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  • Module 4 - Final Income Taxation

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    Reica
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    This document discusses final income taxation in the Philippines. It covers the key features of final taxation including tax withholding at source and territorial imposition on certain passive income and non-resident persons. It defines passive income such as interest, dividends, royalties, prizes, and winnings that are subject to final tax rates ranging from 10-30% depending on the recipient. The document provides details on the final tax treatment of various types of passive income received by individuals and corporations.

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    MODULE 4- FINAL INCOME TAXATION

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    MODULE 4- FINAL INCOME TAXATION

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    This document discusses final income taxation in the Philippines. It covers the key features of final taxation including tax withholding at source and territorial imposition on certain passive income and non-resident persons. It defines passive income such as interest, dividends, royalties, prizes, and winnings that are subject to final tax rates ranging from 10-30% depending on the recipient. The document provides details on the final tax treatment of various types of passive income received by individuals and corporations.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    57 views4 pages

    Module 4 - Final Income Taxation

    Uploaded by

    Reica
    This document discusses final income taxation in the Philippines. It covers the key features of final taxation including tax withholding at source and territorial imposition on certain passive income and non-resident persons. It defines passive income such as interest, dividends, royalties, prizes, and winnings that are subject to final tax rates ranging from 10-30% depending on the recipient. The document provides details on the final tax treatment of various types of passive income received by individuals and corporations.

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    © All Rights Reserved
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    MODULE 5- FINAL INCOME TAXATION

    This Chapter discusses the features of final income taxation, the items of gross income, and the
    class of taxpayer’s subject to final to income tax.
    Final tax is one of the exceptions to the scope of the regular income tax. After finishing this
    Chapter, readers are expected to demonstrate:
    a. Understanding and appreciation of the features and scope of final tax
    b. Mastery of those certain passive income subject to final tax and their corresponding
    final tax rates
    c. Mastery of the general final tax rates on certain non-residents and their exceptions
    d. Knowledge of the other applications of the final income scheme
    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 engaged in business in the
    Philippines

    The Final withholding system


    -imposes upon the person making income payments the responsibility to withhold the tax. The
    tax 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.
    - All items of income earned from sources abroad, passive or active, are subject to tax under
    the general scope of the regular income tax.

    Passive Income
    -earned with very minimal involvement from the taxpayer and are generally irregular in timing
    and amount.
    Non-resident person not engaged in trade or General Final Tax rate
    business
    Non-resident alien not engaged in trade or 25%
    business
    Non-resident foreign corporation 30%

    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 AD CORPORATIONS
    1. Non-resident alien not engaged in trade or business (NRA-NETB), and
    2. Non-resident foreign corporation (NRFC)

    INTEREST INCOME OR YIELD

    RECIPIENT
    Source of Interest Income Individuals Corporations
    Short term deposits (<5yrs) 20% 20%
    Long term deposits (> Exempt * 20%
    Note: *Exemption does not include NRA-NETB

    DIVIDENDS
    -means any distribution made by a corporation to its shareholders out of its earnings or
    profit and payable to its shareholders, whether in money or in other property.
    TYPES OF DIVIDENDS:
    1. Cash Dividends- paid in cash
    2. Property Dividends- paid in non-cash properties including stocks or securities of another
    corporation
    3. Scrip Dividends
    4. Stock Dividends
    5. Liquidating Dividends

    Dividend Tax Rule

    RECIPIENT
    Source of Interest Income Individuals Corporations
    Domestic Corporation 10% FT Exempt
    Foreign Corporation Regular Tax Regular Tax

    ROYALTIES

    RECIPIENT
    Source of Interest Income Individuals Corporations
    Books, literary works, and 10% FT 20% FT
    musical composition
    Other Sources 20% FT 20% FT

    PRIZES
    The taxation of prizes varies. Prizes may be exempt from income tax or subject to either final
    tax or regular income tax.

    RECIPIENT
    Amount of Taxable Prize Individuals Corporations
    Prizes exceeding P10,000 20% FT Regular Tax
    Prizes not exceeding Regular Tax Regular Tax
    P10,000

    Exempt Prizes
    1. Prizes received by a recipient without any effort on his part to join a contest
    Examples include prizes from such awards as Nobel Prize, Most Outstanding Citizen,
    Most Benevolent Citizen of the Year, and similar awards.
    2. Prizes from sports competitions that are sanctioned by their respective national sport
    organization
    Requisite of Exemption
    1. The recipient was selected without any action on his part to enter the contest.
    2. The recipient is not required to render substantial future services as a condition to
    receiving the price or reward.

    WINNINGS
    For individual income taxpayers, winnings received from sources within the Philippines are
    generally subject to 20% final tax.
    RECIPIENT
    Types of Winnings Individuals Corporations
    PCSO/LOTTO winnings not Exempt Exempt
    exceeding P10,000
    Prizes not PCSO/LOTTO 20% FT 20% FT
    winnings exceeding
    P10,000P10,000
    Other Winnings 20%FT Regular Tax
    SUMMARY

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