RMC No. 34-2008: Clarifies the tax treatment of director’s fees for Income Tax and business tax purposes

Summary

RMC No. 34-2008 clarifies the tax treatment of director’s fees for Income Tax and business tax purposes.

Key points

1. Directors who are employees. Director’s fees are subject to withholding tax on wages under Section 79 in relation to Section 24(A) when an employer-employee relationship exists, such as a president sitting on the Board. These fees are compensation income and exempt from VAT under Section 109.
2. Directors who are not employees. Fees paid to a director whose duties are confined to attending board meetings are gross income from trade, business or profession under Section 32(A)(2). They are subject to 10% creditable withholding tax if the director’s gross income for the current year does not exceed P 720,000.00, or 15% if it exceeds that, under RR No. 30-2003.
3. Amount covered. The 10% or 15% creditable withholding tax covers not only fees but also per diems, allowances and any other income payment to the director.
4. Business tax. Non-employee directors are also liable for business tax as sellers of services. They pay 12% VAT on gross receipts under Section 108, or 3% Percentage Tax under Section 116 if they do not meet the VAT threshold.

Who is affected

• Directors who are employees of the corporation
• Directors who are not employees of the corporation

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.