Last July 1, 2025, the Capital Markets Efficiency Promotion Act (CMEPA), or Republic Act No. 12214, took effect. As specifically provided in the law, the State recognises the necessity of a simpler, fairer, more efficient, and regionally competitive passive income tax system to encourage savings, as well as develop and deepen capital markets. Thus, CMEPA was passed into law to encourage ordinary Filipinos to invest in the Philippine capital markets and promote inclusive growth.
While the intention of the law is clear, such as encouraging Filipinos to save in banks and to invest in the Philippine capital markets, there were misinformation when the law took effect last July 2025. Viral social media posts have circulated claiming that bank deposits in the Philippines will be taxed at 20%. Though these claims are inaccurate and misleading, a lot of netizens were quick to believe the claims. Further posts even encourage Filipinos to just keep their money at home, or to just spend, instead of saving.
The Department of Finance (DOF) and Malacañang have refuted these posts, clarifying that taxation applies not to the savings themselves, but solely to the interest earned from those savings. Furthermore, the Bureau of Internal Revenue (BIR) released the necessary rules and revenue regulations for the effective implementation of CMEPA on August 5, 2025. Among these are Revenue Regulations (RR) No. 20-2025 and 21-2025.
RR Nos. 20-2025 and 21-2025 were issued to implement the amendments of CMEPA to the taxation of certain passive income.
Interest Income
Effective July 1, 2025, all interest income of Filipino citizens, resident foreigners, and non-resident foreigners engaged in trade or business, domestic and resident foreign corporation, from both Philippine peso and foreign currency bank deposit or deposit substitute, trust funds and other similar arrangements, regardless of their nature or tenure, are now subject to 20% final withholding tax. Interest income of nonresident foreigners not engaged in trade or business and nonresident foreign corporations will still be subject to a 25% final withholding tax or tax treaty rate. Income of non-residents, whether individuals or corporations, from transactions with depositary banks under the expanded system shall still be exempt from income tax.
Interest income from project-specific bonds that are issued by the Republic of the Philippines or any of its instrumentalities to finance capital expenditures or programs covered by the Philippine Development Plan or its equivalent and other high-level priority programs of the national government, as determined by the Secretary of Finance, shall be exempt from income tax.
Gains from Sale, Transfer, or Disposition of Investments
Except in the case of non-resident foreign corporations, capital gains from sale, exchange or other disposition of shares of stock in a domestic or foreign corporation not traded in a local or foreign stock exchange shall be subject to 15% capital gains tax, regardless of the classification and status of the seller (individual or corporation). For non-resident foreign corporations, only capital gains from sale, exchange or other dispositions of shares of stock of a domestic corporation, not traded in a local or foreign stock exchange, shall be subject to 15% capital gains tax.
Shares in a domestic corporation sold or disposed of through a local or foreign stock exchange are subject to stock transaction tax (STT) of 1/10 of 1% effective July 1, 2025. Similarly, shares in a foreign corporation sold or disposed of through a local stock exchange are subject to the same STT. As specifically provided in RR No. 21-2025, STT is in lieu already of capital gains tax.
Since individuals, other than resident citizens and resident foreign corporations, are subject to Philippine income tax on their Philippine sourced income only, we hope the BIR could issue further guidance on the treatment of sale of shares in a foreign corporation for these non-residents.
Gains realised from the sale, exchange, or retirement of bonds, debentures, or other certificates of indebtedness, including those with a maturity period of more than five (5) years, are now subject to income tax effective July 1, 2025. If traded through a local or foreign stock exchange, the sale shall be subject to Stock Transaction Tax (STT).
Gains realised by the investor upon redemption of shares of stock in a mutual fund company, or units of participation in a Mutual Fund or Unit Investment Trust Fund shall not be subject to income tax provided, that prior to such redemption, final taxes due on realised gains have been previously withheld at the level of the underlying assets.
Investments prior to July 1, 2025
Since CMEPA took effect last July 1, 2025, any tax exemption and preferential rate on financial instruments issued or transacted prior to July 1, 2025, shall be subject to the prevailing tax rate at the time of its issuance for the remaining maturity of the relevant agreement.
As provided in the implementing rules and regulations, the following conditions must be complied with for the prevailing rate or tax exemption prior to July 1, 2025, to apply:
While the implementing rules and regulations outlined the conditions for exemptions or preferential rates to apply to financial instruments issued prior to July 1, 2025, further clarity from the BIR is needed regarding the tax treatment of gains from the sale of instruments that were previously exempt from income tax. For example, are gains realised from the sale of long-term instruments—originally exempt because they were issued before July 1, 2025, but sold on or after that date—still considered exempt?
Although initial confusion around the taxation of savings deposits has since been addressed, and the BIR has released the implementing rules and regulations, the early uncertainty caused by CMEPA’s amendments underscores the critical importance of clear and timely communication of the implementation of the changes brought about by new tax laws. Ensuring that the public is well-informed about tax changes is essential.
Ideally, the effective implementation of new laws relies on the availability of comprehensive rules and regulations before those laws come into force. At the end of the day, a law, no matter how well-crafted, is only as effective as its implementation. We laud the DOF and BIR’s effort in ensuring that the required implementing rules and regulations are issued within the deadline set by the law. However, the effectivity of the new tax laws must consider the time required of government agencies to frame, consult and issue the implementing regulations. This ensures that the intended objectives are achieved, and compliance from taxpayers is seamless.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 12 August 2025
