Directors' Fees Received by Directors Who Are Not Employees of the Corporation are Not Subject to VAT or Percentage Tax and Business Tax

The Revenue Memorandum Circular No. 77-2008 was issued by the Bureau of Internal Revenue to clarify or reverse the law particularly the Revenue Memorandum Circular No. 34-2008 as the BIR ruled that directors receiving fees, per diems and allowances from corporations where they sit as members of the Board of Directors fall under the category of seller of services and, hence, liable to pay the 12% VAT or the 3% percentage tax.

In revisiting said issuance, it became evident or clear that the fees, per diems and allowances or honoraria being given to a director of a corporation are not derived from an economic or commercial activity that have been pursued "in the course of trade or business". Rather, said director's fees are remunerations paid in the exercise of a right of an owner in the management of a  corporation. Thus, not "in the course of trade or business" as contemplated under Section 105 of the Code. Such fees, per diems, allowances and other income received by the director as such, are therefore, exempt from the imposition of the 12% VAT or 3% percentage tax, notwithstanding that the said payments are not among those enumerated under Section 109 of the said Code.

Therefore, such income are exempt or not subject to from imposition of business tax.

Please refer ftp://ftp.bir.gov.ph/webadmin1/pdf/42932rmc%20no.%2077-2008.pdf of the full text of the Revenue Memorandum Circular No. 77-2008.