Final Tax of 30% on the Total Amount of Royalties

February 20, 1989 BIR RULING NO. 026-89 22 000-00 026-89 Gentlemen : This refers to your letters dated November 25, 1988 and January 30, 1989, stating that your client, Mr. George A. Scholey, a U.S. citizen, is a non-resident alien engaged in trade or business in the Philippines; that he is receiving royalty income from the Philippines; and that he intends to apply as tax credit against his Arizona income taxes, the taxes on royalties withheld in the Philippines, that to avail of the tax credit, he should be able to show that the royalties which were formerly includible as part of gross income are subject to the final withholding tax. cdtech In reply thereto, please be informed that prior to Batas Pambansa Blg. 135 which took effect on January 1, 1982, non-resident aliens engaged in trade or business in the Philippines were then subject to income tax upon their entire net income received from all sources in the Philippines pursuant to then Section 22(a) of the Tax Code. In computing their net income, there shall be allowed from gross income computed under Section 29, the deductions prescribed under then Sec. 30. The royalties received form part of the said gross income. However, upon the effectivity of B.P. Blg. 135, royalties were subjected to a final tax of 30% on the total amount thereof which shall be collected and paid as provided in then Section 53 and 54 of the Tax Code, as amended. Said withholding tax is a device to insure the collection by the Philippine Government of the tax on said royalties derived from sources in the Philippines by those who are outside of the taxing jurisdiction of this country. (Commissioner vs. Malayan Insurance Co., G.R. No. L-21913, Nov. 18, 1967). cd Very truly yours, (SGD.) JOSE U. ONG Commissioner