Exemption of Japanese Contractors and Their Foreign Personnel from Philippine Taxes

November 21, 1990 BIR RULING NO. 215-90 25 251-88 215-90 Gentlemen : This refers to your letter dated July 10, 1990 stating that your client, Toyo Menka Kaisha, Ltd. (Toyo Menka) and Japan Radio Co. Ltd. (Japan Radio) are corporations incorporated under Japanese Laws; that Toyo Menka as agent and duly authorized representative of Japan Radio entered into the Contract for the Establishment of Flood Forecasting and Warning System for Dam Operation Project II (Contract B) Contract No. Pagasa (89) 1 with the Philippine Atmospheric, Geophysical and Astronomical Services Administration (Pagasa), the Implementing Agency for the Philippine-Japan Loan Assistance Program of the Philippine Government for the Project; that in an Exchange of Notes dated December 23, 1985, between the Governments of the Philippines and Japan, the latter extended project loans to the former through the Overseas Economic Cooperation Fund (OECF) to implement the projects listed in the Project List attached to the Notes; that one of the projects is the Flood Forecasting and Warning System for Dam Operation Project II; that the loan was extended to cover payments to be made by Pagasa to suppliers, contractors and/or consultants for the purchase of goods and services required for the project; and that Japan Radio is the prime manufacturer which will undertake substantial part of the works required for the project. aisadc In connection therewith, you now request confirmation of your opinion as follows: "(1) Toyo Menka, Japan Radio and their Japanese Subcontractors and suppliers, if any, are not subject to Philippine corporate income tax nor are payments to them with respect to the supply of products and services to be provided by them under the contract be subject to any Philippine withholding tax as source, expanded withholding tax or any withholding tax of whatever nature; Japanese contractors and their foreign personnel are not liable to Philippine taxes. Such being the case, and since your client, Toyo Menka as agent and duly authorized representative of Japan Radio and Japan Radio are undertaking OECF assisted projects in the Philippines specifically the Contract For The Establishment of Flood Forecasting and Warning System For Dam Operation Project II (Contract B) Contract No. PAGASA (89)-1, they are not liable to the corporate income tax imposed under Section 25 (a)(1) of the Tax Code, on resident foreign corporations engaged in trade or business within the Philippines nor to the 10% value-added tax on their imported equipment as well as for their sale of services related to the aforementioned project pursuant to Sections 101 and 102 of the Tax Code, as amended. Moreover, their foreign personnel shall also be exempt from the individual income tax prescribed under Section 22 of the same Code, as amended. Finally, Toyo Menka and Japan Radio are not required to file quarterly income tax returns and final or adjustments returns on income derived from the aforesaid project. Likewise, their foreign personnel are not also required to file individual income tax returns on income also derived from the said project. cdtech Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner