The Capital Markets Efficiency Promotion Act (CMEPA) was signed into law on 29 May 2025 and took effect on 01 July 2025. Passed to develop our capital markets and make the country’s passive income tax system more competitive, the CMEPA makes some notable amendments to our Tax Code.

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Passive Income

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Royalties are not automatically considered passive income. For royalties to still be subject to the 20% final tax, the royalties must now qualify as passive income, which is defined as “any income 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 this Code.” Royalties on books, literary works, and musical compositions, are still subject to 10% final tax.

 

Interest income across the board is now subject to 20% final tax. Previously, interest income from investments with a maturity period of five years or more was exempt from taxes. Now, it’s subject to 20% final tax, along with interest income from deposit substitutes, trust funds, and similar instruments. Even foreign currency deposits are now taxed at 20% (from the previous 15%).

 

Sale of Shares

 

The sale of unlisted shares of foreign corporations  are now subject to 15% capital gains tax (CGT). Previously, only the sale of unlisted shares of a domestic corporation was subject to the 15% CGT. Now, both the sales of shares of foreign and domestic corporations are subject to the 15% CGT, as long as these are not sold or disposed of through the stock exchange.

 

Speaking of selling shares thru a local stock exchange, the stock transaction tax (STT) has been reduced from 0.60% to 0.10% of the gross selling price of the shares sold. CMEPA now also imposes a similar 0.10% STT on the sale of shares in a foreign exchange. This will hopefully encourage more investors to invest in the stock market.

 

New Exclusions

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The redemption of shares or units of participation in unit investment trust funds are now explicitly excluded from gross income. Previously, only the redemption of shares in mutual funds were excluded. This is a welcome development for those who invest in UITFs.

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The interest income and gains from the sale, transfer, or disposition of project-specific bonds are now excluded from gross income. These bonds are issued by the Philippine government or any of its instrumentalities to finance its capital expenditures and high-priority programs.

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DST

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The documentary stamp tax on the original issuance of shares has been reduced from 1% to 0.75% of the par value of such shares of stock. 

 

Bad News for Pick-ups

 

Bad news for prospective pick-up owners. Pick-ups are now subject to the excise tax on automobiles. Previously, both electric vehicles and pick-ups were exempt from the excise tax on automobiles. Now, only electric vehicles are exempt.

 

Good News for Employers 

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Good news for employers who contribute an amount equal to or greater than their employees’ contributions to a Personal Equity and Retirement Account (PERA). They get an additional deduction of 50% of their actual contributions.

 

As of this writing, the BIR has yet to issue the rules and regulations for CMEPA.

 

If you need any further guidance, please email imdingles@ilclaw.com.ph.