Philippines: Lower tax rate, dividends paid to non-resident foreign corporations

Philippines: Lower tax rate, dividends paid

Incentives have been provided to non-resident foreign corporations to encourage them to do business and invest in various industries in the Philippines, and these incentives have included “the tax sparing provision” that provides a lower tax rate on dividends paid to these foreign corporations by domestic corporations.


The tax sparing incentive is a tax rate that is halved to 15% as long as the foreign corporation’s country of residence allows a tax credit for taxes deemed to have been paid in the Philippines.

Guidance from the Bureau of Internal Revenue (BIR)—Revenue Memorandum Order (RMO) No. 46-2020 (December 2020)—provides that the reduced rate of 15% may be applied to cash and/or property dividends declared by corporations. The 2020 guidance also allows the domestic corporation’s outright distribution of dividends to the non-resident foreign corporation and application of the reduced rate, provided that the domestic corporation determines whether the prevailing law of the non-resident foreign corporation’s domicile country allows a “deemed paid” tax credit.

The “deemed paid” tax credit must be equivalent to the tax percentage (15%) waived by the Philippines or render the dividends as being tax-exempt. The foreign corporation or its authorized representative is still required to file a request for confirmation of the applicability of the 15% dividend rate. The request if filed through the BIR’s International Tax Affairs Division and is due within 90 days from the date when the dividend is paid or 90 days from the date when the foreign tax authority determines there is a deemed-dividend-paid tax credit or a tax exemption, whichever is later. If the entitlement to the reduced tax rate is confirmed, the BIR must issue a certification (in lieu of the BIR ruling). This step is intended to streamline the process of confirming entitlement to the reduced rate.

If the reduced rate is denied, a BIR ruling must be issued. The denial may result in the imposition of deficiency assessment for the 15% tax rate differential plus penalties. Unfavorable rulings are appealable to the Department of Finance within 30 days of receipt.  

Read a February 2021 report prepared by the KPMG member firm in the Philippines

© 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us