KINDS OF INDIVIDUAL TAXPAYERS

TAX ON INDIVIDUALS

Individuals, as income tax payers, fall into two general categories of citizens and aliens. A citizen maybe a resident citizen or a non resident citizen. Alien individuals are classified into resident aliens or a non resident aliens. Non resident aliens are in turn classified as into those engaged in trade or business or practice of profession, in the Philippines, and those not engaged in trade or business, or practice of profession in the Philippines.

Resident Citizen

An individual is a citizen of the Philippines by definition of the Constitution of the Philippines. Under the Constitution, an individual maybe a citizen at birth (i.e., one whose father or mother is a citizen of the Philippines), or may become a citizen of the Philippines sometime after birth (i.e., one who is naturalized in accordance with the law). Philippine citizenship maybe lost or reacquired in the manner provided by law.

Non-resident Citizen

Who is a non-resident citizen? He is a citizen who:
a. Establishes to the satisfaction of the Commissioner of Internal Revenue the fact of his physical presence abroad with a definite intention to reside therein; or
b. Leaves the Philippines during the taxable year to reside abroad:

1. as an immigrant; or
   
2. For employment on a permanent basis;
   
3. For work and derives income from abroad and whose employment thereat requires him to be physically abroad most of the time during the taxable year.

c. Was previously a nonresident citizen and who arrives in the Philippines during 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.

Resident Alien

A resident alien is an individual whose residence is within the Philippines and who is not a citizen thereof. An individual whose residence is within the Philippines and who is not a citizen thereof is a non-resident alien. What makes an alien a resident or non-resident alien is his intention with regard to the length and nature of his stay.Thus:

• One who comes to the Philippines for a definite purpose which in its very nature may be promptly accomplished is not a resident citizen;
• One who comes to the Philippines for a definite purpose which in its very nature would require an extended stay, and to that end, makes his home temporarily in the Philippines, becomes a resident.

Length of stay is indicative of intention. An alien who shall have stayed in the Philippines for more than one year by the end of a calendar year is a resident alien.

An alien who qualified as a resident alien shall have a continuing status of a resident alien until he abandons his residence. Abandonment of residence requires departure from the Philippines and intention not to return.

Non-resident Alien

Who is a non-resident alien engaged in business or practice of profession in the Philippines? By provision of law, an alien who shall come to the Philippines and stay for an aggregate period of more than one hundred eighty days during a calendar year shall be considered anon-resident alien in business, or in the practice of profession, in the Philippines. The only criterion is length of stay.

Income Tax for Resident and Non-resident Citizens and Resident Aliens

Income which is included in the computations of graduated tax, and in the income tax return, at the end of the year may be derived from:
a. Employer-employee relationship, which is called compensation income;
b. Business or profession;
c. Sale or exchange of property which is not subject to the capital gain tax;
d. Incidental sources, such as interest or dividend, which is not subject to final tax.
Tax formula:
Gross income
Less: Deductions for expenses and losses and personal exemptions*
Equals: Taxable Income
Income Tax: On the taxable income, apply the rates of 5% to 32%
*But if the gross income is compensation income only, deductions shall be for premiums on hospitalization and health insurance and personal exemptions only.

Centavos.

In the gross income and the deductions for expenses and losses, there can be centavos. In the taxable income, centavos shall be dropped. In the income tax arrived at with the application of the tax rates, fifty or more centavos shall be considered as one peso, and less than fifty centavos shall be disregarded.(These rules on centavos apply to all taxpayers, on their respective tax formulas.) After deducting from the income tax computed any withholding income tax, the income tax still due or refundable can have centavos.

Husband and Wife

Husband and wife accomplish one income tax return only. They compute the income tax separately on their respective incomes. The two taxes will be added to arrive at a single income tax still due or refundable. Income which is clearly joint, or which cannot be identified as exclusively of one spouse , will be divided equally. There will be a basic personal exemption for each. Only one spouse will claim the additional exemptions. Where the husband and wife are both compensation income earners, the husband is the proper claimant of the additional exemptions, but he may waive it in writing in favor of the wife. When only one spouse is the gross compensation income earner, such spouse is generally the claimant of additional exemptions. When the spouses have business and/or professional income only, either may claim the additional exemptions at the end of the year.

Tax on Certain Preferred Tax Payers
Certain individuals, on certain income, have a final tax of fifteen percent (15%) as follows:

a. On alien individuals employed by a regional or area headquarters and regional operating headquarters established in the Philippines by multinational corporations, on income received from such corporation; and, on Filipinos employed and occupying the same positions as those of aliens employed in the said corporations. The term "multinational company" means a foreign firm or entity engaged in international trade with affiliated or subsidiaries or branch offices in the Asia Pacific Region and other foreign countries;

b. On alien individuals employed by offshore banking units, on income received from such offshore banking units; and on Filipinos employed and occupying the same positions as those of aliens employed in the said corporations;

c. On alien individuals who are permanent residents of foreign countries employed and assigned in the Philippines by foreign service contractors or subcontractors engaged in petroleum operations in the Philippines, on income received from such contractors and subcontractors; and on Filipinos employed and occupying the same positions as those of aliens employed by the contractors or subcontractors.