China National Technical Imp. & Exp. Corporation

April 23, 2007 BIR RULING [DA-252-07] DA 393-03 China National Technical Imp. & Exp. Corporation Unit 901, 9th Floor West Tower PSE Tektite Building, Ortigas Center Pasig City Attention: Gao Zhan Deputy Chief Representative Gentlemen : This refers to your letter dated February 5, 2007 stating that China National Technical Import & export Corporation is a foreign corporation organized and existing under the laws of Peoples Republic of China duly licensed by the Securities and Exchange Commission (SEC) under SEC Registration No. A200008016 dated November 24, 2000 to act as coordinating office with the Asian Development Bank for the purpose of conducting a continuing research on Philippine business data and market research information relative to the acquisition of Chinese technology on any industrial project for the parent company's various foreign clients; that it is likewise registered with the BIR with Tax Identification Number (TIN) 242-972-504-000 under Certificate of Registration No. OCN3R0000354930 dated January 18, 2006; and that a Certificate of Authority No. 1942 dated April 28, 1989 was issued by the Board of Investments. In connection therewith, you now request exemption from the payment of income tax and other corresponding taxes since China National Technical Import & Export Corporation is a representative office and not engaged in trade or business in the Philippines. SHTEaA In reply thereto, please be informed that a representative office is a non-resident foreign corporation not engaged in any income generation business in the Philippines. As can be viewed from its licensed activities, China National Technical Import & Export Corporation is a representative office. Accordingly, it is not subject to income tax. Hence, it is exempt from filing of the corporate income tax return. (BIR Ruling No. 136-89 dated July 4, 1989) A person is subject to VAT if it renders service 'in the course of trade or business' (Section 105 of the Tax Code of 1997, as amended). Inasmuch as the operation of the representative office is similar to regional or area headquarters of multinational corporations which are exempt from VAT under Section 4.109-1 (B) (1) (j) of Revenue Regulations No. 16-2005, implementing Republic Act (R.A.) No. 9337, representative offices are also exempt from VAT. Moreover, since China National Technical Import & Export Corporation is not engaged in any income-generating activity in the Philippines and it further qualifies said office for exemption from VAT. However, this exemption applies only to VAT directly due from representative offices. (VAT Ruling No. 234-88 dated May 25, 1988 and BIR Ruling No. 136-89 dated July 4, 1989) On the other hand, please be advised that if you will remit technical service fees to your parent company, the said fees are considered royalties (Section 42 (A) (4) (f) of the Tax Code of 1997). Being Philippine source income of a representative office, the technical service fees are subject to Philippine corporate income tax at the rate of 32% which you will withhold as the payor-corporation and paid in the same manner and subject to the same conditions as provided in Section 59 of the Tax Code of 1997. (Sec. 58, Ibid ) (BIR Ruling No. 136-89 dated July 4, 1989) Moreover, you are further advised that if you have employees, they are subject to the following rates pursuant to Section 2.57.1 (D) of Revenue Regulations No. 2-98, as amended, implementing Section 58 of the Tax Code of 1997. cACEaI a. If a Filipino citizen, whether resident or non-resident, or a resident alien graduated tax rates of 5%-32%; b. If a non-resident alien engaged in trade or business in the Philippines graduated tax rates of 5%-32%; c. If a non-resident alien not engaged in trade or business in the Philippines 25% (BIR Ruling No. DA032-02 dated March 7, 2002). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service