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BM1804 Final Withholding Tax on Passive Income Definition of Final Taxes, Withholding, and Passive Income Final Withholding Tax (FWT) is a withholding tax which is prescribed only for certain payors and is not creditable against the income tax due of the payee for the taxable year. Income tax withheld constitutes the full and final payment of the income tax due from the payee on the said income (Bureau of Internal Revenue, Tax Information, 2018). The FWT is the full and final payment of income tax due from the recipient of the income. The obligation to withhold the tax is imposed by law on the payor of the goods or service. Only payments specified in the Consolidated Withholding Tax Regulations are subject to FWT. Passive Income is subject to a separate and final tax at fixed rates. This income is not included in the computation of taxable income from compensation or business/professional income, the tax due on which is computed in accordance with the graduated income tax schedule for individuals in Section 3 of the Revenue Regulations No. 8-2018 (Bureau of Internal Revenue, 2018 Revenue Regulations, 2018). Passive Income Subject to Final Income Tax The newly approved Tax Reform for Acceleration and Inclusion (TRAIN) law also adjusts the tax rates on certain passive income, in addition to revised personal income tax rates. The Revenue Regulations No. 8-2018 issued on February 20, 2018 implements the amended provisions on Income Tax pursuant to Republic Act No. 10963 (Tax Ref ...
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