Philippines: Legislation rationalizing tax rates on passive investments signed into law

The president in late May 2025 signed into law Republic Act (RA) No. 12214 (the “Capital Markets Efficiency Promotion Act”) rationalizing the tax rates on passive investments. The legislation includes the provisions described below.

Income tax

• Equity-based compensation forms part of gross income at the time of its exercise.
• Gains from the sale, transfer, or disposition of bonds excluded from gross income is limited to specific bonds that are issued by the Philippines or any of its instrumentalities to finance capital expenditures or programs covered by the Philippine Development Plan or its equivalent and other high-level priority programs of the national government.
• Gains realized by the investor upon redemption of shares of stock in a mutual fund company, or units of participation in a mutual fund or unit investment trust fund, are excluded from gross income subject to the condition that prior to redemption, final taxes due on realized gains have been previously withheld at the level of the underlying assets.
• An additional deduction of 50% of the employer’s actual contributions made to personal equity and retirement accounts (PERAs) (under RA No. 9505) shall be granted to private employers that contribute at least equal to the contributions of their employees, subject to the maximum allowable contribution allowed under RA No. 9505, and subject to the condition that the private employer contributes to all its employees’ PERAs.
• Any interest, yield, or other monetary benefit earned by a citizen, resident alien, nonresident alien engaged in trade or business in the Philippines, domestic corporation, and resident foreign corporation from any currency bank deposit or deposit substitute, trust funds, and other similar arrangements is subject to a uniform rate of 20% withholding tax.
• Royalties earned as passive income is now subject to 20% withholding tax. Passive income refers to any income that is earned from sources that do not require a taxpayer’s active pursuit and performance of trade or business and is not subject to value added tax (VAT).

Capital gains tax

• Capital gains derived from the sale, exchange, or other disposition of shares of stock in a foreign corporation, except those sold or disposed of through a local or foreign stock exchange, is subject to 15% capital gains tax.

Stock transaction tax

• Sale, exchange, or other disposition of shares of stock and other securities listed and traded through a local stock exchange and sale, exchange, or other disposition of shares of stock of domestic corporation listed and traded through a foreign stock exchange are subject to a reduced stock transaction tax rate of 1/10 of 1%.

Documentary stamp tax

• Original issuance of shares is subject to a reduced documentary stamp tax (DST) rate of 75% of 1%.
• Original issuance, redemption, or other disposition of shares in a mutual fund company; and the issuance of a certificate or other evidence of participation in a mutual fund or unit investment trust fund, are exempt from DST.

Excise tax

• Excise tax exemption of pick-ups is removed.

The law became effective on July 1, 2025, after publication in the official gazette. The implementing rules and regulations (IRR) will be issued 60 days from the effective date of the law.

The president also vetoed the following items:

• Imposing DST on lotto and other Philippine Charity Sweepstake Office (PCSO) number games on the bettor
• Repealing the tax exemption on interest income and DST of PHILGUARANTEE
• Deleting the tax exemption of nonresidents, whether individual or corporate, from transactions with depository banks under the expanded foreign currency deposit unit system

For more information, contact a KPMG tax professional in the Philippines:

Leandro Ben M. Robediso | lrobediso@kpmg.com