REVENUE REGULATIONS NO. 10-98
TAXATION OF INCOME FROM FOREIGN CURRENCY DEPOSIT
AND OFFSHORE BANKING SYSTEMS
Q: What is the tax imposed on interest income earned from foreign currency bank
A: A final withholding tax of seven and a half percent (7?%) is imposed on interest income
from a foreign currency bank deposit which is actually or constructively received by a
resident. This tax would apply to foreign currency deposits accepted and held by an
offshore banking unit (OBU) or Foreign Currency Deposit Unit (FCDU) in the regular
course of business.
No tax is imposed on interest income arising from foreign currency bank deposits of non-
Q: Who are residents?
A: The following are considered as residents:
; A Filipino citizen living in the Philippines
; An alien individual who is permanently residing in the Philippines;
; A domestic corporation i.e., a corporation or other juridical person (associations,
partnerships, trust, etc.) organized under the laws of the Philippines
; A resident foreign corporation, which refers to a branch, extension office or other unit
of corporations or juridical persons organized under the laws of any foreign country
Q: What documents must be presented to prove non-residency?
A: For individuals, any of the following documents can be presented:
; An immigration visa issued by the foreign government in the country where he is a
; A certificate of residency which is issued by the Philippine Embassy or Consulate in
the foreign country of his residence;
; A certificate of the contract of employment of an overseas contract worker which is
duly registered with the Philippine Overseas Employment Agency (POEA); or a
Seaman’s Certificate, in the case of a Filipino seaman;
; A certification from the Bureau of Immigration that a non-resident alien is not a
resident of the Philippines;
; A certification from the Department of Foreign Affairs (DFA) of the Philippines that
the individual is a regular member of the diplomatic corps of a foreign government
and is entitled to income tax exemption under an international agreement to which
the Philippines is a signatory.
For corporate depositors, the original or certified copy of all of the following must be
1. Certificate of registration of the corporation abroad; and
2. Certification from the Securities and Exchange Commission that the non-resident
corporation is not licensed to do business in the Philippines.
Q: Are there other requirements?
A: To be entitled to an exemption from the tax on interest income in foreign currency
deposit, the Foreign Currency Bank Account should be in the name of the non-resident
individual or non-resident individual or non-resident corporation. Otherwise, the interest
income shall be considered subject to the 7.5% final tax.
In addition, the depositor is required to execute a written permission allowing its
depository bank to inform the BIR that, as a non-resident, he is exempt from the tax.
Without this written permission, ( confidentiality of foreign currency which constitutes a
limited waiver of the confidentiality of foreign currency deposits) the depositor will not be
entitled to the exemption privilege.
Q: How is interest income from a foreign currency bank deposit be taxed if the bank
account belongs to an overseas contract worker and a resident in the
A: If the account is jointly in the name of a non-resident (such as an overseas contract
worker, or a Filipino seaman) and an individual (spouse or dependent) who is living in
the Philippines, fifty percent (50%) of the interest income from such bank deposit will be
treated as exempt while the other fifty percent (50%) shall be subject to a final
withholding tax of seven and one-half percent (7.5%).
Q: How is the tax on such interest income paid?
A: The depository bank shall withhold and remit the 7.5% tax due from the interest income
derived by a resident from foreign currency bank deposit. Unless the depositor presents
documentary evidence that he is not a resident of the Philippines, the bank shall
automatically withhold such tax.
The depository bank is required to submit a list of all persons and corporations who were
given exemption from the tax on interest income on foreign currency deposits. The list is
filed at the same time that the quarterly withholding taxes on such deposits are remitted
to the BIR.
Q: What are FCDUs and OBUs?
A: FCDU, or Foreign Currency Deposit Unit, refers to that unit of a thrift bank or
commercial bank organized under Philippine laws, or a local branch of a foreign bank
doing business in the Philippines which has been authorized by the Bangko Sentral ng
Pilipinas (BSP) to engage in foreign-currency denominated transactions.
OBU, or Offshore Banking Unit, refers to a branch, subsidiary or affiliate of a foreign
banking corporation which is duly authorized by the BSP to transact offshore banking
business in the Philippines.
Q: How are FCDUs or OBUs taxed?
A: A final withholding tax of ten percent (10%) is imposed on income derived by an FCDU
or OBU from foreign currency transactions with residents of the Philippines, including
local commercial banks, local branches of foreign banks, and other depository banks
under the foreign currency deposit system. This includes interest income from lending
operations, bank charges, commissions, service fees, and net foreign exchange
Income of FCDUs or OBUs from foreign currency transactions with non-residents of the
Philippines is not subject to income tax.
Income derived by FCDUs or OBUs from activities other than foreign currency
transactions is subject to the regular income tax. To illustrate, income derived by an
FCDU from consultancy services and rentals is taxed on net income at the regular
corporate tax rate. Capital gains from the sale or exchange are taxed at 5% on the first
P100,000 and 10% in excess thereof.
Q: How is the 10% final withholding tax paid?
A: The person making the income payment is required to withhold and remit the tax
withheld. Thus, in the case of interest payment by a resident on a foreign currency loan
from an OBU or FCDU, the resident borrower acts as withholding agent of such tax.
Q: Are FCDUs or OBUs required to a file return?
A: Yes, an FCDU or an OBU must file the corporation income tax return with respect to its
income subject to the regular corporate income tax. It shall also declare in the return all
other income derived during the year which are subject to final withholding taxes, and
the following information:
; Name of withholding agent;
; His/Its Taxpayer Indentification Number (TIN)
; Period covered
; Gross income
; Rate of final withholding tax; and
; Amount of final withholding tax withheld.
There is no need, however, to submit such information with respect to its interest income
derived from bank deposits.
Q: When will these rules be applicable?
A: The regulation shall apply on taxable income derived beginning January 1, 1998. For
deposits which were made in 1997, only that portion of interest which was actually or
constructively received by a depositor starting January 1, 1998 is taxable.
No penalty will be imposed for late payment of the taxes prescribed in the regulation for
the first three quarters of calendar year 1998, if the taxpayer files thee returns for the
said taxable quarters and pays the taxes du on or before October 25, 1998.
(Implementing Secs. 24, 25, 27 and 28 of the 1997 Tax Code, as amended by RA No. 8424; Date Issue: August 25, 1998; Effective on January 1, 1998)