The Philippines’ Republic Act No. 12214, also known as the Capital Markets Efficiency Promotion Act (CMEPA), was signed into law on 29 May 2025, to create a fairer and simpler tax system for passive income, encourage more savings and investments, support easier movement of capital, and attract more investment in stocks and debt securities.1 The law took effect on 1 July 2025.
WHY THIS MATTERS
CMEPA introduces simpler tax rules for passive income and investments. For individuals, this means changes in tax rates on dividends, capital gains, interest, and royalties, and new filing requirements for gains on shares not traded on an exchange. These changes require attention from individual taxpayers to foster correct and timely reporting and filings. In some cases, the taxation of investments has come down, which could lower the related tax burdens borne by taxpayers.
International assignment tax policies may need revisions to the extent they cover taxation of assignees’ passive income and investments.
International assignment tax providers will need to take the new rules and rates on board when preparing their assignees’ tax returns.
What Has Changed?
The following highlights the main differences between the previous tax regulations and the changes under CMEPA starting 1 July 2025.
Type of Income | Previous Tax Regulations | CMEPA | |||
Gains from the sale, transfer or disposition of bonds | Excludes gains from qualified long-term bonds from gross income | Limits exclusion from gross income to gains from bonds issued by the Philippine government or its instrumentalities for high-level priority programs | |||
Redemption of Mutual Funds / UITFs | Exempt if held for at least five years | Excluded from gross income if the final tax has been properly withheld by the fund manager | |||
Interest Income
| Peso deposits subject to 20% tax while foreign currency deposits and pre-terminated long-term deposits subject to 15% (except non-resident aliens not engaged in trade or business who are subject to 25% final tax on all Philippines-sourced income) | Subject to a final tax rate of 20% (except non-resident aliens not engaged in trade or business who are subject to 25% final tax on all Philippines-sourced income) | |||
Royalty Income | Royalties earned from books, literary works, and musical compositions subject to 10% final tax | Applies a uniform 20% FWT on all royalties classified as passive income | |||
Capital Gains from Unlisted Foreign Shares | Subject to graduated tax rates of 0%-35% | Subject to a final tax rate of 15% capital gains tax, same as unlisted domestic shares | |||
Listed Shares | Subject to 0.6% Stock Transaction Tax (STT) on gross selling price of domestic shares sold via local stock exchange |
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Source: KPMG in the Philippines
Any tax exemption and preferential rate on financial instruments issued or transacted prior to 1 July 2025 shall be subject to the prevailing tax rate at the time of its issuance for the remaining maturity of the relevant agreement.
KPMG INSIGHTS
CMEPA marks a major step in reforming the Philippines tax system by simplifying the treatment of passive income and investment gains. While the reform creates opportunities for individuals to build and diversify their wealth, it also introduces new compliance requirements that demand awareness and action from individual taxpayers and their tax service providers.
Employers are encouraged to support their employees in this shift by providing updates and sharing resources related to the changes to the tax regulations.
FOOTNOTE:
1 See on the official website of the Bureau of Internal Revenue (BIR), the Capital Markets Efficiency Promotion Act (CMEPA), Per Republic Act No. 12214, at: https://www.bir.gov.ph/CMEPA.
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Disclaimer
The information contained in this newsletter was submitted by the KPMG International member firm in the Philippines.
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