Worldwide Tax Summaries--PHILIPPINES（1999-2000）(part1)（一）
Worldwide Tax Summaries--PHILIPPINES（1999-2000）(part1)（一）
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The Tax Reform Act of 1997, which extensively amended the National Internal Revenue Code, took effect on January 1,1998. The law includes new tax provisions, including the imposition of fringe benefits tax, minimum corporate income tax, and taxes on income derived under foreign currency deposits.
In May 1998 a generally peaceful and orderly national election was held, and Joseph Ejercito Estrada was elected president. He took over from former president Fide Ramos effective July 1,1998, basically continuing the economic and investment policies initiated by the latter.
With the liberalization of the foreign investments law, 100% foreign equity may be allowed in all areas of investment except finanCIAl institutions and those included in the Foreign Investment Negative List (FINL). Executive Order No.11 approved the Third FINL, which took effect on October 24,1998.
Deleted from the earlier FINL were activities related to:(a)contracts for the construction of defense-related structures and (b)private construction contracts. Further liberalized were activities of financing companies and investment houses wherein allowable foreign participation was increased from 40% to 60%.
TAXES ON CORPORATE INCOME
Domestic corporations/ %
In general, on net income from all sources (for 1999) (33% for 1999;32% effective for 2000 and thereafter)……………… 33
Minimum corporate income tax(MCIT) on gross income, beginning in the fourth taxable year form the start of business operations………… 2
Proprietary educational institutions and hospitals:
On net taxable income if gross income from unrelated trade, business and other activities does not exceed 50% of the total gross income from al sources……………… 10
On net taxable income if gross income from unrelated activities exceeds 50% of income from all sources for 1999(33% for 1999 32% effective for 2000 and thereafter) ………………………… 33
Nonstock, nonprofit (all assets and revenues used actually, directly and exclusively for educational urposes……………Exempt
Mutual life insurance companies (on gross investment income) ………………
Improperly accumulated earnings tax/An improperly accumulated earnings tax of 10% is imposed on improperly accumulated taxable income. The tax applies to every corporation formed or used for used for the purpose of avoiding 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, except publicly held
corporations, banks and nonbank finanCIAl intermediaries, and insurance companies.
Resident foreign corporations/Resident foreign corporations are taxed in the same manner as domestic corporations (except on capital gains on the sate of buildings not used in business, which are taxable as ordinary income), but only in Philippine-source income. Intentional carriers are subject to an income tax of 2.5% on their gross Philippine billings. Where there is a tax treaty, The preferential rate provided in it pplies.
Income offshore banking units (OBUs) and foreign currency deposit units (FCDUs) form other OBUs or FCDUs or form foreign currency transactions with other local commerCIAl banks (including branches of foreign banks) authorized by the Bangko Sentral ng Pilipinas(central bank) to transact business with OBUs and FCDUs, as well as interest income form foreign
currency loans granted to residents, are subject to a 10% final income tax.
Nonresident foreign corporations/In general, nonresident corporations are taxed on gross income received form sources within the hilippines at 33% in 1999 (32% effective 2000), except for reinsurance premiums, which are exempt, and on interest on foreign loans, taxed at 20%. Dividends from
domestic corporations are subject to a final withholding tax at the rate of 15% if the country in which the corporation is domiciled does not impose income tax on such dividends or allows a tax deemed paid credit of 18% for 1999 (17% effective 2000) If the recipient is a resident of a country with which the Philippines has a tax treaty, the treaty rate applies if lower Otherwise, the normal corporate rates apply.
Rentals and charter fees payable to nonresident owners of vessels chartered by Philippine nationals on leases or charters approved b the Maritime Industry Authority are subject to a final tax of 4.5%. Rentals, charter fees and other fees payable to nonresident lessors of aircraft, machinery and other equipment are subject to a final tax of 7.5%.
Regional or area headquarters of multinational corporations that do not earn or derive income from the Philippines and that act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific region and other foreign markets are not subject to tax.
Regional operating headquarters pay a tax of 10% their taxable income. A regional operating headquarters is a branch established in the Philippines by a multinational company that is engaged in general administration and planning; business planning and coordination; sourcing and procurement of raw materials and components; corporate finance advisory services;
marketing control and sales promotion; training and personnel management; logistic services; research and development services and product development; technical support and maintenance; data processing and communication; or business development.
Subcontractors (domestic or foreign) entering into a contract with a service contractor engaged in petroleum operations in the Philippines are subject to a final income tax equivalent to 8% of their gross income form the contract.
A corporation is considered resident if it is created or organized under Philippine laws or if it is engaged in trade or business within the Philippines.
Fringe benefits tax/A final tax of 33% in 1999 (32% effective 2000)m payable by the employer, is imposed on the grossed-up monetary value of fringe benefits, e.g., housing. expense accounts, vehicles of any kind, household personnel, interest on loans at lower than market rates (the current benchmark rate is 12%), membership dues for soCIAl and athletic clubs, foreign travel expensed, holiday and vacation expensed, educational
assistance, insurance, etc., furnished or granted to managerial or supervisory personnel by the employer, unless the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer.
The following fringe benefits are not subject to the tax.
1. Those authorized and exempted from tax under speCIAl laws.
2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans.
3. Those granted to rank-and-file employees.
4. Those of relatively small value.
The fringe benefits tax is payable on the calendar quarter basis and is an additional deductible expense for the employer. Fringe benefits already subjected to fringe benefits tax will no longer be included in the employees taxable income.
The grossed-up monetary value of the fringe benefit is computed by dividing the actual monetary value of the benefit by 67% for 1999 and 68% effective 2000.
Value-added tax/VAT applies to practically all sales of services and imports and sales, barter, exchange, or lease of goods or properties (tangible or intangible). The tax is equivalent to a uniform rate of 10%, based on the gross selling price of goods or properties sold or gross receipts from the sale of services. On importation of goods the basis of the tax is the value used by the Bureau of Customs in determining tariff and customs duties plus customs duties; excise taxes, if any; and other charges. Where the valuation used by the Bureau of Customs is by volume or quantity, the landed cost is the VAT basis.
Certain transactions are zero rated or exempt from VAT; for example, export sales by VAT-registered persons are zero rated, while export sales by persons who are not VAT-registered are exempt from VAT. Certain sales of services exempt from VAT are subject to percentage taxes based on gross sales, receipts or income.
Other national taxes/Aside from income tax and VAT, other internal revenue taxes imposable include excise tax, documentary stamp tax and percentage taxes.
Local government taxes/Local government units impose local(business) taxes and permit fees, which are generally based on the prior years gross sales or gross receipts.
The tax rate on branch profits is the same as on corporate profits. In general , profits remitted abroad by a branch office are subject to a 15% tax rate, based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof. Profits remitted by a
branch registered with the Philippine Economic Zone Authority (PEZA) are exempt.
Inventory valuation/Inventories are generally stated at cost or at the lower of cost or market. LIFO is not allowed for tax purposes. Generally, the inventory valuation method for tax purposes must conform with that used for book purposes.
Capital gains/Capital arise from the sale or exchange of "capital assets." Capital assets are property held by the taxpayer (whether or not connected with its trade) other than the following.
1. Inventories or property held primarily for sale to customers in the ordinary course of business.
2. Real proper or depreCIAble property used in trade or business.
3. Property of a kind that would be included in the inventory of the taxpayer if on hand at the close of the taxable year.
Capital losses are deductible only to the extent of capital gains.
There are on holding-period requirements for capital assets of
corporations. Capital gains realized from the sale, exchange or
disposition of land or buildings not actually used in the business of a corporation are subject to a final income tax of 6%. Net capital gains derived from the sale, exchange, transfer, or similar transactions of shares of stock not traded through a local stock exchange are taxed at 5% of gains not over PHP 100,000 and 10% of gains over PHP 100,000. Sales of
shares of stock listed and traded on a local stock exchange are subject to a stock transaction tax of 0.5%, based on the gross selling price.
A tax is levied on every sale, exchange, or other disposition through an initial public offering (IPO) of shares of stock in closely held corporations. A "close corporation" is any corporation of which at least 50% in value of the total outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than 20 individuals. The tax rates provided hereunder are based on the proportion of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged, or otherwise disposed of to the total outstanding shares of stock after listing on the local stock exchange.
25% or less……………………………………………………4
Over 25% but not over 33 1/3%……………………………2
Over 33 1/3% …………………………………………………1
Intercompany dividends/Dividends received by a domestic or resident foreign corporation from another domestic corporation are not subject to tax. These dividends are excluded from the taxable income of the recipient.
Dividends received by a nonresident foreign corporation from a domestic corporation are subject to a final withholding tax at the rate of 15% if the country in which the corporation is domiciled either does not impose income tax on such dividends or allows tax deemed paid credit of 18% for 1999(17% effective 2000). If the recipient is a resident of a country with which the Philippines has a tax treaty, the treaty rate applies if lower.
Otherwise, the normal corporate income tax rates (33% and 32%) apply.
Foreign income/A Philippine (domestic) corporation is taxed on worldwide income. A domestic corporation is taxed on income from foreign sources when earned or received, depending on the accounting method used by the taxpayer. Double taxation is avoided through tax treaties or by means of foreign tax credits.
Stock dividends/A Philippine corporation can distribute stock dividends tax free proportionately to all shareholders.
Other significant items/Interest on bank savings, time deposits and money market placements and royalties received by domestic or resident corporations from a domestic corporation are subject to a final tax of 20%. Interest income of domestic