Philippine tax on cash dividends

Yesterday I received an email from BPI Trade concerning taxes to be withheld on the cash dividends declared by PLDT or Philippine Long Distance Telephone Company (PSE Code: TEL).

Apparently, owners of TEL shares who are eligible for the dividends must prove that they are Filipino citizens or resident aliens of the Philippines, otherwise, the dividends will be charged a higher rate.

BPI Trade’s email goes:

We would like to inform you that if you are in possession of any TEL shares, please submit a photocopy of your birth certificate, or any unexpired government issued ID.

This is needed so that you may be dispensed from the stated 25% withholding tax charge on cash dividends for individuals without proof of citizenship. Upon submission of documents, the withholding tax rate will then be re-adjusted to only 10%.

Tax on Cash Dividends

Under the Philippine Tax Code, cash dividends received by individuals from a domestic corporation (a corporation organized under the laws of the Republic of the Philippines) are subject to income tax which is required to be withheld at source.

Filipino citizens or resident aliens are subject to a tax of 10%. Resident aliens are individuals whose residence is within the Philippines but is not a Filipino citizen.

Cash dividends received by non-resident aliens engaged in trade or business in the Philippines are subject to a tax of 20%. Non-resident aliens are individuals whose residence is not within the Philippines and not a citizen of the Philippines. A non-resident alien who is actually within the Philippines for an aggregate period of more than 180 days during any calendar year is considered a “non-resident alien doing business in the Philippines.”

A non-resident alien who is actually within the Philippines for an aggregate period of 180 days or less during any calendar year is considered a “non-resident alien not doing business in the Philippines.” Cash dividends received by these individuals are taxed at 25%.

So if you are a Filipino citizen or a qualified resident alien, submit any proof of citizenship to avail of the lower tax rate.