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    Chapter 5 - Final Income Taxation

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    claritaquijano526
    This document discusses final income taxation in the Philippines. It covers the key features of final income taxation including tax withholding at source and territorial imposition. It describes the types of passive income subject to final tax such as interest, dividends, royalties, prizes, and winnings. The document also outlines the deadlines and places for monthly and quarterly filing of final income tax returns, as well as penalties for late filing or remittance. Finally, it lists some entities that are exempt from final income taxation such as foreign governments and international organizations.

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    Chapter 5 - Final Income Taxation

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    claritaquijano526
    13 views3 pages
    This document discusses final income taxation in the Philippines. It covers the key features of final income taxation including tax withholding at source and territorial imposition. It describes the types of passive income subject to final tax such as interest, dividends, royalties, prizes, and winnings. The document also outlines the deadlines and places for monthly and quarterly filing of final income tax returns, as well as penalties for late filing or remittance. Finally, it lists some entities that are exempt from final income taxation such as foreign governments and international organizations.

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    This document discusses final income taxation in the Philippines. It covers the key features of final income taxation including tax withholding at source and territorial imposition. It describes the types of passive income subject to final tax such as interest, dividends, royalties, prizes, and winnings. The document also outlines the deadlines and places for monthly and quarterly filing of final income tax returns, as well as penalties for late filing or remittance. Finally, it lists some entities that are exempt from final income taxation such as foreign governments and international organizations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    13 views3 pages

    Chapter 5 - Final Income Taxation

    Uploaded by

    claritaquijano526
    This document discusses final income taxation in the Philippines. It covers the key features of final income taxation including tax withholding at source and territorial imposition. It describes the types of passive income subject to final tax such as interest, dividends, royalties, prizes, and winnings. The document also outlines the deadlines and places for monthly and quarterly filing of final income tax returns, as well as penalties for late filing or remittance. Finally, it lists some entities that are exempt from final income taxation such as foreign governments and international organizations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Chapter 5

    Income Taxation – Final Income Taxation


    _________________________________________________________________________________________________________________

    I. 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 Phils.

    Final withholding tax system


     This system imposes upon the person making income payments the responsibility to withhold the
    corresponding tax
     The tax which will be deducted at source is final
     The taxpayer receives the income net of tax; no need to file an ITR to report the same
     Inherently territorial – applied only on certain passive income earned within the Phils.

    General final tax rates


     For non-resident aliens not engaged in trade or business (NRA-NETB) – 25%
     For non-resident foreign corporation (NRFC) – 30%

    II. PASSIVE INCOME SUBJECT TO FINAL TAX


    1. Interest or yield from bank deposits or deposit substitutes
    Recipient
    Source of interest income Individuals Corporations
    Short term deposits (less than 5 years) 20% 20%
    Long term deposits Exempt 20%

     Interest income from the following sources is subject to regular tax


    A. Lending activities
    B. Promissory notes
    C. Penalty for legal delay or default
    D. Foreign sources (including banks)

    2. Domestic dividends, in general


     Dividends means any distribution made by a corporation to its shareholders out of its earnings or
    profits and payable in money or other properties
     Considered income – cash dividends, property dividends, scrip dividends
     Not considered income – stock dividends, liquidating dividends
     Dividends received by individuals from domestic corporations are subject to 10% FT
     Dividends received by corporations from domestic corporations are exempt
     Dividends received from foreign corporations are subject to regular tax
     Dividends from exempt cooperatives and inter-corporate dividends are not subject to tax`

    3. Dividend income from a Real Estate Investment Trust (REIT)


     A REIT is a publicly listed corporation established principally for the purpose of owning income-
    generating real estate assets

    4. Share in the net income of a business partnership, taxable associations, joint ventures, joint accounts, or co-
    ownership

    Reference: Income Taxation, 2019 OBE Edition, Rex B. Banggawan, CPA, MBA
    Chapter 5
    Income Taxation – Final Income Taxation
    _________________________________________________________________________________________________________________
     10% final tax is applied at the point of determination of the income, not at the point of the actual
    distribution
     Non-resident aliens or corporations have different final tax rates
     Domestic corporations cannot avoid the dividends tax by not declaring dividends; Improperly
    Accumulated Earnings Tax (IAET) will be imposed instead

    5. Royalties, in general
     Royalties are legal payments made for the ongoing use of originally-created assets
     General final tax rate for passive royalties is 20%
     Final tax rate is 10% for royalties from books, literary works and musical compositions
     Active royalties are subject to regular income tax
     Active royalties are passive income but somehow requires active involvement
     E.g. creation of computer software, but involves regular updating by taxpayer

    6. Prizes exceeding P10,000


     Taxation of prizes varies – may be subject to final or regular income tax or exempt
    Recipient
    Source of interest income Individuals Corporations
    Prizes exceeding P10,000 20% final tax Regular tax
    Prizes not exceeding P10,000 Regular tax Regular tax

     Exempt prizes
     Prizes received by recipient without any effort on his part to join a contest
     Prizes from sports competitions sanctioned by their respective national sports organizations
     Requisite of exemption
     Recipient was selected without any action on his part to enter the contest
     Recipient is not required to render substantial future services as a condition to receiving the
    price or reward

    7. Winnings
    Recipient
    Source of interest income Individuals Corporations
    PCSO / lotto winnings not exceeding P10,000 Exempt Exempt
    PCSO / lotto winnings exceeding P10,000 20% final tax 20% final tax
    Other winnings, in general 20% final tax Regular tax

    8. Informer’s tax reward


     Cash reward given to any person instrumental in the discovery of violations of the NIRC or
    discovery / seizure of smuggled goods.
     Informer tax reward is subject to 10% final tax
     Subject to limit of P1,000,000

    Requisites of Informer’s Tax Reward:


    A. Definite sworn information
    B. The informer must not be a public official or employee, and is not a relative within the 6 th
    degree of consanguinity of such officials or employees
    C. Enforcement results in recovery of revenues

    III. DEADLINE AND PLACE FOR MONTHLY MANUAL FILING


    Reference: Income Taxation, 2019 OBE Edition, Rex B. Banggawan, CPA, MBA
    Chapter 5
    Income Taxation – Final Income Taxation
    _________________________________________________________________________________________________________________
     The tax return shall be filed and paid on or before the 10th day of the month following the month in which the
    withholding was made
     Place of filing:
     Authorized agent bank of the taxpayer’s corresponding revenue district office
     To the Revenue Collection Officer, if no authorized agent bank
     The authorized city or municipality treasurer

    IV. QUARTERLY FILING


     The withholding agent shall file (BIR Form 1601-FQ), Quarterly Remittance Return of Final Income Taxes
    Withheld, on or before the last day of the month after each quarter

    V. PENALTIES FOR LATE FILING OR REMITTANCE OF FINAL INCOME TAXES WITHHELD


     Same application of penalties mentioned in Chapter 4

    VI. ENTITIES EXEMPT FROM FINAL INCOME TAX


    1. Foreign governments and foreign government-owned and controlled corporations
    2. International missions or organizations with tax immunity
    3. General Professional Partnership
    4. Qualified employee trust fund

    Reference: Income Taxation, 2019 OBE Edition, Rex B. Banggawan, CPA, MBA

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