Service providers need not pay LGU taxes, fees outside HQ’s

Service contractors that provide temporary or outsourced workers—including those in a work-from-home (WFH) arrangement—need to pay local government taxes based on the location of their head office instead of their clients’ premises.

This is stated in the Department of Finance’s (DOF) local finance circular (LFC) which will take effect on Sept. 24, which provides the guidelines on local business taxes, fees and charges imposed on service contractors. It states that contractors whose clients are located in towns and cities where the contractors do not maintain any office are not liable to pay mayor’s or business permit fee.

Mainly affected are business process outsourcing firms with employees on WFH arrangement.

Before this LFC was issued, local government units (LGUs) would collect the mayor’s or business permit fee from such firms, including food delivery service firms that do not have any office there.

“We issued the circular to address the concerns [the DOF] has been receiving from taxpayers since 2015, specifically on the imposition of mayor’s or business permit fee on service contractors deploying temporary and outsourced personnel in the local government outside its principal office,” Finance Secretary Benjamin Diokno said.

However, the LGUs may impose occupation fees on those who are temporarily occupying posts that do not require government examination.