Taxation of Non-Resident Alien Individuals
- Non-resident aliens engaged in trade or business within the Philippines are taxed on their entire net income from sources within the Philippines at the same rates as residents.
- A non-resident alien who stays in the Philippines for more than 180 days in a calendar year is deemed engaged in business and taxed accordingly.
- Non-resident aliens not engaged in trade or business within the Philippines are subject to a 25% tax on all income from Philippine sources such as interest, dividends, salaries, and capital gains.
- If their income exceeds P43,060, they are taxed according to resident rates, but never less than 25% of total income.
Personal Exemptions Allowed to Individuals
- Personal exemptions are allowed as deductions from net income.
- Married persons or heads of families are entitled to a personal exemption of P3,000.
- Only one exemption of P3,000 is allowed from the aggregate income of married couples not legally separated.
- The definition of "head of family" includes unmarried persons supporting dependent relatives under specific conditions involving age, employment status, and capacity for self-support.
Deductions from Gross Income: Medical and Tuition Expenses
- Expenses for medical care incurred and paid in the Philippines during the taxable year are deductible up to specified limits.
- Medical care expenses exclude medicine costs but include costs for diagnosis, treatment, mitigation, prevention, or affecting bodily functions.
- Deduction limits: up to P500 for the taxpayer, plus P500 for spouse and each dependent, not exceeding P2,000 in total.
- Taxpayers must provide detailed substantiation including receipts or statements with names, amounts, dates, and nature of services.
- Basic tuition fees for dependents studying in high school are deductible; defined exclusively as fees for instruction privilege, excluding miscellaneous fees.
- Tuition fee deduction: P250 per dependent up to P1,000 in aggregate.
- Taxpayers must provide names, dates of birth of dependents, and proof of payment details.
Deductions for Non-Resident Aliens and Foreign Corporations
- Non-resident aliens and foreign corporations may deduct necessary expenses paid or incurred in the Philippines exclusively for carrying on business or trade.
Effective Date
- The provisions apply to income for taxable years beginning January 1, 1968.