Capt. Welde C. Beja

November 6, 2007 BIR RULING [DA-575-07] Sections 22 & 23; BIR Ruling No. 033-00, DA-262-2003 & DA-293-2006 Capt. Welde C. Beja Palacio Grande Bldg. General Luna cor. Anda Sts. Intramuros, Manila S i r : This refers to your letter dated October 31, 2007 requesting for a ruling that you are exempt from the payment of income tax. As represented, you were a Master Mariner from January 1, 2003 to February 2006 on board several vessels of your employer, Seabound Marine Company, a Miami, Florida based corporation duly registered with Maritime De Manila Management Systems, Inc. From February 13, 2006 up to the present, you were assigned from time to time by your employer to evaluate personally the personnel and documents of seamen applying in your company through Maritime De Manila Management Systems, Inc. and stayed in the Philippines for no more than two (2) months in each engagement. In reply, please be informed that Section 23 (B) and (C) of the Tax Code of 1997, as amended, 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; (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;" EaHcDS 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, from January 1, 2003 to February 2006, you are considered a seaman within the definition of Section 23 of the Tax Code. Hence, the income you derived from sources outside the Philippines as an employee of a foreign principal on board its vessels operating outside of the Philippines is not subject to Philippine income tax. Moreover, beginning February 13, 2006 up to the present, you may still be considered a non-resident citizen if your services were rendered abroad for more than 183 days in each of the years 2006 and 2007 and, therefore, exempt from payment of 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]. 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. CSEHIa Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service