International Education Specialist

August 25, 2009 BIR RULING [DA-(VAT-076) 476-09] Sections 22 (1) & 28 (B) (1); DA-393-2003 International Education Specialist 2/F Trafalgar Plaza H.V. dela Costa St., Salcedo Village Makati City Attention: H. Bartholomew Founder Gentlemen : This refers to your letter dated February 8, 2008, indorsed to this Office by BIR Revenue Region No. 8, requesting exemption from the payment of value-added tax (VAT). Documents submitted disclosed that International Education Specialist ( Inter-Ed Specialist, for short), is registered with the Department of Trade and industry on October 17, 2005; that as per Certification issued by the Ministry of Education and Culture Manila on September 28, 1981, Inter-Ed Specialist is an educational association representing a group of regionally accredited institution of post-secondary higher education in the U.S.A.; that it serves as a direct extension overseas of the admission office of each of the colleges, institutes and universities represented in the program; and that Inter-Ed Specialist services Filipino students seeking for placements at any of the institutions in the U.S.A. In reply, please be informed that a representative office is a non-resident foreign corporation not engaged in any income generating business in the Philippines. Based on the above representation, since Inter-Ed Specialist does not intend to engage in any income generating activity, it shall not be subject to income tax. Consequently, it is exempt from the filing of the corporate income tax return. (BIR Ruling No. 136-89 dated July 4, 1989) SETaHC A person is subject to VAT if it renders service "in the course of trade or business" (Section 105, 1997 Tax Code). Inasmuch as the operation of the representative office is similar to regional or area headquarters of Multinational Corporation which are exempt from VAT under Section 109 (p) of the 1997 Tax Code, representative offices are also exempt from VAT. Moreover, since Inter-Ed Specialist merely enables the overseas head office to maintain some presence in the country, and is not engaged in any income-generating activity in the Philippines 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 the Representative Office will remit technical service fees to its parent company, the said fees are considered royalties [Section 42 (A) (4) (f), 1997 Tax Code]. Being Philippine-sourced income of a representative office, the technical service fee are subject to Philippine corporate income tax at the rate of 35% [Section 28 (B) (1) of the Tax Code of 1997) which shall withhold as the payor-corporation and shall be paid in the same manner and subject to the same conditions as provided for in Section 59 of the 1997 Tax Code. (BIR Ruling No. 136-89 dated July 4, 1989) Also, you are advised that employees of the said representative office are subject the following rates pursuant to Section 2.57.1 (D) of Revenue Regulations No. 2-98, as amended, implementing Section 58 of the 1997 Tax Code: a. If a resident Filipino citizen or a resident alien-graduated tax rates of 5-35%; b. If a non-resident alien engaged in trade or business in the Philippines-graduated rate of 5-35%; c. If a non-resident alien not engaged in trade or business in the Philippines 25% (BIR Ruling No. DA-032-02 dated March 7, 2002) for compensation income received within the Philippines. 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. AScTaD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service