Not all employees in the Philippines are subject to 5% to 32% income tax. Filipino employees of regional operating headquarter (ROHQ) or regional headquarter (RHQ) or representative office established by multinational companies may be taxed at 15% flat rate on their income, provided that they meet the following requirements:
Position and Function Test
Employee must occupy either a managerial position or technical position and must actually perform said functions.
Compensation Threshold Test
To be considered a managerial or technical employee for tax purposes, the employee must have gross annual taxable compensation of at least Php 975,000.00.
Exclusivity Test
The employee must be exclusively working for the RHQ or ROHQ as a regular employee and not as just a consultant or contractual employee.
Furthermore, employees who are qualified for the option of being subjected to a lower tax rate of 15% on gross income, the RHQ or ROHQ must file certain documents with the BIR such as
(a) Declaration of Employees’ Availment of the 15% Preferential Tax Rate of every qualified employee or the BIR Form No. 1947 not later than January 31st of the succeeding year or within 15 days from date of employment;
(b) Employer’s sworn declaration;
(c) Employee’s sworn declaration; and
(d) Monthly Remittance Return of Final Income Taxes Withheld (BIR Form No. 1601-F) and Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF).
If you need advice and assistance in the availment of the 15% preferential tax rate or any payroll services, kindly contact Triple i Consulting.
