In taxation, taxpayers are classified into different categories, each classification has different obligations to the government.

Some taxpayers may be exempt from income tax but others are required to pay tax even on their income from foreign countries.

Furthermore, different taxpayers have different sets of requirements to submit when transacting with government agencies.

Related: How to File Income Tax Return in the Philippines: A Beginner’s Guide

A. Classification of Individual Taxpayers

1. Resident Citizens

A citizen of the Philippines residing therein. Under the 1987 Constitution¹, the following are citizens of the Philippines.

• Those who are citizens of the Philippines at the time of the adoption of this Constitution;
• Those whose fathers or mothers are citizens of the Philippines;
• Those born before January 17, 1973, of Filipino mothers, who elect Philippine citizenship upon reaching the age of majority; and
• Those who are naturalized in accordance with the law.

2. Non-resident Citizen

• A citizen of the Philippines whose physical presence abroad is with a definite intention to reside therein – to the satisfaction of the Commissioner of Internal Revenue;
• A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis. A good example would be Overseas Contract Workers (OCW) or Overseas Filipino Workers (OFW) who were issued an overseas employment permit. For purposes of income tax, a seaman is considered an OCW²;
• A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. “Most of the time” means at least 183 days³;
• A citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a non- resident citizen for the taxable year with respect to his income derived from sources abroad until the date of his arrival in the Philippines⁴. So, if the taxpayer, who is previously considered a non-resident citizen arrived in the Philippines on July 1, 2016 with the intention of residing permanently in the Philippines, he/she shall be considered a non-resident citizen for his income from January 1 to June 30, 2016 (prior to his date of arrival) and a resident citizen for the rest of the year.

3. Resident Alien

• An alien who lives in the Philippines with no definite intention as to his stay (floating intention);
• One who comes to the Philippines for a definite purpose which in its nature would require an extended stay and to that end makes his home temporarily in the Philippines;
• An alien who has acquired a residence in the Philippines and retains his status as such until he abandons the same and actually departs from the Philippines.

4. Nonresident Alien (NRA)

• An alien who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished;
• One who may either be a: (a) NRA engaged in a trade or business (NRAETB) in the Philippines or (b) NRA not engaged in trade or business (NRANETB) in the Philippines. A NRA who shall come to the Philippines and stay for an aggregate of more than 180 days shall be deemed a NRAETB.

B. Classification of Corporate Taxpayers

1. Domestic Corporation

A domestic corporation is a corporation created and organized under the law of the Philippines.

2. Foreign Corporation

Foreign corporations are those which are created and organized under foreign laws:

• Resident – having a permanent establishment/branch in the Philippines, acquiring residency for tax purposes;
• Non-resident – no permanent establishment in the Philippines; not regularly engaged in trade or business in the Philippines.

Wrapping Up

In summary, only resident citizens and domestic corporations are required to pay taxes on both their Philippine and Foreign sourced incomes. Other entities are only obligated to pay taxes on their income from the Philippines.

 Go back to the main article: An Ultimate Guide to Philippine Tax: Types, Computations, and Filing Procedures

About the Author

Miguel Dar is a CPA and an experienced tax consultant who specializes in tax audits. He provides tax advice to various start-up enterprises and clarified tax concerns of individual taxpayers. This includes assisting clients in registering their businesses, tax and bookkeeping training for start-up businesses, settling open cases, tax planning for future tax compliance, and answering tax-related inquiries. Connect with him on Linkedin.

References

1. The Constitution of the Republic of the Philippines (1987), Sec. 1, Art. IV
2. Revenue Regulations (RR) No. 2-98
3. Revenue Regulations (RR) No. 1-79, Sec. 2
4. National Internal Revenue Code (1997), Section 22 (E) as amended