Income Payments Exempt From Withholding Tax But Subject To Income Tax

Have you explored the Alphalist Data Entry and Validation Module Version 5.1 (New) with regards to the Income Payments Exempt From Withholding Tax But Subject To Income Tax Reported Under BIR Form No. 2304 - Certificate of Income Payment Not Subject to Withholding Tax (Excluding Compensation Income)? 

BIR Form No. 2304 is a Certificate to be accomplished and issued by a Payor to recipients of income not subject to withholding tax. This Certificate should be attached to the Annual Income Tax Return - BIR Form 1701 for individuals, or BIR Form 1702 for non-individuals.

Filing Date

Payor must furnish the payee on or before January 31 of the year following the year in which the income payment was made.

Below is the list of Income Payments Exempt From Withholding Tax But Not Subject To Income Tax Reported Under BIR Form No. 2304: 

Alphanumeric Tax Code (ATC) / Income Payment

1. DI900 - DEFAULT INCOME

2. EI900 - EXCESS INCOME TAX

3. FP010 - FINES & PENALTIES - ON TAX ON INCOME

4. IC010 - INCOME TAX - ORDINARY DOMESTIC CORP.

5. IC011 - NON-STOCK NON-PROFIT ORGANIZATION

6. IC020 - PARTNERSHIP IN TRADE INCOME TAX

7. IC021 - PROFESSIONAL FEES PAID TO GENERAL PROFESSIONAL PARTNERSHIPS (EXCEPT TO PARTNERSHIP OF MEDICINE)

8. IC030 - PRIVATE EDUCATIONAL INSTITUTION, STOCK OR NONSTOCK

9. IC031 - NON STOCK, NON PROFIT HOSPITALS

10. IC040 - GOVERNMENT OWNED OR CONTROLLED CORPORATION

11. IC041 - NATIONAL & LOCAL GOVERNMENT UNIT (FOR PROPRIETARY ACTIVITIES) EXCEPT PUBS

12. IC050 - INCOME TAX - MUTUAL LIFE INSURANCE COMPANIES

13. IC055 - MINIMUM CORPORATE INCOME TAX

14. IC060 - INCOME TAX - FCDU

15. IC070 - ORDINARY RESIDENT FOREIGN CORP

16. IC080 - RFC - INTERNATIONAL CARRIERS

17. IC090 - FOREIGN MUTUAL LIFE INSURANCE CO.

18. IC100 - FOREIGN OBU/FCDU

19. IC101 - REGIONAL OPERATING HEADQUARTERS OF MULTINATIONALCOMP

20. IC120 - PRIZES REGARDLESS OF AMOUNT

21. IC130 - RENT - PERSONAL PROPERTY REGARDLESS OF AMOUNT (CORPORATE)

22. IC140 - PREMIUM AND ANNUITY - (CORPORATE PAYEES)

23. IC150 - OTHES (SPECIFY) - (CORPORATE PAYEES)

24. IC160 - TRANSPO CONTR (CORPORATE) CARRIAGE OF GOODS AND MECHANDISE BELOW P2000

25. IC170 - INTEREST - (CORPORATE PAYEES)

26. IC190 - OFFSHORE BANKING UNITS (OBUS)

27. IC191 - FOREIGN CURRENCY DEPOSIT UNITS (FCDUS)

28. IC370 - ON IMPROPERLY ACCUMULATED EARNINGS TAX

29. II010 - INCOME FROM COMP. ANDBUS/PROF.

30. II011 - PURE COMPENSATION INCOME - CITIZENS

31. II012 - RESIDENT ALIEN - PURE BUSINESS

32. II013 - ESTATES AND TRUST-MIXED INCOME

33. II020 - NRC INCOME

34. II050 - RENT FOR REAL PROPERTY BELOW P500 MONTH (USED IN BUSINESS)

35. II051 - RENT - PERSONAL PROPERTY REGARDLESS OF AMOUNT (INDIVIDUAL)

36. II060 - PREMIUM AND ANNUITY - (INDIVIDUAL PAYEES)

37. II070 - PENSIONS

38. II080 - OTHERS (SPECIFY) - (INDIVIDUAL PAYEES)

39. II090 - TRANSPO CONTR (INDIVIDUAL) CARRIAGE OF GOODS AND MERCHANDISE BELOW 2,000

40. II110 - INEREST - (INDIVIDUAL PAYEES)

41. II120 - PRIZES AMOUNTING TO: 10,000 OR LESS

42. II130 - PARTNERS DISTRIBUTION SHARE OF NET INCOME OF GENERAL PARTNERSHIP

43. II420 - CGT ON SALE OF REAL PROPERTY (CAPITAL ASSETS) FOR INDIVIDUAL

44. MC010 - TAX AMNESTY ON INCOME (INDIVIDUAL)

45. MC011 - INDIVIDUAL TAXPAYERS

46. MC020 - TAX AMNESTY ON INCOME (CORPORATE)

47. MC021 - CORPORATE TAXPAYERS

48. MC030 - COMPENSATION PAYMENTS ON DELINQUENT ACCOUNTS & DISP. ASSESSMENTS

49. MC040 INCOME FROM FORFEITED PROPERTIES

SOURCE: BIR ALPHALIST 5.1  and http://www.bir.gov.ph/index.php/bir-forms/certificates.html#c2304 

Tax Implications Of General Professional Partnership (GPP)

Revenue Memorandum Circular (RMC) No. 3-2012 was issued by CIR of the bureau to clarify the Tax Implications of General Professional Partnership.

Under Sec 26 of the National Internal Revenue Code (NIRC) of 1997, as amended, a general professional partnership as such shall not be subject to income tax. However, persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities, thus:

"SEC. 26. Tax Liability of Members of General Professional Partnerships. - A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities.

For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation.

Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership."

In relation thereto, Section 2.57.5 of Revenue Regulations No. 2-98, as amended, provides that:

"SECTION 2.57.5. Exemption from Withholding. - The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following:

(A) . . . 

(B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:

(1) . . .

(4) General Professional Partnerships

XXX          XXX          XXX"

Tax implications_General Professional Partnership

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Clearly, a general professional partnership shall not be subject to income tax since it is the individual partners who shall be subject to income tax in their separate and individual capacities. A general professional partnership is defined in Section 22 (B) of the 1997 Tax Code, as amended, as follows:

"SEC. 22. Definitions. - When used in this Title:

(A) . . . 

(B) The term 'corporation' shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participation), associations, or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. 'General professional partnerships' are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.

XXX          XXX          XXX"

Relative thereto, income payments made to a General Professional Partnership in consideration for its professional services are not subject to income tax and consequently to withholding tax prescribed in Revenue Regulations No. 2-98, as amended.

It is the individual partners who shall be subject to income tax, and consequently, to withholding tax, in their separate and individual capacities pursuant to Section 26 of the 1997 Tax Code, as amended. Furthermore, each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership.

However, it is worth mentioning that income payments made periodically or at the end of the axable year by a general professional partnership to the partners, such as drawings, advances, sharings, allowances, stipend and the like, are subject to the Fifteen percent (15%), if the payments to the partner for the current year exceeds P720,000.00; and Ten percent (10%) creditable withholding tax, if otherwise, pursuant to Section 2.57.2 (H) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 30-03.

Please refer http://www.bir.gov.ph/images/bir_files/old_files/pdf/61821RMC%20No%203-2012.pdf of the full text of RMC No. 3-2012.