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.
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 nonresident 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
corporations, whether domestic or foreign, are subject to
capital gains tax on the sale of shares of stock, in the
same manner as individual taxpayers. Other income items such
as interest and royalties are taxed at various rates.
Dividends received by a domestic or resident foreign
corporation from a domestic corporation are exempt from tax.
A minimum corporate income tax of 2% of the gross income as
of the end of the taxable year is imposed on a corporation
which is subject to normal income tax of 30% beginning on
the fourth taxable year immediately following the year in
which such corporation was registered with the Bureau of
Internal Revenue, when the minimum income tax is greater
than the normal income tax for the taxable year.
excess of the minimum corporate income tax over the normal
income tax as computed shall be carried forward and credited
against the normal income tax for the three immediately
succeeding taxable years. Every corporation formed or
availed for the purpose of avoiding the income tax with
respect to its shareholders or the shareholders of any other
corporation by permitting earnings and profits to accumulate
instead of being divided or distributed, is taxed at the
rate of 10% for each taxable year on the improperly
accumulated taxable income.
general, an employer (individual or corporation) shall pay a
final tax of 30% on the grossed-up monetary value of fringe
benefit furnished or granted to the employee (except rank
and file) unless the fringe benefit is required by nature
of, or necessary to the trade, business or profession of the
tax on certain businesses
Manufacturers, wholesalers, exporters and contractors are
subject to graduated taxes on certain amounts of sales/gross
receipts and percentage taxes at maximum rates ranging from
.375% to .75% on the amounts not subject to graduated taxes,
depending on the place where business is conducted. For
essential commodities, the rates are 50% lower. Retailers
are subject to 2% tax if their gross receipts are PhP400,000
or less and to 1% tax if in excess of PhP400,000.
Banks and other financial institutions- percentage tax at
ranging from .50% to .75% depending on the locality of the
Others - varying rates
Aside from the above business taxes, there are other taxes
levied in the Philippines such as:
a. Real estate tax
b. Stamp tax on certain documents, instruments
transactions such as issuance of shares of
of indebtedness, transfer of real property, lease
insurance policies, etc..
c. Community tax
d. Overseas communications tax
VALUE ADDED TAX
percent (12%) VAT is imposed on importation of goods and
sale, barter, exchange or lease of goods, properties and
services in the Philippines, subject to certain exceptions.
Goods or properties mean all tangible and intangible
objects, including real property, patents, trademarks and
similar rights and movable and personal goods. Services
cover performance of all kinds of services in the
Philippines for a fee. Exports are generally subject to 0%
VAT. VAT exempt goods include such items as books,
fertilizers, livestock and poultry feeds and
agricultural and marine food products in their original
2. Gross receipts tax on certain businesses:.
a. Bank and other non-bank
0% to 5%
b. Life insurance companies
c. Common passenger carriers 3%
d. Electric, gas and water utilities 2%
e. Others ranging from 3% to 30%
Excise tax on alcohol, tobacco, petroleum and mineral
products, cinematographic films, automobiles, jewelry, etc.
at varying rates.
Taxable income from employment, business, trade and exercise
of profession including casual gains, profits, and prizes of
PhP10,000 or less; except items of income subject to final
tax and special treatment, e.g. capital gains and passive
income mentioned in items 4 and 5 below, 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
PhP500,000. 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 (1) 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, honoraria and allowances).
capital gains realized 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 PhP100,000 gains and 10% on the excess over
PhP100,000. 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 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.