Tax on royalties and franchise fees in the Philippines

Withholding income tax

• Royalties paid to a non-resident foreign corporation are taxed at 25% of the gross amount under National Internal Revenue Code section 28(B)(1) as amended by the CREATE Act (RA 11534). The Philippine payor withholds it as a final tax. Official · RA 11534 (CREATE), Lawphil, 2021-03-26
• A tax treaty may lower the 25% rate. The treaty rate depends on the treaty and the type of royalty, so check the specific treaty between the Philippines and your home country. Secondary · EY Tax News on RMO 14-2021, 2021-05-14

Claiming the treaty rate

• Under BIR RMO 14-2021, the non-resident gives the Philippine payor BIR Form 0901 and a Tax Residency Certificate from its home tax authority before the first payment; one certificate a year is enough. The payor may then apply the treaty rate and files a Request for Confirmation with the BIR. If the full rate was withheld, the non-resident claims a refund through a Tax Treaty Relief Application. Secondary · EY Tax News on RMO 14-2021, 2021-05-14

VAT

• Royalties for the use of intellectual property are VAT-able services. Under NIRC section 114(C) as amended by RA 12023 (2024), payments to non-resident owners for the use of property rights are subject to 12% VAT withheld at the time of payment, unless the payee is registered under section 236. The payor may claim it as input VAT. Official · RA 12023, BIR, 2024-10-02

Who bears it

• IP Code section 88.4 requires the agreement to state that Philippine taxes on all payments under it are borne by the licensor. A gross-up clause that shifts the withholding tax to the franchisee needs careful drafting. Official · RA 8293 (IP Code), Lawphil, 1997-06-06

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