BIR Ruling [DA-369-05]

August 30, 2005 BIR RULING [DA-369-05] Sections 22 (E) (3), 23 (C) & 42 (C) (3) BIR Ruling No. DA-262-03 Mr. Rolando A. Valientes 30 San Diego St., Cotijos Subd. San Rafael, Rodriguez Rizal S i r : This refers to your letter dated May 30, 2005 requesting for a ruling on whether or not you are a non-resident citizen exempt from paying income tax on income derived from sources without the Philippines. As represented, you were directly hired by a Dutch-based company, Hybro B.V., a broiler breeding firm and appointed as Technical Advisor for Asia effective January 1, 2005. Your salary is paid directly from your headquarters in the Netherlands. As Technical Advisor for Asia, your responsibilities are as follows: 1. To increase and maintain the business of Hybro B.V. in your area of responsibility; 2. To give technical services to Parent Stock and GP customers of Hybro B.V. in the Asian region on poultry management, veterinary issues and in other related field; 3. To help and maintain sales with potential and existing customers in other countries (i.e., Sri Lanka, Malaysia), herein assisting Mr. V.P. Walk, Area Manager for Asia; 4. To maintain updated records on the performances of your products and keep the company informed of the products' performances in the field. As a Filipino, you render technical service to your customers in the Philippines. Although you are based here, your job requires you to travel and provide technical service to your clients in Sri Lanka and other Asian countries. You also have to be in your regional office in Bangkok, Thailand and your head office in the Netherlands to attend meetings and technical trainings. In reply, please be informed that Section 23(B) of the Tax Code of 1997, which took effect on January 1, 1998, provides as follows: "(B) A nonresident citizen is taxable only on income derived from sources within the Philippines . . ." Corollary thereto, Section 22(E)(3) of the same Code provides one of the definitions of the term 'non-resident citizen' of the Philippines, viz : "(3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year." Moreover, Section 42(C)(3) of the 1997 Tax Code states "(C) Gross Income From Sources Without the Philippines . The following items of gross income shall be treated as income from sources without the Philippines: (1) . . . (2) . . . (3) Compensation for labor or personal services performed without the Philippines; . . ." Thus, for purposes of exemption from income tax, a citizen must be deriving foreign-sourced income for being a non-resident citizen under Section 23(C) of the Tax Code of 1997 or for being an overseas contract worker (OCW) under Section 23(B) of the same Code. Accordingly, the issue on whether or not you are a non-resident citizen depends on whether your services are rendered abroad for more than 183 days in which case said services are exempt from Philippine income tax. In this connection, the phrase "most of the time" which is used in determining when a citizen's physical presence abroad will qualify him as non-resident, shall mean that the said citizen shall have stayed abroad for at least 183 days in a taxable year (Section 2(c), Revenue Regulations No. 1-79). aAHTDS Please be guided accordingly. Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue