How to Repatriate Profits and Dividends from the Philippines: Tax Rules for Foreign Investors

Foreign investors in the Philippines can repatriate profits and dividends, but the tax treatment depends on how the investment is structured. Dividends paid by a domestic corporation to an individual shareholder are subject to a final withholding tax of 10 percent under Section 24(B)(2) of the National Internal Revenue Code, as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law. Profits remitted by a Philippine branch to its foreign head office are treated differently from dividends. The remitting entity must withhold the correct tax before the funds leave the country, and the rules differ for individuals, domestic corporations, and foreign corporations.

What "Repatriation" Means for Foreign Investors

Repatriation refers to moving profits earned in the Philippines back to the foreign investor's home country. The two most common forms are:

• Dividends paid by a Philippine corporation to its shareholders.
• Branch profits remitted by a Philippine branch or regional operating headquarters to its foreign parent.

The tax consequence is not determined by the act of transferring funds abroad. It is determined by the nature of the income and the status of the recipient. The withholding agent — usually the Philippine corporation or branch — must withhold the tax at source and remit it to the Bureau of Internal Revenue.

Tax on Cash and Property Dividends

Under Section 24(B)(2) of the National Internal Revenue Code, as amended by the TRAIN Law, a final tax of 10 percent is imposed on cash and property dividends actually or constructively received by an individual from a domestic corporation, a joint stock company, an insurance or mutual fund company, or a regional operating headquarters of a multinational company.

The same 10 percent final tax applies to an individual's share in the distributable net income after tax of a partnership (except a general professional partnership), or in the net income after tax of an association, joint account, joint venture, or consortium taxable as a corporation.

Because this is a final tax, the dividend is no longer included in the shareholder's gross income and is not subject to the graduated income tax rates. The tax is withheld at source by the payor corporation.

Revenue Regulations No. 11-2018 confirms this treatment: cash and property dividends received from a domestic corporation are subject to final withholding tax at 10 percent.

Dividends Received by Corporations

The rules change when the recipient is a corporation rather than an individual.

For domestic corporations, dividends received from another domestic corporation are generally exempt from income tax. This prevents double taxation of profits that have already been taxed at the corporate level.

For non-resident foreign corporations, dividends received from a domestic corporation are generally subject to a final withholding tax. The applicable rate depends on the recipient's status and on whether a tax treaty applies. The source text does not provide a specific rate for this category, so investors should confirm the applicable rate with the Bureau of Internal Revenue or a tax advisor before remitting funds.

Repatriating Branch Profits

A Philippine branch of a foreign corporation does not pay dividends. Instead, it remits profits to its head office. The tax treatment of branch profit remittances is governed by the National Internal Revenue Code and its implementing rules.

Under Section 82 of the Foreign Currency Deposit System regulations (BSP Circular No. 1086), any income of non-residents — whether individuals or corporations — from transactions with depository banks covered under that chapter is exempt from income tax. Interest income derived by residents from those depository banks is subject to a final income tax rate under the National Internal Revenue Code.

This means that if the branch places its funds in a foreign currency deposit unit (FCDU) or expanded foreign currency deposit unit (EFCDU), the interest earned may be exempt from income tax for non-resident investors. The principal can then be remitted abroad.

Banks operating an FCDU or EFCDU must maintain a 100 percent asset cover for their foreign currency liabilities. They may lend funds from the FCDU/EFCDU book to the regular banking unit only after complying with this asset cover requirement.

Withholding and Remittance Obligations

The Philippine corporation or branch that pays the dividend or remits the profit is the withholding agent. It must:

1. Compute the correct tax on the dividend or profit remittance.
2. Withhold the tax at source.
3. Remit the withheld tax to the Bureau of Internal Revenue.
4. File the required withholding tax return.

Under Section 58 of the National Internal Revenue Code, as amended by the TRAIN Law, the return for final and creditable withholding taxes must be filed and the payment made not later than the last day of the month following the close of the quarter during which the withholding was made.

Failure to withhold or remit the correct tax exposes the withholding agent to penalties and interest.

Frequently asked questions

How much is the tax on dividends from the Philippines? For individual shareholders, cash and property dividends from a domestic corporation are subject to a final withholding tax of 10 percent under Section 24(B)(2) of the National Internal Revenue Code, as amended by the TRAIN Law.

Are branch profits remitted to a foreign head office taxable? The tax treatment depends on the structure and the applicable rules. Income of non-residents from transactions with FCDU/EFCDU depository banks is exempt from income tax under Section 82 of the Foreign Currency Deposit System regulations. Investors should confirm the specific treatment with the Bureau of Internal Revenue.

Who is responsible for withholding the tax on dividends? The Philippine corporation or branch that pays the dividend or remits the profit is the withholding agent. It must withhold the tax, remit it to the Bureau of Internal Revenue, and file the required return within the deadline under Section 58 of the National Internal Revenue Code.

Practical takeaways

• Dividends paid to individual shareholders by a domestic corporation are subject to a 10 percent final withholding tax under Section 24(B)(2) of the National Internal Revenue Code, as amended by the TRAIN Law.
• The tax is withheld at source by the Philippine corporation or branch, which must remit it to the Bureau of Internal Revenue within the deadline under Section 58.
• Income of non-residents from transactions with FCDU/EFCDU depository banks is exempt from income tax under Section 82 of the Foreign Currency Deposit System regulations.
• The applicable tax rate on dividends paid to non-resident foreign corporations depends on the recipient's status and any applicable tax treaty; confirm the rate before remitting funds.
• Keep complete records of the dividend declaration, withholding, and remittance to support the repatriation and comply with BIR requirements.

Primary sources

The rules discussed above are drawn from the following primary sources. Where the firm's library holds the document as a PDF it is embedded here in full; the rest are cited by title.

RR No. 11-2018 — Amends certain provisions of RR No. 2-98, as amended, to implement further amendments introduced by RA No. 10963 (TRAIN Law) relative to withholding of Income Tax (Published in Manila Bulletin on March 19, 2018) Digest | Full Text | Annex A | Annex B-1 | Annex B-2 | Annex B-3 | Annex C | Annex D | Annex E | Annex FOpen in Law LibraryDownload PDF

Amendments to the Regulations on the Foreign Currency Deposit SystemOpen in Law LibraryDownload PDF

• REPUBLIC ACT NO. 10963 - AN ACT AMENDING SECTIONS 5,6, 24,25, 27, 31, 32, 33, 34, 51, 52, 56, 57, 58, 74, 79, 84, 86, 90, 91, 97, 99, 100, 101, 106, 107,108,109,110,112,114,116,127,12S, 129, 145, 148,149,151,155,171,174,175,177,178,179,180, 181, 182, 183,186,188,189,190,191,192, 193,194,195, 196, 197,232, 236,237,249, 254, 264,269, AND 288; CREATING NEW SECTIONS 51-A, 148-A, 150-A, 150-B, 237-A, 264-A, 264-B, AND 265-A; AND REPEALING SECTIONS 35,62, AND 89; ALL UNDER REPUBLIC ACT NO. 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.