BIR clarifies rules on early PERA withdrawals

The Bureau of Internal Revenue (BIR) in the Philippines has clarified the rules surrounding early withdrawals from Personal Equity and Retirement Accounts (PERA). According to Revenue Memorandum Circular 91-2026, the 20 percent Early Withdrawal Penalty (EWP) will only apply to the income generated by the specific portion of the account that is withdrawn.

Income, unrealized gains and other assets that remain invested are not subject to this penalty. The BIR Commissioner, Charlito Martin Mendoza, explained that this rule allows investors to manage one part of their PERA without exposing the rest of their retirement portfolio to the penalty. The remaining PERA investments are left intact, while the 20 percent EWP and the recovery of a five percent tax credit only apply to the assets that are actually withdrawn.

PERA is a voluntary retirement savings program established under Republic Act 9505, offering tax incentives to individuals and their employers for saving towards retirement. The program aims to complement existing retirement and social protection systems, such as the Social Security System and the Government Service Insurance System.

BIR Commissioner Mendoza emphasized that the clarification aligns with the BIR's taxpayer-centric approach under its DARES initiative, focusing on clearer rules, predictable tax administration, and improved taxpayer service. This move is in line with President Marcos and Finance Secretary Frederick Go's efforts to enhance the ease of doing business and bolster investor confidence.

The responsibility of calculating, withholding, reporting and remitting the early withdrawal penalty under the new rules falls on PERA administrators.