RMC No. 31-2013: Prescribes the guidelines on the taxation of compensation income of Philippine nationals and alien individuals employed by foreign governments/embassies/diplomatic missions and international organizations situated in the Philippines

Key points

1. Exemption depends on agreements or laws. Tax treatment depends on the recognized international agreements or local laws granting tax privileges. The exemption covers only individuals expressly and unequivocally identified in them, and all others fall under the general rule on taxability.
2. Duty to report despite withholding exemption. Those not exempted by applicable agreements or laws must still report compensation income and pay the tax due under Section 24 of the Tax Code of 1997, as amended. This applies even if their pay is exempt from Withholding Tax.
3. Groups with specified treatment. The Circular specifies treatment for those employed by foreign embassies and diplomatic missions, aid agencies of foreign governments (such as JICA, AUSAID), the United Nations and its specialized agencies (such as IMF, WHO), organizations under separate agreements or laws (such as ADB, IRRI), and other aid agencies or international organizations.
4. Annual return. Those without exemption file the annual Income Tax return on or before April 15 each year on BIR Form No. 1700 or 1701. It is filed with the RDO, Authorized Agent Bank or other proper office over the employee’s legal residence or principal place of business, or where the employer’s principal office is situated.
5. Non-filing and exemption claims. Failure to file and pay violates Sections 254 and 255 of the Tax Code, leading to assessments with surcharges and penalties and, in proper cases, criminal actions. Philippine nationals claiming exemption apply for confirmation with the International Tax Affairs Division of the BIR.

Who is affected

• Philippine nationals and alien individuals employed by foreign governments, embassies and diplomatic missions
• Employees of international organizations in the Philippines

Deadlines and effectivity

• Annual return due on or before April 15 each year