Amendments on Income Tax Rates and Provisions

Nonresident aliens not engaged in trade or business or without an office in the Philippines are taxed at 12% on net income sourced within the Philippines.
If income exceeds ₱16,500, tax rates applicable to citizens/residents apply.
Filing a truthful income return entitles such nonresident aliens to be taxed at graduated rates regardless of income amount.

Personal exemptions are allowed as deductions from net income, reducing taxable income.

All corporations organized or existing under Philippine laws pay 12% tax on total net income from all sources.
Foreign corporations subject to Philippine tax pay the same rate on income sourced within the Philippines.
Building and Loan Associations pay a reduced tax rate of 6%.
Only 25% of dividends received by domestic or resident foreign corporations from domestic corporations are included in taxable income.

Various entities are exempt including labor, agricultural, mutual savings and cooperative banks, fraternal societies, cemetery companies, religious, charitable, scientific, cultural, educational organizations, business leagues, civic leagues, pleasure clubs, and certain mutual organizations.
Exemption applies only if no part of net income benefits private individuals.
Income from properties or profit activities is taxable.

Interest on Philippine government obligations is exempt to the extent provided by the issuing authority.

Foreign income, war-profits, and excess-profits taxes paid may be deductible, subject to conditions.
Worthless securities charged off during the taxable year can be treated as capital losses for non-bank taxpayers.
Charitable contributions to qualified government or nonprofit entities are deductible up to 6% for individuals and 3% for corporations, subject to verification.

Capital assets exclude inventory, depreciable business property, and real property used in business.
Net capital gain is gains minus losses from capital asset sales; net capital loss is losses minus gains.
For individuals, 100% gain/loss on assets held up to 12 months, 50% for assets held longer.
Capital losses limited to capital gains except for certain financial institutions.
Carry-over of net capital losses for individuals to succeeding taxable year treated as losses on assets held up to 12 months.
Retirement of bonds considered exchange for calculating gains/losses.
Gains/losses from short sales and option privileges treated as capital gains or losses.

Obligors on bonds/mortgages must withhold 12% tax on interest payments to nonresident aliens and residents agreeing to pay tax.
Exemption from withholding allowed upon filing claims for exemption.
Various withholding agents are responsible for deducting 12% tax on income payments to nonresident aliens not engaged in Philippine business.
Dividends paid by foreign corporations require withholding only if corporation conducts business in the Philippines and derives majority of income from Philippine sources.

Foreign corporations not engaged in Philippine business must have 12% tax withheld at source, similarly to other withholding provisions.

Certain subsections related to United States citizens and corporations are repealed.
The Act applies to income received from January 1, 1946, except US-related provisions effective July 4, 1946.