TRAIN LAW

RA 10963
 HIGHLIGHTS
• Lowering of graduated income tax rates for
individuals
• Option of 8% in lieu of graduated income tax and
percentage tax under Section 116 for Non-VAT TP
• Repeal of Section on personal/additional exemptions
• Exemption from tax of 1st P250,000 compensation
income and purely self-employed income
• Gross Benefits Exclusions from P82,000 to P90,000
 HIGHLIGHTS
• Increase of the VAT Threshold to P3,000,000
• 7. Exempting Condo and HA Association dues
from VAT
• 8. Exempting hypertension/diabetes medicines
from. VAT
• 9. Increase of exempt residential rental to
P15,000
• 10. Residential lot reduced from P1,919,200 to
P1.5M
• 11. Residential H & L reduced from P3,919,200 to
P2.5M
 HIGHLIGHTS
• Excise Tax on Sweetened Beverages
• Excise Tax on Invasive Procedure
• Quarterly payment of Percentage Taxes
• Change filing of 1st Quarterly ITR from Apr 15 to
May 15
• Interest at double the legal interest rate for loans
• Increasing of Threshold for audit to P3,000,000
• EWT for Professionals with P3M or less Gross PF
reduced to 5% or 10% as the case may be
• 16. Reduction of Estate Tax from graduated to 6%
• 17. Reduction of Donor’s Tax from graduated to 6%
• 18. Increase of Standard Deduction for estate to P5M
• 19. Increase of family home for estate tax to P10M
• 20. 12-page ITR has been reduced to only 4 pages.
 INCOME TAXATION
INCOME TAX SYSTEM IN THE PHILS.
GLOBAL SCHEDULAR
o Business Income o Interest Income
o Professional Income o Sale of Shares of Stocks
o Rental of properties o Sale of Real properties
o Compensation Income o Dividend Income
o Commission o Royalties
o Transportation Allowance o Prizes
o Representation o Winnings
Allowance o Pensions
o Director’s Fees o Fringe Benefits
o All income subject to o All Income subject to
Creditable Withholding Final Withholding
Tax Tax(FWT)
o All income not subjected
to CWT and FWT
CLASSIFICATION OF INDIVIDUALS
EMPLOYEE – under an employer-employee relationship

B. SELF-EMPLOYED – purely engaged in business or

practice of profession

C. MIXED – employee and self-employed

 CLASSIFICATION OF EMPLOYEE
• A. MINIMUM WAGE EARNER

• B. RANK-AND-FILE

• C. SUPERVISORY OR MANAGERIAL
CLASSIFICATION OF SEL-EMPLOYED
• I.
• With Sales or Gross Receipts of 3M and below

• With Sales or Gross Receipts of more than 3M

• II.
• Opting to pay 8% tax in lieu of IT and Percentage Tax

• Paying IT based on Graduated Rates and Claiming

Itemized Deductions or OSD
 CLASSIFICATIONOF MIXED INCOME
TAXPAYERS
1. Compensation Income plus Gross Sales or Receipts do
not exceed 3M

2. Compensation Income plus Gross Sales or Receipts

exceed 3M
 INCOME TAX RATES
2018-2022 2023 onwards
250,000 & below 0% 0%
Over 250,000 to 400,000 20% 15%
Over 400,000 to 800,000 25% 20%
Over 800,000 to 2,000,000 30% 25%
Over 2,000,000 to 8,000,000 32% 32%
Over 8,000,000 35% 35%
 Sec 24 Income Tax Rates
TRAIN vs Old Rates
TRAIN Law OLD Law
250,000 & below 0% 5%-25%
Over 250,000 to 400,000 20% 30%
Over 400,000 to 800,000 25% 30%-32%
Over 800,000 to 2,000,000 30% 32%
Over 2,000,000 to 8,000,000 32% 32%
Over 8,000,000 35% 32%
 Rules on Income
Tax for Employee
• Income is subject to withholding tax on compensation
based on the schedular rate under Sec. 24(A)(2)(a).

• The employer is required to issue Form 2316 to the

employee reflecting the income (both taxable and non-
taxable) and the tax withheld.

• No need to file Form 1700 if Working for just one

employer.

• Need to file Form 1700 if working for two or more

Employers
 Formula for Employee
Working for one employer
• Gross Compensation
• Exclude: non-taxable benefits
• Less: Mandatory Contributions
• Equals: Taxable Compensation Income
• Multiplied by the Tax Rates under Section 24(A)(2)(a)
• Equals: Tax due
• Less: W-Tax on Compensation Equals:
• Tax payable or refundable
 Formula for Employee
Working for two or more employers
• Gross Compensation from all employers
• Exclude: non-taxable benefits
• Less: Mandatory Contributions
• Equals: Taxable Compensation Income
• Multiplied by the Tax Rates under Section 24(A)(2)(a)
• Equals: Tax due Less: W-Tax on Compensation Equals:
Tax payable or refundable
 Rules on Income
Tax for Self-Employed
• For purely self-employed and/or professionals whose
gross sales/receipt and other non-operating income do
not exceed P3M
• The tax shall be, at the taxpayer’s option,
• Either –
• 8% income tax on gross sales or gross receipts in excess of
P250,000 in lieu of the graduated income tax rates and the
percentage tax under Sec.116; OR

• Income tax based on the graduated income tax rates for individuals
under Sec 24
 Rules on Income
Tax for Self-Employed
• Professional Fee is subject to Creditable Withholding -
Tax (CWT) of 8% if paid by W-Tax Agents.

• Receives Certificate of Creditable Tax Withheld at Source

(Form 2307 ) from W-Tax Agents

• Files Form 1701Q during the 1st three quarters and final
ITR Form 1701 for the entire year.
 Formula
For 8% Self-employed P3M or <
• Gross Sales/Receipts Less: P250,000
• Equals: Net Amount Taxable
• Multiply by 8% Equals: Tax Due
• Less: Creditable W-Tax
• Equals: Payable or Refundable
 Formula for Graduated Rates Self-
Employed > P3M
• Gross Sales/Receipts
• Less: Cost of Sales/Service
• Equals: Gross income
• Less: Allowable Deductions
• Equals: Net taxable income
• Multiplied by applicable rate (graduated)
• Equals: Income tax due
• Less: Creditable W-Tax
• Equals: Payable or Refundable
 Rules on Income Tax
for Mixed Income
• The compensation income shall be subject to the tax
rates prescribed under Section 24(A)(2)(a) of the Tax
Code, as amended;
AND
• The income from business or practice of profession shall
be subject to either 8% income tax or graduated rates,
depending on the amount of Gross Receipts
 Rules on Income Tax
for Mixed Income 3M Up
• If the gross professional fee and other non-operating
income exceeds P3M there is no option:

• The compensation income and the professional income

as wells as other non-operating income shall be subject to
the graduated income tax rates prescribed under Sec 24
of the NIRC, as amended.
 Rules on Income Tax
for Mixed Income P3M and Below
• If the gross professional fee and other non-operating
income do not exceed P3M, options are:

a. Graduated income tax rates shall apply to

compensation income under Sec 24(A)(2)(a);
And
b. 8% income tax rate on gross receipts in lieu of
graduated income tax rates and % tax under Sec
116 of the NIRC.
 Rules on Income Tax
for Mixed Income P3M and Below
• The total tax due shall be the sum of:
(1) tax due from compensation, computed using
the graduated income tax rates; and

(2) tax due from self-employment/practice of

profession, resulting from the multiplication of the
8% income tax rate with the total of the gross
sales/receipts and other non-operating income.
 Income Tax Formula for Mixed Income
P3M & <
• Gross Compensation
• Exclude: non-taxable benefits
• Less: Mandatory Contributions Multiplied by the Tax Rates
under Section 24(A)(2)(a)

• Opted for 8% Gross

• Receipts/Sales
• Net Amount Taxable
• Multiply by 8% E
• quals: Tax Due
• Less: W-Tax on Compensation and Creditable W-Tax
• Equals: Payable or Refundable
 Income Tax Formula
for Mixed Income >P3M
• Gross Sales/Receipts
• Less: Cost of Sales/Service
• Equals: Gross Profit
• Less: Deductions
• Net Income from business
• Plus: Compensation Income
• Equals: Net taxable income
• Multiplied by graduated rates
• Equals: Income tax due
• Less: W-Tax on Compensation and Creditable W-Tax
• Equals: Payable or Refundable
 Passive Income Subject to Final Tax
Section 3 (E) of RR 8-2018
• Interests from any currency bank deposit a - 20 %;
• Interest income received by an individual taxpayer from a
depository bank under the expanded foreign currency
deposit system – 15%
• Proceeds of pre-terminated long-term deposit or
investment in the form of savings, trust funds, deposit
substitutes, investment management accounts and other
investments as prescribed by the BSP –the final tax shall
be based on the remaining maturity:
Four (4) years but less than five (5) years – 5%
Three (3) years but less than four (4) years – 12%;
Less than three (3) Years – 20%
 Passive Income Subject to Final Tax
Section 3 (E) of RR 8-2018
• Royalties (except royalties on books and other literary
works and musical compositions) - 20%
• Royalties on books and other literary works and musical
compositions – 10%
• Prizes (except prizes amounting to P 10,000 or less)- 20%
• Winnings (except Philippine charity Sweepstakes and
Lotto winnings amounting to P 10.000 or less) -20%
• Cash and Property Dividends – 10%
• Capital Gains from Sale of Shares of Stocks not Traded in
the Stock Exchange - 15%;
• Capital Gains on of Real Property located in the
Philippines-6%.
 Q &A
RMC 50-2018
De Minimis Benefits:
• Medical Cash Allowance to dependents of
employees - P1,500 per semester or
P250/month

• Rice Subsidy – P2,000 or 50kg cavan of rice

• Uniform and Clothing allowance - P6,000

 Q &A
RMC 50-2018
In excess of allowed amounts
shall be treated (allowed) as
part of “Other Benefits” up to
P90,000 limit.
 Q &A
RMC 50-2018
• Q: Incentives given to employees:

• In general any incentives given to employees shall form

part of the compensation subject to income tax, unless
specifically exempted under special law or incentives in
the nature of “de minimis” benefits
 Q &A
RMC 50-2018
• Q : Who are not entitled to 8% Income Tax Rate

1. Purely compensation income earners

2. VAT registered taxpayers
3. Non-VAT whose gross receipts/sales exceeded
P3M
4. TPs subject to percentage tax under Title V
5. Partners of GPPs
6. Individuals enjoying income tax exemptions like
BMBEs
 Q &A
RMC 50-2018
• Q : How can one avail of 8% in lieu of graduated?

• Answer:
1. The option to avail of the 8% income tax rate must be
signified annually, on or before May 15;

2. Such election is irrevocable within the year unless the

gross sales/receipts for the year exceeds P3M in which
case, the taxpayer automatically become subject to
graduated.
 Q &A
RMC 50-2018
• Q : Are returnable deposits or deposits held in trust, like
security deposits under lease agreements part of
definition of gross receipts?

• A: In general, all deposits are taxable except returnable

deposits or deposits held in trust and recorded as liability
are excluded.
 Q &A
RMC 50-2018
• Q: Is an individual under a contract of service or job order
arrangement considered self-employed?

• Ans: Yes.
 Q &A
RMC 50-2018
• Q: What are the applicable withholding taxes for
individual under a contract of service or job order
arrangement considered self-employed?

• Answer:
• Hired by Public or Gov’t Sector – withhold income and
business tax. However, if earning P250,000 from one
single payee – exempt from income tax upon submission
of Annex B-2 under Rr 11-2018 together with the copy of
the COR and percentage tax if employee signified the
option to avail of 8% income tax regime
 Q &A
RMC 50-2018
• Q 28 What are the applicable withholding taxes for
individual under a contract of service or job order
arrangement considered self-employed?

• Answer:
• Hired by Private Sector – withhold income tax only.
However, if earning P250,000 from one single payee –
exempt from income tax upon submission of Annex B-2
under RR 11-2018 together with the copy of the COR
 Q &A
RMC 50-2018
• Q : Are those availing of 8% income tax rate required to
file Financial Statements when filing ITR?

• Answer: NO
 Q &A
RMC 50-2018
• Q: If a professional or self-employed did not avail
of 8% and opt for the graduated rates table but
claimed OSD, can he be exempt form FS
submission?

• Answer: YES
BUSINESS TAXATION
(TRAIN LAW)
Classification of Taxpayers For Business
Tax Purposes

SELF-EMPLOYED
VAT TP NON-VAT TP

Gross Sales/Receipts is over P3M Gross Sales/Receipts is P3M and

Per 12-month below
(Sec. 106/108) Per 12-month
(Sec. 116)
 VAT TAXPAYERS
VAT TP
12% 0%
Sale to Sale to AutomAtic Effectively
Gov’t Private Zero- Zero-
Rating Rating
 NON-VAT TAXPAYERS
NON-VAT, Sec. 109
EXEMPT
- Agri/marine FP
- Settling-personnel effects
- % TP/ACG
- Medical/educ’l services
- Employees/RAH multi-N
- INt’l agree/agri-coop
- Credit multi-P/other Coop
- Export/real prop.
- Lease/books
- Cargo V/fuel/int’l ship/air
- Int’l fuel/banks, NBFI
- SC/PWD/
- Asso., condo dues/BSP
- Medicines/ 3M or below
%AGE TP
- 3% Seller P3M
- 3% common carriers
- 3% Int’l Carriers
- 3%/2% Franchises
- 10% overseas dispatch
- 0-7% Banks and NBFI
- 1-5% Other NBFI
- 5% Life Ins Prems.
- 10% Agents Foreign Ins.
- 10-30% Amusement Tax
- 4-10% tax on winnings
- ½ 0f 1% Shares of Stocks
LSE
 Sale of Goods
Section 106
• This section applies to sale of goods.
• Sale of goods by professionals (i.e. medicines and
vaccines for doctors) are subject to 12% VAT and to be
combined with the professional services in computing the
threshold of P3M.
• The taxable base for goods is the selling price upon
delivery whether paid in cash or on account.
 Sale of Services
Section 108
• This Section applies to sale of services which covers all
kinds of professional services.

• The taxable base is actual collections. Uncollected

billings for services rendered are not subject to VAT until
collected
 Exempt Sale of Goods and Services
Sec. 109
• This Section provides the list of all goods and services
exempt from Value added tax from letter “A” to letter “BB”.
VAT Threshold Section 109 (BB)
• VAT Threshold – refers to the ceiling set to determine VAT
registrable taxpayers, currently set at P3M.
• It is the same threshold to be used to determine the
income tax liability of self – employed and/or
professionals under Sections 24(A)(2)(b) and
24(A)(2)(c)(2) of the Tax Code, as amended.
Gross Sales RR 8-2018 Section 2(h)
• Refers to the total sales transactions net of VAT, if
applicable, reported during the period, without any other
deduction.
• However, gross sales subject to the 8% income tax rate
option shall be net of the following deductions:
Gross Sales RR 8-2018 Section 2(h)
• . Sales returns and allowances for which a proper credit
or refund was made during the month or quarter to the
buyer for sales previously recorded as taxable sales; and
• 2. Discounts determined and granted at the time of sale,
which are expressly indicated in the invoice, the amount
thereof forming part of the gross sales duly recorded in
the books of accounts. Discounts indicated in the invoice
at the time of sale, the grant of which is not dependent
upon the happening of a future event, may be excluded
from the gross sales within the same month/quarter it was
given.
 Gross Receipts
RR 8-2018, Sec. 2(g)
• Refers to the total amount of money or its equivalent
representing the contract price, compensation, service
fee, rental or royalty, including the amount charged for
materials supplied with the services, and deposits and
advance payments actually or constructively received
during the taxable period for the services performed or to
be performed for another person, except returnable
security deposits.
• In the case of VAT taxpayer, this shall exclude the VAT
component.
 Gross Receipts of Professionals
VAT or 3%
• . Professional Fee from clients/patients 2. Retainer Fees
3. Consultation Fees 4. Management Fees 5. Honorarium
6. Talent fees 7. Commission and service fees 8.
Bookkeeping fees 9. Payments from PHIC and HMOs by
Doctors
 Exempt Sale of Goods and Services RR
13-2018 Section 109
• w. Sale or lease of goods and services to senior citizens
and persons with disabilities, as provided under Republic
Act Nos. 9994 (Expanded Senior Citizens Act of 2010)
and 10754 (An Act Expanding the Benefits and Privileges
of Persons with Disability), respectively;
 Exempt Sale of Goods and Services RR
13-2018 Section 109
• x. Transfer of Property pursuant to Section 40(C)(2) of the
Tax Code, as amended;
• (y) Association dues, membership fees, and other
assessments and charges collected on a purely
reimbursement basis by homeowners' associations and
condominium corporations established under Republic Act
No. 9904 (Magna Carta for Homeowners and
Homeowners' Association) and Republic Act No. 4726
(The Condominium Act), respectively;
 Exempt Sales of goods and Services
RR 13-2018, Sec. 109
• (z) Sale of gold to the Bangko Sentral ng Pilipinas;
• (aa) Sale of drugs and medicines prescribed for diabetes,
high cholesterol, and hypertension to beginning January
1, 2019 as determined by the Department of Health; and
 Exempt Sales of goods and Services
RR 13-2018, Sec. 109
• (bb) Sale or lease of goods or properties or the
performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of Three
Million Pesos (P3,000,000.00).
• CORPORATIONS DOMESTIC CORPORATIONS
corporations created or organized in the Phil or under its
laws. FOREIGN CORPORATION RESIDENT FOREIGN
CORP - foreign corporation engaged in trade or business
in the Phil - subject to either preferential tax