Home / Investing Guide and Personal Finance / Income taxation and tax rates in the Philippines

 
Sponsored Links

Year after year, April 15 is a date millions of Filipinos dread. It is because this date is the annual deadline to file income tax returns.

If you were able to make your own Income Tax Return (ITR) because you fully understand Philippine taxation laws, then good for you. But for the majority who rely on accountants or their companies to prepare their ITRs, here is a simple and concise explanation of the income tax law in the Philippines.

Who are required to file Income Tax Returns (ITR)?

According to the Bureau of Internal Revenue (BIR), the following are required to submit Income Tax Returns:

  • Filipino citizens residing in the Philippines receiving income from sources within or outside the Philippines
  • Filipino citizens not residing in the Philippines receiving income from sources within the Philippines
  • Resident or non-resident aliens receiving income from sources within the Philippines
  • 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

What is Taxable Income?

Taxable income is the gross income of the taxpayer less any deductions and/or personal and additional exemptions authorized by the Tax Code or other special laws.

Gross income means all income derived from whatever source. It includes, but is not limited to, Compensation for services, in whatever form paid; Gross income derived from the conduct of trade or business or the exercise of profession; Gains derived from dealings in propert; Interest; Rents; Royalties; Dividends; Annuities; Prizes and winnings; Pensions; and Partner’s distributive share from the net income of the general professional partnerships.

Sponsored Links

Exclusions from Gross Income include Life insurance; Amount received by insured as return of premiu; Gifts, bequests and devise; Compensation for injuries or sickness; Income exempt under treaty; Retirement benefits, pensions, gratuities, etc; Miscellaneous item; 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; and gain from redemption of shares in mutual fund.

What are the allowable deductions from gross income?

Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationships, a taxpayer may opt to avail either of the following allowable deductions from gross income:

  • Optional Standard Deduction – an amount not exceeding 40% of the net sales for individuals and gross income for corporations; or
  • 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; and Pension Trusts

A maximum of P2,400 premium payments on health and/or hospitalization insurance may also be claimed as deduction, provided the annual family gross income is not be more than P250,000 and for married individuals, the spouse claiming this deduction is the one claiming additional exemptions for the qualified dependents.

What are the allowable personal and additional exemptions?

Individuals who are earning compensation income, engaged in business or deriving income from the practice of profession are entitled to the following Personal Exemptions:

  • For single individual or married individual judicially decreed as legally separated with no qualified dependents – P50,000
  • For head of family – P50,000
  • For each married individual – P50,000 (to be claimed only by the spouse deriving gross income)

Taxpayers may also claim an Additional Exemption of P25,000 for each qualified dependents, up to four (4) dependents.

How is income tax payable computed?

The formula to compute the income tax payable is:

  • Gross Income
  • Less: Allowable Deductions (Itemized or Optional)
  • Net Income
  • Less: Personal & Additional Exemptions
  • Net Taxable Income
  • Applicable Tax Rate (see Tax Rate Table below)
  • Income Tax Due
  • Less: Tax Withheld
  • Income Tax Payable

What is the income tax rate in the Philippines?

For individuals earning purely compensation income and those engaged in business and practice of profession, the applicable tax rate table is as follows:

Taxable Income Tax Rate
More than But less than  
0 P10,000 5%
P10,000 P30,000 P500 + 10% of the Excess over P10,000
P30,000 P70,000 P2,500 + 15% of the Excess over P30,000
P70,000 P140,000 P8,500 + 20% of the Excess over P70,000
P140,000 P250,000 P22,500 + 25% of the Excess over P140,000
P250,000 P500,000 P50,000 + 30% of the Excess over P250,000
P500,000   P125,000 + 32% of the Excess over P500,000 in 2000 and onward

For domestic corporations, the corporate tax rate is 30% of the Net taxable income from all sources starting January 1, 2009.

For proprietary educational institutions and non-stock, non-profit hospitals, the tax rate is 10% of the Net taxable income, provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income.

For GOCCs, agencies & instrumentalities, the tax rate is 32% of the Net taxable income from all sources.

For all taxable partnerships, the tax rate is also 32% of the Net taxable income from all sources.

International Carriers are taxed 2.5% on their Gross Philippine Billings.

For Regional Operating Headquarters (ROHQ), the tax rate is 10% of Taxable Income.

Comments via Facebook

comments

 
 
  • kikaysikat

    Hi, I teach self-defense on the side. a company recently asked for my Tin #. I gave my personal tin (im also employed) but my self-defense services are not registered as a business since it’s really small and just a sideline.

    Do I file this? why did they ask for my tin#? What do I do?

    Thank you!

  • jake lopez

    hi. i am a retired employee but without pension. i do jobs as per request only like wiring of a house, fixing electrical fixtures, etc. i do earn a little but not exceeding 50,000 pesos. do i still have to file ITR?

    • Pjao

      50,000 a year? If yes, you dont need to file since your income is lesser or equal to your personal exemption.

  • http://www.jal5aFrUDijal5aFrUDi.com/jal5aFrUDijal5aFrUDi Andrea Mcroyal

    Thank you Eric, Many thanks for those templates.

  • Futokuko

    hello, great article and thanks for the information.

    I was wondering if there was some form of wealth tax(gross wealth) in the Philippines. I am planning to immigrate there and i was wondering if i would be taxes for assets i have outside the country? For example, what if someone has a stock portfolio managed outside philippines earning dividends that are automatically re-invested(i will not receive cash dividends on them they are reinvested automatically). do need to declare these?

    • Pjao

      Hi. No. Your assets are not taxed unless you die, in that case, your estate is subject to estate taxes. If you can acquire citizenship, (taxable within and without the philippines) yes, your dividends will be taxed regardless if it is reinvested or encashed since it is considered an income. But in case, you cant acquire citizenship, you will only be taxed on your income within the philippines.

  • allan

    Ano po ibig savhin ng exclution from gross income, kagaya ng life insurance? Tnx

    • Pjao

      kapag ikaw yung benefactor (nakatanggap ng proceeds) nung life insurance ng isang deceased person, hindi yun subject sa income tax.

    • allan

      Sa income taxation po, ano po ibig savhin ng income? taxable income? And gross income? Salamat po

    • Pjao

      Income, kita mo. Kapag employee ka, yung salary. Kung meron kang business, yung profit mo. Ang gross income ay lahat ng income mo na subject sa tax. Ang taxable income nman ay yung gross income minus allowable deductions (kapag meron lang business) o personal exemptions.

  • pat

    question: may friend ako na nakakareceived ng compensation and income from her foreign employer at gross. and she didnt file any ITR and now need nya ng ITR for 2013. any possible solution and suggestions on how she can settle related issues about ITR. Thanks! response are highly appreciated.

    • Pjao

      Hello, actually, the employer has the main responsibility of withholding the taxes from your friend’s salary. But if tax was not withheld or was not correctly withheld, the employee must take the initiative to file the correct income tax return. The annual income tax return for 2013 should have been filed on or before April 15, 2013. So that means that your friend will be penalized by surcharges and interest.

  • Jetty Orozco

    Hi! Question. Is trading Forex and the like taxable here in the Philippines?
    US/UK Based trading companies and was wondering if it is. If so, what’s the tax rate?

  • glyza

    hello! Question: Noong nagstart kami ng tax deduction nung Feb this year, yung status ko ay single, kasi hindi ko nadeclare yung isa kong anak i think nakalimutan ko isulat..tapos after a month (March 2014) nagpachange status ako (single with 1 child) pero until now Oct hindi pa na reflect sa payslip ko yung decrease ng tax deduction ko..same parin. Makakareceive ba ako ng tax return nito after a year.? please answer po.