Principles of phil taxation

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  • 1. [email_address] Basic Principles of Philippine Taxation System
  • 2.
    • Provisions…
    • The Philippines taxes aliens, whether or not resident in the Philippines, only on income from sources within the Philippines.
    • The tax year runs from January 1st to December 31st.
    Scope of Philippine Taxation
  • 3. Methods of Calculating Philippine Tax
    • Income taxes for aliens are levied at the following rates:
    • Progressive rates between 5% and 32% for nonresident aliens engaged in trade or business in the Philippines.
    • 2. Final flat rate of 25% for nonresident aliens deemed not engaged in trade or business in the Philippines; and
    • 3. Final tax of 15% for alien executives of special entities. For a list of special entities, please refer to the discussion under Taxation of Alien Executives of Special Entities.
  • 4.
    • Husband and Wife… For tax purposes, a husband and wife must file one consolidated income tax return, but the tax is computed separately.
    • Resident aliens A resident alien is an individual who is stateless or is a national of another country and who lives in the Philippines with no definite intention as to length of stay, but who is not a mere transient or sojourner. An expatriate working in the Philippines on a contract for an indefinite period potentially falls into this category.
  • 5.
    • Nonresident aliens… Most expatriates will be classified as nonresident aliens, because their contract will be for a specified period of engagement. A nonresident alien individual who comes to the Philippines and stays there for more than 180 days during any calendar year will be deemed a nonresident alien engaged in trade or business in the Philippines.
  • 6.
    • If the aggregate stay in the Philippines during any calendar year does not exceed 180 days, the individual may be deemed a nonresident alien not engaged in trade or business in the Philippines.
  • 7. Fringe benefits tax…
    • Fringe benefits furnished to managerial and supervisory-level employees by the employer are subject to a final fringe benefits tax (FBT) of 32% (in general) on the grossed-up monetary value of the benefits. Managerial employees are those who may lay down and execute management policies to hire, transfer, suspend, lay off, recall, discharge, assign, or discipline employees.
  • 8.
    • Expatriates assigned in the Philippines for a definite period are generally regarded as nonresidents engaged in trade or business in the Philippines.
    • Employee gross income … An alien, whether resident or not, is taxed on compensation income earned from services rendered in the Philippines regardless of where payment is made and whether it is remitted into the Philippines. The nonresident alien is not taxed on compensation income from services performed outside the Philippines.
  • 9.
    • Employee gross income, from the point of view of a nonresident alien engaged in trade or business in the Philippines, includes all payments for services rendered in the Philippines, such as salaries and bonuses, regardless of where payment was made.
    • Philippine Social Security contributions (SSS or GSIS) and union dues paid by employees are not included in gross income and are exempt from taxation.
  • 10.
    • Supervisory employees are those who effectively recommend such managerial actions if the exercise of authority on behalf of the employer is not merely routine or clerical in nature but requires the use of independent judgment.
  • 11.
    • The FBT is a final tax payable on a calendar quarterly basis by the employer and deductible as part of fringe benefit expense. Benefits subjected to FBT are no longer included in employees' taxable income.
  • 12. What is FBT?
    • Fringe Benefits Tax ( FBT ) is the taxation of most, but not all fringe benefits, which are generally non-cash employee benefits. The rationale behind FBT is that it helps restore equity and fairness to those employees who do not receive such benefits, and allows a Government to more fairly assess taxpayer entitlement to government benefits, or liability to government taxes or levies.
  • 13.
    • Employee benefits and benefits in kind (also called fringe benefits , perquisites , perqs or perks ) are various non-wage compensations provided to employees in addition to their normal wages or salaries. Where an employee exchanges (cash) wages for some other form of benefit, this is generally referred to as a 'salary sacrifice' arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree.
  • 14.
    • "Fringe benefits" can also be defined as any goods, services or other benefits furnished or granted in cash or in kind by an employer to an individual employee, except rank and file employees such as, but not limited to the following:
    • • Housing; • Expense account; • Vehicles of any kind; • Salary of household personnel (e.g., maid, driver);
  • 15.
    • Fringe benefits can also include but are not limited to: (employer-provided or employer-paid) housing, group insurance (health, dental, life etc.), income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), social security, profit sharing, funding of education, and other specialized benefits.
    • The purpose of the benefits is to increase the economic security of employees.