What do you know about pera?

Today, PERA may not only mean money. It may also represent an investment opportunity. Of course, not in reference to local legal tender, PERA, under Republic Act 9505, stands for Personal Equity and Retirement Account. This law came about because of the government’s drive to promote the development of the capital market by tapping in to the savings of its residents and overseas citizens.

Under the said law, PERA shall refer to an individual’s voluntary retirement account established from his PERA contributions and/or his employer contributions, for the purpose of being invested solely in an eligible PERA investment product (e.g. pension plan, unit investment trust fund, annuity contract) duly approved by a concerned regulatory authority.

The PERA Act provides for several incentives. Foremost among them is that a contributor is entitled to a tax credit of five percent on his aggregate PERA contributions made in a one-year period. The entitlement is allowed to be credited only against the contributor’s income tax liability. However, if the contributor is an overseas Filipino or is self-employed, the five-percent tax credit may be claimed against any national internal revenue tax liabilities. Tax credits arising from PERA contributions shall not be refundable or transferable.

Another incentive is that an employer may contribute to his employee’s PERA. Such contribution shall be in addition to, and not in lieu of, the employer’s contribution to the Social Security System or the mandatory retirement benefits under the Labor Code. The contribution shall not form part of the employee’s taxable income hence; exempt from withholding tax on compensation or fringe benefit.

The employer’s contribution and all the benefits shall belong to the employee and shall not in anyway inure to the benefit of the employer. However, the employer shall not be entitled to any five-percent credit from its contribution to an employee’s PERA, but he may claim the amount as a deduction from his gross income. The employee also retains the prerogative to make investment decisions pertaining to his PERA, including the contribution made in his favor by his employer.

All income from the investment and reinvestment of the maximum allowable contribution shall be exempt from income taxes. However, non-income taxes (e.g. VAT, DST) inherent in the investment transaction are imposable.

In the distribution of the proceeds to the contributor or to the heirs/beneficiaries upon the death of the distributor, the proceeds shall be excluded from the gross income of the recipient and shall not be subject to income taxes.

Finally, the PERA asset may not be transferred, sold, or used in any other manner in contradiction with the PERA law. Furthermore, the PERA asset shall not be considered as property of the contributor for the purpose of insolvency and estate taxes.

To qualify as a PERA contributor, an individual should have the capacity to contract and have a Tax Identification Number (TIN). The PERA contribution should not exceed P100,000.00 per calendar year. In the case of an Overseas Filipino, the contribution should not exceed P200,000.

However, an overseas Filipino shall be required to prove his status thru a Certificate of Employment issued by the Philippine Overseas Employment Agency or by a certification from the Bureau of Immigration on his retention or reacquisition of citizenship under the “Citizenship Retention and Reacquisition Act of 2003.”

In establishing a PERA, a contributor should not have more than five accounts at any one time; shall designate and maintain only one administrator for all his PERA; that each PERA shall be confined to one category of investment product; and he should submit proof of income earnings for the year or to be earned for the year when the PERA contribution was made.

The distribution of the proceeds of the PERA assets may only be made after having made five years of contribution and when the contributor reaches the age of 55. The same may also be distributed to his heirs or beneficiaries upon the death of the contributor.

However, early withdrawal of the PERA contribution without valid and just causes shall subject the contribution to a penalty in the amount total to the tax exemptions and privileges enjoyed under the law. The same shall be reckoned from date the benefit accrues to the contributor.

The PERA contributions shall be maintained with an administrator who is duly registered with the BIR and pre-qualified with the concerned regulatory agency, namely the Banko Sentral ng Pilipinas for banks and other financial institutions; Securities and Exchange Commission for investment companies and the Office of the Insurance Commission for insurance companies.

Notwithstanding the said law, the BIR has yet to issue a separate Revenue Memorandum Order (RMO) defining the guidelines for the proper reporting of the PERA transactions. In the absence of the said RMO, no PERA account may be opened.

John Dominee A. Reyes is a supervisor of tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email [email protected]or [email protected]