A: A final withholding tax of seven and a half percent (7-1/2%) is imposed on interest income from a foreign currency bank deposit which is actually or constructively received by a resident. This tax would apply to foreign currency deposits accepted and held by an offshore banking unit (OBU) or Foreign Currency Deposit Unit (FCDU) in the regular course of business.

No tax is imposed on interest income arising from foreign currency bank deposits of non-residents.

A: The following are considered as residents:

For corporate depositors, the original or certified copy of all of the following must be presented:

A: To be entitled to an exemption from the tax on interest income on foreign currency deposit, the Foreign Currency Bank Account should be in the name of the non-resident individual or non-resident corporation. Otherwise, the interest income shall be considered as subject to the 7.5% final tax.

In addition, the depositor is required to execute a written permission allowing its depository bank to inform the BIR that, as a non-resident, he is exempt from the tax. Without this written permission, which constitutes a limited waiver of the confidentiality of foreign currency deposits, the depositor will not be entitled to exemption privilege.

A: If the account is jointly in the name of a non-resident such as an overseas contract worker, or a Filipino seaman, and an individual (spouse or dependent) who is living in the Philippines, fifty percent (50%) of the interest income from such bank deposit will be treated as exempt while the other fifty percent (50%) shall be subject to a final withholding tax of seven and one-half percent (7.5%).

A: The depository bank shall withhold and remit the 7.5% tax due from the interest income derived by a resident from foreign currency bank deposit. Unless the depositor presents documentary evidence that he is not a resident of the Philippines, the bank shall automatically withhold such tax.

The depository bank is required to submit a list of all persons and corporations who were given exemption from the tax on interest income on foreign currency deposits. The list will be filed at the same time that the quarterly withholding taxes on such deposits are remitted to the BIR.

A: FCDU, or Foreign Currency Deposit Unit, refers to that unit of a thrift bank or commercial bank organized under Philippines laws, or a local branch of a foreign bank doing business in the Philippines which have been authorized by the Bangko Sentral ng Pilipinas (BSP) to engage in foreign-currency denominated transactions.

OBU, or Offshore Banking Unit, refers to a branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the BDP to transact offshore banking business in the Philippines.

A: A final withholding tax of ten percent (10%) will be imposed on income derived by an FCDU or OBU from foreign currency transactions with residents of the Philippines, including local commercial banks, local branches of foreign banks, and other depository banks under the foreign currency deposit system. This includes interest income from lending operations, bank charges, commissions, service fees, and net foreign exchange transaction gains.

Income of FCDUs or OBUs from foreign currency transactions with non-residents of the Philippines are not subject to income tax.

Income derived by FCDUs or OBUs from activities other than foreign currency transactions will be subject to the regular tax imposed on such income when received by a domestic corporation or resident foreign corporation, as the case maybe. To illustrate, income derived by an FCDU from consultancy services and rentals shall be taxed based on net income at the regular corporate tax rate. On the other hand, capital gains from the sale or exchange of shares of stocks not traded through the local exchange shall be taxed at 5% on the first P100,000 and 10% in excess thereof.

A: The person making the income payment is required to withhold and remit the tax withheld. Thus, in the case of interest payment by a resident on a foreign currency loan from an OBU or FCDU, the resident borrower will act as withholding agent of such tax.

A: Yes, FCDU or OBU must file the corporation income tax return with respect to its income subject to the regular corporate income tax. It shall also declare in the return all other income derived during the year which are subject to final withholding taxes, the fact that such final withholding taxes have been withheld, and indicate the following information:

There is no need, however, to submit such information with respect to its interest income derived from bank deposits.

A: The regulation shall apply on taxable income derived beginning January 1, 1998. For deposits which were made in 1997, only that portion of interest which was actually or constructively received by a depositor starting January 1, 1998 is taxable.

No penalty will be imposed for late payment of the taxes prescribed in the regulation for the first three quarters of calendar year 1998, if the taxpayer files the returns for the said taxable quarters and pays the taxes due on or before October 25, 1998.