Doing Business in the Philippines (2)

8/8/2019 Doing Business in the Philippines (2)

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Doing

Business in

the

Philippines

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2009 edition

Foreword

The Philippines has long opened its doors to embrace global

economic interconnectedness. As the world economy shrinks, that

is to say cross border transactions and investments have indeed

resulted in close trade relationship among countries, the need for a

global network which will provide consistent advice has never been

more apparent. RSM International makes a difference worldwide as

it is a global network composed of independently owned and

managed professional service firms, united by a common desire to

provide the highest quality service to their clients.

Alas, Oplas and Co. CPAs, an independent member firm of RSM

International, came up with this publication to give its clients,

prospective investors, and the general public broad insights about

the Philippines. It contains general information about laws,

legislations, and tax guidelines governing local business. Its main

goal is to provide significant yet concise information about the

potential opportunities on the different sectors of the Philippine

economy and to provide investors with the general guidelines of

starting a business locally.

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Contents

General 4

Types of Business Entities 8

Foreign Exchange Controls 14

Taxation

18

Employment 58

Accounting 68

Intellectual Property Rights (IPR) 70

Asset Valuation 73

Investing in the Philippines 74

Listing Rules in the Philippines 80

Relevant Websites89

About RSM International 91

About Alas, Oplas & Co., CPAs

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GeneralThe Philippines is one of the countries in Southeast Asia which is

located in the Pacific Rim of Fire. It is an archipelago composed of

7,100 islands and islets. The country has a total land area of 30

million hectares or 300,000 square kilometers and the three biggest

islands commonly inhabited by people are Luzon. Visayas, and

Mindanao. Its archipelagic nature makes the worlds 5th longest

coastline; it has a coastline of about 36, 300 kilometers. Three

prominent bodies of water surrounded the archipelago: the PacificOcean on the east, the South China Sea on the west, and the

Celebes Sea on the south.

One advantage of the Philippines being an archipelago is that it

offers diverse natural resources, from land to marine to mineral

resources. It is also the biggest copper producer in Southeast Asia

and producer of gold in the world. A home to 2, 145 fish species and

its 7, 100 islands boast of beautiful beaches and breathtaking

sceneries offer leisure and relaxation spots for vacationists and

tourists.

The Philippines has a tropical climate with relatively abundant

rainfall and gentle winds. There are three pronounced seasons: (1)

the wet or rainy season from June to October, (2) the cool, dry

season from November to February, (3) and the hot, dry season

from March to May.

Filipinos are divided geographically and culturally into regions, and

each regional group is recognizable by distinct traits and dialects.

The projected Philippine population as of August 1, 2007 was 88.57million. From 2000 to 2007, it has a growth rate of 2.04 percent per

year, or an absolute increase of around 1.81 million per year, net of

death and migration. As the country is physically divided, people

created their racial identity through ethnic groups. The biggest

ethnic group is Chinese Malay which comprises 91.5%, 4 % Muslim

Malay, 1.5% Chinese, and others belong to the remaining 3%.

Filipinos use the two official languages, Filipino and English. Filipino

is the native language used nationally as a language of

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communication among ethnic groups while English is also widely

used as a medium of instruction in higher education and in business

trades. There are eight major dialects spoken by majority of the

Filipinos: Tagalog, Cebuano, Ilocano, Hiligaynon or Ilonggo,

Bicolano, Waray, Pampango, and Pangasinense. Eighty-five percent

of the Filipino is predominantly Catholic while the Muslims

constitute of about 5 percent of the population. The remaining 10

percent belongs to other religious groups.

The Philippine education system is patterned after the American

education system and follows four stages of formal education: pre-

primary level, six years of primary education, four years of

secondary education, and college education.

According to the census conducted by the government in 2006,

electronic products still accounted for the majority of the export

products (62.6%), followed by articles of apparel and clothing

accessories (5.6%); cathodes and sections of cathodes refined

sugar (2.6%); woodcrafts and furniture (2 %); and petroleum

products (1.9%). Meanwhile, the top products imported by the

country are also the electronic products (47.2%), followed by

mineral fuel, lubricants, and related materials (15.4%); transport

equipment (3.9%); industry machinery and equipment (3.8 %); ironand steel (2.3%), and textile yarn, fabrics, made up articles, and

related products (2.2%).

The Philippines has a well-developed communication,

transportation, business and economic infrastructure that makes it

an ideal destination for operations of global business. It is highly

accessible to the world by air, water, and cyberspace. Most major

airlines have multi-weekly flights in and out of Metro Manila, and to

key cities in United States, Europe, and Middle East. The country

has eight (8) international airports and over 200 airports thatconnect destination across islands. In key economic areas, some of

Philippine harbors have already been developed into modern ports

and container terminal that play host to national and international

trade. Furthermore, the three main islands of the country, Luzon,

Vizayas, and Mindanao, are made accessible by roads, waterways,

and airports.

Despite more modest infrastructure capabilities, the Philippines

assures investors of efficiently communicating their business

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message to the rest of the world through world-class transmission

facilities. The countrys communication infrastructure is well-

developed and expanding, a high quality, low cost bandwidth

domestic network, with six available platforms: fixed line, cellular,

cable TV, over the air TV and radio, and the VSAT system.

Economy

The Philippine economy is considered a mixed economic system,

which means it may feature both capitalism and socialism. The

country is considered by International Monetary Fund (IMF) as a

fastest growing economy is Southeast Asia as the country posted a

real GDP growth of 7.3% in 2007. For 2008, the countrys real GDPincreased by 4.5 percent. Based on the NSO Labor Force Survey in

2008, the full year economic growth increased labor employment by

530,000. The employment created was based on services which

served as the countrys primary growth driver. In response to the

global economic crisis, the government is partnering with private

sector for infrastructure projects. Ownership of dwellings and real

estate, business process outsourcing, agriculture,

healthcare/medical tourism, and tourism are the positive prospects

that could help the economy to remain resilient and prepare for

eventual economic rebound.

Further, based on the Inflation Report of Bangko Sentral ng Pilipinas

(BSP), even though inflation decelerated further in the 4th quarter of

2008, inflation outlook is much more favorable as the emerging

forecasts showed a downward shift in the inflation path to settle the

target ranges for both 2009 and 2010, driven mainly by the

expected easing of world oil prices, the lower-than-expected

inflation outturn for Q4 2008, and the impact of transport fare

reductions. Retreating prices and commodities and the recent string

of low inflation numbers should relieve inflationary pressures and

keep the public inflations expectations at bay.

As of 4th quarter of 2008, total approved Foreign Direct Investments

(FDI) declined significantly by 79.2% to Php21.4 billion in the fourth

quarter of 2008 from a higher level of Php102.6 billion in the same

quarter a year ago. On the other hand, the 2008 annual FDI reached

Php182.7 billion, lower by 14.7 % than the Php214.1 billion

approved in 2007. Almost all (99.2%) of foreign and Filipino

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investments approved during the quarter were coursed through BOI

and PEZA.

Administration

The 1987 Constitution provides a presidential system of

government with bicameral parliament and three equal branches:

(1) the Executive, (2) the Legislative, and (3) the Judiciary. As

defined, the Legislature makes the law, the Judiciary interprets the

law (if consistent with the Constitution), and the Executiveimplements the law.

The Executive is composed of the Office of the President (OP), Vice

President, Cabinet officials of the 21 departments, about 3 or 4

dozen Presidential advisers and consultants, and several ad-hoc

task forces and commissions. The President makes Executive

Orders (EOs), administrative orders (AOs), and other ordinances.

The 21 departments and its attached agencies create and issue its

own AOs, Memorandum Circulars (MCs) and related ordinances.

The Legislative is composed of the Senate and the House of

Representatives. The upper chamber is composed of 24 Senators

elected nationwide and have a term of 6 years with one term for re-

election. The lower chamber is composed of more than 260

Congressmen/women, about 230 elected in various legislative

districts, and about 30 elected by party-list system for the

marginalized sectors and small political parties.

TheJudiciary is composed of the Supreme Court, Appellate courts

and lower courts.

Local government units (LGUs) are currently composed of 81

provinces, 131 cities, 1,497 municipalities, and almost 42,000

barangays or villages. Each of these units has its own local policy-

making councils.

The Philippine Constitution is the fundamental law of the state.

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Local Customs

The regular working day is consisted of eight (8) hours. Bankinginstitutions can be flexible with their own business hours; however,

the time should not be lesser than six (6) hours a day, anytime

between 8 a.m. to 5 p.m. Generally, commercial banks transact

from 9 a.m. to 3 p.m. and savings bank from 9 a.m. to 5p.m.

Government and private offices are open from 8 a.m. to 5 p.m.,

from Monday to Friday, with one hour lunch break from 12 p.m. to 1

p.m. Several private offices are open on Saturday.

There are eleven (11) regular holidays and (3) special non-workingholidays. These holidays are shown further on this reading.

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Types of Business Entities

Generally, there are three forms of business organization in the

Philippines.

Sole Proprietorship

Type of business entity which there is only one owner and he has

the final word taking all decisions by himself. All debts of the

business are debts of the owner and must pay from his personal

possessions. This means that the owner has unlimited liability.

To form a sole proprietorship, there is a need to apply for a business

name and register at the Department of Trade and Industry (DTI).

PartnershipType ofbusinessorganization in which two or more individuals pool

money, skills, and other resources, and share profit and loss in

accordance with terms of the partnership agreement.

In forming the latter with 3,000.00 Philippine pesos or more in

capital, you must register with the Securities and Exchange

Commission (SEC).

Corporation

A corporation is an artificial being created by operation of law,

having the right of succession and the powers, attributes and

properties expressly authorized by law or incident to its existence.

Foreign Investment Entities

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These are equity investments made by non- Philippine nationals in

the form of foreign exchange and/ or other assets actually

transferred to the Philippines and duly registered with the Central

Bank which shall assess and appraise the value of such assets other

than foreign exchange.

They are allowed to set up the following form of business entities:

Foreign Investment in Export Enterprise

An enterprises wherein a manufacturer, processor or service

(including tourism) enterprises exports sixty percent (60%) or more

of its output, or where in a trader purchases products domesticallyand exports sixty percent (60%) or more of such purchases.

The enterprise whose products and services do not fall within List A

and B of Foreign Investment Negative List is allowed up to one

hundred percent (100%) ownership.

The same shall register with the Board of Investment (BOI) and

submit the reports that may be required to ensure continuing

compliance of the export enterprise. In case when the export

enterprises fail to meet the export ratio requirement, the BOI shalladvise the Security and Exchange Commission (SEC) and Bureau of

Trade Regulation and Consumer Protection (BTRCP). Thus, both

agencies shall order the non-complying export enterprises to

reduce its sales to the domestic market to not more than forty

percent (40%) of its total production. Failure to comply with such

order without justifiable reason may subject the enterprise in

cancellation of SEC or BTRCP registration and other appropriate

penalties.

Foreign Investments in Domestic MarketEnterprises

Enterprises which produces goods for sale, or renders services to

the domestic market entirely or if exporting a portion of its output

fails to consistently export at least sixty percent (60%) or more of

such purchases.

Non-Philippine nationals may own up to one hundred percent

(100%) of domestic enterprises unless foreign ownership is

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prohibited or limited by the Constitution and existing law or the

Foreign Investment List. Moreover, a domestic market enterprise

may change its status to export enterprise if over a three-year

period; the former consistently exports sixty percent (60%) or more

of its output each year.

Audit Requirements

A statutory audit is required for all corporations with authorized

capital stock or paid-up capital exceeding P50, 000, including

branches of foreign corporations. It is also required for any

corporation whose gross sales or earnings exceed P150, 000 in any

quarter.

Incorporation of Business Entities-

Approval & Registration

Corporation

Formation procedures

The formation of corporations is governed by the Corporation Code.

However, if foreign investors are to own shares in a corporation, the

Foreign Investments Act of 1991 will also be relevant, as it places

constraints on foreign ownership in enterprises engaged in certain

activities.

Registration Requirements

Corporate existence and juridical personality commences from the

date the Securities and Exchange Commission (SEC) issues acertificate of incorporation. However, before a corporation may

commence operations in the Philippines, it must also register with

the Bureau of Internal Revenue (BIR), the Social Security System

(SSS), the Home Development Mutual Fund (HDMF), the Philippine

Health Insurance Corporation (PhilHealth), and the local

government unit where its principal office will be located.

Registration with the SEC and other government agencies usually

takes six to eight weeks in total to complete.

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To establish a corporation, between five to 15 individuals must act

as incorporators. They must each own or subscribe to at least one

share, and a majority of them must be residents of the Philippines.

At least 25% of the authorized capital stock must be subscribed at

the time of incorporation, and at least 25% of that subscribed stock

must be paid. However, when the capital stock consists of no-par

value shares, the subscriptions must be paid in full.

Once incorporation formalities are completed, the incorporators

may sell their shares. The corporation will still need to retain at

least five shareholders, as it must have at least five directors, each

of whom must hold at least one share.

Among the more important documents required to be filed with the

SEC on applying for incorporation are the articles of incorporation,

by-laws, and the treasurer's affidavit indicating that the necessary

capital has been subscribed and paid up.

Formation Costs

The cost of registering a corporation will depend on its capital

structure. Filing fees with the SEC are 0.2% of the authorized capitalstock for the corporation, while nominal filing fees will also be

payable to the relevant local government unit.

The original issue of shares of stock is also subject to a

documentary stamp tax equivalent to 0.5% of the par value of the

shares. There are also charges for the other government agencies,

but the amounts involved are minimal.

Public Disclosure of Information Requirements

The SEC requires the submission of audited financial statements by

stock corporations with paid-up capital of at least P50, 000. The

statements must also be accompanied by a statement by

management that it takes responsibility for the information and

representations in the financial statements.

In addition, corporations are required to file annual information

sheets with the SEC, providing information on the corporation's

general profile, such as the names of directors and officers,

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stockholders and capital composition, investments, treasury shares,

retained earnings, and dividends.

All information filed by corporations is available at the SEC for

public inspection.

Partnership

A partnership has a separate legal personality from that of each of

the partners. A partnership will be either general or limited,

depending on the liability of the partners. A partnership is general

when all the partners are personally liable for the contracts of the

partnership once its assets are exhausted. In a limited partnership,at least one partner has unlimited personal liability, but the liability

of other partners is limited to the amount of their capital

contributions.

A partnership is the legal entity commonly used by professionals

seeking to exercise their common profession, such as accountants

and lawyers. For tax purposes, they are referred to as "general

professional partnerships," and are taxed as conduit vehicles, rather

than as corporations as is the case for other partnerships. Under the

Civil Code, however, they are treated as any other partnership.

Partnerships are not commonly used as business entities, other

than by professional firms. In general, any person who can enter

into contractual relations may become a partner. A partnership can

also become a partner in another partnership, either with natural

persons or with other partnerships. As a matter of public policy, a

corporation may not be a partner in a partnership.

However, the SEC may allow a corporation to become a partner in a

partnership where the contract of partnership provides that it is tobe managed jointly by all the partners and that the partners are to

be collectively liable to partnership creditors. The corporation must

also be permitted to enter into a partnership by its articles of

incorporation.

A partnership with more than P3, 000 in capital must register with

the SEC. Registration follows the pattern outlined above for

corporations. The filing fee for the articles of partnership is the

greater of P1, 000 or 0.2% of the partnership capital.

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Partnerships are subject to the same record keeping and statutory

audit requirements as corporations.

Sole Proprietorship

Sole proprietors must register with the Bureau of Trade Regulations

and Consumer Protection of the Department of Trade and Industry,

as well as the appropriate local government unit. They are not

usually subject to the regulations and requirements governing

corporations and partnerships in the operation of their business.

However, if the activity involves the practice of a profession

included in the Foreign Investments Negative List (FINL),

registration of an alien individual will not be allowed.

Liquidation/Receivership

Corporations may be dissolved for any of the following causes:

Expiration of the period provided for in the articles of

incorporation

Enactment of a special law requiring dissolution

A judicial decree of forfeiture

Failure to organize and commence business within two

years from the date of incorporation

Inoperative for five years after it has commenced

operations

Voluntary dissolution, judicial or extra-judicial

Corporate assets may be liquidated by the corporation itself

through the board of directors and creditors, by receivership, or by

trusteeship. Liquidation through the board of directors takes three

years from corporate dissolution. Liquidation by receivership and

trusteeship may extend beyond three years. Under the trust-fund

doctrine, impairment of capital is prohibited, principally to protect

the corporation's creditors. Upon dissolution, the right of

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shareholders to the distribution of corporate assets is subordinated

to the rights of the creditors.

The interests of the shareholders in the remaining assets are in

proportion to their shareholdings, in the absence of any contrary

provision in the articles of incorporation and in the certificates of

stock. Holders of stocks preferred as to assets must be paid before

holders of common stock and holders of stocks preferred as to

dividends.

As an alternative to dissolution, a financially distressed company, or

creditor(s) holding at least 25% of the company's total liabilities,

may appeal to the Regional Trial Court to place the company under

corporate rehabilitation. The Court will then, within five days,

appoint a rehabilitation receiver, suspend the enforcement of claims

against the company and forbid the company from making any

payment of its outstanding obligations until the court can review

the petition.

Thus court proceedings can be tedious and lengthy, and do not

guarantee recovery. Because of these shortcomings, most secured

creditors would prefer to ensure timely recovery by enforcing their

rights over the collateral through the foreclosure of mortgages.Unsecured creditors, by contrast, tend to pursue informal "workout

agreements" with the company.

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Foreign Exchange Controls

(ForEx)

The Philippines official currency is Philippine Peso (Php), and the

Bangko Sentral ng Pilipinas (BSP) has the sole power and authorityto issue the currency within the territory of the Philippines. The BSP

issues notes and coins for circulation in the Philippines. It also

issues legal tender commemorative notes and coins.

Foreign Exchange Policy (Bangko

Sentral ng Pilipinas)

At present, the countrys exchange rate policy supports a freely

floating exchange rate system whereby the BSP leaves the

determination of the exchange rate to market forces. Under a

market-determined exchange rate framework, the BSP does not set

foreign exchange rate but instead allows the value of the peso to be

determined by the supply and demand of the foreign exchange.

Reformatory measures to deregulate the Philippine foreignexchange system were implemented sometime in 1992.Consequently, foreign exchange surrender requirements were

removed, access to foreign currency deposit facilities wasliberalized, restrictions on the repatriation of foreign investmentsand/or profit remittances were lifted, and limitations on thequantitative restrictions on current account transactions deleted.

Trading Foreign Exchange in the

Market

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Ones countys banking system plays a major role on foreign

investment. The Philippines have different banks: there are

universal and commercial banks (including international banks with

officers in the country), rural banks, and credit unions covering a

wide range of banking needs. Banking in the Philippines varies

greatly between urban and rural environments. Many rural banks of

the Philippines function on the basis of mobile phone technology.

Meanwhile, urban Philippine banks function similarly to major banks

all over the world, offering personal, business, and corporate

banking services through a wide variety of means. It is also

important to keep in mind that foreigners involved in Philippine

banking are subject to government restrictions on foreign

investment. As such, foreign investors and business people need to

research banking practices thoroughly before they begin.

In the Philippines, peso-dollar trading among Bankers Association

of the Philippines (BAP) member-banks and between these banks

and the BSP are done through the Philippine Dealing System (PDS).

Most of the BAP-member banks which participate in the peso-dollar

trading use an electronic platform that allows nearly instantaneous

transmission of price and trade confirmation. Funds transfers, or the

remittances of funds from one bank to another, either locally or

internationally, in local or foreign currencies, can be recognizedthrough teletransmission, draft, managers check, or certified check

depending on the request of the applicant.

Foreign Exchange Measures

As a continuation of the foreign exchange liberalization program,

the BSP approved on 15 January 2009 the third phase of reforms,

which include the liberalization/streamlining of the rules on foreign

borrowings of private banks for relending purposes and the

registration of inward foreign portfolio investments. The third phase

of foreign exchange regulatory reforms also includes all the

provisions that are intended to improve the monitoring of foreign

exchange flows and to formalize/clarify existing practices.

Moreover, the Monetary Board (MB) approved on 23 April 2009 the

streamlining of the documentation requirements and other reforms

on the sale of the foreign exchange by foreign exchange

dealers/money changers (FXDs/MCs). The streamlining of the

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documentation requirements will make it possible for residents that

chose not to seek BSP approval and/or registration of the

loans/investments to source their foreign exchange requirements

without necessarily compromising compliance with anti-money

laundering regulations.

Registration of Foreign

Investments with BSP

Registration with the central monetary authority - Bangko Sentralng Pilipinas [BSP] - of loans and investments accounts was lifted

except in cases where funding will be made through the bankingsystem of transactions like repatriation of capital and remittances ofdividends and profits, as well as foreign exchange requirement forfuture debt.

Further, BSP approval and registration are required in case ofoutward investments of residents in an amount in excess ofUS$6,000,000.00; per investor per year should the funds thereforebe sourced from the banking system. Foreign borrowings by thepublic sector should also be approved by the BSP.

The law allows the deposit in foreign currency accounts of anyforeign exchange received in the Philippines or abroad. It alsoallows the selling and acquisition of foreign exchange outside of thePhilippine banking system. The only restriction on foreign exchangetransaction pertains to the payment of foreign loans and/or foreigninvestments, in which case, such may only be serviced with foreignexchange purchased through authorized agent banks, if the loan isapproved/registered with the BSP or the investment is register.

Thus, in case of sales of foreign exchange for payment of foreignobligations [foreign loan or foreign investment], the purchaser shall

be required by the authorized agent bank to present proof of BSPapproval and/or registration for each loan or investment.

In case of purchase of foreign exchange for any non-trade purposes,authorized agent banks may sell foreign exchange to residentswithout need of prior BSP approval subject, however, to thefollowing:

[a] Written notarized application and supportingdocuments from the foreign exchange purchaser if theamount exceeds US$25,000.00.

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[b] Simple written application if the amount does notexceed US$25,000.00.

This limitation on non-trade purchase cannot be circumvented bysplitting the foreign exchange purchase into separate smalleramounts. Splitting of purchase of foreign exchange is presumed ifthe bank sells to any purchaser, a combined total amountexceeding US$25,000.00 within a period of fifteen (15) bankingdays.

In cases of outward payments, the law does not prescribe anyparticular currency requirements. However, all foreign exchangeproceeds from exports and invisibles should be procured through

specified currencies numbering more than twenty [20].

Philippine-peso denominated bank accounts may be opened by non-residents, whether an individual or corporate, without need tosecure BSP approval. Non-resident depositors may freely withdrawtheir accounts but non-resident bank accounts may only be creditedwith the proceeds from inward foreign exchange remittance or withincome earned in the Philippines. The maintenance of foreigncurrency deposit accounts with local banks by residents and non-residents alike is not subject to any further restrictions.

Basic Requirements for BSP

Registration of Foreign

Investments

First, as a general rule, there must be an inward remittance of FX

(Foreign Exchange), which should be sold for pesos through an AAB

(Authorized Agent Banks) as evidenced by duly accomplished BSP-

prescribed Certificate of Inward Remittance of Foreign Exchange(for cash investments) or, proof of transfer of the assets invested to

the investee/beneficiary firm in the Philippines (for investment

kind).

Second, there must be evidence of receipts of the funds/assets by

the local investee/beneficiary/seller of the investment instruments

such as Sworn Certification of such receipt or issuance of shares (for

investment in stock corporations); stockholders purchase invoice or

subscription agreement (for PSE-listed shares); accredited dealers

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Confirmation of Sales (for government securities); Certificate of

Time Deposit (for peso time deposits with tenor of 90 days or

longer); and contract/certificate of investment (for money market

instruments).

Repatriation of Profit

There are no existing restrictive regulations on the repatriation offunds related to BSP-registered foreign investments such as sales ordivestment proceeds, profits, dividends, royalties, loan paymentsand liquidation. BSP registration of foreign investments is necessaryonly in cases where the foreign exchange required to service therepatriation of capital and remittance of profits, dividends, royalties,loan payments or liquidation proceeds will be sourced from thebanking system.

Further, it bears to emphasize that investments in government orlisted securities or money market instruments or bank depositsneed not be registered with the BSP or with the designatedcustodian bank of the investor concerned.

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TAXATION

Overview of Philippine Taxation

and Philippine Tax Regulation

The National Internal Revenue Code (NIRC) of 1997 contains the

laws governing taxation in the Philippines. The Bureau of InternalRevenue (BIR), which is under the Department of Finance (DOF),

administers taxation. Its main functions consist of assessment,

collection, processing, and taxpayer assistance. The BIR is headed

by a Commissioner who has exclusive and original jurisdiction to

interpret the provisions of the Code and other tax laws.

Aside from national taxes, local government units (LGUs),

promulgates its own local tax code applicable only in its jurisdiction.

The taxpayers are required to have their books of account, eithermanual books of accounts, loose leaf, or computerized accounting

system, be registered with the BIR. The taxpayers book of accounts

must be kept in its premise at all times and shall be kept in a native

language, English, or Spanish.

TYPES OF TAXES

Individual Income Tax

Individual citizen residing in the Philippines is taxable on its income

earned from all sources within and outside the Philippines; whereas,

a non-resident citizen, a resident alien, a non-resident alien

engaged on trade or business or a non-resident alien not-engaged

in trade or business, is taxable on its income earned from all

sources within the Philippines. Individual taxpayer, except non-

resident alien not engaged in trade or business in the Philippines, is

subject to the graduated rates of 5% to 32%.

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Personal exemption of Php 50,000 is allowed as a deduction to

taxable income of individual taxpayer regardless if he/she is single

or married. Individual, whether single or married, shall be allowed a

personal exemption of Php 25,000 for each qualified dependent

child, provided that the total number of dependent for which

additional exemptions may be claimed shall not exceed four (4)

dependents. In case of married individuals, only one spouse may

claim additional exemptions for qualified dependent child. A non-

resident alien engaged in trade or business shall be allowed

personal exemption subject to reciprocity rule.

Rates of Income Tax on Citizens and Resident Aliens* (In

PhP)

Amount Subject to Tax Applicable Rate

Not over P10,000 5%

Over P10,000 but not over

P30,000

P500 + 10% of the excess over

P10,000

Over P30,000 but not overP70,000

P2,500 + 15% of the excess overP30,000

Over P70,000 but not over P

140,000

P8,500 + 20% of the excess over

P 70,000


P250,000

P22,500 + 25% of the excess

over P140,000


P500,000

P50,000 + 30% of the excess

over P250,000

Over P500,000 P125,000 + 32% of the excess

over P500,000

*Applicable to resident citizens and resident aliens whether

engaged in trade or business, practicing profession, or employed.

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Non-resident aliens are taxed at a rate of 25% of grossincome from sources within the Philippines if their staywithin the country does not exceed 180 days in a calendar

year. Otherwise, they are taxed on the basis of graduatedrates.

Foreign nationals who are employed by regional area orregional operating headquarters of multinationalcorporations, representative offices, offshore bankingunits, petroleum service contractors and subcontractors,are subject to income tax at 15% of their gross incomefrom such employers (e.g. salaries, annuities, honoraria,and allowances).

Tax Rates on Certain Passive Income Received by a Citizen,Resident Alien Individual, and Non-Resident Alien Engagedin Trade or Business.

1. Interest from any peso bank deposit, and yield or any othermonetary benefit from deposit substitutes and from trustfunds and similar arrangements; royalties, prizes, andother winnings derived from sources within the Philippinesshall be tax at a rate of 20%;

2. Royalties on books, as well as other literary works andmusical compositions is taxed at a rate of 10%;

3. Interest income received by a resident individual taxpayerfrom a depository bank under Foreign Currency DepositSystem is taxed at a rate of 7.5%;

4. Interest income from long term deposit which was pre-terminated by the holder before the fifth (5th) year shall betaxed at a rates herein to be deducted and withheld fromthe proceeds based on the length of time the instrumentwas held by the taxpayer:

Holding Period Rate

Four (4) years to less than five (5) years 5% Three (3) years to less than four (4) years 12%Less than three (3) years 20%

5. Cash and/or property dividends actually or constructivelyreceived from a domestic corporation, joint stock company,insurance or mutual fund companies or on the share of anindividual partner in the distributable net income after taxof a partnership (except general professional partnership)or on the share of individual in the net income after tax ofan association, a joint account or a joint venture or

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consortium of which he is a member or a co-venturer shallbe taxed at a rate of 10% except for non-resident alienengaged in trade or business which is taxed at a rate of

20%;6. Capital gains on sale of real property are taxed at 6% of

gross selling price or fair market value, whichever ishigher; and

7. Capital gains in sale of stocks.

Corporate Taxes

A domestic corporation, resident foreign corporation and otherentities treated as a domestic corporation for tax purposes, shall be

taxed at a rate of 30% on its taxable income starting January 2009;whereas, a non-resident foreign corporation shall be taxed at a rateof 30% on its gross income received during the year from allsources within the Philippines.

Minimum Corporate Income Tax (MCIT) on Domestic Corporations

and Resident Foreign Corporations. When the minimum income tax

is greater than the tax computed at the regular 30% corporate tax

rate, the minimum corporate income tax (MCIT) of two percent (2%)

of the gross income is levied at the end of the taxable year. MCIT is

imposed on a corporation beginning the fourth taxable yearimmediately following the year in which such corporation

commenced its business operations. A carry forward of excess

minimum tax is allowed wherein any excess of the minimum

corporate income tax over the regular income tax shall be carried

forward and credited against the regular income tax rate of the

three (3) immediately succeeding taxable years.

Tax Rates for Certain Domestic and Resident ForeignCorporate Taxpayers

1. Proprietary Educational Institutions and Hospitals shall be taxedat a rate of ten percent 10% on its taxable income.

2. International Carriers doing business in the Philippines is taxableat a rate of two and one-half percent (2 1/2%) on in Gross PhilippineBillings.

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3. Offshore Banking Units shall be subject to final tax at a rate often percent (10%).

4. Regional or Area Headquarter shall not be subject to income tax.

5. Regional or Area Operating Headquarters shall be taxed at a rateof ten percent (10%) of their taxable income.

6. An enterprise registered with Philippine Economic Zone Authorityand registered under Bases Development Act shall be taxed at arate of five percent (5%) on its gross income for its registeredactivities.

Tax Rates on Passive Income of Domestic/Resident

Corporation

Passive Income Tax rates

Dividends received from

domestic corporations

Not subject to tax

Interest on any currency bank

deposit and yield or othermonetary benefit from deposit

substitutes and from trust fund

and similar arrangements

20% of final tax

Interest from foreign currency

deposits with foreign currency

deposit units (FCDUs)

7 1/2% of final tax

Capital gains from the sale of

shares of stock not traded in the

stock exchange is subject to final

tax rates

a. Not over P100,000 5%

b. Amount in excess of

P100,000 10%

Capital Gains Realized from Sale,

Exchange or Disposition of Lands

and / or Buildings.

6%

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Preferential Tax Rates for Non-Resident Corporations

Tax Rates

Interest on foreign loans 20%

Dividends received form

domestic corporations

30%

Income derived form any foreign

currency transaction with FCDUs

and OBUs

Exempt

Capital gains from the sale of

shares of stock not traded in the

stock exchange is subject to final

tax rates

a. Not over P100,000

5%

b. Amount in excess of

P100,000 10%

Rents and other fees paid to non

resident corporate lessors of

aircraft, machinery, and other

equipment

7 1/2% on gross rentals or

fees

Rents of charter fees paid to

non-resident corporate owners ofvessels chartered by Philippine

Nationals

4 1/2% on gross rentals or

fees

Fees paid to non-resident

cinematographic film owners or

lessors

25% on gross income

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Improperly Accumulated Earnings Tax

A tax of ten percent (10%) shall be imposed to on the improperlyaccumulated earnings of a corporation, except in the case ofpublicly held corporations, banks and other non-bank financialintermediaries and insurance companies when the corporationsprofit or earnings exceeds its paid-up capital accumulates beyondthe reasonable needs of the business.

Branch Profit Remittance Tax

A branch office of a Foreign Company shall be subject to fifteenpercent (15%) tax on any profit remitted by a branch to its headoffice which shall be based on the total profits applied or earmarkedfor remittance without any deduction for the tax component.

Documentary Stamp Tax

Documentary Stamp Tax is a tax on documents, instruments, loanagreements, and papers and upon acceptance, assignment, sales,and transfer of the obligation, right and property and shall beimposed to the person making, signing, issuing, accepting, ortransferring the same whether the document is made, signed,issued, accepted, or transferred the obligation or right arises fromthe Philippine sources or the property is situated in the Philippines.

Tax Incentives

Deductibility of Expenses

There shall be allowed as deduction from gross income all theordinary and necessary expenses paid or incurred during thetaxable year in carrying on or which are directly attributable to, thedevelopment, management, operation and/or conduct of the trade,business or exercise of a profession, including:

a. A reasonable allowance for salaries, wages, and otherforms of compensation for personal services actually

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rendered, including fringe benefit furnished or grantedby the employer to the employee: wherein the finaltax has been paid;

b. A reasonable allowance for travel expenses, here andabroad, while away from home in the pursuit of trade,business or profession;

c. A reasonable allowance for rentals and/or otherpayments which are required as a condition for thecontinued use or possession, for purposes of the trade,business or profession, of property to which thetaxpayer has not taken or is not taking title or in whichhe has no equity other than that of a lessee, user orpossessor;

d. A reasonable allowance for entertainment,amusement and recreation expenses during thetaxable year, that are directly connected to thedevelopment, management and operation of thetrade, business or profession of the taxpayer, or thatare directly related to or in furtherance of the conductof his or its trade, business or exercise of a professionnot to exceed such ceilings.

e. Interest. The amount of interest paid or incurredwithin a taxable year on indebtedness in connectionwith the taxpayer's profession, trade or business shallbe allowed as deduction from gross income; however,

the taxpayer's otherwise allowable deduction forinterest expense shall be reduced by an amount equalto the thirty three percentages of the interest incomesubjected to final tax.

f. Taxes. Taxes paid or incurred within the taxable yearin connection with the taxpayer's profession, trade orbusiness, shall be allowed as deduction, except:

a. The income tax provided for under the Law;b. Income taxes imposed by authority of any foreign

country;

c. Estate and donor's taxes; andd. Taxes assessed against local benefits of a kind

tending to increase the value of the propertyassessed.

Credit against Tax for Taxes of Foreign Countries. If

the taxpayer signifies in his return his desire to have the

benefits, the tax imposed shall be credited with:

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a. Citizen and Domestic Corporation.b. Partnerships and Estates.

Limitations on Credit. The amount of the credit taken shallbe subject to each of the following limitations:

a. The amount of the credit in respect to the tax paidor incurred to any country shall not exceed thesame proportion of the tax against which suchcredit is taken, which the taxpayer's taxableincome from sources within such country bears tohis entire taxable income for the same taxableyear; and

b. The total amount of the credit shall not exceedthe same proportion of the tax against which suchcredit is taken, which the taxpayer's taxableincome from sources without the Philippinestaxable bears to his entire taxable income for thesame taxable year.

Proof of Credits. The credits provided shall be allowed

only if the taxpayer establishes the following:

a. The total amount of income derived fromsources without the Philippines;

b. The amount of income derived from eachcountry, the tax paid or incurred to which isclaimed as a credit; and

c. All other information necessary for theverification and computation of such credits.

g. Losses. Losses actually sustained during the taxableyear and not compensated for by insurance or other

forms of indemnity shall be allowed as deductions:

a. If incurred in trade, profession or business;b. Of property connected with the trade, business or

profession, if the loss arises from fires, storms,shipwreck, or other casualties, or from robbery,theft or embezzlement.

c. No loss shall be allowed as a deduction under if atthe time of the filing of the return, such loss hasbeen claimed as a deduction for estate taxpurposes in the estate tax return.

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Net Operating Loss Carry-Over. The net operating

loss of the business or enterprise for any taxable year

immediately preceding the current taxable year, which

had not been previously offset as deduction from

gross income shall be carried over as a deduction from

gross income for the next three (3) consecutive

taxable years immediately following the year of such

loss. A net operating loss carry-over shall be allowed

only if there has been no substantial change in the

ownership of the business or enterprise.

Capital Losses.The excess of the losses from sale or

exchange of capital assets over the losses from such

sales or exchange.

a. Loss from sales or Exchanges of capital assetsshall be allowed only to the extent of the gainsfrom such sales or exchange.

b. Securities becoming worthless.

Losses from Wash Sales of Stock or Securities.

a.In the case of any loss claimed to havebeen sustained from any sale or other disposition

of shares of stock or securities where it appearsthat within a period beginning thirty (30) daysbefore the date of such sale or disposition andending thirty (30) days after such date, thetaxpayer has acquired (by purchase or byexchange upon which the entire amount of gainor loss was recognized by law), or has enteredinto a contact or option so to acquire,substantially identical stock or securities, then nodeduction for the loss shall be allowed, unless the

claim is made by a dealer in stock or securitiesand with respect to a transaction made in theordinary course of the business of such dealer.

b. If the amount of stock or securitiesacquired (or covered by the contract or option toacquire) is less than the amount of stock orsecurities sold or otherwise disposed of, then theparticular shares of stock or securities, the lossform the sale or other disposition of which is notdeductible, shall be determined under rules andregulations prescribed by the Secretary of

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Finance, upon recommendation of theCommissioner.c. If the amount of stock or securities

acquired (or covered by the contract or option toacquire which) resulted in the non-deductibility ofthe loss, shall be determined under rules andregulations prescribed by the Secretary ofFinance, upon recommendation of theCommissioner.

Wagering Losses. - Losses from wagering

transactions shall be allowed only to the extent of the

gains from such transactions.

Abandonment Losses.

a. In the event a contract area where petroleumoperations are undertaken is partially or whollyabandoned, all accumulated exploration anddevelopment expenditures pertaining theretoshall be allowed as a deduction: the accumulatedexpenditures incurred in that area prior to January1, 1979 shall be allowed as a deduction only fromany income derived from the same contract area.

b. In case a producing well is subsequentlyabandoned, the unamortized costs thereof, aswell as the undepreciated costs of equipmentdirectly used therein , shall be allowed as adeduction in the year such well, equipment orfacility is abandoned by the contractor: if suchabandoned well is reentered and production isresumed, or if such equipment or facility isrestored into service, the said costs shall be

included as part of gross income in the year ofresumption or restoration and shall be amortizedor depreciated, as the case may be.

h. Bad Debts. Debts due to the taxpayer actuallyascertained to be worthless and charged off within thetaxable year except those not connected withprofession, trade or business and those sustained in atransaction entered into between related parties.

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i. Depreciation. A taxpayer shall be alloweddepreciation as a deduction for reasonable allowancefor the exhaustion, wear and tear (includingreasonable allowance for obsolescence) of propertyused in the trade or business.

Certain Methods use in computing reasonableallowance of depreciation.

a. The straight-line method;b. Declining-balance methodc. The sum-of-the-years-digit method;d. Any other method which may be prescribed by

the Secretary of Finance upon recommendation ofthe Commissioner.

j. Charitable and Other Contributions. Contributionsor gifts actually paid or made within the taxable yearto, or for the use of the Government of the Philippinesor any of its agencies or any political subdivisionthereof exclusively for public purposes, or toaccredited domestic corporation or associationsorganized and operated exclusively for religious,charitable, scientific, youth and sports development,cultural or educational purposes or for the

rehabilitation of veterans, or to social welfareinstitutions, or to non-government organizations, inaccordance with rules and regulations promulgated bythe Secretary of finance, upon recommendation of theCommissioner, no part of the net income of whichinures to the benefit of any private stockholder orindividual in an amount not in excess of ten percent(10%) in the case of an individual, and five percent (5%) in the case of a corporation, of the taxpayer'staxable income derived from trade, business orprofession.

Valuation. The amount of any charitable contribution of property

other than money shall be based on the acquisition cost of said

property.

Proof of Deductions. Contributions or gifts shall be allowable as

deductions only if verified under the rules and regulations

prescribed by the Secretary of Finance, upon recommendation of

the Commissioner.

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l. Research and Development A taxpayer may treat research

or development expenditures which are paid or incurred by him

during the taxable year in connection with his trade, business or

profession as ordinary and necessary expenses which are not

chargeable to capital account. The expenditures so treated shall be

allowed as deduction during the taxable year when paid or

incurred.

It shall not apply to:

a. Any expenditure for the acquisition or improvement ofland, or for the improvement of property to be used inconnection with research and development of acharacter which is subject to depreciation anddepletion; and

b. Any expenditure paid or incurred for the purpose ofascertaining the existence, location, extent, or qualityof any deposit of ore or other mineral, including oil orgas.

j. Pension Trusts. An employer establishing or maintaining a

pension trust to provide for the payment of reasonable pensions to

his employees shall be allowed as a deduction (in addition to the

contributions to such trust during the taxable year to cover the

pension liability accruing during the year, allowed as a deduction a

reasonable amount transferred or paid into such trust during the

taxable year in excess of such contributions, but only if such

amount (1) has not been allowed as a deduction, and (2) is

apportioned in equal parts over a period of ten (10) consecutive

years beginning with the year in which the transfer or payment is

made.

k. Optional Standard Deduction (OSD). - In lieu of the expensesallowed as deduction in computing taxable for individual and

corporate taxpayers, the taxpayer may opt to use Optional

Standard Deduction at a rate of forty percent (40%). For individual

taxpayers, the basis in computing the OSD shall be the gross

revenue or receipts for the taxable year. For corporate taxpayer,

the optional standard deduction is based on the gross income.

OSD shall be allowed to:

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a. Individual Taxpayer

1. Resident Citizen2. Non-resident Citizen3. Resident Alien4. Taxable Estate or Trust

b. Corporate Taxpayer

1. Domestic Corporation2. Resident Foreign Corporation

Special Zones and Areas

To attract foreign investments in the Philippines, the governmentcreated ECOZONES or Special Economic Zones (SEZ). TheseECOZONES or SEZ are established in selected areas with highlydeveloped or which have the potential to be developed into agro-industrial, Industrial tourist/recreational, commercial, banking,investment and financial centers. An ECOZONE may contain any orall of the following: Industrial Estates (IEs), Export Processing Zones(EPZs), Free Trade Zones, and Tourist/Recreational Centers. Entitiesregistered with Economic Zones shall be entitled to certain benefits.

Activities Eligible for PEZA Registration and Incentives

1. Export Manufacturing - manufacturing, assembly or

processing activity resulting in the exportation of at least

70% of production

2. IT (Information Technology) Service Export - IT

service activities, of which 70% of total revenues is derived

from clients abroad

3. Tourism establishment and operation within PEZA

Tourism Special Economic Zones of sports and recreation

centers, accommodation, convention, and cultural facilities

and their special interest attraction activities /

establishments, with foreign tourists as primary clientele

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4. Medical Tourism medical health services, endorsed

by the Department of Health, with foreign as primary

clientele

5. Agro-industrial Export Manufacturing processing

and or manufacturing of agricultural products resulting in

the exportation of its production

6. Agro-industrial Bio-Fuel Manufacturing

specialized manufacturing of agricultural crops and

eventual commercial processing which shall result in the

production of clean energy such as bio-fuels and the like

7. Logistics and Warehousing Services - (a) operation

of a warehouse facility for the storage, deposit,

safekeeping of goods for PEZA-registered Economic Zone

Export Manufacturing Enterprises, and or (b) importation or

local sourcing of raw materials, semi-finished goods for

resale to - or for packing / covering (including marking /

labeling) cutting or altering to customers specification,

mounting and/ or packaging into kits or marketable lots

for subsequent sale to - PEZA-registered ExportManufacturing Enterprises for use in their export

manufacturing activities, or for direct export, or for

consignment to PEZA-registered Export Manufacturing

Enterprises and eventual export.

8. Economic Zone Development and Operation:

a. Manufacturing Economic Zone Development /

Operation - development, operation and maintenance of

an economic zone for export manufacturing enterprises,

inclusive of the required infrastructure, facilities and

utilities such as light and power system, water supply and

distribution system, sewerage and drainage system,

pollution control devices, communication facilities, paved

road network, administration building.

b. IT Park Development / Operation development,

operation and maintenance of an area as a complex

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capable of providing infrastructures and other support

facilities required by IT Enterprises, as well as amenities

required by professionals and workers involved in IT

Enterprise, or easy access to such amenities.

c. Tourism Economic Zone Development / Operation

development, operation and maintenance of an

integrated resort complex, with prescribed carrying

capacities of tourist facilities and activities, such as but not

limited to, sports and recreation centers, accommodations,

convention and cultural facilities, food and beverage

outlets, commercial establishments and other special

interest and attraction activities / establishments, andprovided with roads, water supply facilities, power

distribution facilities, drainage and sewage systems and

other necessary infrastructure and public utilities.

d. Medical Tourism Economic Zone Development /

Operation development, operation and maintenance of

a Medical Tourism Park or Medical Tourism Center which

are planned and designed in accordance with the

standards of the Department of Health and the

Department of Tourism to have support facilities and

services required for health and wellness, and provided

with required infrastructure facilities and utilities.

e. Agro-Industrial Economic Zone Development /

Operation development operation and maintenance of

an agro-industrial economic zone planned and designed to

have support facilities and services required for processing

and agro-based manufacturing facilities, and provided with

the required infrastructure facilities and utilities.

f. Retirement Economic Zone Development

/Operation development. Operation, and maintenance

of a Retirement Economic Zone Park or Center, planned

and designed in accordance with the accreditation

standards of the Philippine Retirement Authority, and

provided with the required infrastructure facilities and

utilities.

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9. Facilities Providers:

a. Facilities for Manufacturing Enterprises -construction as owner /operator of factory buildings inside

a PEZA Special Economic Zone for lease to PEZA-registered

Export Manufacturing Enterprises.

b. Facilities for IT Enterprises construction as

owner/operator of buildings and other facilities inside IT

Parks which are leased to PEZA-registered IT Enterprises.

c. Retirement Facilities establishment, operation and

management of retirement facilities and other related

activities, with foreign retirees as primary clientele, duly

endorsed by the Philippine Retirement Authority, and

located in a Retirement Economic Zone.

10. Utilities establishment, operation and maintenance

of light and power systems, water supply and distribution

systems inside Special Economic Zones.

Fiscal Incentives to PEZA-Registered Economic

Zone Enterprises

1. Economic Zone Export Manufacturing Enterprise

Income Tax Holiday (ITH) 100% exemption fromcorporate income tax

o 4 years ITH for Non-pioneer Project

o 6 years ITH for Pioneer Project

ITH Extension years may be granted if the project complies with the

following criteria, (one criterion is equivalent to one ITH extension

year), provided that the total ITH entitlement period shall not

exceed eight (8) years:

a. The average net foreign exchange earnings of the project for the

first three (3) years of operations is at least US$500,000.00 and,

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b. The capital equipment to labor ratio of the project does not

exceed US$10,000.00 to 1 for the year immediately preceding the

ITH extension year being applied for.

c. The average cost of indigenous raw materials used in the

manufacture of the registered product is at least fifty per cent

(50%) of the total cost of raw materials for the preceding years prior

to the ITH extension year.

o 3 years ITH for Expansion project (ITH applies to incremental

sales)

Upon expiry of the Income Tax Holiday - 5% Special Tax onGross Income and exemption from all national and localtaxes

Tax and duty free importation of raw materials, capitalequipment, machineries and spare parts.

Exemption from wharfage dues and export tax, impost orfees

VAT zero-rating of local purchases subject to compliancewith BIR and PEZA requirements

Exemption from payment of any and all local governmentimposts, fees, licenses or taxes. However, while underIncome Tax Holiday, no exemption from real estate tax,but machineries installed and operated in the economiczone for manufacturing, processing or for industrialpurposes shall be exempt from real estate taxes for thefirst three (3) years of operation of such machineries.Production equipment not attached to real estate shall beexempt from real property taxes

Exemption from expanded withholding tax

2.Information Technology Enterprise:

Income Tax Holiday (ITH) 100% exemption fromcorporate income tax:

o 4 years ITH for Non-pioneer project

o 6 years ITH for Pioneer project

ITH Extension year may be granted if Project complies with the

following criteria (one criterion is equivalent to one ITH extension

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year), provided that the total ITH entitlement period shall not

exceed eight (8) years:

> The average net foreign exchange earnings of the project for the

first three (3) years of operations is at least US$500,000.00 and,

> The capital equipment to labor ratio of the project does not

exceed US$10,000.00 to 1 for the year immediately preceding the

ITH extension year being applied for.

o 3 years ITH for Expansion project (ITH applies to incremental

sales)

Upon expiry of the Income Tax Holiday - 5% Special Tax onGross Income and exemption from all national and localtaxes. Tax and duty free importation of equipment andparts.

Exemption from wharfage dues on import shipments ofequipment.

VAT zero-rating of local purchases of goods and services,including land-based telecommunications, electrical power,

water bills, and lease on the building, subject tocompliance with Bureau of Internal Revenues and PEZArequirements

Exemption from payment of any and all local governmentimposts, fees, licenses or taxes. However, while underIncome Tax Holiday, no exemption from real estate tax,but machineries installed and operated in the economiczone for manufacturing, processing or for industrialpurposes shall not be subject to payment of real estatetaxes for the first three (3) years of operation of suchmachineries. Production equipment not attached to the

real estate shall be exempt from real property taxes. Exemption from expanded withholding tax.

3. Tourism Economic Zone Locator Enterprise

Four (4) years of Income Tax Holiday ITH (as qualifiedunder the National Investment Priorities Plan)

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Upon expiry of the Income Tax Holiday - 5% Special Tax onGross Income and exemption from all national and localtaxes

Tax and duty-free importation of capital equipment

VAT Zero Rating on local purchases of goods and services,including land-based telecommunications, electric power,and water bills


4. Medical Tourism Enterprise

Four (4) years of Income Tax Holiday on income solelyfrom servicing foreign patients

Upon expiry of the Income Tax Holiday - 5% Special tax onGross Income upon in lieu of all national and local taxes

Tax and duty-free importation of medical equipment,including spare parts and equipment supplies, required forthe technical viability and operation of the registeredactivity/ies of the enterprise



5. Agro-Industrial Economic Zone Enterprise

Four (4) years of Income Tax Holiday

Upon expiry of the Income Tax Holiday - 5% Special tax onGross Income and exemption from all national and local

taxes. Tax and duty free importation of production equipment

and machineries, breeding stocks, farm implementsincluding spare parts and supplies of the equipment andmachineries

Exemption from export taxes, wharfage dues, impost andfees


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Exemption from payment of local government fees such asMayors Permit, Business Permit, permit on the Exercise ofprofession/Occupation/Calling, Health Certificate Fee,Sanitary Inspection Fee, and Garbage Fee

6. Economic Zone Logistics Services Enterprise

Exemption from duties and taxes on raw materials, semi-finished goods for re-sale to - or for packing/covering,cutting, altering for subsequent sale to PEZA-registeredExport Manufacturing Enterprises, for direct export or forconsignment to PEZA-registered export enterprise.

VAT Zero Rating on raw materials for checking, packing,

visual inspection, storage and shipping to be sourcedlocally.

7. Economic Zone Developer / Operator

a. Manufacturing Economic Zone Developer / Operator

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on land

owned by the Economic Zone Developer. VAT Zero rating of local purchases


b. IT Park Developer / Operator

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on landowned by the IT Park Developer

VAT Zero rating of local purchases


c. Tourism Economic Zone Developer / Operator

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on landowned by the Tourism Economic Zone Developer


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d. Medical Tourism Economic Zone Developer / Operator

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on landowned by Medical Tourism Zone Developer



e. Agro-Industrial Economic Zone Developer / Operator

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on landowned by the Agro-Industrial Economic Zone Developer



f. Retirement Economic Zone Developer / Operator

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on landowned by the Retirement Economic Zone Developer



8. Facilities Enterprises

a. Economic Zone Facilities Enterprise

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on landowned by developers



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b. IT Park Facilities Enterprise

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on landowned by developers



c. Retirement Economic Zone Facilities Enterprise

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on landowned by developers.



9. Economic Zone Utilities Enterprise

Special 5% Tax on Gross Income and exemption from allnational and local taxes, except real property tax on landowned by developers.



WITHHOLDING TAXES

Compensation

Withholding tax on compensation is imposed on the salaries, wages

and other taxable benefits received as remuneration for the

services rendered by employees for his employer under employer-

employee relationship. The employer is required to deduct the

applicable taxes on the income received by the employee and remit

the same with the BIR.

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Employees receiving purely compensation income of Minimum

Wage Earners (MWE) who work in private sector and being paid the

Statutory Minimum Wage (SMW) as fixed by the Regional Wage

Tripartite and Productivity Board (RWTPB) and National Wages and

Productivity Commission (NWPC) applicable to the place where they

are assigned shall be exempted from income tax. Holiday pay,

overtime pay, night shift differential pay and hazard pay received

by MWE is also exempted from income tax.

MWE receiving other income, such as income from conduct of trade

and business, practice or profession, except income subject to final

tax, are not exempted from income tax on their entire income

earned during the taxable year.

The following income payments are exempted from the

requirement of withholding tax on compensation:

1. Remuneration received as an incident of employment, asfollows:

a. Retirement benefits received under Republic Act

under 7641 and those received by officials andemployees of private firm, whether individual orcorporate, under a reasonable benefit planmaintained by the employer which meet thefollowing requirements:

i. The plan must be reasonable;ii. The benefit plan must be approved

by the Bureau;

iii. The retiring official or employee musthave been in the service of the sameemployer for at least ten (10) years and

is not less than fifty (50) years of age atthe time of retirement; andiv. The retiring official or employee should

not have previously availed of theprivilege under the retirement benefitplan of the same or another employer.

b. Any amount received by an official or employee orby his heir from the employer due to death,sickness or other physical disability of for anycause beyond the control of the said official or

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employee, such as retrenchment, redundancy, orcessation of business.

c. Social security benefits, retirement gratuities,

pensions and other similar benefits received byresident or non-resident citizens of the Philippinesor aliens who come to reside permanently in thePhilippines from foreign government agencies andother institutions private or public.

d. Payments of benefits due or to become due toany person residing in the Philippines under thelaw of United States administered by the UnitedStates Veterans Administrations.

e. Payments of benefits made under the socialSecurity Systems Act of 1954 as amended.

f. Benefits received from GSIS Act of 1937 asamended, and the retirement gratuity received bygovernment officials and employees.

2. Remuneration paid for agriculture3. Remuneration for domestic services4. Remuneration for casual labor not in the course of an

employers trade or business

5. Compensation for services received by a citizen or residentof the Philippines for a foreign government or aninternational organization

6. Damages7. Life Insurance

8. Amount received by the insured as a return of premium9. Compensation for injuries or sickness10. Income exempt under treaty

11. Thirteenth (13th) month pay and other benefits notexceeding Php 30,000

12.GSIS, SSS, Medicare and Other contributions

De Minimis Benefits

De minimis benefits is a privilege of relatively of small value that

are offered or furnished by the employers to its employees merely

as means of promoting the health, goodwill, contentment or

efficiency of the his employees that will not be considered as

compensation subject to withholding tax both managerial and rank

and file employees, such as follows:

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1. Monetized unused vacation leave credits of employees notexceeding ten (10) days during the year and themonetized value of leave credits paid to governmentofficials and employees;

2. Medical cash allowance to dependents of employees notexceeding P 750.00 per employee per semester or P125.00 per month;

3. Rice subsidy of P 1,500.00 or one (1) sack of 50kg. rice permonth amounting to not more than P 1,500.00;

4. Uniform and clothing allowance not exceeding P 4,000.00per annum;

5. Actual yearly medical benefits not exceeding P 10,000.00

per annum;6. Laundry allowance not exceeding P 300.00 per month;7. Employee achievement awards which must be in form of

tangible personal property other than cash or giftcertificate, with annual monetary value not exceeding P10,000.00 received by the employee under an establishedplan which does not discriminate in favor of highly paidemployees;

8. Gifts given during Christmas and major anniversarycelebrations not exceeding P 5,000.00 per employee perannum;

9. Flower, fruits, books, or similar items given to employeesunder special circumstances; and

10. Daily meal allowance for overtime work not exceedingtwenty five percent (25%) of his basic minimum wage.

The amount of de minimis benefits within the limit shall not

be considered in determining the P 30,000.00 ceiling of other

benefits excluded from gross income. Any excess of the de

minimis benefits over their respective ceilings shall be

considered part of the other benefits and the employeereceiving it will be subject to tax only on the excess amount

over P 30.000.00

EXPANDED WITHHOLDING TAX

There are certain types of income payment made by taxpayer that

are subject to expanded withholding tax. Failure to deduct and

remit the said tax will result to disallowance of the said expenses in

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computing the taxable income of the taxpayers. The taxpayer is

required to withhold these taxes and remit the same with the BIR at

the time it was paid or becomes payable, whichever comes first.

Types of Income payment and its applicable tax rates:

Income Payment Applicable Tax Rates

Professional and talents fees paid to

juridical person (lawyers, CPAs,

engineer, etc) except payment to

General Professional Partnership,

management and technicalconsultants, business and

bookkeeping agent and agencies,

fees of director who are not

employee of the company

If the current years gross

income does not exceed 720,000

10%

If the current years grossincome exceed 720,000

15%

Rentals 5%

Prime contractors/sub-contractors 2%

Gross commission or service fees ofcustoms, insurance, stocks, real

estate, immigration and commercial

brokers and fees of agents of

professional entertainers

10%

Income payment made by to 20,000

corporation

Supplier of goods

1%

Supplier of services

2%

Income payment made by top 5,000

individual taxpayer

Supplier of goods

1%

Supplier of services

2%

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Commission, rebates, discounts and

other similar considerations paid and

granted to independent and

exclusive distributors,

medical/technical and sales

representative and marketing agents

and sub-agents of multi-level

marketing companies

10%

Exemption from Expanded Withholding Tax

a. National government and its instrumentalities, includingprovincial, city or municipal government.

b. Persons enjoying tax exemption from payment of incometaxes pursuant to the provision of any law.

FRINGE BENEFIT TAX

Fringe Benefit or any goods, service, or other benefit furnished or

granted by the employer in cash or in kind, in addition to basic

salaries to managerial or supervisory employees and not rank and

file employee such as but not limited to the following;

a. Housingb. Expense Accountc. Vehicle of any kindd. Household Personnel

e. Interest on loan at less than market rate to the extent ofthe difference between the market rate and actual rategranted

f. Membership fees, dues and other expense borne by theemployer for the employee in social and athletic clubs orother similar organizations

g. Expense for foreign travelh. Holiday and vacation expenses

i. Education assistance to the employee of his dependents

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j. Life or health insurance and other non-life insurancepremium or similar amounts in excess of what the lawallows

The Fringe Benefit Tax shall be thirty two percent (32%) of the

gross-up monetary of the benefits received. The gross-up monetary

value shall be computed by dividing the monetary value of the

fringe benefit by sixty eight percent (68%).

If the fringe benefit is received by a non-resident alien individual

who is not engaged in trade or business in the Philippines, a fringe

benefit tax of twenty five percent (25%) shall be imposed on the

grossed-up monetary value of the fringe benefit. In computing forthe grossed-up monetary value, the monetary value of the fringe

benefit shall be divided by seventy five percent (75%).

In the fringe benefit is received by an alien individual employed by

regional or area headquarters of a multinational company or by

regional operating headquarters of a multinational company, or by

an alien employed by offshore banking unit of a foreign bank

established in the Philippines, or by an alien individual employed by

a service contractor or by a foreign service subcontractor engagedin petroleum operations in the Philippines and any of their Filipino

individual employees who are employed and occupying the same

position shall be subject to fifteen percent (15%) of the gross-up

monetary value. The said tax base shall be computed by dividing

the monetary value of the fringe benefit by (85%).

For employees in special economic zones, it shall be covered by the

normal rate of fringe benefit tax or the special rate of twenty five

percent (25%) or fifteen percent (15%).

BUSINESS TAX

VALUE ADDED TAX

Value Added Tax (VAT). The VAT is an indirect tax and the amount

of tax may be shifted or passed on to the buyer, transferee or

lessee of the goods, properties, or services. Twelve percent (12%)

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of the gross selling price or gross value in money is usually levied to

the goods or properties sold, bartered or exchanged.

A taxpayer shall be required to be registered as VAT taxpayer if its

sale or receipts with in the year or previous year exceed P

1,500,000.00 or a taxpayer opted to be a VAT taxpayer even if its

sales or receipt did not exceed P 1,500,000.00.

Zero-Rated Sale of Goods, properties or services is a taxable

transaction for VAT purposes, but shall not result in any output tax.

However, the input tax on purchase of goods, properties or

services, related to such zero-rated sale, shall be available as tax

credit or refund which should be applied within two (2) years afterthe close of the taxable quarter when such sales were made.

Sale of Goods subject to zero percent (0%) rate:

a. Export sales

1. The sale and actual shipment of goodsfrom the Philippines to a foreign country paid

for in foreign currency or its equivalent ingoods or services, and accounted for with therules and regulations of Bangko Sentral ngPilipinas (BSP);

2. The sale of raw material or packagingmaterial to a non-resident buyer for deliveryto a resident local export-oriented enterpriseto be used in manufacturing, processing,packing or repacking in the Philippines of thesaid buyers goods;

3. The sale of raw material or packagingmaterials to an export-oriented enterprisewhose export sales exceeds seventy percent(70%) of total annual production;4. Sale of gold to BSP;

5. Transactions considered export salesunder Executive Order No. 226, otherwiseknown a s Omnibus Investments Code of1987, and under special laws; and6. The sale of goods, supplies, equipmentand fuel to persons engaged in international

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shipping or international air transportoperations.

b. Foreign Currency Denominated Sale to a non-resident of goods, as

Documents

Doing Business in the Philippines (2)