Philippines Personal Income Tax

Resident citizens are subject to tax on worldwide income. Nonresident citizens, resident aliens and nonresident aliens are subject to tax on income from Philippine sources.

Bureau of Internal Revenue (BIR) Ruling 517-2011 declared that employees of a Philippine entity who are working abroad for most of the tax year but remain on the local payroll are not non­resident citizens. Accordingly, payments to them are subject to withholding tax in the Philippines.

For foreign nationals, residence is determined by the length and nature of an individual’s stay in the Philippines. An alien who comes to the Philippines for a definite purpose that is promptly accomplished is not deemed to be resident. However, if an alien makes his or her home temporarily in the Philippines because an extended stay may be necessary for the accomplishment of the alien’s purpose for coming to the Philippines, the alien becomes a resident even though it may be the alien’s intention at all times to return to the alien’s domicile abroad when the alien consummates or abandons the purpose of the stay in the Philippines. Aliens who reside in the Philippines with the intention to remain permanently are considered resident. Aliens who acquire residence in the Philippines remain residents until they depart with the intention of abandoning that residence.

Nonresident aliens are classified as either engaged or not engaged in trade or business in the Philippines. A nonresident alien who stays in the Philippines for more than a total of 180 days during any calendar year is deemed to be engaged in trade or business in the Philippines; any other nonresident alien is deemed to be not engaged in trade or business in the Philippines.

A ruling issued by the BIR stated that in applying the above rules to nonresident aliens, all the months in a calendar year covered by the period of assignment of the nonresident alien individual must be considered in evaluating if he or she exceeded the 180-day period. If an expatriate’s stay in the Philippines exceeds the 180-day period during any calendar year, he or she becomes a nonresident alien doing business in the Philippines for the entire duration of his or her Philippine assignment. As a result, if an expatriate stays in the Philippines for more than 180 days in any calendar year, he or she is considered a nonresident alien engaged in business and taxed at the graduated rates of 5% to 32%, not only during the year that his or her stay in the Philippines exceeds the 180-day period, but also during the other years of assignment, even if such stay did not exceed 180 days (BIR Ruling DA-056-05).

Income subject to tax. Gross income includes compensation, in come from the conduct of a trade, business or profession, and other income, including gains from dealings in property, interest, rent, dividends, annuities, prizes, pensions and partners’ distributive shares.

The following income items are excluded from gross income (the Tax Code refers to these items as “exclusions”) and are, conse­quently, exempt from taxation:

  • Thirteenth month pay, productivity incentives, Christmas bonuses and other benefits, up to an aggregate of PHP82,000
  • Proceeds of life insurance policies
  • Amounts received by an insured as a return of premium
  • Gifts, bequests and devises
  • Compensation for injuries or sickness from accident or health insurance or under the Workers’ Compensation Acts
  • Income exempt under treaty provisions
  • Retirement benefits received pursuant to certain laws or under a reasonable private benefit plan
  • Amounts received as a consequence of separation from service as a result of death, sickness, physical disability or any cause beyond the control of the employee
  • Social security benefits, retirement gratuities and other similar benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other public or private institutions
  • Payments or benefits due or to become due to individuals resid­ing in the Philippines under US laws administered by the US Veterans Administration
  • Benefits received from or enjoyed under the social security systems
  • Prizes and awards in recognition of religious, charitable, scien­tific, educational, artistic, literary or civic achievement, as well as awards in authorized sports competitions
  • Mandated contributions to the government and private social security systems and housing fund
  • Gains from the sale of bonds, debentures or other certificates of indebtedness with a maturity of longer than five years
  • Gains from redemptions of shares in a mutual fund

Employment income. Employment income includes all remuner­ation for services performed by an employee for his or her employ er under an employer-employee relationship. The name by which compen sation is designated is immaterial. It includes sal­aries, wages, emoluments and honoraria, allowances, commis­sions, fees including director’s fees for a director who is also an employee of the firm, bonuses, fringe benefits, taxable pensions and retirement pay and other income of a similar nature.

Emergency cost-of-living allowances received by employees are also included in their compensation income.

Employment income received for services provided in the Philip­pines is subject to tax in the Philippines regardless of where the compensation is paid. Remuneration for services remains classi­fied as compensation even if paid after the employer-employee relationship is ended.

Taxable employment income equals employment income less exclusions, personal and additional exemptions and allowable deductions for health insurance premiums (see Deductions). Nonresident aliens not engaged in trade or business in the Philippines as well as alien individuals employed by regional or area headquarters and regional operating headquarters of multina­tional companies, offshore banking units, and petroleum service contractors and subcontractors are taxed on their gross income without the benefit of the personal and additional exemptions.

Fringe benefits are any goods, services or other benefits granted in cash or in kind by employers to employees (except rank­and-file employees, as defined) such as, but not limited to, the following:

  • Housing
  • Expense account
  • Any vehicles
  • Household personnel, such as maids, drivers and others
  • Interest on loan at less than market rate to the extent of the dif­ference between the market rate and actual rate granted
  • Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations
  • Expenses for foreign travel
  • Holiday and vacation expenses
  • Educational assistance to the employee or his or her dependents
  • Life or health insurance and other non-life insurance premiums or similar amounts in excess of the amounts allowed by law

Under the tax law, the following fringe benefits are exempt from tax:

  • Fringe benefits that are authorized and exempt from tax under special laws
  • Contributions of employers for the benefit of employees to retirement, insurance and hospitalization benefit plans
  • Benefits granted to the rank-and-file employees (as defined), regardless of whether they are granted under a collective bar­gaining agreement
  • De minimis benefits (see below)
  • Fringe benefits required by the nature of, or necessary to, the trade, business or profession of the employer
  • Fringe benefits granted for the convenience or advantage of the employer

De minimis benefits are items furnished or offered by employers to their employees that are of relatively small value and are offered or furnished by the employers as a means of promoting the health, goodwill, contentment, or efficiency of their employ­ees. De minimis benefits are expressly exempt from income tax as well as from fringe benefits tax (FBT).

The following are de minimis benefits:

  • Monetized unused vacation leave credits of private employees not exceeding 10 days during the year and the monetized value of the leave credits paid to government officials and employees
  • Medical cash allowance to dependents of employees, not exceeding PHP750 per employee per semester or PHP125 per month
  • Actual medical assistance not exceeding PHP10,000
  • Laundry allowance not exceeding PHP300 per month
  • Employees’ achievement awards, subject to certain conditions
  • Gifts given during Christmas and major anniversary celebra­tions not exceeding PHP5,000 per employee per year
  • Daily meal allowance for overtime work not exceeding 25% of the basic minimum wage
  • Rice subsidy of PHP1,500 or 1 sack of 50 kilograms of rice per month amounting to not more than PHP1,500
  • Uniform and clothing allowance not exceeding PHP5,000 per year
  • Benefits received by an employee in accordance with a collec­tive bargaining agreement (CBA) and productivity incentive schemes, if the total combined annual monetary value received from the CBA and the productivity incentive schemes do not exceed PHP10,000 per employee per tax year

The above list is exclusive. All other benefits granted by employ­ers that are not included in the above list are not considered de minimis benefits, and accordingly are subject to income tax, withholding tax on compensation, and FBT (Revenue Regulations [RR] 5-2011).

Fringe benefits are subject to FBT if the cost of the benefit is borne or claimed as an expense by the Philippine entity and if the recipient of the benefit is a non-rank-and-file employee. If the cost is not borne by the Philippine entity or if it is borne by the Philippine entity but received by a non-rank-and-file employee, the benefit is classified as compensation income subject to in­come tax and accordingly withholding tax on wages. As men­tioned above, de minimis benefits are exempt from both FBT and income tax or withholding tax on wages.

Business income. Gross income from the conduct of a trade or business or the exercise of a profession may be reduced by certain allowable deductions and by personal and additional exemptions (see Deductions). However, an individual who has both compensation and business income may claim personal and additional exemptions only once.

Resident or local suppliers of goods and services, including non­resident aliens engaged in trade or business in the Philippines, are subject to a 1% creditable expanded withholding tax on their sales of goods and to a 2% creditable expanded withholding tax on their sales of services, if the payer is among the top 20,000 private corporations as classified by the BIR. Expanded with­holding tax is a withholding tax that is prescribed for certain payers and that is creditable against the income tax due of the payee for the relevant tax quarter or year.

Professional fees are subject to a 15% creditable expanded with­holding tax if such fees for the year exceed PHP720,000. Other­wise, the rate is 10%.

Directors’ fees. Directors’ fees derived by individuals who are employees of the same company are taxed as income from employ­ment and are subject to creditable withholding tax on wages. Directors’ fees derived by individuals who are not employees of the same company are included in the recipients’ business income and are subject to a creditable withholding tax. The rate of the withholding tax is 15% if the gross income for the current year exceeds PHP720,000. Otherwise, the rate is 10%. Directors’ fees de rived by nonresident aliens deemed to be not engaged in a trade or business are subject to a final withholding tax at a rate of 25%.

Investment income. In general, interest on peso deposits and yields, or any other monetary benefit derived from deposit substitutes, trust funds and similar arrangements, is subject to a final 20% withholding tax. However, interest on certain long-term deposits or investments evidenced by qualifying certificates is exempt from the final 20% withholding tax. Final tax is imposed at rates rang­ing from 5% to 20% on the income from long-term deposits if the investment is withdrawn before the end of the fifth year. Interest received by residents on foreign-currency deposits is subject to a final 7.5% withholding tax. Interest received by nonresident in­dividuals on foreign-currency deposits is exempt from tax.

Cash or property dividends actually or constructively received by citizens and resident aliens from domestic corporations, as well as a partner’s share in the after-tax profits of a partnership (except a general professional partnership), are subject to final withhold­ing tax at a rate of 10%. Nonresident aliens engaged in a trade or business in the Philippines are subject to final withholding tax on these types of income at a rate of 20%. For nonresident aliens not engaged in a trade or business in the Philip pines, investment income is generally taxed at a rate of 25%, except for gains from sales of real estate and sales of shares of domestic corporations.

Rental income is considered business income and is taxed at the rates set forth in Rates.

Taxation of employer-provided stock options. In general, employ­er-provided stock options are taxable to the employee as addi­tional compensation at the time the option is exercised. This has been the trend in the treatment of stock options regardless of whether the recipient employee was a rank-and-file employee, or a supervisory or managerial employee. This trend ensued despite the introduction of the fringe benefit tax (FBT) on certain bene­fits received by supervisory or managerial employees. In other rulings, the BIR subjected the stock options to FBT. Recent rul­ings are summarized below.

In 2012, the BIR issued BIR Ruling 119-2012, in which the BIR held that income derived by employees from their exercise of stock options is considered additional compensation income subject to income tax and withholding tax on compensation. BIR Ruling 119-2012 involved stock options granted to all full-time and most part-time employees of the company. The option plan was designed to reward employees based on performance, out­standing business achievements, and exemplary organization, technical or business accomplishments or demonstrated exper­tise, yielding significant effects on the business or society.

The BIR subsequently issued Revenue Memorandum Circular (RMC) 88-2012 in which the BIR declared that “The foregoing notwithstanding, any income or gain derived from stock option plans granted to managerial and supervisory employees which qualify as fringe benefits is subject to fringe benefit tax imposed under Section 33 of the National Internal Revenue Code (NIRC) of 1997, as amended.” The term “foregoing” refers to BIR Ruling 119-2012.

It appears that the RMC did not alter the BIR’s position in BIR Ruling 119-2012. The RMC did not indicate that if a plan is granted to managerial and supervisory employees, the benefit derived from the plan automatically becomes a fringe benefit subject to FBT. As a result of the absence of a statement to that effect, the nature of the benefits must be examined. If it is a fringe benefit, the income derived from it is subject to FBT. If it is compensation, the income is subject to income tax and with­holding tax. Consequently, the RMC affirmed the Tax Code provision indicating that FBT is imposed if the benefit is deter­mined to have the character of a fringe benefit.

However, in 2014, the BIR issued RMC No. 79-2014. This pro­vides a more comprehensive treatment of employee income aris­ing from the grant, exercise and sale of stock options. It states that for both Equity Settlement Options and Cash Settlement Options, the difference between the book value or fair market value of the shares, whichever is higher, at the time the stock option is exercised, and the price fixed on the grant date shall, on exercise of the option, be treated in the following manner:

  • Additional compensation subject to income tax and to with­holding tax on compensation, if the option is granted by an employer to a rank-and-file employee involving the employer’s own shares of stock or shares owned by it
  • A fringe benefit subject to FBT, if the employee receiving and exercising the option occupies a supervisory or managerial position

The RMC also imposed reportorial requirements on the issuing corporation with respect to the grant and exercise of options.

Capital gains and losses. In general, capital gains are included in an individual’s regular taxable income and are subject to tax at the graduated rates set forth in Rates. The gain is the excess of the amount realized from the disposal of the asset over the adjusted basis. If the asset is held for 12 months or less prior to disposal, the entire gain or loss is reported. For assets held longer than 12 months, 50% of the gain or loss is reported. The holding period rules do not apply to capital gains derived from the sale of real property in the Philippines or shares of stock in a domestic corporation (see below).

Capital losses are deductible only to the extent of capital gains. Losses carried over are treated as short-term capital losses. Losses incurred from wash sales of stocks or securities are not deductible, unless incurred by a dealer in the ordinary course of business. This rule does not apply to shares of stock in a domestic corporation or to sales of real property described below.

A final tax of 6% is imposed on capital gains derived from trans­fers of real property located in the Philippines. The tax is based on the higher of the gross sales price and the fair market value.

Capital gains derived from the sale of shares in unlisted domestic corporations are taxed at a rate of 5% on the first PHP100,000 of the gain and at a rate of 10% on the excess over PHP100,000. The amount of the taxable gain is the excess of the sale price over the cost of the shares.

Gains derived from the sale of listed shares are exempt from cap­ital gains tax. However, a percentage tax (stock transaction tax) is imposed at a rate of 0.5% on the gross selling price of the shares.

Gains derived by resident citizens from the sale of shares in for­eign corporations are taxed as capital gains, subject to the regular income tax rates.

Deductions

Personal exemption. Citizens and resident aliens are allowed a basic personal exemption amounting to PHP50,000 for each individual taxpayer.

For married individuals, if only one of the spouses is deriving gross income, only such spouse is allowed the personal exemption.

Additional exemption. An additional exemption of PHP25,000 is allowed for each “dependent” up to a maximum of four. For this purpose, a “dependent” is the following:

  • A legitimate, illegitimate or legally adopted child who is not more than 21 years of age, unmarried and not gainfully employed and is chiefly dependent on and living with the taxpayer
  • Regardless of age, a legitimate, illegitimate or legally adopted child who is incapable of self-support because of a mental or physical defect

For married individuals, the additional exemption for dependents may be claimed by only one of the spouses. For legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children, provided that the total amount of additional exemptions that may be claimed by both spouses may not exceed the maximum additional exemp­tions mentioned above.

A nonresident alien engaged in a trade or business in the Philip­pines is entitled to a personal exemption of an amount equal to the exemptions allowed under the income tax law of the country where he or she is a subject or citizen, to citizens of the Philippines not residing in that country; however, the exemption may not exceed the amounts listed above. The nonresident alien must file a return of the total income received by him or her from all sources in the Philippines. He or she may not claim additional exemptions.

Deductible expenses and standard deductions. Individuals may deduct from their gross income health insurance premiums of up to PHP2,400 per year if the family’s aggregate income is PHP250,000 or less for the tax year.

In addition to personal and additional exemptions and deductions for health insurance premiums, individuals who earn income from a trade, business or the practice of a profession may deduct ex penses incurred in connection with their trade, business or profession subject to Philippine income tax. These expenses include ordinary and necessary business or professional expens­es, interest expense, taxes, losses, bad debts, depreciation, chari­table contributions, contributions to a pension trust, and research and development. Alternatively, such taxable individual (except a nonresident alien not engaged in trade or business) may elect the optional standard deduction (OSD) of 40% of gross income instead of the itemized deductions. A taxpayer must signify his or her intention to claim the OSD in the annual tax return; other­wise, the taxpayer is deemed to have claimed the itemized deduc­tions. After the election to claim the OSD is indicated in the return, it is irrevocable for the tax year for which the return is filed.

Contributions to government agencies. Employees age 60 or younger and their employers are compulsorily covered by the Social Security System (SSS). Individuals who are covered by the SSS are compulsorily covered by the Philippine National Health Insurance Program (Philhealth) and the Home Development Mutual Fund (HDMF). Compulsory contributions to the SSS, Philhealth and HDMF are deductible from the gross income of an individual. Voluntary contributions to these institutions in excess of the amount considered compulsory are not deductible and, accordingly, not exempt from income tax and withholding tax.

For the 2016 calendar year, the employee’s total maximum com­pulsory monthly contribution to these entities amounts to PHP1,518.80. The monthly contribution varies depending on the salary bracket of the individual.

Rates: Net taxable compensation and business income of resident and nonresident citizens, resident aliens, and nonresident aliens engaged in a trade or business are consolidated and taxed at the following graduated rates.

Net taxable income (PHP)

Exceeding               Not exceeding

 

Tax on lower
amount
PHP
Rate on
excess
%
0 10,000 0 5
10,000 30,000 500 10
30,000 70,000 2,500 15
70,000 140,000 8,500 20
140,000 250,000 22,500 25
250,000 500,000 50,000 30
500,000 125,000 32

 

Aliens employed by regional or area headquarters (RHQs) and regional operating headquarters (ROHQs) of multinational com­panies, offshore banking units and petroleum service contractors and subcontractors, regardless of their residency, are subject to tax at a preferential rate of 15% on gross income. In addition, the same tax treatment applies to Filipinos employed and occupying the same position as the aliens employed by these entities. Such Filipino employees may elect to be taxed at the 15% rate on gross income or at the graduated rates of 5% to 32% on net taxable income, even if the employees are paid less than the equivalent of USD12,000 a year. (Under Article 59 of Executive Order (EO) No. 226, alien em ployees of RHQs and ROHQs in the Philippines who are issued a multiple-entry special visa must work exclusively for the Philippine RHQ or ROHQ and must be paid the equivalent of USD12,000 per year. Republic Act No. 8756, which amended EO No. 226, provides that the same tax treatment applies to Filipinos employ ed in the same positions as aliens employed by multinational companies, but does not mention that Filipinos must be paid at least USD12,000 per year.)

Under RR 11-2010, Filipinos who are employed by an ROHQ or RHQ and opt to be taxed at a 15% preferential rate must meet all the following requirements:

  • Position and Function Test: The employee must occupy a mana­gerial position or technical position and must actually be exer­cising such managerial or technical functions pertaining to such position.
  • Compensation Threshold Test: To be considered a managerial or technical employee for income tax purposes, the employee must have received, or is due to receive under a contract of employ­ment, gross annual taxable compensation of at least PHP975,000 (regardless of whether this is actually received). However, if a change in compensation occurs and, as a result, such employee subsequently receives less than the compensation threshold stated above for the calendar year when the change becomes effective, the employee becomes subject to the regular income tax rate.
  • Exclusivity Test: The Filipino managerial or technical employee must be exclusively working for the RHQ or ROHQ as a regular employee and not as a consultant or contractual person. Exclu­sivity means having one employer at a time.

The compensation threshold was adjusted on 31 December 2010 and is to be adjusted every three years thereafter. However, at the time of writing, no further adjustment had been made.

For a Filipino managerial or technical employee to have the option to be taxed at 15% of his or her gross income, it is no longer necessary for the ROHQ or RHQ to file a request for rul­ing with the BIR. Instead, it must file BIR Form 1947, together with other documentation indicated in the regulations, with the Revenue District Office of the BIR having jurisdiction over it.

In calculating the FBT, the monetary value of the benefit is taken into consideration. The monetary value depends on the type of benefit granted, as well as on the manner in which the benefit is extended to the employee. For example, if the employer purchases a motor vehicle for the use of the employee (who is assumed to be a non-rank-and-file employee), the value of the benefit is the ac­quisition cost of the vehicle. The monetary value of the fringe benefit is the entire value of the benefit (meaning the entire ac­quisition cost). If the employer leases and maintains a fleet of motor vehicles for the use of the business and the employees, the value of the benefit is the amount of rental payments for motor vehicles not normally used for sales, freight, delivery, service and other non-personal uses. The monetary value of the benefit is 50% of the value of the benefit (rental payment). The BIR has issued specific regulations on the treatment of fringe benefits.

After the monetary value is determined, it is then grossed up and subjected to the applicable FBT rate.

The FBT rates and the gross-up factors are shown in the follow­ing table.

 

Type of employee FBT Rate (%) Factor used in determining the grossed-up monetary value (%)
Resident citizen, resident alien or nonresident alien engaged in a trade or business in the Philippines 32 68
Nonresident alien not engaged in a trade or business in the Philippines 25 75
Alien employed by or Filipino employee occupying a managerial or technical position in regional or area headquarters of multinational companies, offshore banking units and petroleum contractors and subcontractors 15 85

Although the FBT is a tax on the employee, the actual payment of the tax is borne by the employer. This method is used to ensure that all benefits received by employees are subject to tax. During the deliberations of the Philippine Congress regarding the adop­tion of the FBT, it noted that many executives were able to avoid taxation by being paid fringe benefits rather than straight sala­ries. The collection of FBT from employers is intended to plug this loophole.

For nonresident aliens engaged in a trade or business in the Philippines, dividends, shares in profits of partnerships taxed as corporations, interest, royalties, prizes in excess of PHP10,000 and other winnings are subject to final withholding tax at a rate of 20% of the gross amount. Royalties on musical compositions, books and other literary works are subject to a final withholding tax at a rate of 10%. Nonresident aliens are taxed on capital gains derived from sales of real property or shares in domestic corpora­tions in the manner discussed in Capital gains and losses.

Nonresident aliens not engaged in a trade or business in the Philippines are subject to a final withholding tax of 25% on gross income, including fringe benefits, from all sources in the Philippines. However, capital gains derived from sales of real property or from sales of shares in domestic corporations are subject to the same tax rates imposed on citizens and resident aliens.

Relief for losses. Under certain circumstances, self-employed persons may carry forward business losses for three years, unless a 25% change in the ownership of the business occurs. Carry-backs are not permitted.

Estate and gift taxes

Estate tax. An estate tax is imposed at graduated rates ranging from 5% to 20% on the transfer of a decedent’s net estate valued in excess of PHP200,000. Citizens, regardless of whether resi­dent at the time of death, and resident aliens are taxed on their worldwide estates.

For estate tax purposes, only that part of a nonresident alien decedent’s estate located in the Philippines is included in the tax­able estate. Under specified conditions, deductions may be per­mitted for certain items, including expenses, losses, indebted­ness, taxes and the value of property previously subject to estate or gift tax or of property transferred for public use.

The net estate is computed by deducting the following amounts from the total value of a decedent’s real or personal, tangible or intangible, property, wherever situated:

  • Allowable expenses, losses, indebtedness and taxes
  • The value of property transferred for public use
  • The value of property subject to estate or gift tax (subject to special rules) within five years prior to a decedent’s death
  • The value of the family home, not exceeding PHP1 million
  • The amount received from the decedent’s employer as a result of the death of the employee

In addition, estates of residents or citizens are entitled to a stan­dard deduction of PHP1 million as well as a deduction of up to PHP500,000 for medical expenses incurred by the decedent within one year prior to death.

Estate tax rates are set forth in the following table.

Value of total net estate (PHP)

Exceeding                  Not exceeding

 

Tax on

lower amount
PHP

Rate on
excess
%
0 200,000 0 0
200,000 500,000 0 5
500,000 2,000,000 15,000 8
2,000,000 5,000,000 135,000 11
5,000,000 10,000,000 465,000 15
10,000,000 1,215,000 20

To prevent double taxation of estates, the Philippines has con­cluded an estate tax treaty with Denmark.

Gift tax. Residents and nonresidents are subject to gift tax, which is payable by the donor on total net gifts made in a calen­dar year. Citizens, regardless of whether resident at the time of a gift, and resident aliens are subject to gift tax on worldwide assets. Non resident aliens are subject to gift tax on their Philippine assets only.

The table below presents the gift tax rates. These rates apply to relatives by consanguinity, up to the fourth degree of relationship in the collateral line. Other donees and beneficiaries are consid­ered strangers and are taxed at a flat rate of 30%.

Value of total net gifts (PHP)

Exceeding                  Not exceeding

 

Tax on

lower amount
PHP

Rate on
excess
%
0 100,000 0 0
100,000 200,000 0 2
200,000 500,000 2,000 4
500,000 1,000,000 14,000 6
1,000,000 3,000,000 44,000 8
3,000,000 5,000,000 204,000 10
5,000,000 10,000,000 404,000 12
10,000,000 1,004,000 15

Social security

Contributions. All individuals working in the Philippines must pay social security contributions. The employee’s contribution is approximately 3.69% of salary and is withheld by the employer. The employer’s contribution is approximately 7.67% of employ­ees’ salaries. Self-employed persons must be covered. The mini­mum monthly salary subject to social security contributions is PHP1,000. The maximum monthly contributions are PHP1,208.70 for employers and PHP581.30 for employees, which apply to employees receiving monthly compensation of PHP15,750 or more.

As mentioned in Contributions to government agencies in Section A, employees covered by the SSS also must contribute to the Philhealth and HDMF.

Bilateral social security agreements. The Philippines has entered into bilateral social security agreements with the following jurisdictions.

Austria                      Korea (South)*                   Spain

Belgium                    Netherlands                        Switzerland

Canada                      Quebec                               United Kingdom

France

* This agreement has not yet been ratified.

Tax filing and payment procedures

The tax year in the Philippines is the calendar year. An income tax return must be filed, and the tax due paid, on or before 15 April for income derived in the preceding year. If tax due exceeds PHP2,000, it may be paid in two equal installments, the first at the time of filing the return and the second by 15 July following the end of the relevant tax year.

In prior years, the BIR allowed the manual filing of income tax returns. However, with the issuance of RR 5-2015, which amends RR 6-2014, it is now mandatory for taxpayers enumerated under RR 6-2014 to use the eBIR Forms facility. This means that the tax returns, including individual income tax returns (BIR Forms 1700 and 1701), must be prepared using eBIR Forms. The returns must be filed through the online eBIR Forms System (https:// ebirforms.bir.gov.ph/). A penalty of PHP1,000 is imposed for each return not filed electronically. The taxpayer is also liable for a surcharge amounting to 25% of the tax due to be paid. Other individual taxpayers who do not fall in the categories in RR 6-2014 or are exempted may still file manually by using the printed BIR Form or using the form generated from the Offline eBIR Forms either manually or electronically by online submis­sion or e-Filing.

Minimum wage earners (MWEs) who work in the private sector and are paid the Statutory Minimum Wage (SMW), as fixed by Regional Tripartite Wage and Productivity Board (RTWPB)/ National Wages and Productivity Commission (NWPC), appli­cable to the locations where they are assigned, are not subject to withholding tax on compensation. Likewise, employees in the public sector with compensation income of not more than the SMW in the non-agricultural sector, as fixed by RTWPB/NWPC, applicable to the locations where they are assigned, are also exempt from withholding tax on compensation.

Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the MWEs mentioned above are also covered by the above exemption.

Employees do not qualify as MWEs if they earn additional com­pensation such as commissions, honoraria, fringe benefits, ben­efits in excess of the allowable statutory amount of PHP82,000, taxable allowances and other taxable compensation. Such addi­tional compensation does not include the SMW, holiday pay, overtime pay, hazard pay and night shift differential pay. Consequently, such employees’ entire earnings are subject to income tax and, accordingly, withholding tax.

MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, except income subject to final tax, in addition to compensation income are not exempt from income tax on their entire income earned during the tax year. Notwithstanding this rule, such MWEs are exempt from withholding tax on the SMW, holiday pay, overtime pay, night shift differential pay and hazard pay.

Individuals deriving business income may credit against income tax due the creditable expanded withholding tax withheld from the income by the payers of the income (see Section A).

Although spouses may compute their individual income tax liabil­ities separately based on their respective total taxable incomes, they must file joint returns. However, spouses (both husband and wife) that would qualify under the “substituted filing” of income tax returns (see below) may not be required to file income tax returns.

A separate return must be filed, and any tax due paid, within 30 days after each sale of shares not traded on a local stock ex change; a final consolidated return must be filed by 15 April for all stock transactions of the preceding year. For a sale of real property, a separate return must be filed, and any tax due paid, within 30 days after each sale.

The BIR has implemented a “hassle-free” method of filing indi­vidual income tax returns (BIR Form 1700). Under certain cir­cumstances, this method recognizes the employer’s annual infor­mation return (BIR Form No. 1604CF) as the “substitute” income tax return filed by the employee, because the employer’s return contains the information (taxable and non-taxable income, per­sonal and additional exemptions, and taxes withheld) included in an income tax return ordinarily filed by the employee. Under “substituted filing,” an individual taxpayer who is required under the law to file an income tax return does not need to personally file an income tax return, and the employer’s filed annual infor­mation return is considered the “substitute” income tax return of the employee. On or before 31 January of the year following the tax year, the employer must issue BIR Form 2316 to the employee. This form must be certified by both parties under the penalty for perjury.

Under RR 2-2015, the employer is required to scan the duplicate copies of BIR Form 2316 and save them in a digital versatile disk-recordable (DVD-R disk) and submit them to the BIR no later than 28 February following the end of the calendar year.

Under RR No. 11-2013, effective from the 2013 calendar year, employers must submit to the BIR the duplicate copy of BIR Form 2316 no later than 28 February.

Nonresident aliens engaged in trade or business must file income tax returns.

For income subject to final withholding tax, the taxpayer is not required to file a tax return if such income is his or her sole income from the Philippines. The withholding agent is responsi­ble for reporting the income and remitting the tax withheld.

Double tax relief and tax treaties

Foreign taxes paid or incurred in connection with a taxpayer’s profession, trade or business may be deducted from gross income, subject to exceptions. Resident Filipino citizens may claim a credit for income tax due to any foreign country; the credit may not exceed the Philippine income tax payable on the same income multiplied by a fraction, the numerator of which is tax­able income from foreign countries and the denominator of which is worldwide taxable income.

The Philippines has entered into double tax treaties with the fol­lowing countries.

Australia                      Indonesia (c)(g)               Russian

Austria                         Israel                               Federation

Bahrain                        Italy                                 Singapore

Bangladesh                  Japan                               Spain

Belgium                       Korea (South)                  Sri Lanka (c)

Brazil                           Kuwait (b)                       Sweden

Canada                         Malaysia                          Switzerland

Chile (c)(d)                  Netherlands                     Thailand (b)(h)

China                           New Zealand (i)              Turkey (b)

Czech Republic            Nigeria                            United Arab

Denmark                      Norway                           Emirates

Finland (c)(f)               Pakistan                           United Kingdom

France                          Poland (a)                        United States

Germany (e)                 Qatar (c)                          Vietnam

Hungary                       Romania                          Yugoslavia (c)

India

a) This treaty has been ratified, but it has not yet entered into force.

b) Pending signature.

c) Pending ratification.

d) Shipping only.

e) The Philippines and Germany are renegotiating this treaty.

f) A protocol amending the tax treaty has been signed, but it has not yet been ratified.

g) The treaty with Indonesia has been renegotiated, but the renegotiated treaty has not yet been ratified.

h) The treaty with Thailand has been renegotiated, but the renegotiated treaty has not yet been signed.

i) A protocol amending the tax treaty has been ratified, but it has not yet entered into force.

The Philippines is negotiating tax treaties with Brunei Darussa­lam, Iran, Myanmar, Oman, Papua New Guinea, Saudi Arabia (air transport only) and Tunisia.

Benefiting from tax treaty relief in the Philippines is not auto­matic. A Tax Treaty Relief Application Form (TTRA) must be filed with the International Tax Affairs Division (ITAD) of the BIR at least 15 days before the transaction, in accordance with the provisions of Revenue Memorandum Order (RMO) No. 1-2000. This requirement was further reiterated in RMO No. 72-010, which states that the filing of the TTRA must be done before “the first taxable event,” which is defined as the “first or the only time when the income payer is required to withhold the income tax thereon or should have withheld taxes thereon had the transaction been subjected to tax.”

However, in the case of Deutsche Bank AG Manila v. Commissioner of Internal Revenue (G.R. No. 188550, 19 August 2013), the Supreme Court of the Philippines ruled that a failure to comply with the requirement under RMO 1-2000 to file a TTRA 15 days in advance should not deprive the taxpayer of the benefit of the tax treaty. However, it may be advisable to file a TTRA for protec­tion purposes, such as in the event of a BIR audit, and for confir­mation of the tax implications of the relevant transaction.

Types of visas

In general, a foreign national applying for any kind of visa to enter the Philippines is required to submit a report from a medi­cal examination conducted by a duly authorized physician. The medical examination report is acceptable only if submitted to the quarantine officer at the port of entry, within six months from the date of examination, together with the visa application. A medical certificate or clearance is issued by the Bureau of Quarantine. Foreign nationals who apply for visas in their home country and who undergo their medical examinations abroad must submit the results to the quarantine office.

In general, foreign nationals who are not classified as restricted or high-risk may visit the Philippines without obtaining entry visas before departure from their point of origin if they have valid passports and onward tickets or confirmed travel tickets for a return journey. Restricted or high-risk nationals must secure an entry visa from Philippines embassies or consulates to enter the Philippines.

Unless specifically exempted by law, all foreign nationals seeking employment in the Philippines, whether residents or nonresidents, must secure an Alien Employ ment Permit (AEP) from the Department of Labor and Employment (DOLE). This rule applies to nonresidents who are already working in the Philippines, to nonresidents who were admitted under non-working visas and are seeking employment, and to missionaries or religious workers who intend to engage in gainful employment. Executives of area or regional headquarters and offshore banking units are exempt from the AEP requirement (see Section G).

Non-immigrant visas. A foreign national may be granted a non­immigrant visa as provided in Section 9 of the Philippine Immi­gration Act under the following categories of admission status.

Temporary visitor’s visa under Section 9(a). Temporary visitor’s visas are available to individuals coming to the Philippines for business, pleasure or health reasons. Restricted nationals may not enter the Philippines unless they obtain entry visas from a Philippine consulate before coming to the Philippines. Unrestricted nationals are not required to obtain entry visas. In general, both are allowed an initial period of stay of up to 30 days. Business visitors are foreign nationals who intend to engage in commer­cial, industrial or professional commerce or in any other legiti­mate activity if the activity is of a temporary nature (for example, attending conferences or conventions, negotiating contracts, or attending educational or business meetings). Writers, lecturers and theatrical performers are considered business visitors. Foreign nationals seeking employment of any kind in the Philippines do not qualify as temporary visitors for business, even if they intend to stay for a few months only.

Visitors who come for pleasure include tourists, those visiting relatives or friends, those who come for recreational and amuse­ment purposes, and professional athletes who compete for prizes if they do not receive compensation or salary for their services.

Foreign nationals requiring medical treatment in the Philippines are also classified in the Section 9(a) category.

Under the existing immigration rules, foreigners holding tempo­rary visitor visas may extend their stay in the country every 2 months for a total stay of 16 months. Extensions of stay beyond 16 months up to 24 months need the approval of the Chief of the Immigration Regulation Division (IRD) of the Bureau of Immigration (BI). Extensions of stay beyond 24 months need the approval of the Commissioner of the BI. Some persons take the view that this privilege applies only to unrestricted nationals, and that individuals on the restricted list are allowed a maximum stay of six months only. As a result of this possible uncertainty, coor­dination with the officers of the BI is highly recommended.

Although Chinese and Indian nationals have been removed from the list of restricted nationals, entry visas continue to be required for such individuals. However, Chinese nationals holding American, Japan, Australia, Canada, Singapore or UK (collec­tively known as AJACSUK) visas are granted visa-free entry for an initial authorized stay of seven days. Indian nationals holding visas issued by any of these countries, including a Schengen visa, are granted visa-free entry of 14 days, and an extension not exceeding 7 days. For both Chinese and Indian nationals, the visa-free entry may be granted only at certain specified ports of entry.

As a result of their removal from the list of restricted nationals, Chinese and Indian nationals are granted the privilege of apply­ing for permanent resident visas. However, this is subject to certain conditions.

Because the guidelines implementing these changes may be revised from time to time, coordination with the BI is highly recommended.

Transient’s visa under Section 9(b). Section 9(b) of the Philippine Immigration Act defines a transient as a person passing in transit to a destination outside the Philippines. Transient visas may be obtained at Philippine consulates abroad.

Seamen’s visa under Section 9(c). Seamen and airmen may enter the Philippines as vessel or aircraft crew members only if their names appear on a crew list visa or if they possess an individual seamen’s visa.

International treaty trader/investor under Section 9(d). A treaty trader visa is granted to a foreign national coming to the Philippines solely to carry on substantial trade between the Philippines and his or her home country, or to direct and develop the activities of an enterprise in the Philippines in which he or she has invested, pursuant to the provisions of a treaty of commerce or navigation. An individual is considered a treaty investor if the individual seeks to enter the Philippines solely for the purpose of develop­ing and directing the operations of an enterprise in the Philippines and if either of the following requirements is satisfied:

  • The individual has invested in the enterprise, or is in the process of investing, a substantial amount of capital.
  • The employer of the individual has invested, or is actively in the process of investing, a substantial amount of capital in the enter­prise, such employer is a foreign person or organization of the same nationality as the individual, and the individual is serving in an overall supervisory or executive capacity.

For purposes of the above rule, a substantial amount of investment is at least USD30,000 for individuals and at least USD120,000 for corporations.

Treaty trader visas currently are granted only to nationals of Germany, Japan and the United States.

Diplomatic visa under Section 9(e). Pursuant to international con­ventions and bilateral agreements, the government of the Philip­pines accords varying degrees of privileges and immunities to various categories of foreign government officials coming to the country for official purposes.

Officials of the United States and its specialized agencies may be issued 9(e) visas, regardless of the officials’ citizenship or nation ality. Officials of the United Nations and other interna­tional organizations may be granted diplomatic visas under Section 9(e) on the basis of United Nation’s laissez passer.

Non-immigrant student visa under Section 9(f). Foreign nationals may secure student visas from the Philippine mission in their home country or they may apply to the BI to change or convert their admission status to Section 9(f). Foreign nationals with 9(f) visas may not change or convert their visas to another category unless they first depart from the country.

A student visa holder may not work or engage in any trade or occupation in the Philippines unless the completion of the degree requires it.

Prearranged employee visa under Section 9(g). Prearranged employee visas under Section 9(g) (9(g)visas) are issued to for­eign nationals coming to the Philippines to engage in any lawful occupation, whether for wages or salary or for another form of compensation, if bona fide employer-employee relations exist. These visas may also be granted to qualified dependents of the foreign nationals. Persons coming to perform unskilled manual labor in pursuance of a promise or offer of employment, express or implied, are not permitted to enter the Philippines.

Applicants for a 9(g) visa whose undertaking in the Philippines will involve the practice of a profession that is regulated by the Professional Regulation Commission (PRC) must submit to the BI, together with all the other requirements for the 9(g) visa, a Special/Temporary Permit issued by the professional board gov­erning his or her profession and the PRC.

The issuance of a 9(g) visa depends on the grant of an AEP (see Section G) by the DOLE. It takes approximately two to four months to process the 9(g) visa. An application for a Provisional Permit to Work is required to allow an individual to perform services while his or her application for the issuance of the 9(g) visa is pending.

A 9(g) visa may be renewed annually for a total period not exceeding five years. It appears that this is the maximum period for holding a 9(g) visa, because labor rules state that the validity of an AEP may not exceed five years. However, if it is reasonably expected that a foreign national’s employment in the Philippines will extend beyond five years, coordination with the DOLE is advisable before a petition for an AEP extension is filed.

Special non-immigrant visa. The Philippine Immigration Act, specifically Section 47(a)(2), as well as several special laws, provides for special non-immigrant visas. These types of visas grant the holder multiple-entry privileges, and in some cases, exemption from registration requirements of the BI.

47(a)(2) visa. Acting through the appropriate government agen­cies, the President may allow the entry of foreign personnel for the following enterprises:

  • Oil-exploration companies
  • Philippine Economic Zones Authority (PEZA)-registered enterprises
  • Board of Investment-registered enterprises

PD 1034 visa. A PD 1034 visa is granted to foreign personnel of entities licensed by the Central Bank of the Philippines (Bangko Sentral ng Pilipinas) to operate as offshore banking entities, as well as to the foreign employees’ qualified dependents.

EO 226 visa. An EO 226 visa is granted to foreign personnel of regional or area headquarters or regional operating headquarters of multinational companies. The visa is valid for three years and may be extended for an additional three years but, in practice, the validity period for the visa may vary. Foreign nationals admitted under this type of visa and their qualified family members are granted incentives under the omnibus investment laws, including exemption from the payment of all fees imposed under immigra­tion laws, and from requirements for all types of clearance re quired by government departments or agencies, except on final departure from the Philippines.

Special visa for employment generation. The special visa for employ ment generation (SVEG) under EO No. 758 is a special visa issued to a qualified non-immigrant foreigner who will employ at least 10 Filipinos in a lawful and sustainable enter­prise, trade or industry. Qualified foreigners who are granted the SVEG are considered special non-immigrants with multiple-entry privileges and conditional extended stay, without need of prior departure from the Philippines.

Special resident visa. Several types of special resident visas may be issued, including those described below.

Special investor resident visa. Qualified foreign nationals who are at least 21 years old, except nationals of Cambodia, Korea (North) and other restricted countries, may obtain a probationary special investor resident visa (SIRV) on proof of an inward remit­tance of USD75,000 or its equivalent in acceptable foreign cur­rency. On investment in specified areas, the probationary SIRV visa is converted to an indefinite visa and remains in force for as long as the investment exists.

An investor may apply for an SIRV at the Philippines consulate in his or her home country or place of residence. If the foreign national is already in the Philippines, he or she may apply to the Board of Investment for a change of visa status to special investor resident.

Special investor resident visa in tourist-related projects and tour­ist establishments. Foreign nationals who invest an amount equivalent to USD50,000 in a tourist-related project or in any tourist establishment are eligible to apply for SIRVs. To obtain this type of visa, a foreign national must prove that he or she has re mitted the required amount in an acceptable foreign currency to the Philippines through the Philippine banking system. A holder of an SIRV is entitled to reside in the Philippines while his or her capital remains invested. How ever, if the holder withdraws the investment, the SIRV expires automatically. An SIRV holder must submit an annual report to prove that he or she has main­tained the investment in the Philippines.

Foreign nationals wishing to obtain SIRVs must apply to the Philippine consulate in their home country or place of residence. An investor who is already in the Philippines must apply to the Department of Tourism (DOT). The BI issues the visa on DOT approval.

Special resident retiree’s visa. To obtain a special resident retiree’s visa, an individual must satisfy certain age and minimum deposit requirements. The applicant must be at least 35 years old, and the deposit requirement ranges from USD1,500 to USD50,000, depending on the circumstances. Former Filipino citizens must be at least 35 years old and make an inward remittance of USD1,500. Ambassadors of foreign countries who served and retired in the Philippines and current and former staff members of international organizations, including the Asian Development Bank, are also eligible for this program. They must make an inward remittance of USD1,500 and be at least 50 years old.

Coordination with the Philippine Retirement Authority is highly recommended.

Subic special investor’s visa. A Subic special investor’s visa entitles a qualified investor, as well as his or her spouse and dependent children under 21 years old, to indefinite resident status in the Subic Bay Freeport Zone and to multiple entries into the Philippines if the individual makes an investment of at least USD250,000 or its equivalent in acceptable foreign currency in the Subic Bay Freeport Zone.

Subic special work visa. A Subic special work visa (SSWV) may be issued to qualified foreign nationals who are employed by Subic enterprises for a period not exceeding two years. The visa is extendible every two years. An SSWV is also issued to the applicant’s spouse and unmarried children below 21 years of age if they accompany the foreign national to the Subic Bay Freeport Zone within six months after the foreign national is admitted to the zone as an SSWV holder.

Temporary work permit. The Subic Bay Metropolitan Authority (SBMA) may issue a temporary work permit (TWP) to foreign expatriates in order to immediately legalize a foreign national’s status as an investor or worker in the Subic Bay Freeport Zone. The permit is issued while the foreign national’s investor or work visa application is still in process. It is valid for three months and may be extended every three months, subject to a maximum total extension of one year.

Special Subic retiree’s visa. A special Subic retiree’s visa may be issued to a retired foreign national and his or her qualified depen­dents if the national receives a pension of at least USD50,000 per year. A person is considered retired if he or she is over 60 years old and if he or she is no longer working or self-employed, or worked for compensation for fewer than 750 hours during the year preceding the year of the visa application.

Special industrial training permit. A foreign national entering the Philippines to undertake non-competitive industrial training may be issued a special industrial training permit (SITP). Approval of the application for an SITP must be secured by the host firm prior to the industrial trainee’s entry into the country. The training should be for a short period of time and should last only as long as necessary to afford the trainee basic technological know-how. An SITP is valid for up to three months and may be extended in certain justifiable cases. An SITP may not be converted into another type of visa.

Immigrant visa. An immigrant is defined as a foreign national admitted to the Philippines either as a quota (not in excess of 50 per nationality per calendar year) or non-quota (without numeri­cal limitation) immigrant.

Immigrant status may be acquired on application before a com­petent consular office abroad or by direct application for a change of admission status before the BI. As a matter of policy, immigration visas are issued to nationals or subjects of countries that grant similar privileges to Filipino citizens.

An applicant for quota immigrant status must clearly and beyond doubt demonstrate that his or her special qualification will advance the national interest of the Philippines. A minimum capitalization of USD40,000 in a viable and acceptable area of investment is required of each quota immigrant applicant.

The Philippines may grant the status of non-quota immigrant to the following categories of people:

  • Foreign nationals who are legally married to Filipino citizens
  • Children of foreign nationals who were born during the tempo­rary visits of their parents abroad and whose mothers were previously admitted for permanent residence
  • Children born subsequent to the issuance of viable immigrant visas of the accompanying parents
  • Women who were citizens of the Philippines who lost their citizenship, and their unmarried children younger than 21 years of age if accompanying or following their mothers
  • People previously lawfully admitted for permanent residence returning from temporary visits abroad for unrelinquished resi­dence in the Philippines
  • Natural born citizens of the Philippines who were naturalized in foreign countries and who are returning to the Philippines for permanent residence, their spouses and their minor children

On registration, quota and non-quota immigrants are issued an I-Card by the BI.

Alien Employment Permit

Unless specifically exempted, all foreign nationals desiring to work in the Philippines must obtain an Alien Employment Permit (AEP) from the DOLE. AEPs are normally valid for one year, but may be extended annually to cover the foreign national’s length of employment, up to a maximum of five years.

Applications for AEPs may be filed with the Philippine embassy or consular office nearest to the foreign national. Local employ­ers who desire to employ a foreign national must apply for the AEP on the foreign national’s behalf with the regional office of the DOLE having jurisdiction over the employee’s place of work.

The petitioning company must prove that the foreign national possesses the required skills for the position. Educational back­ground, work experience and other relevant factors are considered in evaluating the application. The petitioning company must prove that no Filipino is available who is competent, able and willing to do the specific job and that the employment of the foreign nation­al is in the best interest of the public.

The requirement with respect to the Understudy Training Pro gram (UTP) has been eliminated.

Family and personal considerations

Family members. The family members, spouses and unmarried dependent children under 21 years of age of visa holders in the following categories do not need student visas or special study permits:

  • Permanent foreign residents (immigrants)
  • Holders of Sec. 9(d) or 9(g) or 47(a)(2) visas
  • Foreign diplomatic and consular missions personnel
  • Personnel of duly accredited international organizations
  • Holders of special investor resident visas (SIRVs)
  • Holders of special resident retirees’ visas (SRRVs)

The privileges of SVEGs (see Section F) may extend to SVEG holders’ spouses and dependent unmarried children under 18 years of age, regardless of whether the children are legitimate, illegiti­mate or adopted.

Marital property regime. Before 3 August 1988, property relations between a future husband and wife were governed by any of the following:

  • Marriage settlement
  • Provisions of the Philippine Civil Code
  • Custom

In a marriage settlement, the future spouses agree to absolute community of property, conjugal partnership of gains, complete separation of property or any other property regime. Absolute community is a property regime under which all property of the spouses—present and future, movable and immovable, however acquired—form a single patrimony. Con ju gal partnership of gains is a regime under which everything earned during the marriage belongs to the conjugal partnership, but the spouses retain owner­ship of their respective separate property. Whichever regime the spouses adopt may not be altered after the marriage is solem­nized and continues to apply until the marriage is dissolved. In the absence of a marriage settlement or if the settlement is void, the system of conjugal partnership of gains applies.

After 3 August 1988, future spouses may elect a marital property regime of absolute community, relative community, complete separation of property or any other regime in a written marriage settlement to govern their property relations. In the absence of a marriage settlement or if the property regime elected is void, the system of absolute community of property applies.

Philippine family law is binding on citizens of the Philippines, even if they marry and establish their residence abroad. Foreign nationals are not governed by these laws, regardless of where their marriage is solemnized and where they reside.

Forced heirship. Under the succession rules in the Philippine Civil Code, an estate is divided into the legitime and the free portion. The legitime is the part of a decedent’s entire estate that must be reserved for compulsory heirs. The distribution of the inheritance among the heirs may be effected by a will or by law.

The system of forced heirship in the Philippines applies only to citizens of the Philippines. In general, issues related to succession are regulated by the national law governing the deceased.

Driver’s permits. Foreign nationals may drive legally in the Philip pines with their home country driver’s licenses for 90 days from the time of their entry into the country. An application for conversion of the home country driver’s license to a Philippine driver’s license may be made at the Philippine Land Trans portation Office (LTO).

An applicant must pass a written examination, an actual driving test and a medical examination. After completion of the examina­tions, the applicant is issued a driver’s license receipt, which serves as a temporary driver’s license and is valid for 60 days. Thereafter, a driver’s license is issued to the applicant. A driver’s license is valid for three years and expires on the holder’s third birthday following the date of issuance.

An expatriate intending to secure an international driver’s permit must submit additional documents to the LTO.

The Philippines does not have driver’s license reciprocity with other countries.