Philippines Issues Retirement Account Tax Regulations
Friday, November 4, 2011
The new revenue regulations to implement the tax provisions of the Personal
Equity and Retirement Account (PERA) Act have been issued by the Philippines
Bureau of Internal Revenue (BIR).
The PERA Act was issued in 2008 in order to provide a framework for encouraging
retirement savings in the country, and the tax incentives provided therein should
have taken effect on January 1, 2009. The BIR had finally put a proposed consultation
draft of the PERA pension fund tax rules on its website last month, and has
now issued the final regulations, which will come into effect on January 1,
Under the Act, each person, who has the capacity to contract and has a tax
identification number, can invest up to PHP100,000 (USD2,3400) in approved PERA
funds – with married couples benefiting from the double allowance of PHP200,000
– while overseas Filipino workers (OFWs) can also invest up to PHP200,000.
Contributions up to those limits will be granted an income tax credit of 5%
of the annual contributions made. OFWs can claim the credit against any national
internal revenue tax liability.
Income from the investments will be free of tax – in particular, from
regular income tax, the final withholding tax on interest, and capital gains
tax – provided that each specific investment product must be approved
by the appropriate regulatory authority. However, other taxes, such as value-added tax, stock transaction tax and documentary stamp taxes will remain payable.
If an employer makes a contribution to the PERA of an employee (in addition
to the employer’s contribution to national social security), it shall
not form part of the employee’s taxable gross income, and the employer
will be able to claim it as deduction from his gross income, but only to the
extent that it would complete the maximum allowable contribution of the employee.
Investments in excess of the maximum contribution will not be allowed the tax
credit, nor will investments ceased or withdrawn within a minimum five-year
period. Investors will normally be allowed to access their PERA funds when reaching
the age of 55.
Proceeds of approved funds can be invested, for example, in unit investments
trust funds, annuities, insurance pension products, shares traded in the Philippine
Stock Exchange, government securities and exchange-traded bonds. The regulations
also stipulate the duties and responsibilities of PERA market participants,
such as fund administrators, investment managers, and custodians.
In addition to providing supplementary retirement benefits (over and above
the state pension), it has been said that the availability of PERA funds would
bring investment opportunities to small retail investors and help to develop
the domestic capital market. The BIR has also warned that it would
be likely to reduce the government’s tax revenue by PHP12bn on an annual