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Jun 25, 2014

Living There


philippines living in manila

INDIVIDUAL TAXATION

Resident citizens are taxed on their worldwide income while resident foreigners and non-resident citizens are liable to tax only on their Philippine-sourced income. Married couples are required to compute their individual income tax separately and file a joint income tax return.

INCOME TAX

Income from the following sources are taxable: trade or business income, professional income, gains derived from dealings in property, interest, rental income, royalties, dividends, annuities, prizes and winnings, pensions, and other income.

Taxable income is computed by deducting income-generating expenses and personal allowances from gross income. Net income from different sources is aggregated and income tax is levied at progressive rates on the total taxable income.

INCOME TAX

TAXABLE INCOME, PHP (US$) TAX RATE
Up to 10,000 (US$227) 5%
10,000 – 30,000 (US$682) 10% on band over US$227
30,000 – 70,000 (US$1,591) 15% on band over US$682
70,000 – 140,000 (US$3,182) 20% on band over US$1,591
140,000 – 250,000 (US$5,682) 25% on band over US$3,182
250,000 – 500,000 (US$11,364) 30% on band over US$5,682
Over 500,000 (US$11,364) 32% on all income over US$11,364
Source: Global Property Guide

Personal allowances or deductions from the taxable income are:

  • PHP50,000 (US$1,136) for all individuals,
  • PHP25,000 (US$568) for each of the first four dependents. The additional tax exemption for each dependent shall be claimed only by the husband unless he waives the right in favor of his wife.

Depreciation
Depreciation costs can be set against income for the purpose of income tax. Approved methods are the straight-line, the declining balance, sum of years-digits, unit of production method, the operating day method, and any other method as prescribed by the Secretary of Finance.

RENTAL INCOME
Rental income is taxed at progressive rates and income-generating expenses are deductible. Typical deductions are repairs and maintenance, depreciation, taxes and licenses (local business tax, mayor’s business permit, and real estate tax).

Business Permit
A business permit is required before renting out property.

Value Added Tax (VAT)

philippines life in manila

Under existing VAT regulations, rental payments exceeding PHP10,000 (US$227) per unit received by landlords whose gross annual rental income exceed PHP1,500,000 (US$34,091) are subject to 12% VAT. If the gross annual rental income is less than PHP1,500,000 (US$34,091), the applicable tax rate is 3%. The VAT burden is generally shouldered by the tenants.

CAPITAL GAINS
Capital gains realized from the sale of real property treated as ordinary assets are included in the aggregate income and taxed at progressive rates. Taxable capital gains are computed by deducting acquisition costs and incidental expenses from the gross selling price or fair market value of the property.

Capital Gains Tax

The Philippines has a tax called Capital Gains Tax but it is really a transaction tax on selling or transferring real estate properties classified as capital assets. This tax is not an actual tax on the gains incurred on the sale of the property. The capital gains tax is levied at a flat rate of 6% on the property’s gross selling price or market value (see “Costs of Buying Property”).


PROPERTY TAXATION


Real Estate Tax

Real estate tax is levied on Philippine real property and the applicable rate varies depending on the location. The maximum rate for cities and municipalities within Metro Manila is 1%, while the maximum rate for cities and municipalities outside Metro Manila is 2%.The owner has the option to pay the tax in four equal installments on or before the last day of each calendar quarter.

Calculating the Property’s Assessed Value
The tax is levied on the property’s assessed value (which is a prescribed percentage of current fair market value depending on actual use and zoning of property). In computing for the taxable value, the property’s fair market value is determined and the assessment percentage is then applied. The resulting amount is the tax base where the real estate tax rate is applied.

ASSESSMENT LEVELS ON BUILDINGS
AND OTHER IMPROVEMENTS

FAIR MARKET VALUE, PHP (US$)
ASSESSMENT LEVEL
Up to 175,000 (US$3,977)
0%
175,000 - 300,000 (US$6,818)
10%
300,000 - 500,000 (US$11,364)
20%
500,000 - 750,000 (US$17,046)
25%
750,000 - 1 million (US$22,727)
30%
1 million - 2 million (US$45,455)
35%
2 million - 5 million (US$113,636)
40%
5 million - 10 million (US$227,273)
50%
Over 10 million (US$227,273)
60%

ASSESSMENT LEVELS ON LAND

CLASSIFICATION
ASSESSMENT LEVEL
Residential
20%
Agricultural
40%
Commercial/ Industrial
50%
Mineral
50%
Timberland
20%
Source: Global Property Guide

Property owners are required to file a sworn statement declaring the true (current and fair market value) of their property once every three years. The filing period is from 01 January to 30 June annually.

CORPORATE TAXATION

INCOME TAX

Income and capital gains earned by companies are taxed at a flat rate of 30%. Income-generating expenses are deductible when calculating taxable income.

Surtax

A 10% surtax is imposed on improperly accumulated earnings.






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