PHILIPPINES Law and Practice Contributed by: Kerwin Tan, Eugene Kaw and Veronica Balbin, Tan Hassani and Counsels
Tan Hassani and Counsels 3102 Antel Global Corporate Center 3 Julia Vargas Avenue, Ortigas Center
Pasig City Philippines 1605 Tel: +63 288 021 628 Email: Admin@THCounsels.ph Web: www.THCounsels.ph
1. Aircraft and Engine Purchase and Sale 1.1 Sales Agreements 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement Sale of Aircraft and Engine Generally, the situs or location of the movable prop - erty is taken into consideration in determining whether a transaction is taxable. If the aircraft is located in the Philippines when the sale is consummated, the pro - ceeds may be considered as income derived within the Philippines by a foreign aircraft owner, and there - fore be subject to income tax. If a transaction occurs in multiple stages, income may be considered as hav - ing been sourced within the Philippines if any particu - lar stage occurring in the Philippines is so integral to the overall transaction that the business activity would not have been accomplished without it. Moreover, any person or entity who sells properties such as an aircraft or engine in the course of trade or business in the Philippines is liable for VAT. However, certain aircraft sale transactions may fall under a VAT- exempt category. The physical location of the aircraft at the time of sale is critical, even if the seller, such as a foreign aircraft owner, is a non-resident of the Philippines. An aircraft engine sales agreement does not attract documentary stamp tax.
Sale of Ownership in an Entity The sale of an ownership interest (such as shares of stock) in an entity that owns the aircraft or engine accrues capital gains tax and documentary stamp tax. If the seller is a resident of a country that has a tax treaty with the Philippines, this may potentially reduce or eliminate the capital gains tax. 1.1.2 Enforceability Against Domestic Parties The Philippine government is formalistic when it comes to documents executed outside the Philippines. While notarisation or legalisation (or lack thereof) does not generally affect the validity of a sales agreement, it is advisable for a sales agreement of an aircraft or engine executed outside the Philippines to be apostilled or legalised, in order to be enforceable in the Philippines. If any of the documents are not in English, a transla - tion should be provided, which should be apostilled or legalised as a certified true copy. 1.2 Transfer of Ownership 1.2.1 Transferring Title Transferring the title of an aircraft will require the exe - cution of a document conveying ownership (ie, a bill of sale), which will generally transfer ownership over the whole aircraft, including installed parts. However, the parties may enter into a more comprehensive sale and purchase agreement containing the terms and condi - tions of the sale, including whether or not to include installed parts. It is advisable for the new owner to lodge the bill of sale with the Civil Aviation Authority of the Philippines (CAAP) so that the aircraft’s certifi - cate of registration can be updated to reflect the new owner.
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