Are we required to pay tax on the cash dividend income received from our stock investments?
Under the Philippine Tax Code, cash dividends received by individuals from a domestic corporation, that is, 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”.
This actually means that, yes, we must pay taxes for the dividend income we get from our stock investments.
But, fortunately, this tax is already “withheld at source” — meaning, there is no need for us to declare th eincome in our Income Tax Return (ITR) or pay the corresponding tax separately.
Why? Because the tax is already going to be deducted by the company distributing the cash dividend. The dividend income we’ll then receive is the income net of taxes.
“Withholding at source” is no different from withholding taxes deducted from salaries of employed personnel. This is deducted from the income and the tax is automatically remitted to the government.
Tax rate on Cash Dividends
Filipino citizens and resident aliens are subject to a tax rate of 10% on the Cash Dividend income. As explained earlier, this 10% tax will already be deducted from the cash dividends we’ll receive.
Take note that resident aliens, or individuals who are not Filipino citizens, but their residence is within the Philippines, are treated similarly just like Filipino citizens in terms of taxation.
Non-resident aliens, on the other hand, who are engaged in trade or business in the Philippines are subject to a tax of 20%.
Non-resident aliens who are “engaged in trade or business in the Philippines” are defined as individuals who are not Filipino citizens, whose residence is not within the Philippines, and is within the Philippines for an aggregate period of more than 180 days during any calendar year.
If a non-resident alien is within the Philippines for an aggregate period of 180 days or less during any calendar year, he or she is considered a “non-resident alien not doing business in the Philippines.” Cash dividends received by these individuals are taxed at 25%.
So, to summarize, the tax to be withheld on cash dividend income received by these individuals is as follows:
- Filipino citizen – 10%
- Resident alien – 10%
- Non-resident alien engaged in trade or business in the Philippines – 20%
- Non-resident alien not doing business in the Philippines – 25%
Happy stock investing!