Philippines (the) flag Philippines (the): Business Environment

Tax rates in the Philippines

Tax Rates

Consumption Taxes

Nature of the Tax
VAT (Value-Added Tax)
Tax Rate
12%
Reduced Tax Rate
Certain items are zero-rated, including export sales, including goods exported from the Philippines, raw/packaging materials sold to nonresident buyers for delivery to resident exporters or to exporters with over 70% export sales (subject to 12% VAT upon meeting refund system conditions), goods/supplies/equipment/fuel for international shipping/air transport, services to foreign businesses paid in foreign currency, transport of passengers/cargo by domestic vessels to foreign countries, power/fuel from renewable energy, services to international shipping/air transport operators, contractor services for exporters with over 70% export sales, and local sales to entities with indirect tax exemptions under special laws/international agreements.
Other Consumption Taxes
Excise taxes are levied on wines and spirits, beer, cigarettes and tobacco products (including vaporizing products), lubricating oils and grease (including similar preparations and additives), processed gas, waxes, denatured alcohol, cinematographic films, saccharine, coal and coke, cars, non-essential goods (jewellery, yachts and other pleasure vessels), mineral products, naphtha and other similar products of distillation, asphalt, and petroleum and other fuel products.
In addition to real estate taxes, local governments impose a tax on nearly all businesses operating within their jurisdictions. Rates vary but are usually a small percentage of gross annual sales.

Return to top

Corporate Taxes

Company Tax
The rate is 25% on net income but there are some preferential rates and exemptions
Tax Rate For Foreign Companies
A domestic corporation is subject to tax on its worldwide income, whereas a foreign resident corporation is subject to tax only on Philippine-source income (at the same rates as local companies).
Non-resident foreign corporations are generally taxed on gross income received from sources within the Philippines, at the standard corporate tax rate. Interest on foreign loans is taxed at 20%. Dividends from domestic corporations are taxed at 15% if the foreign corporation's home country does not impose income tax on these dividends or allows a tax deemed paid credit of 10% (the difference between the CIT and the 15% tax on dividends).
Capital Gains Taxation
Capital gains arise from the sale or exchange of 'capital assets,' which are property held by the taxpayer but exclude inventories, real or depreciable property used in business, and property that would be included in the taxpayer's inventory at the end of the year. Capital losses are deductible only against capital gains. There are no holding period requirements for corporate capital assets. A 6% final tax applies to the higher of the gross selling price or fair market value of land or buildings not used in a corporation's business. Net capital gains from the sale of Philippine shares not traded on a local stock exchange are taxed at 15%. Sales of listed shares on a local stock exchange are subject to a 0.6% stock transaction tax if the corporation meets a minimum public ownership of 10%, otherwise, a 15% capital gains tax applies. Gains from the sale of bonds or similar instruments with a maturity of over five years are tax-exempt.
For further details, consult the dedicated page on the website of the Bureau of Internal Revenue.
Main Allowable Deductions and Tax Credits
Corporations can choose between itemised deductions or an optional standard deduction computed at 40% of gross income.
Bad debts are deductible expenses when written off (conditions apply). The allowable deduction for interest expense is reduced by an amount equal to 20% of interest income that is subject to final tax. Start-up expenses are deductible when incurred.
Charitable contributions can normally be deducted up to 5% of taxable income, although those made to certain institutions are 100% deductible, subject to conditions.
A Philippine company can claim a deduction for royalties, management service fees, and interest charges paid to foreign affiliates, provided such amounts are equal to what it would pay an unrelated entity, and the appropriate withholding taxes are withheld and remitted. A resident foreign corporation is allowed to claim allocated head office expenses as a deduction (conditions apply). To be deductible, entertainment, amusement, and recreation expenses should not exceed 0.5% of net sales for taxpayers engaged in the sale of goods or properties, or 1% of net revenue for taxpayers engaged in the sale of services.
Special deductions are allowed for certain businesses (e.g. insurance, mining, petroleum, and real estate investment trust).
Taxes can generally be deducted, except for corporate income tax, donor's taxes, and taxes imposed by authorities of any foreign country.

A net operating loss from the taxable year immediately preceding the current year, which has not yet been deducted from gross income, can be carried forward as a deduction for the next three consecutive taxable years (excluding losses during tax-exempt periods). This is allowed provided there is no substantial change in ownership, meaning 75% of the paid-up capital or nominal share value remains with the same persons. Loss carrybacks are not permitted.
Other Corporate Taxes
Local authorities impose local business taxes, which are generally based on the gross sales or gross receipts of the prior year (the rate varies depending on the location but generally shall not exceed 3%), and real property taxes, which are levied annually on the basis of a fixed proportion of the value of the real property (rate up to 1% for real property located in a province and 2% if located in a city).
A local transfer tax on real property is levied at a rate of 0.5% to 0.75% on the gross sales price or the fair market value of the property (whichever is higher) upon the transfer or sale of the property.
A final tax of 35%, payable by the employer, is imposed on the grossed-up monetary value of fringe benefits granted by the employer to managerial or supervisory personnel (including holiday and vacation expenses, housing, foreign travel expenses, expense accounts, vehicles of any kind, household personnel, interest on loans at lower than market rates, membership dues for social and athletic clubs, educational assistance, insurance).
Gratuitous transfers of property are subject to a donation tax at 6% of the fair market value of the property at the time of the donation (for the amount in excess of PHP 250,000).
A documentary stamp tax (DST) is payable at varying rates on several documents and transactions.
Employers must make monthly contributions to the social security system based on employee salaries, with a maximum contribution of PHP 2,880 for those in the highest salary bracket. Additionally, employers must contribute monthly to the Philippine Health Insurance Corporation (PHIC) and the Home Development Mutual Fund (HDMF), with maximum contributions of PHP 5,000 for PHIC and PHP 200 for HDMF for employees in the highest salary bracket.
Other Domestic Resources
Bureau of Internal Revenue

Country Comparison For Corporate Taxation

  Philippines (the) East Asia & Pacific United States Germany
Number of Payments of Taxes per Year 13.0 23.4 10.6 9.0
Time Taken For Administrative Formalities (Hours) 171.0 195.1 175.0 218.0
Total Share of Taxes (% of Profit) 43.1 33.8 36.6 48.8

Source: Doing Business, Latest available data.

Return to top

Individual Taxes

Tax Rate

Income Tax Rates vary between 0% and 35%
From PHP 0 to 250,000 0%
From PHP 250,000 to 400,000 15%
From PHP 400,000 to 800,000 20%
From PHP 800,000 to 2 million 25%
From 2 million to 8 million 30%
Over PHP 8 million 35%
Fringe Benefit tax
(levied on benefits furnished to managerial and supervisory-level employees)
35% (25% for non-resident aliens not engaged in trade or business)
Tax on business income If an individual's gross sales/receipts and other non-operating income are below PHP 3,000,000, he/she may opt to be taxed 8% tax on gross sales/receipts and other non-operating income in excess of PHP 250,000 in lieu of the standard graduated income tax rates.
Business income that is subject to progressive tax rates will also be liable for business tax, such as 12% VAT or 3% percentage tax, as applicable.
Allowable Deductions and Tax Credits
Non-deductible items for income tax purposes include: home mortgage interest, medical expenses, contributions, and other personal expenses. In any case, social security contributions, up to the prescribed amount of maximum mandatory contributions, are excluded from gross income. Minimum wage earners are exempt from the payment of income tax on their compensation income, same as for holiday pay, overtime pay, night shift differential pay, and hazard pay.

Individuals who are aliens, regardless of their residency status, and earn solely salary or compensation income, are not permitted to claim any deductions against that income.

Several expenses are allowed as deductions from gross income for individuals engaged in business or the practice of a profession, including all ordinary and necessary expenses paid or incurred during the taxable year in connection with their activity; bad debts, losses, certain taxes, charitable contributions, etc. However, the taxpayer (except for non-resident aliens) can opt for a standard deduction not exceeding 40% of the gross business or professional income in lieu of allowable deductions. Such a decision is irrevocable for the tax year for which the return is made.

Special Expatriate Tax Regime
Resident citizens are taxed on all of their income. Non-resident citizens and aliens (whether resident in the Philippines or not) are taxed only on Philippines-source income.
The applicable fringe benefits tax rate for non-resident alien not engaged in trade or business is 25%. The maximum annual social tax payable by a foreign national employee is PHP 46,200 for tax year 2024.

Return to top

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
List of double tax agreements signed by the Philippines
Withholding Taxes
Dividends received by resident corporations are tax-exempt, while those received by resident individuals are subject to a 10% withholding tax. For nonresident corporations, dividends face a 15% withholding tax if their home jurisdiction offers a tax credit of at least 10%; otherwise, it's 25%. Nonresident aliens engaged in trade or business (NRA-ETB) or not engaged in trade or business (NRA-NETB) face withholding tax rates of 20% or 25%, respectively.
Interest from Philippine currency deposits paid to a resident corporation or nonresident corporation incurs a 20% withholding tax. For resident individuals and nonresident aliens engaged in trade or business (NRA-ETB), the rate is also 20%, while for nonresident aliens not engaged in trade or business (NRA-NETB), it's 25%. Resident corporations and individuals receiving interest from transactions with depository banks under the expanded foreign currency deposit system face a 15% withholding tax, while nonresident corporations and individuals are exempt.
Royalties paid to resident corporations are subject to a 20% withholding tax, while the rate increases to 25% for payments to nonresident corporations. Individuals face a 20% final withholding tax on royalty payments, except for those from books, literary works, and musical compositions, which are taxed at 10%. However, a 25% withholding tax applies to any royalty payments made to a nonresident alien not engaged in trade or business (NRA-NETB).

The above rates may be reduced under an applicable tax treaty.

Return to top

Sources of Fiscal Information

Tax Authorities
Bureau of Internal Revenue
Bureau of Customs
Other Domestic Resources
Bureau of Internal Revenue - Tax information

Return to top

Any Comment About This Content? Report It to Us.

 

© eexpand, All Rights Reserved.
Latest Update: June 2024