Procedure for Claiming Tax Treaty Benefits for Dividend, Interest and Royalty Income of Nonresident Income Earners

Revenue Memorandum Order (RMO) No. 27-2016 was issued by the bureau relative to the Procedure for Claiming Tax Treaty Benefits for Dividend, Interest and Royalty Income of Nonresident Income Earners from sources with the Philippines.

This Order seeks to provide for the new procedures in claiming preferential tax treaty benefits on dividend, interest and royalty income of nonresidents pursuant to effective tax treaties, thereby amending for this purpose, RMO No. 72-2010.

The foregoing objectives are achieved through:

a. Full disclosure of withholding tax agents on income derived by nonresidents by filing accurate and timely BIR Forms1601-F and1604-CF;

b. Mandatory audit investigation for final withholding tax payments on income of nonresidents deriving dividends, interest and royalty income in the Philippines; and

c. Enhancing BIR Forms 1601-F and 1604-CF.

Nonresidents - are not residents of the Philippines and not citizens thereof. For purposes of this Order they are classified into:

a. Nonresident Alien not engaged in trade or business (NANETB) -The aggregate period of stay in the Philippines does not exceed 180 days during any calendar year.

b. Nonresident foreign corporations (NRFC) - are corporations organized under foreign laws and not engaged in trade or business in the Philippines.

Beneficial Owner - refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. lt also includes those persons who exercise ultimate effective control over a legal person or arrangement.3

The preferential treaty rated for dividends, interests and royalties are granted outright by withholding final taxes at applicable treaty rates as shown in Annex A http://www.bir.gov.ph/images/bir_files/internal_communications_3/Full%20Text%20of%20RMO%202016/RMO%20No.%2027-2016%20Annex%20A.PDF of this RMO.

Guidelines for the Availment of Preferential Treaty Rates 

1. A duly accomplished BIR Form No. 1601-F and 1604-CF 1904-shall be filed before the appropriate RDO where the domestic withholding agents of nonresidents are registered. All particulars in the form must be properly filled up and timely filed in accordance with the provisions of the National lnternal Revenue Code (NIRC) of 1997, as amended. 

2. Payment of pertinent final taxes due shall be made to Authorized Agent Banks.

3. ln the event of audit investigation, withholding agents shall keep the following supporting documents in the records of the office pursuant to Revenue Regulations (RR) No. 5-20144 for substantiation of the claim for preferential treaty rates: 

a. Consularized Proof of Residency; 

b. For Dividends - 

1. Certification from Corporate Secretary. original copy of a duly notarized certificate executed by the corporate secretary of the domestic corporation showing all the following information: 

i. Details of dividend declaration (with attached related Board Resolution); 

ii. Nurnber, value and type of shares of the nonresident income earner as of the date of record/transaction, and as of the date of payment of the subject dividends; 

iii. Percentage of ownership of the nonresident income earner as of the date of record/transaction, and as of the date of the payment of subject dividends; 

iv. Acquisition date(s) of the subject shares; and 

v. Mode of acquisition of the subject shares.  

2. Board of lnvestments (BOl) Registration, if applicable 

Certified copy of Board of Investments registration of the payor of the interest, including a Sworn Statement that such registration has not been cancelled at the time of the transaction. 

c. For lnterest - original or certified copy of the notarized contract of loan or loan agreement. Board of lnvestments (BOl) Registration, if applicable certified copy of Board of lnvestments registration of the payor of the interest, including a Sworn Statement that such registration has not been cancelled at the time of the transaction. 

d. For Royalties - 

1. original or certified copy of the duly notarized Royalty Agreement, Technology Transfer Agreement, or Licensing Agreement; 

2. When applicable, 

i. Certified copy of Board of lnvestments registration of the payor of the royalties, including a Sworn Statement that such registration has not been cancelled at the time of the transaction; 

ii. A certified copy of the registration of the payor of the income or withholding agent with the Philippine Economic Zone Authority (PEZA) of the payor of the royalties including a Sworn Statement that such registration has not been cancelled at the time of the transaction. 

iii. Certified copy of lntellectual Property Office (IPO) registration. 

The BIR reserves the right to request other additional documents in the the course of audit. 

Please refer http://www.bir.gov.ph/images/bir_files/internal_communications_3/Full%20Text%20of%20RMO%202016/RMO%20No.%2027-2016.pdf of the full text of RMO No. 27-2016.