Tax Alert No. 14 [Republic Act No. 12214 signed on 29 May 2025]

An Act Amending Sections 22, 24, 25, 27, 28, 32, 34, 38, 39, 42, 51, 52, 56, 57, 127, 149, 174, 176, 179, 190, 199, and 258 of Republic Act No. 8424, otherwise known as the National Internal Revenue Code of 1997, as amended, and For Other Purposes

Please be informed that Republic Act No. 12214, also known as the Capital Markets Efficiency Promotion Act (CMEPA), was signed into law by the President of the Philippines on 29 May 2025. The CMEPA, which aims to provide a simpler, fairer, more efficient, and regionally competitive passive income system that encourages savings as well as develop and deepen capital markets, amended certain provisions of the National Internal Revenue Code of 1997 (Tax Code), as amended.

We provide below the salient points of the CMEPA:

• Expanded the definition of “securities.”
• Excluded the following from the scope of the term “deposit substitutes”:
  • Reverse repurchase agreements entered by and between the Bangko Sentral ng Pilipinas (BSP) and any authorized agent bank.
  • Certificates of assignment or participation.
  • Similar instruments with recourse.
• Defined “passive income” which shall refer to any income that is earned from sources that do not require a taxpayer’s active pursuit and performance of trade or business and is not subject to value-added tax imposed in the Tax Code.
• Imposed 15% Capital Gains Tax on the net capital gains realized by resident citizens and domestic corporations from the disposition of shares of stock in a foreign corporation not listed or traded in a local or foreign stock exchange.
• Limited the 20% final tax on royalties to those earned as passive income.
• Standardized the final tax on interest income at 20% (except for non-resident aliens not engaged in trade or business within the Philippines and non-resident foreign corporations).
• Added the following to the list of items included as gross income:
  • Equity-based compensation (such as stock options, restricted stock units, and stock appreciation rights) but only when exercised.
  • Gains from the sale or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years. This type of income was removed from the list of those explicitly excluded from gross income.
• Added the following to the list of exclusions from gross income:
  • Interest income and gains from the sale, transfer, or disposition of project-specific bonds.
  • Gains from the redemption of units of participation in a Unit Investment Trust Fund (UITF).
• Distinguished that securities held by a dealer in securities or an entity licensed to buy and sell securities which are ascertained to be worthless shall be considered ordinary losses allowed to be claimed as deductions from taxable income.
• Allowed private employers to claim an additional deduction of 50% of the employer’s actual contributions (subject to the maximum allowed by law) made to personal equity and retirement accounts (PERA) under R.A. No. 9505 (PERA Act of 2008) on the condition that they contribute to all of their employees’ PERA accounts.
• Extended to entities or financial intermediaries licensed to buy and sell securities the privilege to claim as a deduction the losses from the wash sales of stock or securities.
• Amended the Stock Transaction Tax (STT) as follows:
  • The STT rate has been reduced to 0.1% (from 0.6%).
  • The scope of the STT now includes the disposition of (1) other securities listed and traded through a local stock exchange and (2) shares of stock of a domestic corporation listed and traded through a foreign stock exchange.
• Removed pick-ups from those exempted from the excise tax on automobiles.
• Amended the Documentary Stamp Tax (DST) rates:
  • On the original issuance of shares of stock - 0.75% (from 1%).
  • On bonds, debentures, and certificates of stock or indebtedness issued in foreign countries - fixed at 0.75%.
  • On all debt instruments - converted into a fixed percentage of 0.75%.
• Added to the list of transactions exempted from DST:
  • Redemption or other disposition of shares of stock listed and traded through a local or foreign stock exchange.
  • Original issuance, redemption, or other disposition of shares in a mutual fund company.
  • Issuance of certificate or other evidence of participation in a mutual fund or UITF.

On the other hand, the following proposed amendments were vetoed by the President:

• Deletion of the income tax exemption of any income of nonresidents (whether individuals or corporations) from transactions with depository banks under the expanded system.
• Imposition of DST on bettors of lotto and other numbers game conducted by the Philippine Charity Sweepstakes Office.
• Repeal of the tax exemptions granted to the Philippine Guarantee Corporation (PHILGUARANTEE).
• Repealed certain laws insofar as tax exemptions on interest income, capital gains and DST.

The CMEPA shall take effect on 1 July 2025 following its complete publication in the Official Gazette or in at least one (1) newspaper of general circulation*. Further, the Department of Finance shall issue the implementing rules and regulations within sixty (60) calendar days from the effectivity of this law.

*The CMEPA was published by the Manila Bulletin on 4 June 2025.

You may access the full version of the CMEPA through the House of Representatives website.

For any inquiry or request for assistance, please feel free to contact anyone from our Tax Services group. You may also reach us through this link