15% income tax to expats, when applicable?

Revenue Memorandum Circular No. 41 – 2009 dated July 23, 2009 (RMC 41-2009) was issued to clarify the meaning of “Managerial and Technical Positions” under Section 25(C) of the Tax Code, as amended. This RMC sets out the qualifications and requirements in order that an alien employee (or Filipino employees) of a Regional Headquarters (RHQ) or Regional Operating Headquarters (ROHQ) of a multinational corporation shall be eligible for the 15% income tax rate on its gross compensation income. Hereunder is the summary of the RMC.

Compared to the normal tax rate of 5-32% bracket 5-32%, if a resident alien or non-resident alien engaged in trade or business, or 25%, if a non-resident alien not engaged in trade or business, the 15% rate is a good break because of a material rate gap on rates of income tax on compensation of approximately 17% (32%-15%), and 10% (25%-15%), respectively. Thus, the BIR saw the need to clarify the bounds of the term “Managerial and Technical Positions” to avoid abuse and misapplication of the above rule to minimize taxes, if not escape or evade.

Under the Labor Code, employment of non-resident aliens commonly referred to as “expatriate employees”, is limited to positions which are managerial, confidential, or highly technical in nature, or where there are no Filipinos who are competent, able and willing to perform the services for which aliens are desired. To be considered managerial employee, it must possess authority to act in the interest of its employer requiring the use of independent judgment and not merely routinary or clerical in nature. The case of Villuga vs. NLRC, 225 SCRA 537 provides the following elements to be considered managerial employee:

a. primary duty consist of performance o work directly related to management policies;
b. customarily and regularly exercise discretion and independent judgment;
c. regularly and directly assist in the management of the establishment;
d. does not devote 20% of his time to work other than those prescribed above.

The employees are not managerial employees if they only execute approved and established policies, leaving little or no discretion at all whether to implement said policies or not. On the other hand, RMC did not elaborate very well on “technical position” other than saying that it is limited to positions which are highly technical in nature or where there are no Filipinos who are competent, able and willing to perform the services for which aliens are desired.

By implication, all other BIR rulings issued inconsistent with the RMC are revoked accordingly. As a matter of fact, BIR Ruling No. DA-061-04 is revoked by the RMC. Thus, it is suggested that a review of existing employee structure and job descriptions in relation to their tax treatments is hereby recommended to ensure that the same is in compliance with the RMC.

Suggested readings:
a. Villuga vs. NLRC, 225 SCRA 537
b. Republic Act No. 8756, amending E.O. No. 226

"Taxes affect lives, care for taxes and save lives"

Read more »

Why are penalties imposed by the BIR?

At present, doing business is a bit an inch of perfection, if not a mastery of craft, in order to maximize the use of its finances for success. Many promising undertakings could be made on the funds wasted on penalties. Sometimes, no matter how and what measures are employed not to overlook some reportorial requirements, that they simply occurs unnoticed. This may prove that, sometimes, simple errors are big headaches in business. The question is why these penalties have to be imposed, even on honest mistakes and simple inadvertence?

Taxes are the lifeblood of the government, without which, it cannot subsist. This dictates that taxes owing to the government shall come in due time and in exact amounts so as not to cause any untoward delay and interruption in its performance of its duties and responsibilities to the citizenry. Impliedly, excuses in the delay of payment, no matter how reasonable, may not defeat the need for the government to exist. Thus, to be fair to the BIR and the government, it maybe a good start to know the rationale on the imposition of these penalties– 25%/50% surcharge, 20% interest, and compromise penalties.

Surcharge is a one-time imposition upon failure to pay the tax due in full in due time. The rate 25%, in general, except if fraudulent in character where 50% is used. It is intended to hasten tax payments or to punish evasion or neglect of duty in respect thereof.

On the other hand, the imposition of 20% interest annually from the time a basic tax due is bound to be paid until such time that it becomes fully paid, is but a just compensation to the State for the delay in paying the tax and for the concomitant use by the taxpayer of funds that rightfully should be in the government's hands. The fact that the interest charged is made proportionate to the period of delay constitutes the best evidence that such interest is not penal but compensatory for the time value of money in the government’s hands.

Finally, compromise penalty is imposed in lieu of prosecution in court. Instead of taxpayer being sued in court for the particular violation, the taxpayer and the BIR will simply agree upon the payment of compromise in order to do away with the time, effort and money that the litigation process may take.

Suggested readings:

a. Jamora vs. Meer, 74 Phil. 22
b. Castro vs. Collector of Internal Revenue, G.R. L-12174. Dec. 28, 1962
c. Aguinaldo VS. CIR, G.R. No. L-29790. February 25, 1982

"Taxes affect lives, care for taxes and save lives"

Read more »

What benefits can persons with disability enjoy?

Republic Act No. 9442 or otherwise known as “AN ACT AMENDING REPUBLIC ACT NO. 7277, OTHERWISE KNOWN AS THE “MAGNA CARTA FOR DISABLED PERSONS, AND FOR OTHER PURPOSES” (RA No. 9442) had been approved on April 30, 2009 and is implemented by BIR Revenue Regulations No.: 1-2009 dated Feb. 17, 2009 (RR No. 1-09). The amendment introduced specific benefits and privileges to persons with disability in relation to its purchases of certain goods or services, protection from public ridicule (making fun or contemptuous initiating or making mockery of persons with disability whether in writing or in words, or in action due to their impairment/s) and from vilification (utterance of slanderous and abusive statements and/or activity in public which incites hatred towards serious contempt for, or severe ridicule of persons with disability), and incentives to seller establishments, to those caring for and living with persons with disability, and to those individuals or non-governmental institutions establishing homes to suit the needs of persons with disability.

Under RA No. 9442, disable persons shall be entitled to the following:

a. 20% discount on services in hotels and similar lodging establishments; restaurants and recreation centers;
b. 20% discount on admission fees charged by theaters, cinema houses, concert halls and other similar places;
c. 20% discount on purchase of medicines in all drugstores;
d. 20% discount on medical and dental services including diagnostic and laboratory fees, and professional fees attending doctors in all private hospitals and medical facilities;
e. 20% discount on fare for domestic air and sea travel;
f. 20% discount on public railways, skyways and bus fare for the exclusive use and enjoyment of persons with disability;
g. educational assistance upon qualification
h. Such other special discounts in special programs on purchases of basic commodities in accordance with established guidelines.

For tax purposes, persons with disability with valid identification (issued by the barangay captain of residence, passport, and transportation discount card issued by NCWPD or National Council for the Welfare of Disabled Persons) may be claimed as a qualified dependent for additional personal exemption of P25,000. Seller establishments are allowed to claim the 20% discount as an allowable deduction from their gross income for income tax purposes. Further, individuals or nongovernmental institutions establishing homes, residential communities or retirement villages solely to suit the needs and requirements of persons with disability shall be accorded the following:

a. Realty tax holiday for the first five years of operation; and
b. Priority in the building and/or maintenance of provincial or municipal roads leading to the aforesaid home residential community or retirement village.

Personally, the 20% discount is quite similar to that of the senior citizens discount. For the least, the law would encourage respect to persons with disability and make them feel how important they are in the community, despite, their disabilities. Let us gave them respect and help them at all times.

"Taxes affect lives, care for taxes and save lives"

Read more »

What you should know about ROHQ?

Regional Operating Headquarters (ROHQ) (Section 2(3), RA No. 8756) means a foreign business entity which is allowed to derive income in the Philippines by performing the following qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets:

1. general administration and planning


2. business planning and coordination


3. sourcing and procurement of raw materials and components


4. corporate finance advisory services


5. marketing control and sales promotion


6. training and personnel management


7. logistic services


8. research and development services and product development


9. technical support and maintenance


10. data processing and communication, and,


11. business development

Being a special entity allowed in the Philippines with certain incentives and preivileges, ROHQ's business activities are subject to the following limitations:

a. Shall offer its services only to its affiliates, branches or subsidiaries, as declared in its registration with the Securities and Exchange Commission (SEC).

b. It shall not directly and indirectly solicit or market goods and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any other company.

c. It cannot directly or indirectly engage in the sale and distribution of goods and services of its mother company, branches, affiliates, subsidiaries or any other company.

Capitalization requirements. The ROHQ is required to initially remit into the country within 30 days from receipt of the Certificate of Registration with SEC through BOI such amount as may be necessary to cover its operations in the Philippines but which amount will not be less than US$200,000 or its equivalent in other currencies. This should be evidenced by a Certificate of Inward Remittance issued by the depository branch.

Taxation and Other incentives includes the following:

ROHQ

a. 10% income tax on taxable net income instead of the 30%/25% on income;

b. 12% value-added tax;

c. 15% branch profit remittance tax;

d. Tax and duty free importation of training materials and equipment, and importation of motor vehicles; and

e. Exemption from all kinds of local taxes, fees, or charges.


Expatriates

a. Multiple entry visa to expats, their spouse and children under certain conditions;

b. Travel tax exemption of expats and their dependents upon certification of the BOI;

c. Tax and duty free importation of personal and household effects ;

d. 15% withholding tax on compensation of managerial and technical alien employees instead of the 25% or 5-32%. Apply also to Filipino citizens holding the same positions.

Licensing. In order to operate and ROHQ in the Philippines, it is required to secure a License with the securities and Exchange Commission (SEC). For the purpose, endorsement by the Board of Investments (BOI) shall be submitted to the SEC along with the other requirements. Likewise, registration with the BIR, and other government agencies are required for the ROHQ.

"Taxes affect lives, care for taxes and save lives"

Read more »

Tourism Act of 2009, a new WOW Phils.?

Republic Act No. 9593 otherwise known as "Tourism Act of 2009" was approved into law on May 12, 2009. This declares Philippine Tourism as an indispensable element of the national economy and an industry of national interest and importance. This is a present major step that is expected to create major changes and developments in the tourism industry gearing towards socio-economic development expected to generate new jobs and massive investments.
Along with this law, Department of Tourism as the implementing and regulating agency is bombarded with enough powers, strength, and capitalization for the effective furtherance of its purpose and implementation of various programs and policies. Certain government agencies and instrumentality were restructured and reorganized such as the Duty Free Philippines to Duty Free Philippines Tourism Corporation (DFPC), and Philippine Tourism Authority (PTA) converted to Tourism Infrastructure & Enterprise Zone Authority (TIEZA).

More importantly is the creation of the so-called Tourism Economic Zones (TEZ) somewhat similar to that of Philippine Economic Zones (PEZA under RA No. 7916), and Bases Conversion and Development Authority (BCDA under RA No. 7227) Ecozones. TEZ operators could either be a local government, itself, a private entity, or a joint venture of the two. Under this law, Tourism Enterprises within a TEZ registered under TIEZA shall be allowed certain fiscal and non-fiscal incentives under the criteria to be established by the implementing rule and regulations such as the following:

A. Fiscal Incentives:
a. Income tax holiday for 6 years, subject to extension for another six years under certain conditions;
b. 5% income tax based on gross income earned in lieu of all other national and local taxes, license fees, imposts and assessments, except real estate taxes;
c. Tax free importations of capital investments and equipment, transportation and spare parts;
d. Additional tax deductions on social responsibility expenditures not exceeding 50% of cost; and,
e. Such other incentives under certain conditions.

B. Non-fiscal incentives
a. Employment of foreign nationals;
b. Special investor's resident's visa;
c. Repatriation of Investments in foreign currency;
d. Remittance of foreign exchange;
e. Foreign loans and contracts

With the above incentives, along with the re-organization and restructuring, it is expected that more investors shall be coming in to establish a Tourism enterprise, or develop and upgrade their existing facilities to be entitled to the incentives. In the meantime, the corresponding Implementing Rules and Regulation of the said law is underway and expected to be released soon. The regulations will further state in details the requirements, conditions and procedures for the applicability of the incentives and privileges.

"Taxes affect lives, care for taxes and save lives"

Read more »

How can the BIR increase collections?

At present, we read on papers the many faces of financial crisis, budget deficit, failure to meet collection target, and the likes. Philippines in on a budgetary system where collections and expenditures are budgeted ahead. Expenditure is quite easy to meet as they simply spend on many things and in many ways, while collection targets are quite hard to attain. Instead of simply reading them, what about if we try to explore on ways and means where in our thinking, could help the BIR reach their targets.

Presently, the legislature had passed some tax measures providing for some incentives that may negatively affect reaching collection targets along with some other updates tending to slow collections. I am referring to RA 9593-Tourism Act of 2009, RA 9442 - amendment to the Magna Carta for Disabled Persons, RA 9648 - DST Tax Exemption, reduction on amusement taxes to 10%, the MCIT case resolutions of PAL, transitional input tax issue of FBDC, and the MIAA real property tax case resolution this 2009. In short, the BIR is finding some measures in which it can raise collections as the target had been set to be attained despite all that. Moreso, that as we read on the papers, the senate says NO to tax measures imposing and creating new taxes which means NO helpline to BIR.

One of its (BIR) move is the expansion of the Top Ten Thousand Corporation (TTC) for mandatory withholding to Top Twenty Thousand Corporations. Wider coverage would mean a wider advance collection of income and more encouragement to payees of income payments to declare income and pay related taxes. Another notable introduction is the Top Five Thousand Individuals (TFI) for those individuals engaged in trade or business and those in the practice of profession meeting certain criteria set for the purpose. For those newly appointed TTC or TFI, these new regulations may not be simple to comply as they add some administrative duties. However, we cannot put the blame on BIR on this. Should they not comply, then, penalties are at stake. Other moves are on improved BIR assessments, and computerized matching so taxpayers are being surprised by some yearly assessments and left and right tax verification notices. In effect they are extracting for the taxpayer's last drop of tax liabilities.

The idea of what can the BIR do to improve collection had been lingering on my mind and it is only on this post that I took the courage to formalize and share with the rest what I have in mind. In the meantime, what about if the BIR applies the same principle of withholding tax on GAMBLING, like on cockfighting winning bets? For some this is simply a past time or a hobby, but we must admit many lives on it. I do not participate on cockfighting but my understanding is the admin gets commission every time the bet wins. yes, the winning is a taxable income, but who knows if this income is being declared and tax paid. In the same manner, losses from gambling is a capital loss that is not deducted from income tax purposes. This may seem weird and maybe hard to implement at first not because of its complexities, but maybe because of some influential personalities who has the love of it that may simply use power to go against it. However, looking at it and considering the volume of money flowing in and out of the cockfighting industry every Sunday, special holidays and scheduled derby, I am quite confident that tax collections from this may mean something. If they could waste money on this past time, why not share a portion of this for taxes?

You may have something in mind that may also help the BIR improve collection. We would be pleased and honored to hear it from you. Simply drop a line below and we will try to submit our collective ideas to the BIR.

"Taxes affect lives, care for taxes and save lives"

Read more »

Allowable Deductions - Powerpoint

In computing the taxable income, certain deductions are allowed by the Tax Code to be deducted from the Gross Income. This is crucial to know because once you commit a mistake in deducting one that is not allowed, then you will made to suffer the penalties of 25% surcharge, 20% interest and compromise penalties. Take time to view those allowable deductions in this powerpoint presentations with references to the provisions of the Tax Code, as amended, or the corresponding implementing regulations.

Allowable deductions.feb.2011

View more presentations from Phil Taxation.

For more free powerpoint presentations, please CLICK HERE!

"Taxes affect lives, care for taxes and save lives"

Read more »

Director's Fees, how taxed?

Director’s fees is not entirely new in the business industry. Directors are the minds of the Corporation for it is the corporate governing body. Normally, they are not entitled to compensation, other than reasonable per diems, in the absence of an express provision in the By-laws. This is because directors are stockholders holding majority shares in most cases, and as such, more share of income goes to them through dividends. In other words, even without compensation, they will receive more through their considerable stock holdings and any mismanagement adversely affects them. In case the By-laws would provide compensation, the same shall not exceed 10% of the net income during the preceding year.

What is more interesting to discuss is how such compensation, or per diems for attendance in Board meetings, is being taxed. This was actually highlighted sometime in 2008 when the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 34-2008 dated April 15, 2008 (RMC No. 34-08). Under said RMC 34-08, director’s fees are taxed as follows:

a. Directors who are employees at the same time (e.g. President, V-Pres., etc.) are withheld withholding taxes on compensation;
b. Directors who are not employees at the same time:(1)Expanded withholding tax of 10% if gross income does not exceed P720,000, or 15% if the same exceeds; and,(2)12% value added tax (VAT), if VAT registered or in non-VAT with gross receipts not exceeding P1.5M; or 3% other percentage tax (OPT).

Such RMC 34-08 gained much protests and became controversial on the VAT/OPT aspect and as such, BIR revisited the same and finally came up with RMC No. 77-08 dated November 24 deleting the imposition of the VAT or OPT based on the following arguments:

a. That director’s does not freely offer his services as a director because under the Corporation Code, it must own at least one share;
b. That his term is limited to one (1) year only so the going-concern aspect of VAT or OPT is not present;
c. That the remuneration is limited to not more than 10% of the net income during the preceding year; and,
d. That a director is generally precluded to enter into a contract with the corporation of which he is a director.

From such RR 77-08, directors fees are not subject to VAT or OPT, but subject to income tax. The withholding tax imposed therein is an advance collection of an income and is a creditable withholding tax. The director recipient is still required to file an income tax return to include the director's fees and the tax credits.

"Taxes affect lives, care for taxes and save lives"

Read more »

Other Percentage Taxes - Powerpoint

As a rule, value added tax (VAT) is imposed on every sale, barter, or exchange of goods or services and on importations. However, there are instances where the same does not apply because the transaction is subject to other percentage taxes (OPT) by nature. Find out the find lines of their distinctions in this presentation. You will likewise have an overview of documentary stamp tax (DST), excise tax, community tax certificates (CTC)

Opt extensive and overview of excise tax. dst and ctc.feb.2011

View more presentations from Phil Taxation.

For more free powerpoint presentations, please CLICK HERE!

"Taxes affect lives, care for taxes and save lives"

Read more »

Corporate Income Taxation - Powerpoint

Should you wish to know the answers to the following questions by yourself, you need to take a quick look at the presentation:

(a.) How are corporations and ordinary partnerships taxed on their income?
(b.) How do you distinguish corporate income tax from individual income tax?
(c.) How are corporations classified for income tax purposes?
(d.) What income tax types applies to particular taxable income of corporations and ordinary partnerships?

Corporate income tax.feb.2011

View more presentations from Phil Taxation.

For more free powerpoint presentations, please CLICK HERE!

"Taxes affect lives, care for taxes and save lives"

Read more »

Income Taxation of Individuals - Powerpoint

Do you wish to learn how an natural person is being taxed on its income? Well, take time and relax while self-learning on the powerpoint presentations for individual income taxation and answer the following basic questions:

a. How are individual income tax differs from corporate income tax?
b. How are individual taxpayers classified for income tax purposes?
c. What income tax types applies to particular taxable income?

Find out the answers in the following powerpoint presentation.

Individual income tax.feb.2011

View more presentations from Phil Taxation.

For more free powerpoint presentations, please CLICK HERE!

"Taxes affect lives, care for taxes and save lives"

Read more »

Introduction to Income Tax - Powerpoint

Help yourself understand the basic things you need to understand about income taxation and answer the following basic questions:

a. What is income is taxable?
b. How are income taxes classified?
c. What other factors affect the taxability of an income?

Find out the answers in the following powerpoint presentation.

Income tax intro topics.feb.2011

View more presentations from Phil Taxation.

For more free powerpoint presentations, please CLICK HERE!

"Taxes affect lives, care for taxes and save lives"

Read more »

What is an income for tax purposes?

Income refers to all wealth which flows to the taxpayer other than a mere return of capital (Revenue Regulations No. 2). It is a flow wealth that goes into the taxpayer within a specified time, arising from the use of capital, use of labor through either physical and/or intellectual faculties, and from other sources where after the transaction, the taxpayers becomes more wealthier than before the transaction. In general, the question is: Did the taxpayer become wealthier after the transaction or event? Let us take up the following to emphasize the point:

a. In the sale of goods purchased at P100 for P150, P50 is the increase of wealth.
b. In rendering a legal opinion for a fee of P5,000, the whole amount is an increase of wealth.
c. An increase in the value of an owned land of P100,000 (revaluation increment), there is yet no flow of wealth until the same is sold.
d. In the receipt of stock dividend, there is yet no increase of wealth until the same are sold.
e. Decrease of anticipated liability in the future because of a decrease of currency valuation contracted to be settler is not yet a flow of wealth until actually settled at such lower amount.

Actual collection may not be necessary in some cases for as long as the right thereto has already accrued and is entitle to collect at some point in time in the future. In accounting parlance, accrual accounting dictates that there is an income when the earning process is already complete. To illustrate, the sale of goods is already taxable at the point of sale even when the proceeds is not yet collected. Rendering of a service for a fee is already taxable after the services are rendered despite the fact that there is no collection yet. The reason is that the seller of goods or the person who rendered the service is already entitled the right to collect.

There is income when there is a flow of wealth. Even income from illegal activities, being a flow of wealth, is also an income. Even a liability that is condoned by the creditor in favor of the debtor may constitute an income.

Differentiated from Capital, capital is a fund while income is a flow from the use of such fund. Capital is wealth, while income is the service or the return from the use of such wealth. Property or fund is the tree, while income is the fruit. Labor is a tree and income the fruit.

For income tax purposes, taxability income has the following requisites:
a. there must be an income, gain or or profit
b. the income, gain or profit must have been received OR realized during the taxable year
c. the income gain or profit is not exempt from income tax

"Taxes affect lives, care for taxes and save lives"

Read more »