Tax on pre-termination of long-term deposits of individuals

If the deposit or investment placement of individual tax payer is pre-terminated before 5 years, any
previously untaxed or exempted interest. Income will be subjected to the following final taxes upon pre-
termination:
Holding period Final Tax
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%

Savings or time deposits with cooperatives are not subject to final tax
The final tax is limited to banks and shall not be applied with time and savings account deposit
maintained by members with cooperatives and by primary cooperatives with their federations.

Other applications of the final tax on interest

1. Deposit substitute
2. Government securities
3. Money market placements
4. Trust Funds
5. Other investments evidenced by certificates prescribed by the Bangko Sentral ng Pilipinas.

Deposit Substitute means an alternative form of obtaining funds from at least 20 persons at any one
time other than deposits through the issuance, endorsement or acceptance of debt instruments for the
borrowers own account, for the purpose of relending or purchasing of receivables and other obligations
or financing their own needs or the needs of their agent or dealer.

Government debt instruments and securities including Treasury bonds, Treasury bills, and treasury
notes shall be considered as deposit substitute irrespective of the number of lender at origination if such
debt instruments and securities are to be traded or exchanged in the secondary market.

Foreign currency deposit with foreign currency deposit banks

The interest income from foreign currency deposits under the foreign currency deposit system or
expanded foreign currency deposit system by residents is subject to a final tax of 15 %. The old law
imposed a rate 7.5% until 2017.
Taxpayer Individuals Corporations
Residents 15% 15%
Non-residents Exempt Exempt
Note:
1. Resident taxpayers include resident citizens, resident aliens, domestic corporations and resident
foreign corporations
2. Non-residents taxpayers include non-resident citizens, non-resident aliens and non-resident foreign
corporations.
3. It should be emphasized that NRA-NETBs and NRFCs are also exempt
4. There is no long-term or short-term classification of foreign currency deposits.

The reduced final tax rates on interest income on foreign currency deposit and the exemption of non-
resident depositors are intended to encourage the deposit of foreign currencies in our banks which will
be used in the financing of our international trades. Our Philippine peso is not globally accepted
currency. Our foreign trade will be limited without adequate foreign currency reserves in our banking
sector.