PHILIPPINES Law and Practice Contributed by: Carina Laforteza, Joanna Marie Joson, Kristina Paola Frias and Joanna Marie Reyes, SyCip Salazar Hernandez & Gatmaitan
3. Corporations and Non-Corporate Businesses 3.1 Form of Closely Held Local Businesses Following the general way business is done in the Phil - ippines, closely held businesses would usually oper - ate in corporate form. Under the RCC, a “close” corporation is one whose articles of incorporation provide that: • all the corporation’s issued stock of all classes, exclusive of treasury shares, is held of record by not more than 20 persons; • all the issued stock of all classes is subject to specified restrictions on transfer; and • the corporation is not listed on any stock exchange or has not made any public offering of its stocks of any class. The concept of a one-person corporation was intro - duced in the RCC. 3.2 Individual and Corporate Rates As a rule, corporate practice of a profession is not permitted under Philippine law. According to the Phil - ippine Supreme Court, this rule hinges on the idea that “the ethics of any profession are based on individual responsibility, personal accountability and independ - ence, which are all lost where one verily acts as a mere agent, or alter ego, of unlicensed persons or corporations”. 3.3 Restrictions on Retention of Earnings by Closely Held Corporations There is no tax on improperly accumulated taxable income, but the RCC prohibits stock corporations from retaining surplus profits in excess of 100% of their paid-in capital stock, subject to certain excep - tions. 3.4 Taxation of Individuals on Shares in Closely Held Corporations Cash and property dividends received by citizens or resident aliens from their shares in domestic corpora - tions (including closely held corporations) are subject to a final tax of 10%, while those received by non- resident aliens engaged in trade or business in the
Philippines and non-resident aliens not engaged in trade or business in the Philippines are subject to a final tax of 20% and 25%, respectively. Stock dividends are not subject to income tax if the number of shares received is in proportion to the exist - ing shareholding of the stockholder. However, the issuance of shares through the declaration of a stock dividend is subject to DST at the rate of 75% of 1% of the par value of the shares issued. Net capital gains realised by individuals on the sale or exchange of shares in domestic corporations (includ - ing closely held corporations) not traded on the Philip - pine Stock Exchange are subject to a final tax of 15%. The sale of shares in domestic corporations outside the stock exchange is subject to DST at the rate of PHP1.50 for every PHP200 of the par value of the shares sold. 3.5 Taxation of Individuals on Shares in Public Corporations Cash and property dividends received by individu - als (citizens and resident aliens) from their shares in publicly traded corporations are subject to a final tax of 10%, while those received by non-resident aliens engaged in trade or business in the Philippines and non-resident aliens not engaged in trade or business in the Philippines are subject to a final tax of 20% and 25%, respectively. Stock dividends declared by publicly traded corpo - rations are likewise not subject to income tax if the number of shares received is in proportion to the existing shareholding of the stockholder. However, the issuance of shares through the declaration of a stock dividend is subject to DST at the rate of 75% of 1% of the par value of the shares issued. The sale of shares listed and traded on the Philip - pine stock exchange is subject to a stock transaction tax of 0.1% based on the gross selling price or gross value in money of the shares of stock sold. The sale of shares of a domestic corporation listed and traded through a foreign stock exchange is also subject to the same STT rate.
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