RMC No. 88-2012: Clarifies the tax treatment of stock option plans

Summary

RMC No. 88-2012 clarifies the tax treatment of income or gain an employee derives from exercising stock option plans, citing BIR Ruling No. 119-2012.

Key points

1. Compensation or fringe benefit. Per BIR Ruling No. 119-2012, income or gain from exercising stock options is additional compensation subject to Income Tax and withholding tax on compensation. For managerial and supervisory employees, it is subject to fringe benefit tax under Section 33 of the NIRC if it qualifies as a fringe benefit.
2. Amount taxed. The amount is the difference between the higher of book value or fair market value of the shares at exercise and the price fixed on the grant date. This applies to shares of a domestic or foreign corporation.
3. Original issuance. If shares come from the issuer’s unissued shares, their original issuance is subject to Documentary Stamp Tax (DST).
4. Later sale of the shares. Gain on unlisted shares of a domestic corporation is subject to Capital Gains Tax, and the transfer is subject to DST. Listed and traded shares are subject to stock transaction tax, and gain on shares of a foreign corporation is subject to ordinary Income Tax.

Who is affected

• Employees who exercise stock options
• Managerial and supervisory employees granted stock options

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.