3 Tax Deductible Expenses with Limitations in

Philippines
Interest expense deduction shall be reduced by 33% (starting 2009) of the interest income
subjected to final withholding tax. The purpose of which is to neutralize the tax effect of interest
expense reduction and the lower final income tax rate on interest income. Please see our sample
computation on the interest expense limitation in the Philippines:

Let us assume Interest expense during the period – P20,000, and Interest
income, net of 20% final tax – P8,000. Under this, deductible interest expense
reduction will be reduced by 33% of the amount of gross income or P3,300 (33%
multiplied by the quotient of P8,000 divided by 80% (100% less 20% FWT).
Deductible interest expense would only be P16,700 (P20,000 less P3,300).

The rule provides for the following limitations on deductible representation and entertainment:

 Sellers of goods – 0.5% of net sales, net of sales returns, discounts and allowances; and
 Sellers of services – 1% of gross receipts

Deductible charitable contributions of taxpayers – corporate and individuals shall not exceed the
following rates based on their respective taxable income before such charitable contributions:

 Individual income taxpayers – 10%

 Corporate income taxpayers – 5%