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Revenue Regulations No. 2-2011

Filing of Income Tax Return (ITR) and/or Annual Information Return (AIR) by Individuals , Including Estates and Trusts. Revenue Regulations No. 2-2011. SEC. 1. Background.

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Revenue Regulations No. 2-2011

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  1. Filing of Income Tax Return (ITR) and/or Annual Information Return (AIR)by Individuals, Including Estates and Trusts Revenue Regulations No. 2-2011

  2. SEC. 1. Background • These Regulations are issued in order to prescribe the returns to be filed by taxpayers in compliance with their duty to report income under the law.

  3. SEC. 2. Scope • Pursuant to Section 244 in relation to Sections 6(H), 51(A)(1), 51(A)(2), 51(A)(3) and 65 of the NIRC of 1997 (Tax Code), as amended, these Regulations are hereby promulgated to prescribe the filing of: • Income Tax Return (ITR) and/or • Annual Information Return (AIR)

  4. Legal Basis Sec. 244 - Authority of the Secretary of Finance to Promulgate Rules and Regulations. Sec. 6 (H) - Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements Sec. 51(A)(1) – Individuals required to file ITR Sec. 51(A)(2) – Individuals not required to file ITR Sec. 51(A)(3) – The foregoing notwithstanding, any individual not required to file income tax return may nevertheless be required to file an information return pursuant to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

  5. SEC. 2. Scope • Filing by certain INDIVIDUAL • Citizens, (including estates and trusts), • Resident aliens, and • Non-resident aliens engaged in trade or business in the Philippines.

  6. SEC. 3. Filing of ITR with AIR • Starting with taxable year 2010, individuals, estates and trusts requiredunder the law and existing issuancesto file an ITR should file said ITR together with the AIR (BIR Form No. 1705 – Annex “A”).

  7. SEC. 3. Filing of ITR with AIR ALL INDIVIDUALS required to file ITR must attach AIR starting taxable year 2010. or

  8. SEC. 3. Filing of ITR with AIR • AIR shall include: • Income subject to FINAL withholding tax and • EXCLUSIONS from gross incomeunder Section 32(B) of the Tax Code, as amended. New BIR Form No. 1705

  9. SCHEDULES in the AIR

  10. INDIVIDUALS REQUIRED TO FILE ITRBIR Form No. 1701 The following INDIVIDUALS shall file BIR Form No. 1701 regardless of the amount of gross income: • Resident Citizen engaged in trade, business, or practice of profession within or without the Philippines. • Resident alien, non-resident citizen or non-resident alien individual engaged in trade, business or practice of profession within the Philippines. • Estates and trusts engaged in trade or business, regardless of the amount of gross income. • Estates and trusts not engaged in trade or business and whose income has been subjected to final withholding tax pursuant to Section 57(A) of the Tax Code, as amended, as implemented RR No. 2-98.

  11. Individuals required to file ITR(BIR Form No. 1700/1701)andNOT qualified for substituted filing (RR 3-2002, as amended) • Individuals with two or more employers concurrently or successively at anytime during the taxable year. • Employees whose income tax has not been withheld correctly resulting to collectible or refundable return. • Employees whose monthly gross income does not exceed P5,000.00 or the statutory minimum wage, whichever is higher, and opted for non-withholding of tax on said income. Note : Under RA 9504, MINIMUM WAGE EARNERS shall be exempt from the payment of income tax on their statutory minimum wage, including holiday pay, overtime pay, night shift differential pay and hazard pay.

  12. Individuals required to file ITR(BIR Form No. 1700/1701)andNOT qualified for substituted filing (RR 3-2002, as amended ) 4. Individuals deriving other non-business, non-profession-related income in addition to compensation income not otherwise subject to a final tax. 5. Individuals receiving purely compensation income from a single employer whose income tax has been correctly withheld but whose spouse does not qualify for substituted filing.

  13. Individuals required to file ITR(BIR Form No. 1700/1701)andNOT qualified for substituted filing (RR 3-2002, as amended ) 6. Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income or compensation income and other non-business, non-professional-related income. Note: In case of married individuals who are still required to file returns, only ONE RETURN FOR THE TAXABLE YEAR SHALL BE FILED by either of the spouses to cover income of both. It shall be SIGNED BY HUSBAND AND WIFE unless physically impossible to do so, in which case, signature of one of the spouses would suffice.

  14. SEC. 4. Filing of AIR only • An individual with respect to pure compensation income, as defined in Section 32(A)(1), derived from sources within the Philippines, the income tax on which has been correctly withheld under the provisions of Section 79 of the Tax Code, as amended, whose annual taxable income exceeds P500,000.00*: • Provided, That an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return; • Individuals, estates and trusts whose sole income has been subjected to final withholding taxunder Section 57 (A) of the Tax Code, as amended, with aggregate final tax withheld exceeding P125,000.00* annually, whether or not remitted to the BIR; and • Individuals whose sole income is exempt from income tax and whosetotal annual income (exempt) exceeds P500,000.00*. • Graduated Schedule of Income Tax Rates for Individuals under Sec 24A • Taxable income Over 500,000 taxable income ---- with income tax of P125,000 + 32% of the excess

  15. SEC. 4. Filing of AIR only annual taxable income exceeds P500,000.00 aggregate final tax withheld exceeding P125,000.00 annually total annual income (exempt) exceeds P500,000.00 • pure compensation income • sole income has been subjected to final withholding tax • sole income is exempt from income tax

  16. On sole income has been subjected to final withholding tax under Section 57 (A) of the Tax Code SEC. 57(A). Withholding of Tax at Source. – (A) Withholding of Final Tax on Certain Incomes. - Subject to rules and regulations the Secretary of Finance may promulgate, upon the recommendation of the Commissioner, requiring the filing of income tax returnby certain income payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E), 27(D)(1), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33;and 282 of this Code on specified items of income shall be withheld by payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 58 of this Code.

  17. DEFINITION for purposes of Section 4 • “Fair market value” as determined in accordance with Section 6(E) of the Tax Code, as amended, shall be used in reporting the non-cash income and receipts in the AIR. • “Individual whose compensation income has been subjected to final withholding tax” shall include aliens or Filipino citizens occupying the same positions as the alien employees, as the case may be, who are employed by: • regional operating headquarters (ROHQ), • regional or area headquarters (RHQ) • offshore banking units (OBU), • petroleum service contractors and sub-contractors, pursuant to pertinent provisions of Sections 25 (C), (D), (E), and 57 (A), • including those subject to Fringe Benefit Tax (FBT) under Section 33 of the Tax Code, as amended, Republic Act No. 8756, Presidential Decree No. 1354, and other pertinent laws.

  18. Are ALL pure compensation income earners with tax due equal tax withheld and qualified under substituted filing required to file AIR only? • No, only pure compensation income earners whose annual taxable income exceeds P500,000.00 arerequired to file AIR only. EXAMPLE: Gross Compensation income from Present employer Less: Non-taxable/exempt (including 13th mo. & other benefits, de minimis benefits etc.) GROSS TAXABLE compensation income Less: Personal and Additional Exemption Premium paid on health or hospitalization insurance (if applicable) Net Taxable Compensation Income exceeds P500,000 Tax due Amount of taxes Withheld BIR Form No. 1705 (AIR) BIR Form No. 2316

  19. An employee, single, received pure compensation income from one employer for the year with annual taxable income of P600,000 and tax due equal tax withheld scenario. She does not have any income subject to final tax or exclusions from gross income for the year. What will be attached to the AIR? • BIR Form No. 2316 shall be attached to the AIR to those receiving sole compensation income whose annual taxable income exceeds P500,000.00

  20. An employee, single, received pure compensation income from one employer for the year with annual taxable income of P300,000 and tax due equal tax withheld scenario. Should she file a) ITR with AIR or b)AIR only? • This employee need not file a) ITR with AIR or b) AIR only because the annual taxable income is only P300,000 (not exceeding P500,000) and qualified under substituted filing. EXAMPLE: Gross Compensation income from Present employer Less: Non-taxable/exempt (including 13th mo. & other benefits, de minimis benefits etc.) GROSS TAXABLE compensation income Less: Personal and Additional Exemption Premium paid on health or hospitalization insurance (if applicable) Net Taxable Compensation Income P300,000 Tax due Amount of taxes Withheld NOT REQUIRED TO FILE ITR WITH AIR NOT REQUIRED TO FILE AIR ONLY

  21. Sole income has been subjected to final withholding tax exceeds P125,000 annually Example:

  22. Sole income is exempt from income tax exceeds P500,000 annually

  23. Are mixed income earners (compensation and business income) with tax due equal tax withheld required to file AIR only? • No, mixed income earners are required to file ITR with AIR (BIR Form No. 1701) regardless of the Gross Income received.

  24. Are employees deriving compensation concurrently from two or more employers at any time during the taxable year with tax due equal tax withheld required to file AIR only? • Employees with compensation concurrently from two or more employers at any time during the taxable year with tax due equal tax withheld are required to file ITR with attached AIR regardless of the annual taxable income. ABC UNIVERSITY JAN TO DEC TAXABLE INCOME 100,000 GALBAN UNIVERSITY JAN TO DEC TAXABLE INCOME 200,000 MARIVIC UNIVERSITY JAN TO DEC TAXABLE INCOME 100,000

  25. Are employees with successive employers receiving pure compensation income with tax due equal tax withheld required to file AIR only? • Employees with successive employers receiving pure compensation income with tax due equal tax withheld are required to file ITR with attached AIRregardless of the Annual Taxable Income. Example: Gross Compensation income from Present employer Less: Non-taxable/exempt (including 13th mo. & other benefits, de minimis benefits etc.) Taxable Income from Present Employer Add: Taxable Income from previous employer GROSS TAXABLE compensation income Less: Personal and Additional Exemption Premium paid on health or hospitalization insurance (if applicable) Net Taxable Compensation Income Tax due Amount of taxes Withheld Withheld by present employer Withheld by previous employer Total Amount of Taxes Withheld as adjusted XYZ CO. JULY-DEC TAXABLE INCOME p200,000 ABC CO JAN-JUNE TAXABLE INCOME p100,000

  26. Requisites for individuals qualified for substituted filing and must NOTfile BIR Form No. 1700 (RR 3-2002, as amended ) • Receiving purely compensation income regardless of amount; • Working for only one employer in the Philippines for the calendar year; • Income tax has been withheld correctly by the employer (tax due equals tax withheld); • The employee’s spouse also complies with all the three conditions stated above; • Employer filed to BIR the Annual Information Returns on Income Taxes Withheld (BIR Form 1604-CF); • The employer issues each employee BIR Form No. 2316 (October 2002 ENCS or any later version). Note: All of the above requisites must be present. The Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF) filed by their respective employers duly stamped “Received”, shall be tantamount to the substituted filing of income tax returns by said employees. BIR Form No. 2316, duly certified by both employee and employer, shall serve the same purpose as if a BIR Form No. 1700 had been filed.

  27. Individualsnot required to file ITR or those qualified for substituted filing may file ITR • individuals not required to file ITR or • those qualified for substituted filing, may file an ITRfor purposes of: • loans, • foreign travel requirements, • Proof of financial capacity for credit card, or other applications etc. • However, if they file an ITR, they should likewise attach a duly accomplished AIR.

  28. SEC. 5. Filing of ITR with AIR WHAT TO FILE: ITR (BIR Form Nos. 1700 or 1701) and/or AIR (BIR Form No. 1705) Number of Copies: Triplicate copies • BIR file copy • BIR encoding copy • TAXPAYER FILE COPY WHERE TO FILE: RDO • where the individual, including estates and trusts, is required to register or • where the individual has his legal residence or • place of business WHEN : on or before the April 15 of each year covering income for the preceding taxable year.

  29. SEC. 5. Filing of AIR only under Sec 4. WHAT TO FILE: AIR only (BIR Form No. 1705) Number of Copies: Triplicate copies • BIR file copy • BIR encoding copy • TAXPAYER FILE COPY WHERE TO FILE: RDO • where the individual, including estates and trusts, is required to register or • where the individual has his legal residence or • place of business WHEN : on or before the May 15of each year covering income for the preceding taxable year.

  30. Filing of ITR & AIR or AIR only MANUALFILINGOF ITR and/or AIR • Individuals, including estates and trusts, required to file the AIR and attach the same to the ITR (BIR Form No. 1700 or 1701) which shall be accomplished and submitted manually in hard copy until such time that electronic filing thereof is available in the Electronic Filing and Payment System (eFPS). eFPS FILING OF ITR and/or AIR • Individuals already availing of the eFPS services, and who have been required under these Regulations to attach an AIR, they shall continue filing electronically their ITR • submit the hard copy of the e-filed return together with the hard copy of the AIR • Submit to the RDO • within 10 days from the filing of their electronic return.

  31. OTHER ATTACHMENTS to the ITR, if applicable • Annual Information Return (BIR Form No. 1705); • Account Information Form/Financial Statements (FS) with Notes to Financial Statements and the Certificate of the independent CPA except for taxpayers who opted for the Optional Standard Deduction. (The CPA Certificate is required if the gross quarterly sales, earnings, receipts or output exceed P 150,000.00.); • Statement of Management Responsibility (SMR);

  32. OTHERATTACHMENTS to the ITR, if applicable • BIR Form No. 2316 - Certificate of Compensation Payment/Tax Withheld for Compensation with or without Tax Withheld • BIR Form No. 2306 - Certificate of Final Tax Withheld • BIR Form No. 2304 - Certificate of Income Payments Not Subjected to Withholding Tax • BIR Form No. 2307 - Certificate of Creditable Tax Withheld at Source

  33. OTHERATTACHMENTS to the ITR, if applicable • Duly Approved Tax Debit Memo (TDM); • Waiver of husband's right to claim additional exemption; • Proof of prior years' excess credits; • Proof of Foreign Tax Credits; • For amended return, proof of tax payment and the return previously filed; • Authorization letter, if return is filed by authorized representative; • Proof of other payment/s made; • Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax at Source (SAWT); and • Other pertinent documents as may be required by the Commissioner. Note: For income earned starting taxable year 2010.

  34. SEC. 6. Transitory Provisions(Procedure of attaching AIR with ITR) • The procedure of attaching the AIR with the ITR shall cover income earned for taxable year 2010 or until such time that its details are integrated in the enhanced version of the ITR (BIR Form No. 1700 or 1701).

  35. SEC. 7. Repealing Clause • All existing regulations and other issuances or portions thereof which are inconsistent with the provisions of these Regulations are hereby repealed, amended or modified accordingly.

  36. SEC. 8. Effectivity • These Regulations shall take effect covering income earned for taxable year 2010.

  37. THANK YOU For inquiries/questions, please contact the nearest: Revenue District Office (RDO) Regional Directors Office Taxpayer Assistance Service BIR Contact Center: (02)-981-8888

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