PASSIVE INCOME

Passive income
is money which flows in regular intervals without the need for putting in a considerable amount of effort to create it.

Interest
Royalties Earned within the Philippines are collected with Final Tax at its gross amount
PASSIVE INCOME Dividends
Earned Outside= Returnable in1701 or 1702 of Res. Cit. /Domestic corp.
Prizes and
winnings
 PASSIVE INCOME

EARNED WITHIN PHILIPPINES EARNED OUTSIDE PHILIPPINES

 Interest, debtor is Resident of the Philippines  Interest, debtor is Non-Resident of the Philippines

 Expanded foreign transactions transacted with  Expanded foreign transactions transacted with non
resident of the Philippines resident of the Philippines

 Cash/property dividend declared by Domestic Corp

 Cash/property dividend declared by resident foreign  Cash/property Dividend declared by resident foreign
corp, 50% or more business done in the Philippines corp., <50% business done in the Philippines

 Prizes earned in the Philippines  Prizes earned in foreign country

 Winnings in the Philippines  Winnings in foreign county

 Royalty on properties exercised in the Philippines  Royalty on properties exercised in foreign country

 Royalty on chartered properties of non resident not  Royalty on chartered properties of non resident not
doing business in the Philippines transacted with doing business in the Philippines transacted with non-
resident of the Philippines resident of the Philippines
Only passive income earned in the Philippines is subject to final tax
PASSIVE INCOME EXEMPT from Philippine Income Tax

P10,000 AND BELOW (TRAIN LAW) Lotto and PCSO from Philippine Charity Sweepstakes)
winnings P10,000 and below
 Interest income from long-term ( 5 years or more) deposit or investment in the form
of savings, common or individual trust funds, deposit substitutes, investment management accounts
and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng
Pilipinas (BSP)
non-residents, whether individuals or corporations, from transactions with
 Any income of
depository banks (OBUs) under the expanded foreign currency system shall be exempt from income
tax.
Inter-corporate Dividends. - Dividends received by a domestic corporation/Resident
foreign corporation from another domestic corporation shall not be subject to tax.
Income Derived by Foreign Government. - Income derived from investments in the Philippines in
loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign
governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii)
international or regional financial institutions established by foreign governments.
PASSIVE INCOME EXEMPT
from Philippine Income Tax

PRIZES AND AWARDS

• (c) Prizes and Awards. - Prizes and awards made primarily in recognition of religious, charitable,
scientific, educational, artistic, literary, or civic achievement but only if:
• (i) The recipient was selected without any action on his part to enter the contest or
proceeding; and
• (ii) The recipient is not required to render substantial future services as a condition to
receiving the prize or award.

• (d) Prizes and Awards in sports Competition. - All prizes and awards granted to athletes in local
and international sports competitions and tournaments whether held in the Philippines or abroad
and sanctioned by their national sports associations.

NOTE:

PRIZES P10,000 and below are returnable in ITR and subject to regular tax rate.
 FINAL TAX ON PASSIVE
@Gross Amount
Earned Within the Philippines, Final Taxes

Cash/Property Dividend
 Cash /property dividend payment by domestic corporation to citizens and resident aliens 10%
 Cash /property dividend payment by domestic corporation to NRAETB (non-res. alien engaged in business) 20%
 Cash /property dividend payment by domestic corporation to NRANET (non-res. alien not engaged in business) 25%
 Cash on property dividend paid by a Real Estate Investment Trust 10%

Cash /property dividend payment by domestic corporation to NRFCs (non resident foreign corp) whose
countries allowed tax deemed paid credit (w/reciprocity agreement) 15%
Cash /property dividend payment by domestic corporation to NRFCs whose countries
(w/o reciprocity agreement) 25%
STOCK Dividends are not taxable, unless followed with immediate redemption.
Distributive share of citizen/resident individual partners in a taxable partnership (General co. partnership),
association, joint account or joint venture or consortium
 10%
Share of NRAETB in the distributable net income after tax of commercial partnership 20%
 FINAL TAX ON PASSIVE
Earned Within the Philippines, Final Taxes
Interest Income earned within the Philippines:
 On short term peso deposit , < 3 years maturity (Form 1602) , 20%
 On long term peso deposit, 3 years to less than 4 years maturity (individual) (Form 1602) , 12%
 On long term peso deposit, 4 years to less than 5 years maturity (individual) (Form 1602) 5%
 On long term peso deposit of individual, 5years & more than 5 yrs maturity , -0-
 On peso deposit of corporation,
20%
 Interest on foreign loans payable to NRFCs, 20%
 Final tax on interest or other payments upon tax-free (debtor shoulder the tax) covenant bonds, mortgages,
deeds of trust or other obligations under Sec. 57C of the NIRC of 1997, as amended 30%
 Interest earned by residents (domestic corp) On foreign currency deposits with the OBUs
15%
 On interest income derived from foreign currency loans granted by depository banks under the expanded foreign
currency deposit systems ; earned by OBUs and FDCUs 10%
FINAL TAX ON PASSIVE Earned Within the Philippines
Royalty Income Within the Philippines:
 Royalties paid to citizens, resident aliens and NRAETB on books,
other literary works and musical compositions 10%
 All kinds of royalty payments to citizens, resident aliens and NRAETB ,
domestic and resident foreign corporations 20%

 Royalties paid to NRA, NRFC on cinematographic films and similar works 25%
 Payment of resident to foreign corporation not engaged in business in the Philippines
for aircraft and machineries chartered, 7.5%
 Payment of resident to foreign corporation not engaged in business in the Philippines
for vessel chartered, 4.5%

Prizes/Winnings earned within the Philippines

On prizes exceeding P10,000 and PCSO /Lotto winnings more than P10,000) 20%
(P10,000 PRIZES and below are returnable and subject to normal tax rate/s)

other winnings paid to individuals 20%

Informers cash reward to individuals/juridical persons 10%

 PASSIVE INCOME EARNED OUTSIDE THE
PHILIPPINES

Taxable for Income earned W/I and W/O INCOME EARNED

W/I + W/O

 Resident citizen of the Philippines Final tax 1701 ITR X graduated tax rate

 Domestic corporation of the Philippines Final tax 1702 ITR X 25%

Taxpayers other than Resident Citizen and domestic corp. are taxable only for income earned w/i the Philippines

NOTE :Foreign Income Tax paid could be claimed as a) item of deduction or b) tax credit
RELATED VIDEO, link below

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