Chapter 5: Final Withholding Tax tax – free

- Imposes on person upon the person making income corporate

payments the responsibility to withhold covenant
- Taxpayer receives the amount net of tax. bonds TAX ON PRE-TERMINATION
- Applies only to certain passive income EARNED
FROM SOURCES WITHIN THE PHIL.
Non-resident persons not engaged in business in the
Philippines and Non-resident Foreign Corp.
- All income earned within the Phil whether active or
passive income are subject to final tax
Taxpayer General Final Rate
NRA – NETB 25%
NRFC 30%

PASSIVE INCOME subject to Final Tax

Interest or
yield from SOURCES RECIPIENT
bank Individuals Corp
deposits or Short term deposits 20% 20%
deposits (below 5 yrs)
substitutes Long term deposits Exempt 20%
(LOCAL (5 yrs and above) (except
CURRENCY) NRA-
NETB)

Tax on Pre-termination of Long-term deposits

of individual
Holding Period Final Tax
Less than 3 yrs 20%
3 yrs – 4 yrs 12%
4 yrs – 5 yrs 5%
5 yrs or more 0%
Domestic
dividends,
in general
Dividend
income
from a Real
Estate
Investment
Trust
Share in Net
Income of a
business
partnership,
taxable
association,
JV or co-
ownership
Royalties
Prizes
Winnings
Informer’s
tax reward
Interest
Income on