Final Income Taxation

Submitted by: Andy Roddick C. Tolentino

BSBA FM-2
Final Income Taxation
 Final tax is one of the exemptions to the
scope of the regular income tax. An excellent
understanding of the items of passive income
and those taxpayers subject to final tax
including their final tax rate is extremely
crucial to your mastery of income taxation.
FEATURES OF FINAL INCOME
TAXATION
 1. Final tax
 2. Tax withholding at source
 3. Territorial imposition
 4. Imposed on certain passive income and

persons not engage in business in the

Philippines
The Final Withholding System
 The final withholding system imposes upon
the person making income payments the
responsibility to withhold the tax. The text
which will be deducted at source is final. The
taxpayer receives the income net of tax and
there would be no need for him to file an
income tax return to report the same.
PASSIVE INCOME SUBJECT TO FINAL
TAX
 1. Interest or yield from bank deposits or deposit
substitutes
 2. Domestic dividends in general
 3. Dividend income from a Real Estate Investment Trust
 4. Share in the net income of a business partnership,

taxable associations, joint

ventures, joint accounts, or co-ownership
 5. Royalties in general
 6. Prizes exceeding P10,000
 7. Winnings
 8. Informer's tax reward
 9. Interest income on tax-free corporate covenant bonds
FINAL TAX ON INDIVIDUALS AND
CORPORATIONS
Unless otherwise indicated, the final tax rates
to be discussed in the following sections
apply to all taxpayers (individuals and
corporations) other than:
 A. Non-resident aliens not engaged in trade

or business (NRA-NETB)
 B. Non-resident foreign corporation (NRFC)
Final Tax on Interest from Bank
 Residents, other than depositary bank other
than the expanded foreign currency deposit
system, shall withhold 10% final tax on income
payments such as interest income on
loans from offshore banking units and
expanded foreign currency deposit units.
-Any interest earned from a peso bank deposit
is subject to a 20% final withholding tax as
required by the Bureau of Internal Revenue
(BIR).
EXCEPTIONS TO THE GENERAL FINAL TAX ON NON-RESIDENT PERSONS NOT
ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES