EX EX EX EX: Regular Income Tax

 

 

Passive Income

INTEREST INCOME Local Currency Deposits Short-term Interest or Yield (less than 5 years) Long-term Interest or Yield (more than 5 years)  Pre-termination of long-term deposits (individual) Less than 3 years 3 years to less than 4 years 4 years to less than 5 years Foreign Currency Deposits  Interest Income from FCDUs/OBU depositary banks Interest on loan payable to FCDUs/OBU Interest on loan payable to NRFC Dividend Income  From domestic corporations From foreign corporations From Real Estate Investment Trust Share in the NI of taxable partnerships, joint venture, and co-ownership (PARTNERS ARE TAXABLE) Royalties  Passive royalties from cinematographic films and similar works Passive royalties from books, literary works, and musical compositions (ebooks, ecopies, 20%)  Other Sources of Passive royalties Active royalties Prizes  P10,000 and below Above P10,000

Individual Alien Citizen Nonresidents RC NRC RA ETB NETB

Corporations DC

RFC

NRFC

20% EX

20% EX

20% 20% EX EX

25% 25%

20% 20%

20% 20%

30% 30%

20% 12% 5%

20% 12% 5%

20% 12% 5%

20% 12% 5%

25% 25% 25%

20% 20% 20%

20% 20% 20%

30% 30% 30%

15%

EX

15%

EX

EX

15%

15%

EX

10% EX

EX EX

10% EX

EX EX

EX EX

10% EX

10% EX

EX 20%

10%

10%

EX

15%

10%

EX

10% 20% 25% EX REGULAR INCOME TAX  TAX   10% N/A EX N/A

EX

10%

10%

10%

10%

20% 20%

25%

10%

10%

30%

20%

20%

20%

20% 20%

25%

20%

20%

30%

10%

10%

10%

10% 10%

25%

20%

20%

30%

20%

20%

20% 20% 25% 20% REGULAR INCOME TAX  TAX  

20%

30%

TAX  REGULAR INCOME TAX 

25%

20%

20%

20%

20%

25%

20%

20%

20%

20%

25%

Regular Income Tax  Tax  Regular Income Tax  Tax 

30% 30%

Winnings  In general

Regular Income Tax  Tax 

30%

PCSO and lotto winning  P10,000 and below

EXEMPT EXEMPT  

25%

Above P10,000

20%

20%

20%

20%

25%

Tax Informer’s Reward 

10%

10%

10%

10%

25%

EXEMPT  EXEMPT  Regular Income Tax  Tax  10% 10%

30% 30% 30%

EXEPTIONS EXEPTION S TO THE T HE GENERAL FINAL TAX ON NRA-NETB AND NRFC   NRA-NETB (25%) NRFC (30%) Rentals on cinematographic films and similar 25% of rentals 25% of rentals works Rentals of vessels 25% of rentals 4.5% of rentals Rentals of aircrafts, machinery, and other 25% of rentals 7.5% of rentals equipment 15% if tax sparing rule is Dividend income 25% applicable

 

 PASSIVE INCOME (FINAL TAX) It is earned with very minimal or without active involvement of the taxpayer in the earning process and are generally irregular in timing and amount.

CAPITAL GAINS (CAPITAL GAINS TAX) Gains realized on the sale, exchange, and other dispositions of active capital assets. 

REGULAR INCOME (REGULAR INCOME TAX) Active income which arises from transactions requiring considerable degree of effort or undertaking from the taxpayer.

FINAL TAX  -Characterized by final taxes wherein FULL TAXES ARE WITHHELD net of taxes. -The payor is the one required by law to remit the tax to the government. -The recipient income taxpayer does not need to file fi le income tax returns because the withheld tax constitutes the full tax due and are therefore deemed final payments. PAYEE (remits taxes)  GOVERNMENT

PAYEE (Net of Taxes)  RECIPIENT

COVERAGE OF FINAL TAX Unless otherwise indicated, the final tax rates shall apply to ALL TAXPAYERS, except for NRA-NETB (taxed 25%) and NRFC (taxed 30%) General Rule. Final tax rates applies to:

           



RC



NRC



RA



NRA-ETB



DC



RFC

Exception.

  NRA-NETB (25%)   NRFC (30%)   UNLESS OTHERWISE STATED







FEATURES OF FINAL INCOME TAXATION

       



Final 



Tax Withheld at Source 



Territorial Imposition – passive income that are subject to final tax SHOULD BE EARNED WITHIN THE PH 



Imposed on certain passive income and persons not engaged in i n business in the PH (NRA-NETB and NRFC) 

NONRESIDENT NONRESIDE NT PERSONS NOT ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES PHILIPPINES (NRA-NETB, NRFC) They have high risk of noncompliance that is why they are subjected to final tax. And because of the distance and absence in the country make it very unlikely for tax compliance to be expected that’s why the Philippine residents shall withhold the final tax from their gross income, active or passive, from all sources within the PH.

INTEREST INCOME/YIELD Earnings derived from depositing or lending money, goods, or credits Sources could be:

 

       



Savings deposit



Time deposit



Government securities



Deposits substitutes

DEPOSITS SUBSTITUTES An alternative form of obtaining funds from at least 20 persons at any one time other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrowers own account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent ag ent or dealer.

       



Government debt instruments and securities



Treasury bonds



Treasury bills



Treasury notes

*irrespective of the number of lender at origination origi nation if such debt instruments and securities are to be traded or exchange in the secondary market.

ILLUSTRATION A.  Winnie, a resident citizen, deposited P2,000,000 in the 180-day time deposit of BDO. The deposit pay 8% interest. Compute the final tax on maturity of the deposit.

Computation:  Interest Income = 2m x .08 x 180/360 = 80,000 (interest inc income) ome) x .20 = 16,000 (final tax to be withheld by BDO) (64k (80k-16k) of interest income is to be received by Winnie) Wi nnie) B.  Winnie, a resident citizen, deposited P2,000,000 in the 180-day time deposit of BDO. The deposit pay 8% interest. Compute the final tax on maturity of the deposit. Assume that Winnie is a nonresident alien NOT engaged in trade or business, compute the final tax on maturity of the deposit.

Computation:  Interest (2m x 8% x 180/360) X Final Tax Rate Final Tax

80,000 25%

P20,000

C.  Renz received P42,000 interest from short-term deposits. Compute the final tax withheld on the interest.  Computation: 42k / 80% = 52,500 (interest income) – 42,000 (net of final tax) = P10,500 (final tax withheld)

FINAL TAX ON PRE-TERMINATION OF LONG-TERM DEPOSITS OF INDIVIDUALS If long-term deposits or investments of individual taxpayers is pre-terminated with less than five years of holding period, any previous untaxed or exempted interest income will be subject to the following taxes upon pre-termination.

  Less than 3 years   3 years to less than 4 years   4 years to less than 5 years



20%, NETB 25%



12%, NETB 25%



5%, NETB 25%

ILLUSTRATION On January 1. 2019, Meredith invested P3,000,000 in the t he six-year time deposit of BPI which pays 6% annual interest. How much is the final tax to be withheld by BPI on December 31, 2019? i t is a long-term deposit and there is no information if it will be pre -terminated Answer: zero since it is exempted for it On January 1. 2019, Meredith invested P3,000,000 in the t he six-year time deposit of BPI which pays 6% annual interest. Assuming Meredith terminated the deposit on July 31, 2021, how much is the final tax to be withheld by BPI upon termination.

 

Computation: Interest Income (2 and a half year) 2019 (3m x 6%)

180,000

2020

180,000

July 31, 2021 (3m x 6% x 7/12)

105,000

Total Interest Income not taxed

465,000

X Final tax rate

20%

Final Tax P93,000  On January 1. 2019, Meredith invested P3,000,000 in the t he six-year time deposit of BPI which pays 6% annual interest. Assuming Meredith terminated the deposit on July 31, 2023, how much is the final fi nal tax to be withheld by BPI upon termination.

Computation: Interest Income for 4 ½ year (5%)

825,000

X Final Tax Rate Final Tax

5%

P 41,250 

INTEREST INCOME FROM FOREIGN CURRENCY DEPOSITS AND LOANS Interest income derived from the following sources shall be imposed with the respective rates of final tax: Interest Income from FCDUs/OBU depositary banks RC,RA,DC,RFC 15%  

  Interest on loan payable to FCDUs/OBU   Interest on loan payable to NRFC



RC,RA,DC,RFC 10%



NRF 20%

OFFSHORE BANKING UNITS (OBU) shall refer to a branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Central Bank of the Philippines to conduct banking transactions in foreign currencies involving the receipt of from external sources and utilization of such funds. FOREIGN CURRENCY DEPOSIT UNITS (FDCUs) shall refer to that unit of a local bank or of a local branch of for foreign eign bank authorized by Central Bank of the Philippines to engage in foreign currency denominated transactions. *The reduced final tax rates on interest income on foreign currency deposit and the exemption of non-resident depositors is intended to encourage the deposit of foreign currencies to the Philippines which will be used in the financing of our international trades. *If the bank account is a joint account in the name of a resident and a nonresident taxpayer , 50% of the interest shall be exempt while the other 50% shall be subject to 15% final tax. If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall allow the withdrawal from the said deposit account, subject to a final withholding tax of six percent (6%)  of the amount to be withdrawn, provided the withdrawal shall only be made within one year from the date of the decedent. Such withheld tax shall not be creditable to the estate tax in relation to the death de ath of the decedent.

DIVIDEND INCOME A form of earnings derived from the distribution made by a corporation out of its earnings or profits and payable to its stockholders, whether in money or in property. The following are the classification of dividends: 1.  2.  3.  4. 

Cash dividends (SUBJECT TO FINAL TAX) Stock dividends Property dividends (SUBJECT TO FINAL TAX) Liquidating dividends

 

The tax sparing rule shall apply to an NRFC which: 1.  Has no effective tax treaty with the PH 2.  Has a worldwide system of taxation 3.  Allows a tax credit against the tax due from the NRFC dividend taxes dee deemed med to have been paid in the PH equivalent to 15%. A real estate investment trust (REIT) is a corporation whose primary business is owning, developing, and managing real estate properties, such as apartment buildings, office buildings, hotels, warehouses, health care facilities, shopping malls or golf courses. (10% final tax) tax)  

ILLUSTRATION Grace corporation, a domestic corporation, declared a total of P2,000,000 P2 ,000,000 dividends, P800,000 is due to corporate shareholders while P1,200,000 is due to individual shareholders. How much final tax shall Grace Corporation withhold?

Computation: Shareholders

Amount

Rate

Final Tax

Individual

P 1,200,000

10%

120,000

Corporation

P 800,000

exempt

0

P 120,000 

Final tax

Seattle Corporation declared a total of P3,000,000 dividends. An analysis of the recipient of such dividends are the following: Resident aliens and citizens P 500,000 NRAs ETB 100,000 NRAs NETB 50,000 Non-resident corporations 100,000 Total dividends 750,000 How much final tax shall be withheld by Seattle Corporation?

Computation:

Resident aliens and citizens NRAs ETB NRAs NETB Non-resident corporations Total dividends

P 500,000 x 10% 100,000 x 20% 50,000 x 25% 100,000 x 30% 750,000

Final taxes 50,000 20,000 12,500 30,000 112,500 

SHARE IN THE NET INCOME OF TAXABLE PARTNERSHIP, JOINT VENTURE, AND CO-OWNERSHIP ILLUSTRATION Andy and Mar are engaged in a partnership of operating several bars and restaurant. During the year, their profit sharing amounts to P55,000 and P83,000, respectively. How much final tax shall be withheld?

Computation: 

Andy Mar

55,000 x 10% 83,000 x 10%

Final tax 5,500  8,300 

Amount to be received by partner 49,500 74,700

PASSIVE ROYALTIES Where a person pays royalties to another for the use of its intellectual property , such royalty is generally a passive income of the owner thereof subject to withholding tax.

ILLUSTRATION

 

Jess owns a mining property in Cagayan. He allowed a mining company to operate under a condition c ondition that he will be paid 10% royalty on the golds production. The mining company produced P8,000,000 worth of gold during the year. How much net royalties will be paid to Jess?

Computation: Royalty (8m x 10%) X Final tax rate Final Tax Net Royalty Received (800k – 160k)

800,000 20% 160,000 640,000 

PRIZES A reward for a contest or completion. Such payment constitutes gain derived from labor.

WINNINGS A reward for an event that depends on chance such as winnings on gambling, lottery or raffle ticket.

EXCEPTIONS: 1.  Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literacy or civic achievements are EXCLUSIONS  from gross income if: a.)  The recipient was selected without any action  on his part to enter a contest or proceedings b.)  The recipients is not required to render substantial future services as a condition to receiving the prize or award. 2.  Prize and awards granted to athletes in local and international sports competitions and tournaments held in the PH and abroad and sanctioned by their national associations shall be EXEMPT from income tax.

ILLUSTRATION Jem won a P800,000 prize in a national dancing competition. The organizer of the event declared that the P800,000 was “tax free.” How much final tax must be remitted by the organizer to the BIR?  

Computation: Gross prize (800,000/80%) X Final Tax rate Final Tax

1,000,000 20% 200,000 

Glory made three bets to the PCSO lotto draws. All of her tickets ticke ts won with the following winnings: EZ2 6/42 6/45

4,000 10,000 20,000,000 (Sole winner grand prize)

Computation:

EZ2 6/42 6/45

4,000 10,000 20,000,000

Final Tax 0 0 4,000,000 

exempt exempt 20%

TAX INFORMER’S REWARD 

A cash reward may be given to any person instrumental in the discovery of violations of the National Internal Revenue Code or discovery and seizure of smuggled goods. This tax informer’s reward is subject to 10% final tax. Requisites of Tax Informer’s Reward:  

1.  Definite sworn information which is not yet in the possession of the BIR

 

2.  The information furnished lead to the discovery of fraud upon internal revenue laws or provisions thereof. 3.  Enforcement results in recovery of revenues, surcharges, and fees, and/or conviction of the guilty party or imposition of any fine or penalty. 4.  The informer must not be a: a.)  BIR official or employee b.)  Other public official or employee c.)  Relative within 6th degree of consanguinity of those officials or employee in a and b

AMOUNT OF CASH REWARD Whichever is the lower of the following per case: 1.  10% of revenues, surcharges, or fees recovered and or fine or penalty imposed and collected; or 2.  P1,000,000

ILLUSTRATION: Kristen provided information to the BIR leading to the recovery of P12,000,000 unpaid taxes. How much is ca cash sh reward of Kristen?

Computation: 10% cash reward (12m x 10%) Cash reward limit

1,200,000 1,000,000 (lower)

Cash reward Less 10% final withholding tax

1,000,000 100,000

Net Amount to be released to the informer

900,000 

FINAL WITHHOLDING WITHHOLDING TAX RETURN The Final Withholding Tax Return (BIR Form 0619-F) or the Monthly Remittance Return of Final Income Taxes Withheld, shall be filed in TRIPLICATE by every withholding agent or payor who is either an individual or corporation for the first two months of the quarter. Form

Name

Deadline

0619F

Monthly Remittance Form of Final Income Taxes Withheld

Manual Filing Tenth (10th) day following the month in which withholding was made

1602Q

Quarterly Remittance

Last day of the month

Return of Final Income Taxes Withheld on Interest Paid on Deposits and Deposit Substitutes/Trusts/Etc.

following the close of quarter during which withholding was made

eFPS FIling 11 -15  day following withholding month depending on the taxpayer’ss line of business  taxpayer’ Not yet available th

th