BIR Ruling [DA-001-02]

January 2, 2002 BIR RULING [DA-001-02] 22; 25 (A) (B) # 558-88; # 111-95 D-J Aerospace, Inc. Building 2016, Corregidor Highway, Naval Magazine Area, Subic Bay Free Port Zone Attention: Ms. Annalyn E. Cayetano Accountant Gentlemen : This refers to your letter dated May 11, 2001, which reads: "Attached herewith is the Certificate of Registration and Tax Exemption issued by the Subic Bay Metropolitan Authority (SBMA) confirming our registration as a Subic Bay Regional Enterprise (SBRE) effective April 23, 2001 per SBRE Certificate No. 2001-0001. In compliance, we have updated our registration with the BIR-SBF Office as an SBRE by filling up BIR Form No. 1905 (Application for Registration Information update) in order to apply Revenue Regulations No. 16-99 in our favor. Consequently, we shall likewise impose the 15% final tax per BIR Form No. 1601-F on our payment to alien individuals employed by our Company. In relation, should a nonresident alien stay here in the Philippines for not more than 180 days to do business with us, will he be exempt from the 15% final tax imposed on alien individuals employed by the Company? Please, advise." In reply, please be informed that under Section 22 (G) of the Tax Code of 1997, a nonresident alien shall mean an individual whose residence is not within the Philippines and who is not a citizen thereof. In addition to the definition as above-mentioned, Section 25(A) of the same Code provides further that is nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty(180) days during any calendar year shall be deemed a nonresident alien doing business in the Philippines, notwithstanding the definition of nonresident alien as provided under Section 22(G) of the 1997 Tax Code. Conversely, an alien who stays in the Philippines for less than 180 days is considered a non-resident alien not engaged in trade or business. In this regard, Section 25(B) of the 1997 Tax Code imposes a tax equivalent to twenty-five percent (25%) for each taxable year upon the entire income received from all sources within the Philippines by every non-resident alien individual not engaged in trade or business within the Philippines, as interest, cash and/or property dividends, rents, salaries, wages , premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodic or casual gains, profits and income and capital gains. It may be noted that Section 25(C) of the 1997 Tax Code, in relation to Article 61 of Republic Act No. 8756 ("An Act Providing for the Terms, Conditions and Licensing Requirements of Regional or Area Headquarters, Regional Operating Headquarters, and Regional Warehouses of Multinational Companies. Amending for the Purpose Certain Provisions of Executive Order No. 226, otherwise known as The Omnibus Investments Code of 1987"), imposes a tax equivalent to fifteen percent (15%) for each taxable year upon the gross income received by every alien individual employed by regional or area headquarters and regional operating headquarters established in the Philippines by multinational companies as salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances. SBREs, which are established under Revenue Regulations No. 16-99, are not the same entities as the regional or area headquarters or regional operating headquarters referred to in Section 25(C) of the Tax Code of 1997 and Republic Act No. 8756; thus, the 15% tax shall not apply to aliens employed by SBREs. Rather, the pertinent provisions of the Tax Code of 1997, particularly Section 25(A) or (B) thereof, as the case may be, shall apply to said persons. Accordingly, a non-resident alien individual employed by an SBRE, who shall stay in the Philippines for not more than 180 days shall be considered as a non-resident alien individual not engaged in trade or business and shall be subject to a tax equivalent to twenty-five percent (25%) of the entire income received from all sources within the Philippines pursuant to Section 25(B) of the 1997 Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue