• 1. Freight tax

Freight tax

Tax applied to vessels on voyage charter

5.5 % of the gross outward freight earnings obtained by non-residential shipowners and/or operators. The rate consists of:

Corporation tax: 2.5% of gross Philippine Billings (based on No. 2 [A], Sec. 28 of the National Internal Revenue Code (NIRC), as amended)

Common carriers tax: 3.0% of quarterly gross receipts (based on Sec. 118 of NIRC, as amended)

Tax applied to vessels on Time/Bareboat charter

4.5% of gross earnings, in addition to the Corporation Tax and Common Carriers Tax is to be paid by foreign owners who charter vessels to Philippine nationals. (based on No. 7 [B] {2}, Sec. 28, NIRC as amended). There is a minimum corporate income tax of 2% levied on gross income for corporations established in the Philippines. (Sec. 28 [A] {2}, NIRC, as amended)

Tax applied to vessels in coastal trade

Foreign vessels are not allowed to engage in coastal trade. However, vessels chartered by Philippine nationals are allowed to engage in coastal trade when approval has been granted by the Maritime Industry Authority. The gross earnings of non-residents from such operations are taxed at 4.5% The Corporation Tax and Common Carriers Tax do not apply. (Sec. 28 [A] {2}, NIRC, as amended)

Exemption Agreements

Residents of the following countries may benefit from double taxation agreements, which may reduce the corporate tax on voyage charters.

Country Corporation
Tax Rate
Date of entry
into force
Date of effect
Australia 1.5% 17/06/1980 01/01/1980
Austria 1.5% 01/04/1982  01/01/1983
Bahrain 1.5% 14/10/2003  01/01/2004
Bangladesh   01/01/2004 01/01/2004
Belgium 1.5% 09/07/1980  01/01/1981
Brazil 2.5% 20/08/1991  01/01/1992
Canada 1.5% 21/12/1977 01/01/1977
China 1 1.5% 23/03/2001 01/01/2002
Czech Republic 2,3
1.5% 23/09/2003  01/01/2004
Denmark (Renegotiated) 2,3 1.5% 24/12/1997 01/01/1998
Finland 1.5% 01/10/1981 01/01/1982
France 1.5% 24/04/1978 01/01/1978
Germany 1.5% 14/12/1984  01/01/1985
Hungary     01/01/1998
India 1.5% 21/03/1994 01/01/1995
Indonesia 1.5% 20/05/1982 01/01/1983
Israel 1.5% 26/05/1997 01/01/1997
Italy 1.5% 15/06/1990 01/01/1990
Japan 1.5% 20/07/1980 01/01/1981
Korea, Republic of 1.5% 09/11/1996 01/01/1987
Kuwait
22/04/2013 01/01/2014
Malaysia 1.5% 27/07/1985 01/01/1985
The Netherlands 1.5%  20/09/1991 01/01/1992
New Zealand 1.5% 14/05/1981 01/01/1981
Nigeria 1.5% 18/08/2013 01/01/2014
Norway 1.5% 23/10/1997 01/01/1998
Pakistan 1.5% 24/06/1981 01/01/1979
Poland 2,3 1.5% 07/04/1997 01/01/1998
Qatar
19/05/2015 01/01/2016
Romania 1.5% 27/11/1997 01/01/1998
Russia 1.5% 12/09/1997 01/01/1998
Singapore 1.5% 18/11/1977 01/01/1977
Spain 1.5% 12/09/1994 01/01/1994
Sri Lanka   08/12/2009 01/01/2010
Sweden (Renegotiated)  1.5% 01/11/2003 01/01/2004
Switzerland 2
1.5% 30/04/2001 01/01/2002
Thailand 1.5% 11/04/1983 01/01/1983
 Turkey  1.5%  11/01/2016  01/01/2017  
United Arab Emirates 2
1.5% 02/10/2008 01/01/2009
United Kingdom 4 2.5% 23/01/1978 01/01/1979
United States 1.5% 16/10/1982 01/01/1983
Vietnam 1% 29/09/2003 01/01/2004
Comprehensive treaty negotiations currently in progress
Signed but not ratified
Chile   Signed 18/07/1988 Limited transportation treaty: Sea only
China 5   Signed 29/05/2002  
Germany (Renegotiated)
Signed 09/09/2013  
Indonesia (Renegotiated)   Signed 21/09/1993  
Serbia   Signed 21/07/1989  
Thailand (Renegotiated) 1.5% Signed 21/06/2013  
Turkey   Signed 18/03/2009  
In the progress of negotiation or finalised but not signed
Brunei      
Myanmar, Union of      
Oman      
Papua New Guinea      
Saudi Arabia 2.5%   Limited transportation treaty: Air only
Seychelles      
Tunisia      

Notes

  1. This treaty does not apply to residents of Hong Kong SAR, Macao SAR or Taiwan, Province of China
  2. The treaty is based on the country where the effective management of the shipping enterprise is situated.
  3. If the place of effective management of a shipping enterprise is aboard a ship or boat, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship  is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship is a resident.
  4. The treaty does not cover shipping profits.
  5. This pending treaty only covers the residents of Taiwan, Province of China.  

Remarks

In as much as the 2.5% tax is based on gross billings or gross freight revenue, it is payable even if the operations result in a loss. However, it is based solely on gross billings from voyages emanating from the Philippines. Owners are not permitted to make an allowance for depreciation for purpose of the 2.5% freight tax on gross billings tax.

The tax is withheld and paid by the Philippine remitter before the vessel's foreign owners/operators are paid. Vessels will not receive customs clearance until the tax has been paid.

 

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