Sale of Shares Philippines

Tax Deductions for Sale of Shares: Understanding Philippine Law

Question:
What are the tax deductions allowed for the sale of shares in the Philippines?

Answer:

What are the types of shares?

In the Philippine context, shares can either be classified as:

1. Listed shares - shares that are traded in the Philippine Stock Exchange.
2. Unlisted shares - shares not traded in the stock exchange.

What are the taxes imposed on the sale of shares?

1. Listed Shares:

   • A final tax of 0.6% of the gross selling price or gross value in money is imposed on the sale, barter, exchange, or other disposition of shares through the stock exchange.

2. Unlisted Shares:

   • Capital Gains Tax of 15% is imposed on the net capital gains.

What constitutes a deductible item?

For the sale of unlisted shares, the basis for the calculation of net capital gains are the "costs of acquisition" which may include:

1. Purchase Price - the actual amount paid to acquire the shares.
2. Broker's Fees - if any, although this is more common in listed shares.
3. Additional Costs - other costs directly attributable to the acquisition of the shares.

Are there allowable deductions on listed shares?

For listed shares, the final tax rate is applied to the "gross selling price or gross value in money," so no deductions are usually permitted.

How do these deductions impact the tax liability?

For unlisted shares, you can subtract your allowable deductions (costs of acquisition) from the selling price to determine the net capital gains. The tax of 15% is then applied to the net capital gains.

Is the holding period relevant for tax deductions?

No, the Philippine tax code does not currently differentiate tax rates or allowable deductions based on holding periods for the sale of shares.

What are the administrative requirements for claiming these deductions?

Documentation is essential. Keep accurate and verifiable records of all transactions and costs. These will be vital when declaring taxes to the Bureau of Internal Revenue (BIR).

What happens if I do not report the sale?

Failure to report the sale and pay the corresponding tax can result in penalties, including surcharges, interest, and compromise penalties.

Should I consult a tax advisor?

Given the complexities involved, consulting a tax advisor can provide personalized guidance, helping you understand your tax obligations and how to optimize your tax position.

Conclusion:
Understanding the tax implications when selling shares is critical. In the Philippines, the type of share (listed or unlisted) affects the tax rate and allowable deductions. Documentation is crucial for compliance and potential deductions, especially for unlisted shares. For accurate and tailored advice, it may be beneficial to consult a tax advisor.