The establishment of a trust fund in the Philippines is governed by a robust legal framework primarily rooted in the Civil Code of the Philippines (Articles 1440 to 1457) and the General Banking Law of 2000 (Republic Act No. 8791). For foreign nationals, navigating this landscape requires a precise understanding of the interplay between fiduciary law, constitutional restrictions on property ownership, and evolving tax regulations under the Capital Market Efficiency Promotion Act (CMEPA) of 2025.
I. Legal Nature of the Trust
A trust is a fiduciary relationship where one person, the trustor (or settlor), confers the legal title of a property or fund to another, the trustee, for the benefit of a third party, the beneficiary. In the Philippines, the trustor and the beneficiary may be the same person, and for many foreigners, this serves as a tool for asset protection, estate planning, or investment management.
II. Permissible Trust Structures
Foreigners typically utilize three primary vehicles for establishing trust funds in the Philippines:
- Living Trusts (Inter Vivos): Created during the trustor’s lifetime. These can be Revocable, allowing the trustor to regain the assets, or Irrevocable, which offers higher asset protection but transfers control permanently.
- Unit Investment Trust Funds (UITFs): These are open-ended pooled trust funds denominated in pesos or other currencies, operated by trust departments of banks. Following BSP Circular 1220 (2025), non-residents may participate in UITFs, though certain restrictions apply to the underlying assets if the non-resident participation exceeds 10% of the fund’s net assets.
- Personal Equity and Retirement Account (PERA): While primarily for residents, certain overseas Filipinos and eligible foreigners may use PERA-accredited UITFs. Recent 2025 amendments have excluded PERA UITFs from the 10% non-resident limit to encourage broader participation.
III. Foreign Ownership and the "Anti-Dummy" Law
The most critical restriction for foreigners involves the nature of the trust assets.
- Land Ownership: Under the 1987 Philippine Constitution, foreigners are prohibited from owning private land. Consequently, a foreigner cannot establish a trust to hold legal title to land in their name.
- The Anti-Dummy Law (Commonwealth Act No. 108): Any trust arrangement designed to simulate ownership or grant a foreigner "control and enjoyment" over land or nationalized industries (where foreign equity is limited to 40%) is illegal.
- Permissible Real Estate: Foreigners may, however, hold Condominium Units (under the Condominium Act) or shares in Real Estate Investment Trusts (REITs) through a trust fund. As of the 2026 SEC Revisions, REITs have expanded their qualifying asset classes, offering foreigners a more transparent way to invest in Philippine property markets.
IV. Regulatory and Compliance Requirements
The Bangko Sentral ng Pilipinas (BSP) and the Anti-Money Laundering Council (AMLC) maintain strict oversight over trust operations.
- KYC and Documentation: Foreigners must provide valid identification, such as an Alien Certificate of Registration (ACR I-Card) for residents or a valid passport for non-residents.
- Inward Remittance: For non-residents, funds used to establish a trust must be inwardly remitted through Authorized Agent Banks (AABs) and registered with the BSP to ensure future repatriability of the principal and earnings.
- Trustee Qualification: While individuals can be trustees, most foreigners opt for institutional trustees (the Trust Departments of major Philippine banks) due to their specialized licensing and compliance with BSP standards.
V. Taxation of Trust Funds
As of July 1, 2025, the tax regime for trust funds has been streamlined:
| Income Type | Tax Rate (2026) |
|---|---|
| Interest Income | Flat 20% Final Tax on peso-denominated trust funds. |
| Dividends | 25% Final Tax for non-resident aliens not engaged in trade or business (may be lower if a tax treaty exists). |
| Stock Transaction Tax | Lowered to 0.1% for shares traded on the Philippine Stock Exchange. |
| UITF Redemptions | Generally exempt from certain documentary stamp taxes to promote liquidity. |
VI. Procedural Steps for Establishment
- Selection of Trustee: Engage a BSP-licensed trust entity or a qualified individual.
- Execution of the Trust Agreement: This document must clearly state the purpose, the assets involved, the duration, and the specific powers of the trustee.
- Tax Identification Number (TIN): The trust itself may need a separate TIN if it is treated as a separate taxable entity (usually for irrevocable trusts).
- Funding: Transfer of assets. For cash, this involves opening a settlement account. For securities, it involves a change in registration to "Trustee's name, FAO (For the Account of) [Name of Trust]".
VII. Estate Planning Implications
A trust fund is a powerful tool for bypassing probate. Assets held in a trust do not form part of the trustor's "estate" for purposes of court-supervised distribution, allowing for a more seamless transfer to heirs. However, for foreigners, the trust must still respect Philippine compulsory heirship laws (legitimes) if the trustor is a resident or if the assets are located in the Philippines, unless the national law of the foreigner dictates otherwise.