SIGNIFICANT DEVELOPMENTS
The maximum nontaxable amounts for certain “de minimis” benefits granted to employees have been increased and, for certain items, defined.The exclusion of services performed in the exercise of a profession by registered general professional partnerships, actors, talents, athletes, etcetera under the value added tax system has been further extended to January 1, 2003.
The Bureau of Internal Revenue (BIR) has taken concrete steps to further enhance its computerization program. Employers now ave the option to submit certain employees’ tax information on diskette, while software copies of certain tax forms are now available.
Revenue Regulations (RR) 14-2000 clarified the conditions for availing of tax exemption from the 6% capital gains tax (CGT) on the gains realized from the disposal of an individual’s principal residence. However, the RR added another condition that is not in the Tax Code-that an amount equal to the 6% CGT be deposited in an escrow bank account under an escrow agreement with the concerned tax district officer, to be released only upon certification by the tax officer that the proceeds have been utilized in the acquisition or construction of a new principal residence.
TERRITORIALITY AND RESIDENCE
The Philippines taxes its resident citizens on their worldwide income. Nonresident citizens and aliens, whether or not resident in the Philippines, are taxed only on income from sources within the Philippines.A nonresident alien individual who comes to the Philippines and stays there for more than 180 days during any calendar year will be deemed a nonresident
alien engaged in trade or business in the Philippines. If the aggregate stay in the Philippines during any calendar year does not exceed 180 days, the individual is deemed a nonresident alien not engaged in trade or business in the Philippines.
GROSS INCOME
Employee gross income/An alien, whether resident or not, is taxed on compensation income earned from services rendered in the Philippines, regardless of where payment is made and whether it is remitted into the Philippines. The nonresident alien is not taxed on compensation income from services performed outside the Philippines. Employee gross income,
from the point of view of a nonresident alien engaged in trade or business in the Philippines, includes all payments for services rendered in the Philippines, such as salaries and bonuses.
Social security contributions and union dues paid by employees are not included in gross income and are exempt from taxation.
Fringe benefits tax/Fringe benefits furnished to managerial and supervisory-level employees by the employer are subject to a final fringe benefits tax (FBT) of 32% on the grossed-up monetary value of the benefits.
Managerial employees are those who may lay down and execute management policies to hire, transfer, suspend, lay off, recall, discharge, assign, or discipline employees. Supervisory employees are those who effectively recommend such managerial actions if the exercise of authority on behalf of the employer is not merely routine or clerical in nature but requires
the use of independent judgment. The FBT is a final tax payable on a calendar quarterly basis by the employer and deductible as part of fringe benefit expense. Benefits subject to FBT are no longer included in employees’ taxable income.
The grossed-up monetary value of a fringe benefit is determined by dividing the actual monetary value of the benefit by 68%. It represents the whole amount of the income realized by the employee, which includes the net amount that has been received plus the amount of fringe benefit tax due from the employee but paid by the employer.
“Fringe benefits” are defined as any goods, services, or other benefits furnished or granted in cash or in kind by an employer to an individual employee, except rank-and-file employees such as, but not limited to, the following.
1. Housing.
2. Expense account.
3. Vehicles of any kind.
4. Household personnel, for example, maid, driver.
5. Interest on a loan at less than the market rate (currently set at 12%) to the extent of the difference between the market rate and the actual rate granted.
6. Membership fees, dues, and other expenses borne by the employer for the employee in social and athletic clubs and similar organizations.
7. Expenses for foreign travel.
8. Holiday and vacation expenses.
9. Educational assistance to the employee and dependents.
10. Premiums for life insurance, health and other non-life insurance, and similar amounts in excess of what the law allows.
As regards housing and motor vehicles, the monetary value of the benefit is equal to 50% of the lease payment or the depreciation value of the property, whichever is applicable.
However, if the housing unit is situated in or adjacent (within 50 meters) to the business premises, the benefit is not taxable.
The following fringe b
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