Question & AnswerQ&A (PRESIDENTIAL DECREE NO. 1035)
The main purpose of Presidential Decree No. 1035 is to expand the authority of certain depository banks under Republic Act No. 6426 by allowing them to engage more actively in foreign exchange transactions and foreign currency loans to resident corporations and firms, while applying the same tax treatment as offshore banking units.
Qualified depository banks may extend foreign currency loans to any domestic enterprise without the limitations on maturity and marketability, and such loans are eligible for the 100% foreign currency cover prescribed in RA No. 6426. They may also obtain foreign currency loans from, and transact with, non-residents, offshore banking units, and other depository banks under the expanded system.
No. Depository banks qualified by the Monetary Board under the expanded system are exempt from maintaining 15% of the cover in the form of foreign currency deposit with the Central Bank.
Net income from foreign currency transactions is subject to a 5% tax in lieu of all other taxes except the usual income tax on certain transactions as specified by the Secretary of Finance. Interest income from foreign currency loans to residents is subject to a 10% final withholding tax. Income of non-residents not engaged in trade or business in the Philippines from foreign currency loans to depository banks under the expanded system is exempt from income tax.
No. The Usury Law and Uniform Currency Law shall not apply to depository banks in respect to their foreign currency transactions authorized under PD No. 1035.
The Monetary Board of the Central Bank of the Philippines is empowered to promulgate the necessary regulations for the implementation of the decree.
Qualified depository banks may extend foreign currency loans to any domestic enterprise without restrictions on maturity and marketability, subject to prior approval of the Central Bank when required.
The secrecy of deposits under PD No. 1035 is governed in accordance with the provisions of Republic Act No. 1405 (The Secrecy of Bank Deposits Law).
Yes, qualified depository banks may conduct foreign currency transactions with offshore banking units in the Philippines and other depository banks under the expanded system.
The decree took effect upon its approval on September 30, 1976.