BIR Ruling

March 15, 1977 Messrs. Sycip, Salazar, Feliciano Hernandez & Castillo 3rd Floor, Far East Building Buendia Avenue, Makati Metro Manila Attention: Atty . Andres Gatmaitan Gentlemen : This refers to your letter dated February 1, 1977 stating that your client, the Engineering Equipment, Inc., a corporation organized under the laws of the Philippines, has a number of employees who are citizens of the Philippines assigned to Saudi Arabia and who have been working there for less than a taxable year; that thirty percent (30%) of their total wages is paid to them in pesos in the Philippines, and the balance of 70% is paid to them in Saudi Arabia. You now seek a ruling from this Office confirming your opinion that your client is required to withhold taxes only on the thirty percent (30%) portion of the salary of its Saudi Arabia based employees, paid to them in pesos in the Philippines, it being understood that the balance of seventy percent (70%) of their salary are also subject to Philippine income tax. cdta In reply, I have the honor to inform you that our withholding tax law (Supplement A to Title II of the Tax Code), not being applicable and effective abroad, applies only to wage income derived from sources within the Philippines. It covers compensation for services rendered or performed within the Philippines, it being income derived from sources within the Philippines (Sec. 37(c)(3), NIRC, see also par. 45.33, Vol. 8, Merten's Law Federal Income Taxation); and not compensation for services rendered or performed outside the Philippines, which is income derived from sources outside the Philippines. Accordingly, as income derived from sources outside the Philippines, the entire wages, whether paid within or without the Philippines, to the Filipino citizens employed by your client for their services actually performed and rendered in Saudi Arabia, are not subject to the withholding tax. However, since the Filipino workers of your client worked for less than a taxable year in Saudi Arabia, they must pay their income taxes on their taxable net income received during the taxable year from all sources within and without the Philippines computed in accordance with the graduated rates prescribed under Section 21 of the Tax Code, as amended. Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3