BIR Ruling

August 5, 1968 Messrs. Ross, Salcedo, Del Rosario, Bito and Misa Ramon Magsaysay Center Roxas Blvd., Manila Gentlemen : This refers to your letter dated July 15, 1968 requesting information on a query stated as follows: "Our client is a domestic corporation engaged in the processing and sale of various kinds of tapes and other related products in the Philippines and exports and sells some of its products to the U.S. military forces and personnel in Vietnam, In order to intensify its sales in Vietnam, it intends to employ a non-resident alien, probably a U.S. or Australian citizen, to stay and work permanently in Bangkok or Saigon. This foreign-based employee will not perform any services in the Philippines, although on certain occasions he may be called to Manila for a two of three days' stay for briefing or instructions. All the salaries of this employee will be remitted and paid to him in Vietnam. "The question we present to you for ruling is whether or not these salaries are subject to Philippine income tax so that our client should withhold the taxes thereon. We respectfully submit they are not taxable for the reasons given below." In reply thereto, I have the honor to inform you that pursuant to Section 22(b) of the National Internal Revenue Code, income of a non-resident alien not engaged in trade or business within the Philippines shall be taxable only when the same are received from sources within the Philippines as salaries, wages, compensations or remunerations. So much so that if the compensations or remunerations are received from sources without the Philippines, the same are not taxable under the Philippine Income Tax Law. In determining however, whether earned income is from sources within or without the Philippines, the place where the services are performed or rendered controls. (Section 37(c)(3), National Internal Revenue Code; BIR Ruling No. 332, July 15, 1960). In view thereof, the compensation which will be paid to the alien employee who would be stationed in Bangkok or Saigon for services to be rendered in such countries for your client is exempt from the Philippines income tax and consequently from the withholding tax because said payments would be for services rendered outside the country. lexlib Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue