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Introduction To Income Taxation
Introduction To Income Taxation
The tax concept of income is referred to as “gross income”. Gross income means taxable income. It refers
to certain items of gross income less deductions and personal exemptions allowable by law. It is any
inflow of wealth to the taxpayer from whatever source, legal or illegal, that increases net worth. It
includes from employment, trade, business or exercise of profession, income from properties, and other
sources such as dealings in properties and other regular or casual transactions.
A. Individuals
1. Citizen
a. Resident Citizen
b. Non resident citizen
2. Alien
a. Resident alien
b. Non resident alien
a. Engaged in trade or business
b. Not engaged in trade or business
3. Taxable estates and trusts
B. Corporations
1. Domestic corporation
2. Foreign corporation
a. Resident foreign corporation
b. Non resident foreign corporation
Classification of citizens:
A. Resident citizens- A Filipino citizen residing in the Philippines.
B. Non resident citizen includes:
1. A resident residing abroad with a definite intention to reside therein
2. A resident who leaves the Philippines during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis
3. A resident who works and derives income from abroad whose employment requires him to be
physically present abroad most of the time during the taxable year.
4. A citizen who was previously considered as non resident citizen and who arrives in the
Philippines at anytime during the taxable year to reside permanently in the Philippines shall
likewise be treated as a non resident citizen for 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.
Alien
A. Resident Alien- an individual who is residing in the Philippines but it is not a citizen thereof such
as :
1. An alien who lives in th Philippines without definite intention as to his stay or
2. One who comes to the Philippines for a definite purpose which in its nature would require an
extended stay and to that end makes his home temporarily in the Philippines, although it may
be his intention at all times to return to his domicile abroad.
B. Nonresident alien- an individual who is not residing in the Philippines and who is not a citizen
thereof.
1. Non resident aliens engaged in business- aliens who stayed in the Philippines for an
aggregate period of more than 180 during the year.
2. Non resident aliens not engaged in business- include:
a. Aliens who come to the Philippines for a definite purpose which in nature maybe
promptly accomplished.
b. Aliens who shall come to the Philippines and stay there for an aggregate period of not
more than 180 days during the year.
Domestic Corporations
- Organized inaccordance with Philippine laws.
Foreign Corporation
- One organized under foreign law.
Types of foreign corporations
1. Resident foreign corporations- operates and conduct business in the Philippines through a
permanent establishment.
2. Nonresident foreign corporation-does not operate or conduct in the Philippines
Special corporations- domestic or foreign corporations which are subject to special tax rules or
preferential tax rates.
Types of partnerships
a. General professional partnership
-formed for the exercise of common profession.
b. Business partnership
- Formed for profit and taxable as a corporation.
2. Joint venture- business undertaking for a particular purpose. It is organized as a partnership or a
corporation.
3. Co ownership
joint ownership of a property formed for the purpose of preserving the same and or dividing its
income.
A co-ownership that is limited to property preservation or income is not taxable but co owners are
taxable individually.
A co ownership that reinvests the income of the owned property to other income producing
properties or ventures will be considered taxable as corporation.
Taxpayers who are residents and citizens of the Philippines such as resident citizen and domestic
corporations are taxable on all income from sources within and without the Philippines.