Aliens Employed by Regional or Area Headquarters of Multinational Corporations, Required to File Income Tax Return

January 24, 1984 BIR RULING NO. 011-84 22-c-000-00-011-84 S i r : This refers to your letters dated September 2 and 19, 1983 stating that your client, The Development Consultants International, Ltd., (DCIL), a foreign corporation organized under the laws of HongKong was licensed by the Securities and Exchange Commission to establish a Regional/Area Headquarters in the Philippines under P.D. 218; and that said Regional Office will not derive any income from sources within the Philippines. Based on the foregoing facts, you request information on the following queries: "1. Is it necessary for the Regional Office to file an Income Tax Return at the end of the year, as required by the Internal Revenue Code for foreign corporation? If it is not so required, what reportorial requirements, if there is any, need be filed with the BIR? "2. Is the fifteen per centum tax imposed on the gross income of the officers of the Regional Office payable at the end of year or, is it payable within the period prescribed for the payment of withholding tax? "(a) Is the tax mentioned under (2) a final tax? If not, are the officers of the Regional Office entitled to claims for exemptions and deductions? "3. Are the Regional officers required to file Income Tax Return at the end of the calendar year? "4. If the answer under No. 3 is in the affirmative, what is the BIR prescribed Form to be used and Date of Filing of said Income Tax Return?" In reply, please be informed as follows: 1. Pursuant to Section 24(b)(1)(vi) of the Tax Code, as amended, regional or area headquarters established in the Philippines by multinational corporations and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific Region shall not be subject to tax. Accordingly, if as represented, your client's regional/area headquarters in the Philippines will not derive any income therefrom, it shall be exempt from Philippine income tax as well as from the filing of the corresponding corporate income tax return. 2. In the case of aliens employed by regional or area headquarters established in the Philippines by multinational corporations, there shall be deducted and withheld a tax of 15% on their gross salaries, wages, annuities, compensations, remunerations and emoluments received from such regional headquarters in accordance with the withholding tax on wages provisions of Chapter XI, Title II of the Tax Code as amended, by B.P. Blg. 135. (See also Sec. 22(c), Tax Code, Sec. 4, P.D. 218.) Pursuant to Section 7, paragraph III of Revenue Regulations No. 6-82 the responsibility of withholding, returning and paying the tax and furnishing the statements required are governed by said regulations. Hence, the 15% withholding tax is not payable at the end of the year but within the period prescribed in said regulations. Moreover, since the alien employees are subject to 15% tax based on their gross income, they are not entitled to claim personal and additional exemptions as well as deductions. The 15% tax is not a final tax. Since the gross income of aliens employed by regional or area headquarters established in the Philippines by multinational corporations is subject to the withholding tax on wages provisions of the National Internal Revenue Code and their implementing regulations, they are therefore, required to file an income tax return (BIR Form 1701) on or before the 18th day of March of each year, covering income which should be at least P3,000.00 for the preceding taxable year pursuant to Section 45(a)(1)(B) and (c)(1) of the Tax Code as amended. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner