Exemption from Philippine Income Tax and Consequently to the 35% Withholding Tax

August 28, 1989 BIR RULING NO. 187-89 36-c-3 345-88 187-89 Gentlemen : This refers to your letter dated May 15, 1989 requesting confirmation of your opinion to the effect that the professional service fees to be paid by your client, Shangri-la Properties, Inc. (SLPI) to KNW Architects & Engineers, Ltd. (KNW) for professional/architectural services to be performed in HongKong are not subject to Philippine income tax and consequently to the 35% withholding tax. It is represented that SLPI is a real estate development corporation duly organized and existing under and by virtue of the laws of the Philippines; that KNW is a partnership of architects duly organized and existing under and by virtue of the laws of HongKong; that SLPI will engage the services of KNW in connection with the proposed construction of the EDSA Commercial Complex which comprises of a shopping center, office tower, apartments and parking building; that SLPI has likewise engaged the services of a local architect as its principal architect; that this local architect shall be responsible for overall planning, detailed design, pre-contract services and supervision of construction; that the services to be rendered by KNW consist of the preparation of the conceptual design and schematic and architectural design and partial development of detailed floor plans, sections, elevations, and finishes schedules with advisory input to ensure consistency of the detailed design with the original concept; and that these services will be rendered in HongKong. In reply thereto, I have the honor to inform you that the professional service fees paid by SLPI to KNW constitute compensation for labor or personal services performed without the Philippines. As such, the same is considered income from sources without the Philippines [Sec. 36 (c)(3), Tax Code]. Accordingly, and since KNW which is a non-resident foreign corporation is subject to income tax only on income from sources within the Philippines, said professional service fees are not subject to Philippine income tax consequently to the 35% withholding tax. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner