In 2009, Caruso, a resident Filipino citizen, received dividend income from a U.S.-based corporation which owns a chain of Filipino restaurants in the West Coast, U.S.A. The dividend remitted to Caruso is subject to U.S. withholding tax with respect to a non-resident alien like Caruso.
What will be your advice to Caruso in order to lessen the impact of possible double taxation on the same income? (3%)
Would your answer in A. be the same if Caruso became a U.S. immigrant in 2008 and had become a non-resident Filipino citizen? Explain the difference in treatment for Philippine income tax purposes. (3%)
Suggested answer only. Not an official answer and not legal advice.
A) Caruso should claim the U.S. tax paid as a deduction or tax credit. B) No, as a non-resident citizen, his foreign dividend is exempt. Under Sec. 34(C), NIRC, a resident citizen taxed on worldwide
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Quick check
How may a resident Filipino citizen lessen the impact of double taxation on foreign dividend income subject to foreign withholding tax?
Under Section 34(C) of the Tax Code, a resident citizen may claim foreign income taxes paid either as a tax credit or an itemized deduction.
Which tax principle governs the income taxation of a resident Filipino citizen under Section 23 of the NIRC?
Section 23 of the NIRC subjects resident citizens to Philippine income tax on their worldwide income derived within and without the country.
What is the Philippine income tax treatment of foreign dividend income received by a non-resident Filipino citizen?
Non-resident citizens are taxable only on income derived from sources within the Philippines, making foreign dividend income exempt.
Under Section 34(C) of the Tax Code, what election is available to a resident citizen paying foreign income taxes?
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Where is dividend income issued by a U.S. corporation operating exclusively in the United States deemed sourced for tax purposes?
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Learn more about these topics
1. Foreign Tax Credit
Under Section 34(C) of the National Internal Revenue Code, a resident citizen taxed on worldwide income who pays income tax to a foreign country may claim a foreign tax credit against his Philippine income tax liability. Alternatively, the taxpayer may elect to claim the foreign income tax paid as an itemized deduction from gross income to reduce double taxation.
2. Worldwide Income Principle
Resident citizens of the Philippines are taxable on all income derived from sources within and without the Philippines under Section 23 of the Tax Code. Consequently, foreign-sourced dividend income received by a resident citizen from a foreign corporation forms part of his taxable gross income subject to Philippine income tax.
3. Non-Resident Citizen Exemption
Non-resident citizens are taxable only on income derived from sources within the Philippines pursuant to Section 23 of the Tax Code. Dividend income received from a foreign corporation that operates entirely outside the Philippines constitutes income from sources without the Philippines, rendering such income completely exempt from Philippine income tax for a non-resident citizen.