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Corporate Taxpayers
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Domestic corporations are taxed at 32% 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.
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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 nonresident foreign corporation) is taxed based on
gross income received.
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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 32%.
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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All 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 32% 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.
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Any 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.
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In general, an employer (individual or corporation) shall pay a
final tax of
32% 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 employer.
Local tax on certain businesses
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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.
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Banks and other financial institutions- percentage tax at maximum
rates
ranging from .50% to .75% depending on the locality of the business.
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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
and related transactions such as issuance of shares
of stock, evidence of indebtedness, transfer of real
property, lease contracts, insurance policies, etc..
c. Community tax
d. Overseas communications tax
National Taxes
VALUE ADDED TAX
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Ten percent (10%) 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 state.
2. Gross receipts tax on certain
businesses:.
a. Bank and other non-bank
financial intermediaries 0% to 5%
b. Life
insurance companies 5%
c.
Common passenger carriers 3%
d.
Electric, gas and water utilities 2%
e.
Others ranging from 3% to 30%
3. Excise tax on alcohol, tobacco, petroleum and
mineral
products, cinematographic films, automobiles, jewelry,
etc. at varying rates.
Individual Taxpayers
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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.
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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.
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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).
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Net 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.
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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.
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