Preferential Final Income Tax Rates Applicable to Alien Employees of Service Contractors and Subcontractors

September 2, 1985 BIR RULING NO. 155-85 22 027-85 155-85 S i r : This refers to your letter dated July 3, 1985 requesting information as to whether P.D. No. 1354 which imposes preferential final income tax rates on subcontractors and alien employees of service contractors and subcontractors engaged in petroleum operations in the Philippines under P.D. No. 87. In reply, please be informed that pursuant to Section 2 of P.D. No. 1955, and to clarify further the scope of said decree, the Ministry of Finance issued its Ministry Order No. 39-84 which provides that the withdrawal of exemptions from, or any preferential treatment in the payment of duties, taxes, fees, imposts and other charges as provided for under P.D. No. 1955 does not apply to exemptions or preferential treatment embodied, among others, in the National Internal Revenue Code, as amended. Such being the case, the preferential final income tax rates applicable to said alien employees of service contractors and subcontractors imposed under P.D. No. 1354 which is now provided under the National Internal Revenue Code, has not been withdrawn by P.D. No. 1955. In other words, said aliens who are permanent residents of a foreign country but who are employed and assigned in the Philippines by service contractors or by subcontractors engaged in petroleum operations in the Philippines shall remain subject to the preferential final income tax rate of fifteen per centum (15%) imposed by Section 22(e) of the Tax Code, as amended on their salaries, wages, annuities, compensations, remunerations and other emoluments, such as honoraria and allowances, received from such contractors or subcontractors. Any income earned from all other sources within the Philippines by the said alien employees shall be subject to the income tax imposed under the National Internal Revenue Code. However, the exemption and/or preferential income tax treatment (8% income tax on the gross income which is in lieu of any and all taxes), granted under P.D. No. 1354 to the said subcontractor whether domestic or foreign, entering into a contract with a service contractor engaged in petroleum operations in the Philippines, is not provided in the National Internal Revenue Code. Such being the case, the aforementioned subcontractor shall now be subject to the corresponding taxes imposed under the National Internal Revenue Code. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner