Individual

Passive Income Alien Corporations

Citizen
Nonresidents
RC NRC RA ETB NETB DC RFC NRFC
INTEREST INCOME
Local Currency Deposits
Short-term Interest or Yield (less than 5 years) 20% 20% 20% 20% 25% 20% 20% 30%
Long-term Interest or Yield (more than 5 years) EX EX EX EX 25% 20% 20% 30%
Pre-termination of long-term deposits (individual)
Less than 3 years 20% 20% 20% 20% 25% 20% 20% 30%
3 years to less than 4 years 12% 12% 12% 12% 25% 20% 20% 30%
4 years to less than 5 years 5% 5% 5% 5% 25% 20% 20% 30%
Foreign Currency Deposits
Interest Income from FCDUs/OBU depositary 15% EX 15% EX EX 15% 15% EX
banks
Interest on loan payable to FCDUs/OBU 10% EX 10% EX EX 10% 10% EX
Interest on loan payable to NRFC EX EX EX EX EX EX EX 20%
Dividend Income
From domestic corporations 10% 10% 10% 20% 25% EX EX 15%
From foreign corporations REGULAR INCOME TAX
From Real Estate Investment Trust 10% EX 10% N/A N/A EX EX 10%
Share in the NI of taxable partnerships, joint
venture, and co-ownership (PARTNERS ARE 10% 10% 10% 20% 25% 10% 10% 30%
TAXABLE)
Royalties
Passive royalties from cinematographic films and
20% 20% 20% 20% 25% 20% 20% 30%
similar works
Passive royalties from books, literary works, and
10% 10% 10% 10% 25% 20% 20% 30%
musical compositions (ebooks, ecopies, 20%)
Other Sources of Passive royalties 20% 20% 20% 20% 25% 20% 20% 30%
Active royalties REGULAR INCOME TAX
Prizes
Regular
P10,000 and below REGULAR INCOME TAX 25% 30%
Income Tax
Regular
Above P10,000 20% 20% 20% 20% 25% 30%
Income Tax
Winnings
Regular
In general 20% 20% 20% 20% 25% 30%
Income Tax
PCSO and lotto winning
P10,000 and below EXEMPT 25% EXEMPT 30%
Regular
Above P10,000 20% 20% 20% 20% 25% 30%
Income Tax
Tax Informer’s Reward 10% 10% 10% 10% 25% 10% 10% 30%

EXEPTIONS TO THE GENERAL FINAL TAX ON NRA-NETB AND NRFC

NRA-NETB (25%) NRFC (30%)
Rentals on cinematographic films and similar
25% of rentals 25% of rentals
works
Rentals of vessels 25% of rentals 4.5% of rentals
Rentals of aircrafts, machinery, and other
25% of rentals 7.5% of rentals
equipment
15% if tax sparing rule is
Dividend income 25%
applicable
PASSIVE INCOME (FINAL TAX)

It is earned with very minimal or without active involvement of the taxpayer in the earning process and are
generally irregular in timing and amount.

CAPITAL GAINS (CAPITAL GAINS TAX)

Gains realized on the sale, exchange, and other dispositions of active capital assets.

REGULAR INCOME (REGULAR INCOME TAX)

Active income which arises from transactions requiring considerable degree of effort or undertaking from the
taxpayer.

FINAL TAX
-Characterized by final taxes wherein FULL TAXES ARE WITHHELD net of taxes.

-The payor is the one required by law to remit the tax to the government.

-The recipient income taxpayer does not need to file income tax returns because the withheld tax constitutes
the full tax due and are therefore deemed final payments.

PAYEE (remits taxes)  GOVERNMENT PAYEE (Net of Taxes)  RECIPIENT

COVERAGE OF FINAL TAX

Unless otherwise indicated, the final tax rates shall apply to ALL TAXPAYERS, except for NRA-NETB (taxed 25%) and
NRFC (taxed 30%)

General Rule. Final tax rates applies to:

 RC
 NRC
 RA
 NRA-ETB
 DC
 RFC

Exception.

 NRA-NETB (25%)
 NRFC (30%)
 UNLESS OTHERWISE STATED

FEATURES OF FINAL INCOME TAXATION

 Final
 Tax Withheld at Source
 Territorial Imposition – passive income that are subject to final tax SHOULD BE EARNED WITHIN THE PH
 Imposed on certain passive income and persons not engaged in business in the PH (NRA-NETB and NRFC)

NONRESIDENT PERSONS NOT ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES (NRA-NETB, NRFC)

They have high risk of noncompliance that is why they are subjected to final tax. And because of the distance
and absence in the country make it very unlikely for tax compliance to be expected that’s why the Philippine residents
shall withhold the final tax from their gross income, active or passive, from all sources within the PH.

INTEREST INCOME/YIELD

Earnings derived from depositing or lending money, goods, or credits

Sources could be:

  Savings deposit
 Time deposit
 Government securities
 Deposits substitutes

DEPOSITS SUBSTITUTES

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

 Treasury bonds
 Treasury bills
 Treasury notes

*irrespective of the number of lender at origination if such debt instruments and securities are to be traded or exchange
in the secondary market.

ILLUSTRATION

A. Winnie, a resident citizen, deposited P2,000,000 in the 180-day time deposit of BDO. The deposit pay 8%
interest. Compute the final tax on maturity of the deposit.

Computation: Interest Income = 2m x .08 x 180/360 = 80,000 (interest income) x .20 = 16,000 (final tax to be withheld
by BDO) (64k (80k-16k) of interest income is to be received by Winnie)

B. Winnie, a resident citizen, deposited P2,000,000 in the 180-day time deposit of BDO. The deposit pay 8%
interest. Compute the final tax on maturity of the deposit.
Assume that Winnie is a nonresident alien NOT engaged in trade or business, compute the final tax on maturity
of the deposit.

Computation:

Interest (2m x 8% x 180/360) 80,000

X Final Tax Rate 25%

Final Tax P20,000

C. Renz received P42,000 interest from short-term deposits. Compute the final tax withheld on the interest.

Computation: 42k / 80% = 52,500 (interest income) – 42,000 (net of final tax) = P10,500 (final tax withheld)

FINAL TAX ON PRE-TERMINATION OF LONG-TERM DEPOSITS OF INDIVIDUALS

If long-term deposits or investments of individual taxpayers is pre-terminated with less than five years of holding
period, any previous untaxed or exempted interest income will be subject to the following taxes upon pre-termination.

 Less than 3 years 20%, NETB 25%

 3 years to less than 4 years 12%, NETB 25%
 4 years to less than 5 years 5%, NETB 25%

ILLUSTRATION

On January 1. 2019, Meredith invested P3,000,000 in the six-year time deposit of BPI which pays 6% annual interest.
How much is the final tax to be withheld by BPI on December 31, 2019?

Answer: zero since it is exempted for it is a long-term deposit and there is no information if it will be pre-terminated

On January 1. 2019, Meredith invested P3,000,000 in the six-year time deposit of BPI which pays 6% annual interest.
Assuming Meredith terminated the deposit on July 31, 2021, how much is the final tax to be withheld by BPI upon
termination.
Computation:

Interest Income (2 and a half year)

2019 (3m x 6%) 180,000

2020 180,000

July 31, 2021 (3m x 6% x 7/12) 105,000

Total Interest Income not taxed 465,000

X Final tax rate 20%

Final Tax P93,000

On January 1. 2019, Meredith invested P3,000,000 in the six-year time deposit of BPI which pays 6% annual interest.
Assuming Meredith terminated the deposit on July 31, 2023, how much is the final tax to be withheld by BPI upon
termination.

Computation:

Interest Income for 4 ½ year (5%) 825,000

X Final Tax Rate 5%

Final Tax P 41,250

INTEREST INCOME FROM FOREIGN CURRENCY DEPOSITS AND LOANS

Interest income derived from the following sources shall be imposed with the respective rates of final tax:

 Interest Income from FCDUs/OBU depositary banks RC,RA,DC,RFC 15%

 Interest on loan payable to FCDUs/OBU RC,RA,DC,RFC 10%
 Interest on loan payable to NRFC NRF 20%

OFFSHORE BANKING UNITS (OBU) shall refer to a branch, subsidiary or affiliate of a foreign banking corporation which is
duly authorized by the Central Bank of the Philippines to conduct banking transactions in foreign currencies involving the
receipt of from external sources and utilization of such funds.

FOREIGN CURRENCY DEPOSIT UNITS (FDCUs) shall refer to that unit of a local bank or of a local branch of foreign bank
authorized by Central Bank of the Philippines to engage in foreign currency denominated transactions.

*The reduced final tax rates on interest income on foreign currency deposit and the exemption of non-resident
depositors is intended to encourage the deposit of foreign currencies to the Philippines which will be used in the
financing of our international trades.

*If the bank account is a joint account in the name of a resident and a nonresident taxpayer, 50% of the interest shall
be exempt while the other 50% shall be subject to 15% final tax.

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another,
it shall allow the withdrawal from the said deposit account, subject to a final withholding tax of six percent (6%) of the
amount to be withdrawn, provided the withdrawal shall only be made within one year from the date of the decedent.
Such withheld tax shall not be creditable to the estate tax in relation to the death of the decedent.

DIVIDEND INCOME

A form of earnings derived from the distribution made by a corporation out of its earnings or profits and payable
to its stockholders, whether in money or in property.

The following are the classification of dividends:

1. Cash dividends (SUBJECT TO FINAL TAX)

2. Stock dividends
3. Property dividends (SUBJECT TO FINAL TAX)
4. Liquidating dividends
The tax sparing rule shall apply to an NRFC which:

1. Has no effective tax treaty with the PH

2. Has a worldwide system of taxation
3. Allows a tax credit against the tax due from the NRFC dividend taxes deemed to have been paid in the PH
equivalent to 15%.

A real estate investment trust (REIT) is a corporation whose primary business is owning, developing, and managing real
estate properties, such as apartment buildings, office buildings, hotels, warehouses, health care facilities, shopping malls
or golf courses. (10% final tax)

ILLUSTRATION

Grace corporation, a domestic corporation, declared a total of P2,000,000 dividends, P800,000 is due to corporate
shareholders while P1,200,000 is due to individual shareholders. How much final tax shall Grace Corporation withhold?

Computation:

Shareholders Amount Rate Final Tax

Individual P 1,200,000 10% 120,000

Corporation P 800,000 exempt 0

Final tax P 120,000

Seattle Corporation declared a total of P3,000,000 dividends. An analysis of the recipient of such dividends are the
following:

Resident aliens and citizens P 500,000

NRAs ETB 100,000
NRAs NETB 50,000
Non-resident corporations 100,000
Total dividends 750,000
How much final tax shall be withheld by Seattle Corporation?

Computation:

Final taxes
Resident aliens and citizens P 500,000 x 10% 50,000
NRAs ETB 100,000 x 20% 20,000
NRAs NETB 50,000 x 25% 12,500
Non-resident corporations 100,000 x 30% 30,000
Total dividends 750,000 112,500

SHARE IN THE NET INCOME OF TAXABLE PARTNERSHIP, JOINT VENTURE, AND CO-OWNERSHIP

ILLUSTRATION

Andy and Mar are engaged in a partnership of operating several bars and restaurant. During the year, their profit sharing
amounts to P55,000 and P83,000, respectively. How much final tax shall be withheld?

Computation:

Final tax Amount to be received by partner

Andy 55,000 x 10% 5,500 49,500
Mar 83,000 x 10% 8,300 74,700

PASSIVE ROYALTIES

Where a person pays royalties to another for the use of its intellectual property, such royalty is generally a passive
income of the owner thereof subject to withholding tax.

ILLUSTRATION
Jess owns a mining property in Cagayan. He allowed a mining company to operate under a condition that he will be paid
10% royalty on the golds production. The mining company produced P8,000,000 worth of gold during the year. How
much net royalties will be paid to Jess?

Computation:

Royalty (8m x 10%) 800,000

X Final tax rate 20%
Final Tax 160,000
Net Royalty Received (800k – 160k) 640,000

PRIZES

A reward for a contest or completion. Such payment constitutes gain derived from labor.

WINNINGS

A reward for an event that depends on chance such as winnings on gambling, lottery or raffle ticket.

EXCEPTIONS:

1. Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literacy
or civic achievements are EXCLUSIONS from gross income if:
a.) The recipient was selected without any action on his part to enter a contest or proceedings
b.) The recipients is not required to render substantial future services as a condition to receiving the prize or
award.
2. Prize and awards granted to athletes in local and international sports competitions and tournaments held in
the PH and abroad and sanctioned by their national associations shall be EXEMPT from income tax.

ILLUSTRATION

Jem won a P800,000 prize in a national dancing competition. The organizer of the event declared that the P800,000 was
“tax free.” How much final tax must be remitted by the organizer to the BIR?

Computation:

Gross prize (800,000/80%) 1,000,000

X Final Tax rate 20%
Final Tax 200,000

Glory made three bets to the PCSO lotto draws. All of her tickets won with the following winnings:

EZ2 4,000
6/42 10,000
6/45 20,000,000 (Sole winner grand prize)

Computation:

Final Tax
EZ2 4,000 0 exempt
6/42 10,000 0 exempt
6/45 20,000,000 4,000,000 20%

TAX INFORMER’S REWARD

A cash reward may be given to any person instrumental in the discovery of violations of the National Internal Revenue
Code or discovery and seizure of smuggled goods. This tax informer’s reward is subject to 10% final tax.

Requisites of Tax Informer’s Reward:

1. Definite sworn information which is not yet in the possession of the BIR
 2. The information furnished lead to the discovery of fraud upon internal revenue laws or provisions thereof.
3. Enforcement results in recovery of revenues, surcharges, and fees, and/or conviction of the guilty party or
imposition of any fine or penalty.
4. The informer must not be a:
a.) BIR official or employee
b.) Other public official or employee
c.) Relative within 6th degree of consanguinity of those officials or employee in a and b

AMOUNT OF CASH REWARD

Whichever is the lower of the following per case:

1. 10% of revenues, surcharges, or fees recovered and or fine or penalty imposed and collected; or
2. P1,000,000

ILLUSTRATION:

Kristen provided information to the BIR leading to the recovery of P12,000,000 unpaid taxes. How much is cash reward
of Kristen?

Computation:

10% cash reward (12m x 10%) 1,200,000

Cash reward limit 1,000,000 (lower)

Cash reward 1,000,000

Less 10% final withholding tax 100,000
Net Amount to be released to the informer 900,000

FINAL WITHHOLDING TAX RETURN

The Final Withholding Tax Return (BIR Form 0619-F) or the Monthly Remittance Return of Final Income Taxes Withheld,
shall be filed in TRIPLICATE by every withholding agent or payor who is either an individual or corporation for the first
two months of the quarter.

Deadline
Form Name
Manual Filing eFPS FIling
0619F Monthly Remittance Form Tenth (10th) day following 11th-15th day following
of Final Income Taxes the month in which withholding month
Withheld withholding was made depending on the
taxpayer’s line of business
1602Q Quarterly Remittance Last day of the month Not yet available
Return of Final Income following the close of
Taxes Withheld on Interest quarter during which
Paid on Deposits and withholding was made
Deposit
Substitutes/Trusts/Etc.