Chapter 5 - FINAL INCOME TAXATION
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1. Final tax
2. Tax withholdong at sources
3. Territorial imposition 4 features of final income taxation
4. Imposed on certain passive income and persons not engaged
in business in the Philippines
The final witholding system imposes upon the person
making income payments the responsibility to withold the tax.
______________.
In F.I.T., the tax will be deducted at source is ________. Final
In F.I.T., the taxpayer receives the income net of tax and there
would be ____________ (need or no need) for him to file an
no need
income tax return.
The final witholding system is ________________. It applies
ONLY to certain passive income earnes from sources within the inherently territorial.
Philippines
RATIONALE of Final Income Taxation:
Taxpayer and government convenience The final witholding tax is built upon
_______________________________. It relieves the taxpayer of
the obligation to file an income tax return.
Under the NIRC, the final income tax is imposed on
Certain Passive Income; Non Resident Person not engage in
____________________________ (Active or passive) and upon
business in the Philippines
____________________________ (Type of Resident).
those that are earned with very minimal involvement from the
taxpayer and are generally irregular in timing and amount and is
best used with the final withholding scheme for passive income.
Items of passive income
DIFFICULT to predict and ACTUAL AMMOUNT may be DIFFI-
CULT TO DETERMINE.
2 of the types of taxpayers that have HIGH RISK OF NON
COMPLIANCE, and are thus subject to final income tax. These
1. NRA-NETBs
taxpayers do not have offices or fixed places of business in the
2. NRFCs
Philippines making tax compliance very unlikely due to their ab-
sence and distance in the Philippines.
25% General final tax rate of NRA-NETB
25% General final tax rate of NRFCs
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 NI of a business partnership, taxable associations,
joint ventures, joint accounts, or co-ownership
9 passive income subject to final tax
5. Royalties, in general
6. Prizes exceeding 10k
7. Winnings
8. Informer's tax reward
9. Interest income on tax-free corporate covenant bonds
INTEREST INCOME OR YIELD INTEREST INCOME OR YIELD
Final tax rate on interest earned from Short term Deposits for
20%
Corporations.
Final tax rate on interest earned from banks, Short Term Deposits
20%
for Individuals.
Final tax rate on interest earned from banks, long/short term
25%
deposits for NRA-NETB and NRFC.
The final tax deposit applies only to those made with
banks
____________.
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Chapter 5 - FINAL INCOME TAXATION
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Short term deposits deposits made for a period of less than 5 years
Individuals (except NRA-NETB) - exempt Final tax rate on interest earned from banks, long term deposits
Corporation (except NRFC) - 20% for individuals and corporations
Deposits made for a period of 5 years or more.
It refers to certificate of time deposit or investment in the form
Long term deposits or investment certificates
of savings, common or individual trust funds, deposit substitutes,
investment management accounts, and other with maturity of not
less than 5 years.
Coporations are ____________________ but are subject to reg-
Not exempt ular tax on interest income on long-term deposit or investment
certificates. (See illustration 1, pg. 138)
The final tax is ______________ (limited/not limited) to banks and
__________________ (shall/shall not) be applied with time and
limited; shall not
savings account deposit maintained by members with coopera-
tives and by primary cooperatives with their freedom.
an alternative form of obtaining funds from at least 20 persons at
any one time other than deposits through the issuance, endorse-
ment, or acceptance of debt instruments for the borrowers' own
account.
Deposit Substitute
For the purpose of relending or purchasing of receivables and
other obligations, or financing their own needs of their agent or
dealer.
Public means 20 or more corporate lenders at any one time.
The 19-lender rule
The floatation of a debt instrument is _________________
not considered; not deemed (considered/not considered) to be a public borrowing and is
_______________ (deemed/not deemed) a deposit substiture if
there are only 19 or less individual or corporate lender at any one
time.
Treasury Bonds, Treasury Bills, and Treasury Notes
shall be _____________________ as substitute
considered; irrespective of the number of lender
_______________________ (in respect or no of number or
lenders) at origination.
< 3 yrs - 20%
3-4 - 12% final tax rate on pre-termination of long-term deposits of individu-
4-5 - 5% als
> 5 yrs - 0%
Those of cooperatives' exempted savings and time deposits from final tax
1. Deposit substitute
2. Government securities
3. Money market placements 5 other applications of the final tax on interest
4. Trust funds
5. Other investments evidenced by certificates prescribed by BSP
an alternative form of obtaining funds from at least 20 persons at
any one time other than deposits through the issuance, endorse-
Deposit substitute
ment, or acceptance of debt instruments for the borrowers' own
account
Residents - 7.5%
Non - exempt final tax rate on foreign current deposit under foreign currency
depositary banks
(for both indiv & corpo)
final tax rate on interest from joint accounts (by resident and non
50% is exempt while 50% is subject to 7.5% final tax rate
res) on forex deposits
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Chapter 5 - FINAL INCOME TAXATION
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1. Lending activities
2. Inv in bonds
3. Prom. notes 5 interest income subject to regular income tax
4. Foreign sources
5. Penalty for legal delay or default
any distribution mad any corpo to its shareholders out of its earn-
Dividends
ings or profits and payable to its shareholders
1. Cash
2. Property
3. Scrip 5 types of dividends
4. Stock
5. Liquidating
Cash div dividend paid in cash
dividend paid in non cash properties including stocks pr securities
Property div
of another corpo
Scrip div dividends paid in notes or evidence pf indebtedness of the corpo
Stock div dividends paid in stocks of the corpo
Liquidating div dividends for the distribution of corpo net asset
1. Stock dividends
2 dividends whose income are not for taxation purpose
2. Liquidating dividends
when5y6655yy65yyy5nuttytransfer 55 is stock exceptionally tax-
1. Subs5days in the corpo5
able
Stock div are given in lieu of cash div or when corpo declared an
when does substantial alteration in ownership in the corpo occur?
optional stock or cash dividend
NONE. It is absolutely not subject to income exception to the non taxability of stock split
Individuals - 10% (nra etb - 20%, nra netb -25%)
dividend tax rules for dvdnds from domestic corpos
Corpos - exempt (nrfc -30%, or 15% in some cases)
Regular tax for both individuals and corpos dividend tax rules for dvdnds from foreign corpos
1. inter corporate
2 exempt dividends
2. dvdnds from coops dvdnds
why are corporate (and business partnership) recepients of divi-
To eliminate the impact of double taxation
dends exempted from taxation?
1. Real estate investment trusts (REIT)
2. Business partnerships
3. Taxable associations 5 entities taxable as corporation and thus subject to 10% final tax
4. Taxablr joint ventures, joint accounts or consortia
5. Taxablr co-ownerships
a publicly listed corporation established principally for the purpose
REIT
of owning income-generating real estate assets
1. Non resident alien or nrfcs entitled to claim preferential tax
pursuant to applicable tax treaty
3 recepients of reit dividends exempt from final tax
2. Domestic corpos or rfcs
3. Overseas filipino investors (only until aug 12 2018)
Deemed constructively received by PARTNERS, MEMBERS, OR for the last or remaining 4 exempted (from final tax) entites, how
VENTURERS is net income received?
Point of determination of income, NOT at the point of actual for the last or remaining 4 exempted (from final tax) entites, when
distribution does the final tax of 10% apply?
1. Share in residual profit (ONLY THIS IS SUBJECT TO FINAL
TAX if the other 2 are expensed, and are thus subject to regular
tax to receiving partner) inclusions of share in net income of business partnership
2. Salary provisions
3. Interest & bonus to a partner
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Chapter 5 - FINAL INCOME TAXATION
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penalty tax imposed to corpos that accumulate earnings beyond
10% Improperly accumulated earnings tax
the reasonable needs of business
Books (in print), literary works, and musical compositions - 10%
tax rule for royalties from sources within Ph. for individuals
Other sources - 20%
Books (in print), literary works, and musical compositions - 20%
tax rule for royalties (PASSIVE) from sources within Ph. for corpos
Other sources - 20%
Regular income tax tax imposed for royalties (passive or active) from sources abroad
1. Received w/o effort to join contest
2. From sports competitions sanctioned by their respective na- 2 prizes exempt from final tax
tional sport organizations
1. Recepient was selected w/o any action on his part to join
2. He is not req to render substantial future servicesvas a condition 2 requisites of exemption for prizes
to receive price or reward
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