Philippine Withholding Tax: Interest, Dividends, and Real Estate

Philippine withholding tax is collected at the source: the payor deducts a set percentage before releasing funds, and depending on the income type, that deduction either fully settles the tax (final withholding tax) or acts as an advance credit toward the recipient’s annual income tax (creditable withholding tax). The headline rates are 20% on most peso interest income, 10% on dividends from domestic corporations, 20% on royalties (10% for books and music), 6% capital gains tax on the sale of real property held as a capital asset, and 25% on most Philippine-source passive income paid to non-residents not engaged in trade or business. Get the classification and the form right, because errors trigger a 25% surcharge plus 20% annual interest on the unpaid balance.¹

Interest Income

Interest from peso bank deposits, deposit substitutes, trust funds, and similar arrangements is subject to a 20% final withholding tax for individual taxpayers under Section 24(B)(1) of the National Internal Revenue Code.² Domestic corporations pay the same 20% under Section 27(D)(1), as amended by the CREATE Act.³ Because the bank deducts the tax before crediting your interest, you do not report this income on your annual return.

Interest earned through the expanded foreign currency deposit system carries a reduced 15% final tax for both resident individuals and domestic corporations. Non-resident aliens not engaged in trade or business in the Philippines face a 25% rate on interest, unless a tax treaty provides a lower one.²

Long-Term Deposits and Early Withdrawal

Individual taxpayers who hold long-term deposits or investment certificates with a maturity of five years or more pay no tax on the interest earned. The exemption covers savings, trust funds, deposit substitutes, and investment management accounts evidenced by BSP-prescribed certificates.² Pull the money out early and a final tax applies to the entire interest earned, scaled to how long you actually held the deposit:

Four to less than five years: 5%
Three to less than four years: 12%
Less than three years: 20%

The depository bank deducts this tax from your proceeds at pre-termination. One important boundary: the CREATE Act repealed the equivalent long-term deposit exemption for corporations under the old Section 27(D)(2). Domestic corporations now pay the standard 20% final tax on interest regardless of the deposit’s maturity.³

Dividends, Royalties, Prizes, and Winnings

Cash or property dividends received by Philippine citizens and resident aliens from domestic corporations are subject to a 10% final tax under Section 24(B)(2) of the NIRC, as amended by the TRAIN Law.⁴ The paying corporation withholds the tax before distribution, so you receive the net figure and have no further filing obligation on that income.

Royalties face a 20% final tax as a general rule. A reduced 10% rate applies to royalties from books, other literary works, and musical compositions.² The distinction matters for authors and composers licensing work domestically, since the lower rate roughly doubles the after-tax royalty compared to other intellectual property.

Prizes exceeding ₱10,000 are taxed at 20% as a final withholding tax. Prizes of ₱10,000 or less are folded into your gross income and taxed at the standard graduated rates. PCSO and lotto winnings follow the same threshold: amounts above ₱10,000 face the 20% final tax; amounts at or below ₱10,000 are exempt.² Because these are final taxes, recipients do not include them on their annual income tax return.

Real Estate Sales

The tax treatment of a real property sale depends entirely on whether the property is classified as a capital asset or an ordinary asset. Getting the classification wrong means filing the wrong return at the wrong rate, and both trigger penalties.

Capital Assets and the 6% Capital Gains Tax

Real property classified as a capital asset, generally property not used in a trade or business, is subject to a 6% capital gains tax under Section 24(D) of the NIRC.⁴ The tax base is the gross selling price or the current fair market value, whichever is higher. Fair market value is the higher of the BIR zonal value and the assessed value set by the local assessor. The seller files BIR Form 1706 and pays within 30 days of the deed of sale’s notarization.⁵

Despite the name, the capital gains tax is a final tax on the presumed gain. You cannot deduct your acquisition cost. The 6% applies to the entire selling price or fair market value, not just the profit.

Ordinary Assets and Creditable Withholding Tax

Properties classified as ordinary assets, such as inventory held by real estate developers or property used in a business, fall under the creditable withholding tax system. CWT rates range from 1.5% to 6% depending on the seller’s business activity and the transaction value. The buyer withholds the amount from the purchase price, remits it using BIR Form 1606, and issues a BIR Form 2307 (Certificate of Creditable Tax Withheld at Source) to the seller.⁶ The seller then credits the withheld amount against annual income tax due.

Unlike the capital gains tax, CWT is not the final word on the seller’s obligation. The seller reports the sale on their annual return and reconciles the withholding against the total tax due. If the CWT exceeds the income tax owed, the seller can apply for a refund or carry the excess forward.

DST and the eCAR

Every real property transfer also triggers a documentary stamp tax of ₱15 per ₱1,000 of consideration or fair market value, effectively 1.5% on the higher figure. A local transfer tax also applies, with rates varying by city or municipality.

No title transfer happens without an Electronic Certificate Authorizing Registration (eCAR) from the BIR. The Registry of Deeds will not process the transfer without it. To obtain the eCAR, you file the tax returns with proof of payment, present an approved ONETT Computation Sheet from the BIR, submit the notarized transfer document, pay the DST and certification fee, and provide a notarized Special Power of Attorney or Secretary’s Certificate if someone else is filing on the parties’ behalf. Documents executed abroad need either Philippine Consulate certification or an Apostille.⁷

How Residency Changes the Rate

The withholding rate on your Philippine-source income depends on how the BIR classifies your residency. The gaps between categories are significant.

Resident citizens and resident aliens pay the standard final withholding rates (20% on peso interest, 10% on dividends, 20% on royalties).
Non-resident aliens engaged in trade or business, generally individuals who stay in the Philippines for more than 180 days in a calendar year, pay rates that mostly mirror those for residents on passive income.
Non-resident aliens not engaged in trade or business, meaning those whose stay totals 180 days or less, face 25% on interest and generally 25% on other passive income, subject to treaty relief.²
Non-resident foreign corporations are generally taxed at 25% on Philippine-source passive income, again subject to treaty rates.

Expatriates assigned to the Philippines under a fixed contract are typically classified as non-resident aliens engaged in trade or business, with the 180-day aggregate test applied each calendar year.

Tax Treaty Relief

The Philippines has income tax treaties with dozens of countries, and many cap withholding below the domestic rates. Under the US-Philippines treaty, for example, withholding on interest is capped at 15% of the gross amount (10% on interest from public bond issues), and dividends are capped at 25%, dropping to 20% if the recipient corporation owns at least 10% of the paying company’s voting stock.⁸ Interest paid to or by government instrumentalities, including central banks, is exempt under that treaty.

Claiming treaty benefits is not automatic. The non-resident taxpayer or their local withholding agent must file BIR Form 0901 (Application for Relief from Double Taxation) with the BIR’s International Tax Affairs Division at least 15 days before the income payment.⁹ A copy of the filed or approved application must be attached to the withholding tax return supporting the reduced rate. Miss this step and the payor withholds at the full domestic rate; recovering the excess later is slow.

BIR Forms You Will Actually Use

Different transactions get different forms, and the BIR is strict about matching the two. The most commonly used withholding tax forms:

BIR Form 0619-F is the monthly remittance form for final income taxes withheld on interest, dividends, royalties, and similar passive income.
BIR Form 1601-FQ is the quarterly remittance return summarizing final income taxes withheld during the quarter.¹⁰
BIR Form 1706 is the capital gains tax return for real property sold as a capital asset.⁵
BIR Form 1606 is the withholding tax remittance return for real property sold as an ordinary asset.
BIR Form 2307 is the certificate of creditable tax withheld at source. The payor must issue it to the payee within 20 days after the close of each quarter, or immediately on request at the time of payment.⁶
BIR Form 1604-CF is the annual information return summarizing all compensation and final withholding taxes for the year, due on or before January 31 of the following year.¹¹

Both payor and payee need valid Taxpayer Identification Numbers on every form. Real estate transactions also need the property’s BIR zonal value and assessed value. Each form uses an Alphanumeric Tax Code identifying the specific income type and rate. Current versions are available on the BIR website as PDFs and through the eBIRForms software.

Deadlines and Remittance

Monthly deadlines depend on how you file. Non-eFPS filers (manual or eBIRForms) remit monthly withholding taxes by the 10th of the following month. Filers registered on the Electronic Filing and Payment System (eFPS) follow a staggered schedule from the 11th through the 15th, depending on their assigned taxpayer group (Group A through Group E).¹² Payments settle through Authorized Agent Banks or digital platforms like GCash and Maya. Keep the electronic confirmation or bank-stamped form as proof of payment.

Quarterly returns such as Form 1601-FQ are due within 25 days after the end of each quarter. The annual information return (Form 1604-CF) is due January 31 of the following year, along with the alphalist of payees whose income was subject to final withholding tax.¹¹ Missing the annual return is a common oversight and generates its own penalties on top of any monthly or quarterly ones.

Penalties When You File Late

The BIR stacks three layers of penalties on late filings and unremitted withholding.

First, a 25% surcharge on the unpaid tax whenever you miss a deadline or underpay. Second, interest at 20% per year on the outstanding balance, accruing from the original due date until you pay in full.¹ On a ₱100,000 obligation six months late, that is ₱25,000 in surcharge plus roughly ₱10,000 in interest before the third layer applies.

The third layer is the compromise penalty, a fixed amount based on how much tax you owe. The schedule starts at ₱1,000 for unpaid tax up to ₱5,000 and scales to ₱50,000 for amounts exceeding ₱5,000,000.¹ For withholding agents specifically, repeated failure to remit withheld taxes can also lead to criminal prosecution under the NIRC, since you are holding government funds.

1
Bureau of Internal Revenue. Penalties for Late Filing of Tax Returns
2
Bureau of Internal Revenue. Revenue Regulations No. 21-2025
3
Bureau of Internal Revenue. RMC No. 89-2021 – Republic Act No. 11534
4
LawPhil.net. Republic Act No. 10963
5
Bureau of Internal Revenue. Capital Gains Tax Return – BIR Form 1706
6
Bureau of Internal Revenue. Certificate of Creditable Tax Withheld at Source – BIR Form 2307
7
Bureau of Internal Revenue. Processing and Issuance of Electronic Certificate Authorizing Registration
8
Internal Revenue Service. United States – Philippines Income Tax Treaty
9
Supreme Court E-Library. BIR Memorandum Order No. 1-2000 – Procedures for Processing Tax Treaty Relief Application
10
Bureau of Internal Revenue. BIR Form 1601-FQ – Quarterly Remittance Return of Final Income Taxes Withheld
11
Bureau of Internal Revenue. BIR Form No. 1604CF – Guidelines and Instructions
12
Bureau of Internal Revenue. Tax Reminder