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Philippines

General Information

Country Name: Republic of the Philippines
Currency: Philippine Peso (PHP)
Primary Tax Authority: Bureau of Internal Revenue (BIR)

Key Legislation

  • 1987 Philippine Constitution: Establishes fundamental principles for taxation, including the power to levy taxes and the principles of equitable taxation.
  • National Internal Revenue Code (NIRC): Governs personal and corporate income taxes, VAT, and other internal revenue taxes.
  • Tax Reform for Acceleration and Inclusion (TRAIN) Law: Introduced significant changes to income tax rates and VAT.
  • Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) Law: Modifies corporate income tax and provides incentives for businesses.
  • Local Government Code of 1991: Governs local taxation and revenue generation by local government units (LGUs).

Fiscal Authority Allocation

The Philippines has a centralized tax system with the Bureau of Internal Revenue (BIR) responsible for most tax collection, while local governments have some taxing powers.

Taxes Collected by Central Authorities:

  • Personal income tax (PIT)
  • Corporate income tax (CIT)
  • Value-added tax (VAT)
  • Excise tax
  • Estate and donor’s tax

Taxes Collected by Local Authorities:

  • Property tax
  • Business tax
  • Local fees and charges

Revenue Sharing Mechanisms:

Local governments receive a share of national tax collections through the Internal Revenue Allotment (IRA) based on a formula set by law.

Corporate Income Tax (CIT)

  • Standard CIT Rate: 25% on corporate profits.
  • Reduced CIT Rate: 20% for small and medium-sized enterprises (SMEs) with annual gross income up to PHP 3 million.
  • Tax Incentives: Investment incentives under the CREATE Law include reduced CIT rates, tax holidays, and other benefits for priority sectors.
  • Loss Carryforwards: Losses can be carried forward for up to 3 years. Carrybacks are not allowed.

Value-Added Tax (VAT)

  • Standard VAT Rate: 12% on most goods and services.
  • Exemptions: Certain goods and services such as education, healthcare, and agricultural products are exempt from VAT.
  • Refunds: VAT refunds are available for exports and certain eligible businesses.

Personal Income Tax (PIT)

  • Progressive Tax Rates: Rates range from 0% to 35%. The top rate applies to income exceeding PHP 8 million annually.
  • Tax-Free Threshold: Income up to PHP 250,000 annually is tax-free.
  • Allowances: Various personal allowances are available, including for dependents and specific expenses.
  • Dividends: 10% withholding tax on dividends.
  • Capital Gains: Capital gains on the sale of shares are taxed at 15%, and gains from the sale of real property at 6%.

Additional Mandatory Contributions

Social Security Contributions:

  • Total Contribution Rate: Approximately 11% of gross salary.
  • Employer Contribution: 7.37% for social insurance, including SSS, PhilHealth, and Pag-IBIG.
  • Employee Contribution: 3.63% for social insurance.

Contribution Thresholds:

Contributions are calculated up to a ceiling adjusted annually. For 2024, the ceiling for SSS contributions is PHP 30,000 per month.

Tax Deductibility:

Social security contributions are deductible for income tax purposes.

Withholding Taxes

  • Dividends: 10% withholding tax on dividends paid to residents and non-residents.
  • Interest: 20% withholding tax on interest payments.
  • Royalties: 20% withholding tax on royalties paid to non-residents.
  • Service Fees: Payments for services provided by non-residents are subject to a 20% withholding tax.

Transfer Pricing Rules

The Philippines follows the OECD guidelines for transfer pricing. Companies must maintain documentation for related-party transactions and adhere to the arm’s length principle.

Special Tax Regimes

  • Economic Zones: Businesses in special economic zones may benefit from tax incentives, including reduced CIT rates and tax holidays.
  • Investment Incentives: The CREATE Law provides various incentives for investments in priority industries and regions.

Other Taxes

  • Excise Tax: Applied to certain goods such as alcohol, tobacco, and petroleum products at varying rates.
  • Property Tax: Levied on property owners based on property value.
  • Estate and Donor’s Tax: Estate tax is progressive up to 20%, and donor’s tax is 6%.

Double Taxation Agreements (DTAs)

The Philippines has signed 41 DTAs to avoid double taxation and provide reduced withholding tax rates on dividends, interest, and royalties.

Compliance and Reporting

  • Corporate Tax Filing Deadline: Corporate tax returns must be filed annually by April 15 of the following year.
  • VAT Filing: VAT returns are filed monthly.
  • Personal Income Tax Filing: PIT returns are due annually by April 15 of the following year.
  • Penalties for Non-Compliance: Penalties for late filing or underpayment of taxes include fines and interest on unpaid amounts.

Recent Developments

  • Tax Reform Initiatives: The Philippines continues to implement reforms under the TRAIN and CREATE laws to simplify tax administration and improve investment climate.
  • Digital Taxation: Efforts to enhance digital tax collection and administration are underway to address the growing e-commerce sector.
  • Tax Incentives: New incentives under the CREATE Law aim to attract more foreign investments and boost economic growth.

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