03 January 2019 Philippines proposes passive income and financial intermediary taxation bill A consolidated bill (the Bill) was presented, on 26 November 2018, to the Philippine House of Representatives. The Bill seeks to provide unified tax rates for interest, dividends, and capital gains, a single gross receipts tax rate for all financial institutions and insurance companies, and rationalization of the Documentary Stamp Tax for the financial sector. The Bill proposes to subject domestic and foreign corporations to the following withholding tax rates on the specified passive income:
Proposed repeal of exemption from branch profits remittance tax (BPRT) of entities registered with the Philippine Economic Zone Authority (PEZA) The 15% BPRT exemption granted to Philippine branches of foreign companies that are registered with the PEZA on their profits repatriated to head offices is proposed to be repealed. Revised withholding tax rates on dividends received by nonresident foreign corporations from domestic corporations Cash and property dividends received by a nonresident foreign corporation are proposed to be subject to a 15% withholding tax or the withholding tax rate provided under the applicable tax treaty, whichever is lower. Exemption of financial institutions and insurance companies from Improperly Accumulated Earnings Tax (IAET) Financial institutions, as determined by the appropriate regulatory agency, and insurance companies (life and non-life), reinsurance companies, pre-need, pension funds, health maintenance organizations, and other entities doing similar business would be exempt from the proposed 15% IAET that also applies to the improperly accumulated taxable income. No deduction will be allowed for expenses that are related to or incurred in connection with income exempt from income tax or to capital income1 not subjected to withholding tax. Any interest expense otherwise deductible for income tax purposes is reduced to a proposed 50% of the interest income earned by the taxpayer that is subjected to withholding tax. For banks and non-bank financial intermediaries performing quasi-banking functions: 5% GRT on income such as interest, commissions, and discounts from lending activities, as well as income from financing leases, royalties, rentals, gain on sale of real property, net trading gains from foreign currency, debt securities and other similar financial instruments, and all other items treated as gross income. For other non-bank financial intermediaries: 5% GRT on gross receipts from interest, commissions, and discounts from lending activities, financing leases, royalties, rentals of property, profits from sale or exchange of real property, net trading gains from foreign currency, debt securities and other similar financial instruments, underwriting fees, service income, and all other items treated as gross income. Entities performing life insurance business including health insurance: 2% GRT on the total premium collected. This also applies to persons doing business similar to life and health insurance such as pre-need companies,2 pension fund companies, health maintenance organizations, and other similar companies. DST on property insurance would be imposed at 12.5% of the premium charged but the rate will be reduced by one percentage point annually until 2024 where the DST rate will be 7.5% of the premium charged. DST on annuity policies would be subject to a 0.5% of the premium or installment payment on the contract price or contribution charged. DST on pre-need plans4 is proposed to be imposed at 0.2% of the premium or installment payment on the contract price or contribution charged. 2 Pre-need companies are those that are engaged in the business of offering pre-need plans – see Endnote 4. 4 Pre-need plans are agreements for the performance of future services, payment of money, or delivery of other benefits at the time of actual need or agreed maturity date, in exchange for cash or installment amounts. These include life, pension, and education plans. Document ID: 2019-0034 |
