One of the amendments introduced by Republic Act (RA) No. 10963 was the increase in rate of capital gains tax (CGT) on the sale or disposition by Filipino citizens, resident aliens and domestic corporations of its shares of unlisted stock in a domestic corporation, from 5%/10% to a final tax of 15% (amending Section 24(C) of the National Internal Revenue Code of 1997 [Tax Code]).
Previously, the Tax Code imposed CGT on the net capital gains realized by a domestic/foreign corporation or an individual person from the sale, assignment or other disposition of shares of stock of a Philippine corporation that are not listed and traded through the local stock exchange levied at a rate of 5% of net capital gains not exceeding PhP100,000, and 10% of net capital gains in excess of the first PhP100,000.
However, by omission, Congress did not amend the complementary Section 28(B)(5)(c) of the Tax Code on the capital gains tax due from sale of unlisted shares of stock by nonresident foreign corporations. Thus, following RA No. 10963, the sale of unlisted shares in a domestic corporation by a nonresident foreign corporation would be subject to the 5%/10% CGT instead of 15%. Congress has, however, corrected the discrepancy and is now seeking the amendment of Section 28(B)(5)(c) of the Tax Code by increasing the CGT rate on sale of shares by non-resident foreign corporations to a uniform 15% under the latest tax reform package (TRAIN 2).
Actions to Consider
Taxpayers should take note of this new development. Any sale or transfer of unlisted domestic shares of stock will be subject to 15% CGT once TRAIN 2 becomes law. In the meantime, the lower CGT rates of 5% (on gains not in excess of PhP100,000) and 10% (on gains in excess of PhP100,000) still apply.