Classification of Individual Taxpayer (Residency)

Summary

In this educational video, Leroy discusses the classification of taxpayers based on residency for income tax purposes in the Philippines. He explains the four categories: resident citizens, non-resident citizens, resident aliens, and non-resident aliens. Each classification has specific tax implications, with resident citizens taxed on worldwide income and non-resident citizens on income from the Philippines only. The video emphasizes the importance of establishing residency status through documents like visas and contracts, which can affect tax obligations and potentially estate taxes.

Takeaways

• 📚 The video discusses the classification of taxpayers based on residency for income tax purposes.
• 🏠 Resident citizens are those who reside within the Philippines and are defined by the 1987 Constitution.
• 🌐 Non-resident citizens are those who establish physical presence abroad with the intention to reside there.
• 🏢 Resident aliens are individuals who live in the Philippines but are not citizens.
• 🚀 Non-resident aliens are individuals who do not reside in the Philippines and are not citizens.
• 🔍 Non-resident aliens are further divided into those engaged in trade or business and those not engaged, based on their stay duration in the Philippines.
• 💼 Taxation for resident citizens includes income from both within and outside the Philippines.
• 🌍 Non-resident citizens are taxed only on income derived from within the Philippines.
• 🏦 Alien individuals, whether resident or not, are taxed only on income derived within the Philippines.
• 📑 Taxpayers' intentions regarding their stay are determined by submitting documents like visas and contracts to the Bureau of Internal Revenue (BIR).
• 👍 The video emphasizes the importance of understanding these classifications for both income and estate tax implications.

Q & A

What are the four classifications of taxpayers based on residency mentioned in the video?

The four classifications of taxpayers based on residency are: Resident Citizen, Non-Resident Citizen, Resident Alien, and Non-Resident Alien.

According to the 1987 Philippine Constitution, who are considered citizens of the Philippines?

According to the 1987 Constitution, citizens of the Philippines include those who were citizens at the time of the constitution's adoption, those whose fathers or mothers are citizens, those born before January 17, 1973 of Filipino mothers who elect Philippine citizenship upon reaching the age of majority, and those who are naturalized in accordance with the law.

What is the definition of a Non-Resident Citizen as per the Philippine Tax Code?

A Non-Resident Citizen is defined as a citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with the definite intention to reside therein.

What are the conditions for a citizen to be considered a Non-Resident Citizen for tax purposes?

A citizen can be considered a Non-Resident Citizen for tax purposes if they leave the Philippines during the taxable year to reside abroad either as an immigrant or for employment on a permanent basis, work and derive income from abroad requiring them to be physically present abroad most of the time, or have been previously considered a Non-Resident Citizen and arrive in the Philippines to reside permanently.

What is the difference between a Resident Alien and a Non-Resident Alien?

A Resident Alien is an individual who resides within the Philippines but is not a citizen thereof. A Non-Resident Alien is an individual whose residency is not in the Philippines and is not a citizen thereof.

How are Non-Resident Aliens classified for tax purposes in the Philippines?

Non-Resident Aliens are classified based on their engagement in trade or business and their aggregate stay in the Philippines. If their stay is more than 180 days, they are engaged in trade or business. If their stay is 180 days or less, they are not engaged in trade or business.

How is the tax liability determined for Resident Citizens and Non-Resident Citizens?

Resident Citizens are taxed on income derived within and outside of the Philippines, whereas Non-Resident Citizens are taxed on income derived within the Philippines only.

What is the tax liability for Alien individuals, whether Resident or Non-Resident, in the Philippines?

Alien individuals, whether Resident or Non-Resident, are only taxed on income derived within the Philippines.

Why is the intention of the taxpayer with regards to the nature of their stay important for tax purposes?

The intention of the taxpayer regarding the nature of their stay is important because it determines their residency status, which in turn affects how they are taxed and which tax regulations apply to them.

What documents can be submitted to the Bureau of Internal Revenue (BIR) to demonstrate the intention of residency?

Documents such as visas, contracts, and others that show the intention of residency can be submitted to the BIR. For example, a Resident Citizen with a tourist visa would typically be classified as a Resident Citizen, while one with a working visa for three years might be reclassified as a Non-Resident Citizen upon departure.

How does understanding the classification of taxpayers based on residency relate to estate taxes?

Understanding the classification of taxpayers based on residency is important for estate taxes as it determines the tax liabilities and regulations that apply to the estate of a deceased individual, especially concerning their residency status and the location of their assets.

Outlines

00:00

📚 Classification of Taxpayers Based on Residency

This tutorial video discusses the classification of taxpayers based on residency, which is crucial for income tax purposes. The presenter, Leroy, explains that the classification affects how individuals are taxed. The classifications include Resident Citizens, Non-Resident Citizens, Resident Aliens, and Non-Resident Aliens. Resident Citizens are those who live in the Philippines and are defined by the 1987 Constitution. Non-Resident Citizens are those who establish their intention to reside abroad, either as immigrants or for permanent employment. Resident Aliens are individuals living in the Philippines who are not citizens, while Non-Resident Aliens are not residents or citizens of the Philippines. The video further explains the sub-classifications of Non-Resident Aliens based on their business activities and duration of stay in the Philippines. The taxation rules differ for each classification, with Resident Citizens taxed on global income, Non-Resident Citizens on income from the Philippines, and Aliens on income derived within the Philippines. The presenter emphasizes the importance of understanding the taxpayer's intention regarding their stay, which can be demonstrated through documents like visas and contracts, and how this affects their tax residency status.

Keywords

💡Taxation

Taxation refers to the compulsory financial charge levied by a government on workers and businesses to fund public expenditures. In the video, taxation is the central theme, with a focus on how it applies differently to various classifications of taxpayers based on residency.

💡Residency

Residency in the context of taxation is a legal concept that determines the tax obligations of an individual or entity. The video explains how residency status affects the taxation of income, with different rules for resident and non-resident individuals.

💡Resident Citizen

A resident citizen is a taxpayer who is both a citizen of the Philippines and resides within the country. The video describes that resident citizens are taxed on income derived both within and outside of the Philippines, highlighting the broad scope of their tax obligations.

💡Non-Resident Citizen

A non-resident citizen is a citizen of the Philippines who establishes a definite intention to reside abroad. The video explains that non-resident citizens are taxed only on income derived within the Philippines, which is a narrower scope compared to resident citizens.

💡Resident Alien

A resident alien is an individual who resides within the Philippines but is not a citizen. The video clarifies that resident aliens are taxed on income derived within the Philippines, similar to resident citizens but without the global income taxation.

💡Non-Resident Alien

Non-resident aliens are individuals who are neither citizens nor residents of the Philippines. The video distinguishes between non-resident aliens engaged in trade or business and those not engaged, with different taxation rules based on their stay duration in the Philippines.

💡Income Tax

Income tax is a tax imposed on individuals or entities in respect of the income earned by them. The video discusses how the classification of taxpayers based on residency impacts the income tax they are subject to, emphasizing the importance of understanding these classifications.

💡Tax Code

The Tax Code refers to the legal framework governing taxation in the Philippines. The video cites the Tax Code to explain the definitions and tax obligations of different taxpayer classifications, demonstrating the authority and relevance of the code in determining tax liabilities.

💡Intention of Stay

The intention of stay refers to the taxpayer's declared purpose for residing in or outside the Philippines. The video emphasizes that the intention of stay is crucial in determining residency status for tax purposes, with examples of documents that may be submitted to prove this intention.

💡Taxpayer Classification

Taxpayer classification is the categorization of individuals or entities for tax purposes based on specific criteria such as residency and citizenship. The video details the various classifications and how they influence the type and amount of tax an individual is required to pay.

💡Gross Income

Gross income refers to the total income earned by an individual or entity before any deductions. The video mentions that non-resident aliens not engaged in trade or business are taxed based on their gross income, indicating a simpler taxation method for this group.

Highlights

Classification of taxpayers based on residency affects how they are taxed.

Resident citizens are defined by the 1987 Philippine Constitution.

Non-resident citizens are those with a definite intention to reside abroad.

Resident aliens are individuals residing in the Philippines but not citizens.

Non-resident aliens are further classified based on their stay and business activity in the Philippines.

Non-resident aliens engaged in trade or business are taxed if they stay more than 180 days.

Non-resident aliens not engaged in trade or business are taxed on gross income if they stay 180 days or less.

Resident citizens are taxed on worldwide income.

Non-resident citizens are taxed only on Philippine-sourced income.

Alien individuals are taxed on income derived within the Philippines, regardless of residency status.

Taxpayers' intentions regarding the nature of their stay determine residency for tax purposes.

Documents like visas and contracts are submitted to the BIR to demonstrate residency intentions.

A resident citizen with a tourist visa is still classified as a resident citizen.

A resident with a working visa for three years is reclassified as a non-resident upon departure.

Understanding taxpayer classification is crucial for income and estate taxation.

The tutorial connects to broader tax implications beyond income tax.

Transcripts

what's up guys this is leroy back to you

with another tutorial video on taxation

on this video i'm going to be talking

about classification of taxpayers

based on residency

so in terms of income taxes it's

important to determine the

classification of taxpayers

with regards to residency because this

affects how they are taxed

now the classification are as follows we

have resident citizen

non-resident citizen resident aliens

and non-resident aliens which shall be

further classified later

now when we say resident citizens as the

term suggests these are citizens who

reside

within the philippines the 1987

constitution defines the following as

citizens of the philippines first is

those who are citizens of the

philippines at the time of adoption

of the 1987 constitution and then those

whose fathers or mothers are citizens of

the philippines

third would be those born before january

17

1973 of filipino mothers who elect

philippine

citizenship upon reaching the age of

majority then lastly

those who are naturalized in accordance

with the law

next up is non-resident citizen the term

non-resident citizen according to the

tax code as amended

means a citizen of the philippines who

establishes to the satisfaction of the

commissioner

the fact of his physical presence abroad

with the definite intention

to reside therein so a citizen of the

philippines who leaves the philippines

during the taxable year

to reside abroad either as an immigrant

or for employment on a permanent basis

third would be a citizen of the

philippines who works

and derives income from abroad and whose

employment

they're at requires him to be physically

present abroad

most of the time during the taxable year

and then fourth one

a citizen who has been previously

considered as a non-resident citizen

and who arrives in the philippines at

that time during the taxable year to

reside permanently

in the philippines shall likewise be

treated as a non-resident citizen

for the taxable year in which he arrives

in the philippines

with respect to his income derived from

sources abroad

until the date of his arrival in the

philippines the third classification is

resident alien now the term resident

alien is

an individual who resides within the

philippines

but is not a citizen thereof lastly

non-resident aliens

are individuals whose residency is not

here in the philippines

and are not citizens thereof they are

further classified as

non-resident aliens engage in trade or

business

which are aliens whose aggregate stay in

the philippines

is more than 180 days the other

classification is

non-resident aliens not engaged in trade

or business

wherein their aggregate stay is 180 days

or less

so non-resident aliens not engage in

trade or business

are taxed based on gross income

under section 23 of the tax code as

amended resident citizens

are taxed on income derived within and

outside of the philippines whereas

non-resident citizens are taxed on

income

derived within the philippines only for

alien individuals regardless if they are

resident or not

they are only taxed on income derived

within the philippines

take note on the intention of the

taxpayer with regards to

nature of stay because this will

determine residency

now this is done by submitting documents

to the bir such as

visa contracts and others which show

the intention of residency some example

of this is a resident citizen

who has a tourist visa shall normally be

still classified as

a resident citizen whereas a resident

who has a working visa

for three years shall be reclassified as

non-resident citizen

upon departure and that's it so it's

important for us to understand this

topic

because it's not only connected in

income taxation but may also relate to

estate taxes so as always a huge thanks

for watching if you found this video

very helpful give it a thumbs up

and make sure to check out the relevant

content at the end of this video

so make sure to subscribe and hit that

notification bell

so this is gerard and i'll talk to you

in the next one

you