BUSINESS TAX RATES IN METRO MANILA
In the Philippines, corporations are required to file taxes to two government agencies: 1) the national taxation authority or the Bureau of Internal Revenue (BIR), and 2) the local government unit (LGU) where the business is located. Taxes filed to these two agencies are classified as national taxes and local taxes respectively.
Under the newly-signed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, the corporate income tax (CIT) rates for certain types of corporations have been reduced. In the next six years, the CIT will be reduced further by 1% annually and shall eventually reach 20% by 2027 onwards.
There are 4 types of national taxes for corporations in the Philippines:
Under the CREATE Act, the corporate income tax (CIT) rate for domestic corporations and resident foreign corporations (RFCs) is 25% and based on taxable income or 1% minimum corporate income tax (MCIT) based on gross income, whichever is higher. Non-resident foreign corporations (NRFCs) and regional operating headquarters (ROHQs) are also subject to the same 25% CIT rate. Domestic corporations with net taxable income not exceeding 5 million pesos and total assets not exceeding 100 million pesos are subject to a 20% CIT rate.
Corporations incorporated in the Philippines (domestic corporations) are taxed on their local and international income. Corporations incorporated outside the Philippines (foreign corporations) are taxed only on their source of income within the Philippines. There are 2 categories of foreign corporations: 1) resident foreign corporations (businesses engaged in trade in the Philippines) and 2) non-resident foreign corporations (businesses not engaged in trade in the Philippines).
Income tax of domestic and resident foreign corporations is based on their taxable income or gross income minus allowable deductions. While non-resident foreign corporations are taxed on their gross income, without deductions.
The value-added tax (VAT) rate remains at 12% as it is not affected by CREATE Act. This rate is applied on the taxable gross selling price of properties and goods as well as the gross value of receipts coming from lease of properties or services.
Companies in the Philippines that do not exceed 3 million pesos in actual gross receipts or sales are exempted from remitting and filing VAT.
Also not affected by CREATE Act, an excise tax applies to services and goods produced or manufactured in the Philippines for consumption, domestic sales, or for any other disposition. It also applies to imported goods.
Documentary Stamp Tax
Only affected by TRAIN Law, a documentary stamp tax (DST) is a tax imposed on instruments, documents, loan agreements, and papers evidencing the assignment, acceptance, sale, or transfer of an obligation, right, or property.
Under TRAIN Law, the DST rate of 1 peso on loan agreements has been increased to 1.50 pesos for every 200 pesos or fractional part thereof of the issue price of the debt instrument or loan agreement. Additionally, the DST rate for other transactions or documents are now doubled.
Another type of tax that businesses should be aware of are local taxes. Local taxes are imposed and collected by local government units (LGUs). As such, the actual tax rate will depend on the LGU where the business is located. However, the Local Government Code (LGC) provides for the maximum rates that local governments may impose on corporations in their jurisdiction to avoid overcharges.
There are 2 main types of local taxes in the Philippines:
Real Property Tax
Businesses are required to pay real property tax (RPT) on buildings, land, and/or machinery deemed real property, and other improvements. Real property in Metro Manila is generally subject to RPT of not more than 2% of its taxable value.
Local business tax (LBT) is based on the gross receipts or gross sales of the previous fiscal year. The actual rate depends on the location of the business, but generally shall not exceed 3%.
The Bureau of Local Government Finance (BLGF) exempts the following from paying LBT:
Businesses certified by the Board of Investments (BOI) as non-pioneer and pioneer for 4-6 years, respectively, from the date of registration.
Businesses that manufacture, produce, distribute, refine or sell gasoline, oil, and other petroleum products.
Cooperatives duly-registered with the Cooperative Development Authority (CDA).
Philippine Economic Zone Authority (PEZA)-registered enterprises and other Special Economic Zones.