Whether Certain Seamen Should be Taxed as Resident Citizens or as Non-Resident Citizens

January 6, 1995 BIR RULING NO. 004-95 21 (A) 000-00 004-95 Hammonia Marine Services, Inc. 5462 South Super Highway corner Gen. Malvar St., Makati Metro Manila Gentlemen : This refers to your letter dated June 9, 1994 stating that you are a manning agent engaged by non-resident foreign principals to recruit Filipino seaman for placements on board their vessels; that you recruit seamen in accordance with the Rules and Regulations of Philippine Overseas Employment Administration (POEA); that from April 1992 until today, you are recruiting seamen, for and in behalf on one of your principals Dorchester Maritime Ltd. (DML) a foreign company based in Isle of Man, England, on board a vessel with foreign flag which is stationed off Palawan, Philippines; that the compensation of seamen recruited for this vessel is remitted to you by DML in US dollars which you in turn pay to the seamen either in US dollars or Philippine peso in accordance with the choice of the seamen concerned; that you withhold taxes of the seamen in accordance with Section 21 (a) of the Tax Code (as resident citizens) as they are working within the Philippines for more than 183 days during a taxable year; and that on June 8, 1994, some of the seamen mentioned headed by Mr. Ramon Machica, came to you claiming that he was told by this Office that they should be taxed in accordance with Section 21 (b) of the Tax Code (as non-resident citizens) as their compensation is paid by a non-resident employer through an agent in the Philippines. Based on the foregoing representations, you now request in effect a ruling as to whether the aforementioned seamen should be taxed as resident citizens or as non-resident citizens. In reply, please be informed that under Section 20(e) of the Tax Code, as amended, the term "non-resident citizen" means: 1) One 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 leaving the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a more or less permanent basis and contract workers whose contract of employment are renewed from time to time within or during the taxable year under such circumstances as to require them to be physically present abroad most of the time during the taxable year, shall be considered as a non-resident for such taxable year with respect to the income he derived from foreign sources from the date he actually departed from the Philippines. 3) A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a non-resident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. 4) The taxpayer shall submit proof to the Commissioner of Internal Revenue to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purposes of the said Section of the Tax Code. Such being the case, and since the aforesaid seamen are working within the Philippines for more than 183 days during a taxable year, they do not therefore, fall within the purview of the above definition of non-resident citizen. Accordingly, this Office is of the opinion as it hereby holds that the said seamen are resident citizens. Hence, their compensation income even if paid by a foreign employer through an agent in the Philippines are subject to the tax imposed under Section 21(a) of the Tax Code, as amended. cdtech Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue