Author MRTC

Introduction

REVENUE MEMORANDUM CIRCULAR (RMC) NO. 91-2026

I. OBJECTIVE

    • To clarify, by way of illustration, the proper determination of the base amount for the imposition of the twenty percent (20%) Early Withdrawal Penalty (EWP) under the PERA Law;
    • To affirm and reiterate the applicable treatment of qualified and unqualified early withdrawals of PERA assets;
    • To provide guidance on partial withdrawals, including the sale and redemption of PERA products; and
    • To clarify the penalty treatment of income from PERA assets not covered by PERA exemptions, specifically exchange-traded shares and dividend income.

    II. DEFINITION OF TERMS

      TermsDefinition
      PERA AssetsThe total assets held in a PERA at any given time, including cash, PERA investment products in which the funds are invested or reinvested, and income earned from those investments.
      Qualified/ Eligible PERA Investment ProductsInvestment products approved by the appropriate Regulatory Authority that may be offered under PERA. These include: Unit Investment Trust Funds (UITFs);Shares of stock in mutual funds;Annuity contracts;Insurance pension products;Pre-need pension plans;Shares of stock or other securities listed and traded on the local stock exchange;Exchange-traded bonds;Government securities; andOther investment products or outlets allowed by the appropriate Regulatory Authority, provided that they are non-speculative, readily marketable, and have a track record of regular income payments to investors.
      AccountThe main PERA account that corresponds to one product category of PERA investment products, as enumerated above.  
      Sub-AccountA separate PERA investment under the same investment product category as the main account, but issued by a different provider or issuer.  
      TermsDefinition
      Qualified Early WithdrawalA withdrawal of some or all PERA assets that is not subject to the EWP, provided that the withdrawal is made for any of the following reasons:   Payment of hospitalization expenses resulting from an accident or illness in excess of thirty (30) days;Permanent or total disability of the contributor; orTransfer of PERA Assets to another qualified PERA investment product and/or another PERA Administrator within 15 calendar days from the withdrawal.   Fees charged by the administrator, custodian, or product provider may be deducted from PERA assets after the account is opened without being considered an early withdrawal, provided that the Contributor has consented to the deduction.  
      Gross Income EarnedThe income included in the portion of PERA assets that is actually redeemed, sold, or withdrawn, whether in whole or in part, from the main account or any sub-account.   It does not include income, gains, or increases in value that have not yet been realized because the assets remain invested in the PERA.  
      Unqualified Early WithdrawalA withdrawal of some or all PERA assets from the main account or any sub-account that does not meet the requirements for a Qualified Early Withdrawal. The withdrawal may be made through the cash custodian under a third-party custody arrangement or directly by the Contributor under a self-custody arrangement. Any Unqualified Early Withdrawal is subject to the EWP.  

      III. IMPOSITION OF EARLY WITHDRAWAL PENALTY

        An EWP is imposed on any unqualified early withdrawal of PERA assets and consists of:

        1. Twenty percent (20%) of the Gross Income Earned attributable to the PERA assets or portion thereof actually withdrawn, computed from the opening of the relevant PERA account or sub-account up to the date of withdrawal; and
        2. Recovery of the five percent (5%) tax credit previously claimed on the PERA assets being withdrawn, covering the entire period.

        The 20% EWP applies only to the Gross Income Earned attributable to PERA assets actually withdrawn. Income that remains invested, reinvested or otherwise retained within the PERA, including unrealized gains and proceeds from investments that remain under PERA custody, is not subject to the EWP. The penalty applies only to the withdrawn portion, and losses from other PERA accounts or sub-accounts shall not be deductible from the income from the withdrawn assets.

        The Circular shall also be applied consistently with the applicable regulations governing the valuation, redemption, and transfer of PERA investment products.

        IV. CLARIFICATION ON GRANTS OF PERA TAX EXEMPTIONS

          Under Republic Act No. 9505 and its implementing rules, tax exemptions under the PERA apply only to PERA assets and income that remain within the PERA, and are limited to the following:

          1. Final withholding tax on interest and other monetary benefits from bank deposits, deposit substitutes, trust funds, similar arrangements, and deposits under the expanded foreign currency deposit system;
          2. Capital gains tax on the sale, exchange, retirement, or maturity of bonds, debentures, and other certificates of indebtedness;
          3. The ten percent (10%) tax on cash and/or property dividends actually or constructively received from a domestic corporation, including a mutual fund company;
          4. Capital gains tax on the sale, barter, exchange, or other disposition of shares of stock in a domestic corporation; and
          5. Regular income tax.

          The EWP is a separate statutory penalty imposed on PERA assets actually withdrawn and is not considered a final withholding tax or income tax.

          Taxes not covered by the PERA exemptions continue to apply under the National Internal Revenue Code of 1997, as amended, and relevant revenue issuances, including:

          • Percentage taxes on covered persons and transactions;
          • Value-added tax (VAT);
          • Stock transaction tax on the sale, barter, or exchange of shares of stock listed and traded through the local stock exchange; and

          Documentary stamp tax (DST)