Rental Payment for the Continued Use or Possession of Real Property, When Subject to 5% Withholding Tax

August 2, 1991 BIR RULING NO. 143-91 50 9(b) 000-00 143-91 Gentlemen : This refers to your letter dated June 4, 1991 requesting a ruling as to whether rental payments made by your company to Electro Refiners, Inc. are subject to the 5% expanded withholding tax. It is represented that both your company and Electro Refiners, Inc. are BOI-registered companies entitled to income tax holiday for six years pursuant to Executive Order No. 226. aisadc In reply, please be informed that rental payment for the continued use or possession of real property to which the payor or obligor has not taken or is not taking title or in which he has no equity, in the amount of at least five hundred pesos (P500.00) is subject to 5% withholding tax pursuant to Section 1 (e) of Revenue Regulations No. 6-85, implementing Section 50 (b) of the Tax Code. Income tax holiday under Article 39 (a) (1) of Executive Order No. 226, otherwise known as the Omnibus Investment Code, reading: "Art. 39. Incentives to Registered Enterprises . All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment : "(a) Income Tax Holiday "(1) For six (6) years from commercial operation for pioneer firm and four (4) years for non-pioneer firms, new registered firms shall be fully exempt from income tax levied by the National Government. . . ." (Emphasis supplied) applies only to income derived from the active conduct of business of the registered enterprise and not on its passive income like rental, interest or dividends. Such being the case, the rental payments made by your company to Electro Refiners, Inc. shall be subject to the 5% expanded withholding tax. Very truly yours, (SGD.) JOSE U. ONG Commissioner