Israel – Philippines Tax Treaty

Business activity in The Philippines

The Philippines has the third fastest-growing economy in Southeast Asia, with a 7.6 percent growth in 2022, and is also the second most populous country in the region after Indonesia.

The country’s main exports are commodities (electronic products), coconut oil, and other mineral products, with the majority of the experts going to the Asia-Pacific Economic Cooperation countries. The Philippines mainly imports commodities (electronic products), mineral fuels, lubricants and related materials, and iron and steel. Similarly to exports, the majority of imports came from the Asia-Pacific Economic Cooperation.

Bilateral agreements between the Philippines and Israel

1. Reciprocal Promotion and Protection of Investments
2. Double Taxation Convention

Reciprocal Promotion and Protection of Investments

On June 7, 2022, an agreement about the promotion and protection of investments was signed between the countries. The agreement went into force on March 12, 2024. Its purpose is to encourage economic activities between the countries.

To access the full text of the agreement in English click here.

Convention on the Prevention of Double Taxation

The Convention on the Prevention of double taxation or a tax treaty is an agreement designed to handle double taxation issues regarding income that has to do with both countries.

The Israel – Philippines tax treaty was signed on June 9, 1992, and went into effect on the 1^st of January 1997.

To access the full text of the agreement in English click here.

Applicability of the MLI

Israel signed the MLI in 2017 and ratified it on 1 January 2019, while the Philippines is yet to sign the agreement.

Residency for tax purposes in the Philippines

Residence of an individual

Individuals will be considered tax residents of the Philippines if they meet the following criteria:

• They aren’t mere transients or sojourners. Meaning their stay in the country isn’t temporary.
• They don’t have a well-deafened intention regarding their stay in the country.
• They are in the Philippines for an extended period due to a specific purpose. However, their stay is temporary, not permanent.

If an individual doesn’t meet the criteria above, they will be considered a non-resident alien. Nonetheless, they can be classified as engaged in trade or business if the length of their stay is above 180 days in a calendar year. In this case, they will be taxed as residents. If they aren’t engaged in trade or business, they will be subject to gross income tax.

Residency of a company

A company is considered a tax resident of the Philippines if it was incorporated there or is licensed to do business in the country.

Taxation in the Philippines

The Philippines Tax Authority is called The Bureau of Internal Revenue (BIR).

Income Tax: 0% – 35%

Corporate and Branch Tax: 25%

VAT: 12%

Capital Gains Tax: 6%/15%

Withholding Tax

Inheritance tax and estate tax in the Philippines

The estate tax in the Philippines is six percent and is applicable if the decedent’s net estate value is above five million pesos (or 500,000 pesos for nonresident aliens).

Gift tax in the Philippines is also at six percent and is applicable if the value of the gifts in a calendar year is higher than 250,000 pesos.

Relocation to the Philippines

The Philippines has beautiful scenery, a welcoming population, and a growing, and dynamic economy. In order to move to the country one needs to obtain a visa, there are a few types of visas offered, including a work visa, a retirement and more.

The country is quite an attractive location for relocation, with its relatively low cost of living (although one of the highest in the region), English being one of its official languages, and the tax benefits and incentives it offers.

More relocation information can be found on our website relocation page.

Real estate taxation in the Philippines

Real property taxes in the Philippines are imposed by the local government units, meaning the tax rate varies across the country. However, there is an upper limit to this tax, one percent in provinces and two percent in cities or municipalities in the Metro Manila area. The tax is imposed on land, buildings, machinery, and other improvements. The tax base depends on the use of the property/improvements and is 50 percent of the property’s market value for commercial or industrial purposes, 40 percent, and 20 percent for agricultural and residential purposes.

If machinery and equipment are used for environmental protection and pollution control, they aren’t subject to this tax.

It should be noted that generally, with certain exceptions, only Filipino citizens or corporations or partnerships in which no less than 60% of the shares are owned by Filipino citizens, can own or acquire land in the Philippines. Buying other forms of property can also present challenges.

Transfer of funds from Israel to the Philippines

According to section 170(a) of the Israeli Income Tax Ordinance, any transfer of payment to a non-Israeli resident is subject to a 25% withholding tax. However, the tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax.

Since both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In addition, to advising on withholding tax issues, our firm also assists with the requirements of foreign banks, such as an accountant’s approval regarding the payment of taxes, and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

Banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, it is important to seek consultation before transferring funds – Contact us.

For more information on transferring money abroad, click here.

Types of business entities in the Philippines

The Philippines has a range of business entity types, including:

Sole proprietorship – A sole proprietorship is an entity that has one individual as its owner, who assumes unlimited liability. The owner needs to register the entity in the Bureau of Trade Regulation and Consumer Protection and in the Department of Trade and Industry.

Partnership – A partnership is an entity that consists of at least two members. In the Philippines, the partnership is separate and distinct from its members, meaning, it is considered a separate legal entity. There are two types of partnerships, general partnerships and limited partnerships. In general partnerships, the liability of each partner is unlimited, while in limited partnerships only one partner needs to have unlimited liability, the others can have limited liability. If a partnership has a capital of over three thousand pesos, it needs to register with the Securities and Exchange Commission.

Stock corporations – A stock corporation is a separate and distinct entity from its shareholders, which have limited liability. There is no minimum on the number of shareholders to open this entity, but there can be no more than 15 incorporators. If there is only one shareholder, the corporation will be called a one-person corporation. Generally, the shareholders of this entity can be individuals, partnerships, and so on. However, if it is a one-person corporation, the incorporator can only be a person, a trust, or an estate. A stock corporation needs to be registered with the Securities and Exchange Commission.

Incentive laws in the Philippines

There are a variety of incentives and tax benefits in the Philippines, including, Special Economic Zones, incentives for multinational companies that meet certain criteria.

• Special Economic Zones – These include export processing zones, free trade zones, and more. Companies operating in those zones can enjoy benefits such as lower income tax rates, exemptions from export taxes, and other advantages.
• Incentives for multinational companies – There are tax benefits for certain multinationals, for example, those with regional or area headquarters in the country or those that operate warehouses to export spare parts. Those benefits include no customs duties, VAT exemptions, and more.

Philippines Double Tax Treaties: