Operate Business in the Philippines

Topics: Income tax, Tax, Corporate tax Pages: 8 (2427 words) Published: May 26, 2013
How to Operate a Business in the Philippines

Chapter I
Taxes to be paid
Taxation in the Philippines
The country's taxation system is governed by the Tax Reform Act 1997, passed into law on December 11, 1997 and became effective on 01 January 1998. The law was aimed at the expanding the country's tax base and maintaining the healthy fiscal standing of the government. A. Corporate Income Taxes

1. The Domestic/Resident Foreign CorporationsRegular Income Tax Rate 32% of net taxable income. 2. Non-Resident Corporation Regular Income Tax 32% of the gross amount of Philippine-source income such as dividend, rents, royalties, compensation, and remuneration for technical services. B. Income Tax Rates as Passive Income of Domestic/Resident Corporation 1. The dividends received from domestic corporations are not subject to tax. 2. Interest on any currency bank deposit and yield or other monetary benefit from deposit substitutes and from trust fund and similar arrangements 20% of final tax 3. Interest from foreign currency deposits with foreign currency deposit units (FCDUs) 7 1/2% of final tax gains from sale or exchange of shares of stock not listed and traded in the local stock exchange 5% capital gains tax (CGT) on net gains not exceeding P 100,00 and 10% on the excess. 4. Gains from sale or exchange of land or buildings not actually used in business and treated as capital issue 6% CGT on gross selling price or fair market value, whichever is higher 5. Royalties 20% final tax

C. New Taxes for Corporation Under the Tax Reform Act of 1997 Minimum Corporate Income Tax (MCIT) - A 2% MCIT on gross income on an annual basis is imposed on corporations whose regular corporate income tax liability is less than the MCIT beginning the fourth taxable year following the year they commenced business operation. Any excess of the MCIT over the normal tax shall be carried forward and credited against the normal tax for the three (3) immediately succeeding taxable years.Fringe Benefits Tax - Fringe benefits granted to supervisory and managerial employees are subject to 32% tax on the grossed-up monetary value of the fringe benefit. Fringe benefits given by OBUs regional operating headquarters of multinational companies, petroleum contractors and subcontractors to qualified alien employees and in certain cases, to Filipino employees, are taxed at 15% of the grossed-up monetary value of the fringed benefit.Improperly Accumulated Earnings Tax - a 10% tax is imposed on the improperly accumulated earnings of a corporation, except in the case of publicly held corporations, banks, and other non-bank financial intermediaries and insurance companies. When a corporation allows its earnings or profits to accumulate beyond its reasonable needs, it shall be assumed that the purpose is to avoid tax on stockholders, unless proven to the contrary. D. Preferential Income Tax Rates for Non-Resident Corporations 1. Interest on foreign loans 20%

2. Dividends received form domestic corporations In general, 32%. This is reduced to 15% if the recipient foreign corporation is resident of a country which: Does not impose any tax on dividends received from foreign sources, or Allows a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 17% 3. Income derived form any foreign currency transaction with FCDUs and OBUs Exempt 4. Gains from sale of unlisted shares of stock in a domestic corporation 5% capital gains tax (CGT) on net gains not exceeding P100,000 and 10% on the excess 5. Rents and other fees paid to nonresident corporate lessors of aircraft, machinery and other equipment 7 1/2% on gross rentals or fees 6. Rents of charter fees paid to non-resident corporate owners of vessels chartered by Philippine Nationals 4 1/2% on gross rentals or fees 7. Fees paid to non-resident cinematographic film owners or lessors 25% on gross income E. Individual Taxation

1. Non-resident...
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