CMEPA: Capital markets reimagined

Republic Act 12214, known as the Capital Markets Efficiency Promotion Act (CMEPA), represents a significant legislative advancement aimed at bolstering the capital markets within the Philippines. It was signed into law by President Marcos on May 29, 2025, and took effect on July 1, 2025.  The Act underscores the importance of an optimal taxation system for capital markets, which is essential for the sustained growth of the national economy. It strives to establish a simpler, fairer, and more competitive passive income tax system to promote trust and voluntary compliance within the taxation framework.

The Act introduces changes to tax rates on various forms of passive income, specifically interest, dividends, and royalties. Dividends are now taxed at a uniform final rate of 10 percent, offering a more streamlined approach to dividend taxation. Interest and royalties are subject to a final tax rate of 20 percent, except for royalties related to books, other literary works and musical compositions, which remain at a final rate of 10 percent. Interest income from foreign currency deposits is also now taxed at an increased final tax rate of 20 percent, up from the previous tax rate of 15 percent. The updated tax rules apply to citizens, resident aliens, nonresident aliens engaged in trade or business in the Philippines, domestic corporations and resident foreign corporations. Meanwhile, nonresident aliens not engaged in business and nonresident foreign corporations continue to be taxed at a 25 percent final tax rate on all Philippine-sourced income.

Additionally, capital gains from the sale or other disposition of domestic and foreign shares not traded on the stock exchange are now taxed at a uniform rate of 15 percent, creating a consistent and fair tax structure. In contrast, the stock transaction tax on the sale or exchange of shares listed and traded on local or foreign stock exchanges has been significantly lowered from 0.6 percent to 0.1 percent of the gross selling price or gross monetary value.

CMEPA introduces amendments to the documentary stamp tax, specifically impacting transactions related to shares of stock, bonds and other debt instruments. The documentary stamp tax has been reduced from one percent to 0.75 percent of the shares’ par value for the original issuance of shares of stock. This aims to standardize and simplify the documentary stamp tax while lowering the cost of capital.

Further, an additional deduction of 50 percent of the private employer’s actual contributions to a Personal Equity and Retirement Account (PERA) is allowed, provided that the said employer contributes at least an amount equal to the contributions of their employees. This deduction is subject to the maximum allowable contribution of P100,000, or its equivalent in any convertible foreign currency. This amendment aims to incentivize those private employers who support their employees’ retirement savings, which enhances the overall retirement security of workers in the Philippines.

In conclusion, CMEPA is a landmark reform that seeks to modernize the financial landscape of the Philippines. By simplifying and optimizing the taxation system, particularly in the realm of financial income, CMEPA seeks to foster an environment conducive to growth and competitiveness in capital markets. The Act underscores the importance of equitable taxation, encouraging savings and investment, and enhancing the capacity of corporate entities to raise capital efficiently. As the nation moves forward, CMEPA promises to be a cornerstone in the pursuit of economic progress, aligning the Philippines with global standards while promoting financial inclusion and stability. With its implementation, CMEPA is poised to reimagine the financial sector, offering new opportunities and reinforcing trust in the taxation system—a testament to the country’s commitment to sustainable economic development.

Jemica E. Magbanua is an associate from the MPS team under the Tax Group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Jemica E. Magbanua or Manuel P. Salvador III through [email protected], social media or visit www.home.kpmg/ph.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.