RR No. 2-2021: Amends certain provisions of RR No. 2-98, as amended, to implement the amendments introduced by RA No. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act or CREATE Act) to the NIRC of 1997, as amended, relative to the Final Tax on certain passive income

Key points

1. Non-resident aliens engaged in trade or business. A 20% final tax applies to certain passive income from Philippine sources. This covers dividends, share in partnership net income, interests and yield from deposits and trust funds, royalties, and prizes and other winnings, with listed exceptions: royalties on books and literary and musical works at 10%, prizes of ₱10,000 or less taxed under Section 24(B)(1), and PCSO winnings of ₱10,000 or less exempt.
2. Resident foreign corporations. Final tax rates include 15% on branch profit remittances (except PEZA-registered), 20% on interest on deposits, deposit substitutes and trust funds and on royalties, and 15% on interest from a Depository Bank under the Expanded Foreign Currency Deposit System. Net capital gains from sale of unlisted shares of stock in a domestic corporation are taxed at 15%.
3. Non-resident foreign corporations. From January 1, 2021, gross income from Philippine sources is taxed at twenty-five percent (25%) in general. Dividends from a domestic corporation are taxed at 25%, reduced to 15% if the corporation’s home country allows a credit equal to ten percent (10%) or imposes no income tax on such dividends. Net capital gains from unlisted shares are taxed at 15%.
4. Government purchases from Percentage Tax payers. Purchases by GOCCs, national government agencies, local governments and other instrumentalities from persons subject to Percentage Tax under Section 116 are subject to One percent (1%) withholding tax from July 1, 2020 until June 30, 2023.
5. Refund of excess withholding. Withholding agents that used a rate higher than prescribed may claim a refund of taxes already remitted. Claims on behalf of payees need the payees’ authority and are filed with the RDO or Large Taxpayer Service having jurisdiction over the withholding agent.

Who is affected

• Non-resident aliens engaged in trade or business in the Philippines
• Resident foreign corporations
• Non-resident foreign corporations
• Withholding agents in government

Deadlines and effectivity

• 25% rate for non-resident foreign corporations from January 1, 2021 onwards
• 1% withholding on government purchases: July 1, 2020 until June 30, 2023