PHILIPPINES Law and Practice Contributed by: Kerwin Tan, Eugene Kaw and Veronica Balbin, Tan Hassani and Counsels
2.4.5 Attachment by Creditors Creditors of a domestic lessee cannot attach the leased aircraft, as only properties owned by the domestic lessee can be attached to satisfy creditors’ claims. Therefore, it is imperative for the owner to immediately register its title to the aircraft in order to notify third parties that the domestic lessee does not own the aircraft and should not be made to answer for the latter’s obligations. Fortunately, due to the CAAP’s 2025 regulations (see 2.1.6 Licensing/Qualification of Lessors ), aircraft owners are already expressly identi - fied in an aircraft’s certificate of registration, separate and distinct from the identity of the aircraft’s actual operator. 2.4.6 Priority of Third Parties’ Rights Taxes, duties and fees due to the Philippine govern - ment shall take priority over a lessor’s rights under an aircraft or engine lease, including taxes due under the Philippine tax and customs code, and any liens imposed by the CAAP Director-General. The Philippine rules on the concurrence and prefer - ence of credits over specific movable property such as an aircraft or engine will apply regardless of wheth - er or not the lease is registered with the CAAP. 2.5 Insurance and Reinsurance 2.5.1 Requirement to Engage Domestic Insurance Companies Under the Philippine Civil Aviation Regulations (PCAR), an aircraft shall not be operated unless it has valid insurance covering the aircraft hull, each person, freight and mail onboard the aircraft, and third-party liability, as may be prescribed by the CAAP. While there is no requirement for the insurance to be taken with a domestic insurance company, Philippine insurance law states that authority to do business is required in order for an insurance company to trans - act. The Insurance Commissioner may allow a foreign insurance company to transact insurance business in the Philippines if there is a written power of attorney designating a Philippine resident as its general agent on whom any notice, summons and processes may be served, and consenting that service upon such
or, if executed outside the Philippines, apostilled or legalised. 2.4 Lessor’s Liabilities 2.4.1 Tax Requirements for a Foreign Lessor Generally, the income of non-resident foreign entities is taxable only if it is derived from sources within the Philippines. If a transaction occurs in multiple stages, income may be considered as having been sourced within the Philippines if any particular stage occurring in the Philippines is so integral to the overall transac - tion that the business activity would not have been accomplished without it. Rentals, charters and other fees derived by a non- resident foreign lessor of aircraft, machinery and other equipment shall be subject to a final withholding tax of 7.5% of the gross amount of the income. The payor (ie, the domestic lessee) serves as the with - holding agent and is responsible for the withholding and payment of tax. In case of failure to withhold the tax, the deficient tax shall be collected from the payor/ withholding agent (not the foreign lessor). 2.4.2 Effects of Leasing on the Residence of a Foreign Lessor With the proper transaction structuring, a foreign les - sor need not be deemed a resident, domiciled or car - rying on business as a result of its being party to a lease (or on its enforcement). 2.4.3 Engine Maintenance and Operations Merely being a party to the lease will not subject the foreign lessor to any liability in respect of aircraft or engine maintenance and operations. However, the parties may freely stipulate who shall be liable in respect of aircraft or engine maintenance and opera - tions. 2.4.4 Damage or Loss Caused by an Asset The foreign aircraft or engine owner or lessor is not lia - ble under the doctrine of strict liability merely because it is the owner or lessor. Nonetheless, insurance for third-party liability is normally required by the owner or lessor.
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