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Mar 16, 2010

Tax Example: Rent


Non-resident couple´s joint monthly rental income1 US$1,500 US$6,000 US$12,000
Annual Rental Income 18,000 72,000 144,000
Less: Business Expenses2 (14,400) (57,600) (115,200)
Less: Personal Deduction3 (1,080) (1,080) (1,080)
= Taxable Income US$2,520 US$13,320 US$27,720
Income Tax Rates4
Up to PHP10,000 5% 11 11 11
PHP10,000 – PHP30,000 10% 43 43 43
PHP30,000 – PHP70,000 15% 128 128 128
PHP70,000 – PHP140,000 20% 201 302 302
PHP140,000 – PHP250,000 25% 595 595
PHP250,000 – PHP500,000 30% 1,621 1,621
Over PHP500,000 32% 804 5,412
Annual Income Tax Due US$383 US$3,504 US$8,112
Other Taxes
Value Added Tax (VAT)5 540 1,728 3,456
Annual Taxes Due US$923 US$5,232 US$11,568
Tax Due as % of Gross Income 5.13% 7.27% 8.03%
Thanks to:
Punongbayan & Araullo

DISCLAIMER: The information contained above is marketing material only and is not written tax advice directed at the particular facts and circumstances of any person and should not be relied upon. We encourage you to discuss your particular situation with us or an independent tax advisor. This information was last updated on 26 February 2010.

Notes


Punongbayan & Araullo is a member firm of Grant Thornton International. Grant Thornton International is not a worldwide partnership. Member firms of the international organization are independently owned and operated.

1 The residential property is jointly owned by husband and wife. For tax purposes, the property owners are considered non-resident foreigners engaged in trade or business in the Philippines. Exchange rate used: US$1 = PHP46.258.

2 Income-generating expenses are deductible. Typical deductions are repairs and maintenance, depreciation, taxes and licenses (local business tax, mayor’s business permit, and real estate tax). All deductible expenses can range from 70% to 90% of the gross income but for calculation purposes, deductible expenses are assumed to be around 80% of gross income.

3 Individual taxpayers are entitled to a personal allowance of PHP50,000 (US$1,080) annually.

4 The income of non-resident foreigners considered to be engaged in trade or business in the Philippines is taxed at progressive rates.

5 Under existing VAT regulations, rental payments exceeding PHP10,000 (US$216) per unit received by landlords whose gross annual rental income exceed PHP1,500,000 (US$32,427) are subject to 12% VAT. If the gross annual rental income is less than PHP1,500,000 (US$32,427), the applicable tax rate is 3%. The VAT burden is generally shouldered by the tenants but for calculation purposes, the VAT was added to the landlord’s tax liability.


Non-Resident Couple (Through a Local Corporation):


Non-resident couple´s joint monthly rental income1 US$1,500 US$6,000 US$12,000
Annual Rental Income 18,000 72,000 144,000
Less: Business Expenses2 (14,400) (57,600) (115,200)
= Taxable Income US$3,600 US$14,400 US$28,800
Income Tax Rates3
  Corporate tax levied at 30% 1,080 4,320 8,640
Annual Income Tax Due US$1,080 US$4,320 US$8,640
Other Taxes
Minimum Corporate Income Tax (MCIT) levied at 2%4 540 n.a. n.a.
Value Added Tax (VAT)5 n.a. 1,728 3,456
Annual Taxes Due US$1,620 US$6,048 US$12,096
Tax Due as % of Gross Income 9.00% 8.40% 8.40%
Thanks to:
Punongbayan & Araullo

Notes


1 The residential property is jointly owned by husband and wife, through a local corporation. For tax purposes, the property owners are considered non-resident foreigners engaged in trade or business in the Philippines. Exchange rate used: US$1 = PHP46.258.

2 Income-generating expenses are deductible. Typical deductions are repairs and maintenance, depreciation, taxes and licenses (local business tax, mayor’s business permit, and real estate tax). All deductible expenses can range from 70% to 90% of the gross income but for calculation purposes, deductible expenses are assumed to be around 80% of gross income.

3 Corporate income tax is levied at a flat rate of 30%, effective January 01, 2009.

4 Corporate Minimum Income Tax (CMIT) at 2% of gross income applies beginning on the fourth year of operation of a domestic or resident foreign corporation. The computed MCIT is compared against the regular corporate income tax, and the corporation pays the higher of the two computations.

5 Under existing VAT regulations, rental payments exceeding PHP10,000 (US$216) per unit received by landlords whose gross annual rental income exceed PHP1,500,000 (US$32,437) are subject to 12% VAT. If the gross annual rental income is less than PHP1,500,000 (US$32,437), the applicable tax rate is 3%. The VAT burden is generally shouldered by the tenants but for calculation purposes, the VAT was added to the landlord’s tax liability.

  





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