On April 29, Revenue Regulations (RR) No. 15-2025 was issued, revising and clarifying the tax treatment of private retirement benefit plans. This RR updates both employers and employees, highlighting the tax incentives granted to qualified retirement benefit plans and underscoring the need for strict compliance to fully avail of such privileges.
GOVERNING LAWS AND REGULATIONS
Retirement planning has long been regarded as a cornerstone of an employee’s financial security. In acknowledgement of this, the Tax Code, as amended, provides specific tax incentives for private retirement benefit plans. These incentives not only promote employee welfare but also encourage employers to establish and maintain retirement benefit schemes for their workforce.
As the Supreme Court has aptly stated, “Retirement benefits are a form of reward for an employee’s loyalty and service to an employer and are earned under existing laws, collective bargaining agreements (CBA), employment contracts, and company policies.”
RR No. 15-2025 builds upon this legal framework by consolidating, clarifying, and emphasizing the rules governing these plans. Its primary objective is to restate the requirements for tax qualification and to provide certainty on the tax-exempt status of both the retirement benefits received by employees and the income earned by the retirement fund’s investments.
Republic Act (RA) No. 4917 governs the retirement benefits of employers with reasonable private benefit plans. To encourage employers to establish private retirement plans, tax incentives and privileges were granted under this law, implemented by RR No. 1-1968, issued after RA No. 4917 became law on June 17, 1967.
Now, decades later, the Secretary of Finance has issued the Revised Private Retirement Benefit Plan Regulations through RR No. 15-2025, providing an updated regulatory framework aligned with current practices.
SCOPE AND COVERAGE
The regulations apply specifically to private retirement benefit plans that meet the qualifications prescribed by the BIR. To enjoy the tax incentives under RR No. 15-2025, the retirement plan must:
i. be approved by the BIR; and
ii. possess a valid certificate of tax qualification issued by the BIR.
Only those plans satisfying these requirements are deemed Tax-Qualified Plans (TQPs) and therefore eligible for the tax benefits provided under the regulations. The employer must apply with the BIR, through the Legal and Legislative Division at the National Office, for the issuance of the certificate of qualification for tax exemption of the employee retirement benefit plan (Certificate of Qualification) within 30 days from the date of effectivity of the retirement benefit plan. Otherwise, a penalty will be imposed upon the employer under the existing rules and regulations. The issued Certificate of Qualification is valid until revoked by the BIR.
This issuance forms part of the government’s ongoing efforts to promote transparency and regulatory clarity, particularly in matters involving tax exemptions.
KEY FEATURES OF RR NO. 15-2025
1. Tax exemption on retirement benefits
Any amount received by an official or employee as a consequence of retirement under a BIR-approved and tax-qualified plan is exempt from income tax. Similarly, such amounts are not subject to withholding tax, allowing retirees full access to their benefits without the burden of taxation.
This exemption is anchored in Section 32(B)(6)(a) of the NIRC, which has long exempted properly constituted retirement benefits from taxation, provided they comply with BIR regulations. RR No. 15-2025 merely reiterates and strengthens this established principle.
2. Tax exemption on trust investment income
In addition to the exemption of retirement benefits, RR No. 15-2025 clarifies that the income earned by the trust fund investments of a tax-qualified retirement plan is also exempt from income tax, pursuant to Section 60(B) of the NIRC. This exemption applies provided that:
• The income is earned by a trust forming part of a pension, stock bonus, or profit-sharing plan;
• The trust fund is for the exclusive benefit of employees; and
• The trust complies with the investment limitations set forth by existing BIR issuances.
This provision ensures that the growth of retirement funds remains intact and undiminished by tax obligations, thereby safeguarding the financial future of employees participating in the plan.
3. Deductibility of employer contributions
The regulation also reaffirms that an employer with a TQP may deduct contributions to such a plan from its gross income pursuant to Section 34(J) of the Tax Code. These contributions may consist of:
• Contributions to cover the Normal Cost, or the pension liability accrued during the taxable year; and
• Contributions in excess of the Normal Cost, provided that such excess contributions (1) have not previously been allowed as a deduction and (2) are amortized in equal parts over 10 consecutive years beginning with the year of contribution.
4. Reinforcement of compliance requirements
A significant feature of RR No. 15-2025 is its clear emphasis on compliance. The regulation categorically states that tax exemptions cannot be availed of without both BIR approval and a valid certificate of tax qualification. This requirement protects against potential abuse of the tax-exempt privilege by ensuring that only legitimate, properly structured, and compliant retirement plans benefit from these incentives.
For employers, this means that internal compliance units and human resource departments must proactively ensure that their retirement plans meet all the documentation and qualification requirements set by the BIR.
BENEFITS FOR STAKEHOLDERS
• For Employees: The regulation guarantees that retirement benefits received from tax-qualified plans remain protected from tax liabilities, allowing retirees to fully enjoy the fruits of their years of service.
• For Employers: RR No. 15-2025 encourages the establishment and maintenance of private retirement plans by ensuring that employer contributions enjoy favorable tax treatment. Such plans also serve as valuable employee benefits, enhancing morale and retention.
• For the government and the BIR: The regulation supports national goals of enhancing employee welfare while simultaneously ensuring proper tax compliance and closing gaps for potential misuse of tax exemptions.
CONCLUSION
RR No. 15-2025 reflects the government’s continuing commitment to protecting retirement savings and promoting regulatory compliance within the private sector. By clearly defining the conditions for tax exemption, it removes ambiguities that could lead to inconsistent application or misunderstanding of the law.
Employers are reminded of their duty to secure both BIR approval and a valid certificate of tax qualification for their retirement plans. Employees, on the other hand, are assured that upon compliance with these conditions, their retirement benefits will remain free from tax obligations.
This regulation represents a significant step by the Department of Finance and the BIR in modernizing and clarifying decades-old provisions. As retirement planning becomes increasingly relevant in light of evolving economic conditions, RR No. 15-2025 stands as a timely and welcome development, reinforcing the importance of sound financial planning supported by fair and consistent tax policy.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Kim M. Aranas is a director of the Tax Advisory & Compliance Practice Area at the Cebu Office of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.
business.development@ph.gt.com
