The Philippines has a comprehensive taxation system in place, with various taxes levied on businesses, including corporate income tax, value-added tax, sales tax, import duties, and occasionally, export duties. The TRAIN Law and the Tariff and Customs Code are the primary legislation governing these taxes. Companies doing business in the Philippines need to be aware of these taxes to ensure compliance and optimize their tax strategies.
Corporate Income Tax (CIT)
CIT is a tax levied on the net income of corporations operating in the Philippines. The primary legislation governing CIT is the National Internal Revenue Code (NIRC), as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963) enacted on December 19, 2017.
Tax brackets:
Domestic corporations are taxed at 30% on their worldwide income.
Resident foreign corporations are taxed at 30% on their Philippine-sourced income.
Non-resident foreign corporations are taxed at 30% on their gross income from Philippine sources.
Value-Added Tax (VAT)
VAT is an indirect tax imposed on the consumption of goods and services in the Philippines. It is governed by the NIRC, as amended by the TRAIN Law. The standard VAT rate is 12%. Businesses with annual gross sales exceeding PHP 3 million are required to register for VAT.
Sales Tax
Sales tax, also known as percentage tax, is imposed on certain business activities in lieu of VAT. The tax rates vary depending on the nature of the business, ranging from 1% to 3%. Businesses with annual gross sales below PHP 3 million and not engaged in VAT-exempt activities are subject to sales tax.
Import Duties
Import duties are levied on goods imported into the Philippines. The Tariff and Customs Code of the Philippines (Republic Act No. 1937), as amended, governs import duties. The rates vary depending on the product classification under the ASEAN Harmonized Tariff Nomenclature (AHTN). Generally, import duty rates range from 0% to 30%.
Export Duties
Export duties are rarely imposed in the Philippines, as the country aims to promote exports. However, when applied, they are governed by the Tariff and Customs Code of the Philippines, as amended. Currently, there is an export duty of 10% on certain non-processed mineral products.
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