FINAL INCOME TAXATION

I. Important Features of FINAL INCOME TAX b. Foreign Currency Deposits with Foreign
(FIT) Currency Depositary Banks.
1. Tax is withheld at source. Taxpayer Individuals Corporations
2. Income earner will no longer file tax Residents 7.5% 7.5%
return. Non-residents Exempt Exempt
3. Imposed only to some passive income (3.75%) Half (3.75%) Half
Joint account by a is Exempt is Exempt
earned within the Philippines. Income
resident and a non- and half is and half is
earned outside the Philippines is never resident subject to subject to
subject to FIT. 7.5%. 7.5%.
 There is no short term or long term
II. General Final Tax Rates of Non-resident classification of foreign currency deposits.
Persons
General c. Income from following are subject to regular
Type of Non-resident Person Final Tax income tax, not to final income tax:
Rate
i. Lending activities, whether or not in the
Non-resident Alien – NETB 25%
course of business.
Non-resident Foreign Corp. 30%
ii. Investments in Bonds
III. Passive Income Subject to Final Tax iii. Promissory Notes
1. Interest from bank deposits* or deposit iv. Foreign sources, whether bank or non-
substitutes**. bank
v. Penalty for legal delay or default.
*This includes interest from government
securities, money market placements, trust 2. Dividends
funds, and other investments evidenced by - Except share dividends and liquidating
certificates prescribed by BSP. However, interest dividends, since these do not represent
from credit cooperatives is exempt from tax. income.

**To be considered a deposit substitute, the entity

Recipient
must have at least 20 different depositors. Source of Dividend Individual Corporation
Domestic Corporation 10% FT^ Exempt^^
Recipient
Foreign Corporation Reg. Tax Reg. Tax
Individual Corporation
^NRA-ETB is subject to 20% FT, not 10% FT
Deposits with
maturity of less ^^Inter-corporate Dividend, dividend from
Source of Interest

20% 20% cooperative is also exempt

than 5 years.
Income

(Short term)
Deposits with a. Entities taxable as corporations^^^
maturity of not i. Real Estate Investment Trust
less than 5 Exempt*** 20% ii. Business Partnership^^^^
years.
iii. Taxable Association
(Long term)
*** Exemption does not include NRA-NETB iv. Taxable Joint Venture, Joint Account or
Consortium
a. Pre-termination of Long Term Deposits. v. Taxable Co-ownership
Holding Period Final Tax Rate
< 3years 20% ^^^ These entities are taxable with the same rule a
≥ 3 years but < 4 years 12% corporation is taxed.
≥ 4 years but < 5 years 5% ^^^^ Share in net income is not limited only to
≥ 5 years Exempt
share in residual income but also to salaries,
 All taxes are withheld at the date of pre-
interest, and bonuses. However, if the provision for
termination date.
salaries, interest, and bonuses are expensed in the
books, these shall be subject to regular tax.
 FINAL INCOME TAXATION

3. ROYALTIES Requisites:
Recipient a. Sworn information is not yet on the
Individual Corporation possession of BIR
b. Information furnished leads to discovery of
Source of Passive

Books*,
Literary Works* fraud.
Royalties

10% FT 10% FT
and musical c. Enforcement results to discovery of
composition revenues, surcharges, and fees and/or
conviction of the guilty part or imposition of
Other Sources 20% FT** 20% FT any fine or penalty.
d. Informer must not be:
* pertains only to printed copies, soft copies and
i. BIR official or employee
copies on CD are subject to 20% FT
ii. Other public official or employee
** Royalties from cinematographic films of a NRA-
iii. Relative within 6th degree of
ETB is subject to 25% FT
consanguinity of those i and ii.

4. PRIZES
Cash Reward is whichever is lower of:
a. 10% of revenues, surcharges, or fess
Recipient
recovered or fine or penalty imposed and
Amount of taxable
Individuals Corporations collected or
prize
> 10,000 20% FT Regular Tax b. 1,000,000
≤ 10,000 Regular Regular Tax (Note: maximum net amount to be received
Tax by informer is 900,000)

Exempt Prizes: 7. INTEREST ON TAX-FREE

a. Received by recipient without effort on his CORPORATE COVENANT BONDS
part to join a contest. a. If bond investor is an individual, 30% FT
b. Prizes from sports competition that are regardless of classification, including NRA-
sanctioned by their respective national NETB
sports organization. b. If bond investor is a corporation, subject to
Requisites: regular income tax regardless of
i. Recipient is selected without any action from classification, including NRFC.
his part to enter contest.
ii. Recipient is not required to render substantial IV. EXCEPTIONS OF GENERAL FINAL
future services as a condition of receiving the TAX RATES ON NRA-NETB AND NRFC
prize
NRA-NETB NRFC
5. WINNINGS Capital gain on sale of
5%-10% 5%-10%
domestic stocks
CGT CGT
Recipient directly to buyer
Individuals Corporations Rentals on
25% of 25% of
PCSO or cinematographic films
rentals rentals
Type of Winnigs

lotto and similar works

Exempt Exempt 25% of 4.5% of
winnings Rental of vessels
*** rentals rentals
Rentals of aircrafts,
Other 25% of 7.5% of
machineries, and other
winnings, in 20% FT Regular Tax rentals rentals
equipment
general 15% Gross
Special Aliens Income from N/A
*** Exemption extends to NRA-NETB and NRFC employer
PCSO and Lotto
Exempt Exempt
6. INFORMER’S TAX REWARD Winnings
10% FT on cash reward Interest on FCDS Exempt Exempt
 FINAL INCOME TAXATION

Interest on Foreign 20% 1. Foreign government and Foreign GOCCs

N/A
Loan 2. International missions or organization with
15% if tax tax immunity
sparing 3. Qualified trust fund*
Dividend Income 25%
rule is
* Exempt from any tax in the NIRC.
applicable
Tax on corporate
30% 30%
bonds

V. OTHER APPLICATION OF FINAL

INCOME TAX
1. Compensation income of Filipinos classified
as special aliens (15%)
2. Fringe benefits of managerial and
supervisory employee (15%, 25%, and 32%)
3. Income payments to OBUs and EFDUs
(10%)
4. Subcontractor of petroleum service
contractor (8% of Gross income)

VI. FINAL WITHHOLDING TAX RETURN

1. BIR Form 1601-F or monthly remittance
return of final income taxes withheld
2. Filed in triplicate by every withholding
agent or payor

VII. DEADLINE AND PLACE FOR MANUAL

FILING
 Deadline: on or before the 10th day of the
month following the month in which
withholding was made.
 Place:
a. Authorized agent bank of the revenue
district office
b. In case no authorized agent bank, to the
revenue collection officer
c. Authorized city or municipality treasurer
within the revenue district where the the
withholding agent’s place of business is
located.

VIII. Deadline of eFPS filing

 Group A – 15 days following end of month

 Group B – 14 days following end of month
 Group C – 13 days following end of month
 Group D – 12 days following end of month
 Group E – 11 days following end of month

IX. ENTITIES EXEMPT FROM FINAL

INCOME TAX