Definition of “Situs of Taxation” (Philippines)

This article lays out what “situs of taxation” means in Philippine law, how it operates across national and local taxes, and how to analyze hard cases (cross-border income, digital services, multiple branches, estates/donations, VAT, excise, and customs). It’s a general guide, not legal advice.

1) What “situs of taxation” means

Situs of taxation is the legally recognized place that connects a tax to a jurisdiction—the link that lets the Philippines (or a Philippine LGU) impose, compute, collect, and enforce a tax. In short: Which government may tax what—and why?

Typical connecting factors:

Territory/location (where property is located; where goods are produced or used; where services are performed; where a document is made or accepted)
Residence (of the taxpayer, payor, or issuer)
Source (where income is derived)
Destination/consumption (VAT and excise notions)
Nexus by activity or presence (business presence, branch/factory, “permanent establishment” in treaty cases)

The Constitution allows taxation subject to due process and equal protection; the situs rules implement territoriality, nationality/residence, and source of income principles in specific tax statutes.

2) National taxes: how situs works by tax type

A) Income tax (NIRC – core “source” rules)

Resident citizens & domestic corporations: taxed on worldwide income (situs by residence/creation).
Nonresident citizens, resident aliens, nonresident aliens, and foreign corporations: taxed only on Philippine-source income.

Key “source” tests (classics you’ll see in assessments and rulings):

Interest: Where the obligor is a resident (individual or domestic corp) → generally Philippine source.
Dividends: From domestic corps → Philippine source. From foreign corps → special “earnings-from-within” proportion tests (look-through rules) may apply.
Services: Where services are performed. Work physically performed in PH → PH source, even if paid from abroad.
Rentals & Royalties: Where the property is used (tangible property used in PH; IP exploited in PH) → Philippine source.
Real property gains: Where the real property is located (lex rei sitae).
Personal property sales (movables): Generally by place of sale/consummation; if produced in one country and sold in another, gains can be split/allocated (production vs. sale).
Transportation/telecom: Often by place of activity and special statutory rules; treaties may modify via permanent establishment (PE) articles.

Treaty overlay: If a tax treaty applies, it can limit PH taxing rights (e.g., lower withholding rates; tax business profits only if the foreigner has a PE in PH). Treaties don’t create tax, but reassign or cap jurisdiction.

B) Value-Added Tax (VAT) & percentage taxes

Goods: VAT follows destination/consumption and place of sale/transfer. Exports are generally zero-rated (consumed outside PH), while imports are VATable upon importation. Local sales are VATable in the Philippines.
Services: Where the service is performed/consumed in PH → VATable here. Many “exported services” qualify for 0% VAT if strict documentary and paid-in-acceptable foreign currency requirements are met.
Digital/remote services: Apply the same framework: supplier location, recipient status, and where the service is effectively used drive VAT; withholding and registration rules determine who collects.

VAT situs is about consumption in PH; zero-rating recognizes foreign consumption.

C) Excise taxes

Domestically produced excisable articles (e.g., petroleum, tobacco, alcohol, automobiles, certain sweetened beverages): excise attaches upon production/removal in the Philippines.
Imports: excise attaches upon importation into PH (together with customs duties and import VAT).
Exports: Typically not subject to Philippine excise once exported (destination country may tax).

Situs is place of production (local) or importation (customs territory).

D) Documentary Stamp Tax (DST)

Situs is driven by where the document/instrument is made, signed, issued, accepted, transferred, or used in the Philippines, and by status of the parties (e.g., shares in domestic corps).
Many cross-border instruments avoid PH DST unless the act or document has a Philippine locus (execution, acceptance, transfer) or involves property/rights with deemed PH situs.

E) Estate and donor’s taxes (situs by decedent/donor status and property location)

Estate tax:
- Resident citizens/resident aliens → worldwide gross estate.
- Nonresident aliens → only property with PH situs.
Donor’s tax:
- Citizens/residents → worldwide gifts.
- Nonresidents → only property with PH situs.

Situs of property for estate/donor’s purposes:

Real property: where located (in rem rule).
Tangible personal property: where located at time of death/donation.
Intangibles: special rules; many intangibles issued by Philippine entities (e.g., shares in domestic corporations) are deemed situated in the Philippines. There is a reciprocity rule that can exempt certain intangibles of nonresident aliens if the foreign country similarly exempts in favor of Filipinos.

F) Customs duties & import VAT

Situs is entry into Philippine customs territory. Importation occurs upon bringing goods into PH, with taxation at the port of entry when goods become liable to duties/taxes.

3) Local government taxes: situs under the Local Government Code (LGC)

LGUs (provinces, cities, municipalities, barangays) can levy taxes only within their territorial jurisdiction and only to the extent allowed by the LGC and special laws. Situs rules determine which LGU gets to tax a given business activity.

A) Local business taxes (LBT) — situs allocation

General rule: Tax is paid to the LGU where the business is conducted.
Branches, sales offices, factories, warehouses, plantations, project offices: The LGC contains allocation rules for where to pay and how to apportion gross sales/receipts. Typical patterns:
- Sales recorded at a branch/sales office → pay LBT to the LGU of that branch/office.
- Manufacturers, assemblers, contractors, and similar with a principal office and factory/plant/project office: gross sales/receipts are allocated between LGUs (commonly a portion to the principal office LGU and the larger portion to the factory/plant/project LGU where production happens).
- Route sales/mobile sales: situs is where the sale is made (LGU of the locality where goods are delivered and invoices issued).

Audit pain point: Where sales are recorded and where delivery/invoicing occurs can drive situs. Maintain branch-wise books and clear invoicing.

B) Franchise, amusement, and other specific local taxes

Banks and financial institutions: tax where the branch is located (and sometimes where the ATM or service facility operates).
Franchise tax: situs is where the franchise operates within the LGU.
Amusement tax: situs is where the amusement/event is held.

C) Real property tax (RPT)

Situs is the location of the real property—assessed and collected by the province or city (or municipality within Metro Manila) where the property sits. Improvements usually follow the land unless separately assessed by law.

D) Transfer taxes (local)

Situs is the LGU where the property is located (for real property transfers), or where the donor/decedent was domiciled under certain local regimes, subject to LGC and special rules.

E) Limits & exemptions

LGUs cannot tax the national government, its agencies/instrumentalities (subject to distinctions for GOCCs), and subjects already exclusively taxed by the National Government unless the LGC explicitly allows.
Inter-LGU boundary disputes affect situs; until resolved, collectors should follow status-quo arrangements or allocation agreements to avoid double taxation.

4) Putting it together: how to analyze a situs problem

Identify the tax type (income, VAT, excise, DST, estate/donor’s, customs, LBT/RPT).
Pick the connecting factor(s) that the statute uses for that tax (source of income, place of consumption, location of property, place of execution/acceptance, import entry, LGU branch/factory).
Check taxpayer status (resident vs. nonresident; domestic vs. foreign corp; treaty entitlement).
Map the facts to the rule (where was the service performed? where is the property? who is the obligor? where is the sale recorded? which branch delivered and invoiced?).
Apply any treaty/special law (permanent establishment, reduced rates, ecozone/freeport effects on customs/VAT/excise timing—note: ecozones are still Philippine territory; they change taxability, not sovereignty).
Watch documentation (in VAT, DST, and LGU taxes, documents and books of accounts often decide situs in practice).

5) Common edge cases

Cross-border services: Team works partly on-site in PH and partly abroad → allocate service income; PH-performed portion is Philippine source (income tax) and VATable unless zero-rated requirements are met.
IP royalties for online use: If the software/IP is used in PH (end users located here), royalties are Philippine-source; VAT/withholding may apply.
Drop-ship imports: Goods shipped straight to PH customers from abroad → import VAT/duties at entry; VAT on subsequent local sale also applies; income tax source looks to where title passes and business functions occur.
Marketplace facilitators & payment platforms: Situs depends on who is the seller of record, where the sale is booked, and where the consumer is (VAT).
Multiple branches: If the principal office books national accounts but delivery/invoicing is done by branches, LBT situs tends to favor branch LGUs; maintain clear invoicing/acceptance at the branch to avoid reallocation.
Estate/donor’s intangibles: Shares in domestic corporations are PH-situs intangibles even if stock certificates are kept abroad; reciprocity can exempt nonresident alien’s intangibles in specific circumstances.
Excise on removals: Moving excisable goods from a plant to a bonded warehouse or export → timing and excise status hinge on removal rules and bonding; exports generally not excised domestically.

6) Quick reference tables

Income tax source shortcuts

Category	Philippine-source indicator
Interest	Debtor is a resident or domestic corporation
Dividends	Paid by a domestic corporation (always PH-source); foreign corp → proportion tests
Services	Performed in PH (physical performance rule)
Rentals	Property used in PH
Royalties	IP used in PH
Real property gains	Property located in PH
Personal property gains	Place of sale/consummation; allocate if produced in PH/sold abroad (or vice versa)

Local taxes (situs cues)

Tax	Situs
Local Business Tax	Where business conducted; branch/factory/project rules allocate sales
Franchise/Amusement	Where franchise or event operates
Real Property Tax	Where the property is located
Local Transfer Taxes	Where property is located (realty) or as provided by LGC

7) Compliance & planning pointers

Document the facts that determine situs (invoices, delivery receipts, work logs, service location, acceptance, IP-use analytics, branch books).
Match contracts to reality (title passage clauses, delivery/acceptance, performance locations).
Check treaty positions early (residency certificates, PE analysis).
For LGU taxes, align sales recording and delivery/invoicing with intended situs; avoid double taxation by keeping clean branch-level records.
For VAT zero-rating, maintain full supporting documents (foreign currency inward remittance, non-resident status of customer, and service performance/benefit outside PH if applicable).
For estates/donations, inventory situs by asset class and review reciprocity for intangibles.

8) One-page checklist (issue-spotting)

Tax involved: Income / VAT / Excise / DST / Estate-Donor / Customs / LBT / RPT
Taxpayer status: Resident? Domestic entity? Treaty-protected?
Connecting factor: Source, location, use, performance, execution, import entry, branch/factory presence
Facts & documents: Where performed? Where used? Where delivered/invoiced? Where executed/accepted?
Treaty/special laws: PE? Reduced WHT? Ecozone/freeport effects?
Compute & file: Make the situs call in writing (workpapers), then withhold/collect/remit to the correct authority.

Final note

When in doubt, break the problem into (a) what activity or asset is being taxed, (b) which connecting factor the statute uses, and (c) what your documents prove. That is the heart of situs of taxation in the Philippines.