Final Withholding Tax

Final Withholding Tax

What is a Final Withholding Tax (FWT)?

The final withholding tax is an amount of income withheld by the payer from the payee. The payer pays this amount to the government as an income tax due from the payee. The payee need not file an income tax return for that particularly income anymore, since the payer already paid it on his behalf. The FWT is imposed on both individuals and companies.

 

What is the difference between the FWT and the Creditable Withholding Tax (CWT)?

The FWT and the CWT are the two basic kinds of withholding taxes. The FWT is a tax wherein the payer withholds an amount from the payee’s income, and pays this amount to the government instead in behalf of the payee. The payee then no longer needs to file an income tax return anymore for this income. The CWT is similar in the sense that the payer also withholds an amount of the payee’s income and pays this to the government. However, this amount withheld is usually just an estimate – the payee is still required to file an income tax return to report the income and to pay the difference between the tax withheld and the real amount due on the income.

The FWT is usually applicable to indirect sources of income, such as income from dividends, interest, royalties, capital gains from sale of property, etc, and income of foreign companies and their employees. The CWT, on the other hand, is usually applicable to income of Filipinos from employment.

 

What kinds of income are subject to FWT?


The FWT is imposed on:

      1. Interest income
      2. Royalties
      3. Dividends from domestic corporations
      4. Profits from sale of property
      5. Fringe benefits
      6. Rewards of informers in the discovery of tax violations or seizure of goods
      7. *For Filipinos and aliens occupying managerial, supervisory, or technical positions in regional headquarters of multinational corporations:

      8. Compensation income

 

At what rates is the FWT imposed?

Different rates are imposed on different kinds of income.

  1. For individuals:
    1. Interest from peso bank deposits, trust funds, etc, royalties (excluding those from literary or musical works), prizes or winnings of greater than P10,000 in monetary value (excluding the Charity sweepstakes and lotto)

            2.   Royalties on literary or musical works

            3.   Interest income from a FCDU deposit

            4.   Interest from a long-term deposit or investment which has lasted for:

      1. 3 years – less than 4 years
      2. - 12%

      3. 4 years – less than 5 years
      4. - 5%

      5. 5 years and longer- 0% (Interest free)

            6.   Profits from sale of property

            7.   Compensation Income/Gross Income

    1. Interest from currency deposits, trust funds, etc.

            2.   Royalties from within Philippines

            3.   Interest from a FCDU deposit

            4.   Income derived by a depository bank from foreign currency transactions

            5.   Capital gains from the sale of property

            2.   Branch profit remittance of a branch in the Philippines to a head office abroad

            3.   Interest from currency bank deposits, trust funds, etc.

            4.   Income from a FCDU deposit

            5.   Income derived by a depository bank from foreign currency transactions