The Philippines has gained some notoriety for its taxation system. A study by PricewaterhouseCoopers in 2015 ranked the Philippines 127th among 189 countries reviewed according to ease of paying business-related taxes. The study says it takes a businessman in the Philippines 193 hours to pay 36 kinds of taxes and fees in a year.
The Philippines also has the second highest personal income tax rate and the highest corporate tax rate among ASEAN nations.
Businesses have to pay both national and local taxes. National taxes are remitted to the Bureau of Internal Revenue, while local taxes are paid to local government units, particularly the city or municipal government. In addition to taxes, businesses also have to pay various fees to both the national and local governments.
Here’s a rundown of the most common taxes paid by businesses in the Philippines.
Corporate income tax – this is computed as 30% of the business’s taxable profit
Real property tax – this is applied on all real properties at a maximum rate of 2% of the assessed value for Metro Manila and at a maximum rate of 1% for provinces.
Value Added Tax – this is applied on almost all products and services at the rate of 12%, and must be remitted (less other input VAT taxes) to the BIR monthly and quarterly
Excise tax – applied to certain products manufactured or imported into the Philippines for domestic use. Examples of products subjected to excise tax are tobacco, liquor, automobiles, and non-essential imported goods such as jewelry and perfumes. The rate depends on the product’s weight or volume, or its selling price.
Personal income tax – withheld by employers as deductions from employees’ salaries at a statutory rate of 0% to 32% depending on the employees’ taxable basic salaries and tax status
Percentage tax – paid by non-VAT companies or individuals/professionals earning less than PhP1,919,500
million a year or other business industries classified as such
Capital gains tax – imposed on the presumed gains made from the sale of a capital asset
Local business tax – imposed by the city or municipality to a business and must be paid before the business is granted a business license or permit
Community tax – imposed on almost every Filipino resident of legal age, and on every corporation in the Philippines
Tax on Transfer of Real Property – paid when there’s a transfer of ownership of a property, whether through a sale, barter or donation
Environmental tax – this is a fixed amount paid to the city or municipality
Amusement tax – collected from operators and owners of entertainment establishments, such as cinemas, concert halls and theaters
Professional tax – collected from professionals whose jobs are under government examination (e.g. doctors, independent accountants, etc.)
In addition to national and local taxes, the government also imposes customs and duties to goods being imported into the Philippines for business.
The government offers tax holidays and other fiscal incentives to businesses who meet various criteria. In particular, tax benefits are given to companies who export at least 50% (of majority owned by Filipinos) or 70% of their output (if majority owned by Foreigners), and those who are registered with the Philippine Economic Zone Authority (PEZA). If registered with the Board of Investments (BOI), for certain industries, there is no export commitment if majority owned by Filipinos while there is a 70% export commitment if majority owned by Foreigners
Tax savings may also be achieved by the way your company is structured. For example a representative office of a foreign company is not required to pay taxes in the Philippines, and a Regional Operating Headquarters pays fewer taxes than a branch office.
You may also generate tax savings by how you structure employees’ salaries and benefits.
These opportunities for tax savings can go a long way in making your business financially healthier. The key is to make sure you comply with all requirements of the law to avoid any tax controversies. Work with legal and financial experts who can help you in tax planning and management to ensure you maximize your opportunities while remaining compliant.