Anaya Nolan
The TRAIN (Tax Reform for Acceleration and Inclusion) Law in the Philippines covers a wide range of taxes, including the Documentary Stamp Tax (DST). DST is a tax imposed on instruments, documents, loan agreements, and papers showing proof of various financial transactions. This includes lease contracts, which are subject to specific DST rates. Understanding the intricacies of DST is crucial for ensuring legal compliance and avoiding penalties. With varying DST rates and exemptions, it is essential to seek professional advice to navigate the complex DST landscape confidently.
| Characteristics | Values |
|---|---|
| What is DST? | DST or Documentary Stamp Tax is a tax imposed on instruments, documents, loan agreements, and papers showing proof of acceptance, assignment, sales and transfer obligations, rights, or property. |
| Who does it apply to? | DST applies to any party involved in a taxable transaction, including those who make, sign, issue, accept or transfer the document or facility evidencing the transaction. |
| What are the rates for leases and other hiring agreements? | There is a documentary stamp tax of P6.00 for the first P2,000, or fractional part thereof, and an additional P2.00 for every P1,000 or fractional part thereof, in excess of the first P2,000 for each year of the term of said contract or agreement. |
| What are the rates for charter parties and similar instruments? | For a ship, vessel or streamer with a registered gross tonnage not exceeding 1,000 tons, and a charter or contract duration not exceeding six months, the rate is P1,000. For each month or fraction of a month in excess of six months, an additional tax of P100 shall be paid. |
| What are the rates for pre-need plans? | The documentary stamp tax is P0.40 on each P200, or fractional part thereof, of the premium or contribution collected. |
| What are the rates for annuities? | The rate is P1.00 on each P200, or fractional part thereof, of the premium or installment payment on the contract price collected. |
| What are the rates for certificates? | The rate is P1.00 on each certificate of damage or otherwise, and on every other certificate or document issued by any customs officer, marine surveyor, or other person acting as such. |
| When is the return filed and the tax paid? | The return shall be filed and the tax paid within five days after the close of the month when the taxable document was made, signed, issued, accepted or transferred. |
| Are there any penalties for not paying DST? | Yes, DST liability is solely for tax purposes and will not affect the validity of contracts. However, in court action cases involving documents subject to DST, the court will not admit these documents as evidence unless DST is paid. |
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What You'll Learn
DST on lease contracts: the rate of tax
The rate of tax for DST on lease contracts depends on the value of the contract. For example, on lease contracts, there is a documentary stamp tax of six pesos (P6.00) for the first two thousand pesos (P2,000), or fractional part thereof. There is an additional tax of two pesos (P2.00) for every one thousand pesos (P1,000) or fractional part thereof, in excess of the first two thousand pesos (P2,000) for each year of the term of the contract.
The rate of DST on annuities has been increased from fifty centavos (P0.50) to one peso (P1.00) on each two hundred pesos (P200), or fractional part thereof, of the premium or instalment payment on the contract price collected. Pre-need plans are taxed at forty centavos (P0.40), up from twenty centavos (P0.20).
DST, or documentary stamp tax, is a tax imposed on instruments, documents, loan agreements, and papers showing proof of acceptance, assignment, sales and transfer obligations, rights, or property. It is a kind of tax that is imposed on the exercise of certain rights. It is a stamp that certifies that an agreement is taxable.
DST is not always necessary for taxes to be imposed. For example, for DST on stock shares, a stock certificate is not required for the transaction to be taxable. It is important to note that there are specific transactions stated in the NIRC (National Internal Revenue Code) and not all transactions are subject to DST.
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DST on annuities: the rate of tax
The rate of tax on annuities depends on whether they are qualified or non-qualified funds. Qualified annuities are funded with pre-tax dollars, usually through retirement accounts like IRAs or 401(k)s. Non-qualified annuities are funded with after-tax dollars. Qualified annuities are subject to income tax on withdrawals, while non-qualified annuities are taxed on earnings first, followed by a return of original contributions.
The rate of tax on qualified annuity withdrawals is taxed as ordinary income at your current tax rate. With a deferred annuity, IRS rules state that you must withdraw all of the taxable interest first before withdrawing any tax-free principal. You can avoid this by converting an existing fixed-rate, fixed-indexed, or variable deferred annuity into an income annuity, which provides a stream of guaranteed payments.
Non-qualified annuities are taxed differently. The original investment—the purchase premium(s) you paid—in a non-qualified annuity is not taxed when withdrawn. Only the interest portion of the payment is taxable. If you choose to annuitize—that is, turn your annuity into a series of regular payments—your taxes will be split too. Each check includes both taxable interest and a tax-free return of your original investment. This breakdown is called the exclusion ratio.
The TRAIN law, or the Tax Reform for Acceleration and Inclusion law, has increased the rate of DST on annuities from Fifty centavos (P0.50) to One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, of the premium or installment payment on the contract price collected.
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DST on pre-need plans: the rate of tax
The rate of DST on pre-need plans has been increased from Twenty centavos (P0.20) to Forty centavos (P0.40) on each Two hundred pesos (P200), or fractional part thereof, of the premium or contribution collected. This means that for every P200 of the premium or contribution paid towards a pre-need plan, a documentary stamp tax of P0.40 is levied. This change in the rate of DST on pre-need plans is part of the Revenue Regulations No. 4-2018, which implements the rate adjustment of documentary stamp taxes under Republic Act No. 10963, also known as the "Tax Reform for Acceleration and Inclusion (TRAIN) Law".
The TRAIN Law covers a range of other adjustments to documentary stamp taxes, including those on leases and other hiring agreements, life insurance policies, annuities, original issue of shares of stocks, charter parties and similar instruments, and certificates. For example, the DST on leases and other hiring agreements has been increased from P3.00 to P6.00 for the first P2,000, and from P1.00 to P2.00 for every additional P1,000 or fractional part thereof, in excess of the first P2,000 for each year of the contract term. Similarly, the DST on life insurance policies has been doubled, although the new rate is not explicitly mentioned.
The TRAIN Law also introduces a new rate of DST for annuities, which is now taxed at P1.00 on each P200, or fractional part thereof, of the premium or installment payment on the contract price collected. This is an increase from the previous rate of P0.50. In addition, the DST on the original issue of shares of stocks has been increased from P1.00 to P2.00 on each P200, or fractional part thereof, of the par value of such shares.
Overall, the TRAIN Law brings about significant changes to the rates of DST on various types of contracts and agreements, including pre-need plans, leases, life insurance policies, annuities, and shares of stocks. These adjustments are intended to reform the taxation system in the Philippines, promoting acceleration and inclusion.
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DST on charter parties: the rate of tax
The rate of Documentary Stamp Tax (DST) on charter parties and similar instruments is as follows:
- If the registered gross tonnage of the ship, vessel, or steamer does not exceed 1,000 tons, and the duration of the charter or contract does not exceed six months, the rate is P1,000. For each month or fraction of a month in excess of six months, an additional tax of P100 shall be paid.
- If the registered gross tonnage exceeds 1,000 tons but does not exceed 10,000 tons, and the duration of the charter or contract does not exceed six months, the rate is P2,000. For each month or fraction of a month in excess of six months, an additional tax of P200 shall be paid.
- If the registered gross tonnage exceeds 10,000 tons, and the duration of the charter or contract does not exceed six months, the rate is P3,000. For each month or fraction of a month in excess of six months, an additional tax of P300 shall be paid.
It is important to note that the DST rates on charter parties and similar instruments have been doubled.
In addition, the DST on bills of lading or receipts (except charter party) for goods valued between P100 and P1,000 has increased to P2.00, and to P20.00 for goods valued over P1,000.
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DST on loan agreements: the rate of tax
The Documentary Stamp Tax (DST) is a tax imposed on various documents, loan agreements, and papers providing proof of acceptance, assignment, sales, and transfer of obligations, rights, or property. DST is imposed on each taxable transaction. The amount owed depends on the nature of the deal. For instance, DST on loan agreements is Php 1.00 for every Php 200.00 par value.
DST on the original issue of shares has been increased from Php 1.00 to Php 2.00 on each Php 200.00, or fractional part thereof, of the par value of such shares of stock.
The rate of DST on bank checks, drafts, certificates of deposit not bearing interest, and other instruments has been increased from Php 1.50 to Php 3.00.
The rate of DST on annuities has been increased from Php 0.50 to Php 1.00 on each Php 200.00, or fractional part thereof, of the premium or instalment payment on the contract price collected.
The rate of DST on leases and other hiring agreements has been increased from Php 3.00 to Php 6.00 for the first Php 2,000.00, or fractional part thereof; and the additional tax was increased from Php 1.00 to Php 2.00 for every Php 1,000.00 or fractional part thereof, in excess of the first Php 2,000.00.
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Frequently asked questions
DST, or Documentary Stamp Tax, is a tax imposed on instruments, documents, loan agreements, and papers showing proof of acceptance, assignment, sales and transfer obligations, rights, or property.
On each lease, agreement, memorandum, or contract for hire, use or rent of any lands or tenements, or portions thereof, there shall be collected a documentary stamp tax of 6 Philippine pesos for the first 2,000 Philippine pesos and an additional 2 Philippine pesos for every 1,000 Philippine pesos in excess of the first 2,000 Philippine pesos for each year of the term of said contract or agreement.
The person making, signing, issuing, accepting, or transferring the document or facility evidencing the transaction should file the DST. It should also be filed by a metering machine user who imprints the DST on the taxable document and by a revenue collection agent for remittance of sold loose documentary stamps.
The return shall be filed and the tax paid within five days after the close of the month when the taxable document was made, signed, issued, accepted, or transferred.
