Taxability of an Outward Remittance

October 31, 1989 BIR RULING NO. 221-89 36 (c) (3) & 36 (a) (3) 000-00 221-89 Gentlemen : This refers to your letter dated September 21, 1989 stating that you have entered into a Signage and Graphic Design Professional Services Agreement with Steven J. Leach, Jr. and Associates of HongKong, a non-resident signage consultancy firm; that the agreement mainly entails the execution of graphic design in HongKong by Steven J. Leach, Jr. and Associates for and in your behalf for the Pacific Star Building owned by the Republic of Nauru, and the eventual payment for such service thru outward remittances to HongKong; and that the Foreign Exchange Regulations Department of the Central Bank of the Philippines has approved the said agreement. cdtech Based on the foregoing representations, you now request a ruling as to whether or not the abovementioned outward remittance is subject to any kind of Philippine withholding tax, wholly or partially, as almost all of the work have to be done in HongKong. In reply, please be informed that the professional service fees paid by you to Steven J. Leach, Jr. and Associates which pertain to that part of the execution of the graphic design to be done in HongKong 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]. On the other hand, the professional services fees paid by you by Steven J. Leach, Jr. and Associates which pertains to that part of the execution of the graphic design to be done in the Philippines constitute compensation for labor or personal services performed within the Philippines. As such, the same is considered income from sources within the Philippines [Sec. 36(a)(3), Tax Code] Accordingly, and since Steven J. Leach, Jr. and Associates, is a non-resident foreign corporation subject to income tax only on income from sources within the Philippines, it is subject only to Philippine income tax and consequently to the 35% withholding tax on that portion of the execution of the graphic design to be done in the Philippines. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner