Is Interest on a Dollar (FCDU) Deposit Taxable? The BIR Final Tax Rate, Explained

Yes — interest on a foreign currency (FCDU) deposit held with a Philippine bank is taxable, if you’re a resident depositor. The bank deducts a final withholding tax before crediting your interest, so you never file a separate return for it. That final tax rate recently changed: it rose from 15% to 20% for resident individuals and domestic corporations under a 2025 law, while non-resident depositors remain exempt entirely.

What is an FCDU deposit, and why is it taxed differently? #

An FCDU deposit is money held in a foreign currency — typically US dollars — with a Philippine bank’s Foreign Currency Deposit Unit (FCDU), a separate accounting unit banks maintain under the expanded foreign currency deposit system created by Republic Act No. 6426 (the Foreign Currency Deposit Act), as amended. Unlike an ordinary peso savings or time deposit, an FCDU account lets a depositor hold and earn interest in the original foreign currency rather than converting to pesos on deposit. The interest that account earns is still Philippine-source income for tax purposes, and it is taxed under its own set of NIRC provisions rather than the general peso-deposit rules — which is exactly where the confusion around “is it taxable” usually starts.

The current final tax rate on FCDU interest: 20%, up from 15% #

For a resident individual or a domestic corporation, interest income from an FCDU deposit is subject to a final withholding tax of 20%, effective July 1, 2025 — up from the 15% rate that applied before that date. The increase came from the Capital Markets Efficiency Promotion Act (CMEPA), Republic Act No. 12214, signed into law on May 29, 2025 and effective July 1, 2025, which amended NIRC Section 24(B)(1) (covering individual citizens and resident aliens) and Section 27(D)(1) (covering domestic corporations). The bank withholds this tax automatically and remits it to the BIR — it is a final tax, meaning the depositor does not report the interest again as part of ordinary taxable income.

Because the full text of RA No. 12214 could not be directly re-verified against a primary government source at the time of writing, this site relies here on bank compliance notices issued to implement the law — a Philippine-bank notice to FCDU depositors described the transition this way:

“Roll-overs and/or new Foreign Currency FD accounts placed starting 01 July 2025 will follow the new FWT rate of 20% on interest.”

Multiple bank advisories and law-firm alerts describing CMEPA’s passage independently corroborate the same figures — a final withholding tax increase from 15% to 20% on resident FCDU interest, effective July 1, 2025. Confirm the exact statutory wording against the official Republic Act No. 12214 text or the BIR’s implementing revenue regulations before relying on this rate for a formal filing position.

The transitional rule for existing deposits #

Banks generally rolled out the new rate with a transition: a foreign currency time deposit already placed before July 1, 2025 kept the 15% rate until that specific term matured, while a new placement or roll-over made on or after July 1, 2025 follows the 20% rate. Foreign currency savings accounts generally moved to the 20% rate outright, regardless of when the account was originally opened, since savings interest is calculated and credited on an ongoing basis rather than at a fixed maturity date. Because bank notices vary slightly in how they phrased this transition, check your specific bank’s advisory for the exact cutoff applied to your account.

Non-resident depositors: the exemption still holds #

A non-resident individual or a foreign corporation that earns interest on an FCDU deposit with a Philippine bank remains exempt from Philippine income tax on that interest — this exemption was not removed by CMEPA. An earlier version of the CMEPA bill would have stripped this exemption, but President Marcos vetoed that specific provision when signing the law, citing the importance of keeping the Philippines’ foreign currency deposit system attractive to international capital. The practical effect: residency status is the dividing line for FCDU interest taxation — a resident depositor’s interest is taxed at the final rate described above, while a non-resident depositor’s interest on the same type of account is not taxed at all.

This is a narrower point than the estate-tax question covered in CIR v. Estate of Justice Romig: FCDU Deposits and Estate Tax Exemption, which deals with whether an FCDU deposit balance itself is exempt from Philippine estate tax when the depositor dies. That is a separate question from the one this post addresses — whether the interest income an FCDU deposit earns during the depositor’s lifetime is subject to income tax. A non-resident’s FCDU deposit can raise both questions independently, and the two exemptions rest on different legal grounds.

Worked example: USD 2,000 in annual interest on a resident’s dollar time deposit #

Assume a resident individual holds a USD time deposit with a Philippine bank that earns USD 2,000 in interest for the year, placed or rolled over on or after July 1, 2025 (so the current 20% rate applies), and assume an illustrative exchange rate of ₱58 per USD purely for converting to peso terms in this example — actual rates fluctuate daily.

The bank withholds USD 400 (₱23,200 peso-equivalent) directly from the interest before crediting the account, so the depositor receives USD 1,600 net. No further income tax filing is required on this interest, since the final tax already fully settles the depositor’s income tax liability on that specific income item. Had the same deposit still been under the pre-July-2025 15% rate, the tax withheld would instead have been USD 300, for net interest of USD 1,700 — illustrating the roughly one-third increase in tax bite the CMEPA change produced on FCDU interest.

FCDU interest vs. other Philippine passive income withholding #

FCDU interest is one of several categories of Philippine passive income subject to final withholding tax rather than ordinary income tax rates. For a broader look at how interest, royalties, and dividends are withheld at source under Philippine rules — including how those rates compare to the FCDU-specific treatment described here — see Withholding Tax on Interest, Royalties, and Dividends.

Frequently Asked Questions #

Is interest on a dollar (FCDU) deposit taxable in the Philippines? #

Yes, if the depositor is a resident. Interest income a resident individual or domestic corporation earns on a foreign currency deposit with a Philippine bank’s Foreign Currency Deposit Unit is subject to a final withholding tax, deducted by the bank before the interest is credited to the account. The depositor never separately files or pays this tax — the bank withholds it at source.

What is the current final tax rate on FCDU interest income? #

20%, for a resident individual or domestic corporation, effective July 1, 2025. This is up from the previous 15% rate. The increase came from the Capital Markets Efficiency Promotion Act (CMEPA), Republic Act No. 12214, which amended NIRC Section 24(B)(1) for individuals and Section 27(D)(1) for domestic corporations.

Did the tax rate on FCDU deposits go up recently? #

Yes. Before July 1, 2025, resident depositors’ FCDU interest was taxed at a final rate of 15%. CMEPA (RA No. 12214) raised that rate to 20% for resident individuals and domestic corporations, aligning it with the final tax rate that already applied to regular peso bank deposits.

Are non-residents taxed on their FCDU deposit interest? #

Generally no. Interest income earned by a non-resident individual or a foreign corporation from a foreign currency deposit with a Philippine bank’s expanded foreign currency deposit system remains exempt from Philippine income tax. President Marcos vetoed a CMEPA provision that would have removed this exemption, so it continues to apply.

Does the new 20% rate apply to my existing dollar time deposit, or only new deposits? #

It depends on when the deposit was placed or last rolled over. Banks generally applied a transitional rule: foreign currency time deposits already outstanding before July 1, 2025 kept the 15% rate until their existing term matured, while new placements and roll-overs from July 1, 2025 onward follow the 20% rate. Foreign currency savings accounts generally moved to the 20% rate regardless of when the account was opened. Confirm your bank’s specific transitional treatment, since implementation notices vary slightly by institution.

Summary #

Interest on a Philippine-bank FCDU deposit is taxable to a resident individual or domestic corporation at a 20% final withholding tax, up from 15% before July 1, 2025, following CMEPA (Republic Act No. 12214). A non-resident depositor’s FCDU interest remains exempt, since President Marcos vetoed the CMEPA provision that would have removed that exemption. Existing time deposits placed before the effective date generally kept the old 15% rate until maturity, while new placements, roll-overs, and savings accounts follow the current 20% rate — check your bank’s specific notice for the exact cutoff applied to your account.