RR No. 5-2023: Amends RR No. 5-2021 on the requirements in availing the Income Tax exemption of foreign-sourced dividends received by a Domestic Corporation

Key points

1. Conditions for exemption. All three must concur. The dividends are reinvested in the business within the next taxable year after receipt or remittance, they are used for working capital, capital expenditures, dividend payments, investment in domestic subsidiaries or infrastructure projects, and the corporation directly holds at least twenty percent (20%) in value of the foreign corporation’s shares for at least two (2) years. If the foreign corporation is under two (2) years old, the holding must run during its entire existence.
2. If a condition is missing. The dividends are taxable income in the year of actual receipt or remittance, with surcharge, interest and penalties as applicable.
3. Documents to attach. A Sworn Statement (Annex A) goes with the AITR for the year of receipt. A Sworn Declaration (Annex B) goes with the AITR for the year right after.
4. Partial or non-utilization. The corporation pays the income tax due with surcharge, interest and penalties by amending the AITR. If amendment is barred by an audit, it pays using BIR Form 0605.
5. Foreign taxes. No credit or deduction under Section 34(C) is allowed for foreign taxes related to the exempt dividends. Those taxes are disregarded in computing the Section 34(C)(4) limitations.

Who is affected

• Domestic corporations receiving foreign-sourced dividends

Deadlines and effectivity

• Reinvestment within the next taxable year from receipt or remittance
• Shareholding held uninterruptedly for a minimum of two (2) years