This document summarizes key concepts from Chapter IV related to gross income, sources of income, and types of income under Philippine tax law. It defines gross income and net income. It discusses various sources of income including compensation, business income, interest, dividends, rentals, royalties, and sale of real and personal property. It also outlines different types of income such as compensation income, business income, and passive investment income including interest and dividends. The document provides examples and tax rates for many of these sources and types.
This document summarizes key concepts from Chapter IV related to gross income, sources of income, and types of income under Philippine tax law. It defines gross income and net income. It discusses various sources of income including compensation, business income, interest, dividends, rentals, royalties, and sale of real and personal property. It also outlines different types of income such as compensation income, business income, and passive investment income including interest and dividends. The document provides examples and tax rates for many of these sources and types.
This document summarizes key concepts from Chapter IV related to gross income, sources of income, and types of income under Philippine tax law. It defines gross income and net income. It discusses various sources of income including compensation, business income, interest, dividends, rentals, royalties, and sale of real and personal property. It also outlines different types of income such as compensation income, business income, and passive investment income including interest and dividends. The document provides examples and tax rates for many of these sources and types.
A. Gross Income Gross Income means income, gain or profit subject to income tax. It includes compensation for personal services, business income, profits, and income derived from any source (legal or illegal), unless it is exempt from income tax by law or it is subject to final withholding income tax in accordance with the semi-global or semi-schedular tax system adopted by the Philippines. - It is the difference between Gross Sales (for the sellers of goods) or Gross Revenue (for sellers of services) and the Cost of Goods Sold and Cost of Services.
Sellers of Goods Sellers of Services Gross Sales xxxx Gross Revenue xxxx Less: Cost of Goods Sold xxxx Less: Cost of Services xxxx Gross Income xxxx Gross Income xxxx
Net Income means gross income less statutory deductions and exemptions. It must be computed with respect to a fixed period or taxable year usually 12 months. (calendar or fiscal year.) Gross income xxxx Less: Statutory deductions xxxx (need not be in form of cash, appraised in terms of money) Exemptions xxxx xxxx Net Income xxxx
To whom income, gain or profit is taxable? 1. Income from sale of goods or property owner-seller of the goods or properties 2. Income from lease of goods or property lessor of the goods or properties 3. Income from sale of services render the services 4. Else to the assignee of the lessor or seller 5. Income from dividends owner of the stocks as of the date of declaration of the dividend
B. Sources of Income Source rules to determine whether income shall be treated as income from within and outside the Philippines is found in Section 42 of the Tax Code. Types of income derive from sources within the Philippines: 1. Interest residence of the debtor 2. Dividends residence of the corporation paying the dividend 3. Services performace of the service a. If a specific amount is paid for labor or personal services performed in the Philippines, such shall be included in gross income. b. If no accurate allocation or segregation of compensation for labor in and outside the Phils, the amount to be included in the gross income from sources within the Phils shall be determined by an apportionment of the total income on time basis. c. Services rendered within the territorial limits of the Phils and wages of an alien seaman earned on a coast vessel are from sources within the Phils. d. Non resident alien taxed only on her income from services rendered in the Philippines. e. Philippine Turkey Contract with Onshore and Offshore Portions. f. International Carriers g. International Air carriers h. Internationsl Shipping lines i. Telecommunications companies j. Subcription and advertising fees paid to foreign magazines. 4. Rentals and royalties location of the property in such property 5. Sale of real property location of real property a. Personal property produced (in whole or in part) by the taxpayer within the Phils and sold without the Phils or produced (in whole or in part) by the taxpayer without and sold within the Philippines. b. Purchase of personal property within and its sales without the Phils, or purchase of personal property without and its sale within the Phils i. Where title to the articles sold to the foreign buyers were transferred to the latter from the moment they were place on board the carrying vessels, the gain on the transaction is from the Phils. ii. Sales are domestic where freight were paid by the Japanese buyers and the payments of the logs were effected by means of irrevocable letters of credit in favor of petitioner. iii. The transactions were consummated upon delivery of the cargo to the consignee. c. Share of stock of the domestic corporation Note: Enumeration of Income in Section 42 is not exclusive.
C. Types of Income, Gain or Profit Income means an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment. Others considered to be income: a. Increase in inventory is considered income b. Transfer of appreciated property to employee for services rendered is income. c. Sale of goodwill is income d. Just compensation for expropriated property is income Not considered income: a. Increase in networth due to correction of errors in book entries. b. Voluntary assessments by a corporation paid by its shareholders c. Stock dividend is not income d. Dollar earnings that are not converted into another foreign currency are not receipts derived from foreign exchange transactions. e. Security deposits paid to a lessor. f. Award of certain damages g. Contribitions by lot owners for the memorial park care fund.
Kinds of Income Compensation income means all remuneration for services performed by an employee for his employer under an employer-employee relationship a. Compensation paid in promissory notes b. Statutory minimum wage shall be exempt from income tax and withholding tax Business Income A. NIRC Business income may relate to sale of goods, properties or services; comes from conduct of trade or business or the exercise of a professtion or gain derived from dealings in property. a. Professional Income refers to the fees received by a professionals l from the practice of his profession, provided that there is no employer-employee relationship between him and his clients. b. Engaged in trade or business is uniformly construed as signifying to follow the employment or occupation which occupies the time, attention and labor for the purpose of a livelihood or profit.
c. Gross income from business Manufacturing, Merchandising, Mining: Gross Sales xxxx Less: Cost of goods sold (xxx) Gross income xxxx
Gross income of insurance companies: Gross Premiums xxxx Less: returned premiums xxxx Premiums of cancelled policy xxxx (xxxx) Gross income (Net Premiums) xxxx
Long-term contracts persons whose income is derived in whole or in part from such contracts shall report their income on a the basis of percentage of completion.
Gross income from farmers
Sale of patents and copyrights: Selling Price xxxx Less: Cost (xxx) Gross income xxxx
Sale and retirement of corporate bonds: Issue Price xxxx Less: deductible expense (xxx) Gain / Income xxxx
Sale and goowill: Sale Price xxxx Less: Cost of the assets (xxx) Gain / (Loss) xxxx
Passive investment income 1. Interest Income a. Interest income from phil currency bank b. Interest income from foreign currency deposits with Offshore Banking Unit (OBU) c. Interest income derived from loans and other transactions d. Discount revenues in financing or factoring arrangements e. Interest income from long-term deposit 4 years to less than 5 years 5% 3 years to less than 4 years 12% Less than 3 years - 20% f. Interest payments for loans and other borrowings are not subject to expanded withholding tax except for top 20,000 corporations.
2. Dividend Income are included in the gross income of the stockholder, unless they are exempt from tax or subject to final tax at preferential rate under the 1997 tax code. o Is defined as a corporate profit set aside, declared and ordered by the directors to be paid to the stockholders on demand or at a fixed time. Rules: a. Recipient is a citizen, resident alien, non resident alien engaged in trade or business Beg Jan 1, 1998 - 6% Beg Jan 1, 1999 - 8% Beg Jan 1, 2000 - 10% b. Recipient is a non-resident alien not engage in trade or business 25% c. Recipient is a domestic corporation or a resident foreign corporation exempt d. Recipient is a non resident foreign corporation 15%
Modes of Acquiring Software and the Relevant Tax Treatment Thereof A. Acquisition of ownership over a copyright B. Acquisition of copyright rights C.