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Tax Guide Philippines

Tax Guide Philippines

Personal Income Taxation in Philippines

As far as residents in Philippines are concerned, they are mostly taxed on their aggregate income. In other words, worldwide principle of taxation is followed in Philippines, under which residents are supposed to pay taxes on both, income sourced from within Philippines, as well as outside Philippines.

On the other hand, as far as non-residents are concerned, they are mostly taxed on income on income that has been sourced from within Philippines.

Personal Income Tax Rates in Philippines

Personal Income Tax Rates in Philippines are contingent on nature of the income itself.

Compensation Tax Rates

For residents, as well as for non-residents, the following personal income tax rates are levied, from January 2023 onwards:

  • For an income between 0 PHP (Philippine Peso) and 250,000 (Philippine Peso): PIT is levied at a rate of 0%.
  • For an income between 250,000 PHP (Philippine Peso) and 400,000 (Philippine Peso): PIT is levied at a rate of 15%.
  • For an income between 400,000 PHP (Philippine Peso) and 800,000 (Philippine Peso): Flat PIT is levied at a rate of PHP 22,500. PIT is levied at a rate of 20%.
  • For an income between 800,000 PHP (Philippine Peso) and 2,000,000 (Philippine Peso): Flat PIT is levied at a rate of PHP 102,500. PIT is levied at a rate of 25%.
  • For an income between 2,000,000 PHP (Philippine Peso) and 8,000,000 (Philippine Peso): Flat PIT is levied at a rate of PHP 402,500. PIT is levied at a rate of 30%.
  • For an income higher than 8,000,000 (Philippine Peso): Flat PIT is levied at a rate of PHP 2,202,500. PIT is levied at a rate of 35%.

Fringe Benefits Tax: Fringe Benefits Tax is also levied at a rate of 35%. This is on the grossed-up monetary value of the benefits. For non-residents, this tax is levied at a rate of 25%.

Tax Rates for Income Subject to Final Tax

For residents, as well as non-resident taxpayers that are engaged in business activities in Philippines, the maximum income tax is levied at a rate of 20%. However, for non-residents that are not engaged in business activities, the applicable rate is 25%.

Tax Rates for Business Income

This particular section of the tax regime pertains to individuals that have gross sales and receipts within the VAT threshold (i.e. PHP 3,000,000). This class of individuals can choose to be taxed on either of the following regimes:

  • A rate of 8% applied on gross sales/receipts as well as other non-operating expenses in addition to PHP 250,000, or
  • The graduated tax regime

However, it must be noted that business income that is taxed under graduated income tax is also supposed to be subject to the applicable business tax.

Corporate Income Tax in Philippines

For domestic business entities established in Philippines, worldwide principle of taxation is used. This implies that both, income sourced locally, as well as internationally is used for computing Corporate Income Tax.

On the contrary, non-resident, or foreign companies in Philippines are only supposed to pay tax on income that has been sourced from within Philippines only.

Corporate Income Tax Rate in Philippines

For domestic corporations, the following tax rates are levied in Philippines:

  • For income from all sources: Tax rate is levied at a rate of 25%.
  • On Net income from all sources of domestic corporations with total assets amounting to P100 Million, and total taxable income within the threshold of P5 Million: CIT is levied at a rate of 20%.
  • Minimum Corporate Income Tax that is levied on gross income: CIT is levied at a rate of 2%.
  • Proprietary educational institutes and non-profit entities: CIT is levied at a rate of 10%.

For resident foreign corporations, the following tax rates are levied:

  • Income of international businesses remitted in Philippines: CIT is levied at a rate of 2.5%.
  • Interest Income in the form of foreign currency: CIT is levied at a rate of 10%.
  • Regional operational earning in Philippines: CIT is levied at a rate of 10%.

For non-resident foreign corporations:

  • Income Tax is levied at a rate of 25%.
  • Reinsurance premiums are exempted from CIT.
  • Interest on foreign loans is taxed at a rate of 20%.
  • Dividend payout from domestic corporations is taxed at a rate of 15%.

Other Taxation in Philippines

  • Value Added Tax (VAT): VAT is levied as a consumption tax in Philippines at a standardized rate of 12%. This is mostly levied on the gross selling price of goods and services. However, there are certain aspects that are altogether exempted from VAT, including export related goods and services.
  • Custom Duties: Custom Duties are levied across almost all imported goods and services in Philippines. These rates are levied at a rate of 20% to 50% on almost all agricultural goods and services.
  • Excise Taxes: Excise Taxes are mostly levied on certain goods and services imported, or produced within Philippines. They are mostly levied on manufactured oil commodities, automobiles, sweetened beverages, and alcohol related products. The incidence of excise taxes on all these goods depend on the product category they are a part of.
  • Stamp Taxes: Stamp Taxes are levied in the form of documentary stamp tax (DST). It depends from document type to document type. However, it generally ranges from PHP 0 to PHP 200.
  • Capital Gains Tax: Capital Gains Tax is imposed as a net capital tax, at a flat rate of 15%.
  • Donors Tax: Donors Tax is levied at a fixed rate of 6% on gifts that exceed in value more than PHP 250,000.

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