FINAL TAX

The Final Withholding System

The final withholding tax is an amount of income withheld by the payer from the payee. The
payer pays this amount to the government as an income tax due from the payee.

Non-resident persons not engaged in business in the Philippines

For non-resident alien not engaged in trade or General final tax rate is 25%
business
For non-resident foreign corporation General final tax rate is 30%

Interest income or yield from local currency bank deposits or deposit substitutes

Individuals Corporations
Short term deposits (period of 20% 20%
less than five years)
Long-term Exempt* 20%
deposits/investment
certificates (maturity of not
less than five years)

Note: This table only applies to all taxpayers other than non-resident alien not engaged in trade
or business in the Philippines and non-resident foreign corporation.

Tax on pre-termination of long term deposits of individuals

Holding period Final tax rate

Less than 3 years 20%
3 years to less than 4 years 12%
4 years to less than 5 years 5%
5 years or more 0%

Note: It must be known that savings or time deposits with cooperatives are not subject to final
tax. Final tax is limited to banks.

Foreign currency deposit with foreign currency depositary banks

Taxpayer Individuals Corporations

Residents 7.5% 7.5%
Non residents Exempt Exempt

Joint accounts on forex deposits

If the bank account is jointly in the name of a non-resident and a resident taxpayer, 50% of the
interest shall be exempt while the other 50% shall be subject to the 7.5% final tax.

1|Page
FINAL TAX

Dividend Tax Rules

Source of dividends Individuals Corporations

Domestic corporation 10% final tax Exempt
Foreign corporation Regular tax Regular tax

Entities taxable as corporations are subject to 10% final tax

The 10% final withholding tax also applies to dividends or share in the net income of entities
considered corporations under the NIRC and special laws, such as:

 Real estate investment trusts

 Business partnerships
 Taxable associations
 Taxable joint ventures, joint accounts or consortia
 Taxable co-ownerships

The following recipients of REIT dividends are exempted from the final tax:

 Non-resident alien individuals or non-resident foreign corporations

 Domestic corporations or resident foreign corporations
 Overseas Filipino investor are exempted until August 12, 2018

Business partnerships, Taxable associations, Taxable joint ventures, joint accounts

or co-ownerships

They are subject to 10% final tax that applies at the point of determination of the income.

Passive Royalties

Source Individual Corporations

Books, literary works, and 10% final tax 20% final tax
musical compositions

Other sources 20% final tax 20% final tax

Note: 10% final tax on books and literary works pertain to printed literatures. Books sold on e-
copies or CD’s such as e-books are subject to 20% final tax. Non-resident aliens engaged in
trade or business in the Philippines, non-resident aliens not engaged in business and non-
resident foreign corporations are subject to 25% final tax.

: If the taxpayer has active involvement to the royalties, it is an active income subject to
regular income tax.

Prizes

Exempted prizes

2|Page
FINAL TAX

 Prizes received by a recipient without any effort on his part to join a contest and the
recipient is not required to render substantial future services as a condition to receiving
the prize or reward for them to be exempt. Examples are Nobel Prize, Most Outstanding
Citizen, and similar awards.
 Prizes from sports competitions that are sanctioned by their respective national sport
organizations.

Taxable prizes

Amount Individuals Corporations

Prizes exceeding P10,000 20% final tax Regular tax
Prizes not exceeding P10,000 Regular tax Regular tax

Note: Final taxation does not apply to foreign passive income. For prizes from foreign sources,
they are subject to the regular income tax.

Winnings

For individual taxpayers, winnings received from sources within the Philippines are subject to
20% final tax with the exception of the following:

 Philippine Charity Sweepstakes Office winnings

 Lotto winnings

Note: Corporate winnings and winnings from foreign sources should be reported as regular
income.

: Exemption also extends to NRA-NETB and NRFC

Types of winnings Individuals Corporations

PCSO or lotto winnings Exempt Exempt
Other winnings 20% final tax Regular tax

Tax Informer’s Reward

This reward is subject to 10% final tax. Amount of cash reward is lower of:

a) 10% of revenues, surcharges, or fees recovered and or fine or penalty imposed and
collected; and
b) P1,000,000.

Tax-Free Corporate Covenant Bonds

Individual Corporations
Tax on interest income on tax- 30% final tax Regular Income tax
free corporate covenant
bonds

Note: This applies to all individuals, regardless of classification.

3|Page