Preferential Tax Rate Imposed on Non-Resident Citizen

March 22, 1989 BIR RULING NO. 043-89 21 (b) 000-00 043-89 Gentlemen : This refers to your letter April 18, 1988 stating that you have entered into a joint venture agreement with the owners of the Palace Hotel, Beijing, People's Republic of China; that under the said agreement, you act as management operator of the Palace Hotel; that some of your Filipino employees are being appointed to various positions at the Palace Hotel; that some Manila Hotel employees have assumed their positions even during the pre-opening period; that their contract with Palace Hotel commenced when they left for Beijing; that to minimize expenses to the Palace Hotel Management, you plan to schedule the departures of your employees abroad. Based on the foregoing facts, you now request for a ruling as to whether the abovementioned Manila Hotel Filipino employees are considered permanent employees abroad for Philippine income tax purposes. In reply, please be informed that Section 2 of Revenue Regulations No. 1-79 dated January 8, 1979 implementing Section 21(b) of the Tax Code, as amended define permanent employee as compared to that of a contract worker, as follows: "SEC. 2. Who are Considered as Non-resident Citizen . The term "non-resident citizen" means one who establishes to the satisfaction of the Commissioner of Internal Revenue the fact of his physical presence abroad with the definite intention to reside therein and shall include any Filipino who leaves the country during the taxable year as: casia "(a) . . . . . . "(b) Permanent employee one who leaves the Philippines to reside abroad for employment on a more or less permanent basis. "(c) Contract Worker one who leaves the Philippines on account of a contract of employment which is renewed from time to time within or during the taxable year under such circumstances as to require him to be physically present abroad most of the time during the taxable year. To be considered physically present abroad most of the time during the taxable year, a contract worker must have been outside the Philippines for not less than 183 days during such taxable year." "Any such Filipino shall be considered a non-resident citizen for such taxable year with respect to the income he derived from foreign sources from the date he actually departed from the Philippines. xxx xxx xxx" Whether or not the status of an employee is permanent or contractual depends on the nature of his employment or appointment. If his employment is covered by a contract, renewable from time to time he is a contract worker and as such, he is required to show proof of his physical presence abroad for at least 183 days to avail to the preferential tax rate on the adjusted gross income. On the other hand, if the status of employment abroad is regular, he is a permanent employee even if his stay abroad is less than 183 days. From the foregoing definition of permanent employees, two requisites are descriptive thereof; that the individual citizen enjoy the status of a regular employee; and that he resides abroad (because of his employment) on a more or less permanent basis which means that for the time being he has a fixed residence abroad which is not transitory. In view thereof, this Office is of the opinion as it hereby holds that your employees who are deployed in Beijing to assume various positions at the Palace Hotel under and by virtue of a joint venture agreement with the owners thereof shall be considered contractual employees. Accordingly, in order to be considered as a non-resident citizen subject to the preferential tax rate prescribed under Section 21(b) of the Tax Code, they shall be required to show proof of physical presence abroad for a period of at least 183 days reckoned from the date he actually departed from the Philippines as required under Revenue Regulations No. 1-79. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner