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Taxation of those employed in embassiesPHILIPPINE nationals and alien individuals employed by foreign governments, embassies, diplomaticmissions and international organizations based in the Philippines have this impression that the salariesthey receive from their employment are exempt from income tax

 !pparently, this vie" is anchored on their misunderstanding of the rule that foreign governments,embassies, diplomatic missions and international organizations situated in the Philippines acting asemployers en#oy immunity from collecting taxes on salaries and emoluments of their employees, "hetherthey are foreigners or Philippine nationals

The immunity referred to under this rule refers actually to immunity from being constituted as "ithholdingagents of the Philippine government, "hich is accorded said foreign entities on the basis of internationalcomity as embodied in several international agreements to "hich the Philippines is a signatory, eg,$ienna %onvention for International &elations, %onvention on the Privileges and Immunities of the 'nitedNations

This immunity from the "ithholding tax obligation is further reiterated in (ection )*+-./-0/ of &evenue&egulations -&&/ No )12+, other"ise 3no"n as the 4ithholding Tax &egulations, "hich exempts from the

"ithholding tax system the remunerations paid by foreign governments and international organizations totheir employees "ho are resident or nationals of the Philippines

The confusion created by the above provision has prompted the .ureau of Internal &evenue -.I&/ toissue &evenue 5emorandum %ircular -&5%/ No 61)76 to further clarify the tax treatment of thistransaction

'nder &5% No 61)76, it has been clarified that the exemption from "ithholding taxes oncompensation of officials and employees applies to foreign governments, embassies, diplomatic missions,and international organizations, and that such exemption refers only to the obligation to collect tax, andtherefore does not e8uate to the exemption from paying the income tax itself

(ection )6 of the Tax %ode clearly sub#ects resident citizens of the Philippines on all income derived fromall sources, and alien individuals, "hether resident or non1resident, on income derived from Philippinesources, to Philippine income tax

Ho"ever, most international agreements "hich grant "ithholding tax immunity to foreign governments,embassies, diplomatic missions, and international organizations also grant exemption to their officials andemployees "ho are foreign nationals and9or non1Philippine residents from paying income tax on theirsalaries and emoluments

In these instances, &5% 61)76 emphasizes that the exemption granted should apply only to thoseindividuals "ho are expressly and une8uivocally identified in said international agreements or la"s, andshall not extend to those not specifically mentioned as tax exempt

In other "ords, employees "ho are not specifically mentioned as tax exempt in the internationalagreement or la" shall be sub#ect to the general rule on taxability of Philippine nationals and alien

individuals as espoused in (ection )6 of the Tax %ode

 !ccordingly, their compensation and emoluments are sub#ect to Philippine income tax, but exempt from"ithholding tax because their employer is exempt from the obligation to "ithhold tax

%onse8uently, it shall be incumbent upon the individual employees to report their income to the .I& andpay the taxes due thereon as re8uired under (ection ): of the Tax %ode

&5% No61)76 has further identified the specific individuals "ho are exempt from income tax as

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mentioned in the various international agreements, "hich I have enumerated briefly as follo"s;

Those employed by foreign embassies9foreign missions, "ho are;

< =iplomatic agents "ho are not nationals or permanent residents of the Philippines>

< 5embers of the family of the diplomatic agent forming part of his9her household "ho are not Philippinenationals>

< 5embers of the administrative and technical staff of the mission together "ith members of their familiesforming part of their respective households "ho are not nationals or permanent residents of thePhilippines>

< 5embers of the service staff of the mission "ho are not nationals or permanent residents of thePhilippines> and

< Private servants of members of the mission "ho are not nationals or permanent residents of thePhilippines

) Those employed by aid agencies of foreign governments, as identified in the agreement in place>

6 Those employed by the 'nited Nations and its specialized agencies, as identified in the agreement inplace>

: Those employed by organizations covered by separate international agreements or specific provisionsof la", as identified in the agreement in place> and

0 Employees of other aid agencies or international organizations, as identified in the agreement in place>

Exemption of employees of aid agencies or international organizations "ho are not mentioned in &5%No 61)76 "ill be evaluated based on the terms of the applicable articles of agreement, charters or hostagreements> or existing la"s granting tax exemptions or privileges to said agencies or organizations

Employees, "hether Philippine nationals and non1residents, "ho are not specifically identified under dulyrecognized international agreements or local la"s are re8uired to file their annual income tax returns onor before the 0th day of !pril of each year using .I& ?orm No *77 or *7, "hichever is applicable,declaring their respective compensation income for the preceding taxable year for services performed forsuch foreign entity or international organization

Employees "ho failed to file their annual tax returns for the taxable year )7) because of the confusionon the proper tax treatment of their compensation income, are allo"ed up to 5ay 0, )76 to file their)7) income tax returns and pay the taxes due on their compensation income "ithout surcharge, interest,and compromise penalty for late payment, as provided under && No *1)76

 !batement of surcharge, interest, and compromise penalty shall apply provided the foreign governments,embassies, diplomatic missions and international organizations acting as employers of these individuals

filed a summary list of their employees "ho are not tax exempt as of =ec 6, )7) before 5ay 7, )76

 !lthough the deadline prescribed by && No *1)76 has lapsed, &5% No 61)76 serves as an effectiveguidance to individual employees of foreign governments, embassies, diplomatic missions, andinternational organizations on the proper tax treatment of their compensation income