RA No. 12214: A Comprehensive Breakdown of the Capital Markets Efficiency Promotion Act
- Yasser Aureada
- Jun 23
- 3 min read
Published by Atty. Yasser R. Aureada, CPA
Effective July 1, 2025
With Notes on Presidential Vetoes
In a landmark move to promote capital market growth, reduce tax friction, and modernize tax treatment of investments, Republic Act No. 12214 (Capital Markets Efficiency Promotion Act) amended key sections of the Tax Code. The law focuses on capital gains, documentary stamp taxes, stock transaction tax, excise tax, and penalties for non-compliance.
However, several key provisions were vetoed by the President. This guide reflects only the provisions in effect, making it the most accurate reference for taxpayers, investors, and practitioners.
I. Updated Definitions (Section 22)
RA 12214 redefined several investment-related terms:
Securities now includes:
Asset-backed securities
Investment contracts
Voting trust certificates
Membership certificates in clubs or corporations
Passive Income: Now refers to income that does not require active involvement and is not subject to VAT
Deposit Substitutes: Clarifies that reverse repos with BSP are not covered
Equity-Based Compensation: Gains from stock options, RSUs, etc., are taxable upon exercise
II. Individual Income Tax (Section 24)
Major reforms were introduced to streamline capital gains and passive income taxation:
Type | Old Rule | RA 12214 |
Capital Gains – Unlisted Shares | 15% on domestic shares only | 15% on domestic and foreign unlisted shares |
Royalties | 10% or 20% | Clarified: 10% for books/music, 20% for others |
Mutual Fund Redemptions | Exempt | Still exempt if tax already withheld at the fund level |
III. Corporate Taxation (Sections 27–28)
Category | Old Law | RA 12214 |
Capital Gains – Unlisted Shares | 15% (domestic only) | 15% on domestic and foreign unlisted shares |
Royalties and Interest | Final tax | Reorganized and clarified |
Foreign Currency Income | 10%–15% | Maintained with clarified scope |
VETOED: The provision granting an additional 50% deduction for employer contributions to PERA accounts was vetoed. This incentive is not in force.
IV. Taxation of Nonresidents (Section 25)
Area | Old Rule | RA 12214 |
Capital Gains | Domestic shares only | Now covers foreign unlisted shares |
Final Tax | 25% for non-trade income | Maintained |
Royalties | 10%–20% | Same treatment as residents |
V. Documentary Stamp Tax Reform (Sections 174–199)
Transaction | Old Law | RA 12214 |
Original Share Issuance | ~1% | Now 0.75% of par or consideration |
Debt Instruments | ~0.75% | Now 0.75% of issue price |
Foreign Bonds & Stocks Sold in PH | Previously taxed at full rate | Now 0.75% of transaction value |
VETOED DST EXEMPTIONS:
Foreign-traded shares: The exemption from DST for shares listed and traded in foreign stock exchanges was vetoed.
Mutual Fund and UITF issuances/redemptions: Proposed exemptions under Section 199(o) and (p) were vetoed. These transactions remain subject to DST.
VI. Stock Transaction Tax (Section 127)
Transaction | Old Rule | RA 12214 |
Local Listed Shares | 0.6% | Now only 0.1% STT |
Foreign Listed Shares | Not covered | Now subject to 0.1% STT |
Dealer Sales | Ordinary income | Still taxed as such |
Broker Reporting | Weekly returns | Still required, now includes foreign trades |
This significantly reduces the cost of local stock market transactions.
VII. Filing & Withholding Rules (Sections 51–57)
Capital gains from foreign and domestic unlisted shares must now be:
Reported within 30 days of each transaction
Final return due April 15 (individuals) / 15th day of the 4th month after fiscal year-end (corporations)
Subject to withholding, if applicable, under updated Section 57
VIII. Loss Treatment & Worthless Securities (Sections 34, 38, 39)
Rule | Old Law | RA 12214 |
Wash Sale Disallowance | Dealers only | Extended to licensed financial intermediaries |
Worthless Securities | Capital loss only | Ordinary loss allowed for dealers/intermediaries |
Capital Loss Limitation | Offset only vs. gains | Lifted for licensed debt instrument dealers |
IX. Excise Tax on Automobiles (Section 149)
Category | Old Law | RA 12214 |
Hybrid Vehicles | 50% of regular rate | Retained |
Electric Vehicles | Fully exempt | Retained |
Pick-up Trucks | Exempt | Exemption removed – now subject to excise tax |
X. Criminal Penalties (Section 258)
Provision | Old Law | RA 12214 |
Trigger | Failure to pay registration fee | Broadened to include failure to register at all |
Penalty | P5,000–P20,000 + 6 months–2 years | Same, but expanded scope |
Excise Businesses | Harsher penalties | Retained |
Summary of Presidential Vetoes
Provision | Status |
DST exemption on foreign-listed shares | Vetoed |
DST exemption on mutual funds and UITFs (issuance/redemption) | Vetoed |
50% additional deduction for PERA employer contributions | Vetoed |
Final Takeaways
RA No. 12214 brings:
Lower STT for local and foreign trades
Capital gains tax on both foreign and domestic unlisted shares
Reduced DST rates for debt and equity instruments
Clarified criminal penalties for non-registration
Strengthened enforcement of capital gains reporting
What Should You Do Now?
Review investment structures for new tax exposure on foreign shares
Update compliance calendars to meet new filing deadlines
Adjust DST and STT computation templates
Ensure business registration is up to date to avoid criminal penalties
Need Help with RA 12214 Compliance?
At Aureada CPA Law Firm, we assist individual investors, asset managers, fintech startups, and multinational firms in navigating these updates with precision.
Email: info@aureadafirm.com
Makati & Lucena Offices Website: www.aureadafirm.com
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