Ruling on Taxation of Income of and Benefits Received by Retirees

September 7, 1987 BIR RULING NO. 267-87 29 (b) (7) (C) 000-00 267-87 Gentlemen : This refers to your letter dated March 30, 1987 stating that the Philippine Retirement Authority is a government corporation created under and by virtue of Executive Order No. 1037 dated July 4, 1985; that one of its basic objectives is the development and promotion of the Philippines as a retirement haven for foreign nationals; that the retirement program is open to overseas Filipinos who have become permanent residents or citizens of another country and have resided abroad continuously for a period of at least seven (7) years and to foreign nationals who are 50 years old and over, who deposited US$50,000 or its equivalent in other acceptable foreign currencies with a commercial bank accredited with the Authority; and that aside from interest income from the said US $50,000 deposit requirement, the retirees may receive pensions, gratuities and other income from their respective countries of origin or other foreign countries. adc In this connection, you now request a ruling on the following: "(1) Is income of whatever nature received by a retiree from a foreign source subject to tax? "(2) In particular, assuming that a retiree has investments in HongKong or other foreign countries, are profits derived therefrom subject to tax? "(3) Are the properties of the retirees situated in the Philippines or abroad subject to estate tax upon his or her death? "(4) Assuming that the distribution of a decedent retirees' estate is governed by a will executed in the Philippines, what is the tax treatment of said estate insofar as the estate tax is concerned? Will properties or assets of the retiree situated abroad form part of his estate for purposes of the estate tax? In reply thereto, I have the honor to inform you as follows: (1) Pursuant to Section 21(a) of the Tax Code as amended, the retiree, whether a Filipino citizen or resident alien shall be subject to Philippine income tax on income received during each taxable year from all sources. However, social security benefits, retirement gratuities, pensions and other similar benefits received by the retirees, resident or non-resident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public are not subject to income tax. (Sec. 29 (b)(7)(c) of the Tax Code, as amended). (2) Profits derived by a retiree from his investments in HongKong or other foreign countries are subject to Philippine income tax. (3) All properties real or personal, tangible or intangible wherever situated shall form part of the gross estate of the retiree and shall be subject to the estate tax prescribed by Section 87 of the Tax Code as amended. (Sec. 88, Tax Code as amended). (4) Properties or assets of the retirees situated abroad shall form part of his gross estate for estate tax purposes. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner