Question & AnswerQ&A (Republic Act No. 9294)
The main purpose of Republic Act No. 9294 is to restore the tax exemption of Offshore Banking Units (OBUs) and Foreign Currency Deposit Units (FCDUs) by amending specific sections of the National Internal Revenue Code.
Income derived by offshore banking units authorized by the Bangko Sentral ng Pilipinas (BSP) from foreign currency transactions with nonresidents, other OBUs, and certain authorized banks is exempt from all taxes except for the net income specified by the Secretary of Finance upon Monetary Board recommendation which is subject to regular income tax.
Interest income from foreign currency loans granted by OBUs to residents (other than OBUs or authorized banks) is subject to a final tax rate of ten percent (10%).
Any income of nonresidents from transactions with OBUs or depository banks under the expanded foreign currency deposit system is exempt from income tax.
Profit remittances by a branch to its head office are subject to a 15% tax, based on total profits applied or earmarked for remittance without deduction for tax components, except for activities registered with the Philippine Economic Zone Authority.
The expanded foreign currency deposit system refers to the system wherein depository banks engage in foreign currency transactions with nonresidents, OBUs, local commercial banks, and authorized branches of foreign banks that transact with FCDUs and other depository banks.
Resident foreign corporations are subject to a minimum corporate income tax of two percent (2%) of gross income as prescribed under Section 27(E) of the National Internal Revenue Code.
Interest from any currency bank deposit and yield or other monetary benefits from deposit substitutes, trust funds, and royalties derived in the Philippines by resident foreign corporations are subject to a final income tax of twenty percent (20%). Interest from foreign currency deposits under the expanded system is taxed at seven and one-half percent (7.5%).
Nonresident foreign corporations not engaged in trade or business are taxed at 35% (reduced progressively to 32% by 2000) on gross income from Philippine sources. Certain types of income such as interest on foreign loans, dividends, capital gains, leasing, and royalties have specific tax rates ranging from 4.5% to 25%. A final withholding tax applies to many of these incomes.
Regional or area headquarters are exempt from income tax, while regional operating headquarters are subject to a 10% tax on taxable income.
This Act shall take effect fifteen (15) days after its publication in the Official Gazette or in two newspapers of general circulation.
If any provision is declared unconstitutional or invalid, the other unaffected provisions shall remain in full force and effect according to the Separability Clause.
Capital gains from sale of shares not traded on the stock exchange are subject to a final tax of 5% on gains not over P100,000 and 10% on the excess over P100,000.
Dividends received by resident foreign corporations from domestic corporations taxable under the Code are not subject to tax under this Title.