TAXATION OF CAPITAL GAINS AND PASSIVE INCOME

TAXATION
FAR EASTERN UNIVERSITY – MANILA

FINAL TAX AND CAPITAL GAIN TAX (1301)
FINAL INCOME TAXATION AND CAPITAL GAIN TAXATION
Income Subject to Final Taxes on certain passive income from Philippine Sources /Regular Rates/Capital Gain Tax Rates:
Legend:
RES – Resident alien Note:
CIT - Citizen Final tax on passive income xxx
NRA-NETB – Non resident alien not engaged in business Add: Capital gain tax xxx
DOM – Domestic corporation Total Final Taxes xxx
RFC – Resident foreign corporation
NRFC – Non resident foreign corporation
NRA-
RES/CIT NRA-ETB DOM RFC NRFC
NETB
Final tax rates on passive income
Interest in any currency bank deposit 20% 20% 25% 20% 20% 30%
Yield or any other monetary benefit from
deposit substitute (obtained from 20 or 20% 20% 25% 20% 20% 30%
more individual or corporate lenders)
Yield or any other monetary benefit from
20% 20% 25% 20% 20% 30%
trust funds and similar arrangements
Royalties in general 20% 20% 25% 20% 20% 30%
Royalties on books, as well as other literary
10% 10% 25% - - -
works and musical composition
Prizes (except P10,000 or less which shall
be subject to Sec. 24 (A) for res/cit and 20% 20% 25% Regular rate Regular rate 30%
nra-etb individuals)
Other winnings and PCSO & Lotto –
taxable above P10,000 (except winnings to
20% 20% 25% Regular rate Regular rate 30%
P10,000 or less Philippine Charity Sweepstakes and
Lotto winnings)
Interest income received from depository
15%
bank under expanded foreign currency Exempt Exempt 15% 15% Exempt
(NRC-
deposit system
Exempt)
Interest income from long-term deposit or
investment in the form of savings, common
Regular rate* Regular rate%*
or individual trust funds, deposit
(RMC 7-2015) (RMC 7-2015)
substitutes, investment management Exempt Exempt 25% 30%
30%(Corporate 30%(Corporate
accounts and other investments evidenced
Tax) Tax)
by certificates in such form prescribed by
Bangko Sentral ng Pilipinas (BSP)
If pre-terminated before fifth year, a final tax shall be imposed based on remaining maturity:
4 years to less than 5 years 5% 5% 25% 20% 20% 30%
3 years to less than 4 years 12% 12% 25% 20% 20% 30%
Less than 3 years 20% 20% 25% 20% 20% 30%
15% (tax
sparing
rule) or
Dividend from domestic corporation 10% 20% 25% Exempt Exempt
30% (no tax
sparing
rule)
Share of an individual in the distributable
net income after tax of a PARTNERSHIP
(OTHER THAN a general professional 10% 20% 25% - - -
partnership) of which he is a partner
(beginning January 1, 2000)
Income derived by a depository bank from
foreign currency transactions with non-
residents, OBUs in the Philippines, local - - - Exempt Exempt Exempt
commercial bank including branches of
foreign banks
Interest income from foreign currency loan
granted by depository banks under
expanded system to residents other than - - - 10% 10% Exempt
OBUs in the Philippines and other
depository bank
Any income of non-residents (individual or
corporation) from transactions with Exempt Exempt Exempt
depository banks under expanded system
13. FINAL TAX AND CGTAX Page 1 of 12

NRA-
RES/CIT NRA-ETB DOM RFC NRFC
NETB
Interest on foreign loans contracted
- - - - - 20%
on or after August 1, 1986
Tax on capital gains
Sale of shares of stock not traded in the
15% 15% 15% 15% 15% 15%
stock of exchange
Sale, barter, transfer and/or assignment of
shares of stock of publicly-listed companies
not compliant with mandatory minimum
public ownership (10% of the publicly- 15% 15% 15% 15% 15% 15%
listed companies’ issued and outstanding
shares, exclusive of any treasury shares)
(RR No. 16-2012)
6% of GSP 6% of GSP 6% of GSP
6% of GSP or
Sale of real property classified as capital or FMV or FMV or FMV
FMV whichever is - -
asset (located in the Philippines) whichever is whichever is whichever is
higher
higher higher higher
Capital Gains Tax

a. Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange
Tax base: Net capital gains
Tax rates: 15%
Tax forms : BIR Form 1707 (Per transaction return) Notes: STT on
BIR Form 1707-A (Annual capital gain tax return) listed shares - .60
Deadline: within 30 days of 1% (percentage
tax)
b. Capital Gains from Sale of Real Property Classified as Capital Asset (Located in the Philippines)
Tax base: Gross selling price or fair market value whichever is higher
Tax rate: 6% final tax
Tax form : BIR form 1706
Deadline: within 30 days
c. Disposition of real property classified as capital asset by individual to the government or any of
its political subdivisions or agencies or to GOCCs
The tax to be imposed shall be determined either under Section 24 (A) for the normal rate of income tax
for individual citizens or residents or under Section 24 (D) (1) for the final tax on the presumed capital
gains of property at 6%, at the option of the taxpayer-seller.
d. Exemption from 6% capital gains tax on sale/transfer of principal residence
1) Exempt proceeds
Capital gains presumed to have been realized from the sale or disposition of their principal residence by
natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal
residence within 18 calendar months from the date of sale or disposition shall be exempt from capital
gains tax.
2) Escrow agreement
The buyer/transferee shall withhold from the seller and shall deduct from the agreed selling
price/consideration the 6% capital gains tax which shall be deposited in cash or manager’s check in
interest bearing account with an Authorized Agent Bank (AAB) under an Escrow Agreement between the
concerned Revenue District Officer, the Seller and the Transferee, and the AAB.
3) Carry-over of historical cost or adjusted basis

The historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new
principal residence built or acquired.
4) Computation for the basis of the new principal residence

Historical cost of old principal residence xxx
Add: Additional cost to acquire new principal residence xxx*
Adjusted cost basis of the new principal residence xxx
*Cost to acquire new principal residence xxx

Less: Gross selling price of old principal residence (xxx)
Additional cost to acquire new principal residence xxx
5) Notification required
The Commissioner shall have been duly notified by the taxpayer within 30 days from the date of sale or

disposition through a prescribed return of his intention to avail of the tax exemption.
.
6) Exemption once every 10 years
The tax exemption can only be availed of once every 10 years.
7) Taxable portion if there is no full utilization of proceeds

If there is no full utilization of the proceeds of sale or disposition of principal residence, the portion of the
gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax.
The taxable portion is computed as follows:

Unutilized portion x Tax base
Gross selling price
Computation of adjusted cost basis of the new principal residence:

Utilized portion x Historical cost
Gross selling price
8) Filing of Final Capital Gains Tax Return on sale of principal residence

• After depositing the amount representing the 6% capital gains tax, the Buyer/Transferee and the
Seller, shall jointly file, within thirty (30) days from the date of sale or disposition of the principal
residence, with the RDO having jurisdiction over the property, in duplicate, the Final Capital Gains
Tax Return covering the property bought with no computed tax due stating that the supposed tax
due/amount so withheld by the buyer is maintained in an escrow account, which amount will be
used to satisfy future tax liability, if any, on the subject transaction.
• For purposes of capital gains tax otherwise due on the sale, exchange or disposition of the said
Principal Residence, the execution of the Escrow Agreement shall be considered sufficient.
Interest income derived from Long-Term Deposits or Investment Certificates (RMC No. 7-2015)
Tax Treatment: In order for the 1. The depositor or investor is an individual citizen (resident or non-
interest income from long-term deposit resident) or resident alien or non-resident alien engaged in trade or
or investment in the form of savings, business in the Philippines;
common or individual trust funds,
deposit substitutes, investment 2. The long-term deposits or investment certificates should be under the
management accounts and other name of the individual and not under the name of the corporation or the
investments evidenced by certificates in bank or the trust department/unit of the bank;
such form prescribed by the Bangko
Sentral ng Pilipinas (BSP) to be 3. The long-term deposits or investments must be in the form of savings,
exempted from income tax, the common or individual trust funds, deposit substitutes, investment
following characteristics/conditions management accounts and other investments evidenced by certificates in
must be present: such form prescribed by the Bangko Sentral ng Pilipinas (BSP);
4. The long-term deposits or investments must be issued by banks only

and not by other entities or individuals;
Notes:
Short term deposits – are those for a 5. The long-term deposits or investments must have a maturity period of
period of less than five years. not less than five (5) years;
Long-term deposits or investments 6. The long-term deposits or investments must be in denominations of

certificates – refer to certificate of time Ten Thousand Pesos (P10,000) and other denominations as may be
deposits or investment in the form of prescribed by the BSP;
savings, common or individual trust
funds, deposit substitutes, investments 7. The long-term deposits or investments should not be terminated by the
management accounts and other original investor before the fifth (5th) year, otherwise they shall be
investments with a maturity of not less subjected to the graduated rates of 5%, 12% or 20% on interest income
than five years, the form of which shall earnings; and
be prescribed by the BSP and issued by
banks only (not by non-bank financial 8. Except those specifically exempted by law or regulations, any other
intermediaries or finance companies) to income such as gains from trading, foreign exchange gain shall not be
individuals in denominations of P10,000 covered by income tax exemption.
and other denominations are may be
prescribed by the BSP. (RMC 18-2011)
Provided, that for interest income 1. The investment of the individual investor in the common or individual
derived by individuals investing in trust fund or investment management account must be actually
common or individual trust funds or held/managed by the bank for the named individual at least five (5)
investment management accounts to be years without interruption. The term "bank" referred to herein are banks
exempt from income tax, the following duly licensed as such by the Bangko Sentral ng Pilipinas;
additional characteristics/conditions 2. The underlying investments of the common or individual trust account
must ALL be present: or investment management accounts must comply with the requirements
of Section 22(FF) of the NIRC of 1997, as amended, as well as the
requirements mentioned above;
3. The common or individual trust account or investment management
account must hold on to such underlying investment in continuous and
uninterrupted period for at least five (5) years.
In case of pre-termination, transfer or The interest income shall be subject to the following graduated rates of
negotiation of said long-term deposit or Final Withholding Tax (FWT) on the entire income and shall be deducted
investment by the depositor or investor and withheld by the depository bank from the proceeds of the long-term
before the fifth (5th) year: deposit or investment certificate based on the remaining maturity thereof
as follows:
Citizen (Resident or Non-resident)/
Resident alien/ NRA-Engaged in Four (4) years to less than five (5) years - 5%
business Three (3) years to less than four (4) years - 12%
Less than three (3) years - 20%
Non-resident alien not engaged in For non-resident alien not engaged in trade or business in the
business Philippines, interest income received from long-term deposit or
investment shall be subject to a Final Withholding Tax (FWT) at the
rate of twenty five percent (25%) pursuant to Section 25 (B) of the
NIRC of 1997, as amended.
Non-resident foreign corporation For non-resident foreign corporation, interest income received from long-
term deposit or investment shall be subject to a Final Withholding Tax
(FWT) at the rate of thirty percent (30%) pursuant to Section 28 (B) (1)
of the NIRC of 1997, as amended.
Domestic corporation and Resident Interest income from long-term deposit or investment shall be subject to
foreign corporation regular income tax at the rate of thirty percent (30%) if received by a
domestic corporation and resident foreign corporation pursuant to
Sections 27 (A) and 28 (A) (1) of the NIRC of 1997, as amended.
Examples:
1. An instrument with a maturity period of 10 years was held by Mr. X (a resident citizen) for 2 years and was
transferred to Mr. Y (a resident alien), who, in turn, held it for 8 years. The FWT due are as follows:
Mr. X 2 years 20% FWT
Mr. Y 8 years Exempt
2. An instrument with maturity period of 10 years was held by Mr. X (a non-resident citizen) for 3 years and
transferred it to Mr. Y (a resident alien). Mr. Y held it for 2 years before subsequently transferring it to Mr. Z (a
resident citizen), who held it until the day of maturity or for 5 years. The FWT due are as follows:
Mr. Y 2 years 20% FWT
Mr. Z 5 years Exempt
3. An instrument with maturity period of 10 years held by Mr. X (a non-resident alien engaged in trade or business
in the Philippines) for 3 years and transferred it to Mr. Y (a resident citizen). Mr. Y held it for 2 years before
subsequently transferring it to Mr. Z (a resident alien), who pre-terminated it after 4 years. The FWT due are as
follows:
Mr. Y 2 years 20% FWT
Mr. Z 4 years 5% FWT
In sum, pre-termination, transfer or negotiation of long-term deposit or investment certificate held by the depositor
or investor for less than five (5) years even if such long-term deposit or investment certificate has a maturity period
of five (5) years or more shall be subject to appropriate income tax rate pursuant to Sections 24 (B) (1), 25 (A) (2),
27 (D) (1) and 28 (A) (7) (a) of the NIRC of 1997, as amended.
4. Mr. X (a resident citizen) appoints Bank A — Trust Department to manage his money created through a trust
agreement. Bank A — Trust Department then invests said money in a 5-year corporate bond.
i) Even if Mr. X does not withdraw his money from such trust agreement for at least five (5) years, his
interest income from the trust agreement will NOT be exempt from the final withholding tax (FWT)
as the underlying investment is a corporate bond, even if such corporate bond has a maturity period of
five (5) years. The underlying instrument needs to comply with the requirements of Section 22(FF) of the
NIRC of 1997, as amended, as well as the requirements mentioned. A bond, promissory note or any other
type of debt instrument issued by a non-bank corporation as an underlying instrument will not meet the
requirements of Section 22(FF) as it is not issued by a bank.
ii) If Bank A — Trust Department in its own name without mentioning the particular individual for whom
the investment is being made invests the fund instead in a 10- year long-term deposit or investment
certificate, the long-term deposits and investments made in the name of a trust department of a bank are
not exempted from the twenty percent (20%) final withholding tax (FWT). Only those made
specifically "in trust for the name of specific and qualified individual investors" may be exempted from
income tax under Sections 24(B)(1) and 25(A)(2) of the NIRC of 1997, as amended, provided they
comply with Section 22(FF) of the NIRC of 1997.
iii) If Bank A — Trust Department in the name of Mr. X invests the fund instead in a 10-year long-term
deposit or investment certificate as defined under Section 22(FF) of the NIRC of 1997, as amended, Mr. X's
interest income derived from the trust agreement shall be exempt from income tax provided that Bank
A — Trust Department in behalf of Mr. X will hold such deposit or investment in continuous and
uninterrupted period for at least five (5) years. The holding period for both the individual investor in the
trust agreement and the trust in the underlying instrument must both be at least five (5) years.
PROBLEMS
Problem 1:
Case 1: Identify whether the following are subject to final tax or not. Taxpayer is RESIDENT CITIZEN unless
otherwise stated (Y/N).
Final Rate
Tax?
1) Interest from peso bank deposit, Equitable-PCIB, Makati
2) Interest from US dollar bank deposit, BPI-Makati
3) Interest from Japanese yen bank deposit, Yamashita Bank, Japan
4) Interest from USA dollar bank deposit, First USA Bank, New York
5) Interest from money market placement, PCIB Investment House
6) Interest from overdue accounts receivable, Philippines
7) Interest income from a debt instrument not within the coverage of a deposit substitute, N
Philippines
8) Interest income from a debt instrument within the coverage of a deposit substitute, Yes 20%
Philippines
9) Interest on government debt instrument and securities (regardless of number of lenders Yes 20%
at the time of the origination)
10) Royalties, in general, Manila
11) Royalties, books published in Manila
12) Royalties on books sold on e-copies or CDs such as e-books Philippines
13) Prize amounting to P30,000, Philippines
14) Prize amounting to P10,000, Philippines
15) Prize amounting to P40,000, USA
16) Winnings amounting to P30,000, Philippines
17) Winnings amounting to P10,000, Philippines
18) USA sweepstakes winnings
19) Philippines Lotto winnings
20) Interest received from depository bank under expanded foreign currency deposit system
21) Interest received from depository bank under expanded foreign currency deposit system No (1/2)
(jointly in the name of a non-resident citizen and his spouse who is a resident citizen) Yes (1/2)
22) Interest income from long term deposit or investment evidenced by certificates issued Yes 20%
by BSP (issued by a financial institution other than a bank in denomination of P10,000)
23) Interest income from long term deposit or investment evidenced by certificates issued No
by BSP (issued by a bank to an individual in denomination of P10,000)
24) Dividend from a domestic corporation received on April 15, 20X1
25) Share in distributive net income of local business partnership received on May 15, 20X1
26) Share in net income after tax of an association, a joint account, or a joint venture or
consortium received on August 15, 20X1
27) Share in the net income of a general professional partnership
28) Dividend from a foreign corporation
29) Interest income received by NONRESIDENT ALIEN individual from a depository bank
under expanded foreign currency depository system
30) Interest income received by NONRESIDENT CITIZEN individual from a depository bank
under expanded foreign currency depository system
31) Dividend received by a NONRESIDENT ALIEN not engaged in business in the Philippines
from a domestic corporation
32) Dividend received by a NONRESIDENT ALIEN engaged in trade in the Philippines from a
domestic corporation
Case 2: Identify whether the following are subject to final tax or not. Taxpayer is DOMESTIC CORPORATION
unless otherwise stated (Y/N).
Final Rate
Tax?
1) Interest from peso bank deposit, BDO Y 20
2) Interest from American bank deposit, USA Bank, Washington N
3) Interest from USA dollar bank deposit, First USA Bank, New York N
4) Interest income from a debt instrument not within the coverage of a deposit substitute, N

Philippines
5) Interest income from a debt instrument within the coverage of a deposit substitute, Y 20
Philippines
6) Interest on government debt instrument and securities (regardless of number of lenders Y 20
at the time of the origination)
7) Interest from overdue accounts receivable, Philippines N
8) Royalties, in general, Manila Y 20
9) Prize amounting to P30,000, Philippines N
10) Prize amounting to P10,000, Philippines N
11) Prize amounting to P40,000, USA N
12) Winnings amounting to P30,000, Philippines N
13) Winnings amounting to P10,000, Philippines N
14) Interest received from depository bank under expanded foreign currency deposit Y 7.5
15) Interest income from long-term deposit or investment evidenced by certificates issued N
by BSP
16) Interest income from long-term deposit or investment evidenced by certificates issued N
by BSP received by RESIDENT FOREIGN CORPORATION
17) Interest income from long-term deposit or investment evidenced by certificates issued Y 30
by BSP received by NON-RESIDENT FOREIGN CORPORATION
18) Gain from sale of shares of stock not through the stock exchange
19) Gain from sale of real property classified as capital asset
20) Gain from sale of real property classified as ordinary asset N CWTA
21) Income derived by a depository bank from foreign currency transaction with non- N exempt
residents, OBUs in the Philippines, local commercial bank including branches of foreign
banks
22) Interest income from foreign currency loan granted by depository banks under Y 10
expanded system to residents other than OBUs in the Philippines and other depository bank
23) Interst income of NON-RESIDENT FOREIGN CORPORATION from transations with NO EXE
depository banks under expanded system
24) Dividend from a domestic corporation NO EXE
25) Dividend from a foreign corporation nO
26) Dividend received from domestic corporation by a NON-RESIDENT FOREIGN NO 30%
CORPORATION (no sparing tax credit)
27) Dividend received from domestic corporation by a NON-RESIDENT FOREIGN Y 15%
CORPORATION (with sparing tax credit)
28) Interest on foreign loans contracted on or after August 1, 1986 received by non- y 20
resident foreign corporation
29) Interest income received by RESIDENT FOREIGN CORPORATION from a depository bank y 7.5
under expanded foreign currency deposit system
30) Interest income received by a NON-RESIDENT FOREIGN CORPORAITON from a n exempt
depository bank under expanded foreign currency deposit system
PROBLEMS
Problem 1: (Shares of stock – Capital gain) An individual taxpayer holds shares of stock as investment. During
the current year, he sold the shares he bought of P100,000 for P180,000 directly to a buyer.
Required:
1. How much is the capital gains tax on the sale if any?
2. What is the BIR form and when is the deadline of payment?
Problem 2: (Shares of stock- Capital gain) An individual taxpayer holds share of stocks as investment which he
bought for P500,000. During the current year, he sold it directly to a buyer for P750,000.
Required: How much is the capital gains tax on the sale, if any?
Problem 3: (Shares of stock-Capital loss) An individual taxpayer invested P300,000 in the common shares of
SMC Corp. During the current year, he sold these shares directly to a buyer for P250,000.
Required: How much is the capital gains tax on the sale, if any?
Problem 4: (Real property-Escrow deposit) During year 20X1, Ms. F sold her vacation house for P500,000. She
acquired it for P700,000 two (2) years ago. The fair market value of the vacation house at the time of sale was
P800,000. Ms. F was going to use the proceeds to build her new principal residence within eighteen (18) months after
informing BIR within thirty (30) days of such intention.
Required: How much is the escrow deposit, if any?
Problem 5: (Capital gain tax exemption/Fully utilization) Mr. G acquired his principal residence in 20X0 at a
cost of P1,000,000. He sold the said property on January 1, 20X2, with a fair market value of P5,000,000 for a
consideration of P4,000,000. Within the 18-month reglementary period he purchased his new principal residence at
cost of P7,000,000.
Required:
1. How much is the capital gains tax due?
2. How much is the basis of the new principal residence?
Problem 6: (Partial utilization) Using the same data in problem number 5, if for example, Mr G acquired his new
principal residence within the 18-month reglementary period but did not utilized the entire proceeds of the sale in
acquiring his new principal residence because he only used P3,000,000 thereof in acquiring his new principal
residence.
Required:
1. How much is the capital gains tax due?
2. How much is the basis of the new principal residence?
3. What is the BIR form and when is the deadline of payment?
Problem 7: (Rest house )K sold for P10M her Baguio rest house with a FMV of P12M to buy a new principal
residence. If K utilized P8M of the proceeds of the sale in acquiring a new principal residence, the capital gains tax
payable is_______
Problem 8: (Capital gain tax) A resident citizen, married, had the following income for the year 20X1:
Gain from sale of apartment house and lot (Selling price, P3,000,000; FMV, time of sale P5,000,000) P500,000
Gain from sale of residential house and lot (Selling price, P13,000,000; FMV, time of sale 5,000,000
P15,000,000)
Gain from sale of shares of stock listed and traded in the local stock exchange (selling price, 30,000
P100,000)
Gain from sale of shares of stock listed and traded in the local stock exchange (selling price, 130,000
P100,000) not compliant with mandatory minimum public ownership (10% of the publicly-
listed companies issued and outstanding, exclusive of any treasury shares)
Gain from sale of shares of stock not traded in the local stock exchange 150,000
Required:
1. How much is the capital gain tax?
2. How much is the percentage tax?
Problem 9 : (Disposition to the Philippine Government) ABC, a domestic corporation had a net income from
business operations of P200,000 before considering a capital gain of P1,000,000 on a sale of land to the National Government
of the Philippines (Selling price of P6M, FMV is P5.5M and cost of P5M).
Required:
1. Using the best alternative available to minimize taxes. How much is the total tax liability before the creditable withholding
tax for the year 20X1?
2. In connection in requirement number 1, how much is the creditable withholding tax if any?
Items of Gross Income

Income distinguished from other terms
From capital Capital is the fund or property existing at one distinct time, while income denotes a flow of
wealth during a definite period
From receipts Receipts have reference to all wealth that flows into the taxpayer, which includes return of
capital. Receipts are broader in scope than income
From revenue 1. Revenue, as applied to taxation, refers to all the funds or income derived by the
government, whether from tax or any other source while income, for tax purpose, is employed
in its “natural and obvious sense” to mean money or gain received, coming to a person
(natural or juridical) during a given period of time
2. Revenue is to the government while income is to a person (natural or juridical)
Income from whatever source

Example of income 1. Gains arising from expropriations of property
from whatever 2. Gambling gains
source 3. Income from illegal business or from embezzlement
4. Damage recovery (compensation from damages)
• Rewards given to persons instrumental in the discovery of violations of the National Internal Revenue
Code are: subject to FINAL TAX OF 10% of reward collected or P1,000,000, whichever is LOWER.
Reward collected:
Revenues Xxx
Surcharges Xxx
Fees recovered Xxx
Fine Xxx
Penalty Xxx
Total Xxx
Multiply by: 10%
Reward Collected Pxxx
VS P1,000,000
Whichever is Lower Pxxx
Multiply by: Final tax rate 10%
Final Tax Pxxx
SEC. 282. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National
Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods. -
(A) For Any person, except an internal revenue official or employee, or other public official or employee,
Violations of the or his relative within the sixth degree of consanguinity, who voluntarily gives definite and sworn
National information, not yet in the possession of the Bureau of Internal Revenue, leading to the discovery
Internal of frauds upon the internal revenue laws or violations of any of the provisions thereof, thereby
Revenue Code. resulting in the recovery of revenues, surcharges and fees and/or the conviction of the guilty
party and/or the imposition of any of the fine or penalty, shall be rewarded in a sum
equivalent to ten percent (10%) of the revenues, surcharges or fees recovered and/or
fine or penalty imposed and collected or One Million Pesos (P1,000,000) per case,
whichever is lower. The same amount of reward shall also be given to an informer where the
offender has offered to compromise the violation of law committed by him and his offer has been
accepted by the Commissioner and collected from the offender: Provided, That should no
revenue, surcharges or fees be actually recovered or collected, such person shall not be
entitled to a reward: Provided, further, That the information mentioned herein shall not refer
to a case already pending or previously investigated or examined by the Commissioner or
any of his deputies, agents or examiners, or the Secretary of Finance or any of his deputies or
agents: Provided, finally, That the reward provided herein shall be paid under rules and
regulations issued by the Secretary of Finance, upon recommendation of the Commissioner.
(B) For To encourage the public to extend full cooperation in eradicating smuggling, a cash reward
Discovery and equivalent to ten percent (10%) of the fair market value of the smuggled and confiscated goods
Seizure of or One Million Pesos (P1,000,000) per case, whichever is lower, shall be given to persons
Smuggled instrumental in the discovery and seizure of such smuggled goods.
Goods.
10% Final tax The cash rewards of informers shall be subject to income tax, collected as a final withholding tax,
at a rate of ten percent (10%).
Notes:
Used to be excluded but 1. Interest on government securities (subject to 20% final tax)
now subject to final tax 2. Income derived as informer’s reward to persons instrumental in the discovery of
violations of the NIRC and in the discovery and seizure of smuggled goods (subject
to 10% final tax)
Problem: Informer’s Reward

Miss A provided information to the government, which led to the capture and seizure of smuggled goods with fair
market value of P15,000,000.
Required:
1. If the government sold the captured goods for P15,000,000, how much would be the cash reward of Miss A as tax
informer?
2. If the government destroyed the goods seized because these are regarded as harmful to health, how much would
be the cash reward of Miss A as tax informer?
3. In assumption to number “1,” how much final income tax should be withheld from the reward of Miss A?
CREDITABLE WITHHOLDING TAXES

Creditable withholding taxes – items of regular income are subject to creditable witthodling tax (CWTax). The CWT is
withheld at source by customers or clients but is not a final tax. It is an advance tax deductible against the annual
income tax due of the taxpayer.
Classification of Withholding Tax at Source
Withholding tax may be classified into two major categories:
1. Final Withholding Tax
2. Creditable Withholding Tax
What are the types of Withholding Taxes?

There are four types of withholding taxes, namely:
a. Withholding Tax on Compensation
b. Expanded Withholding Tax
c. Final Withholding Tax
d. Withholding Tax on Government Money Payments
- Withholding Tax on Vat
- Withholding Tax on Percentage Taxes
Final Withholding tax VS. Creditable Withholding Tax
Similarities:
1. In both cases, the income payor withhold a fraction of the income and remits the same to the government.
2. By collecting at the moment cash is available, both serve to avoid cash flow problem to the taxpayer and the
government.
Differences:
Final Withholding Tax Creditable Withholding Tax
Income tax withheld Full Only a portion
Coverage Passive income Active income
Who remits the actual tax Income payor Income payor for the CWT and the
taxpayer for the balance
Forms BIR Form 1601-F for reporting the BIR Form 1601-C monthly
monthly remittance of final income remittance return of income taxes
taxes withheld. withheld on comepnsastion (Note:
BIR Form 2316 – certificate of
compensation payment and tax
withheld, shall be filed and paid
under BIR Form 1601 C, monthly
BIR Form 1602 on interest paid on remittance return on income taxes
deposits and yield on deposits withheld on compensation.)
substitutes
BIR Form 1601 E- Q quarterly
BIR Form 1603 quarterly remittance remittance return of creditable
return of final income taxes withheld expanded income taxes withheld
on fringe benefits paid to employees
other than rank and file BIR Form 1606 withholding tax
remittance return for onerous
transfer of real property other than
capital assets
Notes:
1. The return for final and creditable withholding taxes shall be filed and the payment made not later than the last
day of the month following the close of the quarter during which withholding was made.
2. (Tax Advisory) 1601-E
• First two (2) months every quarter, the withholding agent (WAs) are advised to remit the withheld taxes
using BIR Form No. 0605 on or before the 10th day (for over-the-counter) or 15th day (for eFPS filers) of
the following month withholding.
• Alphanumeric Tax Code to be used in the filing and remittance of the said taxes thru BIR Form 0605 shall
be MC 200 and the tax type to be indicated shall be “WE” for expanded Withholding Tax or “WF” for
final Withholding tax, whichever is applicable.
TAXES WITHHELD ON THE THIRD (3R) MONTH OF EVERY TAXABLE QUARTER SHALL BE REMITTED THRU BIR
FORM 1601E-Q (OR THE APPLICABLE QUARTERLY WITHHOLDING TAX RETURN). NOT LATER THAN THE LAST DAY OF
THE MONTH FOLLOWING THE CLOSE OF THE TAXABLE QUARTER DURING WHICH THE WITHHOLDING TAX WAS MADE
Tax Type Covered period Form to Use Alphalist of Due date for filing and payment
Payees
Non-EFPS EFPS Filers
Filers
Expanded/creditable 1st month of the BIR Form 0605 None 10th day of the 15th day of the
Withholding Tax quarter ATC –MC 200 following month following month
(1601E/1606) Tax Type WE
2nd month of the BIR Form 0605 None 10th days of the 15th day of the
quarter ATC –MC 200 following month following month
Tax Type WE
Calendar Quarter BIR Form Yes (to include Last day of the Last day of the
1601EQ all income month following month following
payments for the the close of the the close of the
quarter) quarter quarter
Final Withholding 1st month of the BIR Form 0605 None 10th day of the 15th day of the
Tax (1601 F/1602) quarter ATC –MC 200 following month following month
Tax Type WF
2nd month of the BIR Form 0605 None 10th days of the 15th day of the
quarter ATC –MC 200 following month following month
Tax Type WF
Calendar Quarter BIR Form Yes for 1601F (to Last day of the Last day of the
1601FQ/1602Q include all month following month following
income the close of the the close of the
payments for the quarter quarter
quarter)
Change in the Creditable Withholding Tax Rate on lncome Payments to Self employed lndividuals or
Professionals (RMC 1-2018)
The following lncome Payments to Self-employed lndividuals or Professionals shall be subject to Eight Percent
(8%):
1. Professional fees, talent fees, commissions, etc. for services rendered by individuals;
2. lncome distribution to beneficiaries of Estates and Trusts;
3. lncome Payment to certain brokers and agents;
4. lncome Payments to partners of general professional partnership;
5. Professionalfees paid to medical practitioners; and
6. Commission of independent and/or exclusive sales representatives, and marketing agents of companies.
Expanded Creditable Withholding Tax Rates

BIR FORM TAX TYPE DESCRIPTION ATC TAX RATES
MONTHLY REMITTANCE RETURN OF CREDITABLE INCOME TAXES
BIR FORM NO. 1601-E
WITHHELD (EXPANDED)
Professionals (lawyers, CPAs, engineers, etc.), talent fees paid to individuals - If the
1601-E/2307 WE WI010 8%
current year’s gross income is P720,000 and below
Professionals (lawyers, CPAs, engineers, etc.), talent fees paid to individuals - If the
1601-E/2307 WE WI011 8%
current year’s gross income exceeds P 720,000
Professionals/ talent fees paid to juridical persons - If the current year’s gross
1601-E/2307 WE WC010 8%
income is P720,000 and below
Professionals/ talent fees paid to juridical persons - If the current year’s gross
1601-E/2307 WE WC011 8%
income exceeds P 720,000
Professional entertainers, such as, but not limited to, actors and actresses, singers,
1601-E/2307 WE lyricist, composers, emcees - If the current year’s gross income is P 720,000 and WI020 8%
below
Professional entertainers, such as, but not limited to, actors and actresses, singers,
1601-E/2307 WE WI021 8%
lyricist, composers, emcees - If the current year’s gross income exceeds P 720,000
Professional athletes, including basketball players, pelotaris and jockeys - If the
1601-E/2307 WE WI030 8%
current year’s gross income is P 720,000 and below
Professional athletes including basketball players, pelotaris and jockeys - If the
1601-E/2307 WE WI031 8%
current year’s gross income exceeds P720,000
Movie, stage, radio, television and musical directors and producers - If the current
1601-E/2307 WE WI040 8%
year’s gross income is P720,000 and below
Movie, stage, radio, television and musical directors and producers - If the current
1601-E/2307 WE WI041 8%
year’s gross income exceeds P 720,000
Management and technical consultants paid to individuals. If the current year’s gross
1601-E/2307 WE WI050 8%
income is P 720,000 and below
Management and technical consultants paid to individuals - If the current year’s gross
1601-E/2307 WE WI051 8%
Management and technical consultants paid to juridical person - If the current year’s
1601-E/2307 WE WC050 8%
gross income is P 720,000 and below
Management and technical consultants paid to juridical person - If the currents year’s
1601-E/2307 WE WC051 8%
gross income exceeds P720,000
Business and bookkeeping agents and agencies - If the current year’s gross income is
1601-E/2307 WE WI060 8%
P 720,000 and below
Business and bookkeeping agents and agencies - If the current year’s gross income
1601-E/2307 WE WI061 8%
exceeds P 720,000

Insurance agents and insurance adjusters - If the current year’s gross income is P
1601-E/2307 WE WI070 8%
720,000 and below
Insurance agents and insurance adjusters - If the current year’s gross income exceeds
1601-E/2307 WE WI071 8%
P 720,000
Other recipients of talent fees - If the current year’s gross income is P 720,000 and
1601-E/2307 WE WI080 8%
below
1601-E/2307 WE Other recipients of talent fees - If the current year’s gross income exceeds P 720,000 WI081 8%
Fees of directors who are not employees of the company - If the current year’s gross
1601-E/2307 WE WI090 8%
income is P 720,000 and below
Fees of directors who are not employees of the company - If the current year’s gross
1601-E/2307 WE WI091 8%
Rentals- real/personal properties, poles, satellites & transmission facilities, billboards
1601-E/2307 WE WI100 5%
– Individual
Rentals- real/personal properties, poles, satellites & transmission facilities, billboards
1601-E/2307 WE WC100 5%
– Corporate
1601-E/2307 WE Cinematographic film rentals – Individual WI110 5%
1601-E/2307 WE Cinematographic film rentals – Corporate WC110 5%
1601-E/2307 WE Income payments to prime contractors/sub-contractors – Individual WI120 2%
1601-E/2307 WE Income payments to prime contractors/sub-contractors – Corporate WC120 2%
1601-E/2307 WE Income distribution to beneficiaries of estates and trusts WI130 8%
Gross commission or service fees of custom, insurance, stock, real estate,
1601-E/2307 WE immigration and commercial brokers & fees of agents of professional entertainers - WI140 8%
Individual
Gross commission or service fees of custom, insurance, stock, real estate,
1601-E/2307 WE immigration and commercial brokers & fees of agents of professional entertainers - WC140 8%
Corporate
Payments to medical practitioners by a duly registered professional partnership for
1601-E/2307 WE the practice of the medical profession - If the currents year's income payments to the WI141 8%
medical practitioner is P720,000 and below
Payments to medical practitioners by a duly registered professional partnership for
1601-E/2307 WE the practice of the medical profession - If the currents year's income payments to the WI142 8%
medical practitioner exceeds P720,000
Payments for medical/dental/veterinary services thru Hospitals/ Clinics/Health
Maintenance Organizations, including direct payments to service providers - If the
1601-E/2307 WE WI150 8%
current year's income payments for the medical/dental/veterinary services exceeds P
720,000
Payments for medical/dental/veterinary services thru Hospitals/ Clinics/Health
Maintenance Organizations, including direct payments to service providers - If the
1601-E/2307 WE WI151 8%
current year's income payments for the medical/dental/veterinary services is P
720,000 and below
Payment by the general professional partnerships GPP) to its partners - If the
1601-E/2307 WE WI152 8%
current year's income payments to the partners is P 720,000 and below
Payment by the general professional partnerships GPP) to its partners - If the
1601-E/2307 WE WI153 8%
current year's income payments to the partners exceeds P 720,000
1601-E/2307 WE Payments made by credit card companies – Individual WI156 1% of ½
1601-E/2307 WE Payments made by credit card companies – Corporate WC156 1% of ½
Income payments made by the government to its local/resident suppliers of goods –
1601-E/2307 WE WI640 1%
Individual
Income payments made by the government to its local/resident suppliers of goods –
1601-E/2307 WE WC640 1%
Corporate
Income payments made by the government to its local/resident suppliers of service –
1601-E/2307 WE WI157 2%
Individual
Income payments made by the government to its local/resident suppliers of services
1601-E/2307 WE WC157 2%
– Corporate
Income payments made by top 20,000 private corporations to their local/resident
1601-E/2307 WE WI158 1%
suppliers of goods – Individual
1601-E/2307 WE WC158 1%
suppliers of goods – Corporate
1601-E/2307 WE WI160 2%
suppliers of services – Individual
1601-E/2307 WE WC160 2%
suppliers of services – Corporate
Additional payments to government personnel from importers, shipping and airline
1601-E/2307 WE WI159 8%
companies or their agents for overtime services
Commission, rebates, discounts and other similar considerations paid/granted to
1601-E/2307 WE independent & exclusive distributors, medical/technical & sales representatives & WI515 8%
marketing agents & sub-agents of multi-level marketing companies – Individual
Commission, rebates, discounts and other similar considerations paid/granted to
1601-E/2307 WE independent & exclusive distributors, medical/technical & sales representatives & WC515 8%
marketing agents and sub-agents of multi-level marketing companies – Corporate
1601-E/2307 WE Gross payments to embalmers by funeral parlors WI530 1%
1601-E/2307 WE Payments made by pre-need companies to funeral parlors – Individual WI535 1%
1601-E/2307 WE Payments made by pre-need companies to funeral parlors – Corporate WC535 1%
1601-E/2307 WE Tolling fee paid to refineries – Individual WI540 5%
1601-E/2307 WE Tolling fee paid to refineries – Corporate WC540 5%
1601-E/2307 WE Income payments made to suppliers of Agricultural products – Individual WI610 1%
1601-E/2307 WE Income payments made to suppliers of Agricultural products – Corporate WC610 1%
Income payments on purchases of minerals, mineral products & quarry resources –
1601-E/2307 WE WI630 5%
Individual

Income payments on purchases of minerals, mineral products & quarry resources –
1601-E/2307 WE WC630 5%
Corporate
Income payments on purchases of gold by Bangko Sentral ng Pilipinas (BSP) from
1601-E/2307 WE WI632 5%
gold miners/suppliers under PD 1899, as amended by RA No. 7076- Individual
Income payments on purchases of gold by Bangko Sentral ng Pilipinas (BSP) from
1601-E/2307 WE WC632 5%
gold miners/suppliers under PD 1899, as amended by RA No. 7076 – Corporate
On gross amount of refund given by Meralco to customers with active contracts as
1601-E/2307 WE WI650 25%
classified by Meralco – Individual
On gross amount of refund given by Meralco to customers with active contracts as
1601-E/2307 WE WC650 25%
classified by Meralco – Corporate
On gross amount of refund given by Meralco to customers with terminated contracts
1601-E/2307 WE WI651 32%
as classified by Meralco – Individual
On gross amount of refund given by Meralco to customers with terminated contracts
1601-E/2307 WE WC651 32%
as classified by Meralco – Corporate
Withholding on gross amount of interest on the refund of meter deposit whether
paid directly to the customers or applied against customer's billing - Residential and
1601-E/2307 WE WI660 8%
General Service customers whose monthly electricity consumption exceeds 200 kwh
as classified by MERALCO – Individual
1601-E/2307 WE WC660 8%
as classified by MERALCO – Corporate
paid directly to the customers or applied against customer's billing - Non-Residential
1601-E/2307 WE WI661 8%
customers whose monthly electricity consumption exceeds 200 kwh as classified by
MERALCO - Individual
1601-E/2307 WE WC661 8%
MERALCO - Corporate
1601-E/2307 WE WI662 8%
as classified by other electric Distribution Utilities (DU) – Individual
1601-E/2307 WE WC662 8%
as classified by other electric Distribution Utilities (DU) – Corporate
1601-E/2307 WE WI663 20%
other electric Distribution Utilities (DU) – Individual
1601-E/2307 WE WC663 20%
other electric Distribution Utilities (DU) – Corporate
Income payments made by the top five thousand (5,000) individual taxpayers to their
1601-E/2307 WE local/resident suppliers of goods other than those covered by other rates of WI670 1%
withholding tax – Individual
1601-E/2307 WE local/resident suppliers of goods other than those covered by other rates of WC670 1%
withholding tax – Corporation
1601-E/2307 WE local/resident suppliers of services other than those covered by other rates of WI672 2%
withholding tax - i) Individual
1601-E/2307 WE local/resident suppliers of services other than those covered by other rates of WC672 2%
withholding tax - ii) Corporation
Income payments made by political parties and candidates of local and national
elections of all their purchase of goods and services as campaign expenditures, and
1601-E/2307 WE income payments made by individuals or juridical persons for their purchases of WI680 5%
goods and services intended to be given as campaign contribution to political parties
and candidates – Individual
Income payments made by political parties and candidates of local and national
elections of all their purchase of goods and services as campaign expenditures, and
1601-E/2307 WE income payments made by individuals or juridical persons for their purchases of WC680 5%
goods and services intended to be given as campaign contribution to political parties
and candidates – Corporation
1601-E/2307 WE Income payments received by Real Estate Investment Trust (REIT) WC690 1%
Interest income derived from any other debt instruments not within the coverage of
1601-E/2307 WE deposit substitutes and Revenue Regulations No. 14-2012 subject to Creditable/ WI710 20%
Expanded Withholding Tax – Individual
Interest income derived from any other debt instruments not within the coverage of
1601-E/2307 WE deposit substitutes and Revenue Regulations No. 14-2012 subject to Creditable/ WC710 20%
Expanded Withholding Tax – Corporate

TAXATION OF CAPITAL GAINS AND PASSIVE INCOME

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TAXATION OF CAPITAL GAINS AND PASSIVE INCOME

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TAXATION

FAR EASTERN UNIVERSITY – MANILA

13. FINAL TAX AND CGTAX Page 1 of 12

Capital Gains Tax

d. Exemption from 6% capital gains tax on sale/transfer of principal residence

3) Carry-over of historical cost or adjusted basis

4) Computation for the basis of the new principal residence

*Cost to acquire new principal residence xxx

13. FINAL TAX AND CGTAX Page 2 of 12

7) Taxable portion if there is no full utilization of proceeds

The taxable portion is computed as follows:

Computation of adjusted cost basis of the new principal residence:

8) Filing of Final Capital Gains Tax Return on sale of principal residence

4. The long-term deposits or investments must be issued by banks only

Long-term deposits or investments 6. The long-term deposits or investments must be in denominations of

13. FINAL TAX AND CGTAX Page 5 of 12

Items of Gross Income

2. Revenue is to the government while income is to a person (natural or juridical)

Income from whatever source

13. FINAL TAX AND CGTAX Page 7 of 12

Problem: Informer’s Reward

CREDITABLE WITHHOLDING TAXES

13. FINAL TAX AND CGTAX Page 8 of 12

What are the types of Withholding Taxes?

Final Withholding tax VS. Creditable Withholding Tax

Expanded Creditable Withholding Tax Rates

13. FINAL TAX AND CGTAX Page 10 of 12

13. FINAL TAX AND CGTAX Page 11 of 12

13. FINAL TAX AND CGTAX Page 12 of 12

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