BIR issues guidelines on non-resident preferential tax

MANILA, Philippines -  The Bureau of Internal Revenue (BIR) has issued new guidelines on how nonresidents covered by tax treaties signed by the Philippines with other countries can enjoy preferential withholding tax rates for their dividend, interest and royalty incomes earned from domestic sources.

 BIR Commissioner Caesar Dulay signed Revenue Memorandum Order (RMO) 8-2017, which amends provisions of RMO 72-2010 and prescribes the new procedures in claiming the preferential tax treaty benefits on dividend, interest and royalty income of nonresidents in the Philippines.

Nonresidents are classified by the BIR into nonresident aliens not engaged in trade or business, and nonresident foreign corporations.

The Philippines currently has a total of 40 effective tax treaties, with two more treaties waiting to be implemented and two pending ratification.

“The BIR, in its efforts to improve the efficient administration of Philippine tax treaties, adopts the self-assessment system and automatic withholding of taxes on income of nonresidents deriving dividend, interest and royalty from sources within the Philippines at applicable tax treaty rates subject to post reporting validation,” the memo stated.

Under the memo, nonresidents will no longer be required to file tax treaty relief applications with the International Tax Affairs Division of the BIR.

Instead, they can enjoy outright the preferential treaty rates for their dividend, interest and royalty income upon the submission of a Certificate of Resident for Tax Treaty Relief (CORTT) form to their withholding agents or income payors.

The CORTT form is the newly created BIR form which replaces the old 0901 forms intended for TTRA for dividend, interest and royalty incomes. It is composed of two parts. The form shall serve as the proof of residency of the nonresidents.

Nonresidents can also use the prescribed certificate of residency of their country of residence. However, they are still required to submit at least the first part of the CORTT form for monitoring purposes.

After the submission, the withholding agent or income payor should file BIR Forms 1601-F and 1604-CF, and pay the corresponding withholding taxes due based on applicable tax treaty.

The withholding agent or payor, shall then submit the original CORTT form to the ITAD and BIR Regional District Office 39 within 30 days after the payment.

Failure to submit a CORTT form to the withholding agent means that the nonresident is not claiming any tax treaty relief. Therefore, their dividend, interest and royalty incomes shall be subject to normal rates under the National Internal Revenue Code.