This chapter provides an overview of market-based financing in the Philippines. It highlights trends in the issuance of public equity and corporate bonds and compares them with ASEAN peer countries. It also provides an overview of the listed corporate sector and characterises the ownership structure of listed companies. Furthermore, it describes the marketplaces, listing requirements and market infrastructure used to trade public equity and corporate bonds in the Philippines. Finally, it summarises the tax treatment for issuers and investors when participating in the capital market and compares it with peer countries.
OECD Capital Market Review of the Philippines 2024
Abstract
A well-functioning capital market plays a central role by channelling financing to the corporate sector, thereby fostering a vibrant and innovative business sector and providing better saving opportunities to households. This linking of supply and demand for capital will play an important role in achieving economic growth goals set out in the Philippine Development Plan (NEDA, 2023[1]). Dynamic capital markets drive economic growth by allocating capital to its most productive uses spurring employment, technological progress and economic growth. Just as importantly, they provide investors with the opportunity to manage savings, share in corporate profits and accumulate wealth.
ASEAN non-financial corporations tend to rely more on bank financing than market-based financing compared to global aggregates (Figure 3.1). Globally, market‑based financing in 2022 was slightly larger than bank-based finance relative to GDP, at 99% versus 96%. While public capital markets have been expanding in ASEAN countries, companies still rely heavily on bank loans for their financing. Figure 3.1 highlights the relatively smaller size of the ASEAN financial system, which is especially true for the Philippines and Indonesia. In the Philippines, low penetration of the banking sector together with less developed market-based financing suggests that many businesses may be financially constrained.
Note: Market-based financing is defined as the sum of the market capitalisation of non-financial listed companies and the outstanding amount of non‑financial corporate bonds. Bank-based financing is bank credit to non-financial corporations. Both are expressed as share of GDP. Where possible BIS data for Bank credit to the private non-financial sector (core debt) has been used, and for those jurisdictions without BIS data, World bank data for Domestic credit to private sector by banks (% of GDP) has been used. For the Philippines BSP data on depository corporations claims on private sector has been used, which is distinct from claims on other financial corporations.
Source: OECD Capital Market Series dataset, Bank for International Settlements, LSEG, World Bank (2024[2]) Open Data, https://data.worldbank.org/.
Equity and debt financing are complementary forms of capital that allow firms to achieve an optimal capital structure. Equity financing is essential for companies as it represents risk-willing, patient capital suitable to fund long-term uncertain investments. This flexibility allows companies to pursue growth opportunities without the immediate pressure of repayment obligations. Additionally, equity financing helps maintain a resilient capital structure, enabling corporations to withstand economic downturns and unexpected crises. In previous crises public equity financing has played a key role in supporting business continuity and expansion (OECD, 2021[3]). Meanwhile, corporate bond markets provide an alternative source of debt financing to regular bank loans. Generally, corporate bonds differ from bank loans by allowing access to a broad range of investors, offering longer tenors, requiring less collateral and offering less restrictive covenants. Corporate bond markets have become an increasingly important source of financing since the 2008 global financial crisis. Stricter banking regulation and low rates have led to an expansion of non‑financial corporate bonds (OECD, 2024[4]).
A company wishing to raise equity can do so by listing its shares on one or more stock exchanges by conducting an initial public offering (IPO). Moreover, companies already listed can raise further equity from the public market through secondary public offerings (SPOs or follow-on offerings). The same company can return to this source of funding several times depending on its needs. The equity raised from SPOs may be used for different purposes and can also help fundamentally sound companies overcome a temporary downturn in economic activity.
Globally, one of the most significant developments in capital markets since the mid-1990s has been the increased use of public equity markets by Asian companies. As a result, at the end of 2023, over half of the world’s listed companies were listed on Asian stock exchanges, together representing almost one‑third of the market value of listed companies globally. However, the region’s markets show significant differences in their degree of development.
Since the 1990s, the Philippines has introduced a series of reforms aimed at improving the macroeconomic landscape and developing the capital markets. However, activity on the public equity markets remains limited and lacks dynamism. This section describes IPO and SPO activity in the Philippines and selected peer countries during the period spanning from 2000 to 2023. It provides trends on the amount of capital raised and number of IPOs and SPOs and compares them with peer countries.
3.1.1. Stock market in the Philippines
The Philippine public equity market was founded through the opening of the Manila Stock Exchange in 1927 (Figure 3.2). In 1963, the competing Makati Stock Exchange was created, leading many corporations to list on both exchanges. Following the People Power Revolution in 1986, capital market development was identified as a key factor to stimulate corporate growth (ADB, 2003[5]). Two competing stock exchanges, with sometimes varying prices for the same stocks, were considered as a barrier to attracting investors. Consequently, the exchanges were merged to form the Philippine Stock Exchange (PSE) in 1995 (PSE, 2024[6]).
Since the 1980s, the Philippine stock market has been falling behind regional peers in terms of market capitalisation, turnover volume and quality standards (Ho and Odhiambo, 2016[7]). A concerted effort to develop the capital market was made through the formation of the Capital Market Development Council (CDMC) in 1992, bringing together government bodies and market participants to champion updated regulations and drive change. Drawing upon the expertise of the World Bank, ADB, IMF and USAID, the Philippines Securities and Exchange Commission (SEC) was identified by the government as a key institution needing an overhaul, along with updated regulations. Thus, during the 1990s a number of actions were taken: (1) regulatory agency responsibilities were reallocated, (2) the regulatory framework was strengthened (e.g. through improved disclosure, antifraud rules, better protection of minority shareholder rights, new requirements for independent directors and net capital requirements for broker-dealers), (3) the stock market infrastructure was extended by establishing the Philippine Central Depository and the Securities Clearing Corporation of the Philippines (SCCP), (4) rules on collective investment schemes were updated, including through a tax reform, and (5) a programme to increase the number of listed companies was initiated which sought to divest state-owned enterprises and encourage banks to issue equity (ADB, 2003[5]).
Under consecutive Capital Market Development Plans, the CDMC has pursued actions to improve the corporate governance of both the PSE and market actors, to strengthen the regulator’s capacities, and to encourage market participation. Having traditionally been a broker-dominated exchange, operated like a non-profit member-organisation, the decision was made in 2001 to demutualise and list the marketplace itself. Simultaneously, the ownership structure was reconfigured with reduced broker ownership, instead inviting issuers, retail investors and some government entities as owners. Currently 126 brokers operate on the exchange, and collectively own 18.3% of it. The remaining ownership is divided as follows: the San Miguel Corporation retirement plan owns 9.2%, Premier Capital Venture Corporation, GSIS and the Philippine Long Distance Telephone Company retirement fund own 8.1% each, directors, officers and employees own 0.7%, and the remaining 47.5% is owned by the public (PSE, 2023[8]). Brokers, despite holding a minority stake, maintain some privileges, such as being offered an allocation of shares of new issues.
Source: PSE (2024[6]), PSE-History, https://corporate.pse.com.ph/about-pse/corporate-profile/history/.
3.1.2. Trends in initial public offerings
Since 2000, 95 companies from the Philippines have collectively raised USD 12.9 billion through IPOs (Figure 3.3). Although the country has witnessed a notable increase in IPO activity starting in 2006, the market lacks the consistent dynamism of other Asian economies, with both the amounts of capital raised and the number of offerings failing to achieve steady growth. IPO activity peaked at 11 offerings in 2007 and USD 1.8 billion in capital raised in 2013. Total capital raised from IPOs between 2000 and 2011 amounted to USD 4.8 billion, almost doubling to USD 8 billion in the 2012-2023 period. This increase was not reflected in the number of offerings, indicating that larger but fewer companies accessed public equity markets during the last 12 years compared to the previous period.
The financial sector’s use of public equity markets has been limited. Since 2000, only 18 companies have conducted an IPO, contributing 14% of the total capital raised. 2012 stands out with the financial sector playing a key role in the market by raising USD 833 million through two IPOs. Nonetheless, participation declined in the following years, notably between 2016 and 2021, when no financial companies used public equity markets.
Source: OECD Capital Market Series dataset; see Annex for details.
IPO activity has been substantially lower in the Philippines than in peer countries both in terms of the number of IPOs and capital raised. Regarding the non-financial sector, only 77 Philippine companies have entered the market since the early 2000s, collectively raising USD 11 billion. In all peer countries more than 500 companies have conducted an IPO, raising between USD 24 and 48 billion (Figure 3.4, Panels A and B). When the total equity raised through non-financial initial public offerings is scaled as a percentage of GDP, the Philippines also ranks last compared to the other ASEAN jurisdictions. Total capital raised in IPOs during the 2000-2023 period accounts for 0.1% of the country’s GDP, significantly lower than that of Viet Nam and Malaysia (0.6%), as well as that of Singapore and Thailand (0.4%). Moreover, it is also lower compared to the global figure of 0.2% and to both the Asian and ASEAN regions, where non-financial company equity raised accounts for 0.3% of GDP for both.
The participation of financial companies in the IPO market in the Philippines since the early 2000s has also been relatively limited compared to peer countries. The Philippines ranks last both in the number of IPOs and capital raised, with only 18 IPOs and USD 2 billion raised between 2000 and 2023 (Figure 3.4, Panel A and B). While the financial sector’s contribution as a proportion of the total funds raised through IPOs aligns with the ASEAN average, constituting 14% of total proceeds, the capital raised by financial companies accounts for just 0.03% of GDP. This is the lowest percentage among its peers and is also below the averages for the entire ASEAN region, Asia and the world.
Note: Capital raised as a share of GDP is the annual average of the ratio between 2000 and 2023.
Source: OECD Capital Market Series dataset; see Annex for details.
The consumer non-cyclicals sector was by far the largest raiser of funds through IPOs between 2000 and 2023. This sector accounted for 33% of the total proceeds, followed by the financials and basic materials sectors, each representing around 14% of the total proceeds. This trend diverges from peer countries, where the share of consumer non-cyclicals typically ranges between 5% and 19%. It is also higher than the figure for Asia and globally, which stands at 6.4% and 5.5%, respectively (Figure 3.5). The contributions of companies from the financials and basic materials sectors are 14% each, similar to ASEAN levels.
Conversely, the industrials sector only accounts for 11% of the capital raised in the Philippines, the lowest among peers and far from the 20% in the ASEAN region and Asia (Figure 3.5). Notably, no company in the healthcare sector in the Philippines has conducted an IPO over the last 24 years, a unique situation compared with peer countries. Participation of the telecommunications services and energy sectors is also very limited, accounting for less than 1% of total proceeds.
The industry composition of non-financial IPOs in the Philippines has undergone changes since 2000, contrasting with the relatively stable industry composition observed in the ASEAN region during the same period (Figure 3.6). For instance, between 2000 and 2007, the utilities sector contributed 39% of total funds raised through IPOs. However, its weight decreased substantially in subsequent years, becoming almost negligible. Similarly, the industrials sector during that period accounted for 35% of capital raised, but the share has declined sharply since 2008. The consumer non-cyclical industry has experienced the opposite trend. While it raised only 3% of total capital during the 2000-07 period, its share of non-financial IPO proceeds rose to 63% between 2008 and 2015, before decreasing to 37% between 2016 and 2023. Similarly, the basic materials sector steadily increased its contribution over time, rising from 2% during 2000-07 to 10% in the 2009-15 period, and peaking at 28% between 2016 and 2023.
In the ASEAN region, although the industry composition in terms of IPO issuance has been more stable, there have also been slight changes over time (Figure 3.6). Sectors like industrials, technology, telecommunications services and energy have experienced a decline in their influence over the years. On the contrary, sectors such as consumer cyclicals, consumer non-cyclicals and utilities have gradually gained importance in the region’s issuance.
Source: OECD Capital Market Series dataset; see Annex for details.
Source: OECD Capital Market Series dataset; see Annex for details.
3.1.3. Trends in secondary public offerings
Between 2000 and 2011, Philippine companies conducted 204 SPOs, collectively raising USD 16.1 billion (Figure 3.7). In the following 12‑year period from 2012 to 2023, funds raised through SPOs surged to USD 41.2 billion. The number of SPOs itself saw a comparatively smaller rise, reaching a total of 290 over the last 12 years, indicating a trend towards larger SPOs over time. While secondary offerings experienced robust growth in volume and value between 2005 and 2013, peaking at USD 8.1 billion in 2013, activity declined after 2014. There were notable exceptions to this trend, particularly in 2017 and 2018, when both the number of SPOs and the proceeds increased. Notably, in 2023, the amount of equity capital raised through SPOs by Philippine companies hit its lowest point since 2004. Financial companies have raised a higher share of capital though SPOs than through IPOs. For instance, since the early 2000s, firms in the financial sector have accounted for 42% of the total proceeds raised.
Source: OECD Capital Market Series dataset; see Annex for details.
In comparison to peer countries, the Philippines also has one of the least active SPO markets, primarily due to the inactivity of non-financial companies. Since 2000 a total of 378 non‑financial SPOs have been conducted, raising a total USD 33 billion (Figure 3.8, Panels A and B). Among peer countries, only Indonesia had fewer SPOs. Regarding the amount of capital raised by non-financial companies, the Philippines only surpassed Viet Nam. The capital raised via SPOs by non-financial companies as a share of GDP in the Philippines was also among the lowest compared to its peers. This figure was significantly lower than in Singapore (1.3%), Malaysia (0.9%) and Thailand (0.7%). Furthermore, it fell below the global average of 0.5% and the averages in Asia and the ASEAN region, both at 0.6%.
In contrast, the amount of capital raised by financial firms via SPOs in the Philippines was one of the highest among peer countries, totalling USD 24 billion (Figure 3.8, Panel B). This was surpassed only by Indonesia and Malaysia with USD 37 billion and USD 25 billion, respectively. At 0.3% of GDP, the Philippines had the highest figure among peer countries. This is also higher compared to levels globally, in Asia and in the ASEAN region, which stood at around 0.2%. Meanwhile, the number of financial SPOs conducted between 2000 and 2023 was the lowest among regional peer countries, making Philippine financial SPOs the largest among peers.
The industry composition of capital raised through SPOs in the Philippines varies less than in most regional peers and when compared with global, Asian and ASEAN industry compositions (Figure 3.9). Since the early 2000s, financial companies in the Philippines have accounted for 42% of the total proceeds raised through SPOs. This is higher than the ASEAN region as a whole, Asia and the world, where the shares are below 30%. Among peer countries, only Viet Nam has a higher share (50%).
The industrials and consumer non-cyclicals sectors are the second and third largest issuers of SPOs in the Philippines, with 15% and 14% of capital raised, respectively. The utilities sector has contributed 6% of SPO funds raised, a higher share than peers. Conversely, sectors such as consumer cyclicals, basic materials, and telecommunications services are not important issuers of capital in the Philippines compared to peer countries.
Note: Capital raised as a share of GDP is the annual average of the ratio between 2000 and 2023.
Source: OECD Capital Market Series dataset; see Annex for details.
Source: OECD Capital Market Series dataset; see Annex for details.
3.1.4. Overview of the listed corporate sector
The Philippine Stock Exchange had 269 listed companies by the end of 2023, with a total market capitalisation of USD 234 billion (Table 3.1). Nearly all companies are listed on the Main Board. The SME Board hosts only 10 companies, representing less than 1% of the total market capitalisation of the exchange.
Compared to peer countries, the Philippines has a relatively low level of market capitalisation. It ranked last in total market capitalisation among peer countries (Figure 3.10) and has the lowest number of listed companies. Market capitalisation as a share of GDP stands at 54%, markedly lower than the ASEAN level at 67% and Asia at 96%. The median market capitalisation of listed companies on the Philippine market is USD 68 million, slightly higher than in peers.
Notes: “T” stands for trillions, “B” stands for billions and “M” stands for millions. Companies on growth markets are included in the analysis.
Source: OECD Capital Market Series dataset, LSEG; IMF (2024[10]), World Economic Outlook Data: April 2024 Edition, https://www.imf.org/en/Publications/WEO/weo-database/2024/April.
With respect to industry composition, the Philippines stock exchange is dominated by companies from consumer non‑cyclicals, financials and real estate sectors (Figure 3.11, Panel A). On the Main Board, these three industries together account for almost half of listed companies and over 60% of market capitalisation. Companies from consumer non-cyclicals account for the highest share of market capitalisation (27%), followed by real estate and financials, each accounting for 18%. On the SME Board, the same three industries comprise 70% of the listed companies and over 60% of market capitalisation (Figure 3.11, Panel B). Other major issuers are industrial and utilities, representing around 10% of total market capitalisation on the Main Board. On the SME Board, healthcare accounts for one-quarter of market capitalisation and consumer non-cyclicals for one-third.
Source: OECD Capital Market Series dataset; see Annex for details.
Consumer non-cyclicals is the dominant industry in Asia and across ASEAN countries (Figure 3.12, Panel A). Technology companies have a lower presence in the Philippines and peer ASEAN countries compared to the rest of Asia and the world, where the technology sector is the largest. Real estate companies have a strong presence, constituting around one-quarter of market capitalisation in both the Philippines and Viet Nam. Importantly, financial corporations have a high presence overall across ASEAN countries (Figure 3.12, Panel B). However, in the Philippines, financial companies only account for around 17%, significantly lower than peer countries such as Indonesia (32%) and Viet Nam (35%).
Source: OECD Capital Market Series dataset; see Annex for details.
Since 2000, 111 companies have been listed on the Philippine Stock Exchange, while 61 companies have delisted (Figure 3.13). This has led to a significant net increase in the number of listed companies. In 2007, before the global financial crisis, 11 companies were listed in a single year. However, listing activity slowed down in the aftermath of the financial crisis due to sluggish investor confidence, preventing companies from conducting IPOs. Subsequently, the IPO activity slowly recovered, with an average of five listings per year since 2010. Particularly, 2022 recorded the highest net listings, with seven listings and no delistings. However, in 2023, the market had a negative net intake.
To boost the number of listings, the PSE, with the support of the Capital Markets Development Council (CMDC), introduced the Listing Engagement and Assistance Program (LEAP) in 2021. In partnership with other organisations the programme helps prospective companies through the listing process. At the start of 2024 the programme had 70 participants. The SME Board requirements have also been amended by introducing a sponsorship model whereby a firm wishing to list without meeting the regular requirements, may do so via a sponsor. The sponsor needs to be accredited by the exchange and is meant to ensure the quality of the listing candidate and uphold its responsibilities vis-à-vis investors, in order to maintain market integrity (PSE, 2024[62]).
Source: OECD Capital Market Series dataset; PSE (2024[11]), Delisted companies, https://www.pse.com.ph/delisted-companies/.
3.1.5. Investors and ownership structure of listed companies
The ownership structure of listed companies in the Philippine stock market stands out with its high level of corporate ownership (Figure 3.14). At the end of 2023, corporations owned 47% of the local market capitalisation, almost twice the level in other ASEAN countries (excluding Indonesia) and much higher than in Asia (19%) and globally (10%). Strategic individuals own 17% of the stock market, higher than the rate in the ASEAN region (13%). Their importance is explained by the prevalence of large family businesses in the Philippines. Meanwhile institutional investors own a modest 7% of the listed equity in the Philippines, much lower than in other ASEAN markets, Asia and globally. ASEAN markets generally have a low level of institutional ownership (10%) compared to their holdings in Asia (18%) and globally (45%). The public sector, an important owner in other ASEAN and Asian markets, is insignificant in the Philippines mainly due to the lack of privatised SOEs.
Note: Investors are classified following (De La Cruz, Medina and Tang, 2019[12]), “Owners of the world’s listed companies”. Strategic individuals are those who are required to disclose their holdings in a company, typically individuals holding large number of shares, the CEO, board members, family members of the strategic individuals. They are not to be confused with retail investors.
Source: OECD Capital Market Series dataset, FactSet, LSEG, Bloomberg, see Annex for details.
The ownership structure of listed companies in the Philippines also shows high concentration levels at the company-level compared to other ASEAN peer countries. In 49% of listed companies, the largest shareholder owns more than half of the equity capital, which is well above the levels in ASEAN markets (37%) and Asia (22%) (Figure 3.15, Panel A). The only exception is Indonesia, where the share of companies with the largest shareholder owning more than half of the equity stands at 60%.
Notes: In panel B the ownership (share of equity) is calculated as the average percentage of shares outstanding owned by each investor category when the largest shareholder in the company belongs to that investor category; the share of companies is computed as the ratio of the companies whose largest shareholder belong to a given category of investor over the total number of companies for which information is available.
Source: OECD Capital Market Series dataset, FactSet, Thomson Reuters, Bloomberg; see Annex for details.
At the company level, corporations are the most common largest single shareholder in the Philippines, holding on average 52% of the equity in 70% of the companies (Panel B). Strategic individuals constitute the second largest shareholder group, holding on average 41% of the equity in 29% of the companies. Public sector and institutional investors on the other hand, hold on average a relatively smaller share of the equity, 38% and 34% respectively, in 1% of the companies each.
In the Philippines, the ownership of listed companies is dominated by domestic investors, who own 62% of the total equity, higher than in Asia (49%) and globally (54%) (Figure 3.16, Panel A). Compared to peer countries, the Philippines has the highest share of domestic investors. Therefore, the total share of equity owned by foreign investors is the lowest (10%) among ASEAN (13%‑26%), and also lower than levels in Asia (18%) and globally (20%). Among foreign investors in the Philippines, institutional investors are predominant, holding 6% of the total equity (Panel B). Foreign corporations hold only 3% of the total equity – less than half the share they hold in other ASEAN countries.
Note: The category “other free-float” in Panel A represents shares in the hands of investors that are not required to disclose their holdings and therefore no information is available.
Source: OECD Capital Market Series dataset, FactSet, LSEG, Bloomberg, see Annex for details.
High levels of corporate ownership in the Philippines reflect the presence of company group structures. Listed companies with a large corporate ownership are often part of a group, either as the parent company or as a subsidiary. Company group structures in the Philippines are characterised by familial relations, allowing affiliated companies to enjoy lower transaction costs and have easier access to resources within the family group (Rama, 2010[13]).
Domestic corporations hold a greater share of the market capitalisation (43%) than non-domestic ones (3%), meaning that domestic company groups are prevalent. This is also true in other ASEAN countries except in Singapore, where the share of non‑domestic corporations (9%) is higher than domestic corporations (7%) (Figure 3.17).
Source: OECD Capital Market Series dataset, FactSet, LSEG, Bloomberg; see Annex for details.
Furthermore, in the Philippines, the predominant equity owners are other listed corporations, of which 28% are owned by domestic listed corporations and another 2% by foreign listed ones (Figure 3.17). Listed corporations also hold a greater share of the equity compared to unlisted corporations in Asia and globally. In peer countries, on the other hand, the situation in terms of the predominant equity holders among corporations is different. While in Thailand and Singapore listed corporations own a greater share of the equity, in the rest of the ASEAN countries non-listed corporations are the predominant owners.
3.1.6. Listing requirements and fees of the stock exchange
The stock market in the Philippines is managed and operated by the Philippine Stock Exchange (PSE) and consists of the Main Board and the SME Board. The PSE also part-owns the fixed income market, PDEx, which enables trading of corporate bonds and government securities. The PSE has 8 constituent indices; the PSE Composite Index (PSEi) is the main index and is composed of the 30 largest listed companies. Apart from a broad ‘all shares’ index, the other indices are all sector-based.
The main differences between the Main Board and the SME Board are the listing requirements and fees, which are based on the size of the listing. The key differences between the listing requirements of the two boards are summarised in Figure 3.18 and a comparison of fees in Figure 3.19. A comprehensive description for the listing and post-listing requirements including fees is included in the Annex.
The Main Board has higher standards on financial performance, the minimum share of stock offered, the minimum number of shareholders and the operating lifetime of the company. Companies seeking to list on the SME Board need to submit a business plan including a strategy on how to achieve business objectives over the coming five years. Both Boards require a board of directors consisting of at least 7 directors, where at least two, or 20% of the board, must be independent. SEC registration and post-listing disclosures of financial statements, periodic reporting and corporate governance reports are also the same for the two Boards. As mentioned above, the fee structure for both Boards is comprised by a listing fee and an annual fee, based on market capitalisation. Admission fees are proportional to size for both Boards, up to PHP 15 billion (~USD 267 million) for the Main Board, after which the fees are lowered from 0.1% to 0.05% of the aggregate value of securities offered.
Source: PSE (2024[14]), Consolidated Listing and Disclosure Rules, https://documents.pse.com.ph/wp-content/uploads/sites/15/2024/04/Consolidated-Listing-and-Disclosure-Rules_as-of-April-2024_FINAL.pdf; SEC (2024[15]), Schedules of fees, https://www.sec.gov.ph/forms-and-fees/schedules-of-fees/#gsc.tab=0; SEC (2020[16]), Registration of Debt or Equity Securities, https://www.sec.gov.ph/wp-content/uploads/2020/02/2018_UpdatedRequirementsForRegistrationofDebtOrEquitySecurities.pdf.
Source: PSE (2024[14]), Consolidated Listing and Disclosure Rules, https://documents.pse.com.ph/wp-content/uploads/sites/15/2024/04/Consolidated-Listing-and-Disclosure-Rules_as-of-April-2024_FINAL.pdf; SEC (2024[15]), Schedules of fees, https://www.sec.gov.ph/forms-and-fees/schedules-of-fees/#gsc.tab=0; SEC (2020[16]), Registration of Debt or Equity Securities, https://www.sec.gov.ph/wp-content/uploads/2020/02/2018_UpdatedRequirementsForRegistrationofDebtOrEquitySecurities.pdf.
While banks continue to dominate the financing of non-financial companies in many Asian jurisdictions, corporate bond markets have developed rapidly. Since the Asian financial crisis of 1997-98, corporate bond issuance growth in Asia has outpaced economic growth, with outstanding amounts representing 9.4% of GDP in 2000 and growing to 30% in 2023. The expansion of corporate bond markets in Asia has been driven mainly by China and the issuance of financial corporations. Financial corporations were responsible for 65% of the growth in the outstanding amounts in the region between 2000 and 2023, and non-financial corporations made up the remaining 35% (Figure 3.21).
Since 2000, the outstanding amounts of corporate bonds in the Philippines have expanded at a lower average yearly rate (4.8%) compared to the ASEAN level (5.7%). This holds for both financial and non‑financial corporate bonds. Of the USD 410 billion issued in ASEAN countries in 2020-23, about 10% were issued by Philippine companies, slightly below the country’s average contribution to the region’s GDP at 12%. After strong growth in the period before the COVID‑19 crisis, issuance peaked at USD 19 billion in 2020 (Figure 3.20, Panel A). In 2023, out of the 16 corporations that used corporate bond markets to raise capital, only 5 were non-financial corporations, which may be explained by the increase in domestic borrowing costs following the sharp increase of 450 basis points in the central bank reference rate (BSP, 2024[17]).
Since 2000, the aggregate amount issued has roughly been split evenly between financial corporations (48%) and non‑financial corporations (52%), with non-financials slightly outpacing financials after 2008 (Figure 3.20, Panel A). The exception was the 2017-20 period, when non-financial corporate bonds have made up 41% of amounts issued on average. As a result, at the end of 2023, 58% of the USD 48 billion in outstanding bonds corresponded to non-financial corporations (Figure 3.20, Panel B).
Source: OECD Capital Market Series dataset, LSEG; see Annex for details.
Relative to peer countries, the Philippines ranks second to last in terms of number of bonds issued with 567 bonds since 2000 (Figure 3.21). Only Viet Nam, where the corporate bond market is at an early stage of development, had fewer issuances. The number of bonds issued in relation to the size of the economy highlights the undersized nature of the corporate bond market in the Philippines. Between 2000 and 2023, capital raised amounted to USD 75 billion for non‑financial corporations and USD 70 billion for financial corporates. This distribution is fairly similar to Indonesia’s situation, but in Thailand, non-financials have been the main issuers, and in Singapore and Malaysia, corporate bonds from the financial sector dominate.
An overview of issuance activity shows that the corporate bond market in the Philippines is mostly used by larger companies, since the average issue size is higher than in peer countries (Figure 3.21). This was confirmed during OECD consultations with market participants. Moreover, the outstanding amount of corporate bonds relative to GDP stands at 11% in the Philippines, roughly in line with the ASEAN region (13%). However, it is much lower than in many peer countries, such as Singapore (29%), Malaysia (22%) and Thailand (18%). While the Philippine corporate bond market has grown in nominal terms, as share of GDP it has been static since 2000. Other peer markets, like Indonesia or Viet Nam, have struggled to grow, whereas Singapore and Thailand have roughly doubled from representing around 15% of GDP in 2000 to above 30% in 2023.
Note: Bonds outstanding as a share of GDP is the annual average of the ratio between 2000 and 2023.
Source: OECD Capital Market Series dataset, LSEG; see Annex for details.
In terms of the industry composition of the non-financial company issuers, industrials, utilities and consumer cyclicals are dominant across ASEAN markets. These three sectors make up half of the issuance in the ASEAN region over the 2000-23 period, similar to global levels, but lower than Asia (Figure 3.22). In the Philippines, Singapore and Malaysia, these three industries represent slightly higher shares, at 64%, 69% and 65%, respectively. In particularly, corporate bonds issued by the utilities sector stand out in the Philippines, raising 26% of the total proceeds. In Indonesia and Thailand basic materials makes up nearly 20% of issuance, a high share when compared internationally.
Between 2000 and 2023, over half of the total amount of corporate bond issued by non-financial companies in the Philippines had maturities ranging between 5 and 10 years. If bonds with a maturity of 10 years or more are added to this share, the total is 80% of issuance. This is higher than peers, as well as both the ASEAN region and Asia, where the shares of bonds with a maturity of 5 or more years were 55% and 42%, respectively (Figure 3.23, Panel A). While lengthening of maturities is beneficial for corporations, in the case of the Philippines, it supports the notion that only a few large corporations have access to corporate bond markets and issue large bonds with longer maturities. Among peer countries, shorter maturities have made up the largest share of issuance in Indonesia, Thailand and ASEAN as a whole, while the distribution has been more even in Malaysia and Singapore. Over the last 10 years, the share of mid-range of maturities, between five and ten years, has decreased in many markets compared to the previous decade, with the shares of both shorter and longer maturities increasing. In the Philippines, it is mostly longer maturities that have increased, whereas in Malaysia, Thailand and the ASEAN region as a whole, both short and long maturities have increased fairly equally.
Source: OECD Capital Market Series dataset, LSEG; see Annex for details.
Regarding the choice of the exchange of listing for non-financial corporate bonds, the landscape varies across markets. In the Philippines, over the 2000-23 period, only 24% of corporate bonds listed on the local exchange. This was much lower than in Singapore and Thailand, at 62% and 66%, respectively, and ASEAN as a whole, at 46% (Figure 3.23, Panel B). Almost one-third of Philippine corporate bonds listed on foreign exchanges. While this share decreased in the last decade, it was still higher than all peers but Indonesia. In Singapore and Thailand, corporations preferred to list their bonds on the local exchange. In contrast, in Malaysia and Viet Nam, bonds were not listed on a stock exchange, but instead privately placed. Comparing amounts issued with the number of issues shows that local exchanges have primarily served smaller issuers, while larger issues tend to access foreign exchanges. Moreover, smaller issuers have often preferred private placements rather than listing on exchanges.
Globally and in Asia, there is an increasing number of over-the-counter (OTC) markets managed by stock exchanges. In many countries, these markets are the primary markets for corporate bonds (OECD, 2024[18]). While most corporate bonds are not listed in Asia as a whole and instead trade over-the-counter, this is not the case in the ASEAN region (Figure 3.23, Panel B). In the Philippines, the share of corporate bonds not listed trading OTC was 17% over the period, with an increase in the use of OTC markets over the last ten years compared to the previous ten-year period.
In all markets shown in Panel C the dominant currencies are the local currency and US dollar, which together make up over 95% of the amounts issued by non-financial corporations between 2000 and 2023. For the Philippines, 68% of issued amounts were denominated in local currency, and 31% in US dollar. This is in stark contrast to the non-financial corporate bond market in the early 2000s, when over 70% of the amount issued was made in US dollars.
Note: Shares are computed based on total proceeds.
Source: OECD Capital Market Series dataset, LSEG; see Annex for details.
3.2.1. Trading and listing corporate bonds in the Philippines
The Philippine Dealing & Exchange Corp (PDEx), operated by the PDS Group, is the only regulated fixed income marketplace in the Philippines where corporate bonds can be listed and traded. The PDEx operates an electronic trading platform and is designated by the Securities Exchange Commission (SEC) as a self‑regulatory organisation (SRO). As an SRO it provides rules and requirements directed towards market participants for the listing, related disclosure, and trading of fixed-income securities itself. As the main market operator in fixed income, government securities are also traded on the PDEx. To support liquidity of government bonds the PDEx provides programmes such as the Securities Lending Transactions Program and the Inter-Professional Repurchase Agreement Market Program. The PDEx is also linked directly to settlement systems through ownership of the Philippine Depository & Trust Corporation (PDTC), the main securities depository that provides central securities services for both the equities and fixed income market.
The admission and continued listing on the PDEx rests on the regulatory framework set out in the Securities Regulation Code (SRC) where the emphasis is on providing investor protection, while allowing professional investors freedom to make informed decisions on securities with less extensive requirements (ADB, 2017[19]). SEC registration is required for bond issues publicly offered to any investor, whereas those issued to a set of professional investors can be classified as ‘exempt transactions’ and avoid registration. However, professional investors themselves need to be registered as such at the SEC. Banks instead need to notify the Bangko Sentral ng Pilipinas (BSP), while publicly offered non-resident issuers and issues in foreign currency need to both register with the SEC and notify the BSP (ADB, 2020[20]). The SEC registration process for bonds has been based on that of equity issuance and thus demands the same disclosure requirements. To determine the value of securities, equity holders generally need more information than bondholders who can focus more narrowly on debt covenants, meaning disclosure requirements are relatively extensive.
The PDEx is also the OTC market operator in the Philippines, including government securities, corporate bonds and notes. According to the OTC rules, all trading must occur on an organised market authorised by the SEC. Therefore, listing or enrolment on the PDEx is in effect mandatory to trade in the OTC market (ADB, 2020[20]). According to the IMF, the PDEx is “in essence an OTC market with a trade reporting system” (IMF, 2019[21]). Another point of note is the option of shelf registration, whereby an issuer, by registering with the SEC, can issue tranches under a single registration statement on a consecutive or delayed basis. Although the 2015 Securities Regulation Code sought to update shelf registration rules to adhere to global best practices – for example, by allowing a longer issuance period, faster issuance process, and the ability to pay registration fees in line with issuance rather than a total upfront – initiatives to create a streamlined process for serial issuance continues (SRC, 2015[22]).
The PDEx admission requirements for listing (public offers directed to all investors) and enrolment (offers directed towards professional investors) vary in their complexity. Both types of issues need a licensed underwriter, a registry recording changes of ownership, and facility agent, providing monitoring of the issue on behalf of investors. Both also need a rating – either of the issuer or the issued securities – and a market maker to support liquidity. The key added requirements for public offers are summarised in Figure 3.24 below (PDS Group, 2021[23]; PDEx, 2011[24]). Apart from the SEC registration, the main difference between listing and enrolment comes in terms of the level of required disclosures to the PDEx. Applications to list bonds require both detailed financial statements and audited reporting, and a prospectus encompassing a broad range of information. Enrolled bonds can rely on a simpler offer memorandum that is markedly less extensive, and other disclosures are more generally focused on what the prospective investors demand. Therefore, as enrolment is specifically targeting professional investors who might have quite specific disclosure demands or investing guidelines, this venue for admitting corporate bonds to the PDEx offers a more flexible and less onerous route.
The cost of admission to the PDEx is the same whether the bonds are listed or enrolled (Figure 3.25). However, listed bonds also require SEC registration, which entails the same fee as an equity issuance. Both these types of fees are proportional to the value of securities offered, but with incremental regressive steps.
Source: PDEx (2021[25]), Rules for the Fixed Income Securities Market, https://www.pds.com.ph/wp-content/uploads/2021/02/PDEx-Rules-for-the-Fixed-Income-Securities-Market-as-Amended-Revised-25-February-2021.pdf; PDEx (2024[26]), Listing Qualifications, https://www.pds.com.ph/index.html%3Fpage_id=598.html; PDEx (2011[24]), Listing Checklist: Listing Application (Registered Securities);SEC (2024[27]), SEC Form 12-1 Checklist, https://www.sec.gov.ph/wp-content/uploads/2024/02/2024Form_SEC-Form-12-1-Submission-Checklist-2024.docx.
Note: *See table A 11. in Annex G. for details on the definition of government-like and non-government-like bonds.
Source: PSE (2021[28]), Consolidated Listing and Disclosure Rules, https://documents.pse.com.ph/wp-content/uploads/sites/15/2024/04/Consolidated-Listing-and-Disclosure-Rules_as-of-April-2024_FINAL.pdf; SEC (2024[15]), Schedules of fees, Schedules of Fees - Securities and Exchange Commission.
The PSE was granted status as a Self-Regulatory Organisation (SRO) by the SEC in 1998. The SRO status is meant to transmit ownership of rules to market participants, with the objective to both improve adherence and create rules that are more flexible and market-driven and thus develop a system less likely burdened by over‑regulation. Meanwhile, the SEC retained its position as the overall regulator and supervisor of securities, corporations and capital market participants. It is responsible for approving the issuance and registration of all types of securities to be approved for distribution in the Philippines under the Revised Securities Act (Clearstream, 2024[29]). It also operates the corporate registry.
The operations of the PSE are divided into listings and disclosure, trading and market operations, and capital market development. In 2010, the audit, market surveillance and compliance functions were incorporated into a fully-owned subsidiary, the Capital Markets Integrity Corporation (CMIC), which was granted SRO status by the SEC in 2012 (CMIC, 2024[30]). See Figure 3.26 for an overview of the ownership structure of key parts of the infrastructure.
The PSE also fully owns the Securities Clearing Corporation of the Philippines (SCCP), which acts as the central clearing house for the equity market, licensed by the SEC. The SCCP manages cash and securities settlement for the connected brokers, synchronising payments and transfer of securities. It guarantees the settlement in the event of a participant’s default, mitigating settlement risk. The SCCP system works through multilateral netting, where net settlement for each clearing member leads to a single net cash position, and where the SCCP acts as the seller to all net buyers and seller to all net sellers. After each trading day’s net clearing the SCCP provides instructions for the exchange of cash and securities through the settlement bank accounts and central securities depository accounts of each clearing member, which is then carried out within two days (SCCP, 2024[31]; SCCP, 2023[32]). For debt securities it is the Philippine Dealing & Exchange Corporation (PDEx) that handles payment and settlement. It is owned by the Philippine Dealing System Holdings Corporation (PDS Group).
Source: PSE (2024[33]), Group Corporate Structure, https://corporate.pse.com.ph/about-pse/the-organization/group-corporate-structure/; PDS Group (2024[34]), About PDS Group, https://www.pds.com.ph/index.html%3Fpage_id=180.html.
Through its stake in the PDS Group, the PSE partly owns the Philippine Depository & Trust Corporation (PDTC), the central securities depository. The depository holds securities in electronic book entry form and acts as a collateral manager and lending agent for securities lending and borrowing transactions. After settlement instructions are received, the depository can affect the transfer of securities from one account to the other. It also provides registry services, maintaining the official record of ownership. Combined with the payment services offered, the registry can perform payments of dividends or interest to holders on behalf of the issuer. The depository computes the entitlements, as well as the corresponding withholding taxes (PDS Group, 2024[35]). The PDS Group also owns the PDS Academy for Market Development Corp. (PDSA) – a non-stock, non-profit association engaged in education and market development.
The partial ownership of the PDS Group also means that the PSE partly controls the PDEx, the fixed income exchange and trading platform. In late 2023, the SEC approved the PSE’s request for approval to acquire 100% of PDS’s shares, which would concentrate securities trading in the Philippines under one entity. However, any deal requires the acceptance of current shareholders, which include some potential vested interests.
The Philippine equity market operates based on the PSEtrade XPS system, bought in 2015 and using NASDAQ’s X-stream technology. It is equipped to handle large trading volumes and manage further functional developments, such as the addition of fixed income and derivatives. It also secures uptime by being able to perform same-day recovery in case of failure. In addition to regular and preferred shares, the exchange recently introduced REITs and an ETF. Dollar denominated securities and warrants also exist to a limited extent. An expansion to include trading of depositary receipts and derivatives is planned for 2024 and 2025. These instruments were introduced to boost liquidity and improve risk management for investors (PSE, 2023[8]). In 2018, the PDEx switched its trading system from the previous NASDAQ X‑stream Fixed Income Trading Engine to Bloomberg’s FIQ system and was accompanied by new reference rates based on Bloomberg’s BVAL service and administered by the Bankers’ Association (PDS Group, 2024[36]).
Effective tax policies play a crucial role in attracting investments and enhancing market liquidity, therefore promoting overall capital market development. Consequently, well-designed tax frameworks should not impede the growth and development of capital markets. Recognising that taxes can influence the incentives of market participants, many countries have used tax policies to create a more favourable investment environment by offering tax incentives and providing specific tax benefits for issuers and/or investors. The main focus here is on taxes that affect issuers (corporations) and investors who can be identified as corporations or individuals. Additionally, the tax treatment to foreign investors is also discussed when relevant.
3.4.1. Corporate income
The standard corporate income tax rate (CIT) in the Philippines is 25% based on net taxable income (PWC, 2024[37]). This rate was reduced from 30% in 2021 with the introduction of the Corporate Recovery and Tax Incentives for Enterprises Act (ASEAN Briefing, 2021[38]). However, the Philippines still has the highest CIT rate among peer countries, with Singapore offering the lowest CIT rate at 17% (Table 3.2). Resident foreign corporations conducting business in the Philippines through a branch office are taxed similarly to domestic corporations. However, they are only taxed on income originating in the Philippines, except for capital gains from the sale of buildings not used in business, which are taxed as ordinary income.
In the Philippines, smaller domestic corporations with total assets not exceeding PHP 100 million (~USD 1.8 million) and total net taxable income not surpassing PHP 5 million (~USD 90 thousand) benefit from a reduced CIT rate of 20% (PWC, 2024[37]). Moreover, in 2024, the Ease of Paying Taxes Law introduced various measures to facilitate tax compliance for smaller corporations. Micro and small businesses stand to gain from tailored provisions, including simplified income tax returns, decreased civil penalties, and reduced interest rates and fines.
Source: PWC (2024[37]), Worldwide Tax Summaries-Philippines-Corporate-Taxes on corporate income, https://taxsummaries.pwc.com/philippines/corporate/taxes-on-corporate-income; PWC (PWC, 2023[39]), Worldwide Tax Summaries - Singapore - Corporate - Taxes on corporate income, https://taxsummaries.pwc.com/singapore/corporate/taxes-on-corporate-income; PWC (2023[40]), PWC Worldwide Tax Summaries-Malaysia-Corporate-Taxes on corporate income, https://taxsummaries.pwc.com/malaysia/corporate/taxes-on-corporate-income; PWC (2023[41]), Worldwide Tax Summaries - Indonesia - Corporate - Taxes on corporate income, https://taxsummaries.pwc.com/indonesia/corporate/taxes-on-corporate-income; (PWC, 2024[37]), Worldwide Tax Summaries - Thailand - Corporate- Taxes on corporate income, https://taxsummaries.pwc.com/thailand/corporate/taxes-on-corporate-income; PWC (PWC, 2024[42]), Worldwide Tax Summaries - Vietnam - Corporate- Taxes on corporate income, https://taxsummaries.pwc.com/vietnam/corporate/taxes-on-corporate-income.
All ASEAN countries except Viet Nam offer reductions in the CIT rate for smaller companies. Singaporean companies can benefit from partial tax exemptions, and additionally, qualifying start-up companies are eligible for a three-year start‑up tax exemption. Various tax incentives are also available to corporations engaged in specified activities or industries recognised as beneficial to Singapore’s economic development (PWC, 2023[39]). In Malaysia resident companies with paid-up capital of MYR 2.5 million (~USD 545 000) or less and gross business income not surpassing MYR 50 million (~USD 10.9 million) are eligible for lower tax rates ranging between 15% and 24%, provided they meet certain ownership conditions (PWC, 2023[40]).
In Indonesia, special tax regimes for CIT are applicable in specific cases. For instance, public companies that have at least 40% of their total share capital listed (and when additional conditions are met) qualify for a 3% tax reduction from the standard CIT rate. This discount results in an effective tax rate of 19% for some public companies. Additionally, small enterprises, defined as corporate taxpayers with an annual turnover not exceeding IDR 50 billion (~USD 3.2 million), benefit from a 50% tax reduction off the standard rate. This reduction is applied proportionally to taxable income based on gross turnover, up to a limit of IDR 4.8 billion (~USD 312 000) (PWC, 2023[41]).
Smaller corporations in Thailand with paid-in capital not exceeding THB 5 million (~USD 143 000), and with an income not surpassing THB 30 million (~USD 858 000), may benefit from tax exemptions or are taxed at reduced rates (PWC, 2024[37]). In Viet Nam, certain incentives for CIT apply for qualified research and development and large investment projects (PWC, 2024[42]). Additionally, foreign investors in Viet Nam may benefit from a reduced CIT rate, subject to specific eligibility criteria (Vietnam Briefing, 2024[43]).
3.4.2. Capital gains
In the Philippines, taxation of capital gains from the sale of listed and unlisted shares differs for investors. The capital gains generated from the sales of listed shares on the local stock exchange are not subject to capital gain taxes. However, this tax exemption is contingent upon the listed corporation maintaining a minimum public ownership threshold of 10% of its issued and outstanding shares, whichever is higher. If the requirement on public ownership is not met, it results in the imposition of the standard 15% capital gains tax. However, there is a stock transaction tax charged to the seller in the form of a withholding tax (WHT) at 0.6% on the gross selling price for all listed shares.
The capital gains generated from the sale of shares not traded in the local stock exchange are subject to capital gain taxes at a 15% rate. Resident and non-resident individuals and corporations are taxed on Philippine-source capital gains at the same rate of 15% (PWC, 2024[44]; BIR, 2024[45]). Most peer countries (Singapore, Indonesia, Thailand and Viet Nam) do not have a specific regime for capital gains and instead treats them as ordinary income for both companies and individuals. Only Malaysia has a separate regime for capital gains (Table 3.3).
Overall, countries tend to support capital market development by introducing tax reductions for the sale of shares in listed companies, bonds or funds. In Malaysia, capital gains from the disposal of unlisted shares are subject to a tax rate of 10% on chargeable income for corporations, while individuals are exempt from capital gains tax (MahWengKwai & Associates, 2024[46]; PWC, 2024[47]). Singapore does not have a formal capital gains tax regime. However, gains from the disposal of listed or unlisted ordinary shares by a company are not taxed if specific conditions regarding the holding period (24 months) and minimum shareholding (20%) are met (IRAS, 2020[48]). In Indonesia, capital gains are generally taxed as ordinary income both for individuals and corporations. However, similar to the Philippines, capital gains from sales of shares listed on the Indonesian stock exchange are exempt and the seller is instead subject to a stock transaction tax in the form of a WHT at 0.1% of the transaction value (PWC, 2023[49]).
In Thailand, capital gains are treated as ordinary income for both for corporations and individuals (PWC, 2024[50]). However, foreign companies not doing business in Thailand are subject to a WHT at 15% tax for capital gains, unless exempt under a double tax treaty. Capital gains from the sale of fund units in a fixed income mutual fund are exempt from tax subject to certain conditions, for both Thai companies and foreign companies continuing business in Thailand. For individuals, capital gains on the sale of shares in a company listed and sold on the Stock Exchange of Thailand are exempt, as is the sale of investment units in a mutual fund (PWC, 2024[51]). In Viet Nam, capital gains are generally taxed as ordinary income both for individuals and corporations. Foreign entities pay for the transfer of securities a 0.1% of the total sales proceeds. However, gains derived by a resident entity from the transfer of securities are taxed at the usual CIT rate of 20% (PWC, 2024[52]).
Source: BIR (2024[53]), Capital Gains Tax, https://www.bir.gov.ph/capitalgainstax?q=capital%20gains; PWC (2024[44]), PWC Worldwide Tax Summaries - Philippines-Corporate - Other taxes, https://taxsummaries.pwc.com/philippines/corporate/other-taxes; PWC Worldwide Tax Summaries - Malaysia - Corporate - Income determination, MahWengKwai & Associates (2024[46]), Capital Gains Tax: Disposal of Unlisted Shares and Capital Assets, https://mahwengkwai.com/capital-gains-tax-disposal-unlisted-shares-capital-assets-malaysia/; IRAS (2020[48]), IRAS e-Tax Guide, https://www.iras.gov.sg/media/docs/default-source/e-tax/etaxguide_certainty-of-non-taxation-of-companies-gain-on-disposal-of-equity-investments-(3rd-edition).pdf?sfvrsn=ceb9a99_11; PWC (2023[49]), Worldwide Tax Summaries - Indonesia - Corporate - Income determination, https://taxsummaries.pwc.com/indonesia/corporate/income-determination; PWC (2024[50]), PWC Worldwide Tax Summaries - Thailand - Corporate - Income Determination, https://taxsummaries.pwc.com/thailand/corporate/income-determination; PWC (2024[52]) Worldwide Tax Summaries - Vietnam - Corporate - Income determination, https://taxsummaries.pwc.com/vietnam/corporate/income-determination.
In Indonesia, Malaysia and Singapore, there is no capital gains tax for the disposition of corporate bonds (OECD, 2024[18]). In the Philippines, only bank and non-bank financial intermediaries performing quasi‑banking functions are required to pay 7% on their capital gains from corporate and government bonds (ADB, 2017[19]). Capital gains derived from trading activities, however, are subject to regular income tax ranging from 0% to 0.35% for individuals and for corporations 30%. Notably, capital gains derived selling corporate bonds with a maturity over five years are exempt (NTRC, 2018[54]). In Thailand, capital gains from corporate bonds are typically assessed as ordinary income and subject to a withholding tax of 15%, while investments in bonds by mutual funds are tax-exempt (PWC, 2024[47]).
3.4.3. Dividends
In the Philippines, dividends received by a domestic or resident foreign corporation from another domestic corporation are exempt from income taxes. However, dividends received by a non-resident foreign corporation from a domestic corporation are subject to a final withholding tax at a rate of 25% (PWC, 2024[55]). Additionally, treaty rates ranging from 10% to 25% may also be applicable if the recipient is a resident of a country that has a tax treaty with the Philippines. Moreover, resident individuals are taxed at a 10% rate on dividend income received from a domestic corporation. Non-resident individuals are subject to a 20% tax rate for dividends if engaged in trade or business in the Philippines, and 25% if not engaged in business activities in the country.
Among ASEAN peers, dividends are tax-exempt in Malaysia and Singapore for both individuals and corporations, and in Thailand only corporations benefit from a tax exemption. In contrast, Indonesia does not offer any tax exemptions for dividends. In Indonesia, dividends distributed by a domestic corporation received by a resident taxpayer are treated as taxable income, while dividends distributed by a domestic corporation received by a non-resident foreign corporation or individual are subject to a withholding tax at a rate of 20% (PWC, 2023[49]).
In Malaysia, shareholders (individuals and corporations) benefit from tax exemption on dividends received. Companies are not required to deduct tax from dividends paid to shareholders (PWC, 2024[47]). In Singapore, dividends received by corporations and individuals are tax exempt (PWC, 2023[56]). In Thailand, dividends received by a company listed on the Stock Exchange of Thailand from another Thai company, or by an unlisted company for a corporation are tax exempt provided certain conditions apply (PWC, 2024[50]). For individuals, dividends received from a company incorporated in Thailand are subject to a final withholding tax at 10% (PWC, 2024[51]). In Viet Nam, dividends paid by a company to its corporate shareholders are not subject to tax (Deloitte, 2019[57]).
3.4.4. Interest income
In the Philippines, interest income from bank savings, time deposits, deposit substitutes and money market placements received from a domestic corporation by domestic or resident foreign corporations and individuals incur a withholding tax of 20%. Interest income from a Foreign Currency Deposit Unit (FCDU)1 is subject to a withholding tax of 15%. For corporations, this interest income is excluded from gross income reported in CIT returns (PWC, 2024[37]). Moreover, interest income earned by non‑resident individuals on FCDU accounts is tax exempt. This exemption was primarily aimed at attracting remittances and reducing the cost of remittances to the country.
Interest income on bonds is subject to the above-mentioned withholding tax at 20% for domestic investors and taxed at 30% for foreign investors. Tax regulations in the Philippines currently incentivise the issuance of longer-term debt (over five years) by making them tax-exempt (BIR, 2024[45]). Interest income from bonds with maturities of less than three years is taxed at 20%, those between 3 and 4 years at 12%, and those between 4 and 5 years at 5%. Non-residents are exempt from tax on interest payments on bonds issued by banks and financial institutions.
Among peer countries, in Indonesia, interest income on deposits and bonds received by a resident corporation or individuals is taxed at a final withholding tax of 15%. However, interest income on bonds for non-residents is subject to a reduced tax rate of 10% (PWC, 2023[41]). In Malaysia, interest income for corporations is subject to CIT, while interest for individuals from deposits from approved banks and financial institutions and certain types of bonds or securities is exempt from tax (PWC, 2023[58]). In Singapore, interest income earned on government bonds is tax-exempt for individuals (MAS, 2024[59]). However, interest income earned on corporate bonds are taxed at 17% of CIT rate for corporations, while for corporate bonds under the Qualifying Debt Securities scheme a reduced tax rate of 10% applies (OECD, 2024[18]). Moreover, deposits with approved banks and licensed finance companies are exempt from interest income tax for both individuals and corporations (IRAS, 2024[60]). In Thailand, interest income from bank deposits and corporate bonds is subject to a final withholding tax rate at 15% (PWC, 2024[51]). In Viet Nam, interest income is taxed at the standard CIT rate for corporations (PWC, 2024[52]). Interest income earned on government bonds is tax exempt for non-residents institutional investors, while interest income earned from corporate bonds is subject to withholding tax at a flat rate of 5% (ADB, 2018[61])
3.4.5. Documentary stamp duty tax
The documentary stamp duty tax for the original issue of shares and dividends of a stock in the Philippines is 1% of the amount issued. On unlisted share transfer, stamp duty amounts to 0.75% of the par value of the shares of stock sold, while the transfer of shares of stock listed and traded at the PSE are exempt from documentary stamp tax (BIR, 2024[62]; PSE, 2024[63]). For issuances of debt instruments, stamp duty tax is also 0.75% (BIR, 2024[62]).
Among peer countries, Indonesia does not have a proportional stamp duty tax based on par value like the Philippines, but rather imposes a minimum fixed amount of IDR 10 000 (USD 0.70) for the issuance and transfer of stocks and debt instruments (ASEAN Briefing, 2021[64]). In an attempt to broaden the range of accessible investment options and foster greater investor engagement in the domestic capital market, Malaysia has lowered the stamp duty tax rate for shares traded on Bursa Malaysia from 0.15% to 0.1% in 2023 (ASEAN Briefing, 2023[65]). In Singapore, stamp duty on shares is calculated at 0.2% of the purchase price or the net asset value of the shares (PWC, 2023[66]). However, there is no stamp duty imposed for the issuance of new shares or the purchase of shares listed on the Singapore Stock Exchange (Acca Global, 2017[67]). In Thailand, stamp duty tax is 0.1% over the book value or the transfer price of shares or bonds, whichever is higher. However, transfers of Thai government bonds and listed securities deposited in Thailand Securities Depository are exempt from stamp duty (SET, 2024[68]). In Viet Nam, there is no stamp duty tax for the transfer of shares (VDB-Loi, 2021[69]).
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← 1. FCDU refers to a unit of a local bank/branch of a foreign bank authorised by the Bangko Sentral ng Pilipinas (BSP) to engage in foreign-currency denominated transactions, pursuant to Republic Act No. 6426 (the Foreign Currency Deposit Act of the Philippines), as amended. It allows individuals to deposit money and earn interest in foreign currencies.