The Bureau of Internal Revenue (BIR) circulated Republic Act 12214, otherwise known as the Capital Markets Efficiency Promotion Act (CMEPA), through Revenue Memorandum Circular 60-2025. Effective July 1, 2025, CMEPA streamlines the taxation of passive income, promotes transparency, and supports the growth and global competitiveness of the Philippine capital markets.
Summarized below are the key amendments to the Tax Code introduced by CMEPA:
1. Clarification on deposit substitutes
Deposit substitutes shall exclude reverse repurchase agreements entered into by and between the Bangko Sentral ng Pilipinas (BSP) and any authorized agent bank, certificates of assignment or participation, and similar instruments with recourse.
2. Clarification on passive income
Passive income shall cover income derived from sources that do not require the taxpayer’s active involvement in the conduct of trade or business, and which are not subject to value- added tax (VAT).
3. Inclusions and exclusions of gross income
Gross income from compensation shall include equity-based compensation, such as stock options, restricted stock units, stock appreciation rights, and similar items, provided that equity-based compensation shall be included in the gross income at the time of exercise.
The following shall be excluded from gross income:
a. Interest income and gains from the sale, transfer or disposition of specific bonds issued by the Republic of the Philippines or any of its instrumentalities, provided these bonds are used to finance capital expenditures or programs aligned with the Philippine Development Plan and other high-priority national government initiatives; and,
b. Gains from the redemption of shares of stock in a mutual fund company or units of participation in a mutual fund or unit investment trust fund (UITF), provided that final taxes on realized gains have already been withheld at the level of the underlying assets prior to redemption.
4. Allowable deductions for Employer’s Contribution to Personal Equity and Retirement Account (Pera) of employees
An additional deduction of 50 percent of the employer’s actual contributions made to Pera shall be granted to private employers that contribute at least equal as the contributions of the employees, subject to the maximum allowable contribution under RA 9505, otherwise known as the Pera Act.
5. Repeal of the exemption from final withholding tax on long-term deposits of individuals with a maturity period of not less than five years
Exemption is repealed; hence, interest income from long-term deposits and investments of individuals shall be subject to a 20 percent final withholding tax.
6. Interest income from foreign currency deposits
Interest income by individuals and corporations, except non-residents, from depository banks under the expanded foreign currency deposit system shall be subject to 20 percent final withholding tax.
7. Capital gains Tax (CGT) from the sale of shares not traded on the Stock Exchange
For the sale of shares in domestic or foreign corporations that are not traded in local or foreign stock exchange, 15 percent CGT shall be imposed on the net capital gains realized during the taxable year from the sale, exchange, or other modes of disposition of shares of stock.
8. Stock Transaction Tax (STT) on listed and traded shares
For domestic shares traded through a local stock exchange, the STT rate shall be lowered from 0.6 percent to 0.1 percent.
For domestic shares traded through a foreign stock exchange, STT shall be levied, assessed and collected on every sale, exchange, or other disposition of shares of stock, other than the sale by a dealer in securities, in lieu of capital gains tax, a tax at the rate of 1/10 of one percent of the gross selling price or gross value in money of the shares of stock sold, exchanged, or otherwise disposed which shall be paid by the seller or transferor.
9. Exemption and reduction of Documentary Stamp Tax (DST) on certain transactions
DST at a rate of 75 percent of one percent shall be imposed on the following transactions:
a. Original issuance of shares on the par value or actual consideration for no-par shares.
b. Bonds, debentures, certificates of stocks or indebtedness issued in a foreign country on the value of the transaction.
c. Debt instruments on the issue price.
Only one DST shall be imposed on the loan agreement and promissory notes, mortgage, security interest over personal property and other contracts issued to secure such loan.
DST shall be exempted on the following transactions:
a. Original issuance, redemption or other disposition of shares in a mutual fund
company; and,
b. Issuance of certificate or other evidence of participation in a mutual fund or UITF.
Any tax exemption and preferential rate on financial instruments issued or transacted prior to July 1, 2025, shall be subject to the prevailing tax rate at the time of issuance for the remaining maturity of the relevant agreement.
Please be guided accordingly.
Source:
P&A Grant Thornton
Certified Public Accountant