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Revenue Regulations No. 10-98
Revenue Regulations No. 10-98
Revenue Regulations No. 10-98
10-98
(August 25, 1998)
Individuals may present any of the following documents to the bank to prove non-residency:
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For corporate depositors, the original or certified copy of all the following must be presented:
1. Certificate of registration of the corporation abroad; and
2. Certification from the Securities and Exchange Commission that the non-resident
corporation is not licensed to do business in the Philippines.
To be entitled to an exemption from the tax on interest income on foreign currency deposit, the
foreign currency bank account should be in the name of the non-resident individual or nonresident corporation. Otherwise, the interest income shall be considered as subject to the 7.5%
final tax.
In addition, the depositor is required to execute a written permission allowing its depository bank
to inform the BIR that, as a non-resident, he is exempt from the tax. Without this written
permission, which constitutes a limited waiver of the confidentiality of foreign currency deposits,
the depositor will not be entitled to exemption privilege.
If the account is jointly in the name of a non-resident such as an overseas contract worker, or a
Filipino seaman, and an individual (spouse or dependent) who is living in the Philippines, fifty
percent (50%) of the interest income from such bank deposit will be treated as exempt while the
other fifty percent (50%) shall be subject to a final withholding tax of seven and one-half percent
(7.5%).
The regulation shall apply to taxable income derived beginning January 1, 1998. For deposits
which were made in 1997, only that portion of interest which was actually or constructively
received by a depositor starting January 1, 1998 shall be subject to the final tax.
Responsibilities of the Bank
The depository bank shall withhold and remit the 7.5% tax due from the interest income derived
by a resident from his/its foreign currency bank deposit. Unless the depositor presents
documentary evidence that he/it is not a resident of the Philippines, the bank shall automatically
withhold such tax.
The depository bank is required to submit a list of all persons and corporations who were given
exemption from the tax on interest income on foreign currency deposits. The list will be filed at the
same time that the quarterly withholding taxes on such deposits are remitted to the BIR.
Taxation of Income of FCDUs and OBUs
FCDU, or Foreign Currency Deposit Unit, refers to that unit of a thrift bank or commercial bank
organized under Philippine laws, or a local branch of a foreign bank doing business in the
Philippines which have been authorized by the Bangko Sentral ng Pilipinas (BSP) to engage in
foreign currency denominated transactions.
OBU, or Offshore Banking Unit, refers to a branch, subsidiary, or affiliate of a foreign banking
corporation which is duly authorized by the BSP to transact offshore banking business in the
Philippines.
A final withholding tax of ten percent (10%) will be imposed on income derived by an FCDU or
OBU from foreign currency transactions with residents of the Philippines, including local
commercial banks, local branches of foreign banks, and other depository banks under the foreign
currency deposit system. This includes interest income from lending operations, bank charges,
commissions, services fees and net foreign exchange transaction gains.
The person making the income payment to the FCDU or OBU is required to withhold and remit
the tax withheld. Thus, in the case of interest payment by a resident on a foreign currency loan
from an OBU or FCDU, the resident borrower will act as the withholding agent of the 10% final
withholding tax.
Income derived by FCDUs or OBUs from activities other than foreign currency transactions will be
subject to the regular tax imposed on such income when received by a domestic corporation or
resident foreign corporation, as the case may be. Thus, they are required to file the corporate
income tax return with respect to their income subject to the regular corporate income tax. The
return shall also declare all other withholding taxes, the fact that such final withholding taxes have
been withheld, and shall indicate the following information:
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There is no need, however, to submit such information with respect to its interest income derived
from bank deposits.
Income of FCDUs or OBUS from foreign currency transactions with non-residents of the
Philippines are not subject to income tax.
Effectivity
No penalty will be imposed for late payment of the taxes prescribed in this regulations for the first
three quarters of calendar year 1998, if the taxpayer files the returns for the said taxable quarters
and pays the taxes due on or before October 25, 1998.