Philippines Tax Regime

The Philippines taxes domestic corporations on worldwide income at a standard corporate income tax (CIT) rate of 25%, with a reduced 20% rate available to smaller domestic corporations meeting asset and income thresholds. The current framework was substantially reshaped by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which lowered the headline CIT rate from 30% and rationalised the fiscal incentive landscape, and its 2024 successor legislation (CREATE MORE), which further refined incentive administration and value-added tax treatment for registered export enterprises. Foreign corporations are taxed only on Philippine-source income, with resident foreign corporations (operating through a Philippine branch) taxed similarly to domestic corporations on that income, and non-resident foreign corporations subject to final withholding on gross Philippine-source income. The regime is administered by the Bureau of Internal Revenue at the national level, alongside local government taxes on business activity.

1.1 Sources

Primary legislation includes the National Internal Revenue Code (as amended by the TRAIN Law, the CREATE Act, and CREATE MORE), the Local Government Code governing local business taxes, and implementing revenue regulations issued by the Bureau of Internal Revenue.

1.2 Recent developments

Republic Act No. 12253, the Enhanced Fiscal Regime for Large-Scale Metallic Mining Act, was signed into law and overhauls the fiscal framework applicable to large-scale metallic mining, taking effect on 17 February 2026, and introduces margin-based royalty and windfall profit taxation for the mining sector alongside the general corporate income tax rules. The CREATE MORE Act, enacted in 2024, refined the value-added tax zero-rating and incentive administration rules for registered business enterprises under the CREATE regime, clarified the treatment of local taxes for incentivized enterprises, and streamlined incentive registration and reporting with the Fiscal Incentives Review Board. The Bureau of Internal Revenue continues to expand mandatory electronic invoicing and receipting requirements for large taxpayers as part of its digitalisation programme.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Rates and residence

Domestic corporations — those organised under Philippine law — are taxed on worldwide income at a standard CIT rate of 25%. A reduced rate of 20% applies to domestic corporations with total assets not exceeding PHP 100 million (excluding land on which the business's office, plant and equipment are situated) and total net taxable income not exceeding PHP 5 million for the taxable year. Resident foreign corporations — foreign corporations engaged in trade or business in the Philippines through a branch — are taxed in the same manner as domestic corporations but only on Philippine-source income, at the standard 25% rate, except that capital gains on the sale of buildings not used in business are taxed as ordinary income rather than under the separate capital gains regime. Non-resident foreign corporations are taxed at 25% on gross Philippine-source income via final withholding, with specific reduced rates for certain categories of income (interest on foreign loans at 20%, and other special categories noted in Section 4).

A minimum corporate income tax (MCIT) of 2% of gross income applies from the fourth taxable year following the year of commencement of business operations, whenever the regular 25% CIT computed on net income would otherwise be lower than the 2% MCIT on gross income; any excess of MCIT over the regular CIT is creditable against regular CIT due in the three immediately succeeding taxable years.

2.2 Dividends and participation exemption

Dividends received by a domestic corporation from another domestic corporation are not subject to further income tax, effectively exempting intercorporate domestic dividends from a second layer of corporate taxation. Dividends received by a domestic corporation from a foreign corporation are generally taxable as ordinary income, subject to a tax-sparing style exemption for certain reinvested foreign-source dividends meeting statutory holding and reinvestment conditions introduced by recent reforms aimed at encouraging repatriation of foreign earnings. Dividends paid by a domestic corporation to a non-resident foreign corporate shareholder are subject to a final withholding tax of 25%, reduced to 15% where the shareholder's home country either does not tax the dividend or allows a deemed-paid foreign tax credit of at least 10% (the tax-sparing rule), and further reduced under applicable tax treaties.

2.3 Income determination and deductions

Taxable income is computed on gross income less allowable deductions, with taxpayers able to elect either itemized deductions (ordinary and necessary trade or business expenses, interest, taxes, losses, bad debts, depreciation, charitable contributions within limits, and research and development costs) or the Optional Standard Deduction of 40% of gross income (for corporations) in lieu of itemized deductions. Interest expense is deductible subject to a reduction equal to 20% (33% for certain periods historically, currently 20%) of interest income subjected to final withholding tax, reflecting an arbitrage-limitation adjustment rather than a general interest cap. Depreciation is generally computed on the straight-line method, though declining-balance and units-of-production methods are permitted where consistently applied and reflective of the asset's actual use. Net operating losses may be carried forward for three consecutive taxable years immediately following the loss (extended relief periods have applied in specific circumstances such as pandemic-related legislation), with no carryback.

2.4 Interest limitation

The Philippines does not apply a BEPS Action 4-style fixed-ratio (EBITDA-based) interest deduction cap of the kind found in the EU and many OECD jurisdictions. Instead, interest expense deductibility is subject to the arbitrage limitation described in Section 2.3 (reduction by a percentage of tax-exempt or final-tax interest income earned in the same period) and to general anti-avoidance and related-party pricing scrutiny under transfer pricing rules (Section 2.8). Thin capitalisation is not codified through a fixed debt-to-equity safe harbour, though the Bureau of Internal Revenue may challenge related-party debt arrangements lacking economic substance.

2.5 Losses

Net operating losses (excess of allowable deductions over gross income) may be carried forward and deducted from gross income for the three consecutive taxable years immediately following the year of loss for most corporations, extended to five years for losses incurred in specific relief periods enacted by special legislation. There is no loss carryback. A net operating loss carryforward is forfeited unless not less than 75% in nominal value of the outstanding issued shares (or of the paid-up capital) continues to be held by or on behalf of the same persons, other than a change arising from the death of a shareholder or a transfer under specified reorganisation rules.

2.6 Group taxation

The Philippines does not provide a formal consolidated or group tax return regime; each corporation, whether or not part of a corporate group, files and pays CIT on a standalone basis, and losses generally cannot be transferred or pooled between related Philippine entities. Groups instead achieve efficiency through intercompany service, financing, and licensing arrangements, all of which remain subject to the arm's-length transfer pricing requirements described in Section 2.8, and through tax-free exchanges of property for shares under the reorganisation provisions of the Tax Code where statutory control thresholds are met.

2.7 Controlled foreign companies

The Philippines does not currently operate a dedicated controlled foreign company (CFC) attribution regime that would tax undistributed profits of a foreign subsidiary in the hands of its Philippine parent on an accrual basis. Philippine resident corporations are taxed on worldwide income when actually or constructively received, so outbound investment structures are principally managed through the timing and character of dividend repatriation, foreign tax credit planning under Section 34, and the tax-sparing dividend rules described in Section 2.2, rather than through CFC-style anti-deferral rules.

2.8 Transfer pricing

The Bureau of Internal Revenue applies the arm's-length principle to related-party transactions under Revenue Regulations aligned with OECD Transfer Pricing Guidelines, requiring taxpayers with related-party transactions above prescribed thresholds to prepare contemporaneous transfer pricing documentation and to disclose related-party transactions annually via BIR Form 1709 filed with the annual income tax return. Country-by-country reporting obligations apply to Philippine constituent entities of multinational groups meeting the applicable consolidated revenue threshold, consistent with OECD BEPS Action 13 minimum standards. Advance pricing agreements are not yet broadly available in practice, and taxpayers rely principally on documentation-based defense of related-party pricing during BIR examinations.

2.9 Incentives

The CREATE Act (as refined by CREATE MORE) provides registered business enterprises — export enterprises and, to a more limited extent, domestic market enterprises — with an income tax holiday of four to seven years depending on location and industry tier, followed by a choice between a reduced 20% corporate income tax rate with enhanced deductions (additional deductions for labour, training, research and development, and infrastructure) or a Special Corporate Income Tax of 5% on gross income earned in lieu of all national and local taxes, available for ten years after the income tax holiday for export enterprises. Registered export enterprises also benefit from VAT zero-rating on local purchases of goods and services directly and exclusively used in their registered activity, and duty exemption on imported capital equipment, raw materials, and spare parts. Incentive availment is administered and monitored by the Fiscal Incentives Review Board and the relevant investment promotion agency (Board of Investments, Philippine Economic Zone Authority, or freeport authorities).

2.10 Pillar Two

The Philippines has not yet enacted domestic legislation implementing the OECD Pillar Two Global Anti-Base Erosion (GloBE) rules (Income Inclusion Rule, Undertaxed Profits Rule, or a Qualified Domestic Minimum Top-up Tax) as of the current review date, though the interaction between CREATE/CREATE MORE incentives (which can reduce effective rates below the 15% global minimum for in-scope multinational groups) and Pillar Two remains a live policy question under discussion by fiscal authorities. Multinational groups with Philippine operations under the CREATE regime and consolidated revenue at or above the EUR 750 million threshold should monitor Philippine legislative developments and, in the interim, assess exposure to top-up tax in other jurisdictions where their ultimate or intermediate parent entities are subject to an enacted IIR or UTPR.

2.11 Branch income and reorganisations

A Philippine branch of a foreign corporation (a resident foreign corporation) is taxed at the standard 25% CIT rate on Philippine-source income attributable to the branch, and after-tax branch profits remitted to the foreign head office are subject to an additional branch profit remittance tax of 15% on the total profits applied or earmarked for remittance, without deduction for the tax component, unless the branch is registered with a Philippine Economic Zone Authority or similar zone and subject to preferential treatment, or unless a treaty provides relief. Domestic reorganisations — mergers, consolidations, and transfers of property for shares — can qualify for tax-free treatment under the Tax Code where the transferor(s) gain control (generally at least 51% of the voting shares of the transferee) immediately after the exchange, deferring recognition of gain until a subsequent taxable disposition.

3.1 Residence and rates

Resident citizens are taxed on worldwide income; non-resident citizens and resident and non-resident aliens are taxed only on Philippine-source income. Individual taxpayers are subject to progressive income tax rates ranging from 0% on annual taxable income up to PHP 250,000 through intermediate brackets to a top marginal rate of 35% on taxable income in excess of PHP 8,000,000, following the schedule introduced by the TRAIN Law and adjusted in subsequent phases. Self-employed individuals and professionals with gross sales or receipts not exceeding the VAT threshold (PHP 3,000,000) may elect an 8% flat tax on gross sales or receipts in excess of PHP 250,000, in lieu of the graduated income tax rates and percentage tax.

3.2 Capital income and real estate

Interest income from Philippine bank deposits and deposit substitutes is generally subject to a 20% final withholding tax, while interest from a foreign-currency deposit system account is likewise subject to the 20% final withholding tax following the standardisation of interest income tax from 1 July 2025. Cash and property dividends received by individuals from domestic corporations are subject to a 10% final withholding tax (differing from the corporate intercorporate exemption). Capital gains on the sale of shares of domestic corporations not traded on the stock exchange are taxed at a final rate of 15% on the net gain, while capital gains on the sale of real property classified as a capital asset are taxed at 6% of the gross selling price or fair market value, whichever is higher, regardless of actual gain or loss. Shares traded on the Philippine Stock Exchange are instead subject to a stock transaction tax of 0.1% of gross selling price in lieu of capital gains tax.

3.3 Social security and payroll

Employees and employers contribute to the Social Security System (private-sector employees) or the Government Service Insurance System (public-sector employees), to PhilHealth (national health insurance), and to the Home Development Mutual Fund (Pag-IBIG Fund), with contribution rates and salary brackets adjusted periodically; combined employer and employee contributions to the Social Security System currently run to 15% of monthly salary credit, split with the larger share borne by the employer. Employers withhold personal income tax monthly from employee compensation under the graduated schedule, with an annual year-end adjustment (and, for employees with a single employer for the full year, a substituted filing regime in lieu of a separately filed annual return in many cases).

3.4 Inbound individuals

There is no net wealth tax. Estate tax applies to the net estate of a decedent (resident or non-resident, Philippine-situs assets for non-residents) at a flat rate of 6%, and donor's tax applies to gifts at a flat rate of 6% on the net gifts made during the calendar year in excess of an annual exemption. Foreign nationals employed by regional or area headquarters, regional operating headquarters, offshore banking units, and petroleum service contractors and subcontractors historically enjoyed a preferential 15% final tax on gross compensation income, though this preferential treatment has been phased out for entities registered after specified cut-off dates under the TRAIN Law, so eligibility should be confirmed by registration date and entity type. Aliens not engaged in trade or business in the Philippines are taxed at a flat 25% on gross Philippine-source income.

The Philippines imposes final withholding tax on Philippine-source dividends, interest, royalties, and rents paid to non-residents, with rates depending on the nature of the recipient (individual or corporate) and residence status. Dividends paid to non-resident foreign corporations are subject to a 25% final withholding tax, reduced to 15% under the tax-sparing rule described in Section 2.2, and further reduced under applicable treaties. Royalties paid to non-residents are subject to a 25% final withholding tax for non-resident foreign corporations (20% for resident citizens/domestic recipients on Philippine-source royalties from sources other than books, literary works and musical compositions, which attract a lower 10% rate for individuals). The Philippines maintains a treaty network of more than 40 double tax agreements, commonly reducing dividend withholding to 10–15%, interest to 10–15%, and royalties to 10–15%, subject to satisfying treaty residence and beneficial ownership requirements and, in practice, obtaining either prior BIR confirmation of treaty eligibility or filing a refund claim under the streamlined procedures adopted in recent years.

Relief at source under a treaty generally requires the non-resident payee to secure a Certificate of Residency for Tax Treaty Relief and, in many cases, prior confirmation from the BIR's International Tax Affairs Division, though the BIR has streamlined procedures in recent years to allow withholding agents to apply preferential treaty rates at source based on complete documentary submission, subject to post-facto BIR verification. Failure to properly document treaty eligibility exposes the withholding agent to assessment for the shortfall between the domestic rate and the treaty rate actually applied.

5.1 General anti-abuse and hybrids

The Tax Code and general principles of Philippine tax administration permit the Commissioner of Internal Revenue to disregard the form of a transaction and assess tax based on its substance where a scheme lacks business purpose beyond tax avoidance, applied most commonly in the re-characterisation of related-party financing, licensing, and service arrangements found not to reflect arm's-length terms. There is no codified, comprehensive hybrid-mismatch regime comparable to the EU's Anti-Tax Avoidance Directive; base erosion through related-party financing is instead addressed through the interest arbitrage limitation (Section 2.3), transfer pricing documentation (Section 2.8), and general anti-avoidance enforcement.

5.2 Exit taxation and disclosure

The Philippines does not impose a formal exit tax on individuals or corporations ceasing Philippine residence or reorganising cross-border, though the disposal of shares in a domestic corporation by a non-resident remains subject to Philippine capital gains tax (Section 3.2) regardless of where the transaction is executed, and indirect transfers of Philippine real property-rich entities can attract scrutiny under substance-based re-characterisation. There is no general mandatory disclosure regime comparable to DAC6; however, related-party transaction disclosure via BIR Form 1709, country-by-country reporting for in-scope multinational groups, and beneficial-ownership information collected at incorporation with the Securities and Exchange Commission give the tax authority visibility into cross-border group structures. The Philippines participates in automatic exchange of information under the Common Reporting Standard framework for financial account information.

6.1 VAT

VAT is levied at a standard rate of 12% on the sale of goods, properties, and services, and on importation, with a 0% rate applicable to export sales and specified transactions such as sales to registered export enterprises under the CREATE regime for goods and services directly and exclusively used in the registered project or activity. Certain transactions are VAT-exempt, including sales of specified agricultural and marine food products in their original state, educational services rendered by accredited institutions, and residential lease payments below prescribed monthly thresholds. Registration as a VAT taxpayer is mandatory once gross sales or receipts exceed PHP 3,000,000 in the preceding 12 months (or are reasonably expected to exceed that threshold); taxpayers below the threshold are instead generally subject to a percentage tax on gross receipts. VAT returns are filed and paid quarterly following the shift to a single quarterly filing system, with input VAT creditable against output VAT and excess input VAT attributable to zero-rated sales refundable within a statutory processing period.

6.2 Transaction, payroll and other taxes

Documentary stamp tax applies to a wide range of documents and transactions, including original issuances of shares (0.75% of par value or actual consideration), transfers of shares (0.75% of par value), and loan agreements and debt instruments (typically around 0.75–1% depending on the instrument and its term), with the tax collectible whether or not the document is formally executed in the Philippines if it relates to Philippine property or is otherwise effectively connected. Local government units impose local business taxes on gross receipts (rates vary by city/municipality and business classification, commonly in a range up to roughly 3% for certain activities) and real property tax on land, buildings, and machinery based on assessed value, generally 1% to 2% depending on location, plus a special education fund levy. Excise taxes apply to alcohol, tobacco, petroleum products, automobiles, mineral products, and sweetened beverages at specified per-unit or ad valorem rates. There is no net wealth tax; estate and donor's tax are addressed in Section 3.4.

7.1 Filing, assessment and audit

The taxable year is generally the calendar year, though corporations may adopt a fiscal year ending on the last day of any month other than December, subject to consistent use for financial reporting. Corporations file quarterly income tax returns within 60 days of the close of each of the first three quarters, and an annual income tax return by the 15th day of the fourth month following the close of the taxable year. Tax audits are conducted under Letters of Authority issued by the BIR, with audits commonly triggered by industry benchmarking, large or unusual deductions, related-party transaction disclosures, or discrepancies identified through third-party information matching, including data from the electronic invoicing system. The general prescriptive period for assessment is three years from the filing of the return (or the due date, if later), extended to ten years in cases of false or fraudulent returns or failure to file.

7.2 Rulings, appeals and penalties

Taxpayers may request BIR rulings on the tax treatment of proposed transactions, though rulings are increasingly limited to transactions involving novel issues or specific categories designated by the Commissioner, with routine confirmatory requests channelled instead to the taxpayer's self-assessment supported by existing regulations and jurisprudence. Assessments may be protested administratively to the BIR within 30 days of receipt of the Final Assessment Notice, with subsequent judicial appeal to the Court of Tax Appeals and ultimately the Supreme Court. Deficiency tax assessments carry interest at the legal rate (currently 12% per annum, subject to periodic adjustment) plus a 25% surcharge for late filing or payment (50% for wilful neglect or fraud), with criminal prosecution available for serious cases of tax evasion.

Large taxpayers and those enrolled in the BIR's electronic Filing and Payment System (eFPS) follow a staggered set of deadlines by industry grouping that can fall a few days before the statutory due date; taxpayers should confirm their specific eFPS filing group schedule. Deficiency assessments not settled by the due date in the Final Assessment Notice accrue deficiency and delinquency interest concurrently with the applicable surcharge described in Section 7.2.

9.1 Entity choice

The domestic stock corporation is the standard vehicle for foreign and local investors alike, permitting up to 100% foreign ownership in most sectors (subject to the Foreign Investment Negative List restricting or limiting foreign equity in specified activities such as mass media, land ownership, and certain public utilities), with no general minimum paid-in capital requirement for domestic-market enterprises beyond sector-specific thresholds, though export-oriented and certain foreign-owned domestic market enterprises face minimum paid-in capital requirements under the Foreign Investments Act. A branch office is available for foreign corporations wishing to conduct business directly rather than through a subsidiary, taxed as a resident foreign corporation with the additional branch profit remittance tax noted in Section 2.11. Representative offices may only undertake liaison, quality control, and promotional activities and may not derive income from Philippine sources. Registration with the Philippine Economic Zone Authority or the Board of Investments should be evaluated early given the materially different tax profile available under CREATE incentives (Section 2.9).

9.2 Structuring and incentives

Export-oriented and qualifying domestic-market enterprises should assess eligibility for CREATE/CREATE MORE registration, weighing the income tax holiday followed by either enhanced deductions or the 5% Special Corporate Income Tax on gross income against the standard 25% CIT rate with ordinary deductions, taking into account the geographic and locational tiering that affects the length of the income tax holiday. VAT zero-rating on local purchases for registered export enterprises materially improves working-capital efficiency relative to the standard input-VAT-then-refund model. Groups repatriating profits through a Philippine branch should model the combined effect of the 25% branch CIT and the 15% branch profit remittance tax against the alternative of operating through a subsidiary paying ordinary dividend withholding, since the effective combined burden can differ materially between the two structures depending on treaty relief and distribution policy. Related-party financing and service arrangements should be benchmarked and documented under Section 2.8 given active BIR transfer pricing enforcement.

9.3 Worked effective-rate illustration

A Philippine domestic corporation not registered under CREATE earns gross income of PHP 40,000,000 and taxable net income (after allowable deductions) of PHP 15,000,000. Regular CIT at the standard 25% rate would be 15,000,000 × 25% = PHP 3,750,000. The minimum corporate income tax (applicable from the corporation's fourth year of operations) is 2% of gross income, i.e. 40,000,000 × 2% = PHP 800,000, which is lower than the regular CIT, so the regular CIT of PHP 3,750,000 applies. The effective rate on net taxable income is 3,750,000 / 15,000,000 = 25.0%. If instead the corporation qualifies as a smaller domestic corporation (total assets not exceeding PHP 100 million and net taxable income not exceeding PHP 5 million) with net taxable income of PHP 4,000,000, CIT at the reduced 20% rate would be 4,000,000 × 20% = PHP 800,000, an effective rate of 800,000 / 4,000,000 = 20.0% — five percentage points lower than the standard-rate outcome, illustrating the materiality of correctly assessing eligibility for the reduced rate under the CREATE Act asset and income thresholds.

9.4 Compliance

Expect quarterly and annual income tax filings, quarterly VAT (or percentage tax) returns, monthly and annual withholding tax compliance including the annual alphalist of employees and payees, and mandatory electronic filing and payment for large taxpayers and eFPS-enrolled entities. Registered business enterprises under CREATE face additional reporting to the Fiscal Incentives Review Board and their investment promotion agency, including annual tax incentive reports reconciling incentives claimed. Transfer pricing documentation and the related-party transaction disclosure (BIR Form 1709) should be prepared contemporaneously with the annual income tax return. Local business tax renewal and real property tax payments follow separate annual local government unit calendars that run independently of national BIR deadlines and should be tracked by location of each registered business address.