INCOME TAXATION Historical Dividend Tax Rates

Topic: Final Taxation Source Final Tax

Prof: Aljon J. Roque, CPA, MBA Earnings before January 1 ,1998 EXEMPT
Earnings from 1998 6%
Features of Final Income Taxation Earnings from 1999 8%
1. Final Tax Earnings from 2000 and thereafter 10%
2. Tax withholding at source
3. Territorial imposition EXEMPT DIVIDENDS
4. Imposed on certain passive income and persons not engaged in 1. Inter-corporate Dividends – received by a domestic corporation
the Philippines (NRA-NETB- 25% / NRFC – 30%) and resident corporation from a domestic corporation

Passive Income subject to Final Tax Exclusions from the exemption of intercorporate dividends:
1. Interest or yield from bank deposits or deposit substitutes
2. Domestic dividends, in general a. dividends received by a general professional partnership, exempt
3. Dividend income from a Real Estate Investment Trust joint ventures and exempt co-ownerships
4. Share in the net income of a business partnership, taxable
associations, joint ventures, joint accounts, or co-ownership b. Share of a corporation from a net income of a business
5. Royalties, in general partnership (due to absence of legal exemption) however business
6. Prizes, exceeding P 10,000 partnerships receiving dividends from a domestic corporation is
7. Winnings exempt.
8. Informer’s tax reward
Note that 10% final tax, if there’s any on the share of the net income
a. Interest or Yield from Bank Deposits or Deposit Substitutes applies at the point of income determination, not at the point of
actual distribution
Interest Income or Yield from Local Currency Bank Deposits or
Deposit Substitutes
Inter-corporate dividends received by a domestic corporation and
resident foreign corporation from resident foreign corporation
Source of Interest Income Individuals Corporations
Short Term Deposits 20% 20% - based on the ratio of the gross income of the foreign
Long Term Deposits Exempt* 20% corporation for the preceding 3 years prior to declaration
*Exemption does not include NRA-NETB of dividends derived from Philippine sources)

Tax on pre-termination of long term deposits of individuals

Holding Period Final Tax Phil. Gross Income x Dividend
Less than 3 years 20% Total Gross Income
3 years to less than 4 years 12%
4 years to less than 5 years 5%  Income within if ratio is more than 85%
5 years or more 0%  Income partly within and partly without if ratio is between
50% and 85%
 Income purely without if ratio is less than 50%
Interest Income or Yield from Foreign Currency Bank Deposits or
Deposit Substitutes 2. Dividends from cooperatives – under RA 9520, the distribution of
dividends by an exempt cooperatives to its members
Taxpayer Individuals Corporations
c. Dividend Income from a Real Estate Investment Trust (REIT)
Residents 7.5% 7.5% - a publicly-listed corporation established principally for
Non residents EXEMPT EXEMPT the purposes of owning income-generating real estate assets

Exemptions:
b. Dividends 1. Non-resident alien individuals or NRFCs entitled to claim
preferential tax rate pursuant to applicable tax
treaty
Source of Dividend Income Individuals Corporations 2. Domestic corporations or resident foreign corporations
Domestic Corporation 10%1 EXEMPT2 3. Overseas FIlipino investors (until August 12, 2018; 7
Foreign Corporation Sec 24A Sec 24A years from the date of effectivity)

Note: d. Royalties
1. A NRA-ETB is subject to a 20% final tax on dividend, not to the
usual 10%; but an NRA-NETB is subject to a 25% final tax
Source of Passive Royalties Individuals Corporations
2.A NRFC is not exempt but is subject to the general final tax rate. Books, literary works and musical 10%1 20%
However, the imposable dividend tax shall be 15% when the tax compositions
sparing rule applies. Other sources 20%2 20%2

1. The 10% preferential tax rates applies only to printed literatures

2. Royalties on cinematographic films and similar works paid to NRA-
ETB, NRA-NETB, or NRFCs are subject to a final tax of 25%
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e. Prizes

Amount of Taxable Prize Individuals Corporations

Prizes exceeding P10,000 20% Sec 24 A COMPLIANCE REQUIREMENTS
- BIR FORM 1601F (Monthly Remittance Return of Final
Prizes not exceeding P10,000 Sec 24 A Sec 24 A
Income Taxes Withheld)
Exempt Prizes:
1. Prizes received a recipient without any effort on his part to join a This return is filed by every Withholding Agent (WA)/payor
contest (i.e. Nobel Prize, Most Outstanding Citizen, etc) who is either an individual or non-individual, required to
2. Prizes from sports competitions that are sanctioned by their deduct and withhold taxes on income payments subject to
national sports organizations Final Withholding Taxes.

Requisite of Exemption:
1. The recipient was selected without any action on his/her part to
enter the contest
2. The recipient is not required to render substantial future service
as a condition to receiving the prize or reward
The return shall be filed and the tax shall be paid on or
before the 10th day of the month following the month on
which withholding was made
ENTITIES EXEMPT FROM FINAL TAXES

f. Winnings
1. Foreign governments and foreign government-owned and
controlled corporations
Taxable Winnings Individuals Corporations 2. International missions or organizations with tax immunity
PCSO or Lotto Winnings Exempt1 Exempt 3. General professional partnership
Other winnings, in general 20% Sec 24 A 4. Qualified employee trust funds
Note:
1. The exemption on PCSO or Lotto winnings also extends NRA-NETB
and NRFCs

g. Tax Informer’s Reward – 10% of cash reward

Cash Reward – whichever is lower between:
1. 10% of seized amount
2. P 1,000,000

EXCEPTIONS TO THE GENERAL FINAL TAX OF NRA-NETB or NRFC

NRA- NETB (25%) NRFC (30%)

Exceptions:
1. Capital gain on 5%-10% CGT 5%-10% CGT
sale of domestic
stocks directly to
buyer
2. Rental on 25% on rentals 25% on rentals
cinematographic
films and similar
works
3. Rentals of 25% on rentals 4.5% on rentals
vessels
4. Rentals of 25% on rentals 7.5% on rentals
aircrafts,
machineries, and
other equipments
5. Special aliens 15% of gross N/A
(special employees) income from
employer
6. Lotto and PCSO Exempt Exempt
Winnings
7. Interest income Exempt Exempt
under EFCDS
8. Interest on N/A 20%
foreign loans
9. Dividend Income 25% 15% (if tax sparing
rule is applicable)

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Problem 1
1. On January 1, 2011, Arman invested P1M in ANZ Bank’s 5 year
time deposit. The deposit pays 10% annually. Arman pre-terminated
the deposit on July 1, 2014.

a. How much is the final tax to be withheld in relation to pre-

termination of deposits, if any?
b. How much is the net proceeds to be received by Arman on July1,
2014?

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