New Procedures for Claiming Tax Treaty Benefits for Dividends, Interest, and Royalty Income
It has become simplier for non-residents to enjoy preferential withholding tax rates for dividends, interest, and royalty earnings from domestic sources. The Bureau of Internal Revenue has issued new procedures to claim preferential tax treaty benefits for nonresidents covered by tax treaties signed by the Philippines with other countries.
BIR Commissioner Caesar Dulay approved and signed Revenue Memorandum Order (RMO) 8-2017 which amended the provisions of RMO 72-2010. The order classified non-residents into two categories: (1) Nonresident alien not engaged in trade or business (NANETB) and (2) Nonresident foreign corporations. The general policies and guidelines discussed key changes which include:
- The mandatory tax treaty relief applications (TTRA) shall no longer be filed with the International Tax Affairs Division and the preferential withholding tax rates should instead be used outright by the withholding tax agent provided that the Certificate of Residence for Tax Treaty Relief (CORTT) is duly accomplished;
- Nonresidents are allowed to use the prescribed certificate of residency of their country but would still have to accomplish A, B, and C of the CORTT;
- For dividend income purposes, the CORTT form shall be valid for two (2) years from date of issuance.
The actual procedures stated in Section 6 highlighted the following steps:
- Nonresidents claiming the tax relief shall submit a duly accomplished CORTT Form (Part 1 and II) or the Prescribed Certificate of Residency with Part I (A, B, and C) and II of the CORTT form prior to payment or credit of the income.
- The withholding tax agent shall file BIR Form 1601-F and BIR Form 1604-CF and pay the withholding taxes.
- The withholding agent shall submit original copies of CORTT or prescribed certificate of residency with Part I (A, B, and C) and II of the CORTT Form to ITAD and RDO No. 39 within 30 days after payment.
- The withholding agent shall submit an updated part II of the CORTT form within 30 days after payment of withholding taxes due in the following cases:
- If the CORTT Form filed is used for another dividend payment within its prescribed period of validity; and
- In case of staggered payment of interest and royalty income.
The Philippines currently has a total of 40 effective tax treaties with two more treaties for implementation and two pending ratification. The preferential rates are listed below:
| Country | Country Code | Dividend Rate | |
|---|---|---|---|
| Australia | AU | 15% where relief, either by way of credit as described in paragraph 2 of Article 24 or relief by way credit as described in the second sentence of paragraph 4 of Article 24, is given to the beneficial owner of the dividends. | 25% in any other case |
| Austria | AT | 10% dividends if the beneficial owner is a company which holds directly at least 10 per cent either of the voting shares of the company paying the dividends or of the total shares issued by that company during the period of six months immediately preceding the date of payments of the dividends; | 25% in any other case |
| Bahrain | BH | 10% if the beneficial owner is a company (excluding partnerships) which holds directly at least ten per cent (10%) of the capital of the paying company | 15% |
| Bangladesh | BD | 10% if the beneficial owner is a company (excluding partnerships) which holds directly at least 25 per cent of the capital of the paying company | 15% in all other cases |
| Belgium | BE | 10% if the beneficial owner is a company which holds directly at least 10 per cent of the capital of the company paying the dividends | 15% in all other cases |
| Brazil | BR | 15% if the recipient is a company including a partnership | 25% in all other cases |
| Canada | CA | 15% paid to a company which is a resident of Canada which controls at least 10 per cent of the voting power of the company paying the dividend | 25% in all other cases |
| China | CN | 10% if the beneficial owner is a company which holds directly at least 10 percent of the capital of the company paying the dividends | 15% in all other cases |
| Czech | CZ | 10% if the beneficial owner is a company which holds directly at least 10 percent of the capital of the company paying the dividends | 15% in all other cases |
| Denmark | DK | 10% if the beneficial owner is a company (other than a partnership) which holds directly at least 25 percent of the capital of the company paying the dividends | 15% in all other cases |
For the complete list preferential rates, please refer on RMO No. 8-2017 Annex A
The statements in this article are excerpts only of the actual Memorandum Order. To further understand these benefits, make sure to consult credible Tax Lawyers in the Philippines. If you’re residing, have a business operating in the south of manila, or are planning to put up business in the Philippines and wish to see if you can avail of these preferential tax rates, you can engage the services of reputable Tax Lawyers in BGC, Philippines.
