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Module 4 - Final Income Taxation
Module 4 - 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
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%
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
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