The Philippines taxes individuals and corporations according to its National Internal Revenue Code. For corporations, the main taxes are:
1. A corporate tax of 30% of annual taxable income for domestic corporations, with an option for 13% tax on gross income if certain conditions are met. Foreign corporations doing business in the Philippines are taxed similarly.
2. Dividends paid to foreign parent companies are generally taxed at 30%, but may be reduced to 15% depending on tax treaties.
3. A minimum corporate income tax of 2% of gross income is imposed beginning in the fourth year of business if greater than the regular tax amount.
The Philippines taxes individuals and corporations according to its National Internal Revenue Code. For corporations, the main taxes are:
1. A corporate tax of 30% of annual taxable income for domestic corporations, with an option for 13% tax on gross income if certain conditions are met. Foreign corporations doing business in the Philippines are taxed similarly.
2. Dividends paid to foreign parent companies are generally taxed at 30%, but may be reduced to 15% depending on tax treaties.
3. A minimum corporate income tax of 2% of gross income is imposed beginning in the fourth year of business if greater than the regular tax amount.
The Philippines taxes individuals and corporations according to its National Internal Revenue Code. For corporations, the main taxes are:
1. A corporate tax of 30% of annual taxable income for domestic corporations, with an option for 13% tax on gross income if certain conditions are met. Foreign corporations doing business in the Philippines are taxed similarly.
2. Dividends paid to foreign parent companies are generally taxed at 30%, but may be reduced to 15% depending on tax treaties.
3. A minimum corporate income tax of 2% of gross income is imposed beginning in the fourth year of business if greater than the regular tax amount.
The laws governing taxation in the Philippines are contained within the National Internal Revenue Code. This code underwent substantial revision with passage of the Tax Reform Act of 1!. This law too" effect on #anuar$ 1% 1&. Taxation is administered through the 'ureau of Internal Revenue which comes under the (epartment of )inance. The chief executive of the 'ureau of Internal Revenue is the Commissioner who has exclusive and original *urisdiction to interpret the provisions of the code and other tax laws. The commissioner also has the powers to decide disputed assessments% grant refunds of taxes% fees and other charges and penalties% modif$ pa$ment of an$ internal revenue tax and abate or cancel a tax liabilit$. Taxpa$ers can appeal decisions b$ the Commissioner directl$ to the Court of Tax Appeals. II. Primary tax incentives A. Tax holiday The +mnibus Investments Code grants to enterprises that have registered with the 'oard of Investments and that ,ualif$ under the annual Investments Priorit$ Plan entitlements to tax holida$s of either four or six $ears. In addition% the$ are granted tax credits for purchase of Philippine-made capital e,uipment and raw materials. . S!ecial Economic "ones There are over thirt$ special economic .ones throughout the Philippines where export manufacturing firms are encouraged to start operations. /nder the Philippine 0xport 1one Authorit$ 2aw% a special economic .one registered enterprise can% in lieu of all other national and local taxes% pa$ a tax of 34 of its gross income. A firm that has registered under the +mnibus Investments Code that is located and registered to do business within a special economic .one can have a tax holida$ for the first four or six $ears of its operations% followed b$ a 34 tax thereafter. The exemption from national taxes covers all internal revenue taxes% including the 5alue Added Tax. III. Tax treaty #ith the $nited States The Philippines has tax treaties with man$ countries% including the /nited 6tates% in order to minimi.e the effects of double taxation. The business profits of a resident of another countr$ with whom the Philippines has a tax treat$ are taxable in the Philippines onl$ if the resident has a permanent establishment in the Philippines to which the profits are attributable. I%. Primary ty!es o& taxation A. Individual Income Tax Residents engaged in trade or business are taxed upon their net income 7gross income less allowable deductions and personal exemptions8 according to a schedule of rates ranging from 94 to 994. The maximum rate will be reduced to 9:4 on #anuar$ 1% :;;;. Residenc$ tests are used to determine resident alien status where the resident alien falls under the Individual Income Tax schedule of rates. Personal exemptions of the following amounts are allowed on the individual income tax return<
6ingle
3;%;;; pesos
=ead of famil$ 3;%;;; pesos
>arried individuals
3;%;;; pesos An additional :3%;;; pesos exemption is given for each of the first four additional dependents. . Passive income '. Interest A ?final@ tax of :;4 is imposed on interest income. This tax is 1 | P a g e withheld at the source. 0xceptions to this are< i. Interest income from a depositar$ ban" with a )oreign Currenc$ (eposit /nit is sub*ect to a final tax rate of !.34. ii. Philippine long term investments of over five $ears are exempt from tax. (. )ividends A final tax of 1;4 is imposed on cash or propert$ dividends from domestic corporations% *oint stoc" companies% insurance or mutual funds% or regional operating head,uarters of multinational corporations. The distributable net income% after tax% of a partnership is sub*ect to the same final tax as dividends. *. +a!ital ,ains The tax code imposes a final tax of 34 on net capital gains from the sale of stoc" in a domestic corporation up to 1;;%;;; pesos. The tax is 1;4 for an$ income over 1;;%;;; pesos. If the stoc" is stoc" exchange listed% a transfer tax of ;.34 is also imposed. -. .rin,e /ene&its )ringe benefits% such as housing% expense accounts% vehicles% household personnel% membership fees and educational fees are taxable under the fringe benefits tax and are pa$able b$ the emplo$er% who is responsible for withholding it and remitting it to the government. The fringe benefits tax is 994 7going to 9:4 on #anuar$ 1% :;;;8 of the grossed-up monetar$ value of the fringe benefits given to the emplo$ee. +. +or!oration tax Resident foreign corporations engaged in trade or business in the Philippines are taxed at the same rates as domestic corporations. The corporation income tax rate is currentl$ 9;4. 0ffective #anuar$ 1% :;;;% the tax code includes an option for corporations to be taxed at a rate of 134 of gross income if the President of the Philippines chooses to enact this option. If the option is granted b$ the President% onl$ firms whose proportion of the cost of sales or receipts from all sources does not exceed 334 ma$ exercise the option. This method of taxation% once elected% shall be irrevocable for three consecutive $ears. /nder the Tax Reform Act% the Philippines has also established a >inimum Corporate Income Tax. 6ubse,uent to the fourth taxable $ear after a corporation has started its business% a minimum corporate income tax of :4 of the gross income is imposed if this amount is greater than the regularl$ computed tax. This amount can be carried forward and credited against the normal income tax for the three immediatel$ succeeding taxable $ears. ). %alue Added Tax 0%AT1 The 5AT is e,uivalent to 1:4 of the gross selling price or gross value in mone$ of goods or properties sold% bartered or exchanged. An$ excise tax on these goods is also part of the gross selling price. In the case of imported goods% 5AT is based on the total value of the goods as determined b$ the 'ureau of Customs plus customs duties% excise taxes and incidental charges. The 5AT is an indirect tax. Ahile the obligation to collect and remit rests with the seller% the cost of the tax ma$ be passed on to the bu$er% transferee or lessee of the goods% properties or services. A 5AT registered entit$ ma$ credit the 5AT paid on purchases of other goods and services against the tax on its current period sales of goods or services. If the amount of input tax is greater than the amount of output tax% the excess ma$ be credited against succeeding period output 5AT. 5AT registered entities are re,uired to issue an invoice or receipt for ever$ sale and% in addition to regularl$ re,uired accounting records% the$ must maintain subsidiar$ sales and purchase *ournals exclusivel$ for 5AT purposes. 5AT reports must be submitted on a ,uarterl$ basis% twent$-five da$s after the end of the ,uarter. 5AT pa$ments must be made on a monthl$ basis. 2 | P a g e %. 2ther taxes Percentage tax 7primaril$ for non-5AT registered entities 0xcise tax (ocumentar$ stamp tax 0state and donor@s 7gift8 tax
Taxes 2ther Taxes
+or!orate Tax!ayers 1. (omestic corporations are taxed at 9;4 of annual taxable income from worldwide sources with option for 134 tax on gross income sub*ect to certain conditions. (omestic corporations are those established under the laws of the Philippines and include foreign-owned corporations% otherwise "nown as subsidiaries.
:. A foreign corporation% whether engaged or not in trade or business in the Philippines% is taxable on Philippine-sourced income at the same rates as domestic corporations. 6uch foreign corporation engaged in trade or business in the Philippines 7also called resident foreign corporation8 is taxed based on net income with the same option to pa$ 134 tax on gross income. +n the other hand% a foreign corporation not engaged in business or trade in the Philippines 7also "nown as a nonresident foreign corporation8 is taxed based on gross income received.
9. Profits remitted b$ a branch of a foreign corporation to its home office are taxed at the rate of 134. =owever% this tax does not appl$ to a Philippine branch registered with P01A. (ividends declared b$ a domestic corporation to its foreign parent are generall$ taxed at 9;4. =owever% if the home countr$ of the recipient corporation allows an additional credit of 1!4 as tax deemed paid in the Philippines% the tax is reduced to 134. (ividends remitted to countries that do not impose a tax on offshore dividends ,ualif$ for this rate. /nder the Philippine tax treaties with Netherlands% #apan% Berman$% Corea and Austria% a preferential tax of 1;4 on branch profit remittances is granted. )urthermore% under the tax treaties with these countries% dividends paid are sub*ect to 1;4 tax if the pa$or- subsidiar$ is registered with the '+I or if the beneficial owner of the dividends is a compan$ which holds a certain percentage of the capital of the pa$or subsidiar$. +therwise% the tax on dividends is 134.
D. All corporations% whether domestic or foreign% are sub*ect to capital gains tax on the sale of shares of stoc"% in the same manner as individual taxpa$ers. +ther income items such as interest and ro$alties are taxed at various rates. (ividends received b$ a domestic or resident foreign corporation from a domestic corporation are exempt from tax. A minimum corporate income tax of :4 of the gross income as of the end of the taxable $ear is imposed on a corporation which is sub*ect to normal income tax of 9;4 beginning on the fourth taxable $ear immediatel$ following the $ear in which such corporation was registered with the 'ureau of Internal Revenue% when the minimum income tax is greater than the normal income tax for the taxable $ear.
3. An$ excess of the minimum corporate income tax over the normal income tax as computed shall be carried forward and credited against the normal income tax for the three immediatel$ succeeding taxable $ears. 0ver$ corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of an$ other corporation b$ permitting earnings and profits to accumulate instead of being divided or distributed% is taxed at the rate of 1;4 for each taxable $ear on the improperl$ accumulated taxable income.
E. In general% an emplo$er 7individual or corporation8 shall pa$ a final tax of 9;4 on the grossed-up monetar$ value of fringe benefit furnished or granted to the emplo$ee 7except ran" and file8 unless the fringe benefit is re,uired b$ nature of% or necessar$ to the trade% business or profession of the emplo$er. Local tax on certain /usinesses 1. >anufacturers% wholesalers% exporters and contractors are sub*ect to graduated taxes on certain amounts of salesFgross receipts and percentage taxes at maximum rates ranging from .9!34 to .!34 on the amounts not sub*ect to graduated taxes% depending on the place where business is conducted. )or essential commodities% the rates are 3;4 lower. Retailers are sub*ect to :4 tax if their gross receipts are PhPD;;%;;; or less and to 14 tax if in excess of PhPD;;%;;;.
:. 'an"s and other financial institutions- percentage tax at maximum rates ranging from .3;4 to .!34 depending on the localit$ of the business.
9. +thers - var$ing rates Aside from the above business taxes% there are other taxes levied in the Philippines such as<
a. Real estate tax
b. 6tamp tax on certain documents% instruments and related transactions such as issuance of shares of stoc"% evidence of indebtedness% transfer of real propert$% lease contracts% insurance policies% etc..
c. Communit$ tax
d. +verseas communications tax
National Taxes
5A2/0 A((0( TAG 3 | P a g e 1. Twelve percent 71:48 5AT is imposed on importation of goods and sale% barter% exchange or lease of goods% properties and services in the Philippines% sub*ect to certain exceptions. Boods or properties mean all tangible and intangible ob*ects% including real propert$% patents% trademar"s and similar rights and movable and personal goods. 6ervices cover performance of all "inds of services in the Philippines for a fee. 0xports are generall$ sub*ect to ;4 5AT. 5AT exempt goods include such items as boo"s% fertili.ers% livestoc" and poultr$ feeds and agricultural and marine food products in their original state.
:. Bross receipts tax on certain businesses<.
a. 'an" and other non-ban" financial intermediaries ;4 to 34 b. 2ife insurance companies 34 c. Common passenger carriers 94 d. 0lectric% gas and water utilities :4 e. +thers ranging from 94 to 9;4
9. 0xcise tax on alcohol% tobacco% petroleum and mineral products% cinematographic films% automobiles% *ewelr$% etc. at var$ing rates.
Individual Tax!ayers 1. Taxable income from emplo$ment% business% trade and exercise of profession including casual gains% profits% and pri.es of PhP1;%;;; or lessH except items of income sub*ect to final tax and special treatment% e.g. capital gains and passive income mentioned in items D and 3 below% derived b$ resident citi.ens from all sources within and without the Philippines are sub*ect to the graduated tax rates of 34 to 9:4. The top rate of 9:4 applies to taxable income in excess of PhP3;;%;;;. Resident aliens and non-resident citi.ens are sub*ect to the same graduated tax rates but onl$ for income derived from all sources within the Philippines.
:. Non-resident aliens are taxed at :34 of gross income from sources within the Philippines if their sta$ within the countr$ does not exceed 1&; da$s in the calendar $ear. +therwise% the$ are taxed on the basis of graduated rates as in 718 above.
9. Aliens who are emplo$ed b$ regional or area or regional operating head,uarters of multinational corporations% representative offices% offshore ban"ing units% petroleum service contractors and subcontractors are sub*ect to income tax at 134 of their gross income from such emplo$ers 7e.g. salaries% annuities% honoraria and allowances8.
D. Net capital gains reali.ed during each taxable $ear from the sales of shares of domestic stoc"s not traded in the Philippine 6toc" 0xchange 7P608 are taxed at the rate of 34 on the first PhP1;;%;;; gains and 1;4 on the excess over PhP1;;%;;;. )or domestic shares listed and traded in the P60% the tax is 1F: of 14 of the gross selling price or gross value in mone$ of the shares of stoc" sold. 2i"ewise% there is a tax on shares of stoc" sold% exchanged or otherwise disposed through initial public offering at the rates of 14% :4 and D4% depending on the proportion of the shares sold% exchanged or otherwise disposed to the total outstanding shares after listing of the shares of closel$ held corporations. Capital gains on sale of real propert$ are taxed at E4 of gross selling price or fair mar"et value% whichever is higher.
3. Passive income items li"e interest% dividends% ro$alties% pri.es and other winnings are also taxed at different rates. )or instance% dividends received b$ citi.ens and residents from a domestic corporation and the share of an individual partner in a taxable partnership are taxed at 1;4. =owever% the tax on such dividends shall appl$ onl$ on income earned on or after #anuar$ 1% 1&. If the dividends are paid to non-residents% the tax is :;4 for those engaged in trade or business and :34 for the others. 4 | P a g e