Question & AnswerQ&A (PRESIDENTIAL DECREE NO. 1800)
The purpose of Presidential Decree No. 1800 is to provide for the taxation of certain passive income, to raise capital for the industrialization of the Philippines, to broaden equity ownership, and to simplify tax collection on investment income through a withholding tax system.
The final tax rate imposed on such dividends is fifteen percent (15%).
Dividends received by a domestic or resident foreign corporation from a domestic corporation are subject to a final tax of 10% on the total amount thereof, to be collected and paid according to Sections 53 and 54 of the National Internal Revenue Code.
No, if the recipient corporation is exempt from income taxation, no tax shall be imposed on such dividends.
Dividends subjected to the final tax under Sections 21 and 24 of the National Internal Revenue Code shall not be included in the determination of gross income of the recipient corporation.
Interest paid or incurred on indebtedness abroad by these corporations, incurred to provide funds for investment in a domestic corporation, shall be allowed as a deduction from the inter-corporate dividends before computing the 10% final tax, subject to submission of authenticated foreign loan agreements and compliance with other requirements.
The withholding tax rate on royalties is fifteen percent (15%).
The payor-corporation or person is responsible for withholding the tax and paying it under the same manner and conditions provided in Section 54 of the National Internal Revenue Code.
PD No. 1800 took effect on passive income earned beginning January 1, 1981.
If the recipient corporation enjoys preferential income tax treatment, the preferential tax rates shall apply instead of the standard final tax rates.