LEARNING ADVANCEMENT REVIEW CENTER

RM 413 DONA AMPARO BUILDING ESPANA BOULEVARD CORNER G. TOLENTINO ST.

SAMPALOC, MANILA
TAX 5.1
CONTACT # (02) 244 6342 / 0915 537 1189 / 0943 595 5364
(BATCH 4)

TAXATION GARCIA / CO / WONG

TAX – 5.1 FINAL WITHHOLDING TAX AND CAPITAL GAINS TAX
A. Final Withholding Tax

1. Passive Income
An individual may earn passive income in the Philippines or in a foreign country. Passive income earned in the
Philippines or in a foreign county is taxed as follows:

Classification Income within Type of income Income without Type of income

tax tax
Resident citizen ⁄ FWT* ⁄ RIT***
Non-resident citizen ⁄ FWT* E**
Resident alien ⁄ FWT* E**
Non-resident alien-ETB ⁄ FWT* E**
Non-resident alien-NETB ⁄ FWT* E**

Classification Income within Type of income Income without Type of income

tax tax
Estate ⁄ FWT* ⁄ RIT***
Trust ⁄ FWT* ⁄ RIT***

*FWT – Final withholding tax

**E – Exempt
***RIT – Regular income tax

a. Final Withholding Tax Rates of Certain Passive Income

1. Resident Citizen
a. Interest from any currency bank deposit 20%
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more
individual or corporate lenders) 20%
c. Yield or any other monetary benefit from trust funds and similar arrangements 20%
d. Royalties, in general 20%
e. Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Sec. 24 20%
(A)
f. -Other winnings 20%
-Philippine Charity Sweepstakes and Lotto winnings (TRAIN Law)
● P10,000 and below E
● of more than P10,000 20%
g. Royalties on books, as well as other literary works and musical compositions 10%
h. Interest income received from a depositary bank under expanded foreign
currency deposit system 15%
(TRAIN Law)

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i. Interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other E
investments evidenced by certificates in such form prescribed by Bangko Sentral ng Pilipinas
(BSP)
If pre-terminated before fifth year, a final tax shall be imposed based on
remaining maturity:
4 years to less than 5 years 5%
3 years to less than 4 years 12%
Less than 3 years 20%
j. Cash and/or property dividends actually or constructively received from a
DOMESTIC CORP. or from JOINT STOCK CO., INSURANCE or MUTUAL 10%
FUND COMPANIES and REGIONAL OPERATING HEADQUARTERS of
multinationals (beginning January 1, 2000}
k. Share of an individual in the distributable net income after tax of a
PARTNERSHIP (OTHER THAN a general professional partnership) of which 10%
he is a partner (beginning January 1, 2000)
l. Share of an individual in the net income after tax of an ASSOCIATION, a
JOINT ACCOUNT, or a JOINT VENTURE or CONSORTIUM taxable as a 10%
corporation of which he is a member or co-venturer (beginning January 1,
2000)

2. Non-Resident Citizen
a. Interest from any currency bank deposit 20%
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more
individual or corporate lenders) 20%
c. Yield or any other monetary benefit from trust funds and similar arrangements 20%
d. Royalties, in general 20%
e. Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Sec. 20%
24 (A)
f. -Other winnings 20%
-Philippine Charity Sweepstakes and Lotto winnings (TRAIN Law)
● P10,000 and below E
● of more than P10,000 20%
g. Royalties on books, as well as other literary works and musical compositions 10%
h. Interest income received from a depositary bank under expanded foreign
currency deposit system E
(TRAIN Law )
i. Interest income from long-term deposit or investment in the form of savings, common or E
individual trust funds, deposit substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed by Bangko Sentral ng Pilipinas
(BSP)
If pre-terminated before fifth year, a final tax shall be imposed based on
remaining maturity:
4 years to less than 5 years 5%
3 years to less than 4 years 12%
Less than 3 years 20%
j. Cash and/or property dividends actually or constructively received from a
DOMESTIC CORP. or from JOINT STOCK CO., INSURANCE or MUTUAL 10%
FUND COMPANIES and REGIONAL OPERATING HEADQUARTERS of

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multinationals (beginning January 1, 2000}
k. Share of an individual in the distributable net income after tax of a
PARTNERSHIP (OTHER THAN a general professional partnership) of which 10%
he is a partner (beginning January 1, 2000)
l. Share of an individual in the net income after tax of an ASSOCIATION, a
JOINT ACCOUNT, or a JOINT VENTURE or CONSORTIUM taxable as a 10%
corporation of which he is a member or co-venturer (beginning January 1,
2000)

3. Resident Alien
a. Interest from any currency bank deposit 20%
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more
individual or corporate lenders) 20%
c. Yield or any other monetary benefit from trust funds and similar arrangements 20%
d. Royalties, in general 20%
e. Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Sec. 24 20%
(A)
f. -Other winnings 20%
-Philippine Charity Sweepstakes and Lotto winnings (TRAIN Law)
● P10,000 and below E
● of more than P10,000 20%
g. Royalties on books, as well as other literary works and musical compositions 10%
h. Interest income received from a depositary bank under expanded foreign
currency deposit system 15%
(TRAIN Law)
i. Interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other E
investments evidenced by certificates in such form prescribed by Bangko Sentral ng Pilipinas
(BSP)
If pre-terminated before fifth year, a final tax shall be imposed based on
remaining maturity:
4 years to less than 5 years 5%
3 years to less than 4 years 12%
Less than 3 years 20%
m. Cash and/or property dividends actually or constructively received from a
DOMESTIC CORP. or from JOINT STOCK CO., INSURANCE or MUTUAL 10%
FUND COMPANIES and REGIONAL OPERATING HEADQUARTERS of
multinationals (beginning January 1, 2000}
n. Share of an individual in the distributable net income after tax of a
PARTNERSHIP (OTHER THAN a general professional partnership) of which 10%
he is a partner (beginning January 1, 2000)
o. Share of an individual in the net income after tax of an ASSOCIATION, a
JOINT ACCOUNT, or a JOINT VENTURE or CONSORTIUM taxable as a 10%
corporation of which he is a member or co-venturer (beginning January 1,
2000)

4. Non-resident aliens engaged in trade or business.

a. Interest from any currency bank deposit 20%

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b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more
individual or corporate lenders) 20%
c. Yield or any other monetary benefit from trust funds and similar arrangements 20%
d. Royalties, in general 20%
e. Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Sec. 20%
24 (A)
f. Other winnings 20%
(Philippine Charity Sweepstakes and Lotto winnings -) Exemp
t
g. Royalties on books, as well as other literary works and musical compositions 10%
h. Interest income received from a depositary bank under expanded foreign E
currency deposit system
(TRAIN Law) E
i. Interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other E
investments evidenced by certificates in such form prescribed by Bangko Sentral ng
Pilipinas (BSP)
If pre-terminated before fifth year, a final tax shall be imposed based on
remaining maturity:
4 years to less than 5 years 5%
3 years to less than 4 years 12%
Less than 3 years 20%
j. Cash and/or property dividends actually or constructively received from a
DOMESTIC CORP. or from JOINT STOCK CO., INSURANCE or MUTUAL 20%
FUND COMPANIES and REGIONAL OPERATING HEADQUARTERS of
multinationals (beginning January 1, 2000}
k. Share of an individual in the distributable net income after tax of a
PARTNERSHIP (OTHER THAN a general professional partnership) of which 20%
he is a partner (beginning January 1, 2000)
l. Share of an individual in the net income after tax of an ASSOCIATION, a
JOINT ACCOUNT, or a JOINT VENTURE or CONSORTIUM taxable as a 20%
corporation of which he is a member or co-venturer (beginning January 1,
2000)

5. For non-resident aliens not engaged in trade or business

a. Interest from any currency bank deposit 25%
b. Yield or any other monetary benefit from deposit substitute (obtained from 20 or more
individual or corporate lenders) 25%
c. Yield or any other monetary benefit from trust funds and similar arrangements 25%
d. Royalties, in general 25%
e. Prizes [except prizes amounting to P10,000 or less which shall be subject to tax under Sec. 25%
24 (A)
f. Other winnings including Philippine Charity Sweepstakes and Lotto winnings 25%

g. Royalties on books, as well as other literary works and musical compositions 25%
h. Interest income received from a depositary bank under expanded foreign
currency deposit system E
(TRAIN Law) E
i. Interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other 25%

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investments evidenced by certificates in such form prescribed by Bangko Sentral ng
Pilipinas (BSP)
If pre-terminated before fifth year, a final tax shall be imposed based on
remaining maturity:
4 years to less than 5 years 25%
3 years to less than 4 years 25%
Less than 3 years 25%
j. Cash and/or property dividends actually or constructively received from a
DOMESTIC CORP. or from JOINT STOCK CO., INSURANCE or MUTUAL 25%
FUND COMPANIES and REGIONAL OPERATING HEADQUARTERS of
multinationals (beginning January 1, 2000}
k. Share of an individual in the distributable net income after tax of a
PARTNERSHIP (OTHER THAN a general professional partnership) of which 25%
he is a partner (beginning January 1, 2000)
l. Share of an individual in the net income after tax of an ASSOCIATION, a
JOINT ACCOUNT, or a JOINT VENTURE or CONSORTIUM taxable as a 25%
corporation of which he is a member or co-venturer (beginning January 1,
2000)

Exercise:
The taxpayer is a Resident citizen, unless otherwise stated. Identify whether the following are subject to final tax
or not. Place Y on the space provided if it is subject to final tax and state the rate, otherwise place N.
Final tax? Rate
1. Interest from peso bank deposit, BDO Espana
2. Interest from US dollar bank deposit, BPI-Espana
3. Interest from US dollar bank deposit, Bank of New York, U.S.A
4. Yield or any other monetary benefit from deposit substitute
5. Interest from money market placement, BDO, Philippines
6. Interest from overdue notes receivable, Philippines
7. Royalties, in general, Philippines
8. Royalties, literary work, Philippines
9. Prize, P10,000, Philippines
10. Prize, P100,000, Philippines
11. Prize, P10,000, USA
12. Prize, P20,000, USA
13. Winnings, P10,000, Philippines
14. Winnings, P50,000, Philippines
15. Winnings, P10,000, U.S.A.
16. Winnings, P100,000, U.S.A.
17. Philippine Lotto winnings
18. USA Lotto winnings
19. Interest income received from depository bank under expanded foreign
currency deposit system
20. Interest income from long-term deposit or investment evidenced by
certificates issued by BSP
21. Dividend from a domestic corporation
22. Dividend from a resident foreign corporation
23. Dividend from a non-resident foreign corporation

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24. Share in distributive net income of business partnership in the Philippines
25. Share in distributive net income of general professional partnership in the
Philippines
26. Share in net income after tax of an association, a joint account, or a
joint venture or consortium.
27. Interest income under expanded foreign currency deposit system received by
NONRESIDENT ALIEN engaged in trade or business individual
28. Interest income under expanded foreign currency deposit system received by a
NON-RESIDENT CITIZEN individual
29. Dividend received by a NONRESIDENT ALIEN not engaged in
business in the Philippines from a domestic corporation.
30. Dividend received by a NONRESIDENT ALIEN engaged in trade in the
Philippines from a domestic corporation
31. Interest income under expanded foreign currency deposit system received by
NONRESIDENT ALIEN not engaged in trade or business individual.

2. Capital Gains Tax

a. Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange
Tax base: Net capital gains
Tax rates: (TRAIN Law – 15% on net capital gains)
(Old Law)
5% - not over P100,000
10% - excess of P100,000

b. Capital Gains from Sale of Real Property Classified as Capital Asset (Located in the Philippines)
Tax base: Gross selling price or fair market value whichever is higher
Tax rate: 6% final tax

c. Disposition of real property classified as capital asset by individual to the government or any of its
political subdivisions or agencies or to GOCCs

The tax to be imposed shall be determined either under Section 24 (A) for the normal rate of income tax for
individual citizens or residents or under Section 24 (D) (1) for the final tax on the presumed capital gains of
property at 6%, at the option of the taxpayer-seller.

d. Exemption from 6% capital gains tax on sale/transfer of principal residence

1) Exempt proceeds
Capital gains presumed to have been realized from the sale or disposition of their principal residence by
natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal
residence within 18 calendar months from the date of sale or disposition shall be exempt from capital gains
tax.

2) Escrow agreement
The buyer/transferee shall withhold from the seller and shall deduct from the agreed selling
price/consideration the 6% capital gains tax which shall be deposited in cash or manager’s check in interest
bearing account with an Authorized Agent Bank (AAB) under an Escrow Agreement between the
concerned Revenue District Officer, the Seller and the Transferee, and the AAB.

3) Carry-over of historical cost or adjusted basis

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The historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new
principal residence built or acquired.

4) Computation for the basis of the new principal residence

Historical cost of old principal residence xxx
Add: Additional cost to acquire new principal residence xxx*
Adjusted cost basis of the new principal residence xxx

*Cost to acquire new principal residence xxx

Less: Gross selling price of old principal residence xxx
Additional cost to acquire new principal residence xxx

5) Notification required
The Commissioner shall have been duly notified by the taxpayer within 30 days from the date of sale or
disposition through a prescribed return of his intention to avail of the tax exemption.
.
6) Exemption once every 10 years
The tax exemption can only be availed of once every 10 years.

7) Taxable portion if there is no full utilization of proceeds

If there is no full utilization of the proceeds of sale or disposition of principal residence, the portion of the
gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax.

The taxable portion is computed as follows:

Unutilized portion x Tax base
Gross selling price

Computation of adjusted cost basis of the new principal residence:

Utilized portion x Historical cost
Gross selling price

8) Filing of Final Capital Gains Tax Return on sale of principal residence

● After depositing the amount representing the 6% capital gains tax, the Buyer/Transferee and the
Seller, shall jointly file, within thirty (30) days from the date of sale or disposition of the principal
residence, with the RDO having jurisdiction over the property, in duplicate, the Final Capital Gains
Tax Return covering the property bought with no computed tax due stating that the supposed tax
due/amount so withheld by the buyer is maintained in an escrow account, which amount will be used
to satisfy future tax liability, if any, on the subject transaction.

● For purposes of capital gains tax otherwise due on the sale, exchange or disposition of the said
Principal Residence, the execution of the Escrow Agreement shall be considered sufficient.

Exercises
a. Mr. Dong Ramos bought shares from GJ Company for P400,000 and holds it as an investment. In the
same calendar year, he decided to sell the shares he bought from GJ Company for P450,000. The shares
were sold directly to Cliff Ramos.
1. How much is the capital gains tax on the sale if any?
2. Assuming the shares were sold for P650,00. how much is the capital gains tax on the sale if any?

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3. Assuming the share were sold for P300,000, how much is the capital gains tax on the sale if any?

b. Chris Papa, a married individual and a resident citizen has three(3) qualified dependent children and one
(1) qualified PWD. In January 2017, the following data for year 2016 on income and expenses were
provided to you:
Salary, Philippines P 200,000
Gross business income, Philippines (gross sales, P600,000) 500,000
Business expenses, Philippines 180,000
Gross sales, Korea 1,000,000
Gross business income, Korea 900,000
Business expenses, Korea 300,000
Interest income from bank deposit, Philippines 100,000
Interest income from bank deposit, USA 100,000
Yield and other monetary benefits, Philippines 200,000
Yield and other monetary benefits, USA 200,000
Interest income from domestic depository bank under EFCDS 100,000
Interest income from a debt instrument not within the coverage of deposit substitute,
Philippines, gross of 20% creditable withholding tax 150,000
Interest income from a debt instrument within the coverage of a
deposit substitute, Philippines 600,000
Royalty on books published in the Philippines 100,000
Royalty on books published in the Japan 300,000
Prize won in the Philippines 5,000
Prize won in a dance contest in the Philippines 25,000
Prize won in a dance contest in the Philippines 10,000
Philippine Charity Sweepstakes winnings 1,000,000
Gain from sale of shares of stock not traded through the local stock exchange 150,000
Dividend received from a domestic corporation 40,000
Dividend received from a foreign corporation 40,000
Tax payments, first three (3) quarters 100,000
1 - How much is the taxable net income in the Philippines?
2 - How much is the tax payable after deducting the allowable tax credits and payments?
3 – How much is the total final tax on certain passive income?
4 – How much is the capital gains tax?
5 – How much is the taxable net income using optional standard deduction?

d. (Adapted) In year 2016, Ms. April May Pebrero sold her rest house for P5,000,000. The rest house was
acquired for P3,000,000 one (1) year ago. The fair market value of the rest house at the time of sale
was P8,000,000. Ms. Pebrero built her new principal residence in eighteen (18) months in which she had
totally utilized the sales proceeds of the rest house. She had informed the BIR of her intention to avail
of the tax exemption within thirty (30) days from the date of sale.
1. How much was the capital gain tax, if any?
2. Assuming what was sold is a principal residence, how much was the capital gains tax due and the
basis of the new principal residence?
3. Assuming what was sold is a principal residence, how much was the capital gains tax due and the
basis of the new principal residence if Ms. April May Pebrero utilized only P3,000,000 of the
P5,000,000 sales proceed to build her new principal residence?
4. Assuming what was sold is a principal residence, how much was the capital gains tax due and the
basis of the new principal residence if Ms. April May Pebrero incurred P8,000,000 to build her new
principal residence?

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e. (Adapted) A resident alien individual with three qualified dependent adopted children asked you to assist
him in the preparation of his tax return for his income in 2011. He provided you the following
information:
Gross business income, Philippines (gross sales, P3,000,000) P 1,000,000
Gross business income, Japan (gross sales, P7,000,000) 5,000,000
Business expenses, Philippines 200,000
Business expenses, Japan 800,000
Philippine Charity Sweepstakes winnings 500,000
Japanese Sweepstakes winnings 400,000
Interest income, Bank of Tokyo, Japan 100,000
Interest income received from a depository bank under
Expanded Foreign Currency Deposit System (EFCDS), Philippines 300,000
Interest on peso bank deposit, Philippines 100,000
Quarterly income taxes paid 50,000
1 - How much was the taxable net income?
2 – How much was the tax due after deducting the quarterly tax payments?
3 – How much was the final tax on passive income?
4 – How much was the taxable net income using optional standard deduction?
END

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