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Non-Resident Foreign 15% Final Tax if tax sparing 30% Final Tax (if income
Corporation rule applies*** within)
Otherwise 30% Final Tax
Note: Under the CREATE
Act, in general, a foreign
corporation not engaged in
trade or business in the
Philippines, effective January
1, 2021 shall pay a final tax
equal to 25%
*Conditions for Exemption from Income Tax of Foreign Source Dividends received by a
Domestic Corporation;
1. The dividends actually received or remitted into the Philippines are Reinvested in the
business operations of the domestic corporation within the next taxable year from the
time the foreign-source dividends were received and remitted;
2. Dividends received shall only be used to fund the working capital requirements, capital
expenditures, dividend payments, investment in domestic subsidiaries, and infrastructure
project; and
3. The domestic corporation holds directly at least 20% in value of the outstanding shares
of the foregoing corporation and has held the shareholdings uninterruptedly for a
minimum of two years at the time of the dividend distribution. In case of the foreign
corporation has been in existence for less than 2 years at the time of dividends
distribution, then the domestic corporation must have continuously held directly at least
20 in value of the foreign corporation’s outstanding shares during the entire existence of
the corporation.
**Note:
1. Where the dividends received by a foreign corporation meets the 50% threshold (in the
predominance test), a portion of its the dividends will be treated as coming from
Philippine sources within the Philippines in an amount which bears the same ratio to
such dividends as the gross income of the corporation for such period derived from
sources within the Philippines bears to its gross income on all sources. (NIRC, Sec.
42(A)(2)(b)
2. Where the dividends received by a foreign corporation is less than the threshold, it shall
be treated as income from sources without the Philippines.
***Note: Conditions for the 15% final tax imposed on dividends received by NRFC from a
domestic corporation (Tax Sparing Rule)
1. The country in which the non-resident foreign corporation is domiciled allows a tax credit
against the tax due from the NRFC taxes deemed to have been paid in the Philippines
equivalent to 15%; or
2. Such country does not impose tax on dividends
The 15% represents the difference between the RCIT of 30% (now 25%) on corporations
and the 15% tax on dividends. It is the amount of tax spared, waived, forgiven or
otherwise as if paid by the Philippine government in favor of the non-resident
corporation. (CIR v. Procter and Gamble PMC, G.R. No. L-66838)
Note: Effective July 1, 2020, the credit against the tax due shall be equivalent to the
difference between the RCIT rate and the 15% on dividends.
Note: Under the CREATE ACT, capital gains from sale of shares of stocks not traded in
the stock exchange if sale is made by a Resident Foreign Corporation and Non-Resident
Foreign Corporation is subject to final tax 15%
Tax Base: Net capital gains (gross selling price or consideration less cost or adjusted
basis) on a per transaction basis.
2. Sale or other Disposition of Real Property Subject to CGT by a Non-dealer
CGT Rate:
GR: 6% on the Gross Selling Price or Zonal Value or the FMV as shown in the schedule
of values of the provincial and city assessors, whichever is higher.
Corporation Liable: Domestic Corporation
Special Rules on Capital Gains or Losses subject to Regular Income tax rates:
1. Holding Period - regardless of the holding period, 100% if the capital gain or loss is
recognized, the rule on holding period does not apply.
The holding period does not apply to real property subject to 6% capital gain tax and
shares of stock of a domestic corporation not traded in the stock exchange with a 15%
rate.
2. Deductibility of Net Capital Loss - Capital losses are allowed only to the extent of
capital gains. Hence, net capital loss is not deductible.
Reason: To ensure the matching of costs against the revenues consistent with the rule
that only business expenses are deductible from gross income. Capital loss is not a
business expense.