Withholding Tax on Payments to Non-Resident Foreign Corporations: Rates and BIR Form 1601-F
A Philippine payor making a payment to a non-resident foreign corporation (NRFC) generally withholds a 25% final tax on the gross amount before remitting the rest abroad, under Section 28(B) of the National Internal Revenue Code (NIRC), as amended by the CREATE Act. Several categories of NRFC income carry lower, specific rates instead of the general 25% — getting the category wrong means either over-withholding or exposing the Philippine payor to a deficiency assessment.
Manage Every Withholding Certificate Your Business Issues FREE →The general rule: 25% final withholding on gross income #
Section 28(B)(1) of the NIRC imposes a 25% final withholding tax on the gross income of a non-resident foreign corporation from all Philippine sources — a corporation organized under foreign law that is not engaged in trade or business within the Philippines. This is the rate that applies by default whenever a more specific provision doesn’t carve out a lower rate for the particular income type. The 25% figure reflects the CREATE Act’s 2021 reduction from the pre-CREATE 30% rate; sources reviewed do not show the subsequent CREATE MORE Act (Republic Act No. 12066) making any further reduction to this general NRFC rate, so 25% remains current.
Special rates for specific income types #
Several categories of NRFC income are taxed at rates below the general 25%, each tied to a specific paragraph of Section 28(B)(5):
| Income type | Rate | Basis |
|---|---|---|
| General Philippine-source income | 25% | Sec. 28(B)(1) |
| Interest on foreign loans | 20% | Sec. 28(B)(5)(a) |
| Intercorporate dividends from a domestic corporation, under the tax-sparing rule | 15% | Sec. 28(B)(5)(b) |
| Rental of vessels chartered by Philippine nationals | 4.5% of gross rentals/fees | Sec. 28(B)(5)(c) |
| Rental of aircraft, machinery, and other equipment | 7.5% of gross rentals/fees | Sec. 28(B)(5)(c) |
| Cinematographic film owner, lessor, or distributor | 25% of gross income | Sec. 28(B)(2) |
The 15% intercorporate dividend rate under the tax-sparing rule is conditional, not automatic: it applies only when the NRFC’s country of domicile allows a deemed-paid foreign tax credit against the dividend recipient’s home-country tax, for the difference between the 25% general rate and the 15% rate actually collected in the Philippines. Confirmation of eligibility runs through the BIR’s International Tax Affairs Division (ITAD) under RMO No. 46-2020.
Worked example: interest on a foreign loan #
A Philippine company borrows US$1,000,000 from an NRFC lender at 6% annual interest, generating US$60,000 in interest for the year.
| Item | Amount |
|---|---|
| Annual interest payable to NRFC lender | US$60,000 |
| Applicable rate (interest on foreign loan, Sec. 28(B)(5)(a)) | 20% |
| Final withholding tax withheld | US$12,000 |
| Net remitted to the NRFC lender | US$48,000 |
Had the payor mistakenly applied the general 25% rate instead of the specific 20% foreign-loan rate, it would have over-withheld by US$3,000 — money the lender would then need to claim back rather than receive up front.
Why this is final, not creditable #
The tax withheld on an NRFC’s Philippine-source income is a final tax — it fully settles the NRFC’s Philippine income tax liability on that item, and the NRFC files no Philippine income tax return for it. This follows the same final-withholding logic covered in Final Withholding Tax vs Creditable Withholding Tax: because there’s no further return to file, the Philippine payor’s remittance is the entire transaction from a tax-compliance standpoint, apart from issuing the certificate described below.
Remittance and certificate #
The Philippine withholding agent remits this tax through BIR Form 1601-F, the Monthly Remittance Return of Final Income Taxes Withheld, and issues BIR Form 2306 to the NRFC as proof of the tax withheld. BIR Form 2306 is generally due on or before January 31 of the year following payment, or simultaneously with the payment if the NRFC requests it sooner — useful for a foreign lender or licensor that needs proof of Philippine tax paid for its own home-country tax credit claim.
Tax treaties can reduce these rates #
A tax treaty between the Philippines and the NRFC’s country of residence can reduce these statutory withholding rates, but the reduced rate isn’t automatic — it requires either a Tax Treaty Relief Application or a valid self-assessment under current BIR procedure. This site covers that process in full at Tax Treaty Relief Application (TTRA) in the Philippines; the mechanics there apply the same way to an NRFC payee as to other nonresident payees.
Summary #
Payments to an NRFC default to a 25% final withholding tax on gross Philippine-source income, but interest on foreign loans (20%), qualifying intercorporate dividends (15% under the tax-sparing rule), and vessel or equipment rentals (4.5% or 7.5%) each have their own lower statutory rate — apply the general 25% only when none of the specific categories fit. Remit via BIR Form 1601-F and issue BIR Form 2306. For the parallel rules covering nonresident alien individuals rather than foreign corporations, see Withholding Tax on Non-Resident Alien Individuals Not Engaged in Business.