There are so  many companies in the Philippines but the bulk of ownership of these companies is in the hands of public or government funds and foreign investors. I guess we, the Filipino people, should be the one taking a greater part in these companies. In order to do that we must have an effort to educate the common Pinoy and debunk the myth that only the rich can be an investor in our own country.

With that the Philippine Legislature finally made a law that will at least help Pinoys have a chance in participating in the capital market of the country. Republic Act 9505 which is also known as the PERA Law (Personal Equity and Retirement Account Act of 2008) is a contributory retirement account which an individual can avail. 

The PERA retirement system: Ready for take-off?

By: Francis Lim
Philippine Daily Inquirer

(excerpt starts here)
 

The PERA Law

The PERA Law was on the drawing board of Congress for about 10 years before it was signed by then President Gloria Macapagal-Arroyo on Aug. 22, 2008.

Modesty aside, the PERA Law was one of the five capital market-related laws whose enactment I pushed as president of the Philippine Stock Exchange (PSE).

Senator Edgardo J. Angara and Congressman Sonny Angara were very instrumental in the passage of this law. And why did we push for it?

Aside from seeking to help our countrymen prepare for their personal retirement, the PERA Law was envisioned to develop our capital markets.

The law seeks to achieve this objective by increasing the country’s savings deposit base that will hopefully be invested in our capital markets. Towards this end, the PERA Law gives additional incentives to PERA savings that are invested in eligible PERA investment products.

These products include stocks listed and traded on the PSE and Philippine Dealing and Exchange Corp., mutual funds, government securities, exchange-traded funds and bonds, insurance pension products, unit investment trust funds and other investment products that may be allowed in the future.

Establishing PERA accounts

Any natural person with capacity to contract (18 years old and above) with a tax identification number may be a contributor to a PERA account. The idea is for the contributors to keep their PERA alive until age of 55 so that they have something to use for retirement, on top of what they would receive under the Social Security System and the Labor Code.

The law and regulations provide stiff penalties for early withdrawal of PERA savings, subject only to very limited exceptions like permanent disability of the contributor.

While contributors may withdraw their PERA upon reaching 55 years of age, the PERA Law gives them the option to keep their PERA beyond that age.  In fact, the tax regulations provide that a person over 55 years may still establish PERA accounts.

A contributor may have up to five PERA accounts at any one time, with each PERA account confined to one category of investment product. However, the law allows only one BIR-accredited administrator (banks, securities brokers, investment houses, insurance companies and brokers, etc.), whose job is to administer and oversee all the contributor’s PERA accounts.

The contributor may manage his own PERA accounts, but he may appoint an investment manager (like a trust entity or investment company adviser) for his PERA accounts.

Only entities with a trust license from the BSP can be an administrator and investment manager at the same time.

Incentives

a.) Tax credit—the contributor shall be entitled to a 5-percent tax credit of his annual contribution. The maximum annual contribution is P100,000 per person or P200,000  for married couples.

This basic tax incentive is a tax credit system or deduction from income tax payable to the government, not merely a tax deduction from the gross income of the contributor.

To illustrate, if a married couple has P100,000 income tax payable for a given year and has put aside P200,000 in PERA, they can deduct  P10,000 (5 percent of P200,000) from their income tax, thereby paying the government only P90,000 for that year.

Note that in case of overseas Filipinos, the annual cap is P200,000 per individual and P400,000 per couple. The law doubled the annual cap for overseas Filipinos to help substantially increase their inward

remittances into the country.

b.) Employer contribution—a private employer may contribute to its employees’ PERA to the extent of the maximum amount allowable to the contributor. The contributions shall be allowed as a deduction from the employer’s gross income for income tax purposes.

More importantly, the employer’s contribution shall not form part of the employee’s taxable income; hence, it is exempt from the withholding tax on income, whether withholding tax on compensation or fringe benefits.

c.) Tax-exempt investment income—all income earned from PERA investments is tax exempt. For example, they are exempt from the (a) 20 percent final withholding tax from interest on bank deposits or deposit substitutes; (b) capital gains tax; (c) 10 percent dividend tax; and (d) regular income tax.

Again, to illustrate, if a contributor used his PERA savings to buy shares of stock of Philippine Long Distance Telephone Co. or the Ayala or SM group of companies and receives dividends from such investments, his dividends shall be exempt from the 10-percent dividend tax prescribed by the National Internal Revenue Code.

d.) Tax-free distributions—all distributions of PERA assets, which include the annual contributions and their income, upon retirement of the contributor and provided he has made PERA contributions for at least five years, are tax-exempt. Distributions to the heirs of the contributor upon his death are exempt from estate tax.

e.) Nontax incentives—PERA assets are exempt from attachment, garnishment, and levy on execution. Neither can they be alienated nor pledged or encumbered. PERA assets are not considered part of the contributor’s assets for purposes of insolvency. In short, all PERA assets are beyond the reach of the creditors of the contributor.