Country code – PH
Legal Basis – Civil law
Legal framework – The Corporation Code of the Philippines, Foreign Investments Act
Company form – Corporation
Liability - The liability of the shareholders for the company is limited to the amount of their shareholdings.
License - An overseas company intending to do business in the Philippines must establish a legal presence in the country by obtaining a licence to do business from the Securities and Exchange Commission (SEC). Usually, foreign companies that wish to do business in the Philippines, incorporating a subsidiary. A subsidiary can engage in the activities allowed by the SEC, as shown in its SEC-approved articles of incorporation.
Share Capital – There is a minimum US$200,000 equity capital for domestic market enterprise, or US$100,000 paid-in capital if the company is involved in advanced technology as determined by the Philippines' Department of Science and Technology (DOST) or
employs at least 50 direct Filipino employees.
At the time of incorporation, at least 25% of the authorized capital must be subscribed, and at least 25% of the subscription must be paid-up (subject to applicable minimum capitalization).
If the company intends to export more than 60% of its products, it will be incorporated as an export market enterprise, and above mentioned capital requirements will not apply. The minimum paid up capital for Export companies is PHP 5,000.
There are certain industries that require a higher amount of minimum paid-up capital, e.g. retail trade with foreign equity (at least US$2,500,000).
Shareholders – There must be at least 5 but no more than 15 incorporators, who must act as directors. Each of them has to own at least one share in the company and the majority must be Philippines residents (3 of 5). Using nominee incorporators, is a common practice. Details of shareholders are available to the public.
Directors – A Filipino subsidiary must have at least 5 directors who must be natural persons and each one must own at least one share. A majority of the directors must be Philippines residents. Details of directors are available in a public registry.
Secretary – Philippines companies must appoint a secretary, who must be a citizen and resident in the Philippines.
Registered Address – A company must have a registered office in the Philippines.
General Meeting – Generally not mandatory.
Electronic Signature – Permitted.
Re-domiciliation – Inward/outward re-domiciliation is not allowed.
Compliance – Under Philippine tax laws, corporations are required to pay internal revenue taxes and submit a tax return. Companies whose gross quarterly earnings or receipts exceed PHP150,000 must have their accounts audited and examined yearly by independent certified public accountants in the Philippines.
The SEC requires the yearly submission of the financial statements of a company.
- Shareholders not disclosed
- Directors not disclosed
- Corporate shareholders permitted
- Corporate directors permitted
- Local director required
- Secretary required
- Local secretary required
- Annual general meetings required
- Redomiciliation permitted
- Electronic signature
- Annual return
- Audited accounts
- Audited accounts exemption
- Exchange controls
- Civil law Legal basis
- 5 Minimum shareholders
- 5 Minimum directors
- USD 200,000 Minimum issued capital
- USD 200,000 Minimum paid up capital
- PHPUSDAny Capital currency
- Anywhere Location of annual general meeting
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. Carry back 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:
Full exemption from corporate tax for six years for pioneer firms and those locating 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 labour expense.
Ten-year exemption from taxes and duties on 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.
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
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- 30% Offshore Income Tax Rate
- 30% Corporate Tax Rate
- 30% Capital Gains Tax Rate
- 30% Dividends Received
- 15% Dividends Withholding Tax Rate
- 20% Interests Withholding Tax Rate
- 30% Royalties Withholding Tax Rate
- 0 Losses carryback (years)
- 3 Losses carryforward (years)
- FIFO Inventory methods permitted
- 182 Tax time (hours)
- 20 Tax payments per year
- 32% Personal Income Tax Rate
- 12% VAT Rate
- 41 Tax Treaties
The Republic of the Philippines is a Southeast Asian country, located on the Pacific Ocean and member of the ASEAN. It is formed by an archipelago made up of 7,107 islands, divided in three islands groups: Luzon, Visayas Islands and Mindanao. To the north is separated from the island of Taiwan by the Strait of Luzon, to the west from the South China Sea and Vietnam, to the south, the island of Borneo, to the south the sea of Celebes separates it from other islands of Indonesia and to the east limits with the Philippine sea. Its location in the Pacific’s fire belt and its tropical climate make it a a place prone to earthquakes and typhoons.
It has a population of over 102 million inhabitants, being the 12th most populated worldwide. In addition of 11 million Filipinos that live abroad. Its capital is Manila, located in the island of Luzon. Metro Manila is the most populated metropolitan area in the Philippines and the tenth in the world, with a population estimated at 20.5 million, which includes Quezon, its most populated city. Its official languages are English and Filipino besides 8 regional languages. Its official currency is the Philippine Peso (PHP).
The economy of the Philippines is the 35th most powerful economy in the world, with nominal GDP estimated at US $ 348 billion by 2017. The main exports are semiconductors and electronic products, transport equipment, clothing, copper products, oil, coconut oil and fruits. Its major industries are the automotive, shipbuilding, aerospace products, mining and business process outsourcing. Tourism is one of its fastest growing sectors, currently accounting for more than 10% of its GDP, with 5.3 million visitors in 2016.
Tax treaties Map
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