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Lesson 2 Taxation of Individuals
Lesson 2 Taxation of Individuals
Individuals
Objectives
• Identify the individual income tax payers
• Define the individual taxpayers and the related terms used
• Illustrate the different classification of individual taxpayers
• Recognize the categories of income and state the tax rates to be used by each type of
individual taxpayer
• List the sources of passive income and state the final tax rates to be used by each
type of individual taxpayer
• Discuss the treatment of passive income in the computation of taxable income from
compensation or business/professional income
• Define the allowable deductions from gross income
• Identify the kinds of personal exemptions
• Discuss the guidelines on change of status
• Define and compute taxable income and tax due for each type of individual taxpayer
depending on income category.
• Be familiar with individual taxpayers exempt from income tax.
Tax System
• Progressive Rates of income taxes on citizens and
resident aliens.
• Schedular system – income tax treatment varies
depending on the kind of taxable income of the
taxpayer.
• Global treatment – is a system where the tax
treatment views indifferently the tax base and
generally treats in common all categories of
taxable income of the taxpayer.
Classification of Individual Taxpayers
DEFINITION OF TERMS
1.Resident citizen
2.Citizen
3.Non-resident citizen
4.Resident Alien
5.Non-resident alien
6.Non-resident alien engaged in trade or business (NRAETB)
7.Non-resident alien not doing business in the Philippines (NRANETB)
8.OCWs or OFWs
9.Foreign Currency Deposit System (FCDS)
10.Foreign currency deposit unit
11.Offshore banking system
CITIZENS
• Those who are citizens of the Phil. at the time of
the adoption of the Feb. 2, 1987 Constitution;
• Those whose fathers or mothers are citizens of the
Philippines;
• Those born before Jan. 17, 1973, the date of the
adoption of the 1973 Constitution, of Filipino
mothers, who elect Philippine citizenship upon
reaching the age of majority; and
• Those who are naturalized in accordance with law.
TWO TYPES OF FILIPINO CITIZENS
RESIDENT CITIZEN NON-RESIDENT CITIZEN
• Established to the Commissioner that his
• Resident citizen – is a presence abroad will be definite and he will
Filipino citizen who reside therein.
permanently resides in • Filipino citizen who leaves the Phil. During
the taxable year to reside abroad, either as
the Philippines an immigrant or for employment on a
permanent basis
• Filipino 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. Most of the time means at least 183
days during the taxable year
TWO TYPES OF ALIENS(FOREIGNERS)
RESIDENT ALIEN
NON-RESIDENT ALIEN
• Resident alien – means an individual
whose residence is within the Phil.
and who is not a citizen thereof. He is • Non-resident alien-
one who is actually present in the
Philippines and who is not a mere means an individual
transient or sojourner. But resident whose residence is not
does not mean mere physical
presence. An alien is considered a within the Philippines
resident or a non-resident depending and who is not a citizen
on his intention with regard to the
length and nature of stay. thereof.
TWO TYPES OF Non- Resident ALIEN
NRAETB
NRANETB
• Non-resident alien engaged in trade or
business (NRAETB) – means that the • NRA who stayed for 180
alien is carrying on a business in the
Philippines. It connotes more than a
days or less is
single act or isolated transactions. It considered a Non-
involves some continuity of action. resident alien not doing
• A NRA who has stayed in the Philippines business in the
for more than 180 days during any Philippines (NRANETB)
calendar year shall be deemed doing
business in the Philippines.
OCWs or OFWs
This refer to Filipino citizens employed in foreign
countries who are physically present in a foreign
country as a consequence of their employment thereat.
• Child
• Foster Care
• Foster Child
• Foster Family
Sources of income
Individual Within the Phils. Without the Phils.
1. Resident Citizen ∕ ∕
2. Non-resident Citizen ∕
3. Resident Alien ∕
4. Non-resident Alien ∕
SOURCES OF INCOME: