Compensation Paid by Foreign Shipping Companies to Filipino Seamen Employed as Crewmembers and Officers of Their Vessel

May 27, 1976 BIR RULING NO. 003-76 Compensation paid by foreign shipping companies to Filipino seamen who are employed as crewmembers and officers of their vessel . This refers to your letters dated May 27 and June 27, 1975 stating that you are the representative in the Philippines of non-resident foreign shipping companies which employed Filipino seamen as officers and crewmembers of the vessels; that the foreign shipping companies pay to the Filipino seamen 30% of their basic monthly salaries and the remaining 70% are remitted to you for payment in pesos to the families of the Filipino seamen in the Philippines and that since January, 1975, before actual payment of the said 70% family allotment, you deducted the corresponding withholding tax thereof and remitted the same to the Bureau of Internal Revenue. cdta Based on the foregoing facts, you posed the following questions: "1. What will happen now to the income tax we have already withheld and paid to the BIR? "2. In what currency should the seamen file their income tax? Can they deduct from the taxes due the Income Tax already withheld, and paid for by our Office to the BIR? "3. Is it necessary to inform the Withholding Tax Division that we will cease to withhold Income Tax from the Seamen's Income and stating the above explanations as our reason?" In reply thereto, I have the honor to inform you that our withholding tax law (Supplement A to Title II of the Tax Code) is not applicable and effective abroad. It appears only to wage income derived from sources within the Philippines. Compensation for services rendered or performed within the Philippines is income derived from sources within the Philippines. (Sec. 37(c)(3), NIRC, see also par. 45.33, Vol. 8 Workers' Law of Federal Income Taxation). Accordingly, compensation paid by foreign shipping companies to Filipino seamen who are employed as crewmembers and officers of their vessels which do not touch Philippine ports for services performed by them outside the Philippines, is not subject to the withholding tax. In the case, however, of the Filipino seamen working on board foreign vessels that touch Philippine ports to load and unload cargoes, their services are considered rendered partly within and partly without the Philippines, in which case, only that portion of their salaries which correspond to services rendered within the Philippines is subject to the withholding tax. The taxes withheld, if any, is allowed as a credit against the Philippine income tax whether the Filipino seaman is a resident or a non-resident citizen. The Filipino seamen whose compensation is not subject to the withholding tax as heretofore stated, can deduct the amount of tax already withheld by you (from their remittances to their families in the Philippines since January, 1975) from their income tax computed and arrived at in B.I.R. Form No. 17.01-0 which will be filed by them on or before April 15, 1976. Their income tax should be paid in dollars but if their income tax return (B.I.R. Form No. 17.01-0) are filed for them in the Philippines by their duly authorized representatives, their income tax may be paid in pesos at the prevailing rate of exchange of the peso to a dollar as adopted by the Bureau. However, the Filipino seaman, a portion of whose compensation is subject to the withholding tax, should file their income tax returns and pay the corresponding income tax thereon as resident citizens in accordance with the provisions of Sections 21 and 45(c) of the Tax Code, as amended. Our Withholding Tax Division is informed of this ruling. cdt