BIR has outlined new rules through Revenue Memorandum Order 42-2016 for accrediting investments under the Personal Equity and Retirement Account (PERA), an alternative scheme of retirement plans for persons, while providing various tax incentives and privileges.
The PERA Law or Republic Act 9505 which was passed in 2008 aims to promote capital market development and savings mobilization in the Philippines. This is to encourage Filipinos to save up for retirement by serving as a new investment product.
A person can contribute a yearly maximum of P100,000 under PERA, but the amount may be as much as P200,000 for overseas Filipino workers (OFWs), as defined in Rule 7 of the implementing rules and regulations of RA 9505. A qualified contributor may create and maintain money in five PERA accounts at once, across five recognized investment products.
PERA has the following advantages:
Contributions within a calendar year as employee or self-employed qualified contributor shall be entitled to a tax credit in the amount of 5% that may be used against income tax liabilities or if an OFW, against any national internal revenue tax liability (excluding your withholding tax liabilities as withholding agent).
Tax credits arising from PERA contributions can be used as payment for delinquent accounts but in no case be refundable or convertible into cash or transferable to any other party.
Tax Exempt Investment Income
All income earned from the investments and re-investments of the maximum allowed contribution yearly are tax-exempt from:
- Regular income tax
- Final withholding tax on interest from any currency bank deposit, yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements, including a depository bank under the expanded foreign currency deposit system
- Capital gains tax on the sale, exchange, retirement or maturity of bonds, debentures or other certificates of indebtedness
- 10% tax on cash and/or property dividends actually or constructively received from domestic corporation, including a mutual fund company
Qualified PERA distributions will exempt from income and estate taxes once handed to the fund contributor and his heirs and beneficiaries or once a person reaches 55 and has invested in the fund for at least five years.