BIR Ruling [DA-428-04]

August 10, 2004 BIR RULING [DA-428-04] Secs. 23 (c) & 22 (E) (3); 033-2000 Mr . Gerino A . Aguilar 340 Basa Compound, Zapote Las Pias City S i r : This refers to your letter dated March 26, 2004 requesting, in effect, for a ruling that the income you derived as an "overseas contract worker" is exempt from income tax. It is represented that you are an "overseas contract worker" or an "OCW" registered with the Philippine Overseas Employment Administration (POEA) who has worked in Shanghai, China as a Quality Coordinator for Shanghai General Motors for a period of six (6) months from October 1998 to July 1999; that Smithgroup Gexis, Inc., your domestic recruitment agency, deducted from your compensation from the above foreign recruitment employment contract as withholding tax the amount of P30,737.25; that you already filed a claim for refund at the BIR district level; that recently, you were notified by the district office that a favorable action has been taken relative to your claim for refund; that as your claim has been elevated to the Regional Finance Division for review and/or processing for the issuance of a check, a certain Estelita Otayco, Assistant Chief, Finance Division, Revenue Region No. 8, Makati City, held the processing in abeyance pending the resolution of the issue she raised that "an OCW is exempt from income tax only if his contract of service outside the country for a particular taxable year is more than 183 days". In reply, please be informed that Section 26(C) of the 1997 Tax Code, as amended, provides as follows: "(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 . . . " (Emphasis supplied). Corollary thereto, Section 22(E)(3) of the same Code provides that 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 shall be considered as a non-resident citizen. Accordingly, as an OCW, the time spent abroad is not material for tax exemption purposes. All that is required is for the worker's employment contract to pass through and be registered with the POEA. ( BIR Ruling No. 033-2000 dated Sept. 5, 2000 ) Since you are a registered OCW with the POEA, the income you derived from abroad is exempt from income tax, and thus, as a consequence, you are therefore entitled to a refund of the taxes withheld on your compensation income. 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. SCEHaD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group