NRFCs reduced tax rates on intercorporate dividends

One of the considerations of foreign investors looking to do business in the Philippines is the taxability of their income, including dividends, interest and royalties. Hence, it is important to know if an investor resides in a country that has an existing tax treaty with the Philippines or allows tax sparing rule in order to avail of the lower tax rates.

Under Section 28(B)(5)(b) of the National Internal Revenue Code (NIRC) of 1997, as amended, intercorporate dividends paid by a domestic corporation to a nonresident foreign corporation (NRFC) are subject to income tax of 15 percent provided that the country of residence of the NRFC shall allow a credit against taxes deemed to have been paid in the Philippines equivalent to 15 percent, which represents the difference between the regular tax of 30 percent on corporations and the reduced tax of 15 percent on dividends.