Philippines (the): Business Environment
Bad debts are deductible expenses when written-off (conditions apply). The allowable deduction for interest expense is reduced by an amount equal to 20% of interest income that is subject to final tax. Start-up expenses are deductible when incurred.
Charitable contributions can normally be deducted up to 5% of taxable income, although those made to certain institutions are 100% deductible, subject to conditions.
A Philippine company can claim a deduction for royalties, management service fees, and interest charges paid to foreign affiliates, provided such amounts are equal to what it would pay an unrelated entity, and the appropriate withholding taxes are withheld and remitted. A resident foreign corporation is allowed to claim allocated head office expenses as a deduction (conditions apply). To be deductible, entertainment, amusement, and recreation expenses should not exceed 0.5% of net sales for taxpayers engaged in the sale of goods or properties, or 1% of net revenue for taxpayers engaged in the sale of services.
Special deductions are allowed for certain businesses (e.g. insurance, mining, petroleum, and real estate investment trust).
Net operating losses can be carried forward up to three years unless the company enjoys a tax incentive or a tax exemption (net operating loss for the taxable years 2020 and 2021 may be carried over for the next five consecutive taxable years following such loss). Losses cannot be carried forward in the case of a significant change in the ownership structure of the company. The carryback of losses is not permitted.
Taxes can generally be deducted, except for corporate income tax, donor's taxes, and taxes imposed by authorities of any foreign country.
A final tax of 35%, payable by the employer, is imposed on the grossed-up monetary value of fringe benefits granted by the employer to managerial or supervisory personnel (including holiday and vacation expenses, housing, foreign travel expenses, expense accounts, vehicles of any kind, household personnel, interest on loans at lower than market rates, membership dues for social and athletic clubs, educational assistance, insurance).
Gratuitous transfers of property are subject to a donor’s tax at 6% of the fair market value of the property at the time of the donation (for the amount in excess of PHP 250,000).
A documentary stamp tax (DST) is payable at varying rates on several documents and transactions.
Social security contributions are composed of the Social Security System (SSS - capped at PHP 1,700/month plus a maximum of PHP 425 mandatory provident fund under the “Workers’ Investment And Savings Program”), Home Development Mutual Fund (HDMF - generally up to PHP 100/month), and Philippine Health Corporation (PHIC - generally up to PHP 900/month).
Philippines (the) | East Asia & Pacific | United States | Germany | |
Number of Payments of Taxes per Year | 13.0 | 23.4 | 10.6 | 9.0 |
Time Taken For Administrative Formalities (Hours) | 171.0 | 195.1 | 175.0 | 218.0 |
Total Share of Taxes (% of Profit) | 43.1 | 33.8 | 36.6 | 48.8 |
Source: Doing Business, Latest available data.
Income Tax | Rates vary between 0% and 35% |
From PHP 0 to 250,000 | 0% |
From PHP 250,000 to 400,000 | 15% |
From PHP 400,000 to 800,000 | 20% |
From PHP 800,000 to 2 million | 25% |
From 2 million to 8 million | 30% |
Over PHP 8 million | 35% |
Fringe Benefit tax (levied on benefits furnished to managerial and supervisory-level employees) |
35% (25% for non-resident aliens not engaged in trade or business) |
Tax on business income | If an individual's gross sales/receipts and other non-operating income are below PHP 3,000,000, he/she may opt to be taxed 8% tax on gross sales/receipts and other non-operating income in excess of PHP 250,000 in lieu of the standard graduated income tax rates. Business income that is subject to progressive tax rates will also be liable for business tax, such as 12% VAT or 3% percentage tax, as applicable. |
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Latest Update: May 2023