Revenue Memorandum Circular No. 7-2015 was issued by the Bureau of Internal Revenue to state again the Tax Treatment of Interest Income Derived from Long-Term Deposits or Investments Certificates as Described in Revenue Regulations No. 14-2012 and Clarified in Revenue Memorandum Circular Nos. 77-2012 and 81-2012.
In order for the interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) to be exempted from income tax, the following characteristics/conditions must be present:
1. The depositor or investor is an individual citizen (resident or non-resident) or resident alien or non-resident alien engaged in trade or business in the Philippines;
2. The long-term deposits or investment must be in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidences by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP);
3. The long-term deposits or investments must be in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP);
4.The long-term deposits or investments must be issued by banks only and not by other entities or individuals;
5. The long-term deposits or investments must have a maturity period of not less than five (5) years;
6. The long-term deposits or investment must be in denominations of Ten Thousand Pesos (P10,000) and other denominations as may be prescribed by the BSP;
7. The long-term deposit or investment should not be terminated by the original investor before the fifth (5th) year, otherwise they shall be subjected to the graduated rates of 5%, 12% or 20% on interest income earnings; and
8. Except those specifically exempted by law or regulations, any other income such as gains from trading, foreign exchange gain shall not be covered by income tax exemption.
Provided, that for interest income derived by individuals investing in common or individuals trust finds or investment management accounts to be exempted from income tax, the following additional characteristics/conditions must ALL be present:
1. The investment of the individual investor in the common or individual trust fund or investment management account must be actually held/management by the bank for the named individual at leat five (5) years without interruption. The term "bank" referred to herein are banks duly licensed as such by the Bangko Sentral ng Pilipinas;
2. The underlying investments of the common or individual trust account or investment management accounts must comply with the requirements of Section 22(FF) of the NIRC of 1997, as amended, as well as the requirements mentioned above;
3. The common or individual trust account or investment management account must hold on to such underlying investment in continuous and uninterrupted period for at least five (5) years.
In case of pre-termination, transfer or negotiation of said long-term deposit or investment by the depositor or investor before the fifth (5th) year, the interest income shall be subjected to the following graduated rates of Final Withholding Tax(FWT) on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof as follows:
Four (4) years to less than five (5) years - 5%;
Three (3) years to less than for (4) years - 12%; and
Less than three (3) years - 20%.
For nonresident alien not engaged in trade or business in the Philippines, interest income received from long-term deposit or investment shall be subject to a Final Withholding Tax (FWT) at the rate of twenty five percent (25%) pursuant to Section 25 (B) of the NIRC of 1997, as amended.
For nonresident foreign corporation, interest income received from long-term deposit or investment shall be subject to a Final Withholding Tax (FWT) at the rate of thirty percent (30%) pursuant to Section 28 (B) (1) of the NIRC of 1997, as amended. However, interest income from long-term deposit or investment shall be subject to regular income at the rate of thirty percent (30%) if received by a domestic corporation and resident foreign corporation pursuant to Sections 27 (A) and 28 (A) (1) of the NIRC of 1997, as amended.
Please refer http://www.bir.gov.ph/images/bir_files/internal_communications_2/RMC%20No%207-2015.pdf to see the illustrations and the full text of RMC No. 7-2015.
