Metropolitan Bank & Trust Company

February 16, 2009 BIR RULING [DA-(I-003) 081-09] 22 (E); BIR Ruling No. 013-03 dtd 10/13/03 Metropolitan Bank & Trust Company Metrobank Plaza, Sen. Gil Puyat Avenue Makati City Attention: Ava Marie T. Ignacio Head, Institutional Accounting Division Gentlemen : This refers to your letter dated December 23, 2008 requesting confirmation of your opinion that your employee, Mrs. Melinda C. Ching, who is currently assigned in Taiwan, is a non-resident Filipino citizen and therefore exempt from income tax and consequently from withholding taxes on salaries, allowances, bonuses, fringe benefits, and other compensation she received in the Philippines. HICEca It is represented that Metropolitan Bank and Trust Company (Metrobank), is a domestic corporation organized and existing under the laws of the Philippines and operating as a universal bank with principal place of business at Sen. Gil J. Puyat Avenue, Makati City; that Metrobank is registered as payor of withholding taxes including withholding tax on compensation; that Metrobank maintains and operates several branches outside the Philippines as authorized by Bangko Sentral ng Pilipinas (BSP), principally to cater and serve the foreign currency remittance requirements of Filipino overseas workers; that one of these foreign branches is Taipei branch, with office address at 3 Floor, Chung Hsiao East Road, Section 4, Taipei, Taiwan. 10690 Republic of China, duly licensed to do business in Taiwan. It is further represented that Mrs. Melinda C. Ching, a regular employee of Metrobank, was assigned to Taipei branch as general manager effective March 1, 2007 up to September 30, 2009; that this assignment required Mrs. Ching to stay and render her services in Taiwan for the following number of days as revealed by entries made in the photocopies of her travel documents: A. Taxable year 2007 1) Jan. 25, 2007 to Feb. 22, 2007 (as tourist) 28 days 2) Mar. 5, 2007 to June 15, 2007 102 days 3) Jun. 19, 2007 to Sept. 4, 2007 77 days 4) Sept. 9, 2007 to Sept. 21, 2007 12 days 5) Sept. 25, 2007 to Nov. 3, 2007 39 days 6) Nov. 11, 2007 to Dec. 31, 2007 51 days Total no. of days in Taiwan in 2007 309 days Total no. of days (excluding days stayed 281 days "as tourist") B. Taxable year 2008 1) Jan. 1, 2008 to Feb. 5, 2008 35 days 2) Feb. 17, 2008 to March 15, 2008 27 days 3) March 23, 2008 to Sept. 3, 2008 164 days 4) Sept. 7, 2008 to Nov. 22, 2008 59 days 5) Nov. 9, 2008 to Nov. 22, 2008 13 days 6) Nov. 30, 2008 to Dec. 31, 2008 32 days Total no. of days in Taiwan in 2008 330 days And that aside from the allowance she receives from Taipei branch, Mrs. Ching continuously receives her regular salary in the Philippine and this is being subjected to income tax and consequently to withholding tax at the graduated rates of 5% to 32%. HESIcT In reply, please be informed that Section 22 (E) (3) of the 1997 Tax Code provides: "Sec. 22. Definition . When used in this Title: xxx xxx xxx (E) The term 'nonresident citizen' means: (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." In numerous rulings issued by the BIR, "most of the time" was interpreted as more than one hundred eighty three (183) days within a taxable year (BIR Ruling 013-2003, dated October 13, 2003, BIR Ruling No. [DA-369-05] dated August 30, 2005, BIR Ruling [DA-575-07] dated November 6, 2007). Considering that Mrs. Ching actually stayed in Taiwan for more than 183 days for taxable years 2007 and 2008, she is, thus, considered a non-resident citizen under Section 22 (E) (3) of the Tax Code for the said period. Having qualified as non-resident citizen, the compensation income she receives for services rendered outside the Philippines, though paid by Metrobank here in the Philippines, is exempt from income tax and consequently from withholding tax in accordance with section 42 (C) (3), in relation to section 23 (B) & (C), of the Tax Code, as implemented by Section 2.78.1 (A) (10) of Revenue Regulations (RR) 2-98, quoted hereunder: "SEC. 42. Income from sources within the Philippines . . . . (C) Gross Income from Sources Without the Philippines. The following items of gross income shall be treated as income from sources without the Philippines. . . . (3) Compensation for labor or personal services performed without the Philippines ; "SEC. 23. General Principles of Income Taxation in the Philippines . Except when otherwise provided in this Code: (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 derived from sources within the Philippines: . . .; "SEC. 2.78.1. Withholding of Income Tax on Compensation Income . (A) Compensation Income Defined . . . (10) Compensation for services performed outside the Philippines. Remuneration for services performed outside the Philippines by a resident citizen for a domestic or a resident foreign corporation or partnership, or for a non-resident corporation or partnership, or for a non-resident individual not engaged in trade or business in the Philippines shall be treated as compensation which is subject to tax. A non-resident citizen as defined in these regulations is taxable only on income derived from sources within the Philippines. In general, the situs of the income whether within or without the Philippines, is determined by the place where the service is rendered." Further, BIR Ruling 013-2003 cited earlier, held that: "The fact that their salaries are paid here in the Philippines does not mean that they do not derive income from abroad as the situs of compensation income is the place where the services are rendered pursuant to Section 2.78.1 of Revenue Regulations No. 2-98." In view of the foregoing, this Office hereby confirms your opinion that your employee, Mrs. Melinda C. Ching, who is currently assigned in Taiwan, is a non-resident Filipino citizen and therefore exempt from income tax and consequently from withholding taxes on salaries, allowances, bonuses, fringe benefits, and other compensation she received in the Philippines. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered as null and void. HAaDTI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service