Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 34-2008)
When the director is an employee of the corporation, director's fees are taxable as compensation income subject to withholding tax under Section 79 in relation to Section 24(A) of the National Internal Revenue Code.
Compensation means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code.
No, director's fees received by directors who are employees are exempt from value-added tax under Section 109 of the Code.
If the director is not an employee and only attends and participates in board meetings, the director's fees are not considered compensation income but fall under gross income derived from the conduct of trade or business or exercise of a profession under Section 32(A)(2) of the Code.
10% creditable withholding tax if gross income does not exceed P720,000, or 15% if gross income exceeds P720,000, pursuant to Revenue Regulations No. 30-2003.
Per diems, allowances, and any other forms of income payments to non-employee directors are subject to the 10% or 15% creditable withholding tax as applicable.
Yes, non-employee directors are liable to pay business tax either 12% VAT on their gross receipts if they meet the VAT threshold or 3% percentage tax if they do not, as sellers of services under Title IV of the Code.
Directors pay 12% VAT if their gross receipts meet the VAT threshold; otherwise, they pay the 3% percentage tax under Section 116 of the Code.
Sections 79 and 24(A) govern withholding tax for employee directors, while Section 32(A)(2) applies to non-employee directors.
The legal basis is the employer-employee relationship where director's fees constitute remuneration for services performed, thus treated as compensation income under Revenue Regulations No. 2-98 and the National Internal Revenue Code.