BIR Ruling [DA-607-04]

November 26, 2004 BIR RULING [DA-607-04] ESEC (Philippines),Inc. G/F Plaza B Building Northgate Avenue, Northgate Cyberzone Filinvest Alabang Muntinlupa City Attention: Ms. Belinda A. Co Finance Manager Gentlemen : This refers to your letter dated March 26, 2003 requesting for a ruling as to whether non-resident citizens are exempt from the payment of income tax, and consequently from withholding tax, on income derived from sources outside the Philippines, pursuant to Section 23(B) in relation to Section 22(E)(2) of the Tax Code of 1997. It is represented that ESEC (Philippines),Inc.,is a wholly-owned subsidiary of ESEC (Asia Pacific) Pte. Ltd. based in Singapore; and that as such, you are intending to have permanent employees reporting administratively to ESEC (Philippines),Inc. but reporting, functionally to ESEC Singapore; that these employees will be rendering services in Singapore and other parts of Asia, such as Malaysia, China and Taiwan. In rely thereto, please be informed that Section 22(E) of the Tax Code of 1997, as implemented by Revenue Regulations No. 9-99 defines the term non-resident citizen as: (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) ... Corollarily, Section 23(B) of the Tax Code of 1997 provides that a non-resident citizen is taxable only on income derived from sources within the Philippines. Moreover, in BIR Ruling No. DA554-99 dated September 27, 1999, this Office ruled that ". . . we accordingly confirm that pursuant to Section 23(B) in relation to Sections 22(E)(3) & (E)(4) and 42(A)(3) and 42(C)(3) of the Tax Code of 1997. Mr. Cabulgao was a nonresident citizen from January 1, 1998 to June 30, 1999, and therefore, he is not subject to income tax on his compensation income derived during his assignment as such Regional Audit Manager for Asia-Pacific Region in Bangkok, Thailand by Caltex Corporation for the said period January 1, 1998 to June 30, 1999, the date of his arrival in the Philippines. Consequently, no withholding tax should have been collected by CPI on the said compensation income during the period covering January 1, 1998 to June 30, 1991." IN VIEW OF THE FOREGOING, this Office holds that your employees who will be deriving income for services rendered in Singapore and other parts of Asia such as Malaysia, China and Taiwan in which they will be residents shall be exempt from income tax and consequently from withholding tax. SaDICE 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group