RR 10-98 - Fcdu

August 25, 1998
REVENUE REGULATIONS NO. 10-98
SUBJECT : Implementing the Provisions of the National Internal Revenue

Code, As Amended By Republic Act No. 8424, Relative to the
Imposition of Income Taxes on Income Derived Under the
Foreign Currency Deposit and Offshore Banking Systems
TO : All Internal Revenue Officers and Others Concerned
SCOPE — Pursuant to Section 244, in relation to Sections 24, 25, 27 and 28 of

the National Internal Revenue Code of 1997, as amended by R.A. No. 8424, these
Regulations are hereby promulgated to govern the imposition of income taxes on
income derived under the Foreign Currency Deposit and Offshore Banking Systems.
cdphil
Sec. 2.22. Definition of Terms. —
(A) Foreign Currency Deposit System — shall refer to the conduct of banking
transactions whereby any person whether natural or juridical may deposit foreign
currencies forming part of the Philippine international reserves, in accordance with
the provisions of Republic Act No. 6426 entitled "An Act Instituting a Foreign
Currency Deposit System in the Philippines, and For Other Purposes."
(B) Foreign Currency Deposit Unit (FCDU) — shall refer to that unit of a
local bank or of a local branch of a foreign bank authorized by the Bangko Sentral Ng
Pilipinas (BSP) to engage in foreign currency-denominated transactions, pursuant to
the provisions of R.A. 6426, as amended. ("Local bank" shall refer to a thrift bank or a
commercial bank organized under the laws of the Republic of the Philippines. "Local
branch of a foreign bank" shall refer to a branch of a foreign bank doing business in
the Philippines, pursuant to the provisions of R.A. No. 337, as amended).
(C) Offshore Banking System — shall refer to the conduct of banking

transactions in foreign currencies involving the receipt of funds principally from
external and internal sources and the utilization of such fund pursuant to Presidential
Decree No. 1034 as implemented by CB (now BSP) Circular No. 1389, as amended.
Copyright 1994-2008 CD Technologies Asia, Inc. Philippine Taxation 2007 1

(D) Offshore Banking Unit (OBU) — shall mean a branch, subsidiary or
affiliate of a foreign banking corporation which is duly authorized by the Bangko
Sentral Ng Pilipinas (BSP) to transact offshore banking business in the Philippines in
accordance with the provisions of Presidential Decree No. 1034 as implemented by
CB (now BSP) Circular No. 1389, as amended.
(E) Deposits — shall mean funds in foreign currencies which are accepted
and held by an Offshore Banking Unit or Foreign Currency Deposit Unit in the
regular course of business, with the obligation to return an equivalent amount to the
owner thereof, with or without interest.
(F) Resident — shall mean
(1) an individual citizen of the Philippines residing therein; or
(2) an individual who is not a citizen of the Philippines but is

permanently residing therein; or
(3) a corporation or other juridical person organized under the laws of

the Philippines; or
(4) a branch, subsidiary, affiliate, extension office or other unit of

corporations or juridical persons organized under the laws of any
foreign country operating in the Philippines.
(G) "Non-resident" — shall mean an individual, corporation or other juridical

person not included in the above definition of "resident". prcd
(H) Filipino Overseas Contract Worker (OCW) — means an individual citizen

of the Philippines referred to under Section 23(C) of the Code.
A Filipino Seaman is a citizen of the Philippines who receives compensation

for services rendered abroad as a member of the complement of an ocean-going vessel
engaged exclusively in international trade as referred to under Section 23(C) of the
Code.
Sec. 2.24. Income Tax Rate of Interest Income from Foreign Currency
Deposit. —
(A) Individual Income Tax on Interest Income from a Depository Bank under

the Foreign Currency Deposit System
(1) Interest income which is actually or constructively received by a resident

citizen of the Philippines or by a resident alien individual from a foreign currency
bank deposit shall be subject to a final withholding tax of seven and one-half percent
(7.5%). The depository bank shall withhold and remit the tax pursuant to Sections 57
and 58 (withholding tax at source) of the Code.
(2) If a bank account is jointly in the name of a non-resident citizen such as

an overseas contract worker, or a Filipino seaman, and his spouse or dependent who is
a resident in the Philippines, fifty percent (50%) of the interest income from such
bank deposit shall 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%). cdll
(B) Compliance and Administrative Procedures for Non-Resident Citizen and

Non-Resident Alien. The tax on interest income from foreign currency deposit shall be
imposed unless the depositor who is a non-resident citizen or a non-resident alien can
present documentary evidence that he is not a resident of the Philippines. Such
evidence shall consist of the original or certified copy of any of the following:
(1) an immigration visa issued by the foreign government in the

country where he is a resident of; or
(2) a certificate of residency which is issued by the Philippine

Embassy or Consulate in the foreign country of his residence; or
(3) 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; or
(4) a certification from the Bureau of Immigration of the Philippines

that a non-resident alien is not a resident of the Philippines; or
(5) 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.
(C) Name of the Foreign Currency Bank Account — To be entitled to an

exemption from the tax on interest income on foreign currency deposit, the Foreign
Currency Bank Account shall be in the name of the non-resident individual or
non-resident corporation. Otherwise, the interest income therefrom shall be
considered as subject to the tax imposed herein.
(D) Illustration.
Mr. Juan de la Cruz, a Filipino citizen who is residing in the Philippines has a
US dollar account with ABC Bank. His gross interest earnings from his bank deposit
for the first quarter of 1998 (i.e. from January 1 to March 31, 1998) amounted to
US$1,000.00. This gross interest earning shall be considered as constructively
received by Mr. De la Cruz during the first quarter of 1998 and shall be subject to a
seven and one-half percent (7.5%) final withholding tax. The 7.5% final withholding
tax which is due thereon is US$75.00.
Sec. 2.27 and Sec. 2.28 — Corporate Income Tax on Interest Income from a
Depository Bank under the Foreign Currency Deposit System.
(A) Interest income which is actually or constructively received by a domestic

corporation or a resident foreign corporation from a foreign currency bank deposit
shall be subject to a final withholding tax at the rate of seven and one-half percent
(7.5%) based on the gross amount of such interest income. The depository bank shall
withhold and remit the tax pursuant to the provisions of Sections 57 and 58
(withholding tax at source) of the Code.
(B) Compliance and Administrative Procedures for a Non-resident

Corporation. The tax on interest income from foreign currency deposit shall be
imposed unless the depositor, which is a non-resident corporation, can present
documentary evidence that it is not a resident of the Philippines. Such evidence shall
consist of the original or certified copy of all the following requirements:
(1) Certificate of registration of the corporation abroad; and
(2) Certification from the Securities and Exchange Commission (SEC)

that the non-resident corporation is not licensed to do business in
the Philippines. Cdpr
(C) Taxation of Income of an FCDU or OBU from Foreign Currency

Transactions. In general, income derived by an FCDU or an 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, shall be subject to a final withholding tax of ten percent
(10%) based on gross income pursuant to Sec. 27(D)(3) and Sec. 28(A)(4) of the
Code. Income from foreign currency transactions shall include interest income from
lending operations, including bank charges, commissions, service fees, and net foreign
exchange transaction gains.
Income from foreign currency transactions with non-residents of the

Philippines shall not be subject to income tax.
The person making the income payment shall withhold and remit the tax
withheld pursuant to the provisions of Sections 57 and 58 of the Code. Thus, in the
case of interest payment by a resident of the Philippines on a foreign currency loan
from an OBU or an FCDU, the withholding agent shall be the said resident.
(D) Taxation of Other Incomes of an FCDU or an OBU . Income derived by

an FCDU or an OBU from activities other than foreign currency transactions shall be
subject to the pertinent income tax/taxes prescribed under Section 27 or Section 28 of
the Code. To illustrate: Income derived by an FCDU from consultancy services and
rentals shall be subject to an income tax based on net income at the tax rates
prescribed under Section 27(A) of the Code. Capital gains derived from the sale,
barter, exchange or disposition of shares of stocks in a domestic corporation shall be
subject to tax prescribed under Section 27(D) of the Code.
The aforesaid depository bank shall file its corporate income tax return for
income referred to in the preceding paragraph in accordance with the provisions of
Section 52 of the Code. It shall also declare thereunder all other incomes derived
during the taxable period which are subject to the final withholding taxes, the fact that
such final withholding taxes have been withheld therefrom by the payor
notwithstanding, indicating the following information:
(a) Name of the withholding agent;

(b) His/its address;
(c) His/its Taxpayer Identification Number (TIN);
(d) Period covered;
(e) Gross Income;
(f) Rate of final withholding tax applied; and
(g) Amount of final withholding tax withheld.
The submission of the foregoing information shall not be required with respect
to its interest income derived from bank deposits. LLphil
Sec. 2.58. Information Requirement for Depositors/Taxpayers Exempt from

Withholding Tax on Interest Income from Foreign Currency Deposits. —
The Depository Bank shall submit with its quarterly withholding tax remittance
prescribed under Sec. 58(A) of the Code a list of all persons and corporations who
were given exemption from the tax on interest income on foreign currency deposits.
To avail of the exemption from the tax on interest income from foreign
currency deposit, the depositor is required to execute a written permission allowing its
depository bank to inform the Commissioner of Internal Revenue that as a
non-resident, the depositor is exempt from the tax. A depositor who fails to comply
with this requirement, which constitutes a limited waiver of the confidentiality of
foreign currency deposits, shall not be entitled to the exemption privilege.
EFFECTIVITY CLAUSE. These Regulations shall apply on taxable income

derived beginning January 1, 1998 pursuant to the provisions of Section 8 of RA
8424. In case of 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.
TRANSITORY PROVISION. No penalty shall be imposed for late payment of

the tax herein prescribed for the first three quarters of calendar year 1998, provided,
however, that the taxpayer's corresponding tax returns for the said taxable quarters are
filed and the taxes due are paid not later than October 25, 1998. cda
(SGD.) EDGARDO B. ESPIRITU

Secretary of Finance
Recommending Approval:
(SGD.) BEETHOVEN L. RUALO

Commissioner of Internal Revenue

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August 25, 1998

REVENUE REGULATIONS NO. 10-98

SUBJECT : Implementing the Provisions of the National Internal Revenue

TO : All Internal Revenue Officers and Others Concerned

SCOPE — Pursuant to Section 244, in relation to Sections 24, 25, 27 and 28 of

Sec. 2.22. Definition of Terms. —

(C) Offshore Banking System — shall refer to the conduct of banking

Copyright 1994-2008 CD Technologies Asia, Inc. Philippine Taxation 2007 1

(F) Resident — shall mean

(1) an individual citizen of the Philippines residing therein; or

(2) an individual who is not a citizen of the Philippines but is

(3) a corporation or other juridical person organized under the laws of

(4) a branch, subsidiary, affiliate, extension office or other unit of

(G) "Non-resident" — shall mean an individual, corporation or other juridical

(H) Filipino Overseas Contract Worker (OCW) — means an individual citizen

A Filipino Seaman is a citizen of the Philippines who receives compensation

Copyright 1994-2008 CD Technologies Asia, Inc. Philippine Taxation 2007 2

(1) Interest income which is actually or constructively received by a resident

(2) If a bank account is jointly in the name of a non-resident citizen such as

(B) Compliance and Administrative Procedures for Non-Resident Citizen and

(1) an immigration visa issued by the foreign government in the

(2) a certificate of residency which is issued by the Philippine

(3) a certificate of the contract of employment of an overseas contract

(4) a certification from the Bureau of Immigration of the Philippines

(5) a certification from the Department of Foreign Affairs (DFA) of

(C) Name of the Foreign Currency Bank Account — To be entitled to an

(A) Interest income which is actually or constructively received by a domestic

(B) Compliance and Administrative Procedures for a Non-resident

(1) Certificate of registration of the corporation abroad; and

(2) Certification from the Securities and Exchange Commission (SEC)

(C) Taxation of Income of an FCDU or OBU from Foreign Currency

Copyright 1994-2008 CD Technologies Asia, Inc. Philippine Taxation 2007 4

Income from foreign currency transactions with non-residents of the

(D) Taxation of Other Incomes of an FCDU or an OBU . Income derived by

(a) Name of the withholding agent;

Sec. 2.58. Information Requirement for Depositors/Taxpayers Exempt from

EFFECTIVITY CLAUSE. These Regulations shall apply on taxable income

TRANSITORY PROVISION. No penalty shall be imposed for late payment of

(SGD.) EDGARDO B. ESPIRITU

(SGD.) BEETHOVEN L. RUALO

Copyright 1994-2008 CD Technologies Asia, Inc. Philippine Taxation 2007 6

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