ii. Kinds of Taxpayers

i. Citizens

• Resident Citizen (RC) – citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines.
• Nonresident Citizen (NRC) – citizen of the Philippines who is taxable only on his income from sources within the Philippines if he:
• Establishes the fact of his physical presence abroad with a definite intention to reside therein.
• Leaves the Philippines during the taxable year to reside abroad, as immigrant or for employment on a permanent basis.
• Works & derives income from abroad & whose employment requires him to be physically present abroad most of the time (i.e. not less than 183 days) during the taxable year.
• Was previously considered as nonresident citizen & arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines; with respect to income derived from sources without the Philippines, he is treated as a nonresident citizen only until the date of his arrival (NIRC, Sec. 22(E)(4)).

Examples of non-resident citizens:

• Immigrant – one who leaves the Philippines to reside abroad as an immigrant for which a foreign visa has been secured
• Permanent employee abroad – one who leaves the Philippines and works abroad on a more or less permanent basis

Note: The taxpayer shall submit proof to the CIR to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be.

Non-resident citizens who are exempt from tax with respect to income derived from sources outside the Philippines shall no longer be required to file information returns from sources outside the Philippines beginning 2001. (Rev. Regs. 05-01¹; BIR Ruling No. DA-261-05²)

> SEC. 22.(E)³. The term “nonresident citizen” means:

> (1) 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.

> (2) 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.

> (3) 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.

> (4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for 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.

> (5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section.

(c) Contract Worker or Overseas Contract worker

(OCW) – a Filipino citizen who is working and deriving income from employment abroad; renewal of the employment contract is not required.

> Under SEC. 23.(C)⁴ An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income derived 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 shall be treated as an overseas contract worker;

Note: For OCWs, the time spent abroad is not material for tax exemption purposes. All that is required is for the worker’s employment contract to pass through and be registered with the POEA. (BIR Ruling No. 33-00⁵; BIR Ruling No. DA428-04⁶)

An OCW is a Filipino citizen who:

• Holds a job outside the Philippines,
• Is physically present in that foreign country where the job is,
• Is registered with the POEA
• Has a valid overseas employment certificate, and
• His/her salaries and wages are paid by an employer abroad and are not borne by any entity or person in the Philippines. (Rev. Regs. 01-11⁷)

ii. Aliens

• Resident Alien (RA) – an individual whose residence is within the Philippines and who is not a citizen thereof is taxable only on income derived from sources within the Philippines.

> Under SEC. 23.(D)⁸ An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines;

> One who comes to the Philippines for a definite purpose which in its nature would require an extended stay, and makes his home temporarily in the country, becomes a resident alien. The length of stay is indicative of intention.

> An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of the income tax. Whether he is a transient or not is determined by his intentions with regard to the length and nature of his stay.

> A mere floating intention, indefinite as to time, to return to another country is not sufficient to constitute him a transient.

> If he lives in the Philippines and has no definite intention as to his stay, he is a resident. One who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient.

But if his purpose is of such a nature that an extended stay may be necessary for its accomplishment, and to that end the alien makes his home temporarily in the Philippines, he becomes a resident, though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned.

> SEC. 22 (F)⁹. The term 'resident alien' means an individual whose residence is within the Philippines and who is not a citizen thereof.

> Loss of residence by alien:

> An alien who has acquired residence in the Philippines retains his status until he abandons the same and actually departs from the Philippines.

> A mere intention to change his residence does not change his status. An alien who has acquired a residence is taxable as a resident for the remainder of his stay in the Philippines. (Rev. Regs. 02-40, Sec. 6)¹⁰

> Nonresident Alien (NRA) – an individual whose residence is not within the Philippines and who is not a citizen thereof, whether or not engaged in trade or business in the Philippines, is taxable only on income from sources within.

(1) Engaged in trade or business (NRA-ETB) – a nonresident alien who actually engages in trade or business in the Philippines, or who is deemed to do so by staying in the Philippines for an aggregate period of more than 180 days during any calendar year

(2) Not engaged in trade or business (NRA-NETB) – an alien who does not engage in trade or business in the Philippines. An NRA who stays for 180 days or less must be classified according to whether the alien actually engages in trade or business.

> SEC. 22.(G)¹¹ The term “nonresident alien” means an individual whose residence is not within the Philippines and who is not a citizen thereof.

> SEC. 25.(A)(1)¹² In General. – A nonresident alien individual engaged in trade or business in the Philippines shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual, on taxable income received from all sources within the Philippines. A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a ‘nonresident alien doing business in the Philippines,’ Section 22(G)¹³ of this Code notwithstanding.

iii. Special Class of Individual Employees

• Minimum Wage Earner

A worker in the private sector paid the statutory minimum wage, or an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned;

His earnings (i.e. SMW, holiday, overtime, night-shift differential and hazard pay) are exempt from income tax pursuant to the provisions of the NIRC and other laws, general or special.

• Aliens employed by regional or area headquarters and regional operating headquarters of multinational companies in the Philippines.

The preferential tax rate of 15% is generally no longer applicable, without prejudice to preferential rates under existing tax treaties and the grandfathering rule under Section 25(F).

• Aliens employed by offshore banking units.

His gross income is generally no longer subject to the preferential tax rate of 15%, without prejudice to preferential rates under existing tax treaties and the grandfathering rule under Section 25(F).

• Aliens employed by petroleum contractors and subcontractors.

His gross income is generally no longer subject to the preferential tax rate of 15%, without prejudice to preferential rates under existing tax treaties and the grandfathering rule under Section 25(F).

Under NIRC Section 25(F)¹⁴, the 15% preferential rate generally ceased to apply beginning January 1, 2018. It continues to apply to qualifying employees already employed as of December 31, 2017, under the grandfathering rule.

SEC. 22.(H)¹⁵ The term ‘minimum wage earner’ shall refer to a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned.

Joint Venture and Consortium

Joint venture is a commercial undertaking by two or more persons, differing from a partnership that it relates to the disposition of a single lot of goods or the completion of a single project.

Consortium is an association, typically of several business companies.

• Partnerships

Taxed as a corporation. Includes unregistered joint ventures and business partnerships.

Exception: that joint ventures are not taxable as corporations when the purpose is for:

• Undertaking construction projects; or
• Engaging in petroleum, coal, geothermal, or other energy operations pursuant to an operating consortium agreement under a service contract with the Government (NIRC, Sec. 22(B)).

Partners in a business partnership are considered stockholders. Their distributive shares are taxed as dividends, and thus subject to final income tax on their gross distributive share.

• General Professional Partnerships

Established solely for purpose of exercising common profession and no part of income derived from engaging in trade or business.

As an entity, it is not subject to income tax.

Partners are liable for income tax on their respective distributive shares in the net income of the GPP, determined under their profit-sharing arrangement (NIRC, Sec. 26). Each partner shall report his distributive share as part of his gross income.

Individual partners are subject to regular income tax rate on their taxable income

• Estate and Trusts

Estate – property, rights, and obligations of a person which are not extinguished by his death and those that accrue thereto

Trust – arrangement created by agreement under which title to property is passed to another for conservation or investment with the income and the corpus/principal distributed in accordance with the directions of the creator; a trust may be taxed under the rules for estates and trusts, while income is attributed to the grantor where the Tax Code’s grantor-trust provisions apply, including for certain revocable trusts or income held for the grantor’s benefit (NIRC, Secs. 60, 63–65)

• Co-ownership

Exists whenever the ownership of an undivided thing or right belongs to different persons; for income tax purposes, the individual co-owners are liable for the taxes due on their respective shares and the co-ownership itself is not considered as a separate taxable entity.

There is co-ownership in the following instances:

• Two or more heirs inherit an undivided property from a decedent; or
• A donor makes a gift of an undivided property in favor of two or more donees.

It is not taxable when the activities are limited merely to preservation of the co-owned property but the co-owners are liable for income tax in their separate and individual capacities.

It is taxable when the income of the co-ownership is invested by the co-owners in business creating a partnership.

Income Tax on Resident Citizens, Non-resident Citizens and Resident Aliens

Coverage – Income from all sources within and without the Philippines; exceptions

The tax shall be computed in the following tax rates 65: (Sec. 24 (A)(2))²¹

Effective January 1, 2023 and onwards:

iv. Taxation of partners in general professional partnership (GPP)

A general professional partnership shall not be subject to the income tax. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities. Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership. (Sec. 26)²²

The partners shall be liable to pay income tax on their separate and individual capacities for their respective distributive share in the net income of the GPP. The GPP is not a taxable entity for income tax purposes since it is only acting as a "pass-through” entity where its income is ultimately taxed to the partners comprising it.

For purposes of computing the distributive share of the partners, the net income of the GPP shall be computed in the same manner as a corporation. As such, a GPP may claim either:

• itemized deductions allowed under Section 34 of the Code²³ or
• Optional standard deduction allowed to corporations in claiming the deductions in an amount not exceeding forty percent (40%) of its gross income (Rev. Regs. 08-18, Sec. 8)²⁴.

In computing taxable income defined under Section 31 of the Tax code²⁵, as amended, the following may be allowed as deductions:

• itemized expenses which are ordinary and necessary, incurred or paid for the practice of Profession; OR
• Optional Standard Deduction (OSD).

The share in the net income of the partnership, actually or constructively received, shall be reported as taxable income of each partner. The partners comprising the GPP can no longer claim further deduction from their distributive share in the net income of the GPP and are not allowed to avail of the 8% income tax rate option since their distributive share from the GPP is already net of cost and expenses. If the partner also derives other income from trade, business or practice of profession apart and distinct from the share in the net income of the GPP, the deduction that can be claimed from the other income would either be the itemized deductions or OSD. (Rev. Regs. 08-18, Sec. 8).

Illustration 1 (Rev. Regs. 08-18, Sec. 8) Mr. JMLH is a partner of AMBS & Co., a general professional partnership, and owns 25% interest. The gross receipts of AMBS & Co. amounted to P10,000,000 for taxable year 2018. The recorded cost of services and operating expenses were P2,750,000 and P1,500,000, respectively.

Note: Individual partner is not allowed to claim further deduction from his distributive share since this is already net of cost and expenses. Also, the taxpayer is not allowed to avail of the 8% income tax rate option.

b. Income tax on Non-resident Aliens Engaged in Trade or Business (NRA-ETB)

Nonresident Alien (NRA) – an individual whose residence is not within the Philippines and who is not a citizen thereof but doing business therein is taxable only on income from sources within.

Engaged in trade or business (ETB) – a nonresident alien who stays in the Philippines for an aggregate period of more than 180 days during any calendar year is deemed engaged in trade or business; actual engagement may also establish that status (NIRC, Sec. 25(A)(1)).

NRA-ETB shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual, on taxable income received from all sources within the Philippines.

Note: An alien who has acquired residence in the Philippines retains his status as a resident until he abandons the same and actually departs from the Philippines. An intention to change his residence does not change his status as a resident to that of a nonresident alien (Rev. Regs. 02-40, Sec. 6)²⁶.

General rules:

• A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than 180 days during any calendar year
• Shall be taxed on income earned within the Philippines, in the same manner as an individual citizen or a resident alien.
• The term “trade or business” includes the performance of the functions of a public office. (Sec. 22 (CC))²⁷

c. Income Tax on Non-Resident Aliens Not Engaged in Trade or Business (NRA-NETB)

NRA-NETB includes:

• Aliens who come to the Philippines for a definite purpose which in its nature may be promptly accomplished
• Aliens who shall come to the Philippines and stay therein for an aggregate period of not more than 180 days during the year, if they are not engaged in trade or business; the length of stay alone does not establish that status. (Banggawan)

General rules:

• NRA-NETBs are taxed 25% of the their entire income within the Philippines.
• They are not entitled to any deductions.
• Capital gains tax liabilities are the same with NRAETB.

d. Aliens Employed by Regional Headquarters, Regional Operating Headquarters, Offshore Banking Units, and Petroleum Service Contractors

Regional or area headquarters (RHQ) – a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets.

Regional operating headquarters (ROHQ)- a branch established in the Philippines by multinational companies which are engaged in any of the following services: general administration and planning; business planning and coordination; sourcing and procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistic services; research and development services and product development; technical support and maintenance; data processing and communications; and business development.

The former preferential 15% income tax rate for alien employees of RHQs, ROHQs, OBUs or petroleum service contractors and subcontractors no longer applies, regardless of their employer’s SEC registration date. The employees’ compensation is generally subject to regular income tax rates, subject to an applicable tax treaty. (Rev. Regs. 08-18, Sec. 4(C)²⁸; Sec. 25(F)²⁹)

Note: RHQ and ROHQ are exempt from all kinds of local taxes, fees or charges imposed by a LGU, except real property tax on land improvement and equipment.

Alien individual employed by RHQ and ROHQ of Multinational Companies, and Offshore Banking Unit (OBU)

Former rule: 15% of gross income from salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances from such regional or area headquarters and regional operating headquarters. Provided that the same tax treatment shall apply to Filipinos employed and occupying the same position as those of aliens employed by these multinational companies. (Sec. 25(C) and (D)³⁰) This preferential treatment is no longer applicable. Compensation of these employees is generally subject to the regular income tax rates under Sec. 24(A)(2)(a), without prejudice to an applicable tax treaty. (RA 10963; RR No. 8-2018, Sec. 4(C))

Alien Individual Employed by Petroleum Service Contractor and Subcontractor

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 was formerly 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 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. (Sec. 25(E))³¹ This former preferential rate no longer applies; compensation is generally subject to regular income tax rates, subject to an applicable tax treaty.

Note: The aforementioned 15% preferential income tax rate for employees of regional or area headquarters and regional operating headquarters of multinational companies, offshore banking units and petroleum service contractor and subcontractors shall no longer be applicable without prejudice to the application of preferential tax rates under existing international tax treaties, if warranted. Thus, these employees shall be subject to the regular income tax rate under Sec' 24(A)(2)(a) of the Tax Code³², as amended. (Rev. Regs. 08- 18, Sec. 4(C)³³, citing the veto message of the President)

Note: Any income earned from all other sources within the Philippines by the alien employees employed by RHQ, ROHQ, OBU, and Petroleum Service Contractors and Subcontractors shall likewise be subject to regular income tax rates.

e. Individual Taxpayers Exempt from Income Tax

• Minimum wage earners
• Exemptions granted under international agreement
• Senior citizens who qualify as minimum wage earners, as to income covered by that exemption

i. Minimum wage earners (MWE)

shall refer to a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned. (Sec. 22(HH))³⁴

Definition of statutory minimum wage (SMW

Refers to the rate fixed by the Regional Tripartite Wage and Productivity Board (RTWPB), as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE); the RTWPB of each region shall determine the wage rates in the different regions based on established criteria and shall be the basis of exemption from income tax for this purpose.

Compensation income of MWEs shall be exempt from income tax and consequently from withholding tax on compensation if they work:

• In the private sector and being paid the SMW; or
• In the public sector and being paid compensation of not more than the SMW in the non-agricultural sector

Other exempt MWE compensation (NIRC Sec. 24(A)(2)(b)³⁵):

• Holiday pay
• Overtime pay
• Night shift differential pay and
• Hazard pay

Additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of ₱90,000.00, taxable allowances, and other taxable income given to an MWE by the same employer other than those which are expressly exempt from income tax shall be subject to withholding tax (Rev. Regs. 02-98, Sec. 2.7.81³⁶ as amended by R.A. No. 9504³⁷)

Note: MWEs do not lose their tax-exempt status merely because they have received other benefits in excess of the applicable ₱90,000.00 ceiling; the excess is taxable separately. (Soriano v. Secretary of Finance, G.R. No. 184450, 2 October 2017)³⁸

MWEs receiving other income from other sources in addition to compensation income, such as income from other concurrent employers, from the conduct of trade, business, or practice of profession, except income subject to final tax, are subject to income tax only to the extent of income other than SMW, holiday pay, overtime pay, night shift differential pay, and hazard pay earned during the taxable year (Rev. Regs. 02-98, Sec. 2. 7.8³⁹ as amended by R.A. No. 9504).

Basis of computation of minimum wage rates (Rev. Regs. 02-98, Sec. 2.78.5⁴⁰ as amended by Rev. Regs. 10- 08, Sec. 2⁴¹)

The basis of the computation of the minimum wage rates prescribed by law shall be the normal working time of eight (8) hours a day.

The computation of wages shall be in accordance with the Collective Bargaining Agreement (CBA), if any, or the provisions of the Labor Code⁴² as implemented. Unless otherwise amended or repealed by subsequent pertinent laws, rules and regulations, the holiday pay, overtime pay, night shift differential and hazard pay shall be understood to be computed based on such agreement or labor law provisions.

Exemptions granted under international agreements.

Income from employment by a foreign government, embassy, diplomatic mission, or international organization is exempt from income tax only to the extent provided by an applicable treaty, international agreement, or law, and subject to its conditions.

Filipino employees of foreign governments, international missions and organizations are generally taxable unless an applicable treaty, international agreement, or law exempts their income, subject to its conditions. Organizations whose employees may qualify include:

• United Nations
• World Health Organization
• Food and Agriculture Organization
• United Nations Industrial Development Organization (UNIDO)
• Specialized Agencies of the United Nations
• International Organization for Migration
• International Seabed Authority (Banggawan)

iii. Senior citizens (SC)

• A senior citizen is a resident citizen of the Philippines who is at least 60 years old, subject to the statutory rule for qualified dual citizens (RA 7432, Sec. 3(a), as amended by RA 9994).

General Rule: Qualified Senior Citizens (SC) deriving income during the taxable year, whether from compensation or otherwise, are subject to the ordinary rules on income-tax liability under NIRC Sec. 24(A)(2)(a), as amended by RA 10963. Whether an income tax return must be filed is determined separately under NIRC Sec. 51.

Exceptions:

• If income is in the nature of compensation income and the SC qualifies as a MWE, he shall be exempt from income tax on said compensation income, subject to the rules of RA 9504⁴³ and RR No. 10-08⁴⁴.
• Under the current individual income-tax schedule, taxable income not exceeding ₱250,000 is subject to zero income tax (NIRC Sec. 24(A)(2)(a), as amended by RA 10963). Whether the SC must file an ITR is determined separately under NIRC Sec. 51; the former basic and additional exemptions do not govern either determination.

Note: The income tax exemptions granted, as stated above, to SCs does not extend to income subject to final tax (e.g., interest income from bank deposits, dividends, capital gains tax) (Expanded Senior Citizens Act of 2003⁴⁵; Rev. Regs. 07-10⁴⁶)

i. Taxation in General

Corporation (Sec. 22(B)⁴⁷)

Includes: partnerships, no matter how created or organized, joint-stock companies, joint accounts, association, or insurance companies,

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 consortium agreement under a service contract with the Government.

Domestic corporation - a corporation created or organized in the Philippines under its law

i. Taxation of NRFC in general

Non-Resident Foreign Corporation refers to a foreign corporation not engaged in trade or business within the Philippines. (Sec. 22(I))⁴⁸

A foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 25% of the gross income received from all sources within the Philippines such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains from sale of shares of stock not traded in the stock exchange. (Sec. 28(B)(1), NIRC, as amended by RA 11534)

Note: Special corporations are subject to a different tax rate

Nonresident Cinematographic Film Owner, Lessor or Distributor

twenty-five percent (25%) of its gross income from all sources within the Philippines.

Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals

four and one-half percent (4 1 /2%) of gross rentals, lease or charter fees from leases or charters to Filipino citizens or corporations, as approved by the Maritime Industry Authority.

Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment

Rentals, charters and other fees derived by a nonresident lessor of aircraft, machineries and other equipment shall be subject to a tax of seven and one-half percent (7 1 /2%) of gross rentals or fees

Income Tax on Special Corporations

Summary of tax rates on special corporations (Ingles)

Corporations Exempt from Income Tax

The following organizations shall not be taxed under this Title in respect to income received by them as such:

• Labor, agricultural or horticultural organization not organized principally for profit;
• Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit;
• A beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system, or mutual aid association or a non-stock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or non-stock corporation or their dependents;
• Cemetery company owned and operated exclusively for the benefit of its members;
• Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person;
• Business league chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stock-holder, or individual;
• Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
• A non-stock and nonprofit educational institution;
• Government educational institution;
• Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and
• Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce furnished by them;

Note: The income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax.

Requisites for example of non-stock, non-profit corporations (Banggawan)

• It must be a non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for rehabilitations of veterans.
• It should meet the following tests:
• Organizational test: its constitutive documents exclusively limits its purpose to one or more of the following: religious, charitable, scientific, athletic, or cultural purposes, or for rehabilitations of veterans.
• Operational test: The regular activities of the corporation or association must be exclusively devoted to the accomplishment of the aforementioned purposes. A corporation fails this test if a substantial part of its operations is considered “activities conducted for profit”
• All net income or assets of the corporation or association must be devoted to its purpose and no part of its net income or asset accrues to or benefits any member or specific person.
• It must not be a branch of a foreign non-stock, nonprofit corporation.

Note: A non-profit organization is still allowed to engage in activities conducted for profit without losing its tax exemption but the consequence is being subject to tax only on income conducted for profit, regardless of the disposition made of such income.

Collector v. V.G. Sinco, G.R. No. L-9276⁴⁹ Owner check: Verify G.R. No. L-9276; “49” may have been absorbed into the case number in another rendering.

• Payment by a non-profit educational institution for services rendered (e.g., payment to teachers and service providers) is not distribution of profit
• Charging of tuition does not make school profit-making enterprise
• While acquisition of additional facilities, such as buildings and equipment, may redound to the benefit of the institution, it does not necessarily follow that the same will redound to the benefit of its shareholder (on the ground that assets will be distributed to shareholders upon dissolution)

Under Section 30 of the NIRC, an exempt organization’s income from property is generally taxable regardless of how that income is used (CIR v. YMCA, G.R. No. 124043⁵⁰). Separately, the revenues and assets of a non-stock, nonprofit educational institution used actually, directly, and exclusively for educational purposes are exempt from taxes and duties under Article XIV, Section 4(3) of the 1987 Constitution (CIR v. De La Salle University, Inc., G.R. No. 196596). Owner check: Verify G.R. No. 124043; “50” may have been absorbed into the case number in another rendering.

Imposition of 10% income tax on proprietary, non- profit hospitals did not remove exemption of non-stock corporation organized and operated exclusively for charitable or social welfare purposes. Moreover, revenues from paying patients are taxable income from activities conducted for profit under Section 30 of the NIRC, while qualifying charitable activities retain their exemption. (CIR v. St. Luke’s Medical Center, G.R. No. 195509)⁵¹ Owner check: Verify the cited G.R. number against the apparent consolidated G.R. Nos. 195909 and 195960; the stated number has not been changed.

i. Who are the individuals required to file an income tax return?

• Resident Citizens
• Non-resident Citizens for the income earned within the Philippines
• Non-resident alien engaged in trade or business or in the exercise of profession in the Philippines
• Resident Aliens for income earned within the Philippines
• Employees deriving compensation income concurrently from two (2) or more employers during the taxable year

NOTE: A citizen of the Philippines and any alien individual engaged in business or practice of profession within the Philippines shall file an income tax return, regardless of the amount of gross income. (Sec. 51 (A) (2) (a))⁵²

Who are the individuals NOT required to file an income tax return?

• An individual whose taxable income does not exceed two hundred fifty thousand pesos (P250,000) under Section 24(A)(2)(a)⁵³, except that a citizen of the Philippines or an alien engaged in business or the practice of a profession in the Philippines must file regardless of the amount of income. (Sec. 51 (A) (2))⁵⁴
• An individual whose income tax has been correctly withheld by his employer, provided that such individual has only one employer for the taxable year — the Certificate of Withholding filed by the respective employers, duly stamped "Received" by the Bureau, shall be tantamount to the substituted filing of income tax returns by said employees; (Rev. Regs. 8-2018)⁵⁵
• An individual whose sole income has been subjected to final withholding tax pursuant to Section 57(A)⁵⁶ of this Code. (Sec. 51 (A) (2))
• An individual who is exempt from income tax pursuant to the provisions of this Code and other laws, general or special. (Sec. 51 (A) (2))
• A minimum wage earner as defined in these regulations — The Certificate of Withholding filed by the respective employers, duly stamped "Received" by the Bureau, shall be tantamount to the substituted filing of income tax returns by said employees. (Rev. Regs. 08-18)⁵⁷