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BIR Rulings on the Forex Gain or Loss of a PEZA Entity & Withholding Treatment of Field Personell

The Bureau of Internal Revenue (BIR) recently issued two rulings regarding the tax treatment of foreign exchange gains or losses of a PEZA-registered enterprise and the withholding tax exemption of per diem allowances provided to Filipino field service engineers.

In BIR Ruling No. 009-2023, dated February 16, 2023, B Co., a PEZA-registered Ecozone Export Enterprise, sought confirmation that foreign exchange gains arising from transactions directly attributable to its registered activities should be covered by the same income tax incentives as its registered activities. B Co. transacts with suppliers and clients using foreign currencies, resulting in foreign exchange gains or losses due to fluctuations in the values of foreign exchange on the date of recording and date of actual settlement.

The BIR ruled that the tax treatment of foreign exchange gains depends on the activities from which they arise. Therefore, the realized foreign exchange gains attributable to B Co.'s registered activities shall be covered by the same income tax incentives granted by PEZA, such as income tax holiday and/or 5% gross income tax, whichever is applicable. However, if the foreign exchange gain is not attributable to its registered activities, it shall be subject to the regular income tax rate.

Meanwhile, in BIR Ruling No. 008-2023, also dated February 16, 2023, M Co. sought confirmation that per diems provided to its Filipino field service engineers are exempt from withholding tax on compensation. Per diems cover the engineers' daily expenses incidental to the business and are pre-calculated based on the cost of living in a specific location where they will be deployed.

The BIR ruled that per diems paid to rank-and-file or managerial employees, in addition to their compensation relating to the ordinary and necessary expenses incurred or reasonably expected to be incurred in the performance of their duties and responsibilities, which are pre-computed on a daily basis and are paid to the employee on assignment or duty, are not subject to withholding tax and substantiation requirements. Additionally, allowances received by managerial employees that are necessary for the trade or business or for the convenience of the employer are fringe benefits exempt from fringe benefits tax.

These rulings provide much-needed clarity for PEZA-registered enterprises and companies that provide per diems to their employees. It is important to comply with these rulings to avoid any penalties or legal consequences that may arise due to non-compliance.

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