Income Tax for Individuals

Overview

• Discussion of income tax for individuals divided into 15 parts.
• Focus on types of individual taxpayers in this first part.
• Aim to facilitate understanding for undergraduates and professionals.

Individual Taxpayers

• Definition: Individual taxpayers refer to natural persons.
  • Natural persons: Real individuals (e.g., you, me).
  • Juridical persons: Corporations (e.g., ABS-CBN, San Miguel Corporation).

Classification of Individual Taxpayers

Why Classify?

• Different classifications are taxed differently.
• Understanding classifications helps in determining tax liabilities.

Types of Individual Taxpayers

1. Resident Citizens: Filipinos living permanently in the Philippines.
2. Non-Resident Citizens: Filipinos living abroad or migrating.
3. Resident Aliens: Foreigners residing in the Philippines.
4. Non-Resident Aliens: Foreigners not residing in the Philippines.
   • Further classified into:
     • Engaged in trade.
     • Not engaged in trade.

Determining Residency

Criteria for Resident vs. Non-Resident Citizens

• Resident Citizen: Lives in the Philippines and has income.
• Non-Resident Citizen:
  • Must prove physical presence abroad with intention to reside.
  • Leaves the country to work or reside permanently.

Examples

• Enrico Tabag: A resident citizen.
• Migrating Filipino: Becomes non-resident when they leave permanently.

Tax Implications of Residency

• Resident Citizens: Taxed on all income earned both in and outside the Philippines.
• Non-Resident Citizens: Taxed on income earned only within the Philippines.
• Example: Manny Pacquiao – Taxed on income earned worldwide as a resident citizen.

Summary of Tax Code Classifications

• Section 22 of the Tax Code: Defines who is a resident or non-resident and applicable taxation.
  • Article 4, Section 1: Defines who qualifies as a Filipino citizen.

Understanding Aliens

• Definition: Foreign persons not eligible for Philippine citizenship by birth.
• Classification:
  • Resident Alien: Non-Filipinos residing in the Philippines permanently.
  • Non-Resident Alien: Foreigners with transient or temporary presence.

Employment and Taxation of Aliens

• Resident aliens are taxed in the same way as resident citizens.
• Non-resident aliens engaged in trade are taxed accordingly.
• Non-resident aliens not engaged in trade have a final tax of 25%.

Key Takeaways

• Classifying individual taxpayers is crucial for accurate tax computation.
• Residency impacts tax obligations significantly.
• Tax code provides essential definitions and classifications.

Conclusion

• Understanding classifications aids in taxation assessment and compliance for individuals and businesses.
• Further review of tax implications and classifications recommended for mastery.