Law Summary
Tax on Nonresident Aliens Not Engaged in Trade or Business
- Tax rate of 16% on net income from Philippine sources
- If net income exceeds ₱14,750, tax rates for citizens and residents apply
Personal Exemptions for Individuals
- Single persons or legally separated: ₱1,800 personal exemption
- Married persons or heads of family: ₱3,000 exemption with only one exemption for spouses
- Heads of family include unmarried individuals supporting dependents
- Additional exemption of ₱600 per dependent child under 21 or incapacitated
- Exemptions prorated in case of status change during taxable year
Corporate Income Tax
- 16% tax on net income for domestic corporations and foreign corporations with Philippine source income
- Exceptions: Building and Loan Associations taxed at 9%
- Only 25% dividends from taxed domestic corporations are taxable for corporations
Optional Standard Deduction for Individuals
- Electable deduction of ₱1,000 or 10% of gross income, whichever is lower
- Election irrevocable for the taxable year
Individual Income Tax Returns
- Required for Philippine citizens of lawful age with gross income ≥ ₱1,800
- Includes residents and nonresident aliens with Philippine income
- Returns filed in duplicate specifying gross income and allowable deductions
Withholding Tax on Bonds and Interest
- 16% withholding on interest paid to nonresident aliens or residents
- Exemptions apply if filing notice claiming benefits timely
- Dividends from foreign corporations subject to withholding only under certain conditions
Withholding Tax on Income of Foreign Corporations
- 18% tax withheld at source on income of foreign corporations not engaged in business in the Philippines
Estate and Trust Income Tax Exemption
- Exemption of ₱1,800 allowed for estates and trusts
Fiduciary Income Tax Returns
- Fiduciaries to file returns for estates, trusts, or persons with gross income ≥ ₱1,800
- Return to be under oath and apply relevant individual tax provisions
Information Returns on Payments ≥ ₱1,800
- Entities making payments of certain income types must report to Collector of Internal Revenue
- Includes government officers and employees handling such payments
- Reports include payee details and amounts
Withholding on Wages - Definitions
- Wages = remuneration for services excluding certain exceptions (agricultural labor, domestic service, casual labor, foreign government service)
- Payroll period defines periodicity of wage payments
- Employee includes officers and government officials; employer means person having control of wage payment
Withholding on Wages - Requirements and Deductions
- Employers to deduct tax on wages using Secretary of Finance's withholding table
- Tax not deductible when computing net income
- Refunds or credits allowed for overpayments
- Employees must file exemption certificates; failure to do so results in withholding at zero exemption rate
- Special provisions for estimating wages and treatment of husband and wife
- Nonresident aliens excluded from wage withholding, subject to other tax provisions
Employer Liability and Payment of Withheld Taxes
- Employers liable for withheld taxes and to remit taxes quarterly
- Taxes held in trust until remitted
- More frequent payment intervals may be required
Duties of Government Employers
- Officials designated to file returns and remit withheld taxes
Employer Statements and Returns
- Employers to furnish annual statements to employees showing wages and withheld tax
- Annual return with accompanying statements filed with tax authorities
- Possible extensions for filing returns
Penalties and Surcharges
- Penalties for failure or falsification of returns include fines and imprisonment
- Surcharges on unpaid taxes: 5% plus 1% monthly interest
- Corporate officers held accountable for employer violations
Verification of Returns
- Returns may be required to be verified under penalty of perjury
- False declarations subject to felony charges for perjury
Taxation of Public Officers' Salaries
- Salaries of public officers are taxable and not exempt
Treatment of Fractions in Tax Computations
- Fractions of a peso under 50 centavos disregarded; 50 centavos or more rounded up
- Minor discrepancies under one peso not refunded or collected
Backpay and Income Tax
- Employees entitled to backpay can elect to use it for annual income tax payment
- Refunds may apply if withheld amounts exceed tax liability
Act's Effective Dates and Duration
- Applies to income from January 1, 1950
- Withholding on wages effective January 1, 1951
- Increased tax rates valid until December 31, 1952 unless extended by Congress