Capital Markets Efficiency Promotion Act (CMEPA): Key Implications on Taxation of Shares

Strategic Insights -

The Republic Act 12214, also known as the Capital Markets Efficiency Promotion Act (CMEPA), implemented significant changes to the taxation of capital markets and products on July 1, 2025. The new law simplified and made taxation more efficient, fair, and competitive. The changes affected the taxation of passive income, including interests, dividends, capital gains, and royalties, as well as the Documentary Stamp Tax (DST) and Capital Gains Tax (CGT).

Key Takeaways:

  • The CMEPA modified the taxation of passive income, including interests, dividends, capital gains, and royalties, making it simpler, fairer, and more efficient.
  • The Documentary Stamp Tax (DST) rate on the original issuance of shares of stock is now 0.75 percent of the par value or actual consideration, down from the previous rate of P2 for every P200 of par value.
  • The DST on the sale or transfer of shares remains at P1.50 for every P200 of par value or 50 percent of the DST paid upon original issue for shares sold without par value.
  • The new law exempted the original issuance, redemption, and other dispositions of shares in a mutual fund company from DST.
  • Capital Gains Tax (CGT) remains at 15 percent, imposed on the net capital gains derived from the sale, exchange, or other disposition of shares of stock.
  • Gains derived from the disposition of shares issued by foreign corporations may also be covered by CGT, except shares sold or disposed of through a stock exchange.
  • Shares listed and traded in both local and foreign exchanges are outside the coverage of CGT.
  • Stock Transaction Tax (STT) rate was reduced from 0.60 percent to 0.10 percent of the gross selling price or gross value in money, and applies to sale or transfer of shares listed and traded through local stock exchanges and foreign stock exchanges.
  • The rules do not apply if the seller is regularly involved in the trading of securities, and income derived from the sale of shares by a dealer in securities is considered ordinary income and subject to regular income tax.

Statistics:

  • The new DST rate on the original issuance of shares of stock is 0.75 percent of the par value or actual consideration.
  • The DST on the sale or transfer of shares is P1.50 for every P200 of par value or 50 percent of the DST paid upon original issue for shares sold without par value.
  • The Capital Gains Tax (CGT) rate remains at 15 percent.
  • The STT rate was reduced from 0.60 percent to 0.10 percent of the gross selling price or gross value in money.
  • The number of shares exempted from DST is not specified.

Sources:

  • Republic Act 12214, or the Capital Markets Efficiency Promotion Act (CMEPA)
  • TRAIN Law (RA 10963)
  • Du-Baladad and Associates Law Offices (BDB Law)