Tax Articles

Issuance and Transfers of Shares of Stock: Taxation as Modified by CMEPA

By Atty. Fulvio D. Dawilan

Fulvio D. Dawilan Managing Partner   +632 8403 2001 loc.310 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

The effectivity of Republic Act No. 12214 or the Capital Markets Efficiency Promotion Act (CMEPA) yesterday, July 1, 2025, signaled the implementation of the various changes in the taxation of the capital markets and the products and transactions that come with them. The new law modified the taxation of passive income – interests, dividends, capital gains, and royalties – to make it simpler, fairer, more efficient, and more competitive.

Among those affected by the changes are the taxes imposed on the original issuance of shares of stock and their subsequent sale or transfers.

Documentary Stamp Tax (DST). DST is a tax that is levied without any purpose other than raising revenue. Nonetheless, it is still imposed in our jurisdiction. Among those subject to DST are the issuance and transfers of shares of stock. Since its initial imposition, the rates have been changing. But with the enactment of CMEPA, original issue of shares of stock is now subject to DST at the rate of 75% of 1% (0.75%) of the par value of shares or on the actual consideration for shares of stock issued without par value. This was reduced from the previous rate of P2.00 for every P200.00 of the par value of shares or on the actual consideration.

The DST on the sale or transfer of shares has not changed. It remains to be P1.50 for every P200.00 of the par value of the stock, or 50% of the DST paid upon the original issue for stocks sold without par value.

Differently treated for DST purposes are the original issuance, redemption, and other dispositions of shares in a mutual fund company. The new law specifically exempts these transactions from the imposition of DST.

Capital Gains Tax (CGT). The rate of CGT remains at 15%, which is imposed on the net capital gains derived from the sale, exchange, or other disposition of shares of stock. This 15% tax rate is uniformly applied regardless of the classification of the taxpayer, unless there are exemptions that can be availed - such as the extension of tax treaty benefits for residents of countries where the Philippines has existing tax treaties.

Perhaps, one of the significant changes in the imposition of CGT are the transactions that are (a) included and (c) excluded in its coverage. This used to be imposable only on shares of stock issued by domestic corporations. Sale or transfer of shares of stock issued by foreign corporations was not subject to this type of tax. Taxable gains were then subjected to the regular income tax rates. With the change introduced by CMEPA, gains derived from the disposition of shares issued by foreign corporations may also be covered by this tax.

Shares sold or disposed of through a stock exchange remain to be excluded from the coverage of this tax, as these are subject to the stock transaction tax discussed below. But this exclusion – which used to apply only to stocks sold in a local stock exchange – was extended to stocks sold in a foreign stock exchange. With the change introduced by CMEPA, shares of stock listed and traded in both local and foreign exchanges are outside the coverage of the CGT.

In essence, gains derived from the sale or transfer of shares of stock issued by domestic and foreign corporations, except those listed and traded through local and foreign exchanges, are subject to CGT at the rate of 15%, which is imposed on the gains realized from the sale.

Stock Transaction Tax (STT). This is a type of tax that does not know where it belongs – whether it is an income tax or a percentage tax. Anyway, that will be the subject of a discussion in a separate column.

Sale or transfer of shares listed and traded through stock exchanges are taxed differently from the shares that are not listed. Instead of the CGT, the STT applies. The STT rate used to be ½ of 1% (0.05%) of the gross selling price or gross value in money of the shares of stock sold. This tax rate was increased by the TRAIN Law (RA 10963) to 6/10 of 1% (0.60%). CMEPA further modified this by fixing the rate to 1/10 of 1% (0.10%) of the gross selling price or gross value in money of the shares sold. This new rate is lower than the previous one, but still higher than the rate prior to the TRAIN Law.

Aside from the change in the tax rate, there is also a change in the shares of stock covered by the STT. The STT used to be imposed only on the sale or disposition of shares of stock listed and traded through a local stock exchange. Shares of stock listed and traded through foreign stock exchanges were not subject to the STT. Gains from said transactions were either subject to the capital gains tax or to the regular income tax. This was modified by CMEPA. Sale of shares of stock listed and traded through a foreign stock exchange shall also be subject to the STT at the new rate of 0.10%.

In short, beginning July 1, 2025, sale or other dispositions of shares of stock issued by domestic and foreign corporations which are listed and traded through local stock exchanges and sale or other dispositions of shares of stock issued by domestic corporations which are listed and traded through a foreign stock exchange are subject to the STT at the rate of 0.10%, which is imposed on the gross selling price on gross value in money of said shares.

The rules noted above, however, do not apply if the seller is regularly involved in the trading of securities. The income derived from the sale of shares of stock by a dealer in securities licensed by the appropriate government agency to buy and sell securities for his/its own account and done in the ordinary course of business is considered ordinary income. Being income derived from the regular business activities, such income is subject to the regular income tax.

As the new law envisions, we hope that these changes in the taxation of shares of stock would help in the development of the capital markets. Added to that, of course, is the implementation of compliance and administrative rules that promote – rather than discourage - the issuance and transfer of shares.