Government securities for the non-resident foreign investor
Foreign investment is well-known to be one of the top priorities of the Marcos administration. Not only has the President been traveling abroad to promote the Philippines as an investment destination, but various government agencies have been implementing changes to streamline government rules and processes in a bid to encourage foreign investment.
An initiative of the Bureau of the Treasury (BTr) aligns with this push. In a memorandum, the BTr introduced a streamlined process to claim tax treaty relief in the National Registry of Scripless Securities (NRoSS). The NRoSS is the government facility used by participants to take part in the trade of government securities.
Government securities are defined in Revenue Regulations 20-03 as securities issued by the National Government or any of its agencies, instrumentalities and political subdivisions. Securities, as defined by the Tax Code, include shares of stock in a corporation and rights to subscribe for or to receive such shares, and bonds, debentures, notes or certificates, or other evidence of indebtedness issued by a corporation, including those issued by a government or political subdivisions.
In the case of government bonds, a 20 percent final withholding tax (FWT) is generally imposed on the interest income of a non-resident investor. A lower rate may be claimed by the non-resident under an applicable tax treaty, subject to compliance with treaty conditions and administrative requirements.
Under Revenue Memorandum Order 14-2021, whenever a treaty benefit is invoked, a request for confirmation (RFC) or tax treaty relief application (TTRA) must be filed. This requires the collation and submission of several documents to support the RFC/TTRA application. As a result, some may find the application process overwhelming as documents must be gathered from multiple stakeholders in the investment process.
In a bid to attract foreign investors to participate in the government securities market and strengthen the capital market, the BTr issued a memorandum to simplify or streamline the tax treaty claim process. According to the memorandum, non-resident investors will no longer need to submit multiple documents, nor will they need to repeat the application process for each income received from government securities.
Instead, after registering with the NRoSS to create a securities account, the NRoSS’ tax tracking feature will automatically apply the applicable tax treaty rates on government securities held in the securities account.
The Aug. 22, 2024 memorandum from the BTr has split the process in two steps.
First, the non-resident investor shall submit a general inquiry to the Bureau of Internal Revenue regarding the applicable treaty rates on interest income under the relevant double tax agreement. The general inquiry should specify the relevant provision of the tax treaty and be supported by the tax residence certificate, the BIR beneficial ownership declaration form, and other applicable documents. The BIR shall then issue a general guidance document on the treaty rates and conditions for entitlement.
Second, the non-resident investor will register and be onboarded into the NRoSS system, following the submission of the BIR general guidance document and other applicable documents.
We welcome this joint initiative of the BTr and BIR to promote ease of participation in the government securities market.
Erika Louise Laforteza is a Supervisor under the Tax Group of R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Erika Louise Laforteza or Mary Karen Quizon-Sakkam through [email protected], social media or visit www.home.kpmg/ph.
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