The Philippines offers an attractive environment for foreign entrepreneurs who want to set up businesses or invest in the country. With its growing economy, young population, and business-friendly policies, the Philippines provides tremendous opportunities across sectors.

However, navigating the country’s complex tax regime can be daunting for newcomers. Let us discuss an overview of the key aspects of taxation in the Philippines that foreign entrepreneurs need to factor in.

 

Taxation System

The Philippines does not play favorites when it comes to taxes – citizen or not, everyone pays their fair share. Philippine citizens are subject to tax on their Philippine and foreign income, while non-residents are taxed only on Philippine income.

As a foreign entrepreneur setting up a business in the Philippines, you get some tax relief.  You only have to worry about taxes on income earned right here in the country.

 

Major Taxes

Here are some of the major taxes that businesses and individuals must pay in the Philippines:

  • Income Tax – includes personal, corporate, and passive income. Personal income tax rates range from 15% to 35% based on incremental income brackets. The minimum corporate income tax rate is 2% for domestic and resident foreign corporations.
  • Value-Added Tax (VAT) – VAT of 12% applies on the sale of goods and services, as well as importation of goods into the Philippines.
  • Withholding Taxes – There are two types of withholding tax, final withholding tax (FWT) and creditable withholding taxes (CWT). These taxes are deducted at source on certain income payments at different rates. Common examples include passive income like dividends, interests, or rental of office space, etc.
  • Percentage Taxes – applies to businesses that are not subject to VAT. The rate is fixed at 3%.
  • Local Taxes – Businesses may also be subject to local government taxes. These include local business tax, real property tax, community tax certificate and others.

 

 Tax Incentives

The primary regulations governing the granting of tax and non-tax benefits to domestic and international businesses in the Philippines include the Omnibus Investments Code of 1987 (Executive Order No. 226) and the Special Economic Zone Act of 1995 (Republic Act No. 7916).

To attract foreign investment, the Philippines offers attractive tax incentives subject to certain qualifications. PEZA-registered companies enjoy various benefits, such as tax exemptions, including incentives listed in EO 226.

 

Compliance Requirements

Maintaining robust tax compliance and updated financial records is essential to avoid penalties. The main compliance requirements include:

  • Obtaining a Tax Identification Number (TIN)
  • Issuing receipts and invoices for transactions
  • Keeping books of accounts and other financial records
  • Submission of monthly, quarterly, and annual tax returns and payments

 

Get Help from Professional Tax Experts

It is wise to employ professional accountants to ensure compliance, as the rules can be complex with high penalties for mistakes. In case you want to inquire about Philippines taxes, our team at DJKA Accounting Services, Inc. will be happy to assist you. Just email us at info@djkaaccounting.com.

Our team will guide you through the complexities of tax benefits and opportunities, ensuring a seamless and beneficial experience for your business.

 

Avoid Tax Penalties

Understanding how taxes are applied is essential when setting up a business as a foreigner in the Philippines. Although the amount of taxes may seem overwhelming at first glance, the government offers remarkable incentives to increase investment.

By planning properly, partnering with professionals and taking advantage of available incentives, foreign entrepreneurs can minimize their tax burden and unlock promising business success in the Philippines.