What are the respective final withholding tax rates in the Philippines for cash dividends?
The final withholding tax rates prescribed under the Philippine National Internal Revenue Code (NIRC) are:
Final Withholding Tax (FWT) Rate
|A. Non-Resident Foreign Investor|
|Corporation||a.Twenty-Five Percent (25%); b. If the Tax Sparing requirement [under Section 28(B)(5)(b), NIRC] is complied with [i.e., that the country of residence of the Non-Resident Foreign Corporation (NRFC) allows a deemed paid tax credit of fifteen percent (10%) on taxes due from the NRFC]: Ten percent (15%); Refer below for the availment of Tax Treaty and Tax Exemption benefits.|
|Individual||a. Engaged in trade or business in the Philippines – Twenty percent (20%) b. Not engaged in trade or business in the Philippines – Twenty-five (25%) Refer below for the availment of Tax Treaty and Tax Sparing benefits|
|B. Resident Foreign Investor|
|Corporation||Not subject to tax|
|Individual||Ten percent (10%)|
|C. Domestic Investor|
|Corporation||Not subject to tax|
|Individual Citizen||Ten percent (10%)|
Are there Tax Reliefs available to non-resident foreign shareholders for income received thru dividends? Yes. Non-resident foreign stockholders (individual or corporation) (see item A of Table above) may claim partial relief through tax treaties and tax sparing provisions, or exemption, see items 1 to 3 below.
1. AVAILMENT OF PREFERENTIAL TAX TREATY BENEFITS ON DIVIDENDS
(a) What is a Tax Treaty?
A tax treaty is an agreement entered into between sovereign states “for purposes of eliminating double taxation on income and capital, preventing fiscal evasion, promoting mutual trade and investment, and according to fair and equitable tax treatment to foreign residents or nationals
(b) Who can apply for Preferential Tax Treaty Benefits?
Non-resident foreign stockholders (individual or corporation) or their duly authorized representative who are income recipients from the Philippines and whose country of residence has an effective tax treaty with the Philippines. As of March 10, 2021, the Philippines have effective tax treaties with the following countries:
(c) What are the requirements to apply for Preferential Tax Benefits on dividends?
Pursuant to Revenue Memorandum Order (RMO) No. 08-17 dated March 28, 2017, a non-resident foreign individual or corporation must submit the following documents to SECB to enjoy tax treaty benefits:
1. 3 copies of duly accomplished BIR Certificate of Residence for Tax Treaty Relief (CORTT) Form
The following rules shall be observed in accomplishing CORTT:
This is composed of two parts (as pre-numbered in the form):
A. Applicable Tax Treaty;
B. Information of Income Recipient/Beneficial Owner (Individual);
C. Information of Income Recipient/Beneficial Owner (Non-Individual);
D. Certification of Competent Authority or Authorized Tax Office of Country of Residence*;
A. Information of Withholding Agent/Income Payor;
B. Details of Withholding of Tax;
C. Type of Income Earned within the Philippines in Respect to which Relief is claimed;
D. Declaration of Income Recipient/Beneficial Owner; and
E. Declaration of Withholding Agent/ Income Payor. Please refer to Annex B for the CORTT form.
2. Proof of Residency
a. CORTT Form shall serve as proof of residency for nonresidents.
b. Nonresidents, however, at their option, can use the prescribed certificate of residency of their country of residence. The Original copy of consularized certification must be issued by the tax authority of the country of the income-earner to the effect that such income earner is a resident of such country for purposes of the tax treaty being invoked in the tax year concerned. If this document is provided, Part I (D) of CORTT above need not be filled up. This document shall be attached to the CORTT Form.
3. Consularized Indemnity Undertaking
Since the new procedure allows immediate availment of preferential rates subject to compliance check by the BIR, the non-resident investor is required to submit a Consularized Indemnity Undertaking in the event that SECB is assessed by the BIR during examination on account of the stockholder’s failure to supply accurate and complete information in the CORTT Form. Please refer to Annex C for the prescribed form of the Indemnity Undertaking.
(d) What is the procedure to be followed by the Stockholder to avail of the Preferential Tax Treaty?
The abovementioned documents must be submitted by the stockholder to SECB within 5 banking days from the dividend record date. Failure to provide any of the documents will imply that the stockholder is not availing of the tax treaty benefits and the dividends received will be subjected to 25% FWT
(e) Until when is the CORTT provided by the stockholders to SECB valid?
The CORTT shall be valid only for 2 years from the date of issuance, however, when the prescribed certificate of residency is used, as stated under paragraph C (2)(c) herein, the date of validity of the latter document shall prevail the 2-year period given. If the CORTT will be used for another dividend payment within the validity period, the stockholders shall submit 2 original copies of updated part II of the CORTT within 5 banking days from the dividend record date for the continued enjoyment of treaty rates.
(f) Are non-resident investors who have previously file TTRAs and secured BIR Rulings still required to submit the abovementioned documentary requirements?
Non-resident investors who previously filed TTRAs and secured BIR Rulings are not required to submit the abovementioned documentary requirements provided that the BIR Ruling covers any and future dividend income.
2. AVAILMENTS OF TAX RELIEF UNDER THE TAX SPARING LAW
(a) What is the Tax Sparing rule?
This rule refers to the application of the 15% preferential tax rate on intercorporate dividends (cash and/or property) paid to non-resident foreign corporations under the Tax Code, as amended.
(b) Who can apply for tax relief under the Tax Sparing provisions of the NIRC?
Any non-resident foreign corporation (NRFC) which is a resident or is domiciled in a country which: 1. Allows the non-resident foreign corporation a “deemed paid” tax credit in an amount equivalent to the 10% waived by the Philippines; or 2. Exempts from tax the dividends received. (Section 3 (1), RMO No. 46-2020)
(c) In case the NRFC is entitled to avail of the Tax Sparing Rule but at the same time, the country to which the NRFC is domiciled has a Tax Treaty with the Philippines for a reduced tax rate on dividends, what rule shall apply?
The NRFC has the option to avail of the reduced dividend tax rate either under the tax treaty or under the Tax Code (Tax Sparing). However, if the NRFC is not entitled to the reduced tax rate under the tax code, the treaty rate shall automatically be applied provided that the NRFC is able to prove entitlement to the benefits provided under the treaty.
(d) How to avail of the reduced tax rate under the Tax Sparing rule?
SECB may remit outright the dividends to the NRFC and apply thereon the reduced rate of 15% without securing first a ruling from the BIR, subject to the requirements stated under item (e) below.
(e) What are the requirements for the availment of Tax Sparing?
The NRFC availing tax sparing must comply with BIR RMO No. 46-2020 requiring the submission of the application together with the required documents within (90) days from the date of remittance of the dividends. Since the BIR mandates this as a post-dividend payout requirement, the NRFC shall submit to SECB the following documents as a basis for the 15% Tax Sparing Rate within 5 banking days from the dividend record date:
For the item I above, NRFC will be bound to provide to SECB the following documents submitted to BIR, thru International Tax Affairs Division, the copy for the proof of its application for tax sparing confirmation together with the required attachments within 5 days from the date that the BIR received such documents:
11. If the dividend is taxable in the country of domicile
12. If the dividend is exempt from tax in the country of domicile
(f) When to apply for Tax Sparing confirmation?
A request for confirmation of the applicability of the reduced dividend rate of 15% shall be filed by the NRFC or its authorized representative with the BIR within Ninety (90) days from the remittance of the dividends or from the determination by the foreign tax authority of the deemed paid tax credit/non-imposition of tax because of the exemption, whichever is later
(g) Where to apply for Tax Sparing confirmation?
A request for confirmation of the applicability of the reduced dividend rate of 15% shall be filed by the NRFC or its authorized representative with the BIR, through the International Tax Affairs Division (ITAD)
(h) What if the NRFC has already secured a BIR Ruling for Tax Sparing confirmation prior to RMO No. 46-2020?
In case the stockholder has already secured a BIR ruling prior to the implementation of RMO No. 46-2020, the said stockholder shall file a request for confirmation that the same BIR ruling is still applicable with the current dividend payment/transactions.
3. AVAILMENT OF TAX EXEMPTION UNDER THE NIRC
(a) Who can avail of tax relief under the Tax Exemption provisions of the NIRC?
The following are exempt from withholding tax as provided in the NIRC or special laws:
(b) What are the requirements for the application of tax exemption?
Any stockholder claiming exemption from withholding tax in accordance with any provision of the NIRC or special law shall be required to submit a certified true copy of a BIR ruling addressed to it confirming the exemption claimed pursuant to Revenue Memorandum Circular No. 8-2014.
In the absence of a BIR Ruling, the stockholder may still enjoy tax exemption provided, that he shall submit a certified true copy of the application for BIR Ruling and Consularized Indemnity Undertaking stating among other things that it shall indemnify SECB for any deficiency tax assessment relevant to non-withholding on the dividend payment.
(Please refer to Annex E for the prescribed template of Indemnity Undertaking)
Upon submission of the documents, the Applicant shall be entitled to receive the dividends without deduction for withholding tax. Failure to submit the required documents within five banking days from the dividend record date would mean SECB will withhold and remit the taxes at the applicable withholding tax rates of 25%.
(c) Are Brokers required to submit certain documents relevant to dividend payment?
Yes. Brokers are required to submit to SECB through Stock Transfer, Inc. within five (5) banking days from dividend record date Certifications stating among other things that they have applied the proper withholding tax rates on the dividends to be paid to their various clients and to hold SBC and Stock Transfer, Inc. free and harmless from related penalties and charges they may incur in connection with their reliance on the representations made by the Brokers. Please refer to Annex F for the prescribed template of the Certification.
(d) What are the documents to be submitted by Stock Transfer Service, Inc. to SECB?
Please contact the following persons for further questions and clarifications:
|STOCK TRANSFER SERVICE, INC.
34th Floor, Unit D, Rufino Pacific Tower 784 Ayala Avenue, Makati City
|SECURITY BANK CORPORATION
8th Floor, Security Bank Centre 6776 Ayala Avenue, Makati City Tel: (+632) 8888-7221 ; 8888-7175
6th Floor, Security Bank Centre 6776 Ayala Avenue, Makati City
Annex A – Comparison of the Old and New Practice for Availing Tax Treaty Rates for Dividends
|Old Practice||New Practice|
|The nonresident must submit to BIR-ITAD three (3) copies of duly-accomplished TTRA BIR Form 0901-D together with the following documents:
||The nonresident must submit to their withholding agents/income payors either:
|The filing of TTRA is required 15 days BEFORE the transaction occurs and the availment of the preferential rates is subject to BIR approval thru issuance of a ruling.||Withholding agents/income payors can withhold a reduced rate or exempt the non-resident based on the CORTT form submitted to them, hence, the new RMO allows IMMEDIATE AVAILMENT of the preferential rates indicated in the CORTT to be included in the BIR Form No. 1601-F and 1604CF of the withholding agent subject to compliance check by the BIR. Thereafter, the CORTT will be submitted by the withholding agent to ITAD and RDO No. 39 within 30 days after payment of withholding taxes due on the income based on tax treaty rates.|
|The BIR ruling that will be issued by the BIR is valid only for the transaction covered unless otherwise stated in the BIR Ruling.||For dividend income purposes, the CORTT Form shall be valid for two (2) years from the date of issuance. If a prescribed certificate of residency of the country of residence is used, the date of the validity of such document will prevail over the 2-year period given.|
|–||The withholding agent shall submit an updated part II of the CORTT Form within 30 days after payment of withholding taxes due if the CORTT Form filed with ITAD and RDO No. 39 is used for another dividend payment within the prescribed period of validity.|
|Failure to obtain a ruling from the BIR would mean that the non-resident is not allowed to claim any tax treaty relief and therefore such income shall be subject to the normal rates provided under the Tax Code, as amended.||Failure to submit the duly accomplished CORTT form to the withholding agent/income payor would mean that the non-resident is not claiming any tax treaty relief and therefore such income shall be subject to the normal rates provided under the Tax Code, as amended.|
Annex B – CORTT Form
Annex C – Indemnity Undertaking for CORTT Form
Annex D – Indemnity Undertaking for Tax Sparing
Annex E – Indemnity Undertaking for Tax Exemption
Annex F – Certification by Brokers