The Final Withholding Taxes

Deducted at source
No need to file income tax return
Inherently territorial
Rationale of final income taxation
Non-resident persons NETB in the
Philippines
Have high risk of non-compliance
No fixed placed of business in the
Philippines
Passive Income Subject to Final
Withholding Tax
(1.) Interest Income from local bank
deposits
Banks Deposits - Bank deposits
consist of money placed into banking
institutions for safekeeping.
Example: Current Accounts, Saving
Accounts, Term Deposits at iba pa.
Term Deposits - is a deposit held at a
financial institution that has a fixed term.
time deposit accounts tend to offer a
higher rate of return than traditional
savings accounts,
but the money must stay in the
account for a set period of time.
Short Term less than 5 years
20% FWT to Ind. and Corp.
Long Term more than 5 years
Exempt Ind., 20% FWT to Corp.
Tax on pre-termination of long term
deposits of individuals.
Withdrawal before the maturity date
a penalty fee is applied to the
depositor, usually equal to up to 75%
off of the accrued interest rate from
the date of the account creation up
to the date of the pre-termination.
Savings or time deposits with cooperative
are not subject to FWT.
Other Applications of the FWT on interest
(a)
Deposit Substitutes
(b)
Government Securities
(c)
Money Market Placements
(d)
Trust Funds
(e)
Other investments evidenced by
certificates prescribed by the BSP
Foreign Currency Deposit with Foreign
Currency Depository Banks

local branch of a foreign bank

authorized by the Central Bank to
engage in foreign currencydenominated transactions
7.5% FWT to resident ind. and
corp. while non-resident is
exempt
Joint account 50% of interest
exempt 50% is subject to
7.5%FWT.
Interest Income Subject to Regular Tax
(a)
Lending Activities, whether or not
in the course of business.
(b)
Investments in bonds
(c)
Promissory notes
(d)
Foreign sources, whether bank or
non-bank
(e)
Penalty for legal delay or default
(2.) Dividends - A dividend is a distribution
of a portion of a company's earnings,
decided by the board of directors, to a
class of its shareholders.
Types:
Cash Dividends = paid in cash
Property Dividends = paid in noncash properties including stocks or
securities.
Scrip Dividends = those paid in
notes or evidence of indebtedness
= providing a choice of receiving
cash dividends at future point in
time.
Example: giving the shareholder a
promissory note which they could
convert into cash at a future point in
time.
Stock Dividends = paid in stocks of
corporation
Liquidating Dividends = distribution
of corporate net asset
= liquidating dividends are not
taxable since they are merely the
return of the shareholder's
investments.
= liquidating dividends exceed the
cost of the investments, the excess
is a taxable capital gain subject to
regular tax.

 10% FWT to individuals

Exempt Dividends
(a)
Intercorporate Dividends
= to minimize double taxation
Ex. of double taxation
if you own a parent
corporation that owns a
subsidiary corporation, business
income earned by the subsidiary
is subject to tax. If the subsidiary
paid a dividend to your parent
corporation and it was taxable,
there would be double tax.
(b)
Dividends from cooperatives
(3.) Dividend income From Real Investment
Trust/REIT = is a publicly listed corporation
established principally for the purpose of
owning income-generating estate assets.
= to qualify as a REIT a company
must distribute at least 90 percent of its
taxable income to shareholders annually in
the form of dividends.
3 types of REIT
Equity
Mortgage
Hybrid
= In December 2009, Congress passed
the REIT Act but its implementation has
been put on hold because fiscal
authorities and the SEC failed to agree
on how to divide the ownership
between real estate companies and the
public.
= However, no REIT companies have
listed in the local bourse given
restrictive tax rules.
= Several property giants have earlier
expressed interest in REIT ventures,
among them SM Prime Holdings Inc.,
Ayala Land Inc. and Robinsons Land
Corp.
= The Philippine Stock Exchange (PSE)
has been pushing for the revival of the
REIT, saying that it could unleash new
investments front for the private sector.
(4.) Business partnership, taxable
associations, joint venture, joint accounts
or co-ownerships

Share in business partnership net

income
If interest and bonuses are expensed
in the book of the partnership =
Regular Tax in this case only the
residual is subject to FWT.
10 % FWT to partner other than NRAETB, NRA-NETB or NRFC shall be
subject to 20% , 25% and 30% FWT.
The Improperly Accumulated Earnings
Tax
Corporations which
accumulate earnings beyond
the reasonable needs of
business will be imposed the
10% Improperly Accumulated
Earnings Tax = Penalty Tax
(5.) Royalties = payment to an owner for
the use of property, especially patents,
copyrighted works, franchises or natural
resources
Active Royalties = Regular Tax
Passive Royalties = FWT
(6.) Prizes = may be exempt be exempt
from income tax or subject to either
FWT/Regular Tax.
Exempt Prizes:
Prizes received w/out any effort on
his part to join the contest
Ex. Nobel Prize, Most Outstanding
citizen and other similar awards
Prizes from sports competition that
are sanctioned by national sports
organization
(Philippine Olympic Committee
Inc.)
No FWT imposition on corporate
prizes
(7.) Winnings
No FWT imposition on corporate
prizes
PCSO and lotto are exempt
(8.) Tax informers Reward
Requisites:
Info. Not in possession of BIR
Info lead to discovery of fraud
Results In recovery of revenues,
surcharges and fees

Informer must not be:

a. BIR official/employee
b. Other public official
c. Relative within the 6th degree of
consanguinity of those officials
Cash reward limit 1 000 000
(9.) Tax-free corporate covenants Bonds
A bond covenant = is a legally binding
term of agreement between a bond issuer
and a bond holder. Bond covenants are
designed to protect the interests of both
parties.
Individuals = 30% FWT
Corporation = Regular income Tax