PHILIPPINES Law and Practice Contributed by: Kerwin Tan, Eugene Kaw and Veronica Balbin, Tan Hassani and Counsels
2.2 Lease Terms 2.2.1 Mandatory Terms for Leases Governed by English or New York Law There are no mandatory terms that are required to be included in a lease agreement governed by English or New York law that would not typically already be included in a Philippine law-governed lease agree - ment. The parties are free to stipulate the terms and conditions of their lease agreement, including their choice of law, provided that such terms and condi - tions are not contrary to law, morals, public policy or public order. 2.2.2 Tax and Withholding Gross-Up Provisions The parties are free to stipulate in their contracts which party shall shoulder the payment of taxes. Hence, the parties may include a gross-up provision, and such provision would be valid. 2.2.3 Parts Installed or Replaced After a Lease’s Execution A lease can have provisions covering parts that are installed or replaced after its execution. The proper language of the provisions should be clear and leave no doubt that such installed or replaced parts are cov - ered by the lease. If the current lease terms are insuf - ficient, the parties may also insert an addendum into the original lease agreement. It is advisable to register any such addendum with the CAAP, in order to bind third parties. 2.2.4 Risk of Title Annexation If the owner of the airframe is different from the owner of the engine, there is a risk of title annexation on the engine. It is advisable for the respective owners to register their interests in their properties with the CAAP, as such registration will serve as notice to third persons and reduce the risk of title annexation. If the owner of the engine is also the owner of the airframe, the risk of title annexation applies equally to the engine and to the airframe. 2.2.5 Recognition of the Concepts of Trust/Trustee The concept of a trust and the role of an owner trustee under a lease are recognised in the Philippines. The Philippines Civil Code expressly includes provisions
2.1.5 Taxes/Duties Payable for Physical Execution of a Lease There is no documentary stamp tax due on account of executing a lease agreement for personal property such as an aircraft or engine, whether physically or electronically. However, the rental payments received by a non-res - ident foreign lessor from a domestic lessee for the lease of an aircraft or engine are subject to a final withholding tax of 7.5% of the gross amount of the income. 2.1.6 Licensing/Qualification of Lessors As a general rule, foreign lessors are required to be licensed in order to do business with a domestic les - see. However, there are exceptions to this rule, which should be taken into account when structuring the lease. Nonetheless, even if a foreign lessor is not licensed, this does not affect the validity of the lease, but rather the remedies available to the lessor. A significant update in Philippine laws happened in 2022 when foreign ownership restrictions were lifted regarding the ownership of Philippine air operators and the recognition of foreign owners of aircrafts. In 2024, the Civil Aeronautics Board of the Philippines recognised foreign-owned Philippine air operators and allowed them to apply for and hold a licence to oper - ate public air transport services. In 2025, the CAAP followed suit and issued the implementing regulations now recognising foreign-owned Philippine air opera - tors and foreign-owned aircrafts. To implement these legislative updates, the CAAP also updated the format of an aircraft’s certificate of registration to distinguish between the identity of the aircraft operator (which must be a Philippine registered company but may have foreign shareholders) and the identity of the air - craft owner (who may be a foreigner). There is now greater security in favour of foreign les - sors or foreign owners of aircraft that are being leased and operated in the Philippines. In structuring the lease, therefore, if a foreign lessor is neither regis - tered nor licensed in the Philippines, its ownership of the aircraft is now expressly recognised and even indicated in the aircraft certificate of registration itself.
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