Tax On Dividend Income in the Philippines
Dividend is a portion of company’s accumulated profits declared by the Board of Directors which is to be distributed to shareholders through cash, shares or property. Many companies kept the major portion of the profits as retained earnings to be used for company’s on-going and future operations. Some specifically allocated certain amount restricted for company expansion or any other specific company dealings. But in the end, the company always aim to pay dividends regularly as it represents management performance over the business. Dividend is the return of shareholders’ investment to the company.
In the Philippines, though dividends distributed by a domestic corporation to another domestic corporation is exempted from tax, any other distributions have corresponding withholding tax as enumerated below:
| DESCRIPTION | TAX RATES |
| Cash dividend payments by domestic corporation to citizens and resident aliens | 10% |
| Property dividend payments by domestic corporation to citizens and resident aliens | 10% |
| Cash dividend payment by domestic corporation to Non-Resident Foreign Corporations | 30% |
| Property dividend payment by domestic corporation to Non-Resident Foreign Corporations | 30% |
| Cash dividend payment by domestic corporation to Non-Resident Foreign Corporations whose countries allow tax deemed paid credit (subject to tax sparing rule) | 15% |
| Property dividend payment by domestic corporation to Non-Resident Foreign Corporations whose countries allowed tax deemed paid credit (subject to tax sparing rule) | 15% |
| Cash dividend payment by domestic corporation to non-resident alien engaged in trade or business (NRAETB) | 20% |
| Property dividend payment by domestic corporation to non-resident alien engaged in trade or business (NRAETB) | 20% |
| Cash or property dividends paid by a Real Estate Investment Trust (REIT) to individuals | 10% |
| Cash or property dividends paid by a Real Estate Investment Trust (REIT) to corporations | 10% |
The tax to be deducted from the dividend payment is called Final Withholding Tax. This is the full and final payment of income tax due from the recipient of the dividend income. The obligation to withhold tax and remit the same to Bureau of Internal Revenue (BIR) is with the payor (the company who will distribute dividends).
How to compute tax on dividends income?
Withholding tax on dividend depends on the type of dividend issued and its recipient. Just simply multiply the tax rate enumerated above to the amount of dividend the recipient is entitled.
When to file and pay tax on dividends?
EFPS – on or before the fifteenth (15th) day of the following month
Manual/EBIRForms – on or before the tenth (10th) day following the close of the month
Illustration:
Ms. Isabel Marion, a Filipino citizen owns 10,000 shares of ABC Company, a domestic corporation. At the end of the year, the board of directors decided to declare P2.50 cash dividend per share.
How much is Ms. Isabel’s net proceeds from dividend distribution?
10,000 shares x P2.50 = P25,000.00
P25,000 x 10% FWT = P2,500.00
Therefore her net proceed is, P25,000.00 – P2,500.00 = P22,500.00
Reference: Bureau of Internal Revenue (bir.gov.ph)
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