ROYALTIES are generally considered passive income. Thus, royalties earned by an individual citizen or domestic corporation are generally subject to a 20-percent final withholding tax. The rate is reduced to 10 percent if it is earned on books, literary works, and musical compositions.
Our National Internal Revenue Code (Tax Code) enumerates royalties in the list of passive income which a taxpayer may earn, together with interest, dividends, prizes and winnings. (Tax Code, Sec. 2 [b]). However, it also includes royalties as gross income, which can be subject to ordinary income tax.
