BASIC TAXATION
Philippine taxes are imposed by both the national government and the local government units (City/Municipal).
1. TAX TREATIES
The Philippines has tax treaties with the following countries:
Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Hungary, India, Indonesia, Israel, Japan, Korea, Malaysia, Netherlands, New Zealand, Norway, Pakistan, Poland, Romania, Russia, Singapore, Spain, Sweden, Switzerland, Thailand, United Kingdom, United States, Vietnam.
2. NATIONAL TAXES
2. 1. Corporate Income Tax
- A domestic corporation is taxed on its net income (gross income less allowable deductions) from all sources at the rate of 30 percent.
- A resident foreign corporation, such as a branch, is taxed only on its net income from Philippine sources at the same rate as a domestic corporation.
- A non-resident foreign corporation is subject to final withholding tax on its gross income (without the benefit of deductions) from Philippine sources at the rate of 30 percent.
- A foreign corporation is considered a resident when it is engaged in trade or business in the Philippines and is licensed by the SEC to engage in trade or business in the Philippines.
(NOTE: The 30% corporate income tax was 35% prior to January 1, 2009)
Income Subject to Different Tax Treatment:
- Interest and royalties interest
- Dividends
- Branch profit
- Gains from sale of exchange of stock
- Tax on initial public offer of shares of stock
Income Taxation for Specific Industries:
- Foreign international carrier
- Non-Resident cinematographic film owner/lessor/distributor
- Non-resident lessor of aircraft or machinery and others
- Non-Resident owner of chartered vessel
- Foreign currency transactions of OBUs
- Minimum corporate income tax
- Tax on improperly accumulated earnings
2. 2. Individual Income Tax
- A resident citizen is taxed on income from all sources at progressive rates ranging from 5 percent to 32 percent of net taxable income.
- A non-resident alien engaged in trade or business in the Philippines is generally subject to tax on net income from Philippine sources at the same progressive tax rates imposed on resident aliens and citizens. A non-resident alien is deemed engaged in trade or business if he stays in the Philippines for an aggregate period of more than 180 days during any calendar year.
- A non-resident alien not engaged in trade or business in the Philippines is taxed on gross income from Philippine sources at the rate of 25 percent, withheld at source.
2. 3. Withholding of Taxes
Taxes due on the income of a non-resident alien and a non-resident foreign corporation are withheld at source. The salary and certain other income receipts of residents, such as interest and rent income, are also subject to withholding tax.
2. 4. Fringe Benefits Tax
- A final tax of 32 percent is imposed on the grossed-up monetary value of fringe benefits furnished or granted to an employee (except rank-and-file) by the employer.
- Fringe benefits tax is not imposed if the fringe benefit is required by the nature of, or necessary to the trade, business, or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer.
2. 5. Business Taxes
Value-Added Tax (VAT)
- VAT is a tax on consumption levied on the sale, barter, exchange, or lease of goods or properties and services in the Philippines, and on the importation of goods into the Philippines. A person becomes subject to the 12 percent VAT when his gross sales or receipts for the past 12 months exceed PhP1.919 million. A VAT taxpayer is allowed input VAT credits against his output VAT liability, subject to certain limitations.
Excise Taxes
- In addition to VAT, excise taxes apply to goods produced in the Philippines for domestic sale or consumption or for any other disposition, and to things imported.
- Excise taxes, which are based on the weight or volume capacity or any other physical unit of measurement of the goods, are called specific taxes. Excise taxes, which are imposed and based on the selling price or other specified value of the goods, are referred to as ad valorem taxes.
The following are subject to excise taxes:
- Distilled spirits, wines, fermented liquor
- Tobacco products, cigars and cigarettes
- Manufactured oils and other fuels
- Fireworks
- Cinematographic films
- Saccharine
- Automobiles
- Non-essential goods (e.g. jewelry, perfumes, and toilet water)
- Yachts and other vessels intended for pleasure or sports
- Mineral products and quarry resources
- Excise taxes paid on locally produced goods which are exported without return to the Philippines, whether in their original state or as ingredients or parts of any manufactured goods or products, are credited or refunded upon submission of proof of actual exportation and receipt of the corresponding foreign exchange payment.
Percentage Taxes
- Certain persons are subject to percentage taxes at rates ranging from 1 percent to 30 percent. Percentage taxes are normally imposed on gross receipts.
Among those subject to percentage taxes are the following:-
- Keepers of garages and common carriers by land, air, or water for the transport of passengers
- Entities engaged in the life insurance business
- Overseas dispatches, messages, or conversations transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless, and other communication equipment services.
- Persons or entities subject to percentage taxes are exempt from VAT. Business establishments whose gross annual sales or receipts do not exceed PhP 1.919 million are exempt from VAT but are subject to a percentage tax of 3 percent unless they elect to pay the 12 percent VAT.
Documentary Stamp Taxes
- Documentary stamp taxes must be affixed to certain documents, instruments, and papers evidencing business transactions, such as bonds, annuity policies, debentures, indemnity bonds, certificates of indebtedness, certificates issued by certain officers, certificates of profits or of interest in property or accumulations, warehousing receipts, bank checks, jai-alai and horse race tickets, drafts, bill of lading, certificates of deposits, proxies, promissory notes, power of attorney, bill of exchanges, leases of property, letter of credit, mortgage, insurance policies, pledges, fidelity bonds, deed of sale of real property, and charter parties.
Other Imposts of the National Government
- In addition to the 12 percent VAT and any applicable excise tax, importations are generally subject to customs duties.
- The Tariff and Customs Code provides for the imposition of anti-dumping duty, countervailing duty, marking duty, and discriminating duty under special circumstances.
3. LOCAL AND REAL PROPERTY TAXES
Local government units, such as provinces, cities, municipalities, and barangays, may levy taxes and impose local license fees pursuant to the Local Government Code. Furthermore, real property tax applied solely to the lands, buildings, and other improvements thereon is levied on the assessed value of the real property.
