Taxability of Non-resident Citizens of the Philippines

June 4, 1991 BIR RULING NO. 099-91 20 (e) (2) 000-00 099-91 Gentlemen : This refers to your letter dated April 22, 1991 requesting for a ruling that your engineers assigned overseas are subject to the withholding taxes due from "non-resident citizens" instead of from "resident citizens." cdta It is represented that your company, Philkoei International, Inc. (PKII Engineers) is a Filipino engineering consultancy firm which was incorporated in October 1989; that presently, you have outstanding contracts with Nippon Koei Co., Ltd. (NK) of Japan for furnishing Filipino engineers to perform consulting services for NK's various projects in Kenya, Africa; that relative thereto, you have two engineers, namely, Mr. Martino C. Dominguez and Mr. Joselito Y. Manrique, who are currently assigned to these projects in Kenya; that the period of assignment of Mr. Dominguez is from July 31, 1990 to November 30, 1991 while that of Mr. Joselito Y. Manrique is from February 18, 1991 to December 31, 1992; that the compensation of each one is stated in US dollars although paid in equivalent Philippine pesos, using the current exchange rate at the time of payment, and deposited directly to the employee's Peso Accounts with a local bank; that with respect thereto, the company's practice has been to withhold taxes from the compensation of its employees based on the rates specified in Section 21 (a) of the Tax Code, as amended; and that finally, you realized that the two aforementioned engineers should be classified as "non-resident citizens" whose income should be classified as "non-resident citizens" where income should be taxed based on Section 21 (b) of the same Tax Code. In reply, please be informed that Section 20 (e) (2) of the Tax Code, as amended, provides that, insofar as relevant to the case at hand, contract workers whose contracts 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 non-residents for such taxable year with respect to the income they derived from foreign sources from the date they actually departed from the Philippines. Messrs. Dominguez and Manrique, on the basis of the above, are considered non-resident citizens of the Philippines for the taxable year 1991, and also for the taxable year 1992, in the case of Mr. Manrique alone. For the taxable year 1991, both Messrs. Dominguez and Manrique are required to reside in Kenya, Africa and actually, to be physically present in the projects during the duration of their assignments. Under such circumstances, therefore, they are required to be physically present abroad not only most of the time but practically the whole time during the said taxable year. Accordingly, they are non-resident citizens of the Philippines. Mr. Dominguez, however, could not have been classified a non-resident citizen for the taxable year 1990 considering that his contract of employment commenced on July 31, 1990 only. Hence, he could not have been physically present outside of the country most of the time of 1990 inasmuch as he was out for less than 180 days. Accordingly, this Office is of the opinion as it hereby holds that the income of Messrs. Dominguez and Manrique for the year 1991 shall be taxed according to Section 21 (b) of the Tax Code, as amended. Mr. Manrique's income for 1992 shall likewise be taxed pursuant to Section 21 (b). However, the income of Mr. Dominguez for the taxable year 1990 was appropriately taxed on the basis of Section 21 (a) of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner