Over 2 but not more than 4.. Over 200 but not more than 300. Tax (percent) 3 6 9 13 17 22 26 28 30 32 34 36 38 40 42 44 46 48 50 52 55 60 Personal exemptions.-Deductions from net income before application of tax rates are as follows: For citizens or residents: Single, 1,800 pesos; married or head of family, 3,000 pesos, plus 600 pesos for each dependent child under 21 or incapable of self support. For nonresident aliens: An amount equal to the exemption allowed by the alien's own country to Philippine citizens who are not residents of the country. In no case, however, may such exemption exceed that allowed by Philippine law to citizens or residents of the Philippines. No exemption, moreover, is allowed a nonresident alien if he fails to file an income tax return. A withholding tax law affecting wages has been operative in the Philippines since January 1, 1951, and provides for withholding from employees' wages income taxes at rates determined in accordance with a table issued by the Department of Finance. The National Internal Revenue Code, as amended, has long called for taxation at the source for certain types of income of certain classes of recipients. It is required that a tax of 16 percent be withheld from fixed or determinable annual or periodic Office or place of business implies a fixed place for the regular transaction of business and does not include a place where casual or incidental transactions might be, or are, effected. 8 Wage for purposes of the withholding tax means all remuneration for services, cash, or cash equivalent of any other medium of payment. Employee refers to any recipient of a wage, including an officer of a corporation. income from Philippine sources, including net gains or net profits received from corporations, partnerships, or associations, and payable to nonresident aliens not engaged in trade or business in the Philippines and not having an office or place of business there. Dividends from any domestic corporation are subject to the provision. Dividends from a foreign corporation are subject to withholding if the corporation is engaged in trade or business in the Philippines or has an office or place of business there, or if more than 85 percent of its gross income for the 3-year period ending with the taxable year in question was derived from Philippine sources. Salaries or fees for professional services paid to foreigners residing abroad for services rendered abroad are not classed as income from Philippine sources and are not subject to withholding. A tax of 16 percent is also required to be withheld from interest payable to a nonresident alien or a citizen or resident of the Philippines on bonds, deeds of trust, mortgages, or other obligations issued by a domestic or resident foreign corporation and containing a tax-free covenant clause. Exception is made where the citizen or resident who owns such interest files with the withholding agent 10 a certificate of ownership and exemption claiming a personal exemption or credit for dependents. Otherwise, withholding takes place regardless of where the obligations are issued or marketed or where the interest is paid. The withholding agent is the obligor. Filing of an individual income tax return is mandatory upon Philippine citizens and residents of legal age having a gross income of 1,800 pesos or more, and upon every nonresident alien having income from Philippine sources regardless of The total net income 12 received in the preceding taxable year 13 from all sources by a Philippine corporation 14 is subject to an annual tax equal to the sum of the following: 20 percent of net income up to 100,000 pesos; and 28 percent of net income over 100,000 pesos. Fixed or determinable income for purposes of withholding the tax at source means income paid in amounts definitely predetermined, there being a basis of calculation by which the amount to be paid can be ascertained. Covered are interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, and emoluments. Royalties may be included; income from the sale of real or personal property is not included. 10 The withholding agent, in connection with taxation at source, is the person or entity having control, receipt, custody, disposal, or payment of the income due the nonresident alien. 11 "Corporation," for tax purposes, includes partnerships no matter how created or organized, joint accounts, associations, and insurance companies, but does not include duly registered general copartnerships. 12 Net income is determined by subtracting from gross income, as defined by law, allowable deductions. 13 Taxable year is the calendar year or a fiscal year, as the corporation may elect. The last day of any month except December may be designated as the end of a fiscal year. 14 Philippine corporation is a corporation organized in or existing under the laws of the Philippines. The total net income received from Philippine sources by a foreign corporation 15 is subject to the same tax at the same rates. As exceptions to the general rule, building and loan associations pay a tax of 12 percent on their total net incomes, and private educational institutions pay 10 percent. Only 25 percent of dividends received by a domestic or foreign corporation from a domestic corporation subject to the above taxes needs to be reported for tax purposes. In addition to the aforementioned taxes on net incomes, a tax of 25 percent is levied on the undistributed portion of profits or surplus of a corporation formed or availed of for the purpose of avoiding taxation of its shareholders or members of another corporation by accumulating gains or profits instead of dividing or distributing them. The undistributed profits tax applies to foreign corporations, resident or nonresident, as well as to domestic corporations. Banks, insurance companies, and domestic and foreign personal holding companies, however, are not affected. Corporations classified as personal holding companies are subject to a tax of 45 percent of undistributed net income, in addition to the regular corporation tax. A number of organizations of the type not established for profit but for the benefit of members or for charitable and educational purposes, among others, are exempt from income tax in respect to income received by them as such. No excess profits tax is levied by the Philippines. Profits earned during the period from December 8, 1941, to February 26, 1945, are subject, however, to a war profits tax. In the case of foreign corporations subject to Philippine income tax and not engaged in trade or business in the Philippines and not having an office or place of business there, a flat tax of 24 percent is deducted and withheld from income at the source. The withholding agent is the person or entity having control, receipt, custody disposal, or payment of such income. Income of domestic and resident foreign corporations is not subject to withholding. Filing of an income tax return is mandatory upon every corporation the income of which is taxable under Philippine law, regardless of the amount of net income. Partnerships, except for duly registered general copartnerships, are included in the definition of corporations (see footnote 11), and their net incomes are taxed in the same manner and at the same rates as the net incomes of corporations. General copartnerships, when duly registered in the Mercantile Registry, are not subject to income tax but must file returns indicating the share of gains or profits accruing to each partner. The individual partner is taxed on his distributive share of net income of the partnership, whether 15 Foreign corporation is a corporation organized, authorized, or existing under the laws of any foreign country. distributed or not, and he must include such share in his personal income tax return. FRANCHISE TAX Enterprises operating in the Philippines under franchise are required to pay a tax of 5 percent of gross receipts, or the taxes, charges, or percentages specified in special charters of corporations upon which franchises are conferred, whichever is higher, unless provisions of such charters preclude imposition of a higher tax. This franchise tax is in lieu of regular income tax. EXCISE TAXES Specific Taxes Selected commodities, domestic or imported, are subject to specific internal revenue taxes payable by the local producer or manufacturer prior to removal of the commodities from the place of production and by the importer prior to removal of the commodities from the customhouse. As an exception, the taxes are not levied on domestic products if they are exported from the Philippines either in the original state or as components of articles or products. Commodities on which specific taxes are imposed include the following: Distilled spirits, wines, fermented liquors, playing cards, tobacco products, kerosene, lubricating oil, gasoline, coal, bunker fuel oil, and diesel fuel oil. Rates vary and are based on units of quantity. Privilege Taxes Firms and persons are taxed by the Philippine Government for the privilege of dealing in commodities, conducting businesses, or pursuing occupations or professions. In general, privilege taxes affecting commodity transactions and those imposed on businesses are levied either at a fixed rate plus a percentage of gross sales or receipts, or at a fixed rate plus a graduated tax determined by the level of gross sales. It is illegal to do business before fixed taxes are paid and they are collectible for each separate place where business is conducted. The percentage taxes affecting most commodity transactions are popularly known as percentage sales taxes or simply sales taxes, although they are not retail sales taxes such as prevail in the United States. Automatically exempt from the privilege taxes known as sales taxes are transactions in commodities subject to the aforementioned specific taxes; domestic transfers of agricultural products and ordinary salt by the producer or owner of the land where produced; domestic transfers of minerals and mineral products by the lessee, concessionaire, or owner of the mineral land from which removed; and articles such as rope, sugar, and coconut oil, subject to a special percentage tax referred to later. Commodities and components of commodities sold abroad are likewise tax exempt if title to the commodities passes outside the Philippines. Also exempt from sales taxes, and from the 10peso fixed tax mentioned below, as well as the graduated tax based on the level of gross sales, are the following: Persons whose gross quarterly sales do not exceed 450 pesos, many homeworkers, minor dealers in domestic food products, and a few others operating primitive transportation facilities. Persons or firms dealing in commodities, except as noted above, must pay a fixed annual tax of 10 pesos plus a tax equivalent to a percentage of the gross selling price or value of the commodities in the case of domestic products and a percentage of an inflated landed cost in the case of imports. Commodities are grouped for tax purposes in categories roughly reflecting their essentiality. The percentage sales taxes amount to 75 or 50 percent for luxury-type commodities such as highpriced automobiles, jewelry, and cosmetics; 30 or 20 percent for semiluxuries, including certain household appliances, radios, and upholstered furniture; and 7 percent for all other commodities, except forest products for which the tax is 5 percent. Operators of sawmills pay the 5-percent tax on one-third of the gross cost of logs purchased for manufacture. For domestic products, percentage sales taxes are levied at the time of the original sale or exchange in the Philippines of the commodities affected and are payable quarterly by the manufacturer or producer. Where articles are manufactured out of materials subject to the taxes, the cost of such materials is deducted from the selling price or value of the manufactured articles on which the taxes are imposed. For imports, the percentage taxes must be paid prior to the release of commodities from customs. The base used for calculating the taxes is landed cost plus a markup of 100 percent for luxuries, 50 percent for semiluxuries, and 25 percent for other commodities. Landed cost is interpreted to mean the value of the commodities and all costs incident to their importation, including freight, postage, insurance, commission, import license fees, brokerage fees, customs duty, if any, and the 17-percent exchange tax if applicable. Persons residing or doing business in the Philippines who purchase or receive commodities from abroad for their own use and not for sale must pay on the total value thereof "compensating" taxes at rates equivalent to the rates of percentage sales taxes imposed when such commodities are imported for sale. The markups previously men tioned in connection with imports for sale, however, are not added to landed cost before the tax rates are applied. Compensating taxes are payable by the recipient or importer prior to release of commodities from the post office or customhouse. Exempt are single shipments valued at not more than 100 pesos and goods brought into the Philippines by returning residents if valued not in excess of 500 pesos. Most new effects of prospective residents would be subject to compensating taxes, and significant used effects are sometimes taxed at the discretion of the collector of customs. In all cases when the taxes are collected no refund is allowed on departure of the taxpayer. It should be noted that the compensating tax only applies to commodities imported for the personal use of the importer. Commodities imported for sale or to be used in the manufacture or preparation of articles for sale are subject to the sales tax and commodities subject to specific tax or to be used by the importers in the manufacture of articles subject to specific tax are exempt from both sales and compensating tax. Also exempt from both taxes are imported commodities which are to be used by the importer for the manufacture of articles for consignment abroad and which will form a component part of such articles. Proprietors or operators of rope factories, sugar centrals, rice mills, coconut oil mills, corn mills, and desiccated coconut factories are required to pay a fixed annual tax of 10 pesos plus a special percentage tax equivalent to 2 percent of the gross value of their production, including byproducts. The percentage tax is based on the actual selling price or market value of the commodities concerned at the time they leave the factory or mill warehouse. The tax is not applied to coconut oil, byproducts of copra, and dessicated coconut if they are destined for export and are actually shipped abroad. Construction work contractors, distributors of light, heat, and power, operators of telecommunication facilities, proprietors of certain retail outlets and service entities, and those engaged in a number of other activities listed in section 191 of the National Internal Revenue Code must pay a fixed annual tax of 10 pesos plus a tax equivalent to a specified percentage of gross receipts. The tax ranges from 3 to 20 percent of gross receipts, depending upon the field of operation. Exemption from this percentage tax is granted to those covered by a franchise and those whose gross quarterly receipts do not exceed 200 pesos. Transportation contractors, operators of most commercial common carriers and freight services, and others in fields allied to transportation must pay an annual fixed tax of 10 pesos plus a tax equivalent to 2 percent of gross receipts. Exemption from this percentage tax is granted to those whose gross quarterly receipts do not exceed 200 pesos. Stock, real estate, commercial, customs, and immigration brokers are subject to a fixed annual tax of 150 pesos plus a tax equivalent to 6 percent of their gross compensation. Cinematographic film owners, lessors, or distributors pay a fixed annual tax of 200 pesos plus a tax equivalent to 2 percent of their gross receipts. Brewers, distillers, manufacturers of tobacco products, wholesalers and retailers in alcoholic beverages and tobacco, lending investors, and business agents, among many others not subject to percentage taxes already described, are required to pay a fixed tax, usually an annual tax, designated for the specific business activity at rates ranging from 16 to 1,000 pesos plus a graduated tax based on gross annual sales. The latter tax ranges from 6 pesos for gross annual sales amounting to over 2,000 pesos but not over 10,000 pesos to 450 pesos for gross sales in excess of 500,000 pesos. Annual privilege taxes payable by those engaged in certain occupations or professions, including surveyors, public accountants, engineers, lawyers, and physicians, are either 50 or 24 pesos depending on the field of activity. It is illegal to pursue such occupations or professions before the privilege tax is paid. The tax amounts to 17 percent of the peso value of foreign exchange purchased for most payments and remittances. It is calculated at the official selling rate of the peso net of commissions, stamp taxes, and other bank charges, and in terms of United States dollars results in an effective exchange rate of 2.35755 pesos to US$1. Prior to inauguration of this multiple-currency practice, dollar exchange could be purchased at only a fraction over the legal rate of 2 pesos to US$1. Under the provisions of the legislation covering this tax, exemption is accorded sales of foreign exchange for the purpose of importing certain enumerated basic foodstuffs, most medicines, drugs, and hospital supplies also enumerated either in the law or in regulations implementing the law, as well as textbooks, newsprint, and articles or containers for use by the manufacturer in domestic manufacture or preparation of commodities for export. In addition to the foregoing, purchases of foreign exchange for payments in respect to reinsurance, marine and aviation insurance, drydocking and repair abroad of vessels and aircraft of Philippine registry, premiums on life insurance pol icies issued prior to December 9, 1949, and remittances of living expenses and tuition of students studying abroad not to exceed the equivalent of $250 per month are exempt from this tax. Payments for machinery and for raw materials to be used by "new and necessary" industries as determined by Republic Act 35 are also exempt from the tax. In order to avoid the burden of paying a tax on a tax, special arrangements have been made with the Central Bank of the Philippines whereby Americans resident in the Philippines who are authorized by the Central Bank to buy dollars to meet United States income tax liabilities may make such payments through the American Embassy in Manila. Remittances made in this manner are not subject to the exchange tax. MISCELLANEOUS TAXES AND FEES Registration Fees for Aliens All aliens who remain in the Philippines more than 15 days must obtain an alien registration certificate for which there is a charge of 50.5 pesos. The certificate must be renewed annually. The fee for renewal is 10 pesos plus a stamp tax of 50 centavos.16 Aliens who are permanent residents of the Philippines must obtain, in addition to the above document, an immigrant's certificate of residence which also must be renewed each year. The initial fee and renewal fee are the same as for the alien registration certificate. Both certificates are of importance for many purposes, including execution of public documents. Tax on Banks A tax is levied on the gross receipts of any bank doing business in the Philippines when derived from interest, discounts, dividends, commissions, exchange profits, royalties, rentals of real and personal property, and all other items treated as gross revenue under the Internal Revenue Code. The tax rate is 5 percent. Such banks are also subject to a tax at the rate of 1 percent per month on the amount of reserve deficiencies incurred by them. The tax is applicable during the period of deficiency. Tax on Insurance Premiums A tax is levied on the total premiums collected by any person, company, or corporation doing insurance business of any sort in the Philippines. The tax is payable annually at the rate of 1 per 16 1 centavo equals US$0.005. cent for the first 5 years, 2 percent during the next 5 years, and 3 percent thereafter. Cooperative insurance companies or associations are exempt from the tax. Premiums on insurance written by foreign insurance companies not authorized to do business in the Philippines on risks located in the Philippines are subject to a tax equal to twice the tax levied on premiums collected by companies authorized to do business in the Philippines. Residence Tax An annual residence tax is imposed on most adult individuals who reside in the Philippines for more than 3 months during a calendar year, and on all corporations operating in the country. The tax, applicable regardless of nationality, is levied as a fixed tax plus a graduated amount based on the value of real property owned by an individual or a corporation and on gross receipts, earnings, and salaries. For individuals, the fixed residence tax is 50 centavos; for corporations, 5 pesos. The maximum graduated tax in both cases is 1,000 pesos. A residence certificate is issued to persons and corporations upon payment of the tax. Possession of such certificates is important as they must be shown prior to authentication of various documents and receipt of an exit visa. It is illegal, moreover, for an employer to pay a wage or salary to an employee until the latter has exhibited his certificate of residence. Stamp Taxes In general, stamp taxes are imposed on instruments, documents, and papers executed in the Philippines and affecting properties located in and transactions made in the country. The nationality or domicile of parties to the instruments or transactions is immaterial. Stamp tax rates vary from a few centavos to substantial amounts, depending on the papers involved. Taxable documents which have not been stamped may not be recorded in an official registry or admitted as evidence in court, and a notary may not add his jurat or acknowledgment to unstamped documents. Included in instruments subject to the stamp tax are receipts of hotels or lodging houses, issued to guests for lodging, and passage tickets on vessels other than on a vessel of the Philippine Government covering passage from a port in the Philippines to any port or place in a foreign country. The term "vessel" is interpreted to include aircraft. The stamp tax on passage tickets ranges from 7.50 pesos on passage costing not more than 60 pesos to 100 pesos on passage costing more than 1,000 pesos. Mining Taxes An annual "occupation fee" is imposed on any locator, holder, or occupant of a mining claim beginning 2 years after the date of registration of the claim and continuing until a lease covering the claim is granted. The fee is 1 peso per hectare. For the privilege of exploring, developing, extracting, and disposing of minerals on lands covered by a lease certain rentals and royalties are charged. Rentals are annual and range from 1 peso for the first 10 years to 5 pesos thereafter per hectare or fraction thereof. În the case of coalbearing public lands rentals are credited against royalties, and rentals and royalties against specific taxes mentioned under the section on excise taxes, page 83. Royalties on coal may be specified in the lease but may not be less than 10 centavos per ton of 1,016 kilograms. On all other minerals including gold, the royalty is 12 percent of the market value of gross output. The annual gross output of minerals, including gold, from lands not covered by leases is subject to an ad valorem tax of 12 percent based on the market value of the output. Other Taxes Timber and firewood cut in public forests and forest products cut, gathered, and removed from unregistered private lands are subject to charges ranging from 60 centavos to 6 pesos per cubic meter. Gums, resins, rattan, and other forest products gathered or removed from public forests or forest reserves are subject to a charge equal to 10 percent of the market value of the products. Appropriators of water for power purposes for a "small development" are required to pay the Philippine Government an annual rental of 25 centavos per horsepower for the first 10 years and 1 peso per horsepower per year thereafter. For a "large development," the annual rental is 50 centavos per horsepower for the first 10 years. Thereafter, the rental is established for 10-year periods at rates of not less than 1 peso or more than 2 pesos per horsepower per year. EXEMPTION FOR CERTAIN INDUSTRIES Under Republic Act No. 35, approved September 30, 1946, persons, partnerships, companies, or corporations engaging in a "new and necessary" industry were exempt from all internal revenue taxes directly payable by them in connection with the industry for a period of 4 years. This law was amended by Republic Act No. 901, approved June 20, 1953, which provided that "new and necessary" industries would be exempt from all taxes until December 31, 1958; 90 percent of |