Understanding Taxpayer Classifications: A Comprehensive Guide

Classification of Taxpayers

The NIRC (National Internal Revenue Code) classifies taxpayers as Individual or Corporation. Under Sec. 22 of the code, the classification of taxpayers are as follows:

Individual

1. Resident Citizen – a citizen of the Philippines residing therein shall be taxable in all income within and without the Philippines.
2. Non-Resident Citizen – a citizen of the Philippines who is working and deriving income abroad shall be taxed only on their income within the Philippines. This follows the territoriality rules of taxation.
3. Resident Alien – an alien residing herein shall be taxed only to the extent of their income within the State.
4. Non-Resident Alien – an alien whose residence is not within the Philippines and not a citizen thereof. Important Note: NRA’s taxability shall be classified as follows:
   1. Non-Resident Alien Engaged in trade or business (NRA-ETB) – an NRA who stays in the Philippines for more than 180 calendar days shall be subject to income tax on progressive tax rate with all of his/her income within the State.
   2. Non-Resident Alien Not Engaged on trade or business (NRA-NETB) – an NRA who stays in the Philippines for not more than 180 calendar days; and all of his/her income within the State shall be subject to Final Tax at 25% rate.
5. Special Types of Individual Taxpayer:

• Minimum Wage Earners & Overseas Filipino Workers (OFWs) shall be exempted from Income Tax.

Corporation

1. Partnership – All partnerships in any form shall be taxed accordingly as a corporation. Other rules shall apply for “General Professional Partnership” which are exempted from income tax.
2. Domestic Corporation – a Corporation that is created or organized by Philippine law shall be taxed 25% based on their net taxable income within and without the Philippines. 

Special Rate is given to DC by 20% tax rate if they meet the following requirements: 

1. the company’s net taxable income does not exceed 5 million in the taxable year and 
2. if its total asset does not exceed 100 million excluding Plant, Property, and Equipment (PPE).

3. Domestic Corporation –– a Corporation that is not domestic shall be taxed 25% based on their net taxable income within the Philippines.

Please note that the classification of taxpayers (Compensation, Sole-proprietorship, Mixed Income Earners) under individuals may vary depending on what income you are receiving. 

Confused what kind of taxpayer you are? Contact us today at info@baisandanlaw.com. You can also reach us via cellphone number at 0915 968 2503 or at our telephone number (045) 281 0164.