FINAL INCOME TAXATION

Features of Final Income Taxation

Final Tax
Tax withholding at source
Territorial imposition
Imposed on certain passive income and persons not
engaged in trade/business in the Philippines
Final Withholding System

Taxes will be deducted at source

Taxpayer and government convenience
To avoid high risk of non-compliance or tax evasion
Passive Income

Earned with very minimal involvement from taxpayer

Generally irregular in timing and amount
Existence can be difficult to predict; Actual amount may be
difficult to determine
NRA-NETBs and NRFCs

Usually don’t have principal offices or fixed places of business in

the Philippines
Distance and absence from the Philippines
High risk of noncompliance
Income earned within the Philippines is generally subject to
25% final tax
Passive Income subject to Final Tax
Interest or yield from bank deposits or deposit substitutes
Domestic dividends, in general
Dividend income from a real estate investment trust
Share in net income of a business partnership, taxable
associations, joint ventures, joint accounts, or co-ownership
Royalties
Prizes
Winnings
Informer’s tax reward
Interest income on tax-free corporate covenant bonds
Interest Income/Yield

Limited to banks
Short-term deposits (less than 5 years)
Individuals – 20%
Corporations – 20%
Long-term deposits (not less than 5 years)
Individuals – Exempt
Corporations – 20%
Foreign Currency Deposit with Foreign
Currency Depositary Banks
Residents
Individuals – 15%
Corporations – 15%
Non-residents
Exempt
Dividends

Types of dividends
Cash
Property
Scrip
Stock
Liquidating
Dividends

Domestic corporation
Individuals – 10% final tax
Corporations – Exempt*
Foreign Corporation
Individuals – Regular tax
Corporations – Regular tax

Entities taxable as corporations are subject to 10% final tax

Royalties

Books, literary works, and musical compositions

Individuals – 10% final tax
Corporations – 20% final tax
Other sources
20% final tax
20% final tax
Prizes

Prizes exceeding P10,000

Individuals – 20% final tax
Corporations – Regular tax
Prizes not exceeding P10,000
Individuals – Regular tax
Corporations – Regular tax
Prizes

Exempt Prizes
Received without any effort on the part of taxpayer
Prizes from sport competitions that are sanctioned by their
respective national sport organizations
Winnings

PCSO or lotto winnings

Individuals – 20% final tax
Corporations – Regular tax
Other winnings, in general
Individuals – 20% final tax
Corporations – Regular tax
Tax Informer’s Rewards

Amount of cash reward

Lower of
10% of revenues, surcharges, or fees recovered and/or fine and
penalty imposed and collected
1,000,000
Subject to 10% final tax