Non-Resident Alien Not Engaged in Trade or Business
Updated June 13, 2026
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Definition
A Non-Resident Alien Not Engaged in Trade or Business (NRANETB) is a foreign individual who is not a resident of the Philippines, is not engaged in trade or business here and stays 180 days or less in the calendar year, but earns income from Philippine sources. Under Section 25(B) of the Tax Code, this income is subject to a 25% final tax on the gross amount.
NRANETB status applies to foreign individuals who receive Philippine-source income without carrying on business here. Unlike Non-Resident Aliens Engaged in Trade or Business (NRAETB), who are taxed at the graduated rates and file returns, NRANETBs usually settle their Philippine tax through final tax withheld at source. The 25% final tax applies to gross income such as dividends, interest, royalties, rents and fees. From July 1, 2025, capital gains on shares not traded on a stock exchange (15%) and on real property (6%) are taxed under their own rules instead (NIRC §25(B), as amended by RA 12214). The payor withholds the tax and remits it to the BIR. A nonresident alien who stays in the Philippines for more than 180 days in a calendar year is deemed engaged in trade or business and moves to the NRAETB rules (NIRC §25(A)(1)).
Detailed explanation
Definition and Scope
A Non-Resident Alien Not Engaged in Trade or Business (NRANETB) is a foreign national who derives income from Philippine sources but does not carry on trade, business or a profession in the Philippines and stays here 180 days or less in a calendar year. Under NIRC §25(B), as amended by RA 12214 (CMEPA) effective July 1, 2025, an NRANETB pays a 25% final tax on gross income from Philippine sources. This differs from a Non-Resident Alien Engaged in Trade or Business (NRAETB), who is taxed at graduated rates.
Key Characteristics of NRANETB Status
An individual is an NRANETB if they: (1) are an alien who is not a Philippine resident; (2) are not engaged in trade or business in the Philippines; (3) do not stay in the Philippines for more than 180 days in the calendar year; and (4) earn income from Philippine sources such as dividends, interest, royalties or rent (NIRC §25(A)(1), (B)).
Income Subject to the 25% Final Tax
Under NIRC §25(B), the 25% final tax applies to gross Philippine-source income such as (1) dividends from domestic corporations; (2) interest from Philippine banks and borrowers; (3) royalties; (4) rent from Philippine property; and (5) fees and other fixed or determinable income. From July 1, 2025, capital gains on shares not traded on a stock exchange (15%) and on real property (6%) are taxed under their own rules rather than at 25%. No further income tax is due on income properly subjected to the final tax.
Withholding Agent Obligations
Philippine payors (banks, corporations, tenants in business) withhold the 25% final tax and remit it through BIR Form 0619-F and the quarterly return BIR Form 1601-FQ, issue BIR Form 2306 to the payee, and report the payee in the annual information return BIR Form 1604-F (RR 2-98, as amended by RR 11-2018). Failure to withhold makes the payor liable for the tax plus a 25% surcharge and 12% annual interest (NIRC §248, §249, §251).
Distinction from Other Alien Classifications
An NRANETB differs from: (1) an NRAETB, who is engaged in trade or business or stays more than 180 days, and is taxed at graduated rates on Philippine-source taxable income; and (2) a resident alien, who is also taxed at graduated rates on Philippine-source income only (NIRC §23(D), §24(A)).
Compliance and Documentation
The payor needs the payee's TIN for its withholding returns and alphalists, and keeps contracts, invoices and payment records supporting the income and the tax withheld. The NRANETB keeps the BIR Form 2306 certificates as proof of Philippine tax paid.
Treaty Considerations
The Philippines has income tax treaties with many countries that can lower the tax on dividends, interest and royalties below 25%. To claim relief at source, the recipient gives the payor the treaty relief form the BIR requires together with proof of tax residence, and the payor withholds at the treaty rate.
Why it matters
Philippine businesses and banks pay dividends, interest and royalties to foreign individuals. Knowing whether the recipient is an NRANETB tells the payor which rate to withhold and which certificate to issue, and lets the recipient claim treaty relief where available. Withholding at the wrong rate exposes the payor to deficiency assessments, surcharge and interest.
How it works
Determine NRANEBT Status
Confirm that the foreign individual is not a resident, is not engaged in trade or business in the Philippines and stays 180 days or less in the calendar year (NIRC §25(A)(1), (B)).
Identify Taxable Income
Classify the Philippine-source income (dividends, interest, royalties, rent, fees). These are subject to 25% final tax on the gross amount under NIRC §25(B), unless an exemption or tax treaty applies. Capital gains on unlisted shares and real property follow their own rules.
Withhold and Remit Tax
The payor withholds 25% of the gross amount and remits it through BIR Form 0619-F by the 10th of the following month and the quarterly return BIR Form 1601-FQ (RR 2-98, as amended by RR 11-2018).
Provide Documentation
The payor gives the recipient BIR Form 2306, the Certificate of Final Tax Withheld at Source. The recipient keeps it as proof of Philippine tax paid, for example to support a foreign tax credit at home, or for a refund claim if too much was withheld.
Examples
Foreign investor receiving dividends from Philippine corporation
Juan Reyes, a US citizen living in California, owns 10% of ABC Corporation (Philippines). ABC declares ₱1,000,000 in dividends to him. The corporation withholds 25% (₱250,000) and remits it to the BIR. Juan receives ₱750,000. Without treaty relief, the 25% is final (NIRC §25(B)).
Foreign creditor earning interest on Philippine bank deposit
Maria Santos, a German national, keeps ₱500,000 in a peso savings account in a Philippine bank earning 2% a year (₱10,000). The bank withholds 25% (₱2,500) and Maria receives ₱7,500. The tax is final under NIRC §25(B), unless she claims a lower treaty rate.
Foreign author receiving royalties from Philippine publisher
Anna Reyes, a Canadian author, licenses her book to a Philippine publisher for ₱200,000 in royalties. The publisher withholds 25% (₱50,000) and Anna receives ₱150,000. The 25% is final (NIRC §25(B)).
Foreign property owner earning rental income
Robert Chen, a Hong Kong resident who does not live in the Philippines, rents out a Manila condominium for ₱50,000 a month (₱600,000 a year). The tenant company withholds 25% (₱150,000 a year) and Robert receives ₱450,000. The tax is final under NIRC §25(B).
Treaty-reduced withholding on interest income
David Smith, a resident of a country with a tax treaty with the Philippines, earns ₱100,000 of interest from a Philippine bank. If the treaty limits tax on interest to 15% and he submits the treaty relief form the BIR requires, with proof of residence, the bank withholds ₱15,000 instead of ₱25,000.
Common misconceptions
- Myth: An NRANEBT must file an annual income tax return in the Philippines.
- Fact: An NRANETB whose Philippine income has all been subjected to final tax owes no further Philippine income tax on it and does not need to file a return to settle it (NIRC §25(B)).
- Myth: The 25% withholding tax can be reduced by claiming deductions or exemptions.
- Fact: The 25% is a final tax on gross income; no deductions apply. A tax treaty can lower the rate if the recipient provides the required treaty documents.
- Myth: An NRANEBT who visits the Philippines for business meetings becomes an NRAETB.
- Fact: Short visits do not by themselves make someone engaged in trade or business. Staying more than 180 days in a calendar year does (NIRC §25(A)(1)).
- Myth: All foreign nationals earning Philippine income are subject to 25% final withholding.
- Fact: Only NRANETBs pay the 25% final tax on gross income. NRAETBs are taxed at graduated rates on taxable income, and resident aliens at graduated rates on Philippine-source income (NIRC §24, §25).
Questions people ask
What is the difference between NRANEBT and NRAETB?
An NRANETB is not engaged in trade or business in the Philippines and stays 180 days or less in the year; tax is a 25% final tax on gross Philippine-source income. An NRAETB is engaged in trade or business, or stays more than 180 days, and is taxed on Philippine-source taxable income at the graduated rates of 0% to 35% (NIRC §25(A), (B)).
Can an NRANEBT claim a refund of excess withholding?
Yes. If too much was withheld, for example where a treaty rate applied, the NRANETB can file a written claim for refund with the BIR within the period allowed by NIRC §229, with supporting documents.
Does the 25% final withholding apply to all NRANEBT income?
The 25% final tax applies to gross Philippine-source income such as dividends, interest, royalties, rents and fees. From July 1, 2025, capital gains on unlisted shares (15%) and on real property (6%) are taxed under their own rules (NIRC §25(B), as amended by RA 12214).
What happens if the payor fails to withhold the 25% tax?
The payor, as withholding agent, is liable for the tax it failed to withhold, plus a 25% surcharge and 12% annual interest (NIRC §248, §249, §251).
Can an NRANEBT reduce the 25% withholding rate using a tax treaty?
Yes, if a tax treaty between the Philippines and the NRANETB's country of residence sets a lower rate. The recipient gives the payor the treaty relief form the BIR requires, with proof of tax residence, and the payor withholds at the treaty rate.
Is an NRANEBT required to obtain a Philippine Tax Identification Number (TIN)?
A TIN is needed for the payor's withholding returns and alphalists. If the NRANETB has none, the payor typically arranges registration with the BIR for the payee.
What documents should an NRANEBT keep for Philippine tax purposes?
Keep the BIR Form 2306 certificates, payment records, contracts, invoices and any treaty relief documents and proof of residence given to the payor. These support any refund claim or foreign tax credit at home.
Can an NRANEBT become a resident alien and change their tax status?
If a nonresident alien stays in the Philippines for more than 180 days in a calendar year, he or she is deemed engaged in trade or business and is taxed as an NRAETB at the graduated rates on Philippine-source income (NIRC §25(A)(1)). Aliens, resident or not, are taxed only on Philippine-source income (NIRC §23(D)).
In practice
- Philippine corporations and banks must identify whether a foreign income recipient is NRANEBT or NRAETB before withholding, as the tax treatment differs sharply.
- Foreign investors often provide Certificates of Tax Residence and treaty documentation to claim reduced withholding rates under bilateral income tax treaties.
- The BIR conducts audits of withholding agents to verify correct classification and timely remittance of 25% final tax on NRANEBT income.
- NRANEBT status may change if the foreign individual establishes a business office or regular employment in the Philippines, triggering reclassification to NRAETB.
- Refunds of excess withholding, for example where a treaty rate applied, require a written claim with the BIR within the period set by NIRC §229.
Next steps
Learn more
Withholding Tax Calculator
Final Tax Calculator
Dividend Tax Calculator
Bir Form 1601fq
Bir Form 2307
Bir Form 1702rt
Non Resident Alien Tax Guide
Final Withholding Tax Guide
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Sources & References (1)
Primary sources and the laws, regulations, and official issuances this page relies on. Links open the recorded source documents or references.
- LawPhil Project (Arellano Law Foundation). “NIRC §25(B) (NRA not engaged in trade/business, 25% flat on PH-source): full text.” lawphil.net. NIRC of 1997 (RA 8424), Sec. 25(B). Source checked .