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Business Taxation in Philippines
 
 
 

General

The laws governing taxation in the Philippines are contained within the National Internal Revenue Code. This code underwent substantial revision with passage of the Tax Reform Act of 1997. This law took effect on January 1, 1998.

Taxation is administered through the Bureau of Internal Revenue which comes under the Department of Finance. The chief executive of the Bureau of Internal Revenue is the Commissioner who has exclusive and original jurisdiction to interpret the provisions of the code and other tax laws. The commissioner also has the powers to decide disputed assessments, grant refunds of taxes, fees and other charges and penalties, modify payment of any internal revenue tax and abate or cancel a tax liability. Taxpayers can appeal decisions by the Commissioner directly to the Court of Tax Appeals.

The Philippines has tax treaties with many countries, including the United States, in order to minimise the effects of double taxation. The business profits of a resident of another country with whom the Philippines has a tax treaty are taxable in the Philippines only if the resident has a permanent establishment in the Philippines to which the profits are attributable.

Primary Tax Incentives

Tax Holiday

The Omnibus Investments Code grants to enterprises that have registered with the Board of Investments and that qualify under the annual Investments Priority Plan entitlements to tax holidays of either four or six years. In addition, they are granted tax credits for purchase of Philippine-made capital equipment and raw materials.

Special Economic Zones

There are over 30 special economic zones throughout the Philippines where export manufacturing firms are encouraged to start operations. Under the Philippine Export Zone Authority Law, a special economic zone registered enterprise can, in lieu of all other national and local taxes, pay a tax of 5% of its gross income.

A firm that has registered under the Omnibus Investments Code that is located and registered to do business within a special economic zone can have a tax holiday for the first four or six years of its operations, followed by a 5% tax thereafter. The exemption from national taxes covers all internal revenue taxes, including the Value Added Tax (VAT).

Corporate Taxation

Domestic corporations are taxed at 30% of annual taxable income from worldwide sources with option for 15% tax on gross income subject to certain conditions. Domestic corporations are those established under the laws of the Philippines and include foreign-owned corporations, otherwise known as subsidiaries.

A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable on Philippine-sourced income at the same rates as domestic corporations. Such foreign corporation engaged in trade or business in the Philippines (also called resident foreign corporation) is taxed based on net income with the same option to pay 15% tax on gross income. On the other hand, a foreign corporation not engaged in business or trade in the Philippines (also known as a non-resident foreign corporation) is taxed based on gross income received.

Profits remitted by a branch of a foreign corporation to its home office are taxed at the rate of 15%. However, this tax does not apply to a Philippine branch registered with PEZA. Dividends declared by a domestic corporation to its foreign parent are generally taxed at 30%. However, if the home country of the recipient corporation allows an additional credit of 17% as tax deemed paid in the Philippines, the tax is reduced to 15%. Dividends remitted to countries that do not impose a tax on offshore dividends qualify for this rate. Under the Philippine tax treaties with Netherlands, Japan, Germany, Korea and Austria, a preferential tax of 10% on branch profit remittances is granted. Furthermore, under the tax treaties with these countries, dividends paid are subject to 10% tax if the payor-subsidiary is registered with the BOI or if the beneficial owner of the dividends is a company which holds a certain percentage of the capital of the payor-subsidiary. Otherwise, the tax on dividends is 15%.


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