PhilippinesTax Obligations Detailed

In the Philippines, employers have various tax obligations related to their employees' compensation and benefits.

Income Tax

Employers withhold income tax from employees' salaries based on a progressive tax system. The rates for 2025 range from 0% for annual income up to ₱250,000 to 35% for income exceeding ₱8,000,000. These withheld taxes must be remitted to the Bureau of Internal Revenue (BIR) by the 10th of the following month. A year-end adjustment and annualization of income and withheld taxes is required in December. Over-withheld taxes must be refunded to employees by January 25th of the following year, and BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld) must be distributed to employees by January 31st. The Annual Information Return of Income Taxes Withheld on Compensation (BIR Form 1604C) must also be submitted by January 31st.

Social Security System (SSS)

The SSS contribution rate for 2025 is 15% of the employee's monthly salary credit. The employer contributes 10%, and the employee contributes 5%.

Philippine Health Insurance Corporation (PHIC)

The maximum annual PHIC contribution for foreign national employees is capped at PHP 51,000 for 2025. Employers match employee contributions.

Home Development Mutual Fund (HDMF/Pag-IBIG)

Foreign national employees are not required to contribute to HDMF.

Fringe Benefit Tax (FBT)

Fringe benefits provided to employees are subject to FBT, which is computed quarterly. The FBT return (BIR Form 1603Q) is due on the last day of the month following the end of the quarter. BIR Form 1604-F (Annual Information Return for Final Income Taxes Withheld) must be filed by January 31st of the following year.

Other Taxes and Reporting Requirements

Employers must also comply with other reporting requirements, such as submitting BIR Form 1601-C for monthly remittance of withheld income taxes and BIR Form 1604-C for annual information return. Specific deadlines for these filings vary based on the employer's tax group. Additionally, if an employer offers a retirement fund, contributions may be deductible from gross income if the fund meets the requirements of RA No. 4917 and a certificate of tax qualification is obtained from the BIR.

Please note that this information is current as of February 5, 2025, and might change due to updates in tax regulations.

In the Philippines, employers deduct various taxes from employee salaries, including income tax, social security, health insurance, and housing fund contributions. These deductions fund government services and social security programs.

Income Tax

As of 2025, the income tax system in the Philippines follows a progressive scheme, meaning higher earners pay higher tax rates. Those earning ₱250,000 or less annually are exempt from income tax. The tax rates are as follows:

• ₱250,001 - ₱400,000: 15% of the excess over ₱250,000
• ₱400,001 - ₱800,000: ₱22,500 + 20% of the excess over ₱400,000
• ₱800,001 - ₱2,000,000: ₱102,500 + 25% of the excess over ₱800,000
• ₱2,000,001 - ₱8,000,000: ₱402,500 + 30% of the excess over ₱2,000,000
• Above ₱8,000,000: ₱2,202,500 + 35% of the excess over ₱8,000,000

Social Security System (SSS)

Both employers and employees contribute to the SSS, which provides retirement, disability, and other benefits. The contribution amount depends on the employee's salary bracket, with a fixed ceiling for higher earners. Employers are responsible for remitting both the employee's and employer's share to the SSS.

Philippine Health Insurance Corporation (PhilHealth)

PhilHealth provides national health insurance coverage. Both employers and employees contribute equally based on the employee's monthly salary.

Home Development Mutual Fund (Pag-IBIG)

Pag-IBIG is a housing fund that provides affordable housing loans and other benefits. Both employers and employees contribute, and the contribution amount depends on the employee's salary bracket.

Other Deductions

Other possible deductions include:

• Withholding tax on fringe benefits: A 35% tax applied to non-cash benefits provided to managerial and supervisory employees.
• Other deductions: Loan payments, salary advances, and other authorized deductions can also be made with the employee's written consent. Note that the 13th-month pay, a mandatory year-end benefit, cannot be subject to deductions other than government-mandated contributions and taxes.

Employer Responsibilities

Employers must:

• Register their business with the Bureau of Internal Revenue (BIR), SSS, PhilHealth, and Pag-IBIG.
• Deduct the correct amounts from employee salaries and remit them to the appropriate agencies by the deadlines.
• File necessary tax returns and reports accurately and on time.
• Obtain the employee's SSS number.
• Report all new employees for SSS coverage within 30 days of their employment date.

This information is current as of February 5, 2025, and might be subject to change due to legal updates. Always consult with a tax professional for the most recent regulations.

In the Philippines, the Value-Added Tax (VAT) is a consumption tax levied on most goods and services.

VAT Rates and Thresholds

• Standard Rate: 12% applies to most goods and services sold, bartered, exchanged, leased, or used. This also includes gross receipts from services rendered.
• 0% Rate (Zero-Rated): Applies to specific goods and services like exports, certain international shipping, and some essential commodities like certain agricultural products, domestic gas, and water. It allows businesses to claim a refund on input VAT.
• VAT Threshold: Businesses with gross sales or receipts exceeding PHP 3,000,000 in a 12-month period must register for VAT. Voluntary registration is also possible. Imported goods are also subject to VAT, regardless of the importer's sales volume. This applies as of today (2025-02-05).

VAT Registration and Filing

• Registration: Mandatory for businesses exceeding the PHP 3,000,000 sales threshold or those importing goods. Non-resident businesses cannot register; VAT is withheld by the buyer. Voluntary registration is permitted.
• Filing Frequency: Quarterly for most businesses. Monthly filing is still available as an option. Large taxpayers, financial institutions, and high-net-worth individuals may have specific e-filing requirements and deadlines.
• Filing Deadlines: Quarterly returns (BIR Form 2550Q) are due within 25 days after the end of the taxable quarter, which aligns with the income tax quarter (calendar or fiscal). For optional monthly filers, returns (BIR Form 2550M) can be submitted by the 20th of the following month (paper filing). e-filers submit between the 21st and 25th of the following month.
• Invoicing: VAT-registered businesses must issue compliant invoices with details such as date, unique invoice number, vendor and customer TIN (for invoices above PHP 1,000), description of goods/services, net, VAT, and gross amounts. Invoices can be in foreign currencies, converted to PHP using a public exchange rate.

Exempt Goods and Services

Several goods and services are exempt from VAT, meaning businesses don't charge VAT on sales and cannot claim input VAT on purchases. Examples include some basic food products, raw agricultural products, and personal belongings of immigrants. Education and healthcare services also often have exemptions. However, specifics can vary and may change, so it is important to verify the latest regulations for your business activity. As of today (2025-02-05), Digital services are generally subject to 12% VAT but certain educational services like online courses may be exempt.

VAT Refunds

Businesses can apply for VAT refunds for zero-rated sales or upon cancellation of VAT registration due to business cessation. This involves filing BIR Form 1914 within two years of the relevant event.

Other Considerations

The Bureau of Internal Revenue (BIR) administers the VAT system. Businesses should consult BIR publications and guidelines or a tax professional for the latest information and to determine their specific obligations as the VAT regulations can be complex and are subject to changes.

The Philippines offers various tax incentives to attract investments and stimulate economic growth.

Income Tax Holiday (ITH)

• Provides an income tax exemption for a specified period.
• Duration: 4 to 7 years, depending on location and industry as per the Strategic Investment Priority Plan (SIPP).
• Additional 3 years for relocation from the National Capital Region (NCR).
• Additional 2 years for businesses located in areas recovering from disasters or conflicts.

Special Corporate Income Tax (SCIT)

• A reduced corporate income tax rate of 5% for 10 years.
• Applicable to export-oriented enterprises.
• Available as an alternative to enhanced deductions after the ITH period.

Enhanced Deductions

• Increased deductions for various expenses, including:
  • Depreciation allowance (10% for buildings, 20% for machinery).
  • Labor expense (150%).
  • Research and Development (200%).
  • Training expense (200%).
  • Domestic input expense (150%).
  • Power expense (100%).
  • Reinvestment allowance for the manufacturing industry (up to 50%).
• Net operating loss carry-over (NOLCO): Losses can be carried over as deductions within five years following the ITH period.

Value-Added Tax (VAT) Incentives

• Exemptions and zero-rating on VAT for registered export enterprises.
• VAT exemptions are clarified for goods and services directly used in registered projects, including security, financial, and marketing services.
• High-value domestic market enterprises and registered business enterprises can benefit from enhanced VAT incentives.

Duty Exemptions

• Exemption from customs duties on imported capital equipment.
• Available for both export and domestic market enterprises registered under the SIPP.

CREATE MORE Act

• Enhances the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
• Extends the maximum availment period for tax incentives to 27 years.
• Provides additional incentives for businesses investing in sustainable practices, such as renewable energy and energy efficiency.

General Information About Tax Incentives in the Philippines

Tax incentives play a significant role in promoting economic development in the Philippines. The government regularly reviews and updates these incentives to ensure they remain competitive and aligned with national economic goals. Businesses considering investing in the Philippines should carefully review the available incentives and determine their eligibility based on their industry, location, and investment plans. It's important to note that this information is current as of February 5, 2025, and may be subject to change due to future legislation or regulatory updates. Consulting with a tax professional is recommended for the most up-to-date and personalized advice.