#AskTheTaxWhiz: How are investments taxed?

I am planning on investing in the stock market, and I was wondering if I have to pay taxes and file returns. If yes, then how much do I have to pay?

Yes, you have to pay taxes, but you don’t have to file returns anymore. If you’re investing in the stock market, that means you’re investing in a listed company. The applicable tax for that would be a 0.6% stock transaction tax for every time you sell your shares.

The 0.6% tax will be imposed on the gross selling price of the stock, not on your gains. So, even if you lost money in your trade, you still have to pay the tax.

Your stockbroker will be the one responsible for filing the tax returns using Bureau of Internal Revenue (BIR) Form No. 2552.

Of course, this will be different in case you are purchasing stocks in a private or a close corporation. If you sell stocks of a private or a close corporation, you will be subject to a capital gains tax of 15%.

The 15% is imposed only on your gains. That means, if you did not profit from your sale of stocks, you won’t have to pay any tax. For these kinds of transactions, the taxpayer will have to file a capital gains tax return (BIR Form No. 1707).

If shares of a company not listed on the stock exchange are sold below the fair market value, they will be considered donations, according to Revenue Memorandum Circular No. 30-2019.

What other taxes should I keep in mind if I am to purchase or sell shares of stock?

Yes, there are other taxes that could affect your bottom line profits when dealing in the stock market. If you have a broker, then the commissions you pay to them are subject to a 12% value-added tax. Your broker will then have to remit that tax to the BIR.

If you receive cash dividends from your stocks, that will be subject to a 10% final withholding tax.

If you’re thinking of jumping into an initial public offering, there’s also tax ranging from 1% to 4%, but that won’t be too relevant to you since the issuing corporation will be responsible for that.

On the original issuance of shares, there will also be a documentary stamp tax amounting to P1.50 for every P200 par value of the shares.

The sale and purchase of stocks are not the only types of passive income taxable. Even royalties and interests are taxable. If you want to build your future, these are only some of the investments you can undertake.

Improving yourself is another worthwhile investment. On taxes, for instance, you could save more by learning how to avoid violations. The Asian Consulting Group’s latest publication, Iwas BUWIS-it: What To Do When Tax Attacks, can start off taxpayers down the right path by giving them an overview of taxes.

For more information, contact us at consult@acg.ph or (02) 622-7720. – Rappler.com

Mon Abrea, popularly known as the Philippine Tax Whiz, is one of the 2017 Outstanding Persons of the World, a Move Awards 2016 Digital Mover, one of the 2015 The Outstanding Young Men of the Philippines (TOYM), an Asia CEO Young Leader of the Year, and founding president of the Asian Consulting Group (ACG) as well as the Center for Strategic Reforms of the Philippines (CSR Philippines). Assisting him in his column is JM Miñano, communications associate of ACG. He graduated with a bachelor’s degree in Communication Arts from the University of the Philippines Los Baños.

For inquiries, you may email consult@acg.ph or visit www.acg.ph for tax-related concerns.