25 June 2013
Jord Jharoah B. Valenton 3rd Floor, Libran House
Ilie Lionel B. Gramata Building
Rhouan S. Loseriaga PAUL E. HARRIS 144 Legaspi corner Rufino Streets
Legaspi Village, Makati City 1229
General Manager Philippines
Michael Samuel C. Tulay
Provoke Solution
Francisco D.P. L. Salazar
Tel. No. +632 403-9647
Telefax No. +632 501-5672
Franklin C. del Castillo Jr.
ATTENTION: MR. PAUL E. HARRIS e-mail:
[email protected]Joyce Elaine H. Laohoo
Ramon Felipe T. Bernardino www.vglaw.com.ph
Mark Lester DG. Tamondong SUBJECT: REQUEST FOR LEGAL
OPINION
Sirs/Mesdames:
This has reference to your request for opinion on
(1) whether or not a foreigner who wanted to be
employed in the Philippines can be taxed lesser than
the 32% income tax rate, (2) whether or not a foreigner
be employed as a regional head in order to be taxed
with 15% income tax rate.
After a careful and deliberate review of pertinent
provisions of the law and revenue regulations, we have
narrowed down the answer to your query
1. Generally, the Tax Code imposed the tax rate of
5% to 32% to s resident foreigner and a non-resident
foreigner who engaged in business in the Philippines for
all income derived within the Philippines.
A. Resident Foreigner (Alien)
It is provided by the Tax Code that resident
foreigners (aliens) are taxed on taxable
compensation income received from all sources
within the Philippines, similar to the rate for
resident citizen. Hence, they are subject to 5% to
32%.
B. Non-resident Foreigner (Alien).
1. A non-resident foreigners engaged or
not engaged in trade or business in the
Philippines shall be subjected to a tax rate of 5%
to 32% on taxable compensation income.1
A foreigner is considered as a
nonresident alien individual if he
comes to the Philippines and stays
therein for an aggregate period of
more than one hundred eighty
(180) days during any calendar
year.2
C. In order to have a tax rate better than
the 32%, foreign individual may engage
himself as a management and technical
consultant which is subject to tax rate of
10% as provided in the expanded
withholding tax.
2. Tax Code imposed 15% preferential tax rate on
foreign individuals employed by Regional or Area
Headquarters and Regional Operating Headquarters of
Multinational Companies. They shall be taxed on gross
income derived from such employment.
x x x shall be levied,
collected and paid for each taxable
year upon the gross income
received as salaries, wages,
annuities, compensation,
remuneration and other
emoluments, such as honoraria
and allowances, from such
regional or area headquarters and
regional operating headquarters, a
tax equal to fifteen percent (15%)
of such gross income: Provided,
however, That the same tax
treatment shall apply to Filipinos
employed and occupying the same
position as those of aliens
employed by these multinational
companies.3
A. Revenue Regulation No. 2-98 provides
that in order to avail the 15% preferential tax rate
the foreign individual must occupy a managerial
and technical position in Regional or Area
Headquarters and Regional Operating
Headquarters of Multinational Companies, to wit:
1
Section 25 (A), NIRC
2
Section 25 (A), NIRC
3
Section 25 (C), NIRC
x x x final withholding tax
equivalent to fifteen percent (15%)
shall be withheld by the
withholding agent from the gross
income received by every alien
individual occupying managerial
and technical positions in
regional or area headquarters and
regional operating headquarters
and representative offices
established in the Philippines by
multinational companies as
salaries, wages, annuities,
compensation, remuneration, and
other emoluments, such as
honoraria and allowances, except
income which is subject to the
fringe benefits tax, from such
regional or area headquarters and
regional operating headquarters.
B. In Revenue Memorandum
Circular No. 41-2009, the BIR defines
managerial and technical position, thus:
a. Managerial employee is one who is vested
with powers or prerogatives to lay down and
execute management policies and/or to hire,
transfer, suspend, lay-off, recall, discharge,
assign or discipline employees.
b. Technical position is limited only to
position which are highly technical in nature or where
there are no Filipinos who are competent, able and
willing to perform the services for which the aliens
desired.
