Final Withholding Tax on Philippine Income
Updated June 13, 2026
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Definition
Final Withholding Tax is a tax withheld at source from certain types of income where the withholding itself is the final settlement of the taxpayer's income tax liability for that specific income. Unlike creditable withholding tax, it cannot be credited against other tax liabilities and requires no further action from the taxpayer.
Final Withholding Tax represents the government's way of collecting taxes directly at the source for specific types of income, eliminating the need for recipients to file separate returns for these amounts. Under the National Internal Revenue Code and BIR regulations, certain income types are subject to final withholding to ensure immediate tax collection and reduce compliance burden on taxpayers. The key distinction lies in its finality - once the payor withholds the tax and remits it to the BIR, the taxpayer's obligation for that income is completely satisfied. This system applies primarily to passive income like interest earnings, dividends, and certain prizes, where the BIR has determined that withholding at source provides the most efficient collection method. BIR Revenue Regulation No. 2-98, as amended, governs the implementation of final withholding tax rates and procedures. The system ensures that even non-resident aliens and corporations pay appropriate taxes on Philippine-sourced income without requiring them to deal with the local filing system.
Detailed explanation
What is Final Withholding Tax?
Final Withholding Tax (FWT) is a tax collected at the point of payment on certain categories of income (NIRC §57(A)). Unlike creditable withholding tax, it settles the income tax on that specific income. Once withheld, the taxpayer has no further income tax on that income and cannot claim the withheld amount as a credit against tax on other income.
Key Characteristics of Final Withholding Tax
FWT applies mainly to passive income, where the payor deducts the tax before paying the recipient. Rates depend on the income and the taxpayer. For citizens and resident aliens, bank interest is subject to 20% (NIRC §24(B)(1)) and cash and property dividends from domestic corporations to 10% (NIRC §24(B)(2)).
How Final Withholding Tax Differs from Creditable Withholding Tax
Creditable withholding taxes, such as those on compensation, professional fees and rentals, are advance payments that the taxpayer credits on quarterly and annual returns. FWT is a final settlement: income fully subjected to final tax need not be reported on an annual return (NIRC §51(A)(2)), and no credit is available. The fixed rate can be higher or lower than the rate the taxpayer would pay under the graduated table.
Rates and Categories of Final Withholding Tax
For citizens and resident aliens, after RA 10963 (TRAIN) and RA 12214 (CMEPA, effective July 1, 2025):
Interest Income: 20% on interest from bank deposits in any currency, deposit substitutes and trust funds, with no long-term deposit exemption for new deposits from July 1, 2025 (NIRC §24(B)(1)).
Dividend Income: 10% on cash and property dividends from domestic corporations (NIRC §24(B)(2)).
Prizes and Winnings: 20% on prizes over ₱10,000 and on other winnings; PCSO and Lotto winnings of ₱10,000 or less are exempt (NIRC §24(B)(1)).
Royalties: 20%, or 10% on royalties from books, other literary works and musical compositions (NIRC §24(B), as amended by RA 12214).
Related final taxes paid by the taxpayer: 6% capital gains tax on real property held as a capital asset (BIR Form 1706) and 15% on net capital gains from shares not traded on a stock exchange (BIR Form 1707). These are final taxes but are paid by the seller, not withheld.
Nonresident aliens not engaged in trade or business pay 25% on gross Philippine-source income (NIRC §25(B)).
Who Withholds Final Withholding Tax?
Withholding agents include banks (for interest), corporations paying dividends and organizers paying prizes. They remit final taxes through BIR Form 0619-F by the 10th of the following month and the quarterly return BIR Form 1601-FQ by the last day of the month after the quarter, with separate returns for bank interest (Form 1602) and fringe benefits (Form 1603), and file the annual information return BIR Form 1604-F by January 31 (RR 2-98, as amended by RR 11-2018).
Exemptions and Special Cases
Some income is exempt or taxed at other rates, for example PCSO and Lotto winnings of ₱10,000 or less, and instruments covered by the CMEPA transitory rule that keeps earlier exemptions for their remaining original term. Nonresident aliens may claim lower treaty rates on dividends, interest and royalties.
Compliance and Documentation
Withholding agents issue BIR Form 2306, the Certificate of Final Tax Withheld at Source, to the payee. The payee keeps it as proof that the tax on that income has been paid; it is not used to claim a credit.
Practical Impact on Taxpayers
For individuals with passive income, FWT keeps compliance light: no annual filing for that income, and the tax is settled at payment. The fixed rate may be higher or lower than the taxpayer's graduated-rate bracket. Taxpayers with salary or business income still file returns for those sources and cannot credit FWT against them.
Why it matters
Final Withholding Tax directly affects how much passive income Filipino taxpayers actually receive. Unlike creditable withholding taxes, FWT cannot be recovered or credited, making the withholding rate the effective final tax rate on that income. Understanding FWT rates and which income types are subject to it helps individuals plan their investment and savings strategies and ensures they are not over-taxed at source.
How it works
Income Qualifies for Final Withholding Tax
The Tax Code subjects certain passive income to final tax instead of the graduated rates, such as bank interest, dividends from domestic corporations, royalties and prizes over ₱10,000 (NIRC §24(B)). The taxpayer receives the income from a bank, corporation or other payor.
Withholding Agent Calculates and Deducts Tax
The payor (withholding agent) applies the applicable FWT rate to the gross income amount. For example, a bank withholds 20% on interest before crediting the net amount to the depositor's account. The agent remits the withheld tax to the BIR.
Taxpayer Receives Net Payment and Certificate
The taxpayer receives the income minus the final tax. The withholding agent issues BIR Form 2306, the Certificate of Final Tax Withheld at Source, documenting the gross amount and tax withheld.
No Further Tax Liability or Annual Filing Required
The final tax settles the income tax on that income. Individuals whose income has been fully subjected to final tax need not file an annual return for it, and the withheld tax cannot be claimed as a credit against tax on other income (NIRC §51(A)(2)).
Examples
Bank Interest Income, Resident Individual
Juan dela Cruz deposits ₱500,000 in a savings account earning 2% annual interest (₱10,000). The bank withholds 20% final tax (₱2,000) and credits ₱8,000. Juan owes no further tax on this interest and cannot claim the ₱2,000 as a credit (NIRC §24(B)(1)).
Dividend Income from Domestic Corporation
Maria Santos owns 1,000 shares of ABC Corporation. ABC declares a cash dividend of ₱5 per share (₱5,000). The corporation withholds 10% final tax (₱500) and pays Maria ₱4,500. The ₱500 settles her tax on this dividend (NIRC §24(B)(2)).
Capital Gains Tax on Real Property: A Final Tax Paid by the Seller
Anna Reyes sells a residential lot held as a capital asset for ₱2,000,000, which is not lower than its zonal value or fair market value. The buyer does not withhold; Anna files BIR Form 1706 and pays 6% capital gains tax (₱120,000) within 30 days of the sale. Like a final withholding tax, it settles her income tax on the sale and cannot be credited against other tax (NIRC §24(D)).
Prize Winnings from Raffle
Roberto Gonzales wins a raffle prize worth ₱100,000. The organizer withholds 20% final tax (₱20,000) and issues BIR Form 2306. Roberto receives ₱80,000 and owes no further tax on this prize (NIRC §24(B)(1)).
Royalty Income from Book Sales
Dr. Elena Cruz receives ₱50,000 in royalties from a publisher for her medical textbook. Royalties on books are subject to a 10% final tax instead of the usual 20%, so the publisher withholds ₱5,000 and pays her ₱45,000. The ₱5,000 is final (NIRC §24(B), as amended by RA 12214).
Common misconceptions
- Myth: Final Withholding Tax can be claimed as a credit against my annual income tax return.
- Fact: No. Final tax settles the tax on that income only and cannot reduce tax on other income (NIRC §57(A)). Only creditable withholding taxes (on compensation, professional fees, rentals) can be credited.
- Myth: If I receive interest income, I must file an annual income tax return to report it.
- Fact: No. Individuals whose income has been fully subjected to final tax are not required to file an annual return (NIRC §51(A)(2)).
- Myth: The Final Withholding Tax rate is the same for all taxpayers.
- Fact: Rates differ by income type and taxpayer: for citizens and resident aliens, 20% on bank interest, 10% on dividends from domestic corporations, 20% on most royalties (10% on books, literary works and musical compositions); nonresident aliens not engaged in business pay 25% (NIRC §24(B), §25(B)).
- Myth: I can request a refund of Final Withholding Tax if I think I was over-taxed.
- Fact: Final tax is not refundable just because your graduated-rate tax would be lower. Only tax erroneously withheld can be claimed back, through a written refund claim (NIRC §229).
Questions people ask
What is the difference between Final Withholding Tax and creditable withholding tax?
Creditable withholding tax (on compensation, professional fees, rentals) is an advance payment credited against your income tax on the quarterly or annual return. Final withholding tax fully settles the tax on specific passive income; it cannot be credited and that income is not reported for computation on the annual return (NIRC §57(A) vs. §57(B)).
Do I need to file an annual income tax return if I only have Final Withholding Tax income?
No, if all your income has been subjected to final tax. Individuals whose income has been fully subjected to final withholding are not required to file an income tax return. If you also have compensation or business income, you file for those sources (NIRC §51(A)(2)).
Can I get a refund of Final Withholding Tax if I overpaid?
Final tax is not refunded just because your graduated-rate tax would have been lower. If tax was withheld in error or at the wrong rate, you can file a written claim for refund with the BIR within the period allowed by NIRC §229.
What is the current Final Withholding Tax rate on interest income?
From July 1, 2025, interest on bank deposits in any currency, deposit substitutes and trust funds earned by citizens and resident aliens is subject to a 20% final tax, with no exemption for long-term deposits (NIRC §24(B)(1), as amended by RA 12214). Nonresident aliens not engaged in business pay 25% unless a tax treaty sets a lower rate.
Who is responsible for withholding and remitting Final Withholding Tax?
The payor of the income (bank, corporation, prize organizer) withholds the final tax, remits it to the BIR through its final withholding tax returns (BIR Forms 0619-F and 1601-FQ) and gives the payee BIR Form 2306 (RR 2-98, as amended by RR 11-2018).
Is Final Withholding Tax the same for non-resident aliens?
No. Nonresident aliens not engaged in trade or business in the Philippines pay a 25% final tax on gross Philippine-source income, including interest and dividends, unless a tax treaty sets a lower rate (NIRC §25(B), as amended by RA 12214). Nonresident aliens engaged in business pay 20% on dividends (NIRC §25(A)(2)).
Can I claim Final Withholding Tax as a deduction on my annual return?
No. Final tax is neither a deduction nor a credit. If you file an annual return for other income, income already subjected to final tax is not included in the tax computation.
What happens if the withholding agent fails to withhold Final Withholding Tax?
The withholding agent is liable for the tax it failed to withhold, plus surcharge and interest (NIRC §248, §249, §251). If you received the income without withholding, talk to the payor and your RDO about settling the tax due.
In practice
- Banks and financial institutions automatically withhold 20% FWT on interest credited to savings and checking accounts, requiring no action from the depositor.
- Corporations paying dividends to individuals withhold 10% final tax and issue BIR Form 2306 to shareholders.
- Individuals selling real property held as a capital asset pay 6% capital gains tax themselves through BIR Form 1706 within 30 days of the sale; it is a final tax but is not withheld by the buyer.
- Taxpayers with multiple income sources (salary plus investment income) must file an annual return for salary and business income but cannot claim FWT as a credit.
- Nonresident aliens not engaged in business in the Philippines pay 25% final tax on their Philippine-source income unless a tax treaty sets a lower rate.
Next steps
Learn more
Withholding Tax Calculator
Dividend Tax Calculator
Interest Income Calculator
Bir Form 0619e
Bir Form 1604f
Bir Form 2306
Withholding Tax Guide
Passive Income Taxation
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Tax types
Taxpayer guides
BIR forms
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Sources & References (3)
Primary sources and the laws, regulations, and official issuances this page relies on. Each citation links directly to the issuing authority’s document.
- LawPhil Project (Arellano Law Foundation). “NIRC §57(A) (final withholding at source); §24(B) passive income: full text.” lawphil.net. NIRC of 1997 (RA 8424), Sec. 57(A)/24(B). Accessed .
- Bureau of Internal Revenue. “BIR: Final Withholding Tax; BIR Form 2306 (Certificate of Final Tax).” bir.gov.ph. Bureau of Internal Revenue, Withholding Tax (Final), BIR Form 2306. Accessed .