RMC No. 18-2011: Clarifies the Income Tax exemption of interest income earnings from long-term deposits or investment certificates

Key points

1. General exemption. Interest from long-term deposits or investments in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other certificate-evidenced investments in the BSP-prescribed form is exempt from income tax.
2. Pre-termination before the 5th year. If the holder pre-terminates before the 5th year, a final tax applies to the entire income, withheld by the depository bank based on remaining maturity: 4 years to less than 5 years, 5%; 3 years to less than 4 years, 12%; less than 3 years, 20%.
3. Conditions for the exemption. The depositor must be an individual citizen (resident or non-resident), resident alien or non-resident alien engaged in trade or business in the Philippines, not a corporation. The certificate must be in the individual’s name, issued by banks only, have a maturity of not less than five years, and be in denominations of P10,000 or other BSP-prescribed denominations.
4. Coverage of the exemption. Only interest income is exempt. Other income such as trading gains and foreign exchange gain is not covered.
5. Inconsistent issuances. All rulings and issuances inconsistent with the circular are void and of no legal effect for being contrary to law.

Who is affected

• Individual depositors or investors in long-term deposit or investment certificates
• Depository banks that withhold the final tax

Deadlines and effectivity

• Exempt only if not terminated before the fifth year