Rates of Withholding Tax Applied on the Income Derived by Foreign Firms Not Engaged in Trade or Business in the Philippines

May 30, 1974 BIR RULING NO. 010-74 Interest on loans made by non-resident foreign lenders; profits and earnings of foreign firms on their Philippine investments; and earnings of non-resident aliens, other than a foreign corporation, their liability to the withholding tax. Interest on time draft drawn by foreign supplier as payment of Philippine imports, its liability to reduced 15% tax . This refers to your letter dated November 16, 1973 requesting information as to the rates of withholding tax to be applied on the income derived by foreign firms, not engaged in trade or business in the Philippines, which are as follows: "1. Interest on loans made by foreign lenders to Philippine borrowers; "2. Dividends, profits and earnings by foreign firms on their investments in the Philippines; "3. Interest on time drafts or bills drawn by foreign suppliers on Philippine imports in payment of Philippine imports; and "4. Other earnings by non-resident aliens in the Philippines." In reply thereto, I have the honor to inform you as follows: 1. The interest on loans made by foreign lenders, which are non-resident corporations are subject to the 15% withholding tax under Section 53(b) (2) of the Tax Code, as amended by Presidential Decree No. 131. 2. Profits and earnings of foreign firms on their investments in the Philippines are subject to the withholding tax rates as provided under Presidential Decree No. 369, effective January 1, 1974, amending subsection (b) and (d) of Section 24 of the Tax Code. In the case of non-resident foreign corporations, as provided in Subsection (b), the rate of withholding tax is 15% of the dividends received by them "subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends as provided in this section." 3. Interest on time drafts or bills drawn by foreign supplier in payment of Philippine imports on a deferred payment plan is considered by the Central Bank as foreign borrowing and therefore qualifies as a foreign loan subject to the reduced 15% tax pursuant to President Decree No. 131. (See BIR Unnumbered Ruling dated September 27, 1973 ). 4. Earnings of non-resident aliens, other than a foreign corporation, not engaged in trade or business in the Philippines, are subject to the withholding tax rate of 30% under Section 53 (b) (1) of the Tax Code. cdt