International School Manila

April 3, 2018 ITAD BIR RULING NO. 065-18 Article 21 (Teachers) Philippines- United Kingdom of Great Britain and Northern Ireland tax treaty International School Manila University Parkway Fort Bonifacio 1634 Taguig City Attention: AAA __________ Gentlemen : This refers to your tax treaty relief applications filed on November 15, 2013 requesting confirmation that remuneration paid by International School Manila, Inc. (" International School ") to BBB and CCC (jointly, " the teachers ") are exempt from income tax pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-United Kingdom tax treaty") . FACTS It is represented that the above teachers are citizens and residents of the United Kingdom based on their passports and Certificates of Fiscal Residence issued by Her Majesty's Revenue and Customs; that the names of those teachers are not registered business names in the Philippines based on certifications issued by the Department of Trade and Industry; that they have Overseas Hire Contracts with International School where they were contracted to teach for school years August 2012 to July 2014 in the case of BBB and August 2013 to July 2015 in the care of CCC ;and that International School is a private, non-profit, non-sectarian day school for boys and girls from Preschool to Grade 12. 1 HTcADC RULING In reply, please be informed that the above teachers, by reason of their stay in the Philippines for more than 180 days as a result of their employment, are considered nonresident alien individuals engaged in trade or business under Section 25 (A) (1) of the National Internal Revenue Code of 1997, as amended (" Tax Code "),to wit: " SEC. 25. Tax on Nonresident Alien Individual. (A) Nonresident Alien Engaged in Trade or Business Within the Philippines. (1) In General. A nonresident alien individual engaged in trade or business in the Philippines shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual, on taxable income received from all sources within the Philippines. A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a 'nonresident alien doing business in the Philippines,' Section 22 (G) of this Code notwithstanding." Under Section 25 (A) (2),income of those teachers is taxed in the same manner as income derived by resident Filipino citizens and resident aliens in the Philippines, particularly: " TAX ON INDIVIDUALS " SEC. 24. Income Tax Rates. (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. xxx xxx xxx (2) Rates of Tax on Taxable Income of Individuals. The tax shall be computed in accordance with and at the rates established in the following schedule: Not over P10,000 5% Over P10,000 but not over P30,000 P500+10% of the excess over P10,000 Over P30,000 but not over P70,000 P2,500+15% of the excess over P30,000 Over P70,000 but not over P140,000 P8,500+20% of the excess over P70,000 Over P140,000 but not over P250,000 P22,500+25% of the excess over P140,000 Over P250,000 but not over P500,000 P50,000+30% of the excess over P250,000 Over P500,000 P125,000+32% of the excess over P500,000. For married individuals, the husband and wife, subject to the provision of Section 51 (D) hereof, shall compute separately their individual income tax based on their respective total taxable income: Provided, That if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. Provided, That minimum wage earners as defined in Section 22 (HH) of this Code shall be exempt from the payment of income tax on their taxable income: provided, further, That the holiday pay, overtime pay, night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax." However under Section 32 (B) (5) of the Tax Code, such income is exempt to the extent required by any treaty obligation on the Philippine government, to wit: " SEC. 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines." In this regard, Article 20 of the Philippines-United Kingdom tax treaty provides relief to visiting teachers from the United Kingdom, thus: " Article 20 TEACHERS An individual who, at the invitation of a university, college, school or other similar recognised educational institution in one of the Contracting States, visits that Contracting State for a period not exceeding two years solely for the purpose of teaching at such educational institution and who is, or was immediately before that visit, a resident of the other Contracting State shall be exempt from tax in the first-mentioned Contracting State on any remuneration for such teaching in respect of which he is subject to tax in the other Contracting State." Under Article 20, an individual resident of the United Kingdom who, at the invitation of a university, college, school or other similar recognised educational institution in the Philippines, visits the country to teach in such institution shall be exempt from tax for a period not exceeding two years on remuneration for teaching. DETACa Accordingly, since the above teachers are residents of the United Kingdom and have contracts to teach with International School ,remuneration paid to these teachers by International School are exempt from income tax in the Philippines for a period not exceeding two years pursuant to Article 20 of the Philippines-United Kingdom tax treaty. Based on the date of arrival stamped on their passports, the exemption is valid for BBB from July 23, 2012 to July 22, 2014 ,and for CCC from July 26, 2013 to July 25, 2015 . Thereafter, their remuneration is taxed in the Philippines in accordance with Section 25 (A) (2) of the Tax Code. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed or discovered that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. http://www.ismanila.org/About-Us .