Information on "Payroll Taxation" in the Philippines

September 13, 1988 BIR RULING NO. 436-88 21 000-00 436-88 S i r : This refers to your letter dated July 26, 1988 requesting information regarding "payroll taxation" in the Philippines as you may have employees who will work in the Philippines. cdt In reply thereto, I have the honor to inform you that the income tax liability of your employees who will work in the Philippines shall be governed by Sections (1) and (2), Article 16 of the RP-US Tax Treaty which provide as follows: Article 16 DEPENDENT PERSONAL SERVICES "(1) Except as provided in Article 20 (Governmental Functions), wages, salaries, and similar remuneration derived by an individual who is a resident of one of the Contracting States from labor or personal services performed as an employee, including income from services performed by an officer of a corporation, may be taxed by that Contracting State. Except as provided by paragraphs (2) and (3) and in Articles 20 (Governmental Functions), 21 (Teachers), and 22 (Students and Trainees), such remuneration derived from sources within the other Contracting State may also be taxed by that other Contracting State. "(2) Remuneration described in paragraph (1) derived by an individual who is a resident of one of the Contracting States shall be exempt from tax by the other Contracting State if (a) He is present in that other Contracting State for a period or periods aggregating less than 90 days in the taxable year; (b) He is an employee of a resident of, or of a permanent establishment maintained in, the first-mentioned Contracting State; and (c) The remuneration is not borne as such by a permanent establishment which the employer has in that other Contracting State. "(3) . . . ." In case your employees who will work in the Philippines shall be taxed in this country, they shall be considered non-resident aliens engaged in trade or business in the Philippines subject to income tax in the same manner as resident citizens and aliens on taxable income received from all sources in the Philippines. [Sec. 22(a)(1), Tax Code] Said income tax shall be based on the taxable compensation at the rate prescribed in Section 21(a), in relation to Section 71, Chapter X, Title II of the Tax Code (Withholding on Wages) and implemented by Revenue Regulations No. 6-82, as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner