The bureau has issued Revenue Memorandum Circular (RMC) No. 130-2016 recently, to clarify the withholding taxes imposed on income payments made by departments and agencies of the government, including government owned and/or -controlled corporations and government financial institutions (GFIs) to individuals whose services are engaged under a contract of service or job order arrangement.
In the circular, it clarifies the terms "Contract of Service" and "Job Order" that there's no employer-employee relationship created under either a job order or contract of service, and that services rendered pursuant thereto shall not be considered as government service.
The clarifications are important for the tax treatment of remuneration/fees received by personnel under a job order or contract of for service:
l) Professionals Hired Under Contract For Services Or Job Order
A. Creditable Withholding T'ax under Section 2.57.2(A) of Revenue Regulations (RR) No. 2-98, as amended.
In general, individuals who follow an independent. trade, business, or profession, in which they offer their services to the public, are not employees.
For professionals who are paid for the services they render, they are subject to a withholding tax rate of 10% or 150%, whichever is applicable, on their gross professional fee
per Section 2.57.2(A) of RR. No. 2-98, as amended.
The amount subject to withholding tax under this paragraph
shall include not only fees. but also per diems. allowances and
any other form of income payments not subject to
withholding tax on compensation.
2. Non-Professionals Hired Under Contract For Services Or Job Order
A. Income Tax: No creditable withholding tax
Income payments to individuals who are not professionals under a contract for service or job order basis shall be not subject to creditable withholding tax rates provided by Section 2.57.2 of RR No. 2-98, as amended. However, such income payments shall be reported as income subject to income tax under Section 24 of the Tax Code of 1997, as amended, in relation to Section 51 of the same Tax Code.
With regards to the Tax Treatment Common to Professionals and Non-Professionals Hired Under Contract for Services or Job Order Basis and full text of the RMC please refer:
