Features of Final Income Taxation:

1. Final tax
2. Tax withholding at source
3. Territorial imposition - applies only to certain passive income earned from SOURCES within the Philippines.
4. Imposed on certain passive income and persons NOT engaged in business in the Philippines

*the Taxpayer receives the income NET of tax.

*All items of income earned from sources ABROAD, passive or active, are subject to tax under the general scope of the Regular Income Tax.

Passive income - earned with very minimal involvement of the taxpayer.

Non-resident persons not engaged in trade or business in the Phili General Final
- Ph residents paying these persons/corporation are obligated to withhold Tax Rate
Non-resident Alien Not Engaged in Trade or Business ( 25%
Non-resident Foreign Corporation (NRFC) 25%

Passive Income Subject to Final Tax

1. Interest or yield from bank deposits or deposit substitutes
2. Domestic dividends, in general
3. Dividend income from a Real Estate Investment Trust
4. Share in the net income of a business partnership, taxable associations, joint ventures, joint accounts, or co-ownership
5. Royalties, in general
6. Prizes exceeding P10,000
7. Winnings
8. Informer's tax reward
9. Interest income on tax-free covenant bonds

NOTE: unless otherwise indicated, the final tax rates to be shown in the following sections apply to ALL taxpayers (individuals and corporations) other than:
a. Non-resident Alien Not Engaged in Trade or Business (NRA-NETB)
b. Non-resident Foreign Corporation (NRFC)

1. Interest or yield from bank deposits or deposit substitutes

Local currency deposits Notes:

Recipient a. Short-term deposits - less than 5 years.
On interest income Individuals Corporation b. Long-term deposits/Investment Certificates - maturity = 5 years or more
from Banks: - issued by banks only.
a. Short-term deposits 20% 20%
b. Long-term deposits Exempt RIT c. Savings or time deposits with cooperatives are not subject to final tax
from Non-bank Institutions:
a. Short-term deposits RIT RIT
b. Long-term deposits RIT RIT Deposit Substitutes - alternative forms of obtaining funds from the public.
NRA-NETB NRFC public - 20 or more corporate lenders at any one time.
general final tax rate on interest income of: 25% 25%
Classification of debt instrument
Interest on Debt Instruments & Trust Funds/Investment Management A Number of lenders at origination
Recipient Issuer of debt instrument 19 or less 20 or more
Deposit substitutes Individuals Corporation a. Corporate issuer Private borrowingDeposit substitute
issued by Banks: b. Government including BS Deposit substituteDeposit substitute
a. Short-term 20% 20% *interest on: public borrowing (deposit substitute) - final tax
b. Long-term Exempt RIT private borrowing - regular income tax
Issued by Non-bank Institutions:
a. Short-term 20% 20% Timing of withholding of final tax:
b. Long-term 20% RIT 1. Zero coupon instruments or securities - upon origination
NRA-NETB NRFC 2. Interest-bearing instruments or securities - upon payment of interest
general final tax rate on interest income of: 25% 25%
*Trust Funds/Investment Management Accounts
Pre-termination of long-term deposits or investment of Individuals Requsites in order to claim final tax exemption on long-term investment:
- If deposit is pre-terminated before 5 years, any previously untaxed or exempted 1. Investment of the individual investor must be held/managed by the BANK (at least 5 years)
interest income will be subjected to the following final taxes upon pre-termination: [Link] underlying investments of the trust account must qualify as a deposit substitute issued by a bank.
3. The individual trust account must hold on to such underlying investment for at least 5 years.
Pre-termination
Holding period tax
Less than 3 years 20% Note:
3 yrs to less than 4 yrs 12% For purposes of applying the pre-termination rates for individual taxpayers on long-term investnment certificates,
4 yrs to less than 5 yrs 5% the remaining maturity of the instument must still satisfy the 5-year requirement.
5 yrs or more exempt

Foreign currency deposit with foreign currency depository banks *Interest income from the ff. sources are subject to regular tax:
- interest income from foreign currency deposits under the foreign currency deposit 1. Lending activities, whether or not in the course of business
system or expanded foreign currency deposit system is subject to the ff finaNote: 2. Investments in corporate bonds
Taxpayer Individuals Corporations *NRA-NETB and NRFC are also exempt. 3. Promissory notes
Residents 15% 15% *No long-term or short-term classification 4. Foreign sources, whether bank or non-bank
Non-residents exempt exempt 5. Penalty for legal delay or default
Domestic Corporation 15%

Joint accounts on forex deposits Interest Income xxx

- the bank account is jointly in the name of a resident and a non-resident tax multiply by: Portion taxable 50%
TREATMENT: Non-resident Resident Taxable Interest Income xxx
50% interest exempt subject to tax multiply by: Final tax rate 15%
15% Final Tax xxx

2. Domestic dividends, in general

NOTES:
Final Tax Recipient of Dividends GR: Dividends are income subject to tax.
Source of Dividends Individuals Corporations EXCEPT for:
Domestic Corporation 10% Exempt 1. Stock dividends
Foreign Corporation RIT RIT 2. Liquidating dividends - when it exceeds cost of investment, the excess is a taxable capital gain.

Recipient of Dividends Final Tax When Stock Dividends are subject to tax at the Fair Value of the Stocks received:
NRA-ETB 20% a. Subsequent cancellation and redemption.
NRA-NETB 25% - amount distributed is taxable to the extent it represents a distribution of earnings.
NRFC 25% b. If it leads to substantial alteration in ownership in the corporation
NRFC (tax sparring rule appli 15% - may occur when stock dividends are given in lieu of cash dividends; or
- when the corporation declared an optional stock or cash dividend.
Exempt Dividends:
1. Inter-corporate dividends from domestic corporations - exempt from FIT *Stock split will NEVER be subject to income tax.
2. Dividends from cooperatives - exempt from FIT
3. Qualified foreign-sourced dividends - exempt from RIT

3. Dividends or Share in the Net Income of Entities Taxable as Corporations

Entities considered as corporations Final Tax Recipients of REIT dividends that are EXEMPT from final tax:
1. Real Estate Investment Trusts (REIT) 10% 1. NRA individuals and NRFC entitled to claim preferential tax rate pursuant to applicable tax treaty.
2. Business partnerships 10% 2. Domestic corporations or resident foreign corporations.
3. Taxable associations 10% 3. Overseas Filipino Investors
4. Taxable joint ventures, joint accounts, or 10%
5. Taxable co-ownerships 10% *10% final tax applies at the point of determination of income, not at the point of actual distribution
 *Share in business partnership net income
- if provisions for salaries, bonus, and interest are expensed in the books,
they are subject to RIT of the receiving partner NOT to final tax.
4. Passive Royalty Income received from Sources within the Philippines
Recipient (subject to % final tax) Notes:
Source of Passive Royalties Individuals Corporation *10% tax rate on books and literary works apply to printed literatures.
Books, literary works, and musical composit 10% 20% *20% final tax - books sold on e-copies or CDs.
Oher sources 20% 20%
NRA-ETB, NRA-NETB & NR
Cinematographic films and similar works 25%

5. Prizes exceeding P10,000

Exempt prizes:
Recipient 1. Prizes received by recipient without any effort on his part to join a contest.
Amount of Taxable Prize Individuals Corporations - ex: Nobel Prize, Most Outstanding Citizen, Most Benevolent Citizen, etc.
Prizes exceeding P10,000 20% RIT 2. Prizes from sport competitions that are sanctioned by their respective national sport organizations.
Prizes not exceeding P10,00 RIT RIT
Requisite of exemption:
*there is no final tax imposition on corporate prizes, hence it is subjected to 1. Recipient was selected without any action on his part to enter the contest.
2. Recipient is not required to render substantial future services as a condition to receiving the prize or reward.

6. Winnings

Recipient *Winnings that are not subjected to final tax by the payor should be reported as part of the regular income
Types of Winnings Individuals Corporation *Winnings from foreign sources are subject to regular income tax.
PCSO winnings exceeding P 10,000 20% 20%
PCSO winnings NOT exceeding P 10,000 exempt exempt
Other winnings, in general 20% RIT
NRA-NETB & NRFC
PCSO winnings regardless of amount 25%

7. Tax Informer's Reward

Tax Informer - any person instrumental in the discovery of violations of the NIRC or discovery
- the amount of cash reward is subject to 10% final withholding tax, which shall be and seizure of smuggled goods.
withheld by the government. Requisites of Tax Informer's Reward:
1. Definite sworn information which is not yet in the possession of the BIR
Amount of Cash Reward - whichever is the LOWER of the ff. per case: 2. Information furnished lead to the discovery of fraud upon internal revenue laws or provisions.
1. 10% of revenues, surcharges, or fees recovered and/or fine or penalty im 3. Enforcement results in recovery of revenues, surchages, penalties, and fees and/or conviction of the guilty party.
2. P1,000,000 (limit) 4. The informer must NOT be a:
Cash reward (whichever is lower) 1,000,000 a. BIR official or employee
Less: 10% final withholding tax -100,000 b. Other public official or employee
Net amount to be released to the tax inf 900,000 c. Relative within the 6th degree of consanguinity of those officials/employees in (a) and (b).

8. Tax-free Corporate Covenant Bonds

Item of passive income:
Bond Investor Interest income on bonds, mortgages, deeds of trust, or other similar obligations of domestic
Individuals Corporations or resident foreign corporations with tax-free or tax-reduction provision where the obligor shoulders
Tax on interest income on
tax-free corporate Regular in whole or in part any tax on the interest.
covenant bonds 30% Income Tax *The final tax applies to ALL individuals, regardless of classification.

Exceptions to the General Final Tax on Non-Resident Persons Not Engaged in Trade or Business in the Philippines
NRA-NETB NRFC
General Final Tax Rate 25% 25% The Tax Sparring Rule
the country of domicile of the NRFC credits against the tax due of such NRFC taxes
Exceptions:
1. Capital gain on sale of domestic stocks - NRFC shall
presumed be subject
to have been to 15%
paid by final
suchtax on dividend
NRFC from theincome, if: equivalent to 10% of the
Philippines
directly to buyer
2. Rentals on cinematographic films and 15% CGT 15% CGT dividends.
similar works 25% of Rentals25% of Rentals
3. Rentals
4. Rentals of
of vessels
aircrafts, machineries, and 25% of Rentals
4.5% of Rentals *the requirement of the tax
the country sparring
to which the rule
NRFC is is
deemed satisfied
domiciled imposesif: NO tax on dividends
other equipments
5. Interest income under the foreign 25% of Rentals
7 .5% of Rentals from foreign sources.
currency deposit system exempt exempt
[Link] on foreign loans N/A 20%
7. Dividend income 25% 15% IF tax sparring rule is applicable
8. Tax on corporate bonds 30% 30%

Other Final Income Taxes Entities exempt from final income tax:
[Link] benefits of managerial or supervisory employees 1. Foreign governments and foreign government-owned and controlled corporations (GOCC)
2. Income payments of residents other than depository banks under the exp 2. International missions or organizations with tax immunity
currency deposit system and expanded foreign currency deposit unit (E 3. General professional partnership
3. Income payments to oil exploration service contractors or sub-contractors 4. Qualified employee trust fund
A. Individual Citizens and Resident Aliens
Passive Income
1. Interest from currency deposits, trust funds and deposit substitutes
2. Royalties (on books as well as literary & musical compositions)
- In general
3. Prizes (P10,000 or less )
- Over P10,000
4. Winnings (except from PCSO and Lotto amounting to P10,000 or less )
- From PCSO and Lotto amounting to P10,000 or less
5. Interest Income from a Depository Bank under the Expanded Foreign Currency
Deposit
6. Cash System
and/or Property Dividends received by an individual from a domestic
corporation/
7. Share of an joint stock company/
individual insurance net
in the distributable or mutual
incomefund
aftercompanies/ Regional (except
tax of a partnership
Operating
GPPs)/ Headquarter
association, of multinational companies
8. Capital gains fromasale, joint exchange
account, aorjoint venture
other or consortium
disposition taxablelocated
of real property as corporation
in the
of which he
Philippines, is a member
classified as or co-venture
capital asset
9. Net Capital gains from sale of shares of stock not traded in the stock exchange
10. Interest Income from long-term deposit or investment in the form of savings, common
or individual
- Four trusttofunds,
(4) years deposit
less than five substitutes,
(5) years investment management accounts and
other investments evidenced by certificates in such form prescribed by the Bangko
-Sentral
Three ng
(3) Pilipinas
years to (BSP)
less than four (4) years
- Less than three (3) years

B. For Non-Resident Aliens Not Engaged in Trade or Business

A. Tax Rate in General – on taxable income from all sources within the Philippines
B. Certain Passive Income
1. Interest from currency deposits, trust funds and deposit substitutes
2. Royalties (on books as well as literary & musical compositions)
- In general
3. Prizes (P10,000 or less )
- Over P10,000
4. Winnings (except from PCSO and Lotto)
- From PCSO and Lotto
5. Cash and/or Property Dividends received from a domestic corporation/ joint stock
company/
6. Share ofinsurance/ mutual
a non-resident fund
alien companies/
individual Regional
in the Operating
distributable Headquarter
net income of of a
after tax
multinational
partnership companies
(exceptfrom
GPPs) of which he is aorpartner or from an association, a joint
7. Interest Income long-term deposit investment in the form of savings, common
account,
or a
individualjoint venture
trust funds, or consortium
deposit taxable
substitutes, as corporation
investment of which
management he is a member
accounts and or
-co-venture
Four (4) years to less than five (5) years
other investments evidenced by certificates in such form prescribed by the Bangko
-Sentral
Three ng
(3) Pilipinas
years to (BSP)
less than four (4) years
- Less than three (3) years
8. Capital from the sale, exchange or other disposition of real property located in the
Philippines
9. Net Capitalclassified as capital
gains from sale ofasset
shares of stock not traded in the Stock Exchange
- Not over P100,000
- Any amount in excess of P100,000
1. Gross amount of income derived from all sources within the Philippines
2. Capital gains from the exchange or other disposition of real property located in the Phil
3. Net Capital gains from the sale of shares of stock not traded in the Stock Exchange
- Not Over P100,000
- Any amount in excess of P100,000

D. For General Professional Partnerships

Net Income of the Partnerships

E. For Domestic Corporations

Rates of Tax on Certain Passive Income of Corporations
1. Interest from currency deposits, trust funds, deposit substitutes and similar
arrangements received
2. Royalties from bywithin
sources domestic corporations
the Philippines
3. Interest Income from a Depository Bank under Expanded Foreign Currency Deposit
System
4. Cash and Property Dividends received by a domestic corporation from another
domestic
5. Capital corporation
gains from the sale, exchange or other disposition of lands and/or building
6. Net Capital gains from sale of shares of stock not traded in the stock exchange
*Beginning on the 4th year immediately following the year in which such corporation commenced its business opera
when the minimum corporate income tax is greater than the tax computed using the normal income tax.

F. For Resident Foreign Corporation

1) a. In General – on taxable income derived from sources within the Philippines
b. Minimum Corporate Income Tax – on gross income
c. Improperly Accumulated Earnings – on improperly accumulated taxable income
2) International Carriers – on gross Philippine billings
3) Regional Operating Headquarters of Multinational Companies– on taxable income
4.) Regional or Area Headquarters of Multinational Companies
5) Corporation Covered by Special Laws
6) Offshore Banking Units (OBUs)
In general – Income derived by OBUs from foreign currency transactions with non-
residents,
On interestother
incomeOBUs, localfrom
derived commercial banks and
foreign currency branches
loans of to
granted foreign banks
residents other than
authorized
offshore by
bankingBSP units or local commercial banks, local branches of foreign banks
7) Income derived under the Expanded Foreign Currency Deposit System
authorized by BSP to transact business with OBUs
Interest income derived by a depository bank under the expanded foreign currency
deposit
On Incomesystem.
derived by depository banks under the expanded foreign currency deposit
systems from foreign
On interest income currency
derived from transactions with non-residents,
foreign currency loans grantedOBUs in the Philippines,
by depository banks
local
under commercial
the expanded banks including
foreign branches
currency depositof foreign
systems banks
to that
residentsmay be
other authorized
than by
offshore
8.)
BSP Branch Profit Remittances – on total profits applied or earmarked for remittance
banking
without units
any in the Philippines
deduction for the taxorcomponent
other depository
thereof banks under
(except theactivities
those expanded system
which are
9.) Interest from currency deposits, trust funds, deposit substitutes and similar
registered
arrangementswith the Philippines Economic Zone Authority)
10. Royalties derived from sources within the Philippines
 Train Law

Tax Rate
20%
10%
20%
Graduated
Income
20%Tax
Rates
20%
exempt
15%
10%
10%
6%
15%
Exempt
5%
12%
20%

same
manner
Tax Ratesas
individual
20%
citizen and
10%
20%
Graduated
Income
20%Tax
Rates
20%
exempt
20%
20%
Exempt
5%
12%
20%
6%

5%
10%
25%
 6%

5%
10%

0%

Tax Rate
20%
20%
15%
0%
6%
15%
ration commenced its business operations,
ng the normal income tax.

30%
2%
10%
2½%
10%
exempt
Rate
specified
10%
under the
Exempt
respective
10%

7½%
exempt
10%
15%
20%
20%