BULLET NOTES ON PREFERENTAL TAXATION
Scope
Senior Citizens Law
Magna Carta for Disabled Persons
Special Economic Zone Act
Omnibus Investments Code
Barangay Micro Business Enterprises (BMBEs)
Double Taxation Agreements
What tax incentives can be availed by establishments with clients who are persons
with disability (PWD) and senior citizens?
Senior Citizen Person with Disability
The 20% discount given, may be claimed as The 20% discount given, may be claimed as
a deduction. a deduction.
Additional deduction of 15% of total Additional deduction of 25% of total
salaries paid to senior citizen employees. salaries paid to disabled employees.
No 12% VAT imposition on sale to senior Additional deduction of 50% of direct cost
citizen customers. of modification of physical facilities.
Public utilities such as water and electricity
who gave 5% discount may claim such as No 12% VAT imposition on sale to PWD.
deductions.
What goods or services are covered by preferential taxation?
o Hotels and similar lodging establishment
o Restaurants
o Sports and recreational centers
o Theaters, concert halls
o Circus, carnivals
o Places of culture, leisure and amusement
o Drugstore
o Facilities providing medical and dental services including diagnostic and
laboratory services
o Domestic air and sea transporters
o Land transportation providers such as bus, LRT, MRT, PNR and skyways and
expressways
Who is a senior citizen?
o At least 60 years old; and
o Annual Gross Income does not exceed Php60,000 or within poverty level as
determined by National Economic and Development Authority.
What tax incentives for establishments with rooming-in and breastfeeding
practices?
o Expenses incurred to provide facilities for rooming-in and breastfeeding
including lactation stations shall be deductible for income tax purposes
twice (2x) the actual amounts incurred.
What tax incentives are given to lawyers?
o A lawyer rendering free legal service may deduct (a) the amount that could
have been collected for the actual free legal service or (b) 10% of his gross
income whichever is lower.
What tax incentives are given to participants of “Dual Training System Act 1994”?
o To promote employee skills any agricultural, industrial or business
establishment who would pay for the training of its skilled workers shall be
allowed 50% additional deduction for the expenses paid to the accredited
educational institution for its trainees.
o Provided, such expenses shall not exceed 5% of the establishments direct
labor and in no case exceeds 25 million pesos.
TAXATION BULLET NOTES – PREFERENTIAL TAXATION Compiled by Vhin
What are the tax incentives for enterprises adopting productivity programs?
o To encourage productivity and maintain industrial peace by providing
incentives to both labor and capital. An additional deduction of 50% of the
total productivity bonuses given to employees under the program over and
above the total allowable ordinary and necessary business deductions for said
bonuses. And additional 50% for grants for special studies given to rank and
file employees for development of skills.
What tax incentives are given to donors of public schools?
o An additional 50% deduction for the actual amount of donation to public
schools classified as priority project of the Government.
What is PEZA?
o Philippine Economic Zone Authority is a government agency tasked to
promote investments, extend assistance, register, grant incentives to and
facilitate the business operations of investors in export-oriented
manufacturing and service facilitates inside selected areas.
What tax incentives are given to PEZA registered enterprises?
Economic Zone Export Manufacturing Enterprise
o Income Tax Holiday (ITH) – 100% exemption from corporate income tax.
o 4 years ITH for Non-pioneer Project.
o 6 years ITH for Pioneer Project.
o Upon expiry of the Income Tax Holiday – 5% Special Tax on Gross Income
and exemption from all national and local taxes (“Gross Income” refers to
gross sales or gross revenues derived from the registered activity, net of sales
discounts, sales returns and allowances and minus cost of sales or direct costs
but before any deduction is made for administrative expenses or incidental
losses during a given taxable period).
o Tax and duty free importation of raw materials, capital equipment,
machineries and spare parts.
o Exemption from wharfage dues and export tax, impost or fees.
o VAT zero-rating of local purchases subject to compliance with BIR and PEZA
requirements.
o Exemption from payment of any and all local government imposts, fees,
licenses or taxes. However, while under Income Tax Holiday, no exemption
from real estate tax, but machineries installed and operated in the economic
zone for manufacturing, processing or for industrial purposes shall be exempt
from real estate taxes for the first three (3) years of operation of such
machineries. Production equipment not attached to real estate shall be exempt
from real property taxes.
o Exemption from expanded withholding tax.
Information Technology Enterprise:
o Income Tax Holiday (ITH) – 100% exemption from corporate income tax.
o 4 years ITH for Non-pioneer project.
o 6 years ITH for Pioneer project.
Tourism Economic Zone Locator Enterprise
o Four (4) years of Income Tax Holiday ITH (as qualified under the National
Investment Priorities Plan).
o Upon expiry of the Income Tax Holiday – 5% special Tax on Gross Income
and exemption from all national and local taxes (“Gross Income” refers to gross
sales or gross revenues derived from the registered activity, net of sales
discounts, sales returns and allowances and minus cost of sales or direct costs
but before any deduction is made for administrative expenses or incidental
losses during a given taxable period).
o Tax and duty-free importation of capital equipment.
o VAT Zero Rating on local purchases of goods and services, including land-
based telecommunications, electric power, and water bills.
o Exemption from expanded withholding tax.
TAXATION BULLET NOTES – PREFERENTIAL TAXATION Compiled by Vhin
Medical Tourism Enterprise
o Four (4) years of Income Tax Holiday on income solely from servicing foreign
patients.
o Upon expiry of the Income Tax Holiday – 5% Special tax on Gross Income
upon in lieu of all national and local taxes. (“Gross Income” refers to gross sales
or gross revenues derived from the registered activity, net of sales discounts,
sales returns and allowances and minus cost of sales or direct costs but before
any deduction is made for administrative expenses or incidental losses during a
given taxable period).
o Tax and duty-free importation of medical equipment, including spare parts
and equipment supplies, required for the technical viability and operation of the
registered activity/ies of the enterprise.
o VAT Zero Rating on local purchase of goods and services, including land-
based telecommunications, electric power and water bills.
o Exemption from expanded withholding tax.
Agro-Industrial Economic Zone Enterprise
o Four (4) years of Income Tax Holiday.
o Upon expiry of the Income Tax Holiday – 5% Special tax on Gross Income
and exemption from all national and local taxes. (“Gross Income” refers to
gross sales or gross revenues derived from the registered activity, net of sales
discounts, sales returns and allowances and minus cost of sales or direct costs
but before any deduction is made for administrative expenses or incidental
losses during a given taxable period).
o Tax and duty free importation of production equipment and machineries,
breeding stocks, farm implements including spare parts and supplies of the
equipment and machineries.
o Exemption from export taxes, wharfage dues, impose and fees.
o VAT Zero Rating on local purchases of goods and services, including land-
based telecommunications, electric power and water bills.
o Exemption from payment of local government fees such as Mayor’s Permit,
Business Permit, permit on the Exercise of profession/Occupation/Calling,
Health Certificate Fee, Sanitary Inspection Fee, and Garbage Fee.
Economic Zone Logistics Services Enterprise
o Exemption from duties and taxes on raw materials, semi-finished goods for
re-sale to or packing/covering, cutting, altering for subsequent sale to PEZA-
registered Export Manufacturing Enterprises, for direct export or for
consignment to PEZA-registered export enterprise.
o VAT Zero Rating on raw materials for checking, packing, visual inspection,
storage and shipping to be sourced locally.
Economic Zone Developer / Operator
o Manufacturing Economic Zone Developer/Operator
Special 5% Tax on Gross Income and exemption from all national
and local taxes, except real property tax on land owned by the
Economic Zone Developer. (“Gross Income” refers to gross sales or
gross revenues derived from the registered activity, net of sales
discounts, sales returns and allowances and minus cost of sales or direct
costs but before any deduction is made for administrative expenses or
incidental losses during a given taxable period).
VAT Zero rating of local purchases.
Exemption from expanded withholding tax.
o IT Park Developer / Operator
Special 5% Tax on Gross Income and exemption from all national
and local taxes, except real property tax on land owned by the IT
Park Developer. (“Gross Income” refers to gross sales or gross revenues
derived from the registered activity, net of sales discounts, sales returns
and allowances and minus cost of sales or direct costs but before any
deduction is made for administrative expenses or incidental losses
during a given taxable period).
VAT Zero rating of local purchases.
TAXATION BULLET NOTES – PREFERENTIAL TAXATION Compiled by Vhin
Exemption from expanded withholding tax.
o Tourism Economic Zone Developer / Operator
Special 5% Tax on Gross Income and exemption from all national
and local taxes, except real property tax on land owned by the
Tourism Economic Zone Developer. (“Gross Income” refers to gross
sales or gross revenues derived from the registered activity, net of sales
discounts, sale returns and allowances and minus cost of sales or direct
costs but before any deduction is made for administrative expenses or
incidental losses during a given taxable period).
o Medical Tourism Economic Zone Developer / Operator
Special 5% Tax on Gross Income and exemption from all national
and local taxes, except real property tax on land owned by Medical
Tourism Zone Developer. (“Gross Income” refers to gross sales or gross
revenues derived from the registered activity, net of sales discounts, sales
returns and allowances and minus cost of sales or direct costs but before
any deduction is made for administrative expenses or incidental losses
during a given taxable period).
VAT Zero rating of local purchases.
Exemption from expanded withholding tax.
o Agro-Industrial Economic Zone Developer / Operator
Special 5% Tax on Gross Income and exemption from all national
and local taxes, except real property tax on land owned by the Agro-
Industrial Economic Zone Developer. (“Gross Income” refers to gross
sales or gross revenues derived from the registered activity, net of sales
discounts, sales returns and allowances and minus cost of sales or direct
costs but before any deduction is made for administrative expenses or
incidental losses during a given taxable period).
VAT Zero rating of local purchases.
Exemption from expanded withholding tax.
o Retirement Economic Zone Developer / Operator
Special 5% Tax on Gross Income and exemption from all national and
local taxes, except real property tax on land owned by the Retirement
Economic Zone Developer. (“Gross Income” refers to gross sales or
gross revenues derived from the registered activity, net of sales
discounts, sales returns and allowances and minus cost of sales or direct
costs but before any deduction is made for administrative expenses or
incidental losses during a given taxable period).
VAT Zero rating of local purchases.
Exemption from expanded withholding tax.
Facilities Enterprises
o Economic Zone Facilities Enterprise
Special 5% Tax on Gross Income and exemption from all national and
local taxes, except real property tax on land owned by developers.
(“Gross Income” refers to gross sales or gross revenues derived from the
registered activity, net of sales discounts, sales returns and allowances
and minus cost of sales or direct cots but before any deduction is made
for administrative expenses or deduction is made for administrative
expenses or incidental losses during a given taxable period).
VAT Zero rating of local purchases.
Exemption from expanded withholding tax.
o IT Park Facilities Enterprise
Special 5% Tax on Gross Income and exemption from all national and
local taxes, exempt real property tax on land owned by developers.
(“Gross Income” refers to gross sales or gross revenues derived from the
registered activity, net of sales discounts, sales returns and allowances
and minus cost of sales or direct costs but before any deduction is made
for administrative expenses or incidental losses during a given taxable
period).
TAXATION BULLET NOTES – PREFERENTIAL TAXATION Compiled by Vhin
VAT Zero rating of local purchases.
Exemption from expanded withholding tax.
o Retirement Economic Zone Facilities Enterprise
Special 5% on Tax on Gross Income and exemption from all national
and local taxes, except real property tax on land owned by
developers. (“Gross Income” refers to gross sales or gross revenues
derived from the registered activity, net of sales discounts, sales returns
and allowances and minus cost of sales or direct costs but before any
deduction is made for administrative expenses or incidental losses
during a given taxable period).
VAT Zero rating of local purchases.
Exemption from expanded withholding tax.
Economic Zone Utilities Enterprise
o Special 5% Tax on Gross Income and exemption from all national and local
taxes, except real property tax on land owned by developers. (“Gross
Income” refers to gross sales or gross revenues derived from the registered
activity, net of sales discounts, sales returns and allowances and minus cost of
sales or direct costs but before any deduction is made for administrative
expenses or incidental losses during a given taxable period).
o VAT Zero rating of local purchases.
o Exemption from expanded withholding tax.
What are preferred areas of investment under the Board of Investment (BOI)?
o Business Processing Outsourcing
o Electronic Industry
o Renewable Energy
o Shipbuilding
What are tax incentives given to BOI registered enterprises?
o Income Tax Holiday.
o Exemption from taxes and duties on imported spare parts (NOLCO).
o Exemption from wharfage dues and export tax, duty, impost and fees (GIE).
o Reduction of the Rates of Duty on Capital Equipment, Spare parts and
Accessories by Virtue of EO 528.
o Tax exemption on breeding stocks and genetic materials.
o Tax Credits.
o Additional deductions from Taxable Income.
What are micro business enterprises?
o “Barangay Micro Business Enterprise”, refers to any business entity or
enterprise engaged in the production processing or manufacturing or products
or commodities, including agro-processing, trading and services, whose total
assets including those arising from loans but exclusive of the land on which the
particular business entity’s office, plant and equipment are situated, shall not
be more than Three Million Pesos (P3,000,000.00).
o BMBEs are essential to the country’s economic development since they
effectively serve as seedbeds of the Filipino entrepreneurial talent. Thus, the Act
primarily aims to integrate micro enterprises in the informal sector into the
mainstream of the economy. Strengthening BMBEs would mean more jobs and
livelihood, and a better quality of life for Filipinos.
What tax incentives are given to micro business enterprises?
o Income tax exemption from income arising from the operations of the
enterprise.
o Exemption from the coverage of the Minimum Wage Law (employees will
still receive the same social security and health care benefits as other
employees).
o Priority to a special credit window set up specifically for the financing
requirements of BMBEs.
o Technology transfer, production and management training, and marketing
assistance programs for BMBE beneficiaries.
TAXATION BULLET NOTES – PREFERENTIAL TAXATION Compiled by Vhin
o The LGUs are also encouraged to either reduce the amount of local taxes, fees
and charges imposed or exempt the BMBEs from local taxes, fees and charges.
How to register a BMBE?
o Accomplish BMBE Form 01 in triplicate and submit to the Office of the
Municipal or City Treasurer.
o The Municipal or City Treasurer evaluates the application. The application shall
be processed within 15 working days upon submission; otherwise, the BMBE
shall be deemed registered.
o A registered BMBE shall be issued a Certificate of Authority as proof of
registration, effective for a period of two years. The application is renewable
every two years.
What are double taxation agreements?
o If a non-resident has income source in the Philippines and is a resident in
another country, it may be liable to pay tax in both countries under their
tax laws.
o To avoid ‘Double Taxation’ (DT) in this situation, the Philippines has
negotiated DT treaties with 39 countries.
o A non-resident in another country with which the Philippines has a DT treaty
may be able to claim exemption or partial relief from the Philippines tax on
certain types of income from Philippines sources.
What are types of Philippine income may be subject of preferential tax rate or
tax exempt?
o Preferential tax rates:
Dividends, Interest, Royalties and Shipping and Air Transport.
o Tax Exempt:
Depending on the provisions of the DTA, you may claim the benefits of
an exemption from the tax on income for personal services, teachers,
researchers, artists, athletes, students, trainees, directors fees, pensions,
government service, gains from sales of shares/alienation of property and
independent personal services not rendered more than 183 days.
o Where to apply tax treaty relief application?
All tax relief application shall only be submitted and received by the
International Tax Affairs Division (“ITAD”) of the BIR.
A non-resident individual or corporation must first secure Tax
Identification Number for TTRA from Revenue District Office No. 39
before filing the TTRA in ITAD.
