Individual Taxpayers in the Philippines

Individual Taxpayers are natural persons with income derived from within the territorial jurisdiction of a taxing authority.  These individual taxpayers are classified as:

1.     Resident citizens of the Philippines

a.        Under Sec. I, Art. III of the Philippine Constitution , Filipino citizen is he who is/has

                                             i.            Born (by birth) with father and/or mother as Filipino Citizens;

                                            ii.            Born before January 17, 1973 of Filipino mother who elects Philippine citizenship upon reaching the age of majority; or

Natural-born citizens of the Philippines who:

Ø  Become citizens of a foreign country shall retain their Philippine citizenship upon taking their oath of allegiance to the Philippine Republic

Ø  Have lost their Philippine citizenship by reason of naturalization as citizens of a foreign country are hereby deemed to have re-acquired Philippine citizenship upon taking the said oath

Derivative citizenship

Ø  The unmarried child (illegitimate or illegitimate or adopted), below 18 years of age, of those who re-acquire Philippine citizenship, shall be deemed citizens of the Philippines

                                          iii.            Acquired Philippine citizenship after birth (naturalized) in accordance with Philippine Laws.

b.        An Alien is a foreign-born person who is not qualified to acquire Philippine citizenship by birth or after birth.

2.     Non-resident citizens of the Philippines.  He is a citizen who

a.        Establishes to the satisfaction of the Commissioner of Internal Revenue the fact of his physical presence abroad with a definite intention to reside therein; or

b.        Leaves the Philippines during the taxable year to reside abroad

                                                               i.      As an immigrant; or

                                                              ii.      For employment on a permanent basis; or

                                                            iii.      For work and derives income from abroad and whose employment thereat requires him to be physically abroad most of the time during the taxable year.

c.        Was previously a non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines.

§  He shall be considered a nonresident citizen for the taxable year in which he arrives in the Philippines with respect to income derived from sources abroad until the date of his arrival in the Philippines.

d.        A citizen of the Philippines who shall have stayed outside the Philippines for one hundred eighty-three days (183) or more by the end of the year.

3.     Resident aliens

a.        Not a citizen of the Philippines, but residence is within the Philippines.

b.        Actually present in the Philippines and who are not mere transients or sojourners.

c.        An alien who lives in the Philippines with no definite intention as to his stay is a resident

Ø  One who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient (non-resident).

Ø  One who comes to the Philippines for the purpose that requires extended stay for its accomplishment, so he makes his home temporarily in the Philippines, is a resident, regardless of his intention to return to his residence abroad.

4.     Non-resident aliens engaged in business in the Philippines

a.        Aliens who stayed in the Philippines for an aggregate period of more than 180 days during the taxable year;

b.        Aliens who have business income in the Philippines.

Trade or Business includes:

Ø Performance of the functions of a public office

Ø Performance of personal services in the Philippines (does not include performance of services by the taxpayer as an employee).

5.     Non-resident aliens not engaged in business in the Philippines, but with income from the Philippines

a.        Aliens who stayed in the Philippines for only 180 days or less,

b.        Aliens who have no business income derived in the Philippines

6.     SPECIAL ALIENS/  PREFERENTIAL TAX TREATMENT.  Income derived by ALIEN individuals EMPLOYED by

A.    Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies.  (RR 11-2010;  RMC 41-09 as amended)

·         FINAL Withholding Tax of 15%

·         FROM Gross income derived by alien individual Occupying Managerial OR Technical Positions in RHQ or ROHQ and Representative offices established in the Philippines by multinational companies as:

-  Salaries

-  Wages

-  Annuities

-  Compensation

-  Remuneration

-  Other emoluments such as honoraria and allowances, except income subject to fringe benefit tax

·         The same tax treatment shall apply to Filipinos employed by RHQ or ROHQ of multinational companies regardless of whether or not there is an alien executive occupying the same position.  Provided that such Filipino shall have the option to be taxed at either 15% of gross income or the regular rate on their taxable income in accordance with the tax code.

ELIGIBILITY (MUST meet ALL the following requirements):

1.     Position and Function Test

ü  Must occupy managerial or technical position and must be exercising such functions pertaining to said position.

2.     Compensation Threshold Test

-  The employee must have received or is due to received under a contract of employment, a gross taxable compensation income of at least P975,000 (whether or not this is actually received).  Provided that,

-  A change in the compensation income , as a consequence of which, the employee subsequently receiving less than the compensation threshold for the calendar year when the change becomes effective, result in the employee being subject to the regular income tax rate.

-  For purposes of computing the compensation threshold, gross compensation shall not include:

-  Retirement and/or separation benefits (whether taxable or not)

-  De minimis benefits

Provided that such benefits shall be considered in the determining the income tax due at the time of the employee’s retirement or separation.

3.     Exclusivity Test

-  The Filipino Managerial/Technical employee must be exclusively working for the RHQ or ROHQ as a regular employee and not just a consultant or contractual personnel.

-  EXCLUSIVITY means just having one employer at a time.

“Multinational Company”

-  A foreign firm or entity engaged in international trade with its affiliates or subsidiaries or branch offices in the Asia Pacific Region and other foreign markets

“Managerial Position (RMC 41-09 as amended)”

-  One who is vested with powers or prerogatives to lay down and execute management policies and/or employees.

“Technical Position (RMC 41-09 as amended)”

Ø  Limited only to positions that are:

Ø  Highly technical in nature, OR

Ø  Where there are no Filipinos who are competent, able and willing to perform the services for which the aliens are desired.

B.     Offshore Banking Units

An offshore banking unit (OBU) is a branch of a multi-national bank located in a financial center away from its home country. OBUs cannot accept deposits from the people of that country, only from other banks and OBUs.

C.    Petroleum contractors and subcontractors

An Alien individual who is a permanent resident of a foreign country but who is employed and assigned in the Philippines by a foreign service contractor or by a foreign service subcontractor engaged in petroleum operations in the Philippines shall be liable to a tax of fifteen percent (15%) of the salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances, received from such contractor or subcontractor: Provided, however, that the same tax treatment shall apply to a Filipino employed and occupying the same position as an alien employed by petroleum service contractor and subcontractor.

7.     SENIOR CITIZENS

·         Generally, qualified Senior Citizens deriving returnable income during the taxable year, whether from compensation or otherwise, are required to file their income tax returns and pay the tax as they file the return. 

·         However, if the returnable income of a Senior Citizen is in the nature of compensation income but he qualifies as a minimum wage earner under RA No. 9504, he shall be exempt from income tax on the said compensation income subject to the rules provided under Revenue Regulations No. 10‐2008 applicable to minimum wage earners. 

·         Likewise, if the aggregate amount of gross income earned by the Senior Citizen during the taxable year does not exceed the amount of his personal exemptions (basic and additional), he shall be exempt from income tax and shall not be required to file income tax return.