Special InTAX: February 2021 Issue 1 | Volume 2
InTAX is an official publication of R.G. Manabat & Co.'s Tax Group
InTAX is an official publication of R.G. Manabat & Co.'s Tax Group
Republic Act (RA) No. 11523 or the “FIST Act”
On 16 February 2021, President Rodrigo Duterte signed into law the Financial Institutions Strategic Transfer (FIST) Act which seeks to cushion the adverse impact of the COVID-19 pandemic on financial institutions by enabling them to efficiently dispose of non-performing loans and assets and extend credit to more sectors in need.
Financial Institutions Strategic Transfer Corporation (FISTC)
A FISTC is a stock corporation that will be allowed, among others:
- To invest or acquire non-performing assets (NPAs) of financial institutions (FIs);
- To restructure or condone debt or undertake other restructuring related activities, in case of non-performing liabilities (NPLs);
- To buy or transfer shares issued by the borrower for the purpose of business reorganization or rehabilitation of borrowers;
- To enter into dation in payment arrangements, foreclose judicially or extrajudicially, and other forms of debt settlement involving NPLs; and
- To issue participation certificates in the form of Investment Unit Instruments (IUIs) for the purpose of acquiring, managing, improving and disposing of its NPAs acquired from FIs.
A FISTC shall have a minimum capitalization of P500,000,000.00 with a minimum subscribed capital stock of P125,000,000.00 and a minimum paid-up capital of P31,250,000.00. The FISTC must also comply with the minimum capital requirements in accordance with the Foreign Investments Act in case of land investments and foreign equity participation.
Applications for the establishment and registration of a FISTC shall be filed within 36 months from the effectivity of the law.
Entities created under Republic Act No. 9182, as amended (Special Purpose Vehicle Act of 2002), are also qualified to avail of the privileges and incentives under the FIST Act.
A FISTC Plan which contains the details as per Section 8 of the FIST Act shall be submitted to the Securities and Exchange Commission (SEC) for approval.
Upon approval of the SEC, an Approval Certificate shall be issued stating that the FISTC Plan has been rendered effective and the sale and distribution of IUIs covered by such plan has been authorized. The SEC may order the FISTC to amend the plan if it is incomplete or inaccurate on its face in any material aspect, or may also reject, suspend or revoke a submitted plan if it is found to be non-compliant with the requirements of the law and regulations issued to implement it.
Any qualified buyer may acquire or hold IUIs in a FISTC with a minimum amount of P10,000,000.00 provided that the FISTC shall not be authorized to acquire the IUIs of another FISTC, and that the parent, subsidiaries, affiliates or stockholders, directors, officers or any related interest of the selling FIs or the parent’s subsidiaries, affiliates or stockholders, directors, officers or any related interest, shall not be authorized to acquire or hold directly or indirectly, the IUIs of the FISTC that acquired the NPAs of the FI.
Transfer of Assets to FISTC
Transfers of NPLs to a FISTC shall be subject to prior notice to the borrowers of the NPLs and all persons holding prior encumbrances upon the assets mortgaged or subject to security interest. Moreover, transfers of NPAs from an FI to a FISTC shall be subject to prior Certification of Eligibility as NPA by the appropriate regulatory authority having jurisdiction over its operations within 20 working days from date of application by the FI for eligibility.
After the sale or transfer of the NPLs, the transferring FI shall inform the borrower in writing at the last known address of the NPLs. The reacquisition of the NPA by the borrower or owner from the FIST or subsequent transferee other than by the exercise of the right of redemption, shall be in accordance with the terms and conditions as may be agreed upon by them.
No courts, except for the Court of Appeals and the Supreme Court, can issue an injunctive relief against the transfer of NPAs from the FI to a FISTC, and from a FISTC to a third party, or dation in payment by the borrower, or by a third party in favor of an FI or in favor of a FISTC, or judicial or extrajudicial foreclosure sales or execution sales of the FI or FISTC of collateral settlements of NPLs.
Incentives and Exemption Privileges
Transfers of NPAs from the FI to a FISTC, and from a FISTC to a third party or dation in payment by the borrower or by a third party in favor of an FI in favor of a FISTC shall be exempt from the following taxes:
- Documentary Stamp Tax (DST) on transfer of NPAs and dation in payment;
- Capital gains tax on transfer of lands and capital assets;
- Creditable withholding income tax on transfer of lands and/or buildings treated as ordinary assets; and
- Value-added tax or gross receipts tax on the transfer of NPAs.
In addition, such transfers are also subject to the following in lieu of the applicable fees:
- 50% of the applicable registration and transfer fee on the transfer of real estate mortgage and security interest to and from the FISTC;
- 50% of the applicable filing fees for any foreclosure initiated by the FISTC in relation to any NPA acquired from an FI;
- 50% of the land registration fees.
Transfers of NPAs from the FI to a FISTC or transfers by way of dation in payment by the borrower or by a third party to the FI shall be entitled to the privileges enumerated above for a period of not more than 2 years from the date of effectivity of the law. Transfers from a FISTC to a third party of the NPAs acquired within such period, or transfers by way of dation in payment by a borrower or by a third party to the FISTC shall enjoy the above privileges for a period of not more than 5 years from the date of acquisition of the FISTC, provided that properties acquired by a FIST from GFIs or GOCCs devoted to socialized or low-cost housing shall not be converted to other uses.
Such incentives may also be extended to any individual provided:
- The transaction is limited to a Real and Other Properties Acquired (ROPA) that is either a single family residential unit or an empty lot, or to NPL secured by a real estate mortgage on a residential unit or an empty lot;
- There shall only be 1 transaction consisting of 1 residential unit or empty lot per individual; and
- The 2-year transfer period, including its extension, and the 5-year entitlement period granted to an NPA shall also apply to the single family residential unit or empty lot.
Additional Tax Exemption and Privileges
The FISTC shall also be exempt from income tax on net interest income, DST and mortgage registration fees on new loans in excess of the existing loans extended to the borrowers with NPLs acquired by the FISTC.
In case of capital infusion by the FISTC to the borrower with NPLs, the FISTC shall also be exempt from DST.
The above tax exemptions and fee privileges shall apply for a period of not more than 5 years from the date of acquisition of NPLs by the FISTC.
NOLCO of Participating FIs
Any loss incurred by FIs resulting from the transfer of an NPA within the 2-year period from the effectivity of the law shall be treated as ordinary loss, provided that accrued interest and penalties shall not be included as loss on such loss carry-over from operations. Such loss incurred by the FI from the transfer of NPAs within the 2-year period may be carried over for a period of 5 consecutive taxable years immediately following the year of such loss. However, tax savings derived by FIs from the NOLCO shall not be made available for dividend declaration but shall be retained as a form of capital build-up.
In case of GFIs and GOCCs, the Commission on Audit shall promulgate the necessary rules and regulations governing the treatment of loss as a result of the transfer of NPAs.
Any natural or judicial persons who benefit from the tax exemptions and privileges when they are not entitled thereto shall be subject to applicable penalties provided under the law, and shall be required to refund to the government double the amount of the tax exemptions and privileges availed plus interest of 12% per year until full payment thereof.
The provisions of the FIST Act shall be applicable to assets that have become non-performing as of 31 December 2022.
The FIST Act will take effect immediately after it is published in the Official Gazette and a newspaper of general circulation.
Attached is the full text of RA No. 11523.
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