Starting July 1, 2025, the rules on final withholding tax (FWT) for interest earned on both short- and long-term deposits are changing in the Philippines. This is due to the implementation of Republic Act No. 12214, or the Capital Markets Efficiency Promotion Act (CMEPA)—a new law aimed at simplifying the tax system and making the capital markets more competitive.
Here’s what depositors and investors need to know about these important tax updates.
What Is Changing?
Under CMEPA, the withholding tax on all interest income from bank deposits and similar investments will be streamlined to a uniform 20% rate, regardless of term or currency.
This affects:
- Peso Time Deposits (TDs)
- Foreign Currency (USD or FCDU) Deposits
- Trust funds, investment accounts, and deposit substitutes
- Long-term deposits previously tax-exempt
Key Updates to Withholding Tax on Deposits
| Deposit Type | Previous FWT | New FWT (effective July 1, 2025) |
| Short-term Peso Time Deposit | 20% | 20% |
| Long-term Peso Deposit (>5 years) | 0% (tax-exempt) | 20% |
| USD/FCDU Time Deposit | 15% | 20% |
| Savings and Current Accounts | 20% | 20% |
| Trust & Investment Accounts | Varies | 20% |
🔔 Note: Long-term deposits (over 5 years) previously enjoyed tax exemptions. Starting July 1, 2025, they will now be subject to 20% FWT, regardless of when they were opened.
Why the Change?
The Capital Markets Efficiency Promotion Act (RA 12214) was enacted to:
- Simplify tax administration for banks, institutions, and the BIR
- Ensure tax fairness across all types of income from passive investments
- Encourage more transparent investing and savings behavior
- Align the Philippine tax structure with international standards
How Does This Affect You?
If you currently have:
- Long-term deposits (e.g., 5-year prime TDs): These will no longer be tax-exempt. Interest earned after July 1, 2025 will be subject to 20% withholding tax, even if the deposit was made before the law took effect.
- USD/FCDU deposits: Expect a slightly higher tax (from 15% to 20%) on future interest income.
- Short-term time deposits or savings accounts: No change in rate, but the new law makes tax application more uniform and easier to understand.
What Should You Do?
- Review your deposit terms and maturity schedules—especially for long-term TDs.
- Consider reinvesting or rebalancing based on the new tax implications.
- Consult your bank or financial advisor to better understand how this impacts your earnings.
- Keep an eye on your net interest income post-July 1, 2025.
When Does It Take Effect?
These changes are effective starting July 1, 2025. All interest income earned on or after this date will be subject to the updated 20% final withholding tax, regardless of when the deposit was originally placed.
Final Thoughts
The new CMEPA law simplifies how interest income is taxed in the Philippines. While some depositors—especially those with long-term and foreign currency accounts—may feel the impact, the law is designed to create a more equitable and efficient financial system.
Now is a good time to review your deposits, adjust your investment strategies, and talk to your bank representative or financial advisor to make sure you’re maximizing your earnings under the new tax structure.
DISCLAIMER: This article is developed by subject matter experts at Babylon2k. This is for general information only and does not constitute expert advice. It is based on current regulations and may not account for all related topics. Any tax or compliance guidance provided cannot be used to avoid penalties or promote specific actions. Laws and interpretations may change over time, which could affect the accuracy of this report. We are not obligated to update this advisory if new regulations arise.
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