Forex Rate for Withholding Tax Collection

The income in foreign currency must be converted to Philippine Pesos using the applicable foreign exchange rate prevailing at the time the income is payable or paid.
Two acceptable rates are prescribed:
1. The interbank reference rate at the time the income is payable or paid, used when no actual foreign exchange transaction occurs, but only accrual recording in accounting books.
2. The bank conversion rate (buying or selling rate as applicable) at the time the income payment has been transacted at an authorized agent bank in the Philippines.

The foreign exchange rate used for conversion must be the same rate applied in the accounting records of the withholding agent to record the income payment or expense.
This ensures uniformity between tax and accounting records.

The withholding tax liability arising from foreign currency income payments is to be settled in Philippine currency.
This clarifies that despite the income being denominated in foreign currency, tax payments must be made in Philippine Pesos.

All previous revenue issuances inconsistent with these rules are amended or modified accordingly.

The circular was issued and adopted on July 27, 1992, by the Commissioner of Internal Revenue, Jose U. Ong.
It has binding effect on withholding agents and relevant taxpayers concerning foreign exchange conversion for withholding taxes.