CHAPTER 4: FINAL INCOME TAXATION

By: Rex Banggawan

PROBLEM 1-2

A corporation has the following income for 2022

Interest income derived from depository bank under Expanded Foreign 200,000
Currency Deposit System (EFCDS)

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Interest on government debt instrument and securities in which the number 150,000
of lenders at time of origination is thirty (30)

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Interest on government debt instrument and securities in which the number 500,000
of lenders at time of origination is ten (10)

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Prizes and Winnings (10,000 of which came from prizes) 60,000

Royalties 10,000

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Interest from overdue accounts and notes receivable (30% of which are from
accounts receivable)
80,000
PA
1.How much is the final tax on the passive income assuming the corporation is a resident
foreign corporation?
A. 162,000
B. 188,000
C. 62,000
C

D. 190,000

2.How much is the final tax on the passive income assuming the corporation is a non-resident
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foreign corporation?
A. 230,000
B. 200,000
C. 260,000
D. 162,500
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PROBLEM 3-4
The following are the revenue items of a domestic corporation for the year

Sales 2,000,000

Cost of Sales 1,500,000

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 Gain from sale of an office equipment 100,000

Gain from sale of building used in business 200,000

(selling price P200,000)

Gain from sale of land not used in business 300,000

(selling price 500,000)

Gain from sale of listed shares through local 50,000

stock exchange

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Gain from sale of stock directly to buyer not 70,000
through local stock exchange

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Yield from debt instrument (50 % of which 80,000
within coverage of deposit substitute,
Philippines)

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Interest Income received from depositary 90,000
bank under EFCDS, Philippines

Interest Income from bank deposit, USA 50,000

Interest income from long-term deposit,

Philippines
R 40,000
PA
Rent Income, Philippines 60,000

Royalties on books, Philippines 80,000

Royalties, USA 70,000

C

Property Dividend from domestic corporation 80,000

Stock dividend from foreign corporation 46,000

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Refund of Philippine Income Tax 80,000

Prizes and Winnings (20,000 from PCSO 100,000

winnings)
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3.How much is the final withholding taxes on passive income?

A. 45,500
B. 53,500
C. 61,500
D. 89,500

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4. How much is the total final withholding taxes assuming it is a non-resident foreign
corporation?
A. 398,500
B. 418,500
C. 385,000
D. 392,500

PROBLEM 5

Oni Chan, a non-resident foreign corporation has the following income items for the 2021:

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Stock Dividend from a domestic corporation 400,000
(no tax sparing credit)

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Property Dividend from foreign corporation 600,000

Interest income received from a depositary 150,000

bank under FCDS

Rent Income, net of withholding taxes

Interest Income from a debt instrument not

within coverage of a deposit substitute,
R 75,000

80,000
PA
Philippines

Interest Income from a debt instrument not 90,000

within coverage of a deposit substitute, USA

Prizes 10,000
C

Sales 900,000

Cost of Sales 500,000

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Operating Expenses 100,000

Interest on foreign loans 50,000

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How much is the total final withholding taxes of Oni Chan?

A. 200,000
B. 182,500
C. 160,000
D. 157,500

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PROBLEM 6
Mirana and Luna are sisters who are both resident citizens of the Philippines. They invested
P1,000,000 each in buying a banana plantation. The land is registered in their names as co-
owners.

In 2021, during the fifth year of operations, the co-ownership had a gross sales of coconut
amounting to P30,000,000; gross income of P20,000,000 and expenses of P15,000,000

How much is the final tax on each co-owner share in the co-ownership’s net income?
A. 187,500

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B. 175,000
C. 300,000

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D. 100,000

PROBLEM 7-8

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A married resident citizen supports four (4) qualified dependent children and a brother-in-law
who is a PWD, unmarried and riot gainfully employed. He has the following data on income and
expenses for the year 2021:

Salary, Philippines

Gross business income, Philippines

R 560,000

500,000
PA
Business Expense, Philippines 400,000

Gross Business Income, USA 500,000

Business Expenses, USA 600,000

C

Interest income from bank deposit, Philippines 30,000

Interest income from bank deposit, USA 80,000

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Interest Income from domestic depository bank under EFCDS 50,000

Interest Income on foreign loans, USA 40,000

Interest Income on overdue accounts receivable, Philippines 60,000

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Interest income from a debt instrument not within coverage of deposit 80,000
substitute, Canada

Royalty on book published in Philippines 40,000

PCSO Winnings 50,000

Prize in Wowowin 8,000

Prize in a competition he joined 3,000

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 Dividend received from non-resident foreign corporation 50,000

7. How much is the total final tax on passive income?

A. 27,700
B. 27,500
C. 32,900
D. 48,900

8. Assuming he is a non-resident alien not engaged in business and all the items retain except

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for the salary, how much is the total final tax?
A. 172,750
B. 180,250

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C. 72,750
D. 80,750

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PROBLEM 9
Kim Jolly Uy, a non-resident alien engaged in trade or business, is wondering how much final
tax he will have. He asks you, an aspiring CPA, to compute and is willing to give a hefty amount

Stock dividend from Domestic Corporation

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for your services. He provided the following data:

50,000
PA
Property dividend from Regional Operating 80,000
Headquarters of a multinational company,
Philippines

Cash dividend from Mutual fund Company, 80,000

C

Philippines

Royalties 150,000
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Royalties on musical compositions 20,000

Interest from trust fund 30,000

Interest income from deposit substitute in 40,000

which there were 21 lenders, 2 of which are
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corporate lenders

Interest income from deposit substitute in 70,000

which there were 20 individual lenders

PCSO winnings 11,000

Interest from a depositary bank under ECFDS 1,000

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 A. 86,200
B. 94,200
C. 86,350
D. 96,350

PROBLEM 10
An instrument with a maturity period of 10 years was held by Mr. X (a resident citizen) for 2
years and was transferred to Mr. Y (a resident alien) who, in turn, held it for 8 years. How much
is final withholding tax due?

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Mr. X Mr. Y

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A. Exempt Exempt

B. 20 % Exempt

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C. 20 % 20%

D. 20 % 25 %

PROBLEM 11 R
An instrument with maturity period of 10 years was held by Mr. X (a non-resident citizen) for 3
years and transferred to Mr. Y (a resident alien). Mr. Y held It for 2 years before subsequently
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transferring it to Mr. Z (a non-resident alien not engaged in business), who held it until the day of
maturity or for 5 years. How much is the final withholding tax due?
C

Mr X. Mr Y. Mr. Z

A. 12 % 20 % Exempt
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B. 12 % 20 % 20 %

C. 20% 20% 20%

D. 12% 20% 25%

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PROBLEM 12
Ico, a resident alien had the following in 2022:

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 Gross Income, Philippines 2,000,000

Business connected expenses 1,200,000

Dividends received
From Domestic corporations (net)
51 % of its income came from Philippines source 51,000
49% of its income came from Philippine source 49,000
From resident foreign corporation (gross)
49 % of its income came from Philippines source 60,000

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51% of its income came from Philippine source 40,000

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The final withholding taxes on the dividends amount to:
a. 11,111
b. 10,000

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c. 5,667
d. 5,100

PROBLEM 13
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Tabachingching, a non-resident foreign corporation had the following:
Rent from lease of aircraft to a domestic corporation 800,000
PA
Royalty from the use of patent in the Philippines 500,000

Interest on US dollar deposit with a domestic Bank operating as foreign US $ 30,000

currency depository unit
C

Interest on US dollar loan to a domestic corporation Engaged in design and US $ 20,000

construction
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The final withholding tax is

a. 185,000 and US $ exempt
b. 185,000 and US $ 4,000
c. 325,000 and US $ exempt
d. 185,000 and US $ 5,000
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PROBLEM 14
IDK Corporation had the following income in 2022:
Interest on bank deposit in PNB
i. Philippine peso deposit, gross Php 300,000
ii. US dollar deposit, gross
US $ 10,000

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 Royalty
iii. Philippines Php 400,000
iv. USA US $20,000

Rate of exchange 1 US $ = P50.00

The final withholding tax if IDK corporation is a domestic corporation is

A. 215,000
B. 415,000
C. 440,000

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D. 140,000

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PROBLEM 15
Which of the following is correct under RA 11534 (CREATE Law)?

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I. Non-resident aliens engaged in trade or business are exempt from final taxes on
PCSO/Lotto Winnings amounting to 10,000 and below
II. Non-resident aliens engaged in trade or business are exempt from final taxes on
PCSO/Lotto Winnings amounting to below 10,000
III.

IV.
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Non-resident aliens engaged in not trade or business are exempt from 25% final taxes
on PCSO/Lotto Winnings amounting to 10,000 and below
Non-resident aliens engaged in not trade or business are not exempt from 25% final
PA
taxes on PCSO/Lotto Winnings amounting to 10,000 and below

A. All of the above

B. Only one statement is true
C. Two statements are true
C

D. None of the statements are true

PROBLEM 16- 19
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A taxpayer had the following in 2022

Gross Income, Philippines 2,300,000

Business connected expenses 1,500,000

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Dividends received
From Domestic corporations (net)
60 % of its income came from Philippines source 80,000
40% of its income came from Philippine source 20,000
From resident foreign corporation (gross)
40 % of its income came from Philippines source 60,000
60% of its income came from Philippine source 40,000

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 Bank interest Income
From Philippine bank
Philippine currency (net) 8,000
Foreign Currency (converted to peso, net) 4,000
From USA bank
Foreign currency (converted to peso, gross) 2,000

Prizes 30,000

Winnings (came from two winnings, 40% from a Lotto winnings and 60% 20,000
from PCSO Winnings)

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Royalties (40% came from literary works), Philippines 100,000

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Interest on foreign loans 60,000

16. If the taxpayer is a resident citizen, final taxes withheld by the payors is:

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A. 38,217
B. 46,600
C. 56,105
D. 64,105
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17. If the taxpayer is a domestic corporation, final taxes withheld by the payors is
A. 22,200
PA
B. 28,200
C. 22,706
D. 52,706

18. If the taxpayer is a non-resident foreign corporation, final taxes withheld by the payors is
C

A. 660,500
B. 85,500
C. 644,813
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D. 639,500

19. If the taxpayer is a non-resident alien not-engaged in business, final taxes withheld by the
payors is
A. 648,500
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B. 660,500
C. 639,500
D. 640,000

PROBLEM 20 - 21
In 2021, Levi, married with two dependent children, received the following income:
Rent, Philippines P 1,000,000

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 Rent, Singapore 200,000

Interest, peso deposit, PNB 100,000

Interest, US $ deposit, BDO (10,000 x 42) 420,000

Interest, deposit in Hongkong (HK$ 10,000 xP 5) 50,000

Prizes won in a local contest 8,000

Prize (TV) won in a local lottery 50,000

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PCSO/Lotto winnings 2,000,000

Prize won in contest in Singapore 300,000

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Lotto winnings in Singapore 100,000

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Dividend, domestic company 600,000

Royalties on musical compositions, Singapore 300,000

A. 553,000
B. 473,000
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20. Determine the final taxes paid by Levi assuming he is a resident citizen:
PA
C. 153,000
D. 600,000

21. Determine the final taxes paid by Levi assuming he is a non-resident alien engaged in trade
or business
C

A. 490,000
B. 553,000
C. 550,000
D. 121,500
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22. Determine the final taxes paid by Levi assuming he is a non-resident alien not engaged in
trade or business
A. 490,000
B. 553,000
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C. 939,500
D. 937,500

PROBLEM 23
Tau, a Canadian national who is an employee in the regional headquarter of a multinational
corporation, occupying “managerial position”, had the following data for taxable year 2022:
Salaries received 800,000

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 Allowances and honoraria 20,000

Other emoluments 200,000

Monetary value of fringe benefits subject to 180,000

fringe benefit tax

De minimis benefits (within the ceiling) 20,000

Dividend income from a domestic corporation 400,000

Interest Income from peso bank deposit 50,000

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Interest Income from foreign currency deposit 90,000
under FCDS

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PCSO winnings 100,000

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Raffle draw winnings 300,000

Interest Income from long-term deposit 100,000

evidenced by certificates prescribed by BSP,
originally 10 years but pre-terminated before
4th year R
The amount of income subject to 25% FWT:
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a. 850,000
b. 950,000
c. 900,000
d. 800,000
C

PROBLEM 24

Which of the following statements is correct?

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I. Beginning January 1, 2018, PCSO lotto winnings of not more than P10,000 received by
citizens, residents and non-incident aliens engaged in trade or business are exempt from
income tax.
II. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 received by
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citizens, residents and non-resident aliens engaged in trade or business are subject to
20% final withholding tax
III. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10,000 received by
non-resident aliens not engaged in trade or business are exempt from income tax.
IV. Beginning January 1, 2018, PCSO/ Lotto winnings of not more than P 10,000 received
by non-resident aliens not engaged in trade or business are subject to 25% final
withholding tax.

A. I only

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 B. I and II only
C. I and IV only
D. All of the above

PROBLEM 25

Which of the following rates are correct?

A B C D

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Non-resident citizen -Interest Income from 20% 20 % 5% 12 %
long-term deposit evidenced by certificates

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prescribed by BSP pre-terminated 2 years
before maturity

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Non-resident aliens not engaged in trade or 25% 25% 10% 25%
business- Lotto winnings amounting to
P10,000

Non-resident foreign corporation - Royalties

on books

Resident Domestic Corporation - Stock

R 10%

Exempt
25%

Exempt
25%

20%
25%

Exempt
PA
dividends from another domestic corporation

PROBLEM 26
Which of the following statements is correct?
C

I. Prizes of not more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are exempt from income tax.
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II. Prizes of more than P10,000 received by citizens, residents and non-resident aliens engaged
in trade or business are subject to 20% final withholding tax.
III. Prizes of not more than P10,000 received by non-resident aliens not engaged in trade or
business are exempt from income tax.
IV. Prizes of more P10,000 received by non-resident aliens not engaged in trade or business
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are subject to 25% final withholding tax.

A. II only
B. I and II only
C. II and III only
D. III and IV only

PROBLEM 27

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Statement 1 All royalty income derived from sources within the Philippines are subject to final
tax.
Statement 2: All royalty income derived from sources outside of the Philippines received by
resident citizens are subject to basic income tax.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

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PROBLEM 28

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A non-resident alien derived interest income only in his bank deposit here in the Philippines
under the FCDU system of a domestic bank. The interest amounted to $500. How much is the
income tax due to the said alien?

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A. P0
B. P8,000
C. P3,000
D. P10,000

PROBLEM 29
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PA
A taxpayer received during the taxable year the following passive income derived from within
the Philippines:

Interest on bank deposit under FCDU (net) 231,250

C

Royalty on a software application (gross) 95,000

Dividend Income, RFC (gross) 150,000

EO

If taxpayer is a non-resident alien engaged in business, the final tax on the above passive
income would amount to

a. P 52,750
b. P 19,000
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c. P 28,250
d. P 37,750

PROBLEM 30-31
On January 1, 2022, Loma invested P2,000,000 to BDO's 5-year, tax-free time deposit. The
long-term deposit pays 10% annual interest every January 1. In need of cash. Lorna pre-
terminated her Investment on July 1, 2025.

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30. How much is the final tax due?
A. P12,000
B. P35,000
C. P24,000
D. P84,000

31. Assuming the same information in the problem above, except that the investment was made
by a domestic corporation, how much final tax is withheld in the year of pre-termination?
A. 5,000
B. 12,000

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C. 20,000
D. 24,000

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PROBLEM 32-36
Shanienie Baltazar has the following data on his passive income earned during 2022:

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Philippines Abroad

Interest income from long term peso bank deposits 80,000 40,000

Royalties from books

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Interest income from long term FCDU deposits 60,000

60,000
70,000

48,000
PA
Royalties from literary works 70,000 30,000

Royalties from computer programs 30,000 20,000

Winnings from a random electronic raffle 8,000

C

PCSO winnings 5,000

Prizes 15,000 8,000

EO

Dividend income from a Joint Stock Corporation (40% of 100,000

which are in property dividend)

Dividend income from a foreign corporation 50,000

Interest income from long term investment as prescribed 80,000

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by BSP, pre-terminated & held for 3 years

Interest income from long term investment as prescribed 70,000

by BSP, pre-terminated & held for 5 years

Share in net income after tax of a Joint Venture 60,000 150,000

Interest income from deposits with 10 lenders 80,000 30,000

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32. How much is the final withholding tax if the taxpayer is a resident citizen?
a. 58,200
b. 74,200
c. 75,200
d. 72,600

33. Assuming her best friend Selemene has the same income but Selemene is a resident alien
and Shanienie is a resident citizen how much will be the difference between their final
withholding taxes?
A. 0

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B. 9,000
C. 10,000

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D. 3,000

34. Carl has a huge crush on Shanienie and he copied all of her activities. Surprisingly, he

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earned the same income. However, Carl is a non-resident citizen. Being an avid stalker, he
wants to have the same final withholding tax next year. Assuming they will have the same
income next year with their activities, what should Carl do to have the same final withholding tax
as Shaninie?

B. Hope to win 10,000 from PCSO

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A. None, he will have the same final withholding tax as Shanienie

C. Publish a book and aim to have P90,000 royalties

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D. Invest 50,000 in a bank deposit.

35. If Shanienie is a non-resident alien engaged in trade or business, how much will be her final
withholding tax?
A. 58,200
C

B. 65,200
C. 74,200
D. 66,200
EO

36. If Shanienie is a non-resident alien not engaged in trade or business, how much will be her
final withholding tax?
A. 179,500
B. 164,500.
C. 192,000
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D. 200,000

PROBLEM 37
Lenovo, Inc., a resident foreign corporation, has earned the following income during 2022
DIVIDEND INCOME FROM
Entrego, a non-resident foreign corporation 200,000
300,000

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 Shopee, a resident foreign corporation (ratio of Philippine income over 400,000
world income for the past 3 years is 40%)
Lazada, a domestic corporation

INTEREST INCOME FROM

Current account, Security Bank 200,000
Savings Deposit, CIMB, US 700,000
FCDU deposits 600,000

ROYALTY income from various domestic corporations 200,000

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The total final tax on passive income for the taxable year is
A. 310,000

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B. 410,000
C. 170,000
D. 100,000

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PROBLEM 38

To Maribel, a resident citizen

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In 2022, a domestic corporation declared and paid dividends follows
80,000

To Goldy, a nonresident citizen 80,000

PA
To Sai, a resident alien 80,000

To Ihor, a non-resident alien engaged in trade 80,000

in the Philippines
C

To Salahem, a non-resident alien not 80,000

engaged in trade in the Philippines

To Primordial, a domestic Corporation 80,000

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To a resident foreign corporation 80,000

To a non-resident foreign corporation 80,000

To a non-resident foreign corporation (with no 80,000

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tax sparing)

How much final tax shall be withheld by the corporation?

A 92,000
B.100,000
C.80,000
D. 96,000

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PROBLEM 39
A corporation has the following data for the 2022 taxable year
Gross income, Phil 1,000,000

Gross income, USA 800,000

Gross income, Japan 900,000

Expenses, Phil 1,500,000

Expenses, USA 300,000

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Expenses, Japan 200,000

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Other income:

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Dividend from Ayala Corp 30,000

Dividend from Joyride Motors, China 15,000

Gain on sale of San Miguel shares directly to buyers 30,000

Royalties, Phils

Royalties, USA
R 40,000

50,000
PA
Interest from receivables in the Philippines 45,000

Rent Income, land in USA 80,000

C

Rent income, Building in the Philippines 80,000

If It is a non-resident foreign corporation and there is tax sparing, its income tax on all income
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except capital gains tax, if any is:

A. 295,750
B. 298,750
C. 48,750
D. 45,750
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PROBLEM 40
Which of the following rates are correct:
Rentals, charter and Nonresident Nonresident owner or
other fees derived by cinematographic film lessor of vessels
a non-resident lessor owner, lessor or chartered by
of aircraft, distributor Philippine nationals
machineries and
other equipment

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A. 4.5 % 30 % 7.5 %

B. 4.5 % 25 % 7.5 %

C. 7.5 % 25 % 4.5 %

D. 4.5 % 7.5 % 30 %

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PA
C
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C

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PA
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