RMC No. 130-2016 — Clarifies the tax treatment and appropriate Withholding Taxes on income payments by Departments and Agencies of the Government, including Government-Owned and/or -Controlled Corporations and Government Financial Institutions to individuals engaged under a job order or contract of service arrangement

BURRAU OF HSTERNAL PEVENUE

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE RECORDS MGT DIVSION DEC 08 206/ 2:otP.M. UMaaA

54P. FECEIVE December 8, 2016

REVENUE MEMORANDUM CIRCULAR NO... 130- 21

SUBJECT Clarification on the Tax Treatment and Appropriate Withholding Taxes on Income Payments by Departments and Agencies of the

Goverament, Including Government-Owned And/ Or - Controlled Corporations And Government Financial Institutions to Individuals Engaged under a Job Order or Contract of Service Arrangement

TO Ali Internal Revenue Officials, Employees and Others Concerned

This Circular is issued to clarify the withholding taxes imposed on income payments by. departments and agencies of the government, including government owned and/or -controlled corporations and government financial institutions (GHIs) to individuals whose services are engaged under a contract of service or job order arrangement.

BACKGROUND

Several agencies of the National Government have been hiring personncl on a job-order basis or contract of services pursuant to Executive Order (E0) No. 782 ' or EO No. 3662 and its Implementing Rules and Regulations and in accordance with DBM Circular No. 20 !2-20 dated December 18,2010.

A conmon issue arises on the appropriate rate of withholding tax that will be imposed on the payment for services rendered by these individuals hired by National Government Agencies (NGAs). 'There is. thus, a need to clarify the taxation of remuneration and income payments to personnel under job order or contract of services in order to have a consistent application in all government offices and agencies that are similarly situated.

The cmployment of such personnel requires the execution of any one of the fotlowing: a contract of services or memorandum of agreement (MOA) or job order between the

Temporary Filling Up Of Vacant Positions In The Government Dated February 10, 2009, Instituting Measures To Assist Workers Affected By The Global Financial Crisis And

Branch And Providing Options And Incentives For Covernment Empioyees Who May Be Affected By The Rationalizaticn Of The Functions And Agcncies Of The Executive Branch Dated October 4, 2004, Directing A Strategic Review Of The Operation: nd Organizations Of The Executiv

government agency concerned and the individual, in accordance with the rules and regulations of the COA.

CLARIFICATIONS

(CSC), defining .the terms "Individual Contract of Services/Job Order" It is settled that under existing policies and guidelines of the Civil Service Commission and clarifying the terms "Contract of Service" and "Job Order". there is no employer-employee relationship created under either a job order or contract for service, and that services rendered pursuant thereto shall not be considered as government service. (CSC Circular No. +7-o2 dated June

November 12.2002). Given this framework , the following clarifications are necessary for the 24.2002; CSC Resolution No. 02-0790 dated June 22,2002; CSC Resolution No. 021480 dated

tax treatment of remuneration/fees received by personnel under a job order or contract for service:

I) Professionals Hired Under Contract For Services Or Job Order

A. Creditable Withholding Tax under Section 2.57.2(A).of .Revemue Regulations (RR) No._2- 98, as amended.

which they offer their services to the public, are not employees.? In general, individuals who follow an independent trade, business, or profession, in

For professionals who are paid for the services they render, they are subject to a withholding tax rate of 10% or 15%, whichever is applicable, on their gross professional fee per Section 2.57.2(A) of RR No. 2-98, as amended.

Withholding Tax and Rates Prescribed Thereon. "SEC'TION 2.57.2. Income Payment Subject to Creditable Except as herein otherwise provided, there shall be withheld a creditable

from the following items of income paynents to persons residing income tax at the rates herein specified for each class of payee in the Philippines:

(10%), if otherwise: (A) Professional fees, talent fees, etc., for services rendered by or any other form of remuneration for the_services of the individuals On the gross professional, promotional and talent fees following individuals --- Fifteen percent (15%), if the gross income for the current year exceeds P720,000; and Ten Percent

DUERAU OF INTERNAL REVENUE RECORYS MGT DVISEUN 3:3-M Section 2.78.3 of RR 2-98 as amended DEC 08 201/4 UYAaA

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(3) Professional athletes, including basketball players. (6) Management and technical consultants: (7) Bookkeeping agents and agencies; (9) Fees of directors who are not employees of the company (4) All directors and producers involved in movies, stage. (5) Insurance agents and insurance adjusters: (8) Other recipient of talent fees; (2) Professional entertainers, such as, but not limited to. (!) Those individually engaged in the practice of professions pelotaris and jockeys: radio, television and musical productions; or callings: lawyers: certified public accountants; doctors of medicine; architects: civil, electrical, chemical. doctors of veterinary science: dentist; professional requiring government licensure examinations and/or regulated by the Professional Regulations Commission. Supreme Court, ete.; actors and actresses, singers, lyricist, composers and mechanical, structural, industrial, mining, sanitary,t metallurgical and geodetic engineers; marine surveyors: appraisers: connoisseurs of tobacco; actuaries; and interior decorators; designers and all other profession emcees; board of directors." paying such fees, whose duties are confined to attendance at and participation in the meetings of the

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any other form of income payments not subject to withholding tax on compensation. (Emphasis supplied) shall include not only fees, but also per diems, allowances and The amount subject to withholding tax under this paragraph

2) Non-Professionals Hired Under Contract For Services Or Job Order

A. Incoine Tax: No creditable withholding tax

Service or job order basis shali be not subject to creditable withhoiding tax rates provided by Section 2.57.2 of RR No. 2-98, as aniended. However, such income payments shall be Income paynents to individuals who are not professionals under a contract for

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amended, in relation to Section 51 of the same Tax Code. reported as income subject to income tax under Section 24 of the Tax Code of 1997, as

3} Tax Treatment Common to Professionals and Non-Professionals Hired Under Contract fo. Services or Job Order Basis

A. Value Added Tax (VAT)/Percentage Tax

of service which is within the ambit of Section 108 of the 1997 Tax Code, as amended, to No. 366 is not under an "employer-employec relationship" hence, it is a sale or performance Wit: The performance of services by the job-order personnel pursuant to EO 782 or EO

"Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of Tax.-

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performed or rendered by construction and service contractors; for a fee, remuneration or consideration, including those ...XXX performance of all kinds of services in the Philippines for others The phrase "sale of or exchange of services" means the

Five Hundred Pesos (P1,919,500.00): subject personnel if the same do not exceed One Million Nine Hundred Nineteen Thousand Section 109(!)(W)4, however, exempts from VAT the annual gross receipts of the

provisions of subsection (2) hereof, the following transactions shall be exempt from the value-added tax: "SEC. 109. Exempt Transactions. (l) Subiect to the

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years thereafter, the amount shall be adjusted to its present value using the Consumer Price Index, as published by the NSO: Five Hundred Pesos (P 1,919,500.00); Provided, every three (3) (V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One Million Nine Hundred Nineteen Thousand

* As amended by RR 016-201! BUEEAU OF INTERNAL RINANOR

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Provided, further, that such adjustment shall be published through revenue regulations to be issued not later than March 3 1 of each year:

husband and the wife shall be considered separate taxpayers. However, the aggregation rule for each taxpayer shall apply. For instance, if a professional. aside from the practice of his For purposes of the threshold of P 1,919,500.00, the

for purposes of determining whether the threshold has been exceeded. Thus, the VAT-exempt sales shall not be inciuded in profession. also derives revenue from other lines of business which are otherwise subiect to VAT. the same shall be combined

determining the threshold.

(3%) percentage tax, to wit: Section l16 of the same Tax Code nevertheless subjects them to the Three Percent

percent (3%) of his gross quarterly sales or receipts:..xxx" (0)(W) of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay tax equivalent to three Any person whose sales or receipts are cxempt under Section 109 "Section I 16. Tax on Persons Exempt from Value-Added Tax. -

RR 016-115 further amending RR 16-2005 provides:

4.109.1(B)(1)(e)(1), (p)(4), (q) and (v) of Revenue Regulations No. 16-2005, as amended, is hereby further amended to read as "SECTION3.VATExemptTransactions. follows: Section

the Tax Code, as enumerated below: "(e) Services subject to percentage tax under Title V of

of services of non-VAT-registered persons, other than the transactions mentioned in paragraphs (A) to (U) of Sec. 109(1) of the Tax Code, the gross annual saies and/or receipts of which does not excecd the amount of One Million Nine Hundred (1) Sale or lease of goods or properties or the performance

S Increasing the Amount of Threshold Amounts for Sale of Residential Lot, Sale of House and Lot. Lease of Residential Unit and Sale or Lease of Goods or Properties or Performance of Services Covered by Section 109 (P), (Q) and (V) of the Tax Code of 1997, as Amended, Thereby Amending Certain Provisions of Revenue Regulations No. 16-200s. us Amended Otherwisc Known as Consolidated VAT Regulations of 200s

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stated shall be adjusted to its present value using the Consumer (Sec. Il6 of the Tax Code); Provided, further, that such adjustment shall be published through revenue regulations to be issued not later than March 3 l of each year." Nineteen Thousand Five Hundred Pesos (P l.919.500.00): Provided, That every three (3) years thereafter, the amount herein Price Index, as published by the National Statistics Office (NSC)

B. Withholding Percentage Tax

requires the withholding of percentage tax, thus: As to the applicable withholding tax rate, Section 5.1 16 of RR No. 2-98, as amended.

"Sec. 5.116.Withholding of Percentage Tax.

any money payment to private individuals, corporations, partnerships and/or associations are required to deduct and such money payments. including government-owned or controlled corporations as well as their subsidiaries, provinces, cities and municipalities making withhold the percentage taxes due from the payees on account of Bureaus, offices and instrumentalities of the government

(A) Internal revenue taxes required to be withheld. shall be subjected "to withholding at the rates herein Percentage taxes on gross money payments to the following prescribed:

(D) Persons Exempt from Value-Added Tax (VAT). three percent (3%). On gross payments to persons who are exempt under registered person cxcept payment to cooperatives. 109(z} {now Sec. 109(1)(W)} of the Code from payment of value added tax and who is not a VAT

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All other issuances inconsistent herewith are hereby repealed or modified accordingly

wide publicity as possible. All concerned are hereby enjoined to be guided accordingly and to give this Circular as

This Circular takes effect immediately.

Very truly yours.

A

K-1-JRC Commissioner of Internal Revenue CAESAR R. DULAY 002501

RURRA OF JNTERNAL REVENUE RECORDS MGT DIVISION DEC 0 8 2016 2:31P.M iugx I

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