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. Thirty percent (30%)
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 (15%) on taxes due from the NRFC]: Fifteen 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.
Who can apply for 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 April 2017, the Philippines have effective tax treaties with the following countries:
What are the documents needed to apply for Tax Treaty Benefit?
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. 2 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):
Please refer to Annex B for the CORTT form.
2. Proof of Residency (Optional)
Original copy of consularized certification 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 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.
What are the rules to be observed by the stockholder in providing the documents?
The abovementioned documents must be provided by the stockholder to SECB within 5 banking days from divided record date. Failure to provide any of the documents will imply that the stockholder is not availing the tax treaty benefits and the dividends received will be subjected to 25% or 30% FWT, whichever is applicable.
What is the validity period of the CORTT provided by the stockholders to SECB?
The CORTT shall be valid only for 2 years from date of issuance, however, when the Proof of Residency of the country of residence is used, the date of validity of the latter document shall prevail.
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 dividend record date for continued enjoyment of treaty rates.
Who can apply for tax relief under the Tax Sparing provisions of the NIRC?
Any nonresident foreign corporation may be entitled to the 15% tax rate on dividend income as provided under Section 28(B)(5)(b) of the Tax Code.
What are the requirements for the availment of Tax Sparing?
Applicants must comply with Revenue Memorandum Circular No. 80-91 requiring the submission by the stockholder of documents showing the actual amount credited by the foreign government against the foreign income tax due from the Stockholder in respect of the dividends.
For non-resident foreign corporate stockholders whose country of domicile allows as credit for taxes deemed to have been paid in the Philippines equivalent to 15%, documentary requirements are as follows:
For non-resident foreign corporate stockholders whose country of domicile does not impose tax on foreign sourced dividends, documentary requirements are as follows:
The stockholder shall submit a certified true copy of the confirmatory ruling from the BIR that he is entitled to a 15% final withholding tax rate. If the stockholder is unable to submit a confirmatory ruling from the BIR within the prescribed period of submission, he shall submit a certified true copy of the duly received application for confirmatory ruling together with the Consularized Indemnity Undertaking in favor of SECB stating among other things that it shall indemnify SECB for any deficiency tax assessment relevant to the application of lower final withholding tax rate. Please refer to Annex D for the prescribed template of Indemnity Undertaking.
When and where to apply for Tax Sparing?
The documents required under Revenue Memorandum Circular No. 80-91 may only be provided after the payment of the dividends and the filing of its own income tax return in its country of residence. It is only upon presentation of those documents to the BIR that its entitlement to the tax sparing rate may be determined. The stockholder must submit to Security Bank proof of compliance with Revenue Memorandum Circular No. 80-91, including copies of documents provided to the BIR in connection therewith.
The certified true copy of confirmatory ruling from the BIR or the certified true copy of the application for confirmatory ruling together with the Consularized Indemnity Undertaking, as the case maybe shall be submitted within five banking days from dividend record date.
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:
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.
For item a, 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 dividend record date would mean SECB will withhold and remit the taxes at the applicable withholding tax rates of 25% or 30% as applicable.
Are Brokers required to submit certain documents relevant to dividend payment?
The Brokers are required to submit to SECB through Stock Transfer, Inc. within five 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.
What are the documents needed by SECB from Stock Transfer Service, Inc.?
Please contact the following persons for further questions and clarifications:
|STOCK TRANSFER SERVICE, INC.
Mr. Richard Regala
Mr. Bryan Manuel
34th Floor, Unit D, Rufino
|SECURITY BANK CORPORATION
Mr. Ropi Dangazo
Mr. Roland Ignatius Santos
8th Floor, Security Bank Centre
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 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