FINAL INCOME TAXATION

F. Dauz Jr.
PASSIVE INCOME SUBJECT TO FINAL TAX
1. Interest or yield from bank deposits or deposit substitutes.
2. Domestic dividends, in general
3. Dividend income from a Real Estate Investment Trust
4. Share in the net income of business partnership, taxable
associations, joint ventures, joint accounts, or co-ownership.
5. Royalties, in general
6. Prizes exceeding P10,000
7. Winnings
8. Informer’s tax reward
9. Interest income on tax-free corporate covenant bonds.
1. Interest or yield from bank deposits or deposit substitutes.
NRA-NETB 25%
NRFC 30%

Interest Income from: Individual Corporation

Short-term deposits (less than 5yrs) 20% 20%
Long-term deposits (5yrs or more) Exempt 20%
Tax on pre-termination of long-term deposits of Individuals

Savings or time deposits with cooperatives are not subject to final tax.
Interest or yield from bank deposits or deposit substitutes.
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
BSP.
Interest or yield from bank deposits or deposit substitutes.
Foreign currency deposit with foreign currency depository banks.
Taxpayer Individuals Corporations
Residents 15% 15%
Non-residents Exempt Exempt

Joint account on forex deposit of Resident and non-resident:

Resident 50% share in interest subject to 15% final tax
Non-resident 50% share is exempt
 DIVIDENDS
DIVIDENDS – distributions to shareholders from earnings from corporations.
Exempt Dividends:
Stock dividends
Liquidating dividends

Source of dividends: Individual Corporation NRA-ETB NRA-NETB NRFC

Domestic corporation 10% final tax Exempt 20% 25% 30%
Foreign Corporation Regular tax Regular Tax

Exempt Dividends
1. Inter-corporate dividends (Domestic to Domestic; Domestic to RFC)
2. Dividends from cooperatives
ENTITIES TAXABLE AS CORPORATIONS :SUBJECT TO 10% FINAL TAX
The 10% Withholding tax (WHT) shall be applied to dividends from:
1. Real Estate Investment Trusts (REIT)
2. Business Partnerships
3. Taxable Associations
4. Taxable joint ventures, joint accounts or consortia
5. Taxable co-ownership

Real Estate Investment Trusts (REIT) is a publicly listed corporation established for owning
income-generating real estate assets. The following REIT dividends are exempt from final tax:
a. Non-resident alien individuals or NRFC under applicable tax treaty.
b. Domestic corporations or RFC.
c. Overseas Filipino Investors – Until Aug.12, 2018

Business Partnerships profits (not a professional partnership)

- Share in partnership profits must not be declared as operating expenses (Salaries Exp.)
- If amount received by partner is declared as operating expenses, subject to regular tax.
Royalties from sources within the Philippines

Source of passive Royalty* income Individuals Corporations

Printed Books**, literary works, musical composition 10% 20%
Other sources 20% 20%
*active royalties are subject to regular income tax
**e-copy books are subject to 20% final tax.

Royalties (passive or active) from sources abroad are subject to regular income tax.
PRIZES
Amount of Taxable Prizes Individuals Corporations
Not Exceeding P10,000 Regular Regular
Exceeding P10,000 20% Regular
Exempt Prizes – 1. Prizes by recipient who did not join a contest; not required to render future service.
2. Prizes from sports competitions sanctioned by national sports organizations.
WINNINGS received from sources within the Philippines
Types of winnings Individual Corporation
PCSO/ Lotto not exceeding P10,000 Exempt Exempt
PCSO/ Lotto exceeding P10,000 20% 20%
Other winnings 20% Regular tax

TAX INFORMERS REWARD – for giving information in tax evasions or violation of BIR or
BOC rules:
* 10% Final Tax on cash reward (10% of Tax collections) but not to exceed P1M.
Disqualified informer: BIR or government employees and relatives up to 6th degree of
consanguinity.

TAX-FREE CORPORATE COVENANT BONDS

Individual Corporations
Tax on interest income on tax-free
Regular Income
corporate covenant bonds 30%
tax
Deadline and Place of manual filing
 On or before the 10th of the following month which withholding was
made.
 Authorized agent bank, Revenue Officer, Municipal treasures of the
Revenue District Office (RDO)of the withholding agent’s place of
business

ENTITIES EXEMPT FROM FINAL INCOME TAX

1. Foreign governments and foreign government-owned and controlled
corporations
2. International missions or organizations with tax immunity
3. General Professional partnership
4. Qualified employee trust fund
Capital Gains Tax
Classification of properties
1. Ordinary Assets – Assets used in business.
a. Assets held for sale – Inventories
b. Assets held for use – PPE

2. Capital Assets – any asset other than ordinary assets

a. Personal Assets of individual taxpayer
b. Business assets classified as
Financial Assets – Cash, Receivables, Prepaid expenses and
investment
Intangible Assets – Patent, Copyright, Leasehold and Franchise
 Capital Gains Tax
CAPITAL ASSETS ORDINARY ASSETS
Individual Taxpayer 1. Stocks - trading Company
Personal Assets 2. Real property as
a. for sale in the ordianry
Individual/ Corporate Taxpayer:
course of business
b. PPE/ used in business
Business assets classifies as
operation
a. Financial Assets - AR, Investment
b. Intangible Assets
 Types of Gains Tax Scheme
Ordinary Gain Regular Income Tax

Regular income Tax;

Capital Gain
Exception:Capital Gains Tax (CGT)

CAPITAL ASSET Capital Gains Tax (CGT)

Gain on Sale of Domestic 15% of Capital Gains

Stock to Direct Buyer

Sale of Real property 6% of Selling Price of Fair Value

classifeid as Capital Asset whichever is higher