QuestionsQuestions (PRESIDENTIAL DECREE NO. 1034)
Offshore Banking refers to banking transactions in foreign currencies involving receipt of funds from external sources and utilization of such funds as provided in the Decree.
An OBU is a branch, subsidiary, or affiliate of a foreign banking corporation duly authorized by the Central Bank of the Philippines to transact offshore banking business in the Philippines.
Deposits are funds in foreign currencies accepted and held by an OBU in the regular course of business, with the obligation to return an equivalent amount to the owner, with or without interest.
Resident includes: (1) a Philippine citizen residing therein; (2) an individual not a citizen but permanently residing therein; or (3) a corporation/juridical person organized under Philippine law. Non-resident is anyone not included in Resident, but branches/subsidiaries/affiliates/extension offices or other units of foreign corporations operating in the Philippines are considered residents.
Only banks organized under laws other than those of the Republic of the Philippines may qualify to operate OBUs through their branches, subsidiaries, or affiliates, subject to regulatory guidelines. Local branches of foreign banks already authorized to accept foreign currency deposits under R.A. No. 6426 may opt to apply for OBU authority, but their R.A. 6426 license is deemed automatically withdrawn once they receive OBU authority.
Liquidity and solvency position, net worth and resources, management, international banking expertise, contribution to the Philippine economy, and other relevant factors such as participation in equity of local commercial banks and appropriate geographic representation.
A fee of not less than US$20,000.00 upon issuing the certificate and annually thereafter on the anniversary date.
Among others: (a) the head office/parent/holding company will provide specified currencies on demand to cover liquidity needs or other shortfalls; (b) the OBU will be managed soundly and with prudence; (c) it will train and continually educate a specific number of Filipinos to reduce expatriates; (d) it will maintain net office funds in the minimum amount of US$1,000,000; and (e) it will start operations within 180 days from receipt of the certificate.
The Central Bank of the Philippines supervises the operations and activities of offshore banking units.
Transactions with non-residents or with other offshore banking units are freely allowed, subject to safeguards that the Central Bank may establish to prevent circumvention of applicable foreign exchange regulations.
Transactions of OBUs with residents (including local commercial banks and local branches of foreign banks authorized under R.A. No. 6426) are subject to applicable law and regulations.
They are subject to a 5% tax on net income from those transactions, in lieu of all taxes on the said transactions.
Such transactions are also subject to the 5% tax, except net income from specified transactions that the Secretary of Finance may specify upon recommendation of the Monetary Board to be subject to the usual income tax payable by banks.
Any income of non-residents from transactions with those offshore banking units is exempt from any tax.
For residents (other than other OBUs or local commercial banks/local branches of foreign banks authorized to transact with OBUs), interest income from loans granted is subject only to a 10% withholding tax as final tax.
They are issued a multiple entry special visa valid for one year, and the validity of stay is co-terminous with the visa, extendable yearly with certifications that the OBU authority is valid and subsisting and that compensation paid in the Philippines (with taxes withheld and paid to BIR) meets requirements. The responsible officer must certify the employee works exclusively for the OBU and that compensation is paid in foreign currencies (and for dependents, that they are dependents).
Act No. 2566 (Usury Law), R.A. No. 529 (as amended) (Uniform Currency Law), and R.A. No. 3591 (as amended) (Deposit Insurance Law) do not apply to offshore banking transactions/deposits.
R.A. No. 1405 (Secrecy of Bank Deposits Law) applies to deposits in offshore banking units.