BIR Ruling

December 12, 1968 Mr. Aspi Calagopi 386 Matienza St. J. P. Laurel, Manila S i r : This refers to your letter dated December 2, 1968 requesting information on a query stated as follows: "I am requesting this information on behalf of an Indian firm of consulting textile engineers, who have at present neither an office nor a representative in the Philippines. "This Indian firm may be receiving shortly a contract from a leading textile mill in the Philippines. In the execution of this contract, a few Indian consultants may come to Manila and reside in the Philippines for a few months. They shall receive part/whole of their salaries and some allowances here. "I would appreciate it, if you could inform me as to the tax laws applicable in the case above as well as to the fees which will be paid to the consulting firm. Would there be a difference if the firm opens an office in the Philippines." In reply, I have the honor to inform you as follows: A foreign corporation not engaged in trade or business in the Philippines, or not having an office or place of business therein, such as the Indian firm adverted to in your query, is subject to the payment of income tax at the rate of 35% on its gross income earned from Philippine sources during each taxable year pursuant to Sections 24(b)(1) and 54 of the National Internal Revenue Code, as amended by Republic Act No. 5431. If the said foreign corporation should open an office or branch here in the Philippines, the same would be treated as a foreign corporation engaged in trade or business in the Philippines and consequently, its entire net income from all sources within the Philippines shall be subject to income tax at the rates prescribed under Section 24(b)(2) of the Tax Code, as amended. Such corporation shall be allowed to deduct from its gross income business expenses incurred in connection with the acquisition of income earned or derived from sources within the Philippines. With respect to the salaries and allowances to be received by the Indian consultants by reason of their employment here in the Philippines, the same are definitely taxable. However, the amount of tax collectible from them individually shall depend on their status as to whether or not they are non-resident aliens engaged in trade or business in the Philippines. If their stay in the Philippines will exceed more than 180 days, their status would be that of non-resident aliens engaged in trade or business in the Philippines. In such case, their entire net income from sources within the Philippines shall be taxable at the rates prescribed by Section 21 of the Tax Code, as amended by Republic Act No. 5325. On the other hand, if their stay in the Philippines will not exceed 180 days, their status would be that of non-resident aliens not engaged in trade or business in the Philippines and they shall be taxable on their entire income from all sources within the Philippines at the rate of 25%, or at the rates prescribed by Section 21 of their total income derived from all sources within the Philippines exceed P43,060.00 but in no case shall the tax be less than 25% of the total income. (Section 22(b), Tax Code, as amended by Republic Act No. 5325). Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue