QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 34-2008)
When the director is an employee of the corporation that pays the fees, i.e., an employer–employee relationship exists (e.g., the President is a member of the Board). In that case, director’s fees are treated as compensation income, subject to withholding tax on wages under Sections 79 in relation to 24(A) of the NIRC.
They are subject to withholding tax on wages. Additionally, being compensation income received by employees, they are exempt from VAT under Section 109 of the NIRC (as stated in the circular’s discussion).
It is established by whether the director is actually an employee of the corporation paying the fees, such as when the director is the President or otherwise holds a corporate office involving employment duties alongside board membership.
If the director’s duties are confined to attendance and participation in board meetings, the fees are not treated as compensation. Instead, they fall under Section 32(A)(2) of the NIRC as gross income derived from the conduct of trade or business or exercise of a profession.
A 10% creditable withholding tax applies if the director’s gross income for the current year does not exceed PHP 720,000.00; otherwise, 15% applies if gross income exceeds PHP 720,000.00, consistent with RR No. 30-2003 as cited in the circular.
They are treated under “professional fees, talent fees, etc., for services rendered by individuals,” specifically including “fees of directors who are not employees… whose duties are confined to attendance at and participation in meetings.”
No. The circular explicitly states that the amount subject to the 10%/15% creditable withholding tax includes not only the fees but also per diems, allowances, and any other form of income payment made to the director.
The directors must include the received fees in their gross income in their annual income tax returns, and thus may be liable to pay income tax on top of the withholding, subject to the overall computation rules.
Yes. The circular says that besides income tax, they are likewise liable to pay business tax on such receipt of income, either 12% VAT under Section 108 or 3% percentage tax under Section 116 if they fail to meet the VAT threshold.
VAT under Section 108 (12% on gross receipts), or 3% percentage tax under Section 116 if they fail to meet the VAT threshold.
Because there is no employer–employee relationship when the director’s duties are limited to board meeting attendance and participation. Thus, the fees are treated as income from business/professional activity rather than compensation for employment.
No. The circular states that director’s fees received by employees are exempt from VAT under Section 109.
RR No. 2-98 provides that “compensation” means all remuneration for services performed by an employee for an employer under an employer–employee relationship, unless specifically excluded by the NIRC; this supports treating employee-directors’ fees as compensation income.
Section 79 in relation to Section 24(A) of the NIRC.
Section 32(A)(2) of the NIRC.
For non-employee directors, the circular indicates that amounts reported as part of gross income will lead to liability to pay business tax (VAT/percentage tax) on account of such receipt of income, and potentially income tax as part of the annual return computation.
Ask whether an employer–employee relationship exists between the paying corporation and the director. If the director is also an employee (e.g., President), the fees are compensation (withholding on wages; VAT exempt). If the director is not an employee and only attends/participates in board meetings, the fees are treated as gross income under Section 32(A)(2) with 10%/15% creditable withholding and possible VAT/percentage tax.