I'm Giancarlo Enrico S. Pozon, a Wushu instructor, investor and Barrister... That's right, Barrister; I graduated from law school and took the Bar Exams, now I'm waiting for the results. I created this blog to make Philippine Law easy to understand for the average person. It's all about free legal advice. There are many law blogs. But the problem is that many of them are written for lawyers and law students. They use words that can't be understood by ordinary people.
Many lawyers, judges and law students consider themselves as superior to most human beings because of their knowledge of the law. It bothers me since the law is supposed to serve society. Since the law is meant to serve society as a whole, it is important that is must be understood by everybody.
This does not mean that we should all become lawyers. It means that although law is a highly specialized profession, the first duty of everybody in this profession is to make the law understandable to all; that's why all these articles are free legal advice.
Like I said, this blog is about law -but it's for the ordinary people, not the lawyers. It's for the ordinary folk so they will know what is good and bad for them, and that making them aware of the law will help us all improve society as a whole. This is free legal advice for everybody!
Creditable withholding taxes come from an individual's gross income. Therefore, they are deducted from income tax or credited to it. Taxes on professional fees, salaries and rental income fall into this category. When taxes are paid out of these incomes, they are to be deducted from the income tax of an individual (remember, a person may have a salary as well as rental or professional income.)
The creditable withholding taxes for individuals are:
1.) Professional fees: 10% if gross income for the year is Php 720,000 or less and 15% if more than Php 720,000. This also holds true for the members of a partnership.
2.) Rental income on real property used in business (like stalls:) 5%
3.) Payment to contractors: 2%
4.) Employee's salaries (must be the tax the employee is supposed to pay.)
Final withholding taxes are separate from gross income and apply to other incomes specifically identified in the tax laws. These are:
1.) Interest on bank deposits: 20% of the interest (you'll see this in your bank passbook every time you earn interest.)
2.) Income from deposit substitutes: 20%
3.) Royalties: 10% if from books, musical compositions and literary works and 20% if from other sources.
4.) Prizes: 20% -but if Php 10,000 or less, it follows the the standard tax bracket rate. See Income Tax Rates for Individuals.
5.) Trust fund and similar arrangements: 20%
6.) Other winnings: 20% (except PCSO and lotto winnings -they're exempt.)
7.) Interest on bank deposits under the expanded foreign currency deposit system: 7.5% (available only to resident aliens as well as resident and non-resident citizens.)
8.) Interest from long-term deposit/investment pre-terminated before the 5th year: 20% is less than 3 years, 12% if less than 4 years and 5% if less than 5 years.
9.) Dividends from shares of stock: 10% for citizens and resident aliens, 20% for non-resident aliens doing business in the Philippines and 25% for non-resident aliens not doing business in the Philippines.
10.) Shares of an individual in a partnership that isn't organized for professional purposes: 10% for citizens and 20% for resident aliens doing business in the Philippines.
11.) Fringe benefits: see De Minimis Benefits vs. Fringe Benefits.
12.) Capital gains from shares of stock not found on the stock exchange: 5% if Php 100,000 or less and 10% if more than Php 100,000.
13.) Gains from sale of real property which are capital assets: 6% of the gross selling price or fair market value, whichever is higher.
2 comments:
can you please explain the withholding tax of part time employees
Hello Giro,
It pains me to say that the NIRC makes no difference between full- and part-time employees. Part-time employees are taxed at the same rate as full-time employees, although part-timers pay lower taxes because they're not paid as much as full-timers.
That's how oppressive our taxation law is. The Philippines is the 2nd highest taxed country in Southeast Asia.
Enrico
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