DISCLAIMER: This article does not create an attorney-client relationship between the author and the reader.  The answer of the author on the issue is just an expression of his general opinion based on Philippine law and hence does not constitute legal advice.

Let us welcome 2025 by sharing this article on how one may further reduce his income tax payment and at the same time maximize his earnings.

In my first article, it was shared how one can avoid income tax by availing of the benefits of the Barangay Micro Business Enterprises (BMBE) Act of 2002.  Under the BMBE Act, qualified entities whether new or existing, which have been issued BMBE Certificate of Authority are exempted from paying income tax for a period of two (2) years, renewable for a period of two (2) years for every renewal.

Another law which allows one to minimize his income tax payment while saving or investing for his voluntary retirement account is Republic Act (R.A.) 9505 otherwise known as the PERSONAL EQUITY AND RETIREMENT ACCOUNT (PERA Act of 2008).

Section 8 of the PERA Act gives qualified Contributor an income tax credit equivalent to five percent (5%) of the total PERA contribution in a year.  If the Contributor is an overseas Filipino (OF), he shall be entitled to claim the 5% as tax credit from any of his tax liability under the National Internal Revenue Code of 1997, as amended (NIRC).  Under Revenue Regulation 7-2023, the maximum contribution in a year beginning 2023 for non-OF Contributor is PHP200,000.00 or its equivalent in foreign currency while for OF Contributor, the maximum contribution in a year is PHP400,000.00 or its equivalent in foreign currency.  If the Contributor is married, each of the spouses is allowed to make a maximum contribution to his or her respective PERA. Note that one may invest more than the maximum contribution in a year but the excess is no longer entitled to the 5% tax credit.

If the Contributor is an employee, the tax credit may be offset against his tax on compensation.  If the Contributor is a self-employed, the tax credit may be used as credit against his income tax liability.  For OF Contributor, the tax credit may be used as credit from any of his tax liability under the NIRC, excluding withholding tax liability.   What is the treatment of unutilized tax credit for a particular year? Any unutilized tax credit is non-refundable but can be utilized as tax credit in the next or succeeding years.

Apart from the 5% tax credit, PERA Act provides the following other advantages:

1. Tax-free earnings (Section 9 of PERA Act)

2. Option to withdraw upon reaching the age of 55 years old provided the Contributor has made contributions to the PERA for at least five (5) years (Section 12 of PERA Act). 

Early withdrawal is allowed subject to penalty except in cases where no penalty is imposed (Refer to Section 13 of PERA Act). Penalty includes payment of the utilized tax credits and payment of taxes on the earnings previously not taxed (Section 10 of Revenue Regulations 17-2011).

3. Exemption from estate tax and levy (Section 14 of PERA Act)

Who are qualified to open PERA and contribute funds thereto? Section 3(b) of the PERA Act provides that any person with the capacity to contract and possesses a tax identification number (TIN) is qualified to open PERA and contribute funds thereto.

Interested? You may contact any financial institution or company authorized to offer and managed PERA Funds or Products.  Under Revenue Regulation 2-2022, the accredited financial institution or company of your choice, as the PERA administrator, is also responsible for the processing of BIR Form 2337 (PERA Tax Credit Certificate or TCC) with the Bureau of Internal Revenue (BIR) so you can avail of the 5% tax credit. 

For employees, the PERA TCC is given to the employer so it can be considered in the mandatory year-end tax adjustment.  For self-employed, the PERA TCC is attached to the income tax return as proof of tax credit utilization and for OF Contributor, the PERA TCC is attached to the BIR return where it is being used as tax credit.

As a final note, PERA is one of the best investment options where one can put his hard earned money. Why? The effective yield of the investments in PERA has two components compared to other investment products. Its effective yield is the combination of the actual earnings generated by the funds and the 5% tax credit.

(December 31, 2024)