BIR scraps special tax rate for RHQ staff

MANILA, Philippines — The government has scrapped the preferential tax rate for employees of reqional headquarters (RHQs) and regional operating headquarters (ROHQs) of multinational companies despite the strong uproar from foreign chambers of commerce.

In a tax advisory, Internal Revenue commissioner Caesar Dulay said Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law signed by President Duterte last Dec. 19 removed the 15 percent special tax rate on gross income of employees of ROHQs.

“All employees or RHQs and ROHQs of multinational companies, offshore banking units, and petroleum service contractors and subcontractors enjoying preferential tax treatment prior to 2018 are now subject to regular income tax rates,” he said.

Dulay said the compensation of RHQ employees would be subject to the withholding tax table based on Revenue Memorandum Circular 1 – 2018.

Finance Secretary Carlos Dominguez earlier said the 15 percent special tax rate on the gross income of employees of ROHQs is no longer applicable after President Duterte vetoed the provision granting the preferential rate under the TRAIN.

Duterte vetoed the provision in the tax reform law granting a special tax rate of 15 percent on the gross income of employees of regional headquarters, regional operating headquarters, offshore banking units, and petroleum service contractors and subcontractors.

The President said the provision violates the Equal Protection Clause under Section 1, Article III of the 1987 Constitution, as well as the rule of equity and uniformity in the application of the burden of taxation.

Foreign businessmen had earlier warned that regional headquarters of multinational companies in the Philippines may shut down or relocate to other countries once changes in the ROHQ tax rate are implemented under the first package of the tax reform program, putting thousands of jobs at risk.

For one, the Philippine Association of Multinational Companies Regional Headquarters Inc. (PAMURI) said four to five ROHQs have “refused to enter the Philippine market due to the threat of removal of the said incentives.”

On the other hand, the European Chamber of Commerce of the Philippines (ECCP) said the Joint Foreign Chambers (JFC) of the Philippines believes the status quo on the subject of ROHQ incentives should be maintained.

“Preferential tax rate is one of the biggest incentives for ROHQs. The removal of this incentive will reduce operations and employment, decrease spending and incur losses in terms of income tax, and lower competitive advantage,” the ECCP, a member of the JFC, said.