Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 77-2008)
It concerns the taxability of directors' fees received by directors who are not employees of the corporation for VAT or percentage tax purposes, as discussed in relation to Revenue Memorandum Circular No. 34-2008.
Yes, the Circular stated that directors' fees, including per diems or allowances paid to directors who are not employees, are subject to both income tax and VAT (12%) or 3% percentage tax if they do not meet the VAT threshold.
Any person who, in the course of trade or business, sells or provides services is subject to VAT. The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or economic activity including incidental transactions.
No. The RMC explains that directors are not considered sellers of services in the course of trade or business because their services are limited, non-continuous, and tied to ownership rights, rather than a regular commercial activity.
An individual must own at least one share of the capital stock of the corporation to be elected as a director.
The term is one year until his successor is elected.
According to Section 30, directors receive reasonable per diems unless otherwise provided by the by-laws. Total yearly compensation cannot exceed 10% of the corporation's net income from the preceding year.
Generally, directors are precluded from entering into contracts with the corporation, subject to conditions under Section 32 of the Corporation Code.
Because the fees are remunerations paid in exercise of ownership rights in management and not derived from trade or business activities. Hence, they are exempt from VAT and percentage tax despite not being listed explicitly under VAT exemptions.
It repealed the part of RMC No. 34-2008 that required directors who are not employees to pay VAT or percentage tax on their fees, clarifying that such fees are exempt from these taxes.