Tax Articles

The FIST Act

By Atty. Rodel C. Unciano

Another piece of legislation crafted in response to the adverse effects of the Covid-19 pandemic is Republic Act (RA) No. 11523 otherwise known as the Financial Institutions Strategic Transfer (FIST) Act, recently signed by President Duterte into law. This law is set to strengthen the financial sector in the country by addressing the non-performing asset problems of the financial sector, improve the liquidity of the financial system, and help in the rehabilitation of distressed businesses, among others.

Under the law, a corporation, which shall be known as Financial Institutions Strategic Transfer Corporation (FISTC), may be created for the purpose of investing in or acquiring the non-performing assets (NPAs) of financial institutions (FIs). A FISTC must be a stock corporation that may be organized under the provisions of RA 11232, or the Revised Corporation Code of the Philippines.

A FISTC shall have a minimum authorized capital stock of five hundred million pesos (P500,000,000), a minimum subscribed capital stock of one hundred twenty-five million pesos (P125,000,000), and a minimum paid-up capital of thirty-one million two hundred fifty thousand pesos (P31,250,000). If the FISTC acquires land, at least sixty percent (60%) of its outstanding capital stock shall be owned by Philippine nationals. It shall not be allowed to be incorporated as one person corporation.

A FISTC shall have the power to invest in or acquire NPAs of FIs. It may rent, lease, hire, subject to security interest, mortgage, transfer, sell, exchange, usufruct, secure, securitize, collect rents and profits, and other similar acts concerning its NPAs acquired from FIs. It may spend funds to renovate, improve, complete, or alter its NPAs acquired from an FI. It may likewise enter into dation in payment arrangements, foreclose or enter into other forms of debt settlement involving non-performing loans (NPLs). A FIST has likewise the power to engage third parties to manage, operate, collect, and dispose of NPAs acquired from an FI.

To encourage the organization of FISTC, the transfer of NPAs from the FI to an FISTC, or from FISTC to a third party or dation in payment by the borrower or by a third party in favor of an FI or in favor of FISTC shall be exempt from documentary stamp tax, value-added tax or gross receipts tax. Capital gains tax or creditable withholding income taxes on transfer of lands /or other assets shall not be imposed.

The tax exemptions though shall only be for a limited period. Tax exemptions on sales or transfers of NPAs from the FIs to FIST shall be for a period of not more than two (2) years from the effectivity of the FIST Act. On the other hand, tax exemptions on transfers from FISTC to a third party of NPAs acquired by the FISTC shall be for a period of not more than five (5) years from the date of acquisition by the FISTC.

To further encourage the infusion of capital and financial assistance by the FISTC, the FISTC shall be exempt from tax on net interest income, documentary stamp tax and mortgage registration fees on new loans in excess of existing loans extended to borrowers with NPLs which have been acquired by the FISTC. In case of capital infusion by the FISTC to the borrower with NPLs, the FISTC shall also be exempt from documentary stamp tax. These exemptions shall apply for a period of not more than five (5) years from the date of acquisition of NPLs by the FISTC.

Any loss that is incurred by an FI as a result of the transfer of an NPA within the two (2)-year period from the effectivity of the FIST law shall be treated as ordinary loss. The loss incurred may be carried over for a period of five (5) consecutive taxable years immediately following the year of such loss.

The enactment of FIST into law will certainly help banks and other financial institutions maintain good financial health which is vital for a sound financial sector of any country.