblood of the government, and without it, they will cease to exist.

Taxes raise money to spend on armies, roads, schools, hospitals and on more indirect government functions like market regulation or legal system. Failure to pay taxes or lowering them is punishable by law.

 

What are the Different Taxes in the Philippines?

 

There are forms of taxes imposed on persons and properties, these are:

1.       Personal, Capitation or Poll Taxes

These fixed amount taxes upon residents or persons of a certain class not taking into regards their property or business.

2.       Property Taxes

·         Real Property Tax

An annual tax that may be imposed by a province or city or a municipality or real property such as land, building, machinery and other improvements attached to real property.

·         Estate Tax or Inheritance Tax

A Tax collected for an inheritance of a property or the right to manage a certain property upon death of the inheritor.

·         Gift or Donor’s Tax

A tax on transfer or donation of a certain property or property right to another.

·         Capital Gain Tax

A tax imposed on the sale or exchange or property that is shouldered by the seller. Have to be paid 30 days after the sale.

3.       Income Taxes (see here to for guidelines of paying ITR)

Is a tax on all yearly profits arising from property, profession, trades or offices or as a tax on a person’s income, compensations and profit. Usually paid April of each year.

4.       Percentage Tax

Is a business tax imposed on persons or entities who sell or lease goods, properties or services in the course of trade or business whose gross annual sales or receipts do not exceed P550,000 and are not VAT-registered. 

5.       Withholding Tax on Compensation

Is the tax withheld from individuals receiving purely compensation income.         

6.       Expanded Withholding Tax

Is a kind ofwithholding tax which is prescribed only for certain payers and is creditable against the income tax due of the payee for the taxable quarter year.

7.       Final Withholding Tax

Is a kind of withholding tax which is prescribed only for certain payers and is not creditable against the income tax due of the payee for thetaxable year. Income Tax withheld constitutes the full and final payment of the Income Tax due from the payee on the said income.

8.       Withholding Tax on Government Money Payments

Is the withholding tax withheld by government offices and instrumentalities, including government-owned or -controlled corporations and local government units, before making any payments to private individuals, corporations, partnerships and/or associations. 

9.       Excise or License Taxes

Taxes imposed on alcohol products; on tobacco products; on petroleum products like lubricating oils, grease, and processed gas; on mineral products such as coal and quarry resources; on miscellaneous property such as automobiles.

Under these lie two other taxes:

1.       Documentary Stamp Tax

A tax imposed upon documents, loan agreements upon acceptance of sale, assignment and transfers of obligation.

2.       Value Added Tax

Is imposed on any person who, pays for any product or services, may it be by lease, exchanges, or sale of goods or properties, and services.

 

Who should pay taxes?

A. INDIVIDUAL Persons subject to the individual income tax

For income tax purposes, individual taxpayers are classified into:

a. Citizen

(1) Resident citizen

Is a citizen of the Philippines who has a permanent home or place of residence is in the Philippines to which he/she intends to return whenever he/she is absent for business or pleasure.

(2) Nonresident citizen

Is a citizen of the Philippines who establishes the fact of his/her physical presence abroad with the definite intention to reside therein and shall include any Filipino who leaves the country as immigrant, permanent employee and contract worker.

 b. Alien (and No, we are not talking about the sort in Men in Black)

(1) Resident alien

Is an individual who is not a citizen of the Philippines but whose residence is within the Philippines.

(2) Nonresident alien

Is an individual who is not a citizen of the Philippines and whose residence is not within the Philippines.

 A nonresident alien that is engaged in trade or business in the Philippines if he/she has stayed in the Philippines for a period of more than 180 days during any calendar year.

B. CORPORATION - Corporations subject to tax

 The corporate income tax is imposed on:

a.      Domestic Corporation

Is a corporation created or organized in the Philippines or under its laws which includes partnerships, joint-stock companies, joint accounts, associations, or insurance companies, but does not include general professional partnerships and a joint venture for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations that carries out an operating or agreement under a service contract with the Government.

b. Foreign Corporation

(1) Resident Foreign Corporation

Is one which is organized or existent under the laws of any foreign country but is engaged in trade or business in the Philippines. 

(2) Nonresident Foreign Corporation

Is one which is organized under the laws of any foreign country and not engaged in trade or business in the Philippines but is deriving income from sources within the Philippines.

 

C. ESTATES AND TRUST ENGAGED IN TRADE OR BUSINESS

Who are those exempted in paying taxes?

The constitution expressly grants tax exemption on certain entities or institution such as:

(1)    Charitable Institutions

Such as churches, parsonages or convents, mosques and non-profit cemeteries and all lands, buildings and improvements directly and exclusively used for religious, charitable or educational purposes.

 

(2)    Non-stock non-profit educational institutions used directly and exclusively for educational purposes.

Tax exemption is also given to local Association in clause of the Rules and Regulations Implementing Local Government Code of 1991 which are:

(1)    Local Water Districts

(2)    Cooperatives duly registered under RA9520 , otherwise known as the Cooperative Code of the Philippines

(3)    Non-stock and Non-profit hospitals and educational institutions

(4)    Printer and and/or publisher of books or other reading materials prescribed by DepEd (Department of Education) as school texts that where printing and publishing are concerned.

 

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