CHAPTER 5

FINAL INCOME TAXATION

FEATURES OF FINAL INCOME TAXATION with a maturity of not less than five
1. Final tax years prescribed by the BSP and issued
2. Tax withholding at source by banks only to individuals in
3. Territorial imposition denominations of P10,000 and other
4. Imposed on certain passive income and denominations as may be prescribed by
persons not engaged in business in the the BSP.
Philippines
TAX ON PRE-TERMINATION OF LONG-TERM
THE FINAL WITHHOLDING SYSTEM DEPOSITS ON INDIVIDUALS
 Imposes upon the person making Holding Period Final Tax
income payments the responsibility to Less than 3 years 20%
withheld the tax. 3 years to less than 4 years 12%
 Inherently territorial. 4 years to less than 5 years 5%
 Applies only to certain passive income 5 years or more 0%
earned from sources within the
Philippines. Interest income per year xxx,xxx
 Convenient for taxpayers who are Accrued interest xxx,xxx
limited by distance, time and cost to Total interest income xxx,xxx
comply. Final tax rate applicable %
Final tax (to be
 For government, most convenient and Pxxx,xxx
withheld)
effective system in collecting taxes on
income where there is high risk of non- Principal Balance xxx,xxx
compliance or tax evasion. Accrued interest xxx,xxx
Final tax to be withheld (xxx,xxx)
Non-resident person not General final Net proceeds to be released to the
Pxxx,xxx
depositor
engaged in trade or business tax rate
Non-resident alien not
25%  Savings or time deposits with
engaged in trade or business
cooperatives are not subject to final tax.
Non-resident foreign
30%
corporation OTHER APPLICATIONS OF THE FINAL TAX ON
INTEREST
PASSIVE INCOME SUBJECT TO FINAL TAX 1. Deposit substitute
1. Interest or yield from bank deposits or 2. Government securities
deposit substitutes 3. Money market placements
4. Trust funds
Recipient
5. Other investments evidenced by
Source of interest certificates prescribed by the BSP
Individuals Corporations
income
Short term deposits 20% 20%
Long-term
deposits/investment Exempt* 20% 6. Domestic dividends, in general
certificate 7. Dividend income from a Real Estate
**Exemption does not include NRA-NETB Investment Trust
8. Share in the net income of a business
 Short-term deposits – those made for a partnership, taxable associations, joint
period less than five years. ventures, joint accounts, or co-ownership
 Long-term deposits on investment 9. Royalties, in general
certificate – certificate of time deposit 10. Prizes exceeding P10,000

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 CHAPTER 5
FINAL INCOME TAXATION

11. Winnings
12. Informer’s tax reward
13. Interest income on tax-free corporate
covenant bonds

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