BIR Ruling [DA-293-06]

May 3, 2006 BIR RULING [DA-293-06] DA-208-02; Sec 23 (C) Leonora F. Dio 55 China Road, Greenheights Subdivision Marikina City M a d a m : This refers to your letter dated December 28, 2005, requesting for a ruling on whether your husband's employment qualifies him as an overseas contract worker and exempts him from income tax during the period of his contract. It is represented that your husband, Lorenzo E. Dio , was employed by Royal Caribbean Cruises Ltd. (" Royal Caribbean " for brevity) as a musician on board one of its cruise ships last July 5, 2004, Mr. Dio's original contract was to last six (6) months during which he would be paid $825.00 a month plus other benefits. It is further represented that his contract was renewed upon its expiration this year so that your husband still remains employed by Royal Caribbean. You now wish to confirm if his employment qualifies him as an overseas contract worker under Section 23 (C) of the Tax Code of 1997, as amended, and thus, exempts him from paying income tax. In reply, please be informed that Section 23 (C) of the above Code provides that: "Sec. 23. General Principles of Income Taxation in the Philippines. Except when otherwise provided in this Code xxx xxx xxx (C) An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income from sources within the Philippines : Provided, That a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker." cICHTD In relation thereto, Section 42 of the same Tax Code provides that compensation for labor or personal services performed within the Philippines shall constitute income from sources within the Philippines. Conversely, compensation for labor or personal services performed without the Philippines shall be regarded as income from sources without the Philippines and shall not form part of the taxable compensation of an overseas contract worker. In view of the foregoing, Mr. Dio is found to be deriving his income from sources outside of the Philippines, being employed by a foreign principal on board a cruise vessel operating outside the Philippines. As such, he is regarded as an overseas contract worker and he may not be taxed on his income derived from his employment with Royal Caribbean. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service