RMC No. 07-2015: Reiterates the tax treatment of interest income derived from Long-Term Deposits or Investment Certificates as described in RR No. 14-2012 and clarified in RMC Nos. 77-2012 and 81-2012

Key points

1. Conditions for exemption. The depositor must be an individual citizen (resident or non-resident), a resident alien, or a non-resident alien engaged in trade or business in the Philippines. The deposit must be in the individual’s name, issued by a bank only, in the BSP-prescribed form, in denominations of P 10,000 or as the BSP prescribes, with maturity of not less than five (5) years.
2. Termination before year five. If the original investor terminates the deposit before the fifth year, interest is subject to graduated rates of 5%, 12% or 20%. Gains from trading and foreign exchange gain, other than those specifically exempted by law or regulations, are not covered by the exemption.
3. Trust funds and management accounts. For exemption, the investment must be held or managed by a BSP-licensed bank for the named individual for at least five (5) years without interruption. The underlying investments must meet Section 22(FF) of the NIRC and the conditions above, and be held continuously for at least five (5) years.
4. Final withholding tax on pre-termination. On pre-termination, transfer or negotiation before the fifth year, the bank withholds Final Withholding Tax on the entire income. The rate is 5% for four (4) years to less than five (5) years remaining, 12% for three (3) years to less than four (4) years, and 20% for less than three (3) years.
5. Other recipients. A non-resident alien not engaged in trade or business in the Philippines pays 25% FWT under Section 25(B) of the NIRC. A non-resident foreign corporation pays 30% FWT under Section 28(B)(1), while a domestic corporation and a resident foreign corporation pay regular Income Tax at 30% under Sections 27(A) and 28(A)(1).

Who is affected

• Individual depositors and investors in Long-Term Deposits or Investment Certificates
• Non-resident aliens not engaged in trade or business in the Philippines
• Non-resident foreign corporations
• Domestic and resident foreign corporations

Deadlines and effectivity

• Minimum maturity: not less than five (5) years