The Final Withholding System
•
Imposes upon the person making income payments the responsibility to withhold the tax.
•
Tax deducted at source is final.
•
Taxpayer receives income net of tax and not needed to file an ITR.
•
Applies to certain passive income earned from sources within the Philippines.
Passive Income



Earned with very minimal involvement; generally irregular in timing and amount
Their existence can be difficult to predict and amount may be difficult to determine.
Final withholding at source is the most favored scheme
NRA-ETB/NRFC



Have high risk of non-compliance
Cannot imposed upon them the obligation to file return due to territorial consideration
General final tax rate: 25% (both)
PASSIVE INCOME SUBJECT TO FINAL TAX:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Interest or yield from bank deposits or deposit substitutes
Domestic dividends, in general
Dividend income from a Real Estate Investment Trust
Share in the net income of a business partnership, taxable associations, joint ventures, joint
accounts, or co-ownership
Royalties
Prizes exceeding P10,000
Winnings
Informer’s tax reward
Interest income on tax-free corporate covenant bonds
Interest Income or Yields
On Interest Income
From banks
- Short-term deposits
- Long-term deposits
From non-bank
- Short-term deposits
- Long-term deposits
Recipent
Individuals
Corporation
20%
Exempt
20%
RIT
RIT
RIT
RIT
RIT
Short-term deposits: < 5 yrs.
Long-term deposits / investment certificates: >=5 yrs. (issued by banks only)