Tax rates in the Philippines

Company Tax

The rate is 25% on net income but there are some preferential rates and exemptions

Tax Rate For Foreign Companies

A domestic corporation is subject to tax on its worldwide income, whereas a foreign resident corporation is subject to tax only on Philippine-source income (at the same rates as local companies).
Non-resident foreign corporations are generally taxed on gross income received from sources within the Philippines, at the standard corporate tax rate. Interest on foreign loans is taxed at 20%.

Capital Gains Taxation

Capital gains are generally subject to ordinary income tax rates. Capital gains arising from the sale of unlisted shares are subject to a withholding tax of 15%, while those resulting from the sale of listed shares are taxed at a rate of 0.6% of the gross selling price (conditions apply). Capital gains from the sale of bonds, debentures, or other certificates of indebtedness with a maturity of more than five years are exempt from tax. Capital gains from the sale of real estate used for non-commercial purposes are subject to a final withholding tax of 6% of the highest of the sale price or fair value.
For further details, consult the dedicated page on the website of the Bureau of Internal Revenue.

Main Allowable Deductions and Tax Credits

Corporations can choose between itemised deductions or an optional standard deduction computed at 40% of gross income.

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.

Other Corporate Taxes

Local authorities impose local business taxes, which are generally based on the gross sales or gross receipts of the prior year (the rate varies depending on the location but generally shall not exceed 3%), and real property taxes, which are levied annually on the basis of a fixed proportion of the value of the real property (rate up to 1% for real property located in a province and 2% if located in a city).
A local transfer tax on real property is levied at a rate of 0.5% to 0.75% on the gross sales price or the fair market value of the property (whichever is higher) upon the transfer or sale of the property.

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).

Other Domestic Resources

Bureau of Internal Revenue

Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Tax Rate

Allowable Deductions and Tax Credits

Non-deductible items for income tax purposes include: home mortgage interest, medical expenses, contributions, and other personal expenses. In any case, social security contributions, up to the prescribed amount of maximum mandatory contributions, are excluded from gross income. Minimum wage earners are exempt from the payment of income tax on their compensation income, same as for holiday pay, overtime pay, night shift differential pay, and hazard pay.

Aliens, whether residents or not, who are receiving only salary or compensation income are not allowed any deduction against such income.

Several expenses are allowed as deductions from gross income for individuals engaged in business or the practice of a profession, including all ordinary and necessary expenses paid or incurred during the taxable year in connection with their activity; bad debts, losses, certain taxes, charitable contributions, etc. However, the taxpayer (except for non-resident aliens) can opt for a standard deduction not exceeding 40% of the gross business or professional income in lieu of allowable deductions. Such decision is irrevocable for the tax year for which the return is made.

Special Expatriate Tax Regime

Resident citizens are taxed on all of their income. Non-resident citizens and aliens (whether resident in the Philippines or not) are taxed only on Philippines-source income.
The applicable fringe benefits tax rate for non-residents is 25%. The maximum annual social tax payable by a foreign national employee is PHP 24,300.