1. Taxation in the Philippines The country's taxation system is governed by the Tax Reform Act 1997, passed into law on December 11, 1997 and became effective on 01 January 1998. The law was aimed at the expanding the country's tax base and maintaining the healthy fiscal standing of the government. 1.1 Corporate Income Taxes Domestic/Resident Foreign Corporations 32% of net taxable income Regular Income Tax Rate Non-Resident Corporation Regular Income Tax 32% of the gross amount of Philippine-source income such as dividend, rents, royalties, compensation, and remuneration for technical services. 1.2 Income Tax Rates as Passive Income of Domestic/Resident Corporation Dividends received from domestic corporations Not subject to tax Interest on any currency bank deposit and yield or other monetary 20% of final tax benefit from deposit substitutes and from trust fund and similar arrangements Interest from foreign currency deposits with foreign currency deposit 7 1/2% of final tax units (FCDUs) gains from sale or exchange of shares of stock not listed and traded 5% capital gains tax (CGT) on net gains not exceeding P 100,00 and in the local stock exchange 10% on the excess. Gains from sale or exchange of land or buildings not actually used in 6% CGT on gross selling price or fair market value, whichever is higher business and treated as capital issue Royalties 20% final tax 1.3 New Taxes for Corporation Under the Tax Reform Act of 1997 Minimum Corporate Income Tax (MCIT) - A 2% MCIT on gross income on an annual basis is imposed on corporations whose regular corporate income tax liability is less than the MCIT beginning the fourth taxable year following the year they commenced business operation. Any excess of the MCIT over the normal tax shall be carried forward and credited against the normal tax for the three (3) immediately succeeding taxable years. Fringe Benefits Tax - Fringe benefits granted to supervisory and managerial employees are subject to 32% tax on the grossed-up monetary value of the fringe benefit. Fringe benefits given by OBUs regional operating headquarters of multinational companies, petroleum contractors and subcontractors to qualified alien employees and in certain cases, to Filipino employees, are taxed at 15% of the grossed-up monetary value of the fringed benefit. Improperly Accumulated Earnings Tax - a 10% tax is imposed on the improperly accumulated earnings of a corporation, except in the case of publicly held corporations, banks, and other non-bank financial intermediaries and insurance companies. When a corporation allows its earnings or profits to accumulate beyond its reasonable needs, it shall be assumed that the purpose is to avoid tax on stockholders, unless proven to the contrary. 1.4 Preferential Income Tax Rates for Non-Resident Corporations Interest on foreign loans 20% Dividends received form domestic corporations In general, 32%. This is reduced to 15% if the recipient foreign corporation is resident of a country which:

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Income derived form any foreign currency transaction with FCDUs and OBUs Gains from sale of unlisted shares of stock in a domestic corporation Rents and other fees paid to nonresident corporate lessors of aircraft, machinery and other equipment Rents of charter fees paid to non-resident corporate owners of vessels chartered by Philippine Nationals Fees paid to non-resident cinematographic film owners or lessors 1.5 Individual Taxation Non-resident aliens not engage in trade and business flat income tax rate Resident citizens/aliens (gainfully employed) Graduated income tax rates Who Shall File: Exempt

Does not impose any tax on dividends received from foreign sources, or Allows a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 17%

5% capital gains tax (CGT) on net gains not exceeding P100,000 and 10% on the excess 7 1/2% on gross rentals or fees 4 1/2% on gross rentals or fees 25% on gross income 25% 0%-35%

7 Stock Transaction Tax 1/2 of 1% of gross selling price is imposed on the sale. Subcontractors engaged in Petroleum operations Regional operating headquarters 10% Taxable income from authorized incentives SOURCE: How to invest in the Philippines. SOURCE: Philea rates depend on the location or site of the industrial land 2.000-10.8 Percentage Tax TYPES OF BUSINESS PERCENTAGE OF TAX RATE Banks . Married individuals shall file single return for the taxable year to include the income of both spouses.5% Gross retails or fees machinery and other equipment Offshore banking units (OBUs) and foreign 10% Income from foreign currency transactions with local commercial currency deposit units (FCDUs) authorized by banks.income from lending and financial leasing 1%.000 P250.500+15% of the excess over P50.000-60. or 5% of gross receipts depending on the maturity date of the activities instruments. COST OF INDUSTRIAL LAND AND FACTORY BUILDING 1. 7.000 but not over P250. non-resident alien not engaged in trade or business).000 over P500.000 P140.5/sqm and above 1. in Export Processing Zone $ 2. including branches of foreign banks that maybe authorized by the BSP the BSP to transact business with OBUs and FCDUs. and offshore banking units.000 but not over P140. tax exempt if maturity period is over seven years. 1.000 Over 500. 2.m Ortigas/Quezon City P 45.000 P30. Subcontractors engaged in Petroleum 8% final tax Gross income from service contract operations. are subject to the 10% VAT. 3. barter.000 P10. including any interest income from foreign currency loans granted to residents.000 P70.blogspot. and services in the Philippines.000 and the income tax on which has been correctly withheld. TAX TABLE If Taxable Income is: Tax Due is: If Taxable Income is: Tax Due is: Not over P10.000. * data as of April 2003 1. or 5% of gross receipts depending on the maturity date of the instruments.500+25% of the excess over Over P10. as well as importation of goods to the Philippines. 1.40/sqm.000/sq. petroleum service contractors and sub-contractors.500+20% of the excess over P125.6 Value Added Tax (VAT) Sale of goods. An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional or area headquarters and regional operating headquarters of multinational companies. An individual whose gross compensation income does not exceed his total personal and additional exemptions . Where it is impracticable for the spouses to file one return. 3%.000 P2.9 Income Tax Rate for Special Corporation Entity ENTITY RATe TAXABLE BASE International Carriers 2. VAT is imposed on the gross selling price (in case of sale of goods) and gross receipts (in case of sale of services).000/ sq.3 Lease rates of Lots in Export Processing Zone $ . m and above http://philippinestaxcomputation. exchange or other disposition of shares through the facilities of stock exchange.000+34% of the excess Over P70.000 5% P500+10% of the excess over P22. 3%. water and gas utilities 2% of gross receipts Domestic common carriers of passengers 3% of gross receipts International carriers 3% of gross receipts Finance companies . other properties. RATES FOR OFFICE SPACE LOCATION SELLING RATES RENTAL RATES Makati P 70. Joaquin Cunanan & Co.000 but not over P30.1 Selling Rates of Industrial Lots P 2800/sqm and above* 1. separately computing their individual income tax based on their respective taxable . An individual whose compensation derived from one year employer does not exceed P60.000 P8.000 Over P250.2 Standard Factory Bldg. each spouse may file a separate return.000 1.000+30% of the excess over Over P30. m P 400/sq. tax-exempt if maturity period is over seven years Other non-VAT registered businesses 3% of gross sales or gross receipts not exceeding P550. Life insurance companies doing business in the Philippines 5% of the total premium collected Electric. m P 550-650/sq. and 4. An individual who is exempt from income tax. 1.000 but not over P500.5% Gross Philippine Billings originating from the Philippines Non-resident foreign corporation 33% (1999) Gross income from Philippine sources 325 (2000) Non-resident owner or lessor of aircraft.1.000 Over P140.income from lending and financial leasing activities 1%.000 but not over P70.