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Personal Taxation in Philippines


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.

Personal Taxation

Taxable income from employment, business, trade and exercise of profession including casual gains, profits and prizes of P10,000 or less; except items of income subject to final tax and special treatment, e.g. capital gains and passive income, derived by resident citizens from all sources within and without the Philippines are subject to the graduated tax rates of 5% to 32%. The top rate of 32% applies to taxable income in excess of P500,000. Resident aliens and non-resident citizens are subject to the same graduated tax rates but only for income derived from all sources within the Philippines.

Non-resident aliens are taxed at 25% of gross income from sources within the Philippines if their stay within the country does not exceed 180 days in the calendar year. Otherwise, they are taxed on the basis of graduated rates as in above.

Aliens who are employed by regional or area or regional operating headquarters of multinational corporations, representative offices, offshore banking units, petroleum service contractors and subcontractors are subject to income tax at 15% of their gross income from such employers (e.g. salaries, annuities, and allowances).

Capital Gains

Net capital gains realised during each taxable year from the sales of shares of domestic stocks not traded in the Philippine Stock Exchange (PSE) are taxed at the rate of 5% on the first P100,000 gains and 10% on the excess over P100,000. For domestic shares listed and traded in the PSE, the tax is 1/2 of 1% of the gross selling price or gross value in money of the shares of stock sold. Likewise, there is a tax on shares of stock sold, exchanged or otherwise disposed through initial public offering at the rates of 1%, 2% and 4%, depending on the proportion of the shares sold, exchanged or otherwise disposed to the total outstanding shares after listing of the shares of closely held corporations. Capital gains on sale of real property are taxed at 6% of gross selling price or fair market value, whichever is higher.

Passive Income

Passive income items like interest, dividends, royalties, prizes and other winnings are also taxed at different rates. For instance, dividends received by citizens and residents from a domestic corporation and the share of an individual partner in a taxable partnership are taxed at 10%. However, the tax on such dividends shall apply only on income earned on or after January 1, 1998. If the dividends are paid to non-residents, the tax is 20% for those engaged in trade or business and 25% for the others.

Fringe benefits, such as housing, expense accounts, vehicles, household personnel, membership fees and educational fees are taxable under the fringe benefits tax and are payable by the employer, who is responsible for withholding it and remitting it to the government. The fringe benefits tax is 33% (going to 32% on January 1, 2000) of the grossed-up monetary value of the fringe benefits given to the employee.