Philippines

Tax residency – A corporation is tax-resident in the Philippines if it is incorporated or has a branch in the Philippines

Basis – Corporate income tax is levied on worldwide income.

Tax rate – Philippines corporations are generally subject to a 30% corporate tax rate. The rate for Regional Operating Headquarters is 10%.

Capital gains – Capital gains are treated as ordinary income and taxed at standard rates. However, gains on the sale of shares that are not traded on a stock exchange are subject to 15% withholding tax. Gains on listed shares are taxed at 0.6% of the gross selling price. Gains from the sale of real property not used in business are subject to a final 6% withholding tax.

Dividends – Dividends received by resident entities from resident entities are not subject to tax. Dividends from foreign entities are subject to corporate tax.

Interests – Interests received from bank savings, time deposits, deposit substitutes, and money market placements from a domestic corporation are subject to a final tax of 20%, while interest derived from FCDU deposits is subject to a final tax of 15%.

Royalties – Royalties are subject to a final tax of 20%.

Withholding Taxes – Dividends paid to non-residents are subject to a 15% withholding tax, provided that the country of the recipient allows a tax credit of 15%; otherwise dividends are taxed at 30% unless it is reduced under a tax treaty. Interests and royalties paid to non-residents are subject to a 30% and 20% withholding tax, respectively, unless rate is reduced under a tax treaty. Branch profits are subject to a 15% withholding tax. Other payments to non-residents may be subject to withholding tax.

Foreign-source income – Foreign-source income is generally subject to corporate income tax when it is received in the Philippines. Double taxation is generally relieved via a tax credit or tax deduction.

Losses – Losses may be carried forward 3 years. Carryback of losses is not allowed.

Inventory - Inventory valuations are usually made at the lower of cost or market value. LIFO is not allowed for tax purposes.

Anti-avoidance rules – Transfer pricing rules are applicable to all types of transactions between related persons, whether resident or non-resident, which must be conducted at arm’s length according to the OECD’s principles and supported by relevant documentation.

There are no thin capitalization and controlled foreign company rules.

Tax credits and incentives – There are several tax incentives:

Export Companies

Full exemption from corporate tax for six years for pioneer firms and those located in less-developed areas and four years for non-pioneer firms.

Tax and duty exemption on imported spare parts and supplies for export producers with a customs bonded manufacturing warehouse exporting at least 70% of annual production, if foreign-owned, or 50%, if Filipino-owned.

Full deduction of the cost of major infrastructure undertaken by enterprises in less-developed areas.

Additional deduction of 50% of the incremental labor expense.

Ten-year exemption from taxes and duties on the importation of breeding stock and genetic materials.

Tax credit on domestic breeding stocks and genetic materials (ten years).

Exemption from wharfage, any export tax, duty, impost, or fees.

Tax credits equivalent to taxes and duties paid on purchases of raw materials, supplies, and semi-manufactured products forming part of the products for export.

Free Trade Area

6-year full exemption from corporate tax for export and free-trade enterprises, information technology (IT) enterprises, and special economic zone developers/operators (including IT buildings located in Metro Manila and IT parks) registered with PEZA.

Regional Headquarters

A regional or area headquarters established in the country as a supervisory, communications, and coordination centre for a corporation’s subsidiaries, affiliates, and branches in the Asia-Pacific region, and whose headquarters do not derive income from the Philippines, are not subject to any corporate tax nor VAT and are entitled to certain non-tax incentives.

Personal income tax – An individual may be considered a tax-resident in Philippines, if he or she stays more than 180 days in the country during a calendar year.

Tax-residents are subject to personal income tax on their worldwide income, whereas non-residents are taxed on Filipino-source income.

SRR visa holders are exempted from taxation on their pension and/or annuities earned abroad, whether they are remitted or not.

Tax-residents’ personal income is taxed at progressive rates up to 32% on income exceeding PHP 500,000. Non-residents are subject to a flat rate of 25% on their income accrued in Philippines. Expatriates employed by certain entities or industries may be taxed at a reduced rate of 15%.

Investment income earned by tax-residents is usually taxed at 20%. Except interest on residents’ deposits under the expanded foreign currency deposit system (FCDU) accounts, which is taxed at 7.5% and dividends received from resident entities, which are subject to a 10% final tax.

Capital gains from the sales of shares listed and traded in the stock exchange are taxed at 0.5% on the gross amount. Net gains derived from unlisted shares are subject to a 5% tax on the first PHP 100,000 and 10% on the excess. Immovable property gains are taxed at a 6% of the higher of its gross sales price or fair market value.

Other taxes – Real property tax is levied up to 3% of the assessed value. Transfers of immovable properties are subject to local taxes up to 0.3%. Other transfer taxes may apply for certain transactions.

Inheritances are subject to a progressive tax rate that ranges from 5% to 20%. There are no taxes on net wealth.

The sale of certain goods and services are subject to V.A.T. at a 12% rate