Filing of Income Tax Returns and Withholding of Taxes of Filipinos Working Abroad

May 30, 1973 BIR RULING NO. 018-73 Filing of income tax returns and withholding of taxes of Filipinos working abroad . FACTS: A Philippine corporation is undertaking construction projects in Vietnam, Laos and in the Republic of Zaire; and that it has under its employ, Filipino whose place of assignments are in the aforesaid countries under the following conditions and circumstances, viz: 1. The employees are on a yearly contract. 2. The employees are enjoying their fifteen (15) days vacation leave and/or fifteen (15) days sick leave with pay in the Philippines for every year of service. 3. The employees's salaries are paid in the Philippines to their families. 4. The corporation has been deducting the corresponding withholding taxes from the salaries of said employees; and 5. The employees have been filing their yearly returns under the BIR Form 1701A. It is explained in this connection, that the yearly contract of employment is renewable by the employer and employee; that aside from their salaries which are given to their families in the Philippines, certain allowances and per diems are also paid by the corporation to the said employees abroad; and that all such payments of salaries and allowances to the employees and their families in the Philippines pursuant to the above-mentioned contract of employment constitute the total compensation for services being rendered by the Filipino employees in corporation's construction projects outside the Philippines. The corporation now ask the following questions: 1. Whether said employees may continue filing their return under BIR Form 17.01A or under 17.01-C as non-resident citizens deriving income from abroad; and 2. If they can file under BIR 1701-C as non-resident citizens deriving income from abroad, is it still necessary for the employer to continue withholding the taxes from their salaries? Pursuant to Section 21 of the Tax Code, as amended by Presidential Decree No. 69, the Filipino employees adverted to are non-resident citizens who derive income from sources abroad on account of personal services performed by them outside the Philippines. (See also Sec. 37(c) (3), N.I.R.C.). The fact of their physical presence abroad for an uninterrupted period which includes an entire taxable year is indubitable, regardless of their fifteen (15) days vacation leave and/or fifteen (15) days sick leave with pay in the Philippines for every year of service which constitute a privilege or benefit necessary and incidental to their employment abroad. Accordingly, the aforementioned employees should file B.I.R. Form No. 17.01-C for the whole amount of remuneration paid to them on account of their services rendered outside the Philippines, which includes the salaries paid to their families in the Philippines plus their allowances and per diems abroad. Under Article 2, Supplement A to Title II of the Tax Code, the corporation as employer in this case, should continue to deduct and withhold the corresponding income tax on the income of such employees in accordance with the withholding table prescribed by Revenue Regulations No. V-8-A, as amended by Revenue Regulations No. 1-70. The employee may deduct the amount of tax withheld from his income tax computed and arrived at in BIR Form No. 17.01-C without changing the gross income basis of the tax. B.I.R. Form No. 17.01-C maybe filed in the Philippines for the non-resident citizen employee by his duly authorized representative or by the employee himself with the Philippine Embassy of Office of the Philippine Consulate General nearest to his place of residence, or mail such return directly to the Commissioner of Internal Revenue, together with an international money order, bank draft or manager's check for the amount of the tax due from him, which should be payable to the Commissioner of Internal Revenue. Said income tax return and money order, bank draft or manager's check should be mailed on such a date as to reach the Philippine Embassy, Philippine Consulate General or the Commissioner of Internal Revenue on or before April 15 following the year for which the return is being filed. Moreover, such employees should file B.I.R. Form No. 17.01 or BIR Form No. 17.01-A, if they also have an income derived from sources within the Philippines amounting to at least P1,800 during the taxable year, otherwise, they need not report such income.