PENALTIES FOR LATE FILING OF TAX RETURNS

A. For late filing of Tax Returns with Tax Due to be paid, the following penalties
will be imposed upon filing, in addition to the tax due:

1. Surcharge

NIRC SEC. 248. - Civil Penalties.

(A) There shall be imposed, in addition to the tax required to be paid, a penalty
equivalent to twenty-five percent (25%) of the amount due, in the following cases:

(1) Failure to file any return and pay the tax due thereon as required under the
provisions of this Code or rules and regulations on the date prescribed; or

(2) Unless otherwise authorized by the Commissioner, filing a return with an internal
revenue officer other than those with whom the return is required to be filed; or

(3) Failure to pay the deficiency tax within the time prescribed for its payment in the
notice of assessment; or

(4) Failure to pay the full or part of the amount of tax shown on any return required to
be filed under the provisions of this Code or rules and regulations, or the full amount of
tax due for which no return is required to be filed, on or before the date prescribed for
its payment.

2. Interest

NIRC SEC. 249. Interest. -

(A) In General. - There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%) per annum, or such higher rate as may be
prescribed by rules and regulations, from the date prescribed for payment until the
amount is fully paid.

3. Compromise

NIRC SEC. 255. Failure to File Return, Supply Correct and Accurate
Information, Pay Tax Withhold and Remit Tax and Refund Excess Taxes
Withheld on Compensation. - Any person required under this Code or by rules and
regulations promulgated thereunder to pay any tax make a return, keep any record, or
supply correct the accurate information, who willfully fails to pay such tax, make such
return, keep such record, or supply correct and accurate information, or withhold or
remit taxes withheld, or refund excess taxes withheld on compensation, at the time or
times required by law or rules and regulations shall, in addition to other penalties
provided by law, upon conviction thereof, be punished by a fine of not less than Ten
Thousand Pesos (P 10,000) and suffer imprisonment of not less than one (1) year but
not more than ten (10) years.
Any person who attempts to make it appear for any reason that he or another has in
fact filed a return or statement, or actually files a return or statement and subsequently
withdraws the same return or statement after securing the official receiving seal or
stamp of receipt of internal revenue office wherein the same was actually filed shall,
upon conviction therefor, be punished by a fine of not less than Ten Thousand Pesos
(P 10,000) but not more than Twenty Thousand Pesos (P 20,000) and suffer
imprisonment of not less than one (1) year but not more than three (3) years.

In addition, Annex A of Revenue Memorandum Order (RMO) No. 7-2015 provides

for the Revised Consolidated Schedule of Compromise Penalties for Violations of the
National Internal Revenue Code (NIRC), which can be accessed via this link: Annex

From page 5 of Annex A of RMO No. 7-2015

TAX
CRIMINAL
COD NATURE OF AMOUNT OF
PENALTY
E VIOLATION COMPROMISE
IMPOSED
SEC
255 Failure to file and/or Fine of not less than If the amount of tax unpaid
pay P10,000 and
any internal revenue imprisonment of not But does
Compromi
tax at the time or less than one (1) Exceeds not
se is
times required by law year but not more exceed
or regulation than 10 years P x x
P 5,000 P 1,000
x
5,000 10,000 3,000
10,000 20,000 5,000
20,000 50,000 10,000
50,000 100,000 15,000
100,000 500,000 20,000
1,000,00
500,000 30,000
0
1,000,0 5,000,00
40,000
00 0
5,000,0
xxx 50,000
00

B. For late filing of Tax Returns with NO Tax Due to be paid, the compromise
penalty will be imposed upon filing of the Tax Return based on the following:

1. For violations of the NIRC provisions which are subject to compromise, the reference
is found in page 4 of Annex A of RMO No. 7-2015.

TAX NATURE OF CRIMINAL AMOUNT OF COMPROMISE

COD
PENALTY
E VIOLATION
IMPOSED
SEC
255 Failure to Fine of not less than If gross sales, earnings or
make/file/submit P10,000 and receipts; or gross estate or
any return or supply imprisonment of not gift (based on the subject
correct information less than one (1) returns/information for
at the time or times year but not more filing/submission)
required by law or than ten (10) years
regulation But does
Compromis
Exceeds not
e is
exceed
P x x x P 50,000 P 1,000
50,000 100,000 3,000
100,000 500,000 5,000
500,000 5,000,000 10,000
5,000,00 10,000,00
15,000
0 0
10,000,0 25,000,00
20,000
00 0
25,000,0
xxx 25,000
00

2. For violations of the NIRC provisions which may be the subject of criminal actions,
Section 250 of the NIRC will apply as follows:

NIRC SEC. 250. Failure to File Certain Information Returns. - In the case of each
failure to file an information return, statement or list, or keep any record, or supply any
information required by this Code or by the Commissioner on the date prescribed
therefor, unless it is shown that such failure is due to reasonable cause and not to willful
neglect, there shall, upon notice and demand by the Commissioner, be paid by the
person failing to file, keep or supply the same, One Thousand Pesos (P 1,000) for each
failure: Provided, however, That the aggregate amount to be imposed for all such
failures during a calendar year shall not exceed Twenty-Five Thousand Pesos (P 25,000).

C. For late filing of Statements/Reports required to be filed with NO Tax Due to

be paid, the compromise penalty will be imposed upon filing of the Tax Return based on
the following:

NIRC SEC. 275. Violation of Other Provisions of this Code or Rules and
Regulations in General.- Any person who violates any provision of this Code or any
rule or regulation promulgated by the Department of Finance, for which no specific
penalty is provided by law, shall, upon conviction for each act or omission, be punished
by a fine of not more than One Thousand Pesos (P 1,000) or suffer imprisonment of not
more than six (6) months, or both.
BIR FREQUENTLY ASKED QUESTIONS

Who are required to register with the BIR?

Any person, whether natural or juridical, required under the authority of the Internal
Revenue Code to make, render or file a return, statement or other documents shall be
supplied with or assigned a Taxpayer Identification Number (TIN), which he shall
indicate in such return, statement or document filed with the Bureau of Internal
Revenue for his proper identification for tax purposes.

Are non-resident aliens and non-resident foreign corporations receiving

income from sources within the Philippines required to register with the BIR?
No, tax due from them shall be remitted/paid to the BIR by the payor who shall
constitute as the withholding agent of the tax (RMC 39-95).

If the taxpayer is engaged in VATable activity, but the gross sales or receipts
from business or practice of profession is P 550,000.00 or below, is he
required to register?
Yes, he is required to register as a Non-VAT taxpayer. However, if his gross sales or
receipts is more than P 100,000.00 but does not exceed P 550,000.00, he has the option
to register as VAT taxpayer. In the case of marginal income earners with gross sales or
receipts of P 100,000 and below, they have no other option but to register as non-VAT
taxpayer (RMC 39-95).

Are taxpayers required to register their business annually?

No, taxpayers are required to register only once before commencing their business.
However, they are required to pay the registration fee of P 500.00 annually.

Are there instances where the taxpayers are required to register more than
once?
Yes, registered taxpayers are required to register again in the following instances:
a) Establishment of new branch/storage place/place of production
b) Engaging in different business activity (i.e. a VAT taxpayer engaging in a non-VAT
activity or vice versa)
c) Major changes in business structure resulting to change of ownership

When is the taxpayer required to apply for registration and pay the
registration fee?
New taxpayers shall apply for registration and pay the registration fee before
commencing their business. Thereafter, taxpayers should pay the annual registration
fee not later than January 31 every year.

Note: Persons engaged in either VAT or Non-VAT taxable business, whose gross sales or
receipts did not exceed P 100,000 for the immediately preceding 12-month period is
exempt from paying the annual registration fee.

Where should a taxpayer register?

All taxpayers are required to register with the RDO having jurisdiction over the head
office, branch office, place of production or storage place where inventory of goods for
sale or use in business are kept.
Are branches, storage places and places of production also required to pay
the Annual Registration Fee of P 500?
Each branch is required to pay the Annual Registration Fee of P 500. However, storage
and production places are liable to the annual registration fee only when sales
operations are conducted thereat.

Who are required to register without paying the registration fee?

a) Non-stock, non-profit organizations and associations, not engaged in trade or

business, and cooperatives (RMO 41-94)
b) Government agencies and instrumentalities, government offices not engaged in
proprietary activities
c) Storage places/place of production/extension offices where no selling operations are
conducted thereat (RMO 41-94)
d) Taxpayers enjoying exemptions under R.A. 6810 (Kalakalan 20)
e) Persons engaged in either VAT or Non-VAT taxable business, whose gross sales or
receipts did not exceed P 100,000 for the immediately preceding 12-month period (RR
11-2000)
f) Persons who will be engaging in business for first time whose expected gross sales or
receipts for any 12-month period will not exceed P 100,000 (marginal income earner)
(RR 11-2000)
g) Individuals earning purely compensation income/overseas workers (Sec. 236 of the
NIRC)

Are taxpayers transferring business address within the year either within the
same district or to another district required to pay another registration fee of
P 500?
No, since the annual registration fee is payable annually, they are no longer required to
pay the registration fee to the new district office, provided the P 500 was already paid.

After complying with all the requirements for registration, what document will
be issued to the taxpayer as proof of registration?
Certificate of Registration (BIR Form 2303)

When will the Certificate of Registration be issued to the taxpayer?

The Certificate of Registration (BIR Form 2303) will be issued not later than five (5)
working days from filing of application and submission of all documentary requirements,
and upon presentation of duly validated BIR Form 0605 as proof of payment of Annual
Registration Fee or Official Receipt.

Who will issue the Certificate of Registration?

The RDO having jurisdiction of the head office, branch, storage/ production place shall
issue the Certificate of Registration.

How many Certificate of Registration (BIR Form 2303) shall be issued by the
Revenue District Office?
For every Application for Registration, there shall be a corresponding Certificate of
Registration to be issued to the head office and each branch, each storage place or each
place of production being registered.

How are the registered activities reflected in the Certificate of Registration?

The RDO issuing the Certificate of Registration shall reflect the registered activities in
the Certificate by checking the box(es) corresponding to the approved registered
activities, and cross- out the boxes not applicable. For example, if the registration is for
VAT only, the RDO shall check the box for VAT

Why is there a need to cross-out in the Certificate of Registration the

activities which have not been applied for registration by the taxpayer?
This is to prevent the taxpayer from making undue alterations in his Certificate of
Registration.

What will the taxpayer do with the Certificate of Registration and the Proof of
Payment of Annual Registration Fee?
The original copy of Certificate of Registration and the duly validated BIR Form 0605 as
proof of payment of Annual Registration Fee are required to be displayed in any
conspicuous place in the head office, branch office, storage place or place of production.

What are the instances when a taxpayer can apply for cancellation of his
registration?
A taxpayer can apply for cancellation of his registration in the following instances:

a) due to closure/cessation or termination of business; and

b) change in organization structure.

Is there a particular form prescribed for Application for Cancellation of

Registration?
Yes, BIR Form 1905 (Application for Registration Information Update).

Where shall the Application for Registration Information Update be filed?

It shall be filed with the RDO who issued the Certificate of Registration. For VAT
taxpayer, he shall further notify the RDO where the Home Office is registered.

If a taxpayer is in doubt of his status as VAT taxpayer, what is he supposed to

do?
Go to the RDO who has jurisdiction over his place of business and seek assistance.

Taken from the BIR official website

Frequently Asked Questions --- CAPITAL GAINS TAX

1) What is meant by capital asset?

Capital asset means property held by the taxpayer (whether or not connected with his
trade or business), but does not include a) stock in trade of the taxpayer or other
property of a kind which would properly be included in the inventory of the taxpayer if
on hand at the close of the taxable year; or
b) property held by the taxpayer primarily for sale to customers in the ordinary course
of his trade or business; or
c) property used in the trade or business of a character which is subject to the
allowance for depreciation provided in subsection (F) of Sec. 34 of the Code; or
d) real property used in trade or business of the taxpayer.

2) What is meant by ordinary asset?

Ordinary asset refers to all properties specifically excluded from the definition of capital
assets under Sec. 39 (A)(1) of the NIRC.

3.) What is meant by "Stock classified as Capital Asset"? (Sec 2(a) of RR 6-

2008)
This refers to stocks and securities held by taxpayers other than dealers in securities.

4.) What is meant by "Dealer in Securities"? (Sec 2(b) of RR 6-2008)

Dealer in Securities refers to a merchant of stocks or securities, whether an individual,
partnership or corporation, with an established place of business, regularly engaged in
the purchase of securities and the resale thereof to customers; that is one, who as
merchant buys securities and re-sells them to customers with a view to the gains and
profits that may be derived therefrom. "Dealer in securities" means any person who
buys and sells securities for his/her own account in the ordinary course of business (Sec.
3.4, SRC).

5.) What is meant by real property?

Real property shall have the same meaning attributed to that term under Article 415 of
Republic Act No. 386, otherwise known as the Civil Code of the Philippines.

6.) What does a real estate dealer refer to?

A real estate dealer refers to any person engaged in the business of buying and selling
or exchanging real properties on his own account as a principal and holding himself out
as a full or part-time dealer in real estate.

7.) What does a real estate developer refer to?

Real estate developer refers to any person engaged in the business of developing real
properties into subdivisions, or building houses on subdivided lots, or constructing
residential or commercial units, townhouses and other similar units for his own account
and offering them for sale or lease.

8.) What does a real estate lessor refer to?

Real estate lessor refers to any person engaged in the business of leasing or renting real
properties on his own account as a principal and holding himself out as a lessor of real
properties being rented out or offered for rent.

9.) Who are considered engaged in the real estate business?

Taxpayers who are considered engaged in the real estate business refer collectively to
real estate dealers, real estate developers and/or real estate lessors. A taxpayer whose
primary purpose of engaging in business, or whose Articles of Incorporation states that
its primary purpose is to engage in the real estate business shall be deemed to be
engaged in the real estate business.

10.) Who are considered not engaged in the real estate business?
Taxpayers who are considered not engaged in the real estate business refer to persons
other than real estate dealers, real estate developers and/or real estate lessors.
11.) Who are considered habitually engaged in the real estate business?
Real estate dealers or real estate developers who are registered with the Housing and
Land Use Regulatory Board (HULRB) or HUDCC

12.) How can you determine whether a particular real property is a capital
asset or an ordinary asset?
a) Real properties shall be classified with respect to taxpayers engaged in the real
estate business as follows:
i) All real properties acquired by the real estate dealer shall be considered as ordinary
assets.
ii) All real properties acquired by the real estate developer, whether developed or
undeveloped as of the time of acquisition, and all real properties which are held by the
real estate developer primarily for sale or for lease to customers in the ordinary course
of his trade or business or which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year and all real properties used in the
trade or business, whether in the form of land, building, or other improvements, shall be
considered as ordinary assets.
iii) All real properties of the real estate lessor, whether land, building and/or
improvements, which are for lease/rent or being offered for lease/rent, or otherwise for
use or being used in the trade or business shall likewise be considered as ordinary
assets.
iv) All real properties acquired in the course of trade or business by a taxpayer
habitually engaged in the sale of real property shall be considered as ordinary assets.
Note: Registration with the HLURB or HUDCC as a real estate dealer or developer shall
be sufficient for a taxpayer to be considered as habitually engaged in the sale of real
estate.
If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or
developer, he/it may nevertheless be deemed to be engaged in the real estate business
through the establishment of substantial relevant evidence (such as consummation
during the preceding year of at least six (6) taxable real estate sale transactions,
regardless of amount; registration as habitually engaged in real estate business with the
Local Government Unit or the Bureau of Internal Revenue, etc.
A property purchased for future use in the business, even though this purpose is later
thwarted by circumstances beyond the taxpayers control, does not lose its character as
an ordinary asset. Nor does a mere discontinuance of the active use of the property
change its character previously established as a business property. (Sec 3(a)(4)of RR 7-
2003)
b) In the case of taxpayer not engaged in the real estate business, real properties,
whether land, building, or other improvements, which are used or being used or have
been previously used in trade or business of the taxpayer shall be considered as
ordinary assets.
c) In the case of taxpayers who changed its real estate business to a non-real estate
business, real properties held by these taxpayer shall remain to be treated as ordinary
assets.
d) In the case of taxpayers who originally registered to be engaged in the real estate
business but failed to subsequently operate, all real properties acquired by them shall
continue to be treated as ordinary assets.
e) Real properties formerly forming part of the stock in trade of a taxpayer engaged in
the real estate business, or formerly being used in the trade or business of a taxpayer
engaged or not engaged in the real estate business, which were later on abandoned and
became idle, shall continue to be treated as ordinary assets. Provided however, that
properties classified as ordinary assets for being used in business by a taxpayer
engaged in business other than real estate business are automatically converted into
capital assets upon showing proof that the same have not been used in business for
more than two years prior to the consummation of the taxable transactions involving
said properties
f) Real properties classified as capital or ordinary asset in the hands of the
seller/transferor may change their character in the hands of the buyer/transferee. The
classification of such property in the hands of the buyer/transferee shall be determined
in accordance with the following rules:
i) Real property transferred through succession or donation to the heir or donee who is
not engaged in the real estate business with respect to the real property inherited or
donated, and who does not subsequently use such property in trade or business, shall
be considered as a capital asset in the hands of the heir or donee.
ii) Real property received as dividend by the stockholders who are not engaged in the
real estate business and who do not subsequently use such property in trade or
business, shall be considered as a capital asset in the hands of the recipients even if the
corporation which declared the real property dividends is engaged in real estate
business.
iii) The real property received in an exchange shall be treated as ordinary asset in the
hands of the case of a tax-free exchange by taxpayer not engaged in real estate
business to a taxpayer who is engaged in real estate business, or to a taxpayer who,
even if not engaged in real estate business, will use in business the property received in
exchange.
g) In the case of involuntary transfers of real properties, including expropriations or
foreclosure sale, the involuntariness of such sale shall have no effect on the
classification of such real property in the hands of the involuntary seller, either as
capital asset or ordinary asset as the case may be.

13.) What is the basis in the valuation of property?

The value of the real property will be based on the selling price, fair market value as
determined by the Commissioner (zonal value) or the fair market value as shown in the
schedule of values of the Provincial or City Assessor, whichever is higher.
If there is no zonal value, the taxable base is whichever is higher of the gross selling
price per sales documents or the fair market value that appears in the latest tax
declaration.
If there is an improvement, the FMV per latest tax declaration at the time of the sale or
disposition, duly certified by the City/Municipal Assessor shall be used. No adjustments
shall be added on the said value, provided that the tax declaration bears the upgraded
fair market value of the said property pursuant to Section 219 of R.A. No. 7160,
otherwise known as the Local Government Code of 1991 and the last paragraph of the
Local Assessment Regulations No. 1-92 dated October 6, 1992.
In case the tax declaration being presented was issued three (3) or more years prior to
the date of sale or disposition of the real property, the seller/transferor shall be required
to submit a certification from the City/Municipal Assessor whether or not the same is
still the latest tax declaration covering the said real property. Otherwise, the taxpayer
shall secure its latest tax declaration and shall submit a copy thereof duly certified by
the said Assessor. (RAMO 1-2001)
For shares of stocks, it will be based on the net capital gains realized from the sale,
barter, exchange or other disposition of shares of stocks in a domestic corporation,
considered as capital assets not traded through the local stock exchange.

14.) What is meant by "Net Capital Gains"? (Sec 2(o) of RR 6-2008)

"Net Capital Gain" means the excess of the gains from sales or exchanges of capital
assets over the losses from such sales or exchanges.

15.) What are the rules for the determination of amount and recognition of
gain or loss in the sale, barter, or exchange of shares of stock not traded
through the Local Stock exchange? (Sec 7(c ) of RR 6-2008)
(A.) Determination of Selling Price. In determining the selling price, the following rules
shall apply:
(a.1) In the case of cash sale, the selling price shall be the total consideration per deed
of sale.
(a.2) If the total consideration of the sale or disposition consists partly in money and
partly in kind, the selling price shall be sum of money and the fair market value of the
property received.
(a.3) In the case of exchange, the selling price shall be the fair market value of the
property received.
(a.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is
greater than the amount of money and/or fair market value of the property received,
the excess of the fair market value of the shares of stock sold, bartered or exchanged
over the amount of money and the fair market value of the property, if any, received as
consideration shall be deemed a gift subject to the donor's tax under sec. 100 of the Tax
Code, as amended.
(B.) Definition of "fair market value" of the Shares of Stock.
(b.1) In the case of listed shares which were sold, transferred or exchanged outside of
the trading system and/or facilities of the Local Stock Exchange, the closing price on the
day when the shares are sold, transferred, or exchanged. When no sale is made in the
Local Stock Exchange on the day when the Listed shares are sold, transferred, or
exchanged, the closing price on the day nearest to the date of sale, transfer or
exchange of the shares shall be the fair market value. Sec 2 of RR 6-2013
(b.2) In the case of shares of stock not listed and traded in the local stock exchanges,
the value of the shares of stock at the time of sale shall be the fair market value. In
determining the value of the shares, the Adjusted Net Asset Method shall be used
whereby all assets and liabilities are adjusted to fair market values. The net of adjusted
asset minus the liability values is the indicated value of the equity.
The appraised value of real property at the time of sale shall be the higher of
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of valued fixed by the Provincial and
City Assessors, or
(3) The fair market value as determined by Independent Appraiser.
(b.3) In the case of a unit of participation in any association, recreation or amusement
club (such as golf, polo, or similar clubs), the fair market value thereof shall be its
selling price or the bid price nearest published in any newspaper or publication of
general circulation, whichever is higher.
(C.) Determination of Gain or Loss from Sale or Disposition of Shares of Stock. The
gain from the sale or other disposition Stock. The gain from the sale or other
disposition of shares of stock shall be the excess of the amount realized therefrom over
the basis or adjusted basis for determining gain, and the loss shall be the excess of the
basis or adjusted basis for determining loss over the amount realized. The amount
realized from the sale or other disposition of property shall be the sum of money
received plus the fair market value of the property (other than money) received, if any.

16.) What are the applicable tax rates of Capital Gains Tax under the National
Internal Revenue Code of 1997?
a) Real Properties - 6 %
b) For Shares of Stocks not Traded in the Stock Exchange, on the net Capital Gains
- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%

17.) Who are required to file the Final Capital Gains Tax return?
Every person, whether natural or juridical, resident or non-resident, including estates
and trusts, who sells, transfers, exchanges or disposes real properties located in the
Philippines classified as capital assets, including pacto de retro sales and other forms of
conditional sales or shares of stocks in domestic corporations not traded through the
local stock exchange classified as capital assets.

18.) What is the procedure in the filing of Final Capital Gains Tax return?
File the Final Capital Gains Tax return in triplicate (two copies for the BIR and one copy
for the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where
the seller or transferor is registered, for shares of stocks or where the property is
located, for real property. In places where there are no AAB, the return will be filed
directly with the Revenue Collection Officer or Authorized City or Municipal Treasurer.

19.) Who/what are considered exempt from the payment of Final Capital Gains
Tax?

Dealer in securities, regularly engaged in the buying and selling of securities

An entity exempt from the payment of income tax under existing investment incentives
and other special laws
An individual or non-individual exchanging real property solely for shares of stocks
resulting in corporate control
A government entity or government-owned or controlled corporation selling real
property
If the disposition of the real property is gratuitous in nature
Where the disposition is pursuant to the CARP law
20.) Who are conditionally exempt from the payment of Final Capital Gains
Tax?
Natural persons who dispose their principal residence, provided that the following
criteria are met:
The proceeds of the sale of the principal residence have been fully utilized in acquiring
or constructing new principal residence within eighteen (18) calendar months from the
date of sale or disposition;
The historical cost or adjusted basis of the real property sold or disposed will be carried
over to the new principal residence built or acquired;
The Commissioner has been duly notified, through a prescribed return, within thirty (30)
days from the date of sale or disposition of the persons intention to avail of the tax
exemption;
Exemption was availed only once every ten (10) years; and
There is no full utilization of the proceeds of sale or disposition. The portion of the gain
presumed to have been realized from the sale or disposition will be subject to Capital
Gains Tax.
In case of sale/transfer of principal residence, the Buyer/Transferee shall withhold from
the seller and shall deduct from the agreed selling price/consideration the 6% capital
gains tax which shall be deposited in cash or managers check in interest-bearing
account with an Authorized Agent Bank (AAB) under an Escrow Agreement between the
concerned Revenue District Officer, the Seller and the Transferee, and the AAB to the
effect that the amount so deposited, including its interest yield, shall only be released to
such Transferor upon certification by the said RDO that the proceeds of the
sale/disposition thereof has, in fact, been utilized in the acquisition or construction of
the Seller/Transferors new principal residence within eighteen (18) calendar months
from date of the said sale or disposition. The date of sale or disposition of a property
refers to the date of notarization of the document evidencing the transfer of said
property. In general, the term Escrow means a scroll, writing or deed, delivered by the
grantor, promisor or obligor into the hands of a third person, to be held by the latter
until the happening of a contingency or performance of a condition, and then by him
delivered to the grantee, promise or obligee.

21.) What is a Certificate Authorizing Registration?

Certificate Authorizing Registration (CAR) is a certification issued by the Commissioner
or his duly authorized representative attesting that the transfer and conveyance of land,
buildings/improvements or shares of stock arising from sale, barter or exchange have
been reported and the taxes due inclusive of the documentary stamp tax, have been
fully paid.
With the implementation of the Electronic Certificate Authorizing Registration (eCAR)
System, the CAR shall now be electronically generated.
22.) What is eCAR System?
eCAR stands for Electronic Certificate Authorizing Registration. A web-based facility that
automates the generation of CAR with barcode, eCAR will also enable electronic linkage
between the BIR and the Land Registration Authority. (Participant Guide)
eCARs shall have a validity of three (3) years reckoned from the date of issuance for
purposes of presenting the same to the Registry of Deeds. Otherwise, the eCAR shall be
deemed permanently expired and therefore of no force and effect. The Large Taxpayers
(LT) Division Chiefs/RDOs or ARDOs shall issue a new eCAR to the taxpayer in case the
latter fails to present the eCAR to the Registry of Deeds within the three (3) year validity
period. In case of lost eCAR within the validity period, the RDOs/ LT Division Chiefs shall
not issue a new eCAR but instead reprint the same eCAR and issue to the requesting
taxpayer. On both cases, a certification fee prescribed under Executive Order No. 197 in
the amount of One Hundred Pesos (P100.00) shall be charged to the
taxpayer/authorized representative for each released eCAR issued/reprinted, after
affixture of P15.00 Documentary Stamp Tax on Certificates (Sec. 188 of the NIRC of
1997).

23.) How do we determine the fair market value of shares of stocks not
traded through the Local Stock Exchange?
In determining the value of the shares, the Adjusted Net Asset Method shall be used
whereby all assets and liabilities are adjusted to fair market values. The net of adjusted
asset minus the adjusted liability value is the indicated value of the equity.
For purposes of this item, the appraised value of real property at the time of sale shall
be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors, or
(c) The fair market value as determined by Independent Appraiser. (RR NO. 6-2013)

Frequently Asked Questions -- DOCUMENTARY STAMP TAX

1) Who are required to file Documentary Stamp Tax Declaration Return?

a) In case of constructive affixture of documentary stamps, by the persons making,
signing, issuing, accepting or transferring documents, instruments, loan agreements
and papers, acceptances, assignments, sales and conveyances of the obligation, right
or property incident thereto 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 at the same time such act is done or transaction had;
b) By using the web-based Electronic Documentary Stamp Tax (eDST) System in the
payment/remittance of its/his/her DST liabilities and the affixture of the prescribed
documentary stamp on taxable documents; and
c) By Revenue Collection Agent, for remittance of sold loose documentary stamps.
Note: Wherever one party to the taxable document enjoys exemption from the tax
imposed, the other party who is not exempt will be the one directly liable to file
Documentary Stamp Tax Declaration and pay the applicable stamp tax.

2) Where is the Documentary Stamp Tax Declaration Return filed?

In the Authorized Agent Bank (AAB) within the territorial jurisdiction of the RDO which
has jurisdiction over the residence or principal place of business of the taxpayer or
where the property is located in case of sale of real property or where the Collection
Agent is assigned. In places where there is no Authorized Agent Bank, the return will be
filed with the Revenue Collection Officer or duly authorized City or Municipal Treasurer
where the taxpayer's residence or principal place of business is located or where the
property is located in case of sale of real property or where the Collection Agent is
assigned.

3) What are the documents/papers not subject to Documentary Stamp

Tax? (sec. 9, RR No. 13-2004)
Policies of insurance or annuities made or granted by a fraternal or beneficiary society,
order, association or cooperative company, operated on the lodge system or local
cooperation plan and organized and conducted solely by the members thereof for the
exclusive benefit of each member and not for profit
Certificates of oaths administered by any government official in his official capacity or
acknowledgement by any government official in performance of his official duty
Written appearance in any court by any government official in his official capacity
Certificates of the administration of oaths to any person as to the authenticity of any
paper required to be filed in court by any person or party thereto, whether the
proceedings be civil or criminal
Papers and documents filed in court by or for the national, provincial, city or municipal
governments
Affidavits of poor persons for the purpose of proving poverty
Statements and other compulsory information required of persons or corporations by
the rules and regulations of the national, provincial, city or municipal government
exclusively for statistical purposes and which are wholly for the use of the Bureau or
office in which they are filed, and not at the instance or for the use or benefit of the
person filing them
Certified copies and other certificates placed upon documents, instruments and papers
for the national, provincial, city or municipal governments made at the instance and for
the sole use of some other branch of the national, provincial, city or municipal
governments
Certificates of the assessed value of lands, not exceeding P200 in value assessed,
furnished by the provincial, city or municipal Treasurer to applicants for registration of
title to land
Borrowing and lending of securities executed under the Securities Borrowing and
Lending Program of a registered exchange, or in accordance with regulations prescribed
by the appropriate regulatory authority: Provided, however, That any borrowing or
lending of securities agreement as contemplated hereof shall be duly covered by a
master securities borrowing and lending agreement acceptable to the appropriate
regulatory authority, and which agreement is duly registered and approved by the
Bureau of Internal Revenue (BIR)
Loan agreements or promissory notes, the aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000), or any such amount as may be determined by
the Secretary of Finance, executed by an individual for his purchase on installment for
his personal use or that of his family and not for business or resale, barter or hire of a
house, lot, motor vehicle, appliance or furniture: Provided, however, That the amount to
be set by the Secretary of Finance shall be in accordance with a relevant price index but
not to exceed ten percent (10%) of the current amount and shall remain in force at least
for three (3) years
Sale, barter or exchange of shares of stock listed and traded through the local stock
exchange (R.A 9648)
Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or
continuance of any agreement, contract, charter, or any evidence of obligation or
indebtedness, if there is no change in the maturity date or remaining period of coverage
from that of the original instrument.
Fixed income and other securities traded in the secondary market or through an
exchange.
Derivatives: Provided, That for purposes of this exemption, repurchase agreements and
reverse repurchase agreements shall be treated similarly as derivatives
Interbranch or interdepartmental advances within the same legal entity
All forebearances arising from sales or service contracts including credit card and trade
receivables: Provided, That the exemption be limited to those executed by the seller or
service provider itself.
Bank deposit accounts without a fixed term or maturity
All contracts, deeds, documents and transactions related to the conduct of business of
the Bangko Sentral ng Pilipinas
Transfer of property pursuant to Section 40(C)(2) of the National Internal Revenue Code
of 1997, as amended
Interbank call loans with maturity of not more than seven (7) days to cover deficiency in
reserves against deposit liabilities, including those between or among banks and quasi-
banks

4) What are the implications of failure to stamp taxable documents?

The untaxed document will not be recorded, nor will it or any copy thereof or any record
of transfer of the same be admitted or used in evidence in court until the requisite
stamp or stamps have been affixed thereto and cancelled
No notary public or other officer authorized to administer oaths will add his jurat or
acknowledgment to any document subject to Documentary Stamp Tax unless the proper
documentary stamps are affixed thereto and cancelled.

5) What is Electronic Documentary Stamp Tax (eDST) System? (sec. 5 (1), RR

No. 7-2009)
The eDST is a web-based application created for taxpayers and the BIR that is capable
of affixing a secured documentary stamp on the taxable documents as defined under
the appropriate provisions under Title VII of the National Internal Revenue Code of 1997,
as amended, thru the use of a computer unit, any laser printer with at least 1200 dpi
resolution, and Internet Explorer 7.0 It is also capable of providing a 3-layer watermark
on stamps for added security.

6) Is DST Law applicable on Electronic Documents? (sec. 10, RR No. 13-2004)

The DST rates as imposed under the Code, as amended by R.A. 9243 shall be applicable
on all documents not otherwise expressly exempted by the said law, notwithstanding
the fact that they are in electronic form. As provided for by R.A. 8792, otherwise known
as the Electronic Commerce Act, electronic documents are the functional equivalent of a
written document under existing laws, and the issuance thereof is therefore tantamount
to the issuance of a written document, and therefore subject to DST.

7) What are the inclusions of a debt instrument? (sec. 5, RR No. 13-2004)

Debt Instrument shall mean instruments representing borrowing and lending
transaction including but not limited to:
debentures,
certificates of indebtedness,
due bills,
bonds,
loan agreements, including those signed abroad wherein the object of the contract is
located or used in the Philippines, instruments and securities issued by the government
or any of its instrumentalities, deposit substitute debt instruments, certificates or other
evidences of deposits that are drawing instrument significantly higher than the regular
savings deposit taking into consideration the size of the deposit and the risks involved,
certificates or other evidences of deposits that are drawing interest and having
a specific maturity date, promissory notes, whether negotiable or non-negotiable,
except bank notes issued for circulation.

8) Is any document, transaction or arrangement entered into under Financial

Lease subject to Documentary Stamp Tax? (RMC No. 46-2014)
Financial lease is akin to a debt rather than a lease. A nature of an obligation than a
lease of personal property. The mere act of extending credit is already a means of
facilitating an obligation or advancing in behalf of the lessee certain property in lieu of
cash in exchange for a definitive amortization to be paid to the lessor with profit margin
included. Section 179 of the NIRC, as amended, covers all debt instruments. Therefore,
being a nature of an obligation, any document, transaction or arrangement entered into
under financial lease is subject to DST under such Section of the NIRC, as amended.

Frequently Asked Questions --- DONORS TAX

1. Who are required to file the Donors Tax Return?

Every person, whether natural or juridical, resident or non-resident, who transfers or
causes to transfer property by gift, whether in trust or otherwise, whether the gift is
direct or indirect and whether the property is real or personal, tangible or intangible.

2. What donations are tax exempt?

A. In the Case of Gifts made by a Resident (Sec. 101 (A), NIRC as amended)
- Dowries or donations made on account of marriage before its celebration or within one
year thereafter, by parents to each of their legitimate, recognized natural, or adopted
children to the extent of the first P10,000
Gifts made to or for the use of the National Government or any entity created by any of
its agencies which is not conducted for profit, or to any political subdivision of the said
Government
- Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited non-government organization, trust or philantrophic
organization or research institution or organization, provided not more than 30% of said
gifts will be used by such donee for administration purposes

B. In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines (Sec. 101
(B), NIRC as amended)
- Gifts made to or for the use of the National Government or any entity created by any
of its agencies which is not conducted for profit, or to any political subdivision of the
said Government
- Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited non-government organization, trust or philantrophic
organization or research institution or organization, provided not more than 30% of said
gifts will be used by such donee for administration purposes

C. Tax Credit for Donor's Taxes Paid to a Foreign Country (Sec. 101 (C), NIRC as
amended)
In General. - The tax imposed by this Title upon a donor who was a citizen or a resident
at the time of donation shall be credited with the amount of any donor's tax of any
character and description imposed by the authority of a foreign country.
Limitations on Credit. - The amount of the credit taken under this Section shall be
subject to each of the following limitations:
- The amount of the credit in respect to the tax paid to any country shall not exceed the
same proportion of the tax against which such credit is taken, which the net gifts
situated within such country taxable under this Title bears to his entire net gifts; and
- The total amount of the credit shall not exceed the same proportion of the tax against
which such credit is taken, which the donor's net gifts situated outside the Philippines
taxable under this title bears to his entire net gifts.

3. What are the bases in the valuation of property?

If the gift is made in property, the fair market value at that time will be considered the
amount of gift.
In case of real property, the taxable base is the fair market value as determined by the
Commissioner of Internal Revenue (Zonal Value) or fair market value as shown in the
latest schedule of values fixed by the provincial and city assessor (MV per Tax
Declaration), whichever is higher. (Sec. 88 and 102, NIRC as amended)
If there is no zonal value, the taxable base is the fair market value that appears in the
tax declaration at the time of the gift

4. For purposes of Donors Tax, what does the term Net Gift mean?
For purposes of the donors tax, NET GIFT shall mean the net economic benefit from
the transfer that accrues to the donee. Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon the donee the obligation to pay the mortgage
liability, then the net gift is measured by deducting from the fair market value of the
property the amount of mortgage assumed. (sec. 11, RR No. 2-2003)

5. Under R.A. No. 7166, any contribution in cash or in kind to any candidate or
political party or coalition of parties for campaign purposes shall not be
subject to the payment of any gift tax. What instance will it be subject to
Donors Tax?
Those contributions in cash or in kind NOT duly reported to the Commission on Elections
(COMELEC) shall not be subject to donors tax.
Section 99 (C) of the Tax Code, as amended, provides that any contribution in cash or in
kind for campaign purposes shall be governed by R.A. No. 7166 or the Election Code.
Section 13 of the R.A. No. 7166 specifically states that any provision of law to the
contrary notwithstanding any contribution in cash or kind to any candidate or political
party or coalition of parties for campaign purposes, duly reported to the Commission
shall not be subject to the payment of any gift tax (donors tax). Accordingly, the BIR
can impose donors tax on contributions of this nature. (Q-14, RMC No. 63-2009)

6. For purposes of Donors Tax, is a legally adopted child considered stranger?

A legally adopted child is entitled to all the rights and obligations provided by law to
legitimate children, and therefore, donation to him shall not be considered as donation
made to stranger. (sec. 10, RR No. 2-2003)
7. For purposes of Donors Tax, are donations between businesses considered
donations made between strangers?
Donation made between business organizations and those made between an individual
and a business organization shall be considered as donation made to a stranger. (sec.
10, RR No. 2-2003)

8. Are gratuitous donations to Homeowners Associations subject to Donors

Tax?
Gifts, donations, and other contributions received by the Homeowners Associations
(Associations) are subject to the payment of donors tax pursuant to Section 98 and 99
of the Tax Code, as amended. Endowment or gifts received by such associations are not
exempt from donors tax considering that gifts to Associations are not qualified for
exemption under Section 101(A)(3) of the Tax Code. (II, RMC No. 53-2013)

9. Is an onerous donation or donation in exchange for goods, services or use

or lease of properties to Homeowners Association subject to Donors Tax?
Pursuant to RMC No. 9-2013, Associations are subject to the corresponding internal
revenue taxes imposed under the Tax Code of 1997 on their income of whatever kind
and character. In this regard, contributions to associations in exchange for goods,
services and use of properties constitute as other assessments/charges from activity in
exchange for the performance of a service, use of properties or delivery of an object. As
such, these fees are income on the part of the associations that are subject to income
tax under Section 27 of the Tax Code, as amended. (III, RMC No. 53-2013)

10. What is the proper treatment for transactions involving transfer of

property other than real property referred to in Section 24 (D) for less than
adequate and full consideration?
Where property, other than real property referred to in Section 24 (D) of the NIRC, as
amended, is transferred for less than adequate and full consideration in money or
moneys worth, then the amount by which the fair market value of the property
exceeded the value of the consideration shall, for the purpose of Donors Tax, be
deemed a gift, and shall be included in computing the amount of gifts made during the
calendar year. (Sec. 100, NIRC, as amended)

11. What entities are considered exempted from Donors Tax under special
laws?
The list below consists of entities considered Donors Tax exempt under special laws
including, but not limited to the following:
Rural Farm School (Sec. 14, R.A. No. 10618)
Peoples Television Network, Incorporated (Sec. 15, R.A. No. 10390)
Peoples Survival Fund (Sec. 13, R.A. No. 10174)
Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, R.A. No. 10083)
Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)
Philippine Red Cross (Sec. 5, R.A. No. 10072)
Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)
National Commission for Culture and the Arts (Sec. 35, R.A. No. 10066)
Philippine Normal University (Sec. 7, R.A. No. 9647)
University of the Philippines (Sec. 25, R.A. No. 9500)
National Water Quality Management Fund (Sec. 9, R.A. No. 9275)
Philippine Investors Commission (Sec. 9, R.A. No. 3850)
Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676)
Philippine-American Cultural Foundation (Sec. 4, P.D. 3062)
International Rice Research Institute (Art. 5(2), PD 1620)
Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419)
National Social Action Council (Sec. 4, P.D. 294)
Aquaculture Department of the Southeast Asian Fisheries Development Center (Sec. 2,
P.D. 292)
Development Academy of the Philippines (Sec. 12, PD 205)
Integrated Bar of the Philippines (Sec. 3, PD 181)

12. How do we determine the fair market value of the unlisted stocks?
In determining the value of the shares, the Adjusted Net Asset Method shall be
used whereby all assets and liabilities are adjusted to fair market values. The net of
adjusted asset minus the adjusted liability value is the indicated value of the equity.
For purposes of this item, the appraised value of real property at the time of sale
shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial and
City Assessors, or
(c) The fair market value as determined by Independent Appraiser. (RR NO. 6-2013)
(Annex U)

Frequently Asked Questions -- ESTATE TAX

1. Who are required to file the Estate Tax return?

a) The executor or administrator or any of the legal heirs of the decedent or non-
resident of the Philippines under any of the following situation:
- In all cases of transfer subject to Estate Tax;
- Where though exempt from Estate Tax, the gross value of the estate exceeds two
hundred thousand P 200,000.00; and
- Where regardless of the gross value, the estate consists of registered or registrable
property such as real property, motor vehicle, share of stocks or other similar property
for which a clearance from the Bureau of Internal Revenue (BIR) is required as a
prerequisite for the transfer of ownership thereof in the name of the transferee. (part II
par.(1.#3) of RMC No. 34-2013)
b) Where there is no executor or administrator appointed, qualified and acting within
the Philippines, then any person in actual or constructive possession of any property of
the decedent must file the return.
c) The Estate Tax imposed under the Tax Code shall be paid by the executor or
administrator before the delivery of the distributive share in the inheritance to any heir
or beneficiary. Where there are two or more executors or administrators, all of them are
severally liable for the payment of the tax. The estate tax clearance issued by the
Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate,
will serve as the authority to distribute the remaining/distributable properties/share in
the inheritance to the heir or beneficiary.
d) The executor or administrator of an estate has the primary obligation to pay the
estate tax but the heir or beneficiary has subsidiary liability for the payment of that
portion of the estate which his distributive share bears to the value of the total net
estate. The extent of his liability, however, shall in no case exceed the value of his share
in the inheritance.

2. What are included in gross estate?

For resident alien decedents/citizens:
a) Real or immovable property, wherever located
b) Tangible personal property, wherever located
c) Intangible personal property, wherever located
For non-resident decedent/non-citizens:
a) Real or immovable property located in the Philippines
b) Tangible personal property located in the Philippines
c) Intangible personal property - with a situs in the Philippines such as:
- Franchise which must be exercised in the Philippines
- Shares, obligations or bonds issued by corporations organized or constituted in the
Philippines
- Shares, obligations or bonds issued by a foreign corporation 85% of the business of
which is located in the Philippines
- Shares, obligations or bonds issued by a foreign corporation if such shares, obligations
or bonds have acquired a business situs in the Philippines ( i. e. they are used in the
furtherance of its business in the Philippines)
- Shares, rights in any partnership, business or industry established in the Philippines

3. What are excluded from gross estate?

GSIS proceeds/ benefits
Accruals from SSS
Proceeds of life insurance where the beneficiary is irrevocably appointed
Proceeds of life insurance under a group insurance taken by employer (not taken out
upon his life)
War damage payments
Transfer by way of bona fide sales
Transfer of property to the National Government or to any of its political subdivisions
Separate property of the surviving spouse
Merger of usufruct in the owner of the naked title
Properties held in trust by the decedent
Acquisition and/or transfer expressly declared as not taxable

4. What will be used as basis in the valuation of property?

The properties subject to Estate Tax shall be appraised based on its fair market value at
the time of the decedent's death.
The appraised value of the real estate shall be whichever is higher of the fair market
value, as determined by the Commissioner (zonal value) or the fair market value, as
shown in the schedule of values fixed by the Provincial or City Assessor.
If there is no zonal value, the taxable base is the fair market value that appears in the
latest tax declaration.
If there is an improvement, the value of improvement is the construction cost per
building permit or the fair market value per latest tax declaration.

5. What are the allowable deductions for Estate Tax Purposes?

Applicable for deaths occurring after the effectivity of RA 8424 which is January 1, 1998
For a citizen or resident alien
A. Expenses, losses, indebtedness and taxes
(1) Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an
amount equal to five percent (5%) of the gross estate, whichever is lower, but in no
case to exceed P200,000.
(2) Judicial expenses of the testamentary or intestate proceedings.
(3) Claims against the estate.
(4) Claims of the deceased against insolvent persons where the value of the decedents
interest therein is included in the value of the gross estate; and,
(5) Unpaid mortgages, taxes and casualty losses

B. Property previously taxed (Vanishing Deduction) (Section 86(2) of the NIRC as

amended by Republic Act No. 8424)
An amount equal to the value specified below of any property forming a part of the
gross estate situated in the Philippines of any person who died within five (5) years prior
to the death of the decedent, or transferred to the decedent by gift within five (5) years
prior to his death, where such property can be identified as having been received by the
decedent from the donor by gift, or from such prior decedent by gift, bequest, devise or
inheritance, or which can be identified as having been acquired in exchange for
property so received:
- One hundred percent (100%) of the value, if the prior decedent died within one
(1) year prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death;
- Eighty percent (80%) of the value, if the prior decedent died more than one (1)
year but not more than two (2) years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his death;
- Sixty percent (60%) of the value, if the prior decedent died more than two (2)
years but not more than three (3) years prior to the death of the decedent, or if
the property was transferred to him by gift within the same period prior to his
death;
- Forty percent (40%) of the value, if the prior decedent died more than three (3)
years but not more than four (4) years prior to the death of the decedent, or if
the property was transferred to him by gift within the same period prior to his
death; and
- Twenty percent (20%) of the value, if the prior decedent died more than four (4)
years but not more than five (5) years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his death;
These deductions shall be allowed only where a donors tax or estate tax imposed was
finally determined and paid by or on behalf of such donor, or the estate of such prior
decedent, as the case may be, and only in the amount finally determined as the value
of such property in determining the value of the gift, or the gross estate of such prior
decedent, and only to the extent that the value of such property is included in the
decedents gross estate, and only if in determining the value of the estate of the prior
decedent, no Property Previously Taxed or Vanishing Deduction was allowable in respect
of the property or properties given in exchange therefor. (Section 6 & 7 of RR 2-2003)

C. Transfers for public use

D. The family home - fair market value but not to exceed P1,000,000.00
The family home refers to the dwelling house, including the land on which it is situated,
where the husband and wife, or a head of the family, and members of their family
reside, as certified to by the Barangay Captain of the locality. The family home is
deemed constituted on the house and lot from the time it is actually occupied as a
family residence and is considered as such for as long as any of its beneficiaries actually
resides therein. (Arts. 152 and 153, Family Code)

E. Standard deduction A deduction in the amount of One Million Pesos (P1,000,000.00)

shall be allowed as an additional deduction without need of substantiation.

F. Medical expenses All medical expenses (cost of medicines, hospital bills, doctors
fees, etc.) incurred (whether paid or unpaid) within one (1) year before the death of the
decedent shall be allowed as a deduction provided that the same are duly substantiated
with official receipts. For services rendered by the decedents attending physicians,
invoices, statements of account duly certified by the hospital, and such other
documents in support thereof and provided, further, that the total amount thereof,
whether paid or unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).

G. Amount received by heirs under Republic Act No. 4917-Any amount received by the
heirs from the decedents employer as a consequence of the death of the decedent-
employee in accordance with Republic Act No. 4917 is allowed as a deduction provided
that the amount of the separation benefit is included as part of the gross estate of the
decedent.

H. Net share of the surviving spouse in the conjugal partnership or community property
For a non-resident alien
A. Expenses, losses, indebtedness and taxes
B. Property previously taxed
C. Transfers for public use
D. Net share of the surviving spouse in the conjugal partnership or community property
No deduction shall be allowed in the case of a non-resident decedent not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case may
be, includes in the return required to be filed in the Section 90 of the Code the value at
the time of the decedents death of that part of his gross estate not situated in the
Philippines.
Please note that the allowable deductions will vary depending on the law applicable at
the time of the decedents death.

6. What does the term "Funeral Expenses" include? (Sec 6 (A)(1) of RR 2-2003)
The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They
include:
(a) The mourning apparel of the surviving spouse and unmarried minor children of the
deceased bought and used on the occasion of the burial;
(b) Expenses for the deceaseds wake, including food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives of the deceased;
(e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In
case the deceased owns a family estate or several burial lots, only the value
corresponding to the plot where he is buried is deductible;
(f) Interment and/or cremation fees and charges; and
(g) All other expenses incurred for the performance of the rites and ceremonies incident
to interment.
Expenses incurred after the interment, such as for prayers, masses, entertainment, or
the like are not deductible. Any portion of the funeral and burial expenses borne or
defrayed by relatives and friends of the deceased are not deductible. Actual funeral
expenses shall mean those which are actually incurred in connection with the interment
or burial of the deceased. The expenses must be duly supported by official receipts or
invoices or other evidence to show that they were actually incurred.

7. What does the term "Judicial Expenses" include? (Sec 6 (A)(2) of RR 2-2003)
Expenses allowed as deduction under this category are those incurred in the inventory-
taking of a assets comprising the gross estate, their administration, the payment of
debts of the estate, as well as the distribution of the estate among the heirs. In short,
these deductible items are expenses incurred during the settlement of the estate but
not beyond the last day prescribed by law, or the extension thereof, for the filing of the
estate tax return. Judicial expenses may include:
(a) Fees of executor or administrator;
(b) Attorneys fees;
(c) Court fees;
(d) Accountants fees;
(e) Appraisers fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining property of the estate; and
(i) Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses claimed under Judicial
Expenses should be supported by a sworn statement of account issued and signed by
the creditor.

8. What are the requisites for deductibility of claims against the Estate? (Sec
6(A)(3) of RR 2-2003)
(a) The liability represents a personal obligation of the deceased existing at the time of
his death except unpaid obligations incurred incident to his death such as unpaid
funeral expenses (i.e., expenses incurred up to the time of interment) and unpaid
medical expenses which are classified under a different category of deductions pursuant
to these Regulations;
(b) The liability was contracted in good faith and for adequate and full consideration in
money or moneys worth;
(c) The claim must be a debt or claim which is valid in law and enforceable in court;
(d) The indebtedness must not have been condoned by the creditor or the action to
collect from the decedent must not have prescribed.
9. How do we determine the fair market value of the unlisted stocks? (RR NO.
6-2013) (Annex U)
In determining the value of the shares, the Adjusted Net Asset Method shall be used
whereby all assets and liabilities are adjusted to fair market values. The net of adjusted
asset minus the adjusted liability value is the indicated value of the equity.
For purposes of this item, the appraised value of real property at the time of sale shall
be the highest among the following:
 (a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors, or
(c) The fair market value as determined by Independent Appraiser.

Frequently Asked Questions -- INCOME TAX

1) What is income?
Income means all wealth, which flows into the taxpayer other than as a mere return of
capital.

2) What is Taxable Income?

Taxable income means the pertinent items of gross income specified in the Tax Code as
amended, less the deductions and/or personal and additional exemptions, if any,
authorized for such types of income, by the Tax Code or other special laws.

3) What is Gross Income?

Gross income means all income derived from whatever source.

4) What comprises gross income?

Gross income includes, but is not limited to the following:

- Compensation for services, in whatever form paid, including but not limited to
fees, salaries, wages, commissions and similar item
- Gross income derived from the conduct of trade or business or the exercise of
profession
- Gains derived from dealings in property
- Interest
- Rents
- Royalties
- Dividends
- Annuities
- Prizes and winnings
- Pensions
- Partner's distributive share from the net income of the general professional
partnerships

5) What are some of the exclusions from gross income?

- Life insurance
- Amount received by insured as return of premium
- Gifts, bequests and devises
- Compensation for injuries or sickness
- Income exempt under treaty
- Retirement benefits, pensions, gratuities, etc.
- Miscellaneous items
- income derived by foreign government
- income derived by the government or its political subdivision
- prizes and awards in sport competition
- prizes and awards which met the conditions set in the Tax Code
- 13th month pay and other benefits
- GSIS, SSS, Medicare and other contributions
- gain from the sale of bonds, debentures or other certificate of indebtedness
- gain from redemption of shares in mutual fund

6) What are the allowable deductions from gross income?

Except for taxpayers earning compensation income arising from personal services
rendered under an employer-employee relationships where the only deduction provided
that the gross family income does not exceed P250,000 per family is the premium
payment on health and/or hospitalization insurance, a taxpayer may opt to avail any of
the following allowable deductions from gross income:
a)Optional Standard Deduction - an amount not exceeding 40% of the net sales for
individuals and gross income for corporations; or
b) Itemized Deductions which include the following:
Expenses
Interest
Taxes
Losses
Bad Debts
Depreciation
Depletion of Oil and Gas Wells and Mines
Charitable Contributions and Other Contributions
Research and Development
Pension Trusts
In addition, individuals who are either earning compensation income, engaged in
business or deriving income from the practice of profession are entitled to personal and
additional exemptions as follows:

Personal Exemptions:
For single individual or married individual judicially decreed as legally separated with no
qualified dependentsP 50,000.00
For head of familyP 50,000.00
For each married individual *P 50,000.00
Note: In case of married individuals where only one of the spouses is deriving gross
income, only such spouse will be allowed to claim the personal exemption.

Additional Exemptions:
For each qualified dependent, an P25,000 additional exemption can be claimed but only
up to 4 qualified dependents
The additional exemption can be claimed by the following:
- The husband who is deemed the head of the family unless he explicitly waives
his right in favor of his wife
- The spouse who has custody of the child or children in case of legally separated
spouses. Provided, that the total amount of additional exemptions that may be
claimed by both shall not exceed the maximum additional exemptions allowed by
the Tax Code.
The individuals considered as Head of the Family supporting a qualified dependent
The maximum amount of P 2,400 premium payments on health and/or hospitalization
insurance can be claimed if:

Family gross income yearly should not be more than P 250,000

For married individuals, the spouse claiming the additional exemptions for the qualified
dependents shall be entitled to this deduction

7) Who are required to file the Income Tax returns?

 - Individuals
- Resident citizens receiving income from sources within or outside the Philippines
- employees deriving purely compensation income from 2 or more employers,
concurrently or successively at anytime during the taxable year
- employees deriving purely 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
- self-employed individuals receiving income from the conduct of trade or business
and/or practice of profession
- individuals deriving mixed income, i.e., compensation income and income from
the conduct of trade or business and/or practice of profession
- individuals deriving other non-business, non-professional related income in
addition to compensation income not otherwise subject to a final tax
- individuals receiving purely compensation income from a single employer,
although the income of which has been correctly withheld, but whose spouse is
not entitled to substituted filing
- marginal income earners
- Non-resident citizens receiving income from sources within the Philippines
- Aliens, whether resident or not, receiving income from sources within the
Philippines
- Corporations no matter how created or organized including partnerships
- domestic corporations receiving income from sources within and outside the
Philippines
- foreign corporations receiving income from sources within the Philippines
- taxable partnerships
- Estates and trusts engaged in trade or business

8) Who are not required to file Income Tax returns?

a. An individual who is a minimum wage earner
b. An individual whose gross income does not exceed his total personal and additional
exemptions
c. An individual whose compensation income derived from one employer does not
exceed P 60,000 and the income tax on which has been correctly withheld
d. An individual whose income has been subjected to final withholding tax (alien
employee as well as Filipino employee occupying the same position as that of the alien
employee of regional headquarters and regional operating headquarters of
multinational companies, petroleum service contractors and sub-contractors and
offshore-banking units, non-resident aliens not engaged in trade or business)
e. Those who are qualified under substituted filing. However, substituted filing applies
only if all of the following requirements are present:
- the employee received purely compensation income (regardless of amount) during the
taxable year
- the employee received the income from only one employer in the Philippines during
the taxable year
- the amount of tax due from the employee at the end of the year equals the amount of
tax withheld by the employer
- the employees spouse also complies with all 3 conditions stated above
- the employer files the annual information return (BIR Form No. 1604-CF)
- the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.
 9) Who are exempt from Income Tax?
Non-resident citizen who is:
a) A citizen of the Philippines who establishes to the satisfaction of the Commissioner
the fact of his physical presence abroad with a definite intention to reside therein
b) A citizen of the Philippines who leaves the Philippines during the taxable year to
reside abroad, either as an immigrant or for employment on a permanent basis
c) A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time
during the taxable year
d) A citizen who has been previously considered as a non-resident citizen and who
arrives in the Philippines at any time during the year to reside permanently in the
Philippines will likewise be treated as a non-resident citizen during the taxable year in
which he arrives in the Philippines, with respect to his income derived from sources
abroad until the date of his arrival in the Philippines.
Overseas Filipino Worker, including overseas seaman
An individual citizen of the Philippines who is working and deriving income from abroad
as an overseas Filipino worker is taxable only on income from sources within the
Philippines; provided, that a seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the complement of a vessel
engaged exclusively in international trade will be treated as an overseas Filipino worker.
NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the
Philippine Embassy/consulate is not treated as a non-resident citizen, hence his income
is taxable.

10) What are the procedures in filing Income Tax returns (ITRs)?
For with payment ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704)
File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with
the Authorized Agent Bank (AAB) of the place where taxpayer is registered or required
to be registered. In places where there are no AABs, the return will be filed directly with
the Revenue Collection Officer or duly Authorized Treasurer of the city or municipality in
which such person has his legal residence or principal place of business in the
Philippines, or if there is none, filing of the return will be at the Office of the
Commissioner.
For no payment ITRs -- refundable, break-even, exempt and no operation/transaction,
including returns to be paid on 2nd installment and returns paid through a Tax Debit
Memo(TDM)
File the return with the concerned Revenue District Office (RDO) where the taxpayer is
registered. However, "no payment" returns filed late shall be accepted by the RDO but
instead shall be filed with an Authorized Agent Bank (AAB) or Collection
Officer/Deputized Municipal Treasurer (in places where there are no AABs), for payment
of necessary penalties.

11) How is Income Tax payable of individuals (resident citizens and non-
resident citizens)computed?
Gross Income P ___________

Less: Allowable Deductions (Itemized or Optional) ___________

Net Income P ___________

Less: Personal & Additional Exemptions ___________

Net Taxable Income P ___________

Multiply by Tax Rate (5 to 32%) ____________

Income Tax Due: Tax withheld (per BIR From 2316/2304) P ___________

Income tax payable P____________

12) How is Income Tax paid?

Through withholding

Generally 10% or 15% if the gross annual business or professional income exceeds
P720,000 per year
20% - Fees paid to directors who are not employees and 20% of professional fees paid
to non-individuals
Other withholding tax rates

Pay the balance as you file the tax return, computed as follows:
Income Tax Due P ___________

Less: Withholding Tax ___________

Net Income Tax Due P ___________

13) Is the Minimum Corporate Income Tax (MCIT) an addition to the regular or
normal income tax?
No, the MCIT is not an additional tax. An MCIT of 2% of the gross income as of the end
of taxable year (whether calendar or fiscal year, depending on the accounting period
employed) is imposed on a corporation taxable under Title II of the Tax Code, as
amended, beginning on the 4th taxable year immediately following the taxable year in
which such corporation commenced its business operations when the MCIT is greater
than the regular income tax. The MCIT is compared with the regular income tax, which
is due from a corporation. If the regular income is higher than the MCIT, then the
corporation does not pay the MCIT but the amount of the regular income tax.
Notwithstanding the above provision, however, the computation and the payment of
MCIT, shall likewise apply at the time of filing the quarterly corporate income tax as
prescribed under Section 75 and Section 77 of the Tax Code, as amended. Thus, in the
computation of the tax due for the taxable quarter, if the computed quarterly MCIT is
higher than that quarterly normal income tax, the tax due to be paid for such taxable
quarter at the time of filing the quarterly income tax return shall be the MCIT which is
two percent (2%) of the gross income as of the end of the taxable quarter. In the
payment of said quarterly MCIT, excess MCIT from the previous taxable year/s shall not
be allowed to be credited. Expanded withholding tax, quarterly corporate income tax
payments under the normal income tax, and the MCIT paid in the previous taxable
quarter/s are allowed to be applied against the quarterly MCIT due.

14) Who are covered by MCIT?

The MCIT covers domestic and resident foreign corporations which are subject to the
regular income tax. The term regular income tax refers to the regular income tax
rates under the Tax Code. Thus, corporations which are subject to a special corporate
tax system do not fall within the coverage of the MCIT.
For corporations whose operations or activities are partly covered by the regular income
tax and partly covered by the preferential rate under special law, the MCIT shall apply
on operations by the regular income tax rate. Newly established corporations or firms
which are on their first 3 years of operations are not covered by the MCIT.

15) When does a corporation start to be covered by the MCIT?

A corporation starts to be covered by the MCIT on the 4th year of its business
operations. The period of reckoning which is the start of its business operations is the
year when the corporation was registered with the BIR. This rule will apply regardless of
whether the corporation is using the calendar year or fiscal year as its taxable year.

16) When is the MCIT reported and paid? Is it quarterly?

The MCIT is paid on an annual basis and quarterly basis. The rules are governed by
Revenue Regulations No. 12-2007.

17) How is MCIT computed?

The MCIT is 2% of the gross income of the corporation at the end of the year.
Gross income means gross sales less sales returns, discounts and cost of goods sold.
Passive income, which have been subject to a final tax at source do not form part of
gross income for purposes of the MCIT.
- Cost of goods sold includes all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.
- For trading or merchandising concern, cost of goods sold means the invoice cost
of goods sold, plus import duties, freight in transporting the goods to the place
where the goods are actually sold, including insurance while the goods are in
transit.
- For a manufacturing concern, cost of goods manufactured and sold means all
costs of production of finished goods such as raw materials used, direct labor and
manufacturing overhead, freight cost, insurance premiums and other costs
incurred to bring the raw materials to the factory or warehouse.
- For sale of services, gross income means gross receipts less sales returns,
allowances, discounts and cost of services which cover all direct costs and
expenses necessarily incurred to provide the services required by the customers
and clients including:
Salaries and employees benefits of personnel, consultants and specialists
directly rendering the service;
Cost of facilities directly utilized in providing the service such as
depreciation or rental of equipment used;
Cost of supplies
Interest Expense is not included as part of cost of service, except in the
case of banks and other financial institutions.

Gross Receipts means amounts actually or constructively received during the taxable
year. However, for taxpayers employing the accrual basis of accounting, it means
amounts earned as gross income.

18) What is the carry forward provision under the MCIT?

Any excess of the MCIT over the normal income tax may be carried forward on an
annual basis and be credited against the normal income tax for 3 immediately
succeeding taxable years.

19) How would the MCIT be recorded for accounting purposes?

Any amount paid as excess minimum corporate income tax should be recorded in the
corporations books as an asset under account title Deferred charges-MCIT

20) How long can we amend our income tax return?

There is no prescription period for amending the return. When the taxpayer has been
issued a Letter of Authority, he can no longer amend the return.

21) Can a benefactor of a senior citizen claim him/her as additional dependent

in addition to his/her 3 qualified dependent children at P 25,000 each?
No, pursuant to Revenue Regulations 2-94, the benefactor of a senior citizen cannot
claim the additional exemption.

22) What is a tax treaty?

A tax treaty formally known as convention or agreement for the avoidance of double
taxation and the prevention of fiscal evasion with respect to taxes on income (and on
capital) could be defined in terms of its purpose. First, a tax treaty is intended to
promote international trade and investment in several ways, the most important of
which is by allocating taxing jurisdiction between the Contracting States so as to
eliminate or mitigate double taxation of income. Second, a tax treaty is intended to
permit the Contracting States to better enforce their domestic laws so as to reduce tax
evasion. These purposes are in fact incorporated in the title and the preamble.

23) What are the effective Philippine tax treaties?

The Philippines has thirty-seven (37) effective tax treaties. The following tax treaties
and their dates of effectivity as as follows:
Effective Philippine Tax Treaties (as of June 2010)
Country Date of Date and Venue of
Effectivity Signature

1. Australia January 1, May 11, 1979, Manila,

1980 Philippines

2. Austria January 1, April 4, 1981, Vienna,

1983 Austria

3. Bahrain January 1, November 7, 2001, Manila,

2004 Philippines

4. Bangladesh January 1, September 8, 1997,

2004 Manila, Philippines

5. Belgium January 1, October 2, 1976, Manila,

1981 Philippines

6. Brazil January 1, Sept. 29, 1983, Brasilia,

1992 Brazil

7. Canada January 1, March 11, 1976, Manila,

1977 Philippines

8. China January 1, November 18, 1999,

2002 Beijing, China

9. Czech January 1, November 13, 2000,

 2004 Manila, Philippines

10. Denmark (Renegotiated) January 1, June 30, 1995,

1998 Copenhagen, Denmark

11. Finland January 1, October 13, 1978, Manila,

1982 Philippines

12. France January 1, January 9, 1976, Kingston,

1978 Jamaica

13. Germany January 1, July 22, 1983, Manila,

1985 Philippines

14. Hungary January 1, June 13, 1997, Budapest,

1998 Hungary

15. India January 1, February 12, 1990, Manila,

1995 Philippines

16. Indonesia January 1, June 18, 1981, Manila,

1983 Philippines

17. Israel January 1, June 9, 1992, Manila,

1997 Philippines

18. Italy January 1, December 5, 1980, Rome,

1990 Italy

19. Japan January 1, February 13, 1980, Tokyo,

1981 Japan

20. Korea January 1, February 21, 1984, Seoul,

1987 Korea

21. Malaysia January 1, April 27, 1982, Manila,

1985 Philippines

22. Netherlands January 1, March 9, 1989, Manila,

1992 Philippines

23. New Zealand January 1, April 29, 1980, Manila,

1981 Philippines

24. Norway January 1, July 9, 1987, Manila,

1998 Philippines

25. Pakistan January 1, February 22, 1980, Manila,

1979 Philippines

26. Poland January 1, September 9, 1992,

1998 Manila, Philippines

27. Romania January 1, May 18, 1994, Bucharest,

1998 Romania
28. Russia January 1, April 26, 1995, Manila,
1998 Philippines

29. Singapore January 1, August 1, 1977, Manila,

1977 Philippines

30. Spain January 1, March 14, 1989, Manila,

1994 Philippines

31. Sweden (Renegotiated) January 1, June 24, 1998, Manila,

2004 Philippines

32. Switzerland January 1, June 24, 1998, Manila,

2002 Philippines

33. Thailand January 1, July 14, 1982, Manila,

1983 Philippines

34. United Arab Emirates January 1, September 21, 2003,

2009 Dubai, UAE

35. United Kingdom of Great January 1, June 10, 1976, London,

Britain and Northern Ireland 1979 United Kingdom

36. United States of America January 1, October 1, 1976, Manila,

1983 Philippines

37. Vietnam January 1, November 14, 2001,

2004 Manila, Philippines

24) What office can we inquire about the said tax treaties?
The International Tax Affairs Division (ITAD).

25) What taxes are covered by Philippine tax treaties?

Income taxes imposed by the domestic laws of the Contracting States, including
substantially similar taxes that may be imposed later, in addition to, or in place, are
covered by the tax treaties. In the Philippines, this is generally limited to Title II (Tax on
Income) of the National Internal Revenue Code of 1997, as amended.

26) How is business income treated under our tax treaties?

The business profits of a resident of a Contracting State shall not be taxable in the
Philippines unless that enterprise of a resident of a Contracting State carries on
business in the Philippines through a permanent establishment.

27) What is the concept of permanent establishment (PE) as used in tax

treaties?
PE is defined as a fixed place of business through which the business of the enterprise is
wholly or partly carried on. The concept of permanent establishment is used to
determine the rights of a Contracting State to tax the business profits of enterprises of
the other Contracting State. Under this concept, profits of an enterprise of a
Contracting State are not taxable by the other Contracting State, unless the enterprise
carries on business through a permanent establishment situated in the other
Contracting State.
A list of places, circumstances, and activities which constitute a permanent
establishment is provided under the different tax treaties which the Philippines has with
other countries.

28) What is the Most-Favored-Nation clause (MFN)?

The appearance of the MFN clause in the tax treaty means that a Contracting State will
grant to a resident of the other Contracting State the same lower rate of tax or
exemption the former has granted to a resident of a third State.

29) What is the tax treatment on immovable property?

Income from an immovable property is taxable in the Contracting State where the
property is situated. This term is generally defined under the domestic laws of the
Contracting States. However, this is further defined in the tax treaties.
30) How are capital gains taxed under our tax treaties?
Gains from the alienation of immovable property or movable property forming part of
the business property of a permanent establishment or pertaining to a fixed base are
taxed in the Philippines if the immovable property or permanent establishment or fixed
base is located here.

FREQUENTLY ASKED QUESTIONS --- VAT

I. General VAT Queries

Who are liable to register as VAT taxpayers?
Any person who, in the course of trade or business, sells, barters or exchanges goods or
properties or engages in the sale or exchange of services shall be liable to register if:
a. His gross sales or receipts for the past twelve (12) months, other than those that are
exempt under Section 109 (A) to (U), have exceeded One Million Five Hundred Thousand
Pesos (P1,500,000.00): or
b. There are reasonable grounds to believe that his gross sales or receipts for the next
twelve (12) months, other than those that are exempt under Section 109 (A) to (U), will
exceed One Million Five Hundred Thousand Pesos (P1,500,000.00).
When is a new VAT taxpayer required to apply for registration and pay the
registration fee?
New VAT taxpayers shall apply for registration as VAT Taxpayers and pay the
corresponding registration fee of five hundred pesos (P500.00) using BIR Form No.
0605 for every separate or distinct establishment or place of business before the start
of their business following existing issuances on registration.
Thereafter, taxpayers are required to pay the annual registration fee of five hundred
pesos (P500.00) not later than January 31, every year.
What compliance activities should a VAT taxpayer, after registration as such,
do promptly or periodically?
The following compliance activities must be performed by a VAT-registered taxpayer:
a. Pay the annual registration fee of P500.00 for every place of business or
establishment that generates sales;
b. Register the books of accounts of the business/occupation/calling, including practice
of profession, before using the same;
c. Register the sales invoices and official receipts as VAT-invoices or VAT official receipts
for use on transactions subject to VAT. (If there are other transaction not subject to VAT,
a separate set of non-VAT invoices or non-VAT official receipts need to be registered for
use on transactions not subject to VAT);
d. Filing of the Monthly Value-added Tax Declaration on or before the 20th day following
the end of the taxable month (for manual filers)/on or before the prescribed due dates
enunciated in RR No. 16-2005 (for e-filers) using BIR Form No. 2550M and of the
Quarterly VAT Return on or before the 25th day following the end of the taxable quarter
using BIR Form No. 2550Q, reflecting therein gross receipts (for seller of service)/ gross
sales (for seller of goods) and output tax (VAT on sales); purchases of goods and
services made in the course of trade or business/exercise of profession and input tax
(VAT on purchases), other allowable tax credits as in the case of advance VAT payment
and VAT withheld by government payors, and VAT payable or excess input VAT,
whichever is applicable, with the accredited agent banks (AABs) of the BIR or Revenue
Collection Officers (RCOs) of the BIR (in areas without AAB), for returns with payment, or
with the RDO/LTDO having jurisdiction over the taxpayer (home RDO/LTDO), for returns
without payment. (The monthly VAT Declaration and the Quarterly VAT Return shall
reflect the consolidated total for all the taxable lines of activity and all the
establishments - head office and branches);
e. Submit with the RDO/LTDO having jurisdiction over the taxpayer, on or before the
deadline set in the filing of the Quarterly VAT Return, the soft copy of the Quarterly
Schedule of Monthly Sales and Output Tax (if the quarterly sales exceed P2,500,000.00),
and the soft copy of the Quarterly Schedule of Monthly Domestic Purchases and Input
Tax/ the soft copy of the Schedule of Transactional/Individual Importation ( if the
quarterly total purchases exceed P1,000,000.00), reflecting therein the required data
prescribed under existing revenue issuances.
How do we determine the main or principal business of a taxpayer who is
engaged in mixed business activities?
In determining the main or principal business of a taxpayer, we apply the predominance
test. Under this test, if more than fifty (50%) of its gross sales and/or gross receipts
comes from its business/es subject to VAT, its main/principal business falls within the
VAT system making its status as a VAT person. Otherwise, he can not be considered as a
VAT person eligible for the election provided for under Section 109(2) of the Tax Code.
What is the liability of a taxpayer becoming liable to VAT and did not register
as such?
Any person who becomes liable to VAT and fails to register as such shall be liable to pay
the output tax as if he is a VAT-registered person, but without the benefit of input tax
credits for the period in which he was not properly registered.
Who may opt to register as VAT and what will be his liability?
1. Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register
for VAT may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with
the RDO that has jurisdiction over the head office of that person, and pay the annual
registration fee of P500.00 for every separate and distinct establishment.
2. Any person who is VAT-registered but enters into transactions which are exempt from
VAT (mixed transactions) may opt that the VAT apply to his transactions which would
have been exempt under Section 109(1) of the Tax Code, as amended [Sec. 109(2)].
3. Franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed ten million pesos (P10,000,000.00) derived
from the business covered by the law granting the franchise may opt for VAT
registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax Code).
4. Any person who elects to register under optional registration shall not be allowed to
cancel his registration for the next three (3) years.
The above-stated taxpayers may apply for VAT registration not later than ten (10) days
before the beginning of the calendar quarter and shall pay the registration fee unless
they have already paid at the beginning of the year. In any case, the Commissioner of
Internal Revenue may, for administrative reason deny any application for registration.
Once registered as a VAT person, the taxpayer shall be liable to output tax and be
entitled to input tax credit beginning on the first day of the month following registration.
What are the instances when a VAT-registered person may cancel his VAT
registration?
1. If he makes a written application and can demonstrate to the commissioner's
satisfaction that his gross sales or receipts for the following twelve (12) months, other
than those that are exempt under Section 109 (A) to (U), will not exceed one million five
hundred thousand pesos (P1,500,000.00); or
2. If he has ceased to carry on his trade or business, and does not expect to
recommence any trade or business within the next twelve (12) months.
When will the cancellation for registration be effective?
The cancellation for registration will be effective from the first day of the following
month the cancellation was approved.
What is the invoicing/ receipt requirement of a VAT-registered person?
A VAT registered person shall issue :
1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. A VAT official receipt for every lease of goods or properties and for every sale, barter
or exchange of services.
May a VAT-registered person issue a single invoice/ receipt involving VAT and
Non-VAT transactions?
Yes. He may issue a single invoice/ receipt involving VAT and non-VAT transactions
provided that the invoice or receipt shall clearly indicate the break-down of the sales
price between its taxable, exempt and zero-rated components and the calculation of the
Value-Added Tax on each portion of the sale shall be shown on the invoice or receipt.
May a VAT- registered person issue separate invoices/ receipts involving VAT
and Non-VAT transactions?
Yes. A VAT registered person may issue separate invoices/ receipts for the taxable,
exempt, and zero-rated component of its sales provided that if the sales is exempt from
value-added tax, the term "VAT-EXEMPT SALE" shall be written or printed prominently on
the invoice or receipt and if the sale is subject to zero percent (0%) VAT, the term
"ZERO-RATED SALE" shall be written or printed prominently on the invoice or receipt.
How is the Value-Added Tax presented in the receipt/ invoice?
The amount of the tax shall be shown as a separate item in the invoice or receipt.
Sample:
Sales Price P 100,000.00
VAT 12,000.00
Invoice Amount 112,000.00
What is the information that must be contained in the VAT invoice or VAT
official receipt?
1. Name of Seller
2. Business Style of the Seller
3. Business Address of the Seller
4. Statement that the seller is a VAT-registered person, followed by his TIN
5. Name of Buyer
6. Business Style of Buyer
7. Address of Buyer
8. TIN of buyer, if VAT- registered and amount exceed P1,000.00
9. Date of transaction
10. Quantity
11. Unit cost
12. Description of the goods or properties or nature of the service
13. Purchase price plus the VAT, provided that:

The amount of tax shall be shown as a separate item in the invoice or receipt;
If the sale is exempt from VAT, the term "VAT-EXEMPT SALE" shall be written or printed
prominently on the invoice or receipt;
If the sale is subject to zero percent (0%) VAT, the term "ZERO-RATED SALE" shall be
written or printed prominently on the invoice receipt; and
If the sale involves goods, properties or services some of which are subject to and some
of which are zero-rated or exempt from VAT, the invoice or receipt shall clearly indicate
the breakdown of the sales price between its taxable, exempt and zero-rated
components, and the calculation of the VAT on each portion of the sale shall be shown
on the invoice or receipt.
14. Authority to Print Receipt Number at the lower left corner of the invoice or receipt.
What is the liability of a taxpayer not registered as VAT and issues a VAT
invoice/ receipt?
The non-VAT registered person shall, in addition to paying the percentage tax applicable
to his transactions, be liable to VAT imposed in Section 106 or 108 of the Tax Code
without the benefit of any input tax credit plus 50% surcharge on the VAT payable
(output tax). If the invoice/ receipts contain the required information, purchaser shall be
allowed to recognize an input tax credit.
What is the liability of a VAT-registered person in the issuance of a VAT
invoice/ receipt for VAT-exempt transactions?
If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt
transaction but fails to display prominently on the invoice or receipt the words "VAT-
EXEMPT SALE", the transaction shall become taxable and the issuer shall be liable to
pay the VAT thereon. The purchaser shall be entitled to claim an input tax credit on his
purchase.
What is "output tax"?
Output tax means the VAT due on the sale, lease or exchange of taxable goods or
properties or services by any person registered or required to register under Section 236
of the Tax Code.
What is "input tax"?
Input tax means the VAT due on or paid by a VAT-registered on importation of goods or
local purchase of goods, properties or services, including lease or use of property in the
course of his trade or business. It shall also include the transitional input tax determined
in accordance with Section 111 of the Tax Code, presumptive input tax and deferred
input tax from previous period.
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and intangible objects, which are
capable of pecuniary estimation and shall include, among others:
a. Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;
b. The right or the privilege to use patent, copyright, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property or right;
c. The right or privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
d. The right or the privilege to use motion picture films, films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.
What comprises "sale or exchange of services"?
The term "sale or exchange of services" means the performance of all kinds of services
in the Philippines for others for a fee, remuneration or consideration, whether in kind or
in cash, including those performed or rendered by the following:
a. Construction and service contractors;
b. Stock, real estate, commercial, customs and immigration brokers;
c. Lessors of property, whether personal or real;
d. Persons engaged in warehousing services;
e. Lessors or distributors of cinematographic films;
f. Persons engaged in milling, processing, manufacturing or repacking goods for others;
g. Proprietors, operators or keepers of hotels, motels, rest houses, pension houses,
inns, resorts, theatres, and movie houses;
h. Proprietors or operators of restaurants, refreshment parlors, cafes, and other eating
places, including clubs and caterers;
i. Dealers in securities;
j. Lending investors;
k. Transportation contractors on their transport of goods or cargoes, including persons
who transport goods or cargoes for hire and other domestic common carriers by land
relative to their transport of goods or cargoes;
l. Common carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines;
m. Sales of electricity by generation, transmission, and/or distribution companies;
n. Franchise grantees of electric utilities, telephone and telegraph, radio and/or
television broadcasting and all other franchise grantees, except franchise grantees of
radio and/or television broadcasting whose annual gross receipts of the preceding year
do not exceed Ten Million Pesos (P10,000,000.00), and franchise grantees of gas and
water utilities;
o. Non-life insurance companies (except their crop insurances), including surety,
fidelity, indemnity and bonding companies; and
p. Similar services regardless of whether or not the performance thereof calls for the
exercise of use of the physical or mental faculties.
The phrase "sale or exchange of services" shall likewise include:
a. The lease of use of or the right or privilege to use any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand or other like
property or right;
b. The lease or the use of, or the right to use of any industrial, commercial or scientific
equipment;
c. The supply of scientific, technical, industrial or commercial knowledge or information;
d. The supply of any assistance that is ancillary and subsidiary to and is furnished as a
means of enabling the application or enjoyment of any such property, or right or any
such knowledge or information;
e. The supply of services by a nonresident person or his employee in connection with
the use of property or rights belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such non-resident person;
f. The supply of technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;
g. The lease of motion picture films, films, tapes and discs; and
h. The lease or the use of or the right to use radio, television, satellite transmission and
cable television time.
What is a zero-rated sale?
It is a sale, barter or exchange of goods, properties and/or services subject to 0% VAT
pursuant to Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable transaction
for VAT purposes, but shall not result in any output tax. However, the input tax on
purchases of goods, properties or services, related to such zero-rated sales, shall be
available as tax credit or refund in accordance with RR No. 16-2005.
What transactions are considered as zero-rated sales?
The following services performed in the Philippines by VAT-registered person shall be
subject to zero percent (0%) rate:
a. Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP);
b. Services other than processing, manufacturing or repacking rendered to a person
engaged in business conducted outside the Philippines or to a non-resident person
engaged in business who is outside the Philippines when the services are performed,
the consideration for which is paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
c. Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero percent (0%) rate;
d. Services rendered to persons engaged in international shipping or air transport
operations, including leases of property for use thereof; Provided, however, that the
services referred to herein shall not pertain to those made to common carriers by air
and sea relative to their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines, the same being subject to twelve percent
(12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006;
e. Services performed by subcontractors and/or contractors in processing, converting,
or manufacturing goods for an enterprise whose export sales exceeds seventy percent
(70%) of total annual production;
f. Transport of passengers and cargo by domestic air or sea carriers from the Philippines
to a foreign country. Gross receipts of international air carriers doing business in the
Philippines and international sea carriers doing business in the Philippines are still liable
to a percentage tax of three percent (3%) based on their gross receipts as provided for
in Sec. 118 of the Tax Code but shall not be liable to VAT; and
g. Sale of power or fuel generated through renewable sources of energy such as, but
not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy,
and other shipping sources using technologies such as fuel cells and hydrogen fuels;
Provided, however that zero-rating shall apply strictly to the sale of power or fuel
generated through renewable sources of energy, and shall not extend to the sale of
services related to the maintenance or operation of plants generating said power .
The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
a. Export sales

The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence
or determine the transfer of ownership of the goods so exported, paid in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
The sale of raw materials or packaging materials to a non-resident buyer for delivery to
as resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods, paid for in acceptable
foreign currency, and accounted for in accordance with the rules and regulations of the
BSP;
The sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
Sale of gold to the BSP;
Transactions considered export sales under Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987, and other special laws; and
The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations; Provided, that the same is limited to
goods, supplies, equipment and fuel pertaining to or attributable to the transport of
goods and passengers from a port in the Philippines directly to a foreign port, or vice-
versa without docking or stopping at any other port in the Philippines unless the docking
or stopping at any other Philippine port is for the purpose of unloading passengers
and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound
for abroad; Provided, further, that if any portion of such fuel, goods or supplies is used
for purposes other than the mentioned in this paragraph, such portion of fuel, goods
and supplies shall be subject to twelve percent (12%) output VAT.
b. Foreign Currency Denominated Sales
The sale to a non-resident of goods, except those mentioned in Sections 149 and 150 of
the Tax Code, assembled or manufactured in the Philippines for delivery to a resident in
the Philippines, paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP.
c. Sales to Persons or Entities Deemed Tax-exempt under Special Law or International
Agreement
Sale of goods or property to persons or entities who are tax-exempt under special laws
or international agreements to which the Philippines is a signatory, such as, Asian
Development Bank (ADB), International Rice Research Institute (IRRI), etc.
Where will taxpayers file their applications for VAT zero-rating?
Taxpayers shall file their application directly with the Audit Information, Tax Exemption
and Incentives Division (AITEID) under the Assessment Service, or with the LTAID I and
II, BIR National Office, as the case may be.
What is a Contractor's Final Payment Release Certificate and where should
taxpayers file their application for this?
The Contractor's Final Payment Release Certificate is issued by the BIR before a
government contractor is fully paid for his contract with the government. Taxpayers may
file their application at the BIR National Office at the Audit Information, Tax Exemption
and Incentives Division (AITEID)
What transactions are considered deemed sales?
The following transactions are considered as deemed sales:
a. Transfer, use or consumption, not in the course of business, of goods or properties
originally intended for sale or for use in the course of business. Transfer of goods or
properties not in the course of business can take place when VAT-registered person
withdraws goods from his business for his personal use;
b. Distribution or transfer to:

Shareholders or investors as share in the profits of the VAT-registered person; or

Creditors in payment of debt or obligation
c. Consignment of goods if actual sale is not made within sixty (60) days following the
date such goods were consigned. Consigned goods returned by the consignee within the
60-day period are not deemed sold;
d. Retirement from or cessation of business, with respect to all goods on hand, whether
capital goods, stock-in-trade, supplies or materials as of the date of such retirement or
cessation, whether or not the business is continued by the new owner or successor. The
following circumstances shall, among others, give rise to transactions "deemed sale";

Change of ownership of the business. There is a change in the ownership of the

business when a single proprietorship incorporated; or the proprietor of a single
proprietorship sells his entire business.
Dissolution of a partnership and creation of a new partnership which takes over the
business.
What is VAT-exempt sale?
It is a sale of goods, properties or service and the use or lease of properties which is not
subject to output tax and whereby the buyer is not allowed any tax credit or input tax
related to such exempt sale.
What are the VAT-exempt transactions?
a. Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic materials therefore;
b. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn,
livestock and poultry feeds, including ingredients, whether locally produced or imported,
used in the manufacture of finished feeds (except specialty feeds for race horses,
fighting cocks, aquarium fish, zoo animals and other animals considered as pets);
c. Importation of personal and household effects belonging to residents of the
Philippines returning from abroad and non-resident citizens coming to resettle in the
Philippines; Provided, that such goods are exempt from custom duties under the Tariff
and Customs Code of the Philippines;
d. Importation of professional instruments and implements, wearing apparel, domestic
animals, and personal household effects (except any vehicle, vessel, aircraft, machinery
and other goods for use in the manufacture and merchandise of any kind in commercial
quantity) belonging to persons coming to settle in the Philippines, for their own use and
not for sale, barter or exchange, accompanying such persons, or arriving within ninety
(90) days before or after their arrival, upon the production of evidence satisfactory to
the Commissioner of Internal Revenue, that such persons are actually coming to settle
in the Philippines and that the change of residence is bonafide;
e. Services subject to percentage tax under Title V of the Code, as amended;
f. Services by agricultural contract growers and milling for others of palay into rice, corn
into grits, and sugar cane into raw sugar;
g. Medical, dental, hospital and veterinary services except those rendered by
professionals;
h. Educational services rendered by private educational institutions duly accredited by
the Department of Education (DepED), the Commission on Higher Education (CHED) and
the Technical Education and Skills Development Authority (TESDA) and those rendered
by the government educational institutions;
i. Services rendered by individuals pursuant to an employer-employee relationship;
j. Services rendered by regional or area headquarters established in the Philippines by
multinational corporations which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not
earn or derive income from the Philippines;
k. Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws except those granted under P.D. No. 529
- Petroleum Exploration Concessionaires under the Petroleum Act of 1949;
l. Sales by agricultural cooperatives duly registered and in good standing with the
Cooperative Development Authority (CDA) to their members, as well as of their produce,
whether in its original state or processed form, to non-members, their importation of
direct farm inputs, machineries and equipment, including spare parts thereof, to be
used directly and exclusively in the production and/or processing of their produce;
m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered and in good standing with the Cooperative Development Authority;
n. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered
with and in good standing with CDA; Provided, that the share capital contribution of
each member does not exceed Fifteen Thousand Pesos (P15,000.00) and regardless of
the aggregate capital and net surplus ratably distributed among the members;
o. Export sales by persons who are not VAT-registered;
p. The following sales of real properties are exempt from VAT, namely:
1. Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business;
2. Sale of real properties utilized for low-cost housing as defined by RA No. 7279,
otherwise known as the "Urban Development and Housing Act of 1992" and other
related laws, such as RA No. 7835 and RA No. 8763;
3. Sale of real properties utilized for specialized housing as defined under RA No. 7279,
and other related laws, such as RA No. 7835 and RA No. 8763, wherein price ceiling per
unit is P225,000.00 or as may from time to time be determined by the HUDCC and the
NEDA and other related laws;
4. Sale of residential lot valued at One Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house and lot and other residential dwellings valued at
Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below where the
instrument of sale/ transfer/ disposition was executed on or after July 1, 2005; Provided,
that not later than January 31, 2009 and every three (3) years thereafter, the amounts
stated herein shall be adjusted to its present value using the Consumer Price Index, as
published by the National Statistics Office (NSO); Provided, further, that such
adjustment shall be published through revenue regulations to be issued not later than
March 31 of each year.
q. Lease of residential units with a monthly rental per unit not exceeding Ten Thousand
Pesos (P10,000.00), regardless of the amount of aggregate rentals received by the
lessor during the year; Provided, that not later than January 31, 2009 and every three
(3) years thereafter, the amount of P10,000.00 shall be adjusted to its present value
using the Consumer Price Index, as published by the NSO;
r. Sale, importation, printing or publication of books and any newspaper, magazine,
review or bulletin which appears at regular intervals with fixed prices for subscription
and sale and which is not devoted principally to the publication of paid advertisements;
s. Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine equipment and spare parts thereof for domestic or international transport
operations; Provided, that the exemption from VAT on the importation and local
purchase of passenger and/or cargo vessels shall be limited to those of one hundred
fifty (150) tons and above, including engine and spare parts of said vessels; Provided,
further, that the vessels to be imported shall comply with the age limit requirement, at
the time of acquisition counted from the date of the vessel's original commissioning, as
follows: (a) for passenger and/or cargo vessel, the age limit is fifteen (15) years old, (b)
for tankers, the age limit is ten (10) year old, and (c) for high-speed passengers crafts,
the age limit is five (5) years old; Provided, finally, that exemption shall be subject to
the provisions of Section 4 of Republic Act No. 9295, otherwise known as "The Domestic
Shipping Development Act of 2004";
t. Importation of life-saving equipment, safety and rescue equipment and
communication and navigational safety equipment, steel plates and other metal plates
including marine-grade aluminum plates, used for shipping transport operations;
Provided, that the exemption shall be subject to the provisions of Section 4 of Republic
Act No. 9295, otherwise known as "The Domestic Shipping Development Act of 2004".
u. Importation of capital equipment, machinery, spare parts, life-saving and
navigational equipment, steel plates and other metal plates including marine-grade
aluminum plates to be used in the construction, repair, renovation or alteration of any
merchant marine vessel operated or to be operated in the domestic trade. Provided,
that the exemption shall be subject to the provisions of Section 19 of Republic Act No.
9295, otherwise known as the "The Domestic Shipping Development Act of 2004".
v. Importation of fuel, goods and supplies engaged in international shipping or air
transport operations; Provided, that the said fuel, goods and supplies shall be used
exclusively or shall pertain to the transport of goods and/or passenger from a port in the
Philippines directly to a foreign port, or vice-versa, without docking or stopping at any
other port in the Philippines unless the docking or stopping at any other Philippine port
is for the purpose of unloading passengers and/or cargoes that originated form abroad,
or to load passengers and/or cargoes bound for abroad; Provided, further, that if any
portion of such fuel, goods or supplies is used for purposes other that the mentioned in
the paragraph, such portion of fuel, goods and supplies shall be subject to 12% VAT;
w. Services of banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries, such as money changers and
pawnshops, subject to percentage tax under Sections 121 and 122, respectively of the
Tax Code; and
x. Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of One Million Five Hundred Thousand Pesos
(P1,500,000.00). Provided, that not later than January 31, 2009 and every three (3)
years thereafter, the amount of P1,500,000.00 shall be adjusted to its present value
after using the Consumer Price Index, as published by the NSO.
What are the previously exempt transactions that are now subject to VAT?
Medical services such as dental & veterinary services rendered by professionals;
Legal services;
Non-food agricultural products;
Marine and forest products;
Cotton and cotton seeds;
Coal and natural gas;
Petroleum products;
Passenger cargo vessels of more than 5,000 tons;
Work of art, literary works, musical composition;
Generation, transmission and distribution of electricity including that of electric
cooperatives;
Sale of residential lot valued at more than P1,500,000.00;
Sale of residential house & lot/dwellings valued at more than P2,500,000.00;
Lease of residential unit with a monthly rental of more than P10,000;

II. RELIEF-Related Queries

What is "RELIEF"?
RELIEF means Reconciliation of Listing for Enforcement. It supports the third party
information program of the Bureau through the cross referencing of third party
information from the taxpayers' Summary Lists of Sales and Purchases prescribed to be
submitted on a quarterly basis.
Who are required to submit Summary List of Sales?
VAT taxpayers with quarterly total sales/receipts (net of VAT), exceeding Two Million Five
Hundred Thousand Pesos (P2,500,000.00) are required to submit a Summary List of
Sales.
Who are required to submit Summary List of Purchases?
VAT taxpayers with quarterly total purchases (net of VAT) of goods and services,
including importation exceeding One Million Pesos (P1,000,000.00) are required to
submit Summary List of Purchases.
What are the Summary Lists required to be submitted?
Quarterly Summary List of Sales to Regular Buyers/ Customers Casual Buyers/
Customers and Output Tax
Quarterly Summary of List of Local Purchases and Input tax; and
Quarterly Summary List of Importation.
When is the deadline for submission of the above Summary Lists?
The Summary List of Sales/Purchases, whichever is applicable, shall be submitted on or
before the twney-fifth (25th) day of the month following the close of the taxable quarter
-- calendar quarter or fiscal quarter.
What are the penalties for failure to submit the Summary Lists?
For failure to file, keep or supply a statement, list or information required on the date
prescribed shall pay and administrative penalty of One Thousand Pesos (P1,000.00) for
each such failure, unless it is shown that such failure is due to reasonable cause and not
to willful neglect; and
An aggregate amount to be imposed for all such failures during a taxable year shall not
exceed Twenty-Five Thousand Pesos (P25,000.00).

III. What is the treatment for Withholding of VAT on Government Money Payments?

The goverment or any of its political subdivisions, instrumentalities or agencies,

including government-owned or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and/or services taxed at twelve percent
(12%) VAT pursuant to Sections 106 and 108 of the Tax Code, deduct and withhold a
Final VAT due at the rate of five percent (5%) of the gross payment.
The five percent (5%) final VAT withholding rate shall represent the net VAT payable of
the seller. The remaining seven percent (7%) effectively accounts for the standard input
VAT for sales of goods or services to government or any of its political subdivisions,
instrumentalities or agencies including GOCCs in lieu of the actual input VAT directly
attributable or ratably apportioned to such sales. Should actual input VAT attributable to
sales to government exceeds seven percent (7%) of gross payments, the excess may
form part of the sellers' expense or cost. On the other hand, if actual input VAT
attributable to sale to government is less than seven percent (7%) of gross payment,
the difference must be closed to expense or cost.

The government or any of its political subdivisions, instrumentalities or agencies

including GOCCs, as well as private corporation, individuals, estates and trusts, whether
large or non-large taxpayers, shall withhold twelve percent (12%) VAT with respect to
the following payments:
1. Lease or use of properties or property rights owned by non-residents; and
2. Other services rendered in the Philippines by non-residents.

IV. In what grounds can the Commissioner of Internal Revenue suspend the business
operations of a taxpayer?
The Commissioner or his authorized representative is empowered to suspend the
business operations and temporarily close the business establishment of any person for
any of the following violations:
(a) In the case of a VAT-registered Person:

Failure to issue receipts or invoices;

Failure to file a value-added-tax return as required under Section 114; or
Understatement of taxable sales or receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable quarter.
(b) Failure to any Person to Register as Required under Section 236

The temporary closure of the establishment shall be for the duration of not less than
five (5) days and shall be lifted only upon compliance with whatever requirements
prescribed by the Commissioner in the closure order.
Frequently Asked Questions --- WITHHOLDING TAX

1) What are the types of Withholding Taxes?

There are two main classifications or types of withholding tax. These are:
a) Creditable Withholding Tax
- Withholding Tax on Compensation
- Expanded Withholding Tax
- Withholding of Business Tax (VAT and Percentage)
b) Final Withholding Tax

2) What is compensation?
It means any remuneration received for services performed by an employee from his
employer under an employee-employer relationship.

3) What are the different kinds of compensation?

a) Regular compensation - includes basic salary, fixed allowances for representation,
transportation and others paid to an employee
b) Supplemental compensation - includes payments to an employee in addition to the
regular compensation such as but not limited to the following:
- Overtime Pay
- Fees, including director's fees
- Commission
- Profit Sharing
- Monetized Vacation and Sick Leave
- Fringe benefits received by rank & file employees
- Hazard Pay
- Taxable 13th month pay and other benefits
- Other remunerations received from an employee-employer relationship

4) What are exempted from Withholding Tax on Compensation?

1. Remuneration as an incident of employment, such as the following:
a. Retirement benefits received under RA 7641
b. Any amount received by an official or employee or by his heirs from the employer due
to death, sickness or other physical disability or for any cause beyond the control of the
said official or employee such as retrenchment, redundancy or cessation of business
c. Social security benefits, retirement gratuities, pensions and other similar benefits
d. Payment of benefits due or to become due to any person residing in the Philippines
under the law of the US administered by the US Veterans Administration
e. Payment of benefits made under the SSS Act of 1954, as amended
f. Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity
received by the government official and employees
2. Remuneration paid for agricultural labor and paid entirely in products of the farm
where the labor is performed
3. Remuneration for domestic services
4. Remuneration for casual labor not in the course of an employer's trade or business
5. Compensation for services by a citizen or resident of the Philippines for a foreign
government or an international organization
6. Payment for damages
7. Proceeds of Life Insurance
8. Amount received by the insured as a return of premium
9. Compensation for injuries or sickness
10. Income exempt under Treaty
11. Thirteenth (13th) month pay and other benefits (not to exceed P 30,000)
12. GSIS, SSS, Medicare and other contributions
13. Compensation Income of Minimum Wage Earners (MWEs) with respect to their
Statutory Minimum Wage (SMW) as fixed by Regional Tripartite Wage and Productivity
Board (RTWPB)/National Wage and Productivity Commission (NWPC), including overtime
pay, holiday pay, night shift differential and hazard pay, applicable to the place where
he/she is assigned.
14. Compensation Income of employees in the public sector if the same is equivalent to
or not more than the SMW in the non-agricultural sector, as fixed by RTWPB/NWPC,
including overtime pay, holiday pay, night shift differential and hazard pay, applicable to
the place where he/she is assigned.

5) What are De Minimis Benefits?

- These are facilities and privileges of relatively small value and are offered or furnished
by the employer to his employees merely as means of promoting their health, goodwill,
contentment or efficiency. The following shall be considered "De Minimis" benefits not
subject to income tax, hence not subject to withholding tax on compensation income of
both managerial and rank and file employees:
Monetized unused vacation leave credits of private employees not exceeding ten (10)
days during the year;
Monetized value of vacation and sick leave credits paid to government officials and
employees.
Medical cash allowance to dependents of employees, not exceeding P750.00 per
employee per semester or P125.00 per month;
Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more
than P1,500;
Uniform and clothing allowance not exceeding P5,000 per annum;
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;
Laundry allowance not exceeding P300.00 per month;
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 plan which does not discriminate in favor of
highly paid employees;
Gifts given during Christmas and major anniversary celebration not exceeding
P5,000.00 per employee perannum;
Daily meal allowance for overtime work and night/graveyard shift not exceeding
twenty-five percent (25%) of the basic minimum wage on a per region basis;

6) What is substituted Filing of income tax returns (ITR)?

Substituted Filing of ITR is the manner by which declaration of income of individuals
receiving purely compensation income the taxes of which have been withheld correctly
by their employers. Instead of the filing of Individual Income Tax Return (BIR Form
1700), the employers annual information return (BIR Form No. 1604-CF) duly stamped
received by the BIR may be considered as the substitute Income Tax Return (ITR) of
the employee, inasmuch as the information provided therein are exactly the same
information required to be provided in his income tax return (BIR Form No. 1700).
However, said employees may still file ITR at his/her option.
7) Who are qualified to avail of the substituted filing of ITR?
Employees who satisfies all of the following conditions:
a. Receiving purely compensation income regardless of amount;
b. Working for only one employer in the Philippines for the calendar year;
c. Tax has been withheld correctly by the employer (tax due equals tax withheld);
d. The employees spouse also complies with all three (3) conditions stated above.
e. The employer files the annual information return (BIR Form No. 1604-CF)
f. The employer issues BIR Form No. 2316 to each employee.
Note: For those employees qualified under the substituted filing, the employer
8) What income payments are subject to Expanded Withholding Tax?
a) Professional fees / talent fees for services rendered by the following:
- Those individually engaged in the practice of professions or callings such as lawyers;
certified public accountants; doctors of medicine; architects; civil, electrical, chemical,
mechanical, structural, industrial, mining, sanitary, metallurgical and geodetic
engineers; marine surveyors; doctors of veterinary science; dentist; professional
appraisers; connoisseurs of tobacco; actuaries; interior decorators, designers, real
estate service practitioners (RESPs), (i. e. real estate consultants, real estate appraisers
and real estate brokers) requiring government licensure examination given by the Real
Estate Service pursuant to Republic Act No. 9646 and all other profession requiring
government licensure examinations and/or regulated by the Professional Regulations
Commission, Supreme Court, etc.
- Professional entertainers such as but not limited to actors and actresses, singers,
lyricist, composers and emcees
- Professional athletes including basketball players, pelotaris and jockeys
- Directors and producers involved in movies, stage, radio, television and musical
productions
- Insurance agents and insurance adjusters
- Management and technical consultants
- Bookkeeping agents and agencies
- Other recipient of talent fees
- Fees of directors who are not employees of the company paying such fees whose
duties are confined to attendance at and participation in the meetings of the Board of
Directors
b) Professional fees, talent fees, etc for services of taxable juridical persons
c) Rentals:
- Rental of real property used in business
- Rental of personal properties in excess of P 10,000 annually
- Rental of poles, satellites and transmission facilities
- Rental of billboards
d) Cinematographic film rentals and other payments
e) Income payments to certain contractors
- General engineering contractors
- General building contractors
- Specialty contractors
- Other contractors like:
1. Filling, demolition and salvage work contractors and operators of mine drilling
apparatus
2. Operators of dockyards
3. Persons engaged in the installation of water system, and gas or electric light, heat or
power
4. Operators of stevedoring, warehousing or forwarding establishments
5. Transportation Contractors
6. Printers, bookbinders, lithographers and publishers, except those principally engaged
in the publication or printing of any newspaper, magazine, review or bulletin which
appears at regular intervals, with fixed prices for subscription and sale
7. Advertising agencies, exclusive of payments to media
8. Messengerial, janitorial, security, private detective, credit and/or collection
agenciesand other business agencies
9. Independent producers of television, radio and stage performances or shows
10. Independent producers of "jingles"
11. Labor recruiting agencies and/or labor-only contractors
12. Persons engaged in the installation of elevators, central air conditioning units,
computer machines and other equipment and machineries and the maintenance
services thereon
13. Persons engaged in the sale of computer services, computer programmers, software
developer/designer, etc.
14. Persons engaged in landscaping services
15. Persons engaged in the collection and disposal of garbage
16. TV and radio station operators on sale of TV and radio airtime, and
17. TV and radio blocktimers on sale of TV and radio commercial spots
f) Income distribution to the beneficiaries of estates and trusts
g) Gross commissions of customs, insurance, stock, immigration and commercial
brokers, fees of agents of professional entertainers and real estate service practitioners
(RESPs), (i. e. real estate consultants, real estate appraisers and real estate brokers)
who failed or did not take up the licensure examination given by and not registered with
the Real Estate Service under the Professional Regulations Commission
h) Income payments to partners of general professional partnerships
i) Payments made to medical practitioners
j) Gross selling price or total amount of consideration or its equivalent paid to the
seller/owner for the sale, exchange or transfer of real property classified as ordinary
asset
k) Additional income payments to government personnel from importers, shipping and
airline companies or their agents
l) Certain income payments made by credit card companies
m) Income payments made by the top 20,000 private corporations to their purchase of
goods and services from local/resident suppliers other than those covered by other
rates of withholding
n) Income payments by government offices on their purchase of goods and services,
from local/resident suppliers other than those covered by other rates of withholding
o) Commission, rebates, discounts and other similar considerations paid/granted to
independent and exclusive distributors, medical/technical and sales representatives and
marketing agents and sub-agents of multi level marketing companies.
p) Tolling fees paid to refineries
q) Payments made by pre-need companies to funeral parlors
r) Payments made to embalmers by funeral parlors
s) Income payments made to suppliers of agricultural products (suspended per RR 3-
2004)
t) Income payments on purchases of mineral, mineral products and quarry resources
u) On gross amount of refund given by MERALCO to customers with active contracts as
classified by MERALCO;
v) Interest income on the refund paid through direct payment or application against
customers' billing by other electric Distribution Utilities in accordance with the rules
embodied in ERC Resolution No. 8 series of 2008 dated June 4, 2008 governing the
refund of meter deposits which was approved and adopted by ERC in compliance with
the mandate of Article 8 of the Magna Carta for Residential Electricity Consumers and
Article 3.4.2 of DSOAR exempting all electricity consumers, whether residential or non-
residential from the payment of meter deposit.
w) Income payments made by the top 5,000 individual taxpayers to their purchase of
goods and services from their local/resident suppliers other than those covered by other
rates of withholding
x) Income payments made by political parties and candidates of local and national
elections of all their campaign expenditures, and income payments made by individuals
or juridical persons for their purchases of goods and services intended to be given as
campaign contribution to political parties and candidates
y) Interest Income derived from any other debt instruments not within the coverage of
deposit substitutes and RR No. 14-2012
z) Income payments subject to Withholding Tax received by Real Estate Investment Trust
(REIT) (Sec.12 of RR No. 13-2011)

9) What income payments are subject to Final Withholding Tax?

a) Income Payments to a Citizen or to a Resident Alien Individual:
- Interest on any peso bank deposit
- Royalties
- Prizes [except prizes amounting to P10,000 or less which is subject to tax under Sec.
24(A)(1) of the Tax Code]
- Winnings (except winnings from Philippine Charity Sweepstake Office and Lotto)
- Interest income on foreign currency deposit
- Interest income from long term deposit (except those with term of five years or more)
- Cash and/or property dividends
- Capital Gains presumed to have been realized from the sale, exchange or other
disposition of real property
b) Income Payments to a Non-Resident Alien Engaged in Trade or Business in the
Philippines
- On Certain Passive Income
- cash and/or property dividend
- Share in the distributable net income of a partnership
- Interest on any bank deposits
- Royalties
- Prizes (except prizes amounting to P10,000 or less which is subject to tax under Sec.
25(A)(1) of the Tax Code.
- Winnings (except from Philippine Charity Sweepstake Office and Lotto)
- Interest on Long Term Deposits (except those with term of five years or more)
- Capital Gains presumed to have been realized from the sale, exchange or other
disposition of real property
c) Income Derived from All Sources Within the Philippines by a Non-Resident Alien
Individual Not Engaged in Trade or Business
- On gross amount of income derived from all sources within the Philippines
- On Capital Gains presumed to have been realized from the sale, exchange or
disposition of real property located in the Philippines
d) Income Derived by Alien Individual Employed by a Regional or Area Headquarters and
Regional Operating Headquarters of Multinational Companies, Income Derived by Alien
Individual Employed by Offshore Banking Units and Income of Aliens Employed by
Foreign Petroleum Service Contractors and Subcontractors
e) Income Payment to a Domestic Corporation
- Interest from any currency bank deposits and yield or any other monetary benefit from
deposit substitutes and from trust fund and similar arrangements derived from sources
within the Philippines
- Royalties derived from sources within the Philippines
- Interest income derived from a depository bank under the Expanded Foreign Currency
Deposit (FCDU) System
- Income derived by a depository bank under the FCDU from foreign transactions with
local commercial banks
- On capital gains presumed to have been realized from the sale, exchange or other
disposition of real property located in the Philippines classified as capital assets,
including pacto de retro sales and other forms of conditional sales based on the gross
selling price or fair market value as determined in accordance with Sec. 6(E) of the
NIRC, whichever is higher
f) Income Payments to a Resident Foreign Corporation
- Offshore Banking Units
- Tax on branch Profit Remittances
- Interest on any currency bank deposits and yield or any other monetary benefit from
deposit substitute and from trust funds and similar arrangements and royalties derived
from sources within the Philippines
- Interest income on FCDU
- Income derived by a depository bank under the expanded foreign currency deposits
system from foreign currency transactions with local commercial banks
g) Income Derived from all Sources Within the Philippines by a Non-Resident Foreign
Corporation
- Gross income from all sources within the Philippines such as interest, dividends, rents,
royalties, salaries, premiums (except re-insurance premiums), annuities, emoluments or
other fixed determinable annual, periodic or casual gains, profits and income or capital
gains;
- Gross income from all sources within the Philippines derived by a non-resident
cinematographic film owner, lessor and distributor
- On the gross rentals, lease and charter fees derived by a non-resident owner or lessor
of vessels from leases or charters to Filipino citizens or corporations as approved by the
Maritime Industry Authority
- On the gross rentals, charter and other fees derived by a non-resident lessor of
aircraft, machineries and other equipment
- Interest on foreign loans contracted on or after August 1, 1986
h) Fringe Benefits Granted to the Employee (except Rank and File)
- Goods, services or other benefits furnished or granted in cash or in kind by an
employer to an individual employee (except rank and file) such as but not limited to the
following:
- Housing
- Vehicle of any kind
- Interest on loans
- Expenses for foreign travel
- Holiday and vacation expenses
- Educational assistance to employees or his dependents
- Membership fees, dues and other expense in social and athletic clubs or other
- similar organizations
- Health insurance
i) Informers Reward
j) Cash or property dividends paid by a Real Estate Investment Trust (REIT) pursuant to
Section 13 of RR 13-2011
10) Aside from the required withholding of income tax by government
agencies and instrumentalities on their payments to their suppliers of goods
and services, what other tax types must be withheld by them.
a) Value Added Tax on all income payments subject to VAT
b) Percentage Tax on all payments subject to percentage tax such as payments to the
following:
- Any person engaged in business whose gross sales or receipts do not exceed
P1,919,500 (RR 3-2012) and who are not VAT-registered persons. (Persons exempt from
VAT under Sec. 109V of the Tax Code)
- Domestic carriers and keepers of garages, except owners of bancas and owners of
animal drawn two wheeled vehicle
- Operators of international carriers doing business in the Philippines.
- Franchise grantees of electric, gas or water utilities
- Franchise grantees of radio and/or television broadcasting companies whose gross
annual receipts of the preceding year do not exceed Ten Million (P10,000,000.00) Pesos
and did not opt to register as VAT Taxpayers
- Communication providers with regards to overseas dispatch, messages or
conversation from the Philippines
- Banks and non-bank financial intermediaries and finance companies
- Life insurance companies
- Agents of foreign insurance companies
- Proprietor, lessee, or operator of cockpits, cabarets, night or day clubs,
videoke/karaoke bars, karaoke television, karaoke boxes, music lounges and other
similar establishments, boxing exhibitions, professional basketball games, jai-alai and
race tracks
- Winners in horse races or owner of winning race horses
- Every stock broker who effected a sale, barter, exchange or other disposition of shares
of stock listed and traded through the Local Stock Exchange (LSE) other than the sale by
a dealer in securities
- A corporate issuer/stock broker, whether domestic or foreign, engaged in the sale,
barter, exchange or other disposition through Initial Public Offering (IPO) /secondary
public offering of shares of stock in closely held corporations

11) Who is a withholding agent?

A withholding agent is any person or entity who is required to deduct and remit the
taxes withheld to the government.

12) What are the duties and obligations of the withholding agent?
The following are the duties and obligations of the withholding agent:
a) To Register - withholding agent is required to register within ten (10) days after
acquiring such status with the Revenue District office having jurisdiction over the place
where the business is located
b) To Deduct and Withhold - withholding agent is required to deduct tax from all money
payments subject to withholding tax
c) To Remit the Tax Withheld - withholding agent is required to remit tax withheld at the
time prescribed by law and regulations
d) To File Annual Return - withholding agent is required to file the corresponding Annual
Information Return at the time prescribed by law and regulations
e) To Issue Withholding Tax Certificates - withholding agent shall furnish Withholding Tax
Certificates to recipient of income payments subject to withholding

13) Who are considered TOP 20,000 Corporate Taxpayers?

Top twenty thousand (20,000) private corporations shall include a corporate taxpayer
who has been determined and notified by the Bureau of Internal Revenue (BIR) as
having satisfied any of the following criteria:
a) Classified and duly notified by the Commissioner as a large taxpayer under Revenue
Regulation No. 1-98, as amended, or belonging to the top five thousand (5,000) private
corporations under RR 12-94, or to the top ten thousand (10,000) private corporations
under RR 17-2003, unless previously de-classified as such or had already ceased
business operations (automatic inclusion);
b) VAT payment or payable whichever is higher, of at least P100,000 for the preceding
year;
c) Annual income tax due of at least P200,000 for the preceding year;
d) Total percentage tax paid of at least P100,000 for the preceding year;
e) Gross sales of P10,000,000 and above for the preceding year;
f) Gross purchases of P5,000,000 and above for the preceding year;
g) Total excise tax payment of at least P100,000 for the preceding year.

14) What are the obligations of Top 20,000 Corporate Taxpayers?

a) In addition to the above responsibilities of a withholding agent, Top 20,000 private
corporations shall withhold the one percent (1%) creditable expanded withholding tax
on the purchase of goods and two percent (2%) on the purchase of services (other than
those covered by other withholding tax rates) from local suppliers where it regularly
makes purchases. However, casual purchase of goods shall not be subject to
withholding tax unless the amount of purchase at any one time involves P10,000 or
more, in which case, it shall then be required to withhold the tax. The same rule apply
to local/resident supplier of services other than those covered by separate rates of
withholding tax. Provided, however, that for purchases involving agricultural products in
their original state, the tax required to be withheld shall only apply to purchases in
excess of the cumulative amount of P300,000 within the same taxable year. For this
purpose, agricultural products in their original state shall only include corn, coconut,
copra, palay, rice cassava, sugar cane, coffee, fruits, vegetables, marine food products,
poultry and livestocks.
b) Taxes withheld shall be remitted using BIR Form 1601-E on a monthly basis thru the
use of the Electronic Filing and Payment System (EFPS) on the dates prescribed for e-
filers. Filing shall be done on a staggered basis provided under RR 26-2002 and
payment shall be made every 15th day following the end of the month for Jan-Nov and
Jan. 20 of the following year for the month of December.
c) Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) shall be issued to
the payees within twenty (20) days following the close of such payees taxable quarter
or upon demand of the payees;
d) A list of regular supplier of goods and/or services shall be submitted on a semestral
basis through e-submission facility or as an attachment under Electronic Filing and
Payment System (EFPS). Deadline for submission of the list is not later than July 31 and
January 31 of each year. However, initial list of regular suppliers should be submitted
within fifteen (15) days from actual receipt hereof.

15) Who are considered TOP 5,000 Individual Taxpayers?

Top 5,000 Individual Taxpayers shall refer to individual taxpayers engaged in trade or
business or exercise of profession who have been determined and notified by the
Bureau of Internal Revenue (BIR) as having satisfied any of the following criteria:
a) VAT payment or payable whichever is higher, of at least P100,000 for the preceding
year;
b) Annual income tax due of at least P200,000 for the preceding year;
c) Total percentage tax paid of at least P100,000 for the preceding year;
d) Gross sales of P10,000,000 and above for the preceding year;
e) Gross purchases of P5,000,000 and above for the preceding year;
f) Total excise tax payment of at least P100,000 for the preceding year.

16) What are the obligations of Top 5,000 Individual Taxpayers?

a) In addition to the obligations of a withholding agent, Top 5,000 Individual Taxpayers
shall withhold the one percent (1%) creditable expanded withholding on the purchase of
goods and two percent (2%) on the purchase of services (other than those covered by
other withholding tax rates) from local suppliers where it regularly makes purchases.
However, casual purchase of goods shall not be subject to withholding tax unless the
amount of purchase at any one time involves P10,000 or more, in which case, it shall
then be required to withhold the tax. The same rule apply to local/resident supplier of
services other than those covered by separate rates of withholding tax. Provided,
however, that for purchases involving agricultural products in their original state, the
tax required to be withheld shall only apply to purchases in excess of the cumulative
amount of P300,000 within the same taxable year. For this purpose, agricultural
products in their original state shall only include corn, coconut, copra, palay, rice
cassava, sugar cane, coffee, fruits, vegetables, marine food products, poultry and
livestocks.
b) Taxes withheld shall be remitted under BIR Form 1601-E on a monthly basis thru the
Electronic Filing and Payment System (EFPS) facility within the prescribed period.
c) Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) shall be issued to
the payees within twenty (20) days following the close of such payees taxable quarter
or upon demand of the payees;
d) A list of regular supplier of goods and/or services shall be submitted on a semestral
basis through e-submission facility or as an attachment under Electronic Filing and
Payment System (EFPS). Deadline for submission of the list is not later than July 31 and
January 31 of each year. However, initial list of regular suppliers should be submitted
within fifteen (15) days from actual receipt hereof.

17) Who are the responsible officials in the government offices charged with
the duty to deduct, withhold and remit withholding taxes?
The following officials are duty bound to deduct, withhold and remit taxes:
a) For Office of the Provincial Government-province- the Chief Accountant, Provincial
Treasurer and the Governor;
b) For Office of the City Government-cities- the Chief Accountant, City Treasurer and the
City Mayor;
c) For Office of the Municipal Government-municipalities- the Chief Accountant,
Municipal Treasurer and the Mayor;
d) Office of the Barangay-Barangay Treasurer and Barangay Captain
e) For NGAs, GOCCs and other Government Offices, the Chief Accountant and the Head
of Office or the Official holding the highest position.

BASIC CONCEPT EXCISE TAX

Excise Tax is a tax on the production, sale or consumption of a commodity in a

country.

APPLICABILITY:
 On goods manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition; and
On goods imported.

TYPES OF EXCISE TAX:

Specific Tax refers to the excise tax imposed which is based on weight or
volume capacity or any other physical unit of measurement
Ad Valorem Tax refers to the excise tax which is based on selling price or
other specified value of the goods/articles

MANNER OF COMPUTATION:

Specific Tax = No. of Units/other measurements x Specific Tax Rate

Ad Valorem Tax = No. of Units/other measurements x Selling Price of any
specific value per unit x Ad Valorem Tax Rate

MAJOR CLASSIFICATION OF EXCISABLE ARTICLES AND RELATED CODAL

SECTION:

1. Alcohol Products (Sections 141-143)

a.Distilled Spirits (Section 141)

b.Wines (Section 142)
c. Fermented Liquors (Section 143)

2. Tobacco Products (Sections 144-146)

a. Tobacco Products (Section 144)

b. Cigars & Cigarettes (Section 145)
c. Inspection Fee (Section 146)

3. Petroleum Products (Section 148)

4. Miscellaneous Articles (Section 149-150)

a. Automobiles (Section 149)

b. Non-essential Goods (Section 150)

5. Mineral Products (Sections 151)

PERSONS LIABLE TO EXCISE TAX:

In General:

a. On Domestic or Local Articles

 Manufacturer
Producer
Owner or person having possession of articles removed from the
place of production without the payment of the tax

b. On Imported Articles

Importer
Owner
Person who is found in possession of articles which are exempt from
excise taxes other than those legally entitled to exemption

Others:

On Indigenous Petroleum

Local Sale, Barter or Transfer

o First buyer, purchaser or transferee
Exportation

o Owner, lessee, concessionaire or operator of the mining
claim

TIME OF PAYMENT:

In General

On domestic products

o Before removal from the place of production
On imported products

o Before release from the customs' custody