INDIVIDUAL TAXES
SIGNIFICANT DEVELOPMENTS
The Tax Reform Act of 1997, which extensively amended the National Internal Revenue Code, took effect on January 1,1998. The law includes new tax provisions, among which are the imposition of fringe benefits tax and the change of the tax base of nonresident citizens and resident aliens from worldwide income to Philippine-source income.
Revenue Regulations (RR) No. 2-98 was issued in May 1998. It covers withholding taxes on income subject to expanded withholding tax and final withholding tax and withholding taxes ton compensation income.
RR No. 3-99, covering the scope and application of the fringe benefits tax as well as the valuation of fringe benefits, was issued in May 1998.
A relatively peaceful and orderly national election was held in May 1998, with President Joseph Ejercito Estrada emerging as the winner by a landslide. He took over from President Fide Ramos in July 1998, basically continuing the economic and investment policies initiated by the latter.
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 nonresident alien not engaged in trade
or business in the Philippines.
Expatriates assigned in the Philippines for a definite period are generally regarded as nonresidents 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 33% 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 rate is to be reduced to 32% beginning January 1,200. 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 67% for 1999 and 68% effective 2000. 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, e.g., 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 or foreign travel.
8. Holiday and vacation expenses.
9. Educational assistance to the employee and dependents.
10. Premiums for life insurance, health and other nonlife insurance and similar a
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