RAMON MAGSAYSAY MEMORIAL COLLEGES

COLLEGE OF BUSINESS EDUCATION

BUSINESS ADMINISTRATION PROGRAM
Pioneer Avenue, General Santos City

Name: Juldan B. Ordesta Course & Year: BSBA – MM 3rd Year

Subject: TAXATION LAW (2359) Date: March 8, 2024

Topic Summary of Final Income Taxation of Rates and Rules

Rationale:
The final withholding tax is built upon taxpayer and government convenience. It
relieves the taxpayers of the obligation to file an income tax return. This is very
convenient for taxpayers who are limited by distance, time and cost to comply. For the
government, the final withholding system is the most convenient and effective system in
collecting taxes on income where there is high risk of non-compliance or tax evasion on
the part of the taxpayer.
Note: Under the NIRC, final income tax is imposed on certain passive income and
upon non-resident person not engaged in business in the Philippines.
Passive Income to Final Tax
1. Interest or yield from bank deposits or deposits substitutes
2. Domestic dividends, in general
3. Dividend income from a Real Estate Investment Trust
4. Share in the net income of a business partnership. Taxable associations, joint
ventures, joint accounts, or co-owner
5. 5. Royalties, in general
6. Prizes exceeding P10,000
7. Winnings
8. Informers Tax Reward
Final Tax on Individual and Corporation
1. The final Tax on deposits applies only those made with banks
2. NRA-NETBs and NRFCs are subject to the 25% general final tax on their
interest income
 3. Interest Income or yield from local currency bank deposits, deposits
substitutes, trust funds and similar arrangements are subject to tax.
4. From Banks, individuals and corporation of short-term deposit are subject to
the 20% final Tax. On the other hand, long-term deposit of individual are
exempts of a final tax and the corporations of the long-term deposit are
subject to 20% final tax.
5. From non-Banks, both Short and Long-Term Deposits of individuals and
corporation are subject to RIT.
6. Savings or time deposits with cooperatives are not subject to final tax.
Note:
*Short Term Deposits/Certificates – period less than 5 years
*Long Term Deposits/Certificates – not less than 5 years certificate of time deposit or
investment in the form of savings, common trust funds and etc.
Classification of debt instruments
1. Origin means issuance.
2. Interest on deposit substitutes on deposit (i.e. public borrowing) is subject to final
tax. Interest on private borrowing is subject to regular income tax.
Foreign Currency Deposit with foreign currency depositary banks
1. Residents is subjects to a final tax of 15%.
2. Non-residents are exempt from the tax .
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 deposit.
Dividend on Tax Rules
1. NRA-NETB is subject to 20% final tax on dividend, not to the usual 10%; but an
NRA-NETB is subject to a 25% final tax.
2. A NRFC is not exempt but is subject to the 25% general final tax rate. However,
the imposable dividend tax shall be 15% when the tax sparing rule applies.
Prizes
1. Prizes exceeding P10,000 won by the individuals is subject to 20% final tax
while corporations are subject to regular tax.
2. Prizes not exceeding P10,000 won by individuals and corporations are subject
to regular tax.
Tax informer’s Reward
Tax informer’s Reward was enacted to help the Bureau of Internal Revenue
(BIR) and the Bureau of Customs (SOC) run after tax cheats, tax evaders and
smugglers. This law awards fifteen percent (15%) of the amount recovered to any
person who voluntarily gives definite information to the BIR and BOC on any tax
fraud or smuggling case which results to the recovery of revenues, surcharges or
fees and or conviction of the guilty party.
Note:
1. The informer must not be a BIR official or employee, other public official or
employe, and relative within 6th degree of consanguinity of those officials
and employee.
2. 10% of revenues, surcharges, or fees recovered and or fine or penalty and
collected or 1,000,000.
Tax Free Corporate Covenant Bonds
1. The 30% final tax applies to all individuals, regardless of classification.
2. This is subject to 20% final tax if the bonds qualify as deposits substitutes. This
would be differentiated with foreign loans.
Tax Sparing Rules
1. Shall be subject to a 15% final tax in dividend income instead of the 25% general
final tax of the country of domicile of the NRFC.
2. NRFC taxes presumed to have been paid by such NRFC from the Philippines
equivalent to 10% of the dividends.