BIR Ruling [DA-390-04]

July 20, 2004 BIR RULING [DA-390-04] Sections 23 (B) & 24 (B) (1) BIR Ruling No. 042-2000 Mr. Francisco M. Reyes #500 Del Pilar St., Manggahan Pasig City 1611 S i r : This refers to your letter dated March 26, 2004 requesting on behalf of your sister, Romana M. Reyes, for exemption from the 7.5% final withholding tax on interest earned from her foreign currency deposits and information on other tax privileges accorded to OFWs and non-resident Filipinos. It is represented that Romana M. Reyes is a non-resident Filipino citizen; and that she acquired her permanent resident status in the U.S.A. in October of 2001. In reply, please be informed that Section 22(E) as implemented by Section 2 of Revenue Regulations (Rev. Regs.) No. 9-99 defines non-resident citizen as follows: "(1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. (2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis. (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. (4) A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a non-resident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. . . ." It appears that your sister, Romana M. Reyes is a non-resident citizen under group #2 above. As a non-resident citizen, she is taxable only on income derived from sources within the Philippines pursuant to Section 23(B) of the Tax Code of 1997. Moreover, she is exempt from filing income tax returns. However, she is required to make an information return with respect to her income derived from sources within the Philippines by accomplishing BIR Form No. 1701C or the new computerized Form No. 1703, properly labeling among others the appropriate "tax due space" as EXEMPT. The accomplished BIR Form No. 1701C or new BIR Form No. 1703 whichever is applicable, together with other relevant supporting papers (e.g. Employer's Declaration of Income Earned, Financial Statements), shall be filed not later than April 15 following the taxable year, with the Foreign Post or the Revenue District Office which has jurisdiction over her place of residence. Pursuant to Section 24(B)(1) of the Tax Code of 1997, interest income received by an individual taxpayer, except a non-resident individual, from a depository bank under the expanded foreign currency deposit system shall be subject to a final income tax at the rate of seven and one-half percent (7.5%) of such interest income (cited in BIR Ruling No. 042-2000 dated September 15, 2000 ). To avail of the exemption from the tax on interest income from foreign currency deposit, the depositor is required to execute a written permission allowing its depository bank to inform the Commissioner of Internal Revenue that as a non-resident, the depositor is exempt from the tax. A depositor who fails to comply with this requirement, which constitutes a limited waiver of the confidentiality of foreign currency deposits, shall not be entitled to the exemption privilege ( Section 2.58, Rev. Regs. No. 10-98 ). The non-resident individual must present evidence that he is not a resident of the Philippines, which evidence shall consist of the original or certified copy of any of the following: (1) An immigration visa issued by the foreign government in the country where he is a resident of; or (2) A certificate of residency which is issued by the Philippine Embassy or Consulate in the foreign country of his residence; or (3) A certificate of the contract of employment of an overseas contract worker which is duly registered with the Philippine Overseas Employment Agency (POEA); or a Seaman's Certificate, in the case of a Filipino seaman; or (4) A certification from the Bureau of Immigration of the Philippines that a non-resident alien is not a resident of the Philippines; or (5) A certification from the Department of Foreign Affairs (DFA) of the Philippines that the individual is a regular member of the diplomatic corps of a foreign government and is entitled to income tax exemption under an international agreement to which the Philippines is a signatory ( Section 2.24(B) of Rev. Regs. No. 10-98 ). Moreover, the Foreign Currency Bank Account must be in the name of the non-resident individual. In case of failure to comply with the above requirements, the 7.5% final withholding tax will be imposed on interest income from foreign currency deposit of the non-resident individual pursuant to Section 24(B)(1) of the Tax Code of 1997. If the bank account is jointly in the name of a non-resident citizen and his spouse or dependent who is a resident in the Philippines, 50% of the interest income from such bank deposit shall be treated as exempt while the other 50% shall be subject to the 7.5% final withholding tax subject to compliance of the above requirements. Whether the interest earned from the foreign currency deposits of Romana M. Reyes is subject to the 7.5% final withholding tax would depend on whether or not she complied with the requirements in the availment of the exemption under Rev. Regs. No. 10-98. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group