[Music] good morning everyone welcome to income taxation this israel atrias your instructor for today so today we'll discuss gross income to anything about gross income it's sources and components and how it is computed so we'll discuss that in this lesson however this lesson is divided into several videos in parts so for this video we'll focus on the classification of the taxpayers particularly the individual taxpayers at the end of this lesson you'll be able to classify the individual taxpayers in their tax titles and of course identify the items included and excluded in the gross income of the taxpayer classify a taxable and non-taxable income categorize which income is subject to normal tax and final tax and finally to compute the gross income in net taxable income in accordance with the tax code so if you're ready let's jump in so before we begin our computation on what is excluded and what is included in the gross income let us first understand who is a taxpayer so a taxpayer is someone who is required by the law to file and pay their tax as imposed and prescribed by the national internal revenue code a taxpayer may be classified as an individual taxpayer or a corporate taxpayer when you say individual taxpayer this is a natural person of course with life living okay and when you say corporate taxpayer this is an artificial being or it could be a corporation or a partnership okay so in this video in this lesson we will focus our discussion on the individual taxpayers because we'll have a separate discussion on corporate taxpayers okay so uh the individual taxpayers may be classified depending on their citizenship and residents okay so the taxpayers residents and citizenship must be identified properly to account incomes which are subject to income tax the cytos or the location of taxation depends on the taxpayer's residency and citizenship the individual taxpayers are classified classified into five okay so we have first he can be a resident citizen or rc or a non-resident citizen or nrc or it can be a resident alien or an unresident alien engaged in trade or business or nra etb or finally a taxpayer can also be in alien not engaged in trade or business or nra and etb so this are the five classification of an individual taxpayers so we'll discuss each of them later on so a resident citizen is someone who is both a citizen and a resident of the philippines like you you are a resident you are residing you are living in the philippines and also you are a filipino therefore you are considered as a resident citizen okay so in particular to qualify for citizenship one must have met any of the following requirements so there are several requirements so first those who are citizens in the philippines at a time the adoption of the philippine constitution in 1987. so any person who are classified as citizens at the time of the adoption of the philippine constitution in 1987 are considered a citizen and those whose fathers or mothers are citizens of the philippines so if your mother is a filipina or your father is a filipino then you are also a citizen of the philippines in those born on january 17 1973 of filipino mothers who elect philippine citizenship upon reaching the age of majority or those who are naturalized in accordance with the law so any foreigner or any non-filipinos originally who have natural lies their citizenship are also now considered as citizen of the philippines so when you say resident in citizen you must be living in the philippines you must be residing in the philippines and must have the citizenship status of being a filipino okay so next is a non-resident citizen another student citizen is someone who is submissions to the satisfaction of the commissioner of the internal revenue the fact of their physical process abroad with a definite intention to resign they're in so if you want to stay there in for a long period of time and then you intend to recite their end then you can be considered as a non-resident citizen of the philippines or those who lives in the philippines during the taxable year to reside abroad either as an immigrant or for employment on a permanent basis say for example an overseas filipino worker so ofws are considered as non-resident citizens because of the nature of their employment requires them to stay in the outside the philippines or those who stays outside in the philippines for more than 183 days so if you are staying outside the philippines for more than 183 days then you are considered as a non-resident citizen of the philippines 183 days actually six months okay uh next we have the resident alien so recently alien is a foreigner not an alien person which is outside of this planet okay so recent aliens are foreign persons who have acquired residency in the philippines so those foreigners who have acquired residency in the philippines are considered as resident aliens so as a rule foreign persons are considered as residents when the length of their stay or assignments in case of work are indefinite or those who have resided for exiting two years under wa rulings number 051 to 81-81 and 052-81 okay so two years like non-resident citizens resident aliens are also taxed for incomes derived within the philippines only so by the way resident aliens and non-resident citizens are only subject to tax for their incomes derived in the philippines unlike resident citizens whose incomes abroad and incomes within the philippines are are taxed globally okay so all together so again the resident alien and non-resident citizens are taxed only for their incomes within the philippines incomes derived abroad are not subject to filipino taxation so next we have the non-resident alien engaged in trade or business an understanding alien individual is a foreign person who have not acquired residents in the philippines meaning uh he have not stayed for more than two years in the philippines as what the recent alien did so any person who have not acquired residency but are doing business in the philippines shall be considered as engaged in trade so any person who shall come to the philippines and stay here in for another great period of more than 180 days meaning more than six months during any calendar year shall be deemed as doing business in the philippines like the donors and citizens and resident aliens the non-resident alien engaged in trade or business is also taxed for his or her incomes derived within the philippines only so any incomes derived abroad shall not be taxed in the philippines finally we have the unnecessary alien not engaged in trade or business any foreign person who shall come in the philippines and stay here in for another gate period of not more than 6 months or not more than 180 days during any calendar year shall be deemed as not doing business in the philippines for example tourists they are taxed on their incomes derived within the philippines at only a 25 of the total gross income so any person any foreign person who comes in the philippines and stay here in for not more than six months and in case they earn incomes they will be taxed at 25 percent in their total gross income and this uh 25 percent is actually a nor a final tax so before they would receive their incomes the payor on such income so any payer of such income shall withhold first the 25 percent meaning shall deduct the 25 beforehand before this income will be paid to the understanding alien not engaged in trade so to summarize we'll have this illustration we have the income from sources within the philippines this is the cytoskeleton meaning the source or the location and then income from sources outside the philippines so for resident citizen any income derived within the philippines shall be taxable using the normal tax when i say normal tax this means the graduated rates or the eight percent optional rate or the final tax and any income from outside of the philippines shall be also taxable if you are a resident citizen however if you are a non-resident citizen any incomes from sources within the philippines shall be taxable when you say non-resident citizen these again are filipinos filipino citizens who are not residing in the philippines or who have resided in outside of the philippines such as ofws and immigrants okay so they would be taxable only if they derived income from within the philippines so any income from sources outside of the philippines shall not be taxable in the philippines of course these incomes coming from outside the philippines shall be taxed on the country or location where these income are derived but for philippine taxation purposes these incomes derived abroad are not subject to income tax okay also for recent alien these are foreign persons these are non-residents i mean these are non-filipinos but have acquired residents in the philippines they are also subject to tax for their incomes derived within the philippines okay and then any sources or any incomes from sources outside of the philippines shall also be non-taxable so for example if you are a foreigner if you are not a filipino and then you have stayed here for more than two years then you would be considered as resident elian and then any incomes derived in the philippines shall be considered shall be taxed in the philippines but your income from sources abroad shall not be taxable in the philippines also for an understudent alien not in gay engaged in trade or business the same is true for sources for income from sources within the philippines and for income from source outside the philippines so actually the other four uh taxpayers follow the same patterns so for another student alien not engaged in trade or business again they would be taxable only if their their incomes are from the philippines if their incomes are from outside of the philippines they would not be taxable in the philippines okay so when i say non-taxable again it doesn't mean that they are entirely non-taxable it's just it just means that for philippine taxation these incomes derived abroad are not subject to philippine taxation but of course the country where in that income was derived will impose a tax on such income and the unique part of the non-resident alien that engage in trade or business is that all their incomes whether from whatever source in the philippines shall be taxed at 25 final tax so be it a compensation or business or whatever so any income derived by an unresident alien not engaged in trader business shall always be subject to 25 final tax when we say final tax these are withhold before the taxpayer receive the income okay so after you have understand the classification and taxable tax cycles of the different taxpayers individual tax pay dual taxpayers now let us proceed to the different types of income you