PHILIPPINES Law and Practice Contributed by: Francis L. Fragante and Jennifer Marie G. Castro, Cruz Marcelo & Tenefrancia
• local taxes, fees and charges imposed by the LGU. By way of exception, corporations with net taxable income not exceeding PHP5 million and with total assets not exceeding PHP100 million, excluding land on which the corporation’s office, plant and equip - ment are situated during the taxable year, shall be taxed at 20% corporate income tax. Please also refer to the discussion on tax incentives in 2.1 Current Economic, Political and Business Cli- mate . 9.2 Withholding Taxes on Dividends, Interest, Etc Passive income, such as dividends or interest, is subject to withholding tax. Dividends distributed by Philippine companies to non-resident foreign corpora - tions (ie, non-resident aliens not engaged in trade or business) are generally subject to a 25% final with - holding tax. A reduced 15% rate applies if the home country exempts the dividend from tax or permits a 15% or greater credit for corporate taxes paid by the In addition to the FIA, the Omnibus Investment Code of 1987 governs foreign investments in the Philip - pines, while the granting of incentives is administered by investment promotions agencies, such as the BOI under the DTI, and the Philippine Economic Zone Authority (PEZA). BOI registered enterprises shall be entitled to incen - tives, including: • income tax holiday; • additional deduction from taxable income equal to 50% of labour expenses for five years from regis - tration; • tax and duty exemption on imported capital equip - ment and accompanying spare parts, under certain conditions; • tax credit on domestic capital equipment, subject to certain conditions; and • employment of foreign nationals in supervisory, technical or advisory positions for five years from company paying the dividend. 9.3 Tax Mitigation Strategies
registration, extendable for limited periods with certain exceptions. On the other hand, PEZA-registered enterprises are entitled to incentives available to BOI-registered enti - ties plus additional incentives of exemption from: • taxes and duties, subject to certain conditions, on merchandise, raw materials, supplies and other articles brought into the export processing zone; and • local taxes and licences, including real property taxes on production equipment and machinery. 9.4 Tax on Sale or Other Dispositions of FDI Capital gains from the sale or other disposition of shares not traded on the stock exchange, whether involving domestic or foreign corporations, are uni - formly taxed at a 15% final rate on the net capital gain. Sales of shares of stock listed and traded on a local or foreign stock exchange, other than the sale by a dealer in securities, are subject to a stock transac - tion tax of 0.1%. The scope of the stock transaction tax now includes the disposition of (i) other securities listed and traded through a local stock exchange and (ii) shares of stock of a domestic corporation listed and traded through a foreign stock exchange. 9.5 Anti-Evasion Regimes The Philippines does not have a general anti-avoid - ance rule. 10. Employment and Labour 10.1 Employment and Labour Framework The Labor Code of the Philippines (the “Labor Code”) provides for the minimum labour standards and ben - efits of employment that employers must provide or comply with and to which employees are entitled as a matter of right. It also protects employees’ rights to self-organisation and collective bargaining. Managerial and confidential employees, however, may not form or become mem - bers of labour unions. A labour union must be regis -
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