REVENUE REGULATIONS NO.

10-98
(August 25, 1998)
TAXATION OF INCOME FROM FOREIGN CURRENCY DEPOSITS AND
TRANSACTIONS OF FOREIGN CURRENCY DEPOSIT UNITS AND OFFSHORE
BANKING UNITS
These regulations govern the imposition of income taxes on income derived from
foreign currency bank deposits and the taxation of income of Foreign Currency Deposit
Units (FCDUs) and Offshore Banking Units (OBUs).
A final withholding tax of seven and a half percent (7-1/2%) is imposed on interest
income which is actually or constructively received by a resident from a foreign
currency deposit. This tax applies to such deposits accepted and held by an OBU or
FCDU in the regular course of business.
No tax is imposed on interest income received by a non-resident from foreign
currency bank deposits. A non-resident refers to an individual, corporation or other
juridical person which is not any of the following:

A Filipino citizen living in the Philippines;

An alien individual who is permanently residing in the Philippines

A domestic corporation, which refers to a corporation or other

juridical person (associations, partnerships, trust, etc.) organized
under the laws of the Philippines

A resident foreign corporation, which refers to a branch, extension

office or other unit of corporations or juridical persons organized
under the laws of any foreign country which is doing business in the
Philippines.

Individuals may present any of the following documents to the bank to prove nonresidency:

An immigration visa issued by the foreign government in the country

where he is a resident of;

A certificate of residency which is issued by the Philippine embassy or

Consulate in the foreign country of his residence;

A certificate of the contract of employment of an overseas contract

worker who is duly registered with the Philippine Overseas
Employment Agency (POEA); or a Seamans Certificate, in the case of a
Filipino seaman;

A certification from the Bureau of Immigration that a non-resident

alien is not a resident of the Philippines;

A certification from the Department of Foreign Affairs (DFA) of the

Philippines that the individual is a regular member of the diplomatic
corps of a foreign government and is entitled to income tax exemption
under the international agreement to which the Philippines is a
signatory.

For corporate depositors, the original or certified copy of all the following must be
presented:
1
2 Certificate of registration of the corporation abroad; and
3
4 Certification from the Securities and Exchange Commission that the
non-resident corporation is not licensed to do business in the
Philippines.
5
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 nonresident individual or non-resident 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:

Name of withholding agents;

His/its address;

His/its Taxpayer Identification Number (TIN);

Period covered;

Gross income;

rate of final withholding tax applied; and

Amount of final withholding tax withheld.

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.