Philippines Tax & Business Guide - Deloitte

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Basic facts
Population 89.5m* Inflation 6.6% (2006)*
Main languages Tagalog, English, Spanish GDP per head US$1,300*
Currency Philippine peso (PHP) GDP growth 5.6% (2006)*
Economic communities Asia Pacific Economic Co-operation, Association of South-East Asian Nations, WTO
GDP sources 14.8% agriculture, 31.8% industry, 53.4% services
*Economist Intelligence Unit estimates.
Political environment

The Philippines is a pluralist democracy modelled on that of the US, with an executive presidency, a bicameral Congress and a Supreme Court that can rule on the constitutionality of government actions.

Gloria Macapagal Arroyo is the president. The next elections are due in May 2007.
Foreign trade and investment
Exports US$44.6bn (2006)* Imports US$49.4bn (2006)*
*Economist Intelligence Unit estimates.

Leading export markets: Japan, the US, the Netherlands and China.

Major exports: Electronic equipment, machinery and transport equipment, garments, optical instruments, coconut products, fruits and nuts, copper products and chemicals.

Attracting foreign investment is a government priority. Incentives include income tax holidays, credits for tax and duties on imported raw materials, and exemptions from local taxes.
Business and financing
Business forms Sole proprietorships, partnerships, corporations

Foreign firms usually set up sole proprietorships, partnerships or corporations, but may also operate through branches. The most popular corporate form is the share corporation. It has a charter limited to 50 years and is renewable for succeeding 50-year terms.

The foreign component of the total equity of a corporation generally may not exceed 40%. However, small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of US$200,000 are reserved for Philippine nationals unless the company uses advanced technology or directly employs at least 50 employees, in which case the minimum paid-in capital is US$100,000 of non-Philippine nationals.

A branch may be established by a 100% foreign-owned enterprise. The paid-up capital of the branch must be at least US$200,000, subject to waiver of this amount.

Although branches and subsidiary corporations are subject to the same registration fees and business licence and investment requirements, the applicable tax regimes differ.

The main financial centres are Metro Manila and Metro Cebu.
Labour environment
Unemployment rate 8.4% (2006)* Minimum wage Varies
*Economist Intelligence Unit estimate.

The minimum daily wage rate as of June 2005 was PHP 325 for non-agricultural workers in Metro Manila (the national capital region) and PHP 288 for agricultural workers.

Standard social security benefits include disability and retirement pensions, sickness allowance, maternity leave of 60 or 78 days and maternity pay.

Although national policy favours local skills and manpower, the state permits foreign participation in employment in line with its policy to attract foreign investment. Work permits issued to foreign workers may be obtained from the Department of Labour and presented to the Bureau of Immigration and Deportation for the issuance of a work visa.
Taxation
Corporate tax
Main rate 35%

Resident domestic corporations are taxed at a rate of 35% on worldwide income. However, resident foreign corporations, which are identified as foreign corporations engaged in a trade or business in the Philippines, are taxed on net Philippine-source income. A foreign corporation with a branch in the Philippines, whether engaged in selling, manufacturing or providing services, is taxed as a domestic corporation on its taxable income from Philippine sources.

A domestic corporation is one organised under Philippine law; a foreign corporation is a corporation organised under the laws of another country.

Non-domestic foreign corporations are taxed at 35%, but only on income from Philippine sources.

Effective January 1st 2009, the corporate income tax will be reduced to 30%. However, regional operating headquarters will be taxed at a rate of 10% of taxable income.
Individual tax
Progressive rates to 32%

Resident citizens are taxed on worldwide income; resident aliens and non-residents pay tax only on Philippine-source income. A resident is not defined in the legislation. A person who leaves the Philippines within a taxable year to reside abroad, or who establishes a home abroad with the intention of remaining there, or who mainly works and earns income abroad, is regarded as non-resident. Individual income tax is charged at progressive rates from 5% to 32%.
Capital gains
Gains are taxed as income

Capital gains are generally taxed as income. However, gains from share transactions and gains of individuals derived from real property are treated separately.

Net gains on the sale of unlisted shares are subject to a withholding tax of 5% on the first PHP 100,000, and 10% thereafter. Gains from the sale of real property located in the Philippines are subject to a 6% withholding tax on the sales price or fair market value, whichever is higher. However, individuals are exempt from tax on the sale of a primary residence, provided the proceeds are used to buy another primary residence.

A stock transaction is taxed at 0.5% on the sales price of shares listed on the Philippine Stock Exchange.
Indirect tax
VAT standard rate 12%

The sale and importation of certain goods and services are subject to a 12% value-added tax (VAT). Certain supplies are zero-rated.

Registration for VAT is mandatory for all business entities whose gross annual sales or receipts exceed PhP1, 500,000.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Companies must submit a quarterly summary of gross income. A final tax return is due on or before the 15th day of the fourth month following the end of the tax year, and the tax payment is due with the return.

Employment income of individuals is subject to deduction of tax at source. Individuals, with the exception of persons receiving only employment income, must submit a tax return on or before April 15th, and a tax payment is due with the return.
Additional tax information
Withholding taxes Dividends and Royalties 32%, Interest (on bank deposits, deposit substitutes and foreign loans) 20%, Fringe benefits 32%.
Tax treaties The Philippines has concluded more than 38 tax treaties.
Dividends Dividends received by Philippine and resident foreign companies are not subject to tax. A 10% final withholding tax applies for individuals.
Revenue protection An armÌs-length rule applies; there is no anti-haven legislation.
Groups There are no provisions for group taxation.
Incentives Pioneer companies; expanding enterprises; exporters; company headquarters; research and development.
Other taxes Bank tax, Customs and excise duties, Estate tax, Insurance premiums tax, Real property tax, Special levy on land, Stamp duty, Stock transaction tax, Tax on dealers in securities.