Effective July 1, 2025, the Capital Markets Efficiency Promotion Act (CMEPA)—officially Republic Act No. 12214—goes live. And for the financial sector, that’s not just a footnote in tax law. It’s a game-changing shift in how capital income is taxed and how investments are encouraged in the Philippines.
Passed to sharpen the country’s edge in global investment circles, CMEPA aims to simplify tax structures, equalize treatment of passive income, and position the Philippines as a more attractive destination for capital formation.
Here’s what professionals, investors, and market participants need to know.
A Simplified, Modern Tax Framework for Capital Markets
At its core, CMEPA is a modernization tool. It brings the Philippine tax code closer to international norms while eliminating long-standing inconsistencies—particularly when it comes to taxing capital gains, interest, and royalties.
It starts with redefining passive income—now officially recognized as income that doesn’t require active participation and is not subject to VAT. This distinction helps reduce administrative friction and makes compliance easier for both individual and corporate taxpayers.
Key Amendments Under CMEPA: At a Glance
Here are the most relevant updates affecting both individuals and corporations:
Individual Income Tax Changes (Section 24)
| Category | Before CMEPA | Under CMEPA (RA 12214) |
| Capital gains from unlisted shares | 15% on domestic shares only | 15% on both domestic and foreign shares |
| Royalties | 10% or 20% | 20%, except 10% on books, literary works, or music |
Corporate Tax Updates (Sections 27 & 28)
| Category | Before CMEPA | Under CMEPA |
| Capital gains from unlisted shares | 15% on domestic shares only | 15% on both domestic and foreign shares |
| Interest income | Varies: exempt to 20% | Standardized at 20%, regardless of instrument type |
| Royalties | 10% or 20% | 20%, with 10% for books/literary/music |
Note: Nonresident aliens not engaged in business and nonresident corporations remain subject to a 25% final tax on all Philippine-sourced income—unchanged under CMEPA.
Lower Taxes on Securities Transactions = Better Capital Flow
One of the most impactful moves under CMEPA is the reduction in tax friction for capital raising and trading:
Documentary Stamp Tax (DST) Reductions
| Transaction | Before | Now |
| Original issuance of shares | 1% of par value | 0.75% of par value or actual consideration |
Stock Transaction Tax (STT)
- Old rate: 0.6%
- New rate under CMEPA: 0.1%
- Scope: Applies to both domestic and foreign listed shares
This change alone is expected to improve trading volume and market liquidity.
Foreign Currency Deposits: No Tax Change for Nonresidents
While there was a proposal to remove tax exemption on foreign currency deposit unit (FCDU) income earned by nonresidents, this was vetoed by the President. As a result, nonresident income from FCDUs remains tax-exempt, preserving the Philippines’ attractiveness for offshore capital flows.
Why This Matters: Investor Confidence and Capital Growth
The implementation of CMEPA is more than a set of rate changes—it signals policy intent.
It tells local and global investors that:
- The Philippines is serious about capital market reform.
- The tax environment will favor transparency, simplicity, and growth.
- Long-term investment—in equities, fixed income, and cross-border funds—is welcome and supported.
By lowering friction and harmonizing rates, RA 12214 builds on the momentum created by the CREATE and CREATE MORE Acts. Together, these reforms are shaping a modern tax code that’s aligned with global standards, while still tailored to local investment realities.
Final Word: Streamlined, Smarter, and More Competitive
CMEPA brings clarity to capital taxation in ways that matter to issuers, traders, investors, and tax professionals. With lower stock transaction taxes, standardized rates, and streamlined passive income rules, it’s now easier—and more rewarding—to participate in the Philippine capital markets.
The challenge now? Making sure stakeholders—especially businesses and investors—understand and adapt to these changes.
Because while tax reform may be legislative, capital growth is strategic.
DISCLAIMER: This article is developed by subject matter experts at Babylon2k. This is for general information only and does not constitute expert advice. It is based on current regulations and may not account for all related topics. Any tax or compliance guidance provided cannot be used to avoid penalties or promote specific actions. Laws and interpretations may change over time, which could affect the accuracy of this report. We are not obligated to update this advisory if new regulations arise.
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