December 14, 1976 (c) a corporation or other juridical person organized under the laws of the
Philippines.
REVENUE REGULATIONS NO. 10-76
SUBJECT : Regulations Governing Taxation of Offshore Banks and Foreign
Currency Deposit Units of Depository Banks Established under P.D. 1034
and 1035, respectively
SECTION 1. Scope. — Pursuant to Section 338 of the National Internal
Revenue Code, as amended, the following regulations are hereby
promulgated to govern the manner of taxation of offshore banks and the
expanded Foreign Currency Deposit Units of depository banks established
under Presidential Decrees No. 1034 and 1035, respectively. These
regulations shall be known as Revenue Regulations No. 10-76.
SECTION 2. Definition of Terms. —
(1) "Offshore Banking" shall refer to the conduct of banking transactions in
foreign currencies involving the receipt of funds principally from external
sources and the utilization of such funds as provided in Presidential Decree
No. 1034.
(2) "Offshore Banking Unit" hereinafter referred to as OBU, shall mean a
branch, subsidiary or affiliate of a foreign banking corporation which is duly
authorized by the Central Bank of the Philippines, as a separate accounting
unit, to transact offshore banking business in the Philippines in accordance
with the provisions of P.D. 1034 as implemented by Central Bank Circular
No. 546.
(3) "Deposits" shall mean funds in foreign currencies which are accepted
and held by an off-shore banking unit in the regular course of business, with
the obligation to return an equivalent amount to the owner thereof, with or
without interest.
(4) "Resident" shall mean —
(a) an individual citizen of the Philippines residing therein;
(b) an individual who is not a citizen of the Philippines but is permanently
residing therein;
(d) a branch, subsidiary, affiliate, extension office or any other unit of
corporations or juridical persons organized under the laws of any foreign
country operating in the Philippines.
(5) "Non-resident" shall mean an individual, corporation or other juridical
person not included in the above definition of "residents".
(6) "Foreign Currency Deposit Unit" (FCDU) shall mean an accounting unit
or department in a local bank or in an existing local branch of foreign banks,
which is authorized by the Central Bank of the Philippines to operate under
the expanded foreign currency deposit system, in accordance with the
provisions of P.D. 1035, as implemented by Central Bank Circular No. 547.
The FCDU authority shall be distinguished from the authority to accept
foreign currency deposits under R.A. No. 6426, as implemented by Central
Bank Circular No. 343.
(7) "Gross offshore income" shall mean all income arising from transactions
allowed by the Central Bank of the Philippines conducted by and between —
(a) in the case of an offshore banking unit with another offshore banking
unit or with an expanded Foreign Currency Deposit unit or with a non-
resident;
(b) in the case of an expanded Foreign Currency Deposit Unit with another
expanded Foreign Currency Deposit Unit or with an Offshore Banking Unit
or with a non-resident.
(8) "Gross onshore income" shall mean gross interest income arising from
foreign currency loans and advances to and/or investments with residents
made by Offshore Banking Units or expanded Foreign Currency Deposit
Units. Such gross interest income shall include all fees, commissions and
other charges which are integral parts of the income from the above
transactions.
SECTION 3. Rates of income tax to be imposed. —
The rates or income tax to be imposed, which shall be in lieu of all other
taxes such as, but not limited to privilege tax, gross receipts tax,
documentary and science stamp tax and profit remittance tax, are as
followers:
(a) On offshore income, there shall be imposed an income tax of five percent
(5%) based on net offshore income as computed in Section 4. Income
realized by offshore banking units on transactions with local commercial
banks including branches of foreign banks that may be authorized by the
Central Bank of the Philippines to transact business with offshore banking
units shall likewise be subject to the same tax, except net income from such
transactions as may be specified by the Secretary of Finance, upon
recommendation of the Monetary Board, to be subject to the usual income
tax payable by banks.
(b) In the case of gross onshore income as defined in Section 2(h) above, the
tax shall be ten percent (10%) thereof and shall be a final tax.
(c) Income not covered by paragraphs (a) and (b) above shall be subject to
the usual corporate taxes imposed by the National Internal Revenue Code,
as amended.
SECTION 4. Manner of computation of net income. —
(1) Net offshore income for purposes of Section 3, paragraph (a) above, shall
be the amount remaining after deducting from the gross offshore income
during the taxable year the following items:
(a) the proportion of total interest expenses for the same period based on
the ratio of offshore interest income which bears to the total gross
interest income;
(b) the proportion of general administrative expenses based on the ratio
of net offshore income which bears to the total net income after deducting
only interest expenses mentioned in sub-paragraph (1) above.
(c)Likewise, there shall be allowed a reasonable amount of head office
expenses in accordance with the ratio specified in subparagraph (2)
above.
(2) In the case of onshore income, the gross interest income without the
benefit of any deduction corresponding to the allocable onshore income,
shall be the amount upon which the ten percent (10%) withholding income
tax shall be computed.
SECTION 5. Manner of filing returns and payment of taxes. —
Within sixty (60) days after the end of each of the first three quarters of the
calendar or fiscal year.
(a) for offshore income and other income mentioned In Section 3(c) —a
return of net taxable offshore income shall be filed with, and the tax due
thereon paid, to the Commissioner of Internal Revenue, Revenue Regional
Director, Revenue District Officer or the Collection Agent of the City or
Municipality where the corporation's principal office is located and where
its books of accounts and other data from which the return is prepared are
kept, by every offshore banking units and expanded Foreign Currency
Deposit Units, regardless of whether there is tax due or not. For these
purposes, B.I.R. Form No. 17.02-Q shall be used and the appropriate rates, as
enumerated in Section 3 above, shall be applied accordingly.
(b) for onshore income —in the case of onshore income realized by an
offshore banking unit or by an expanded Foreign Currency Deposit Unit, the
income need not be included in the quarterly income tax return to be filed
as required above as the payor-borrower under Section 53, in relation to
Section 54, of the National Internal Revenue Code, is constituted as the
withholding agent charged with the obligation of deducting, withholding
and remitting to the Commissioner of Internal Revenue the income tax due SECTION 7. Records to be kept. —
thereon within the period prescribed by law with the appropriate return in
accordance with existing revenue and Central Bank regulations. Every offshore banking unit, as well as expanded Foreign Currency Deposit
Unit, which is duly authorized by the Central Bank of the Philippines to
A copy of the quarterly return filed, together with the copy of the official transact offshore banking business in the Philippines shall maintain books
receipt denoting payments thereon, shall be furnished direct to the offshore of account which shall be kept in the place of its principal place of business
banking unit or foreign currency deposit unit concerned, which shall in turn for inspection.
submit to the Bureau of Internal Revenue said documents accompanied by
statement showing a list of all its domestic borrowers, amount borrowed In addition, all the supporting data which were used in compiling the
and interest income thereon. The statement with its attachments, shall be summary statement required to be attached to the income tax returns to be
filed together with the quarterly return required above. filed as prescribed under Section 6 hereof must likewise be made readily
available at its principal place of business.
A final consolidated return or an adjustment return on B.I.R. Form 1702
covering the total taxable onshore and offshore income for the preceding
calendar or fiscal year shall be filed on or before the 15th day of the fourth
SECTION 8. Income of non-resident. —
month following the close of the calendar or fiscal year.
Any income of non-residents from transactions with either an offshore
The return shall include all the items of gross income and deductions for the
banking unit or with an expanded Foreign Currency Deposit Unit shall be
whole taxable year. The tax shown on the final or adjustment return, after
exempt from any and all taxes.
deducting therefrom the quarterly income taxes paid and withheld during
the preceding three quarters of the same taxable year, shall either be paid
upon filing, or refunded as the case may be.
SECTION 9. Income of foreign personnel. —

There shall be levied, collected and paid for each taxable year upon the
SECTION 6. Statement to be attached to the return. — gross income received by every alien individual employed by offshore
banking units in the Philippines as salaries, wages, annuities,
There shall be attached to the final consolidated return or adjustment
compensations, remunerations and emoluments from such offshore banking
return of the taxpayer for such taxable year a sworn statement, a specimen
units a tax equal to fifteen (15%) percent of such gross income. The
form of which is hereto attached, by a responsible officer setting forth in
aforesaid tax shall be deducted and withheld at source in the same manner
summarized form the pertinent information required by these regulations
and condition as that provided under Supplement "A" — Withholding on
with respect to the computation of the net offshore income, gross onshore
Wages of Commonwealth Act No. 466, as amended.
income and taxes paid or withheld.
SECTION 10. Privileges of the offshore banking units. —

The offshore banking units shall be exempt from all forms of local licenses,
fees, dues, imposts or any other local taxes or burdens.

The license fee paid by offshore banking units shall be allowed as a

deduction in accordance with Section 4 of these regulations.

SECTION 11. Registration. —

Offshore a Banking Units and expanded Foreign Currency Deposit Units

shall, upon receipt of advice from the Central Bank, register with the Bureau
of Internal Revenue its business name for the purpose of —

a. registering its trade name;

b. registering as an employer pursuant to the provision of R. A. 466;

c. registering its name for the purpose of securing its taxpayer account
number (TAN).

SECTION 12. Repealing Clause. —

All regulations, rulings or orders or portion thereof, which are inconsistent

with the provisions of these regulations are hereby revoked.

SECTION 13. Effectivity. —

These regulations shall apply to income received beginning with taxable

year starting after January 1, 1977.