ITAD Ruling No. 117-00

August 29, 2000 ITAD RULING NO. 117-00 NIRC - Secs. 24, 25, 27 & 108 000-00 Embassy of Mexico 18TH Floor Ramon Magsaysay Bldg. 1680 Roxas Boulevard Manila, Philippines Attention: His Excellency Enrique Michel Ambassador Gentlemen : This refers to your letter dated July 20, 1999 requesting for information on the taxability of any national or foreigner engaged in the export-import business in the Philippines, either in a private capacity or with a company. In reply, please be informed that for purposes of taxation of a non-resident alien individual engaged in trade or business in the Philippines, he shall be subject to income tax in the same manner as an individual citizen and a resident alien individual, on his net income received from all sources within the Philippines. A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a "nonresident alien doing business in the Philippines". [Section 25 (A)(1), National Internal Revenue Code of 1997 (Tax Code of 1997)]. Accordingly, he will be subject to the rates as hereinbelow provided under Section 24 (A)(1)(c) of the same Code: "c) On the taxable income defined in Section 31 of this Code other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual alien who is a resident of the Philippines. The tax shall be computed in accordance with and at the rates established in the following schedule: Not over P10,000 5% Over P10,000 but not over P30,000 P500+10% of the excess over P10,000 Over P30,000 but not over P70,000 P2,500+15% of the excess over P30,000 Over P70,000 but not over P140,000 P8,500+20% of the excess over P70,000 Over P140,000 but not over P250,000 P22,500+25% of the excess over P140,000 Over P250,000 but not over P500,000 P50,000+30% of the excess over P250,000 Over P500,000 P125,000+34% of the excess over P500,000 in 1998 Provided , That effective January 1, 1999, the top marginal rate shall be thirty-three percent (33%) and effective January 1, 2000 the said rate shall be thirty two percent (32%)." With regard to cash and/or property dividends from a domestic corporation or joint stock company, or insurance or mutual fund company or regional operating headquarter of multinational company, or share in the distributable net income of a partnership (except a general professional partnership), joint account, joint venture taxable as a corporation or association, interests, royalties, prizes, and other winnings, shall be subject to an income tax of twenty percent (20%) on the total amount thereof: provided, that interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas shall be exempt from the tax imposed under this Subsection: provided, finally, that should the holder of the certificate pre-terminate the deposit or investment before the fifth year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depositary bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof: Four (4) years to less than five (5) years ... 5%; Three (3) years to less than four (4) years ... 12%; and Less than three (3) years ... 20%. [Sec. 25 (A) (2) of the Tax Code of 1997] CTSDAI As provided under Sec. 25 (A) (3) of the Tax Code of 1997, capital gains realized from sale, barter or exchange of shares of stock in domestic corporations not traded through the local stock exchange, shall be subject to a final tax at the rates prescribed below upon the net capital gains realized during the taxable year: Not over P100,000 5% On any amount in excess of P100,000 10% As regards capital gains from sale of real property, a final tax of-six percent (6%) based on the gross selling price or current fair market value as determined by the Commissioner or as shown in the schedule of value of the Provincial and City Assessors, whichever is higher, is imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts. [Section 25 (A)(3) of the Tax Code of 1997] However, if the stay of the alien is for an aggregate period of less than one hundred eighty (180) days during any calendar year, he shall be deemed a "nonresident alien not engaged in trade or business within the Philippines", and consequently, be subject to an income tax equivalent to 25% of the entire income received from all sources within the Philippines [Section 25 (B) of the Tax Code of 1997]. As regards the taxation of a corporation engaged in the export-import business, please be informed that a corporation organized, authorized, or existing under the laws of a foreign country and doing business in the Philippines, shall be subject to an income tax equivalent to thirty-two percent (32%). [Section 28 (A)(1) of the Tax Code of 1997]. On Value-Added Tax (VAT) liability, pursuant to Section 105 of the Tax Code of 1997, "Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the VAT imposed in Sections 106 to 108 of this Code." There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. [Sec. 106 of the Tax Code of 1997] Moreover, there shall be levied, assessed and collected on every importation of goods a VAT equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, that where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any. [Section 107 of the Tax Code of 1997] For your guidance and reference. SETaHC Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group