TAXATION
TOPIC 4: FINAL INCOME TAX
IDENTIFIED OF GROSS INCOME
FINAL INCOME TAX TAXABLE CAPITAL GAINS TAX
Certain passive income only AT Certain capital gains only
REGULAR INCOME TAX
Individuals: Progressive Taxation (20 – 35%)
Corporations: Proportional (25%)
FINAL INCOME TAX
1. Full amount withheld at source by payor
2. Deducted at final source is FINAL TAX
3. No need for the payee to file the tax return
4. Employed on “certain” passive income
5. For NRA – NETB and NRFC (25%, active or passive), applies to ALL INCOME earned WITHIN the Philippines
6. Remit quarterly but deducted monthly
7. Territorial / Jurisdiction
PASSIVE INCOME SUBJECT TO FINAL TAX
Interest income
Dividend income
Royalties
Prizes exceeding 10,000 Based on effort
Winnings Based on chance
Informer’s reward Lower of 1M of 10% of collection
Fringe Benefits Tax Managerial and supervisory
Interest payment to FCDUs/OBUs
Others Tax – free covenant bonds
Petroleum service contractors
ENTITIES EXEMPT FROM FINAL TAX
Foreign government / Government – Owned Controlled Corporations
International missions or organizations with tax immunity
General professional partnership
Qualified employee trust fund
FILING DEADLINE
Manual (1st 2 months) 10 days following the end of the month
Manual (Quarterly) Last day of the month following the quarter
Group A – 15 days following the end of the month
Group B – 14 days following the end of the month
eFPS Filing Group C – 13 days following the end of the month
Group D – 12 days following the end of the month
Group E – 11 days following the end of the month
FINAL WITHHOLDING TAX CREDITABLE WITHHOLDING TAX
Similarities The income payor withhold a percentage of the income.
Serves to avoid cash flow problems to taxpayers by collecting at the moment cash is available.
Differences
Income Tax Withheld Fully Only portion
Coverage Certain passive income Certain passive income and regular income tax
Who remits the tax? Income payor Income payor and the taxpayer
Necessity for a
consolidated/adjustment None Required
return
1
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%
EXCEPTIONS:
1. Capital gain on sale of domestic stocks
15% CGT 15% CGT
directly to buyer
2. Rentals on cinematographic films and
25% of rentals 25% of rentals
similar works
3. Rental of vessels 25% of rentals 4.5% of rentals
4. Rentals of aircraft, machineries, and other
25% of rentals 7.5% of rentals
equipment
5. Interest income under the foreign currency
EXEMPT EXEMPT
deposit system
6. Interest on foreign loans N/A 20%
7. Dividend income 25% 15% if tax is sparing rule is applicable
8. Tax on corporate bonds 30% 30%
FINAL INCOME TAX RATES ON CERTAIN PASSIVE INCOME
INDIVIDUAL CORPORATIONS
CITIZEN ALIEN
PASSIVE INCOME Non-Resident Non-
Non- Domestic Resident
Resident Resident Not resident
resident Engaged
Engaged
INTEREST
Local Currency Deposit 20% 20% 20% 20% 25% 20% 20% 25%
Long – Term (5 years) 20% 20%
(RIT for (RIT for
deposit deposit
EXEMPT EXEMPT EXEMPT EXEMPT 25% substitute substitut 25%
issued by e issued
non- by non-
banks) banks)
Preterminated < 3 years 20% 20% 20% 20% 25% 20% 20% 25%
Preterminated < 4 years 12% 12% 12% 12% 25% 20% 20% 25%
Preterminated < 5 years 5% 5% 5% 5% 25% 20% 20% 25%
Int. Inc. on FCFU Deposit 15% EXEMPT 15% EXEMPT EXEMPT 15% 15% EXEMPT
Int. Inc. on FCDU Banks N/A N/A N/A N/A N/A 10% 10% N/A
Int. Inc. on Foreign Banks N/A N/A N/A N/A N/A N/A N/A 20%
DIVIDENDS
From Domestic Corporation
- 01/01/1998 earnings 6% 6% 6%
20% 25% EXEMPT EXEMPT 15%*
- 01/01/1999 earnings 8% 8% 8%
- 01/01/2000 earnings 10% 10% 10%
From Foreign Corporation
RIT RIT RIT RIT RIT RIT RIT RIT
(resident and non-resident)
ROYALTIES
In general 20% 20% 20% 20% 25% 20% 20% 25%
Books, Literary, Music 10% 10% 10% 10% 25% 20% 20% 25%
PRIZES
10,000 and below RIT RIT RIT RIT RIT
N/A
More than 10,000 20% 20% 20% 20% 25%
WINNINGS
In general 20% 20% 20% 20% 25% RIT RIT 25%
PCSO – 10,000 below EXEMPT EXEMPT EXEMPT EXEMPT 25% EXEMPT EXEMPT 25%
PCSO – More than 10,000 20% 20% 20% 20% 25% 20% 20% 25%
INFORMER’S TAX REWARD 10% 10% 10% 10% 10% 10% 10% 10%
*Subject to condition that the country where the foreign corporation is domiciled shall allow a credit against the tax due from
the non-resident corporation taxes deemed to have been paid in the Philippines equivalent to 10 [Statutory formula: Philippine
Regular Corporate – Income Tax Dividend Tax (15%)].
**If a corporation derives prizes or winnings, regular income taxation (the general rule) would apply since there is no similar
provision imposing final tax.
2
Note on Prizes:
The following prizes are exempt:
1. The recipient is selected without active effort on his part to join the contest such as Nobel Prize, Most Outstanding
Citizen Award and similar.
2. Prizes earned with active participation are generally subject to tax except in cases of sports competitions that are
sanctioned by a national sport organization (such as Philippine Olympic Committee).
A cash reward may be given to any person instrumental in the
a. Discovery of violations of the National Internal Revenue Code; or
b. Discovery and seizure of smuggled goods
Requisites:
1. Definite sworn information which is not yet in the possession of the
2. The same lead to the discovery of fraud upon internal revenue laws or provisions
3. Enforcement results in recovery of revenues, surcharges and fees and or conviction of the guilty party or imposition
of any fine or penalty
4. The informer is other than a/an:
a. Internal Revenue officials or employees
b. Other public officials or employees
c. Relatives of those in a. and b. within the 6 degree of consanguinity
Cash Reward - Whichever is the lower of the following per case:
1. 10% of revenues, surcharges or fees recovered and or fine or penalty imposed and collected or
2. P1,000,000
