International School Manila, Inc.

October 22, 2018 ITAD BIR RULING NO. 104-18 Article 20 (Teachers and Researchers) Philippines- China tax treaty International School Manila, Inc. University Parkway Fort Bonifacio 1634 Taguig City Attention: AAA _______________ Gentlemen : This refers to your tax treaty relief application filed on November 20, 2012 requesting confirmation that remuneration paid by International School Manila, Inc. ("International School") to BBB is exempt from income tax pursuant to the Agreement between the Government of the Republic of the Philippines and the Government of the People's Republic of China for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-China tax treaty") . FACTS It is represented that BBB is an Australian citizen and a resident of China based on her passport and Certificate of Residence issued by the Local Tax Bureau of Pudong in Shanghai Province under the State Administration of Taxation of China; that her name is not a registered business name in the Philippines based on a certification issued by the Department of Trade and Industry; that she has a Part-Time Teaching Employment with International School where she was contracted to teach for school year August 2012 to July 2013; and that International School is a private, non-profit, non-sectarian day school for boys and girls from Preschool to Grade 12. 1 CAIHTE RULING In reply, please be informed that BBB ,by reason of her stay in the Philippines for more than 180 days as a result of her employment, is considered a nonresident alien individual 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) (1),her income 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, paragraph 1 of the Philippines-China tax treaty provides relief to visiting teachers from China, thus: " Article 20 TEACHERS AND RESEARCHERS 1. Remuneration which an individual who is or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned State for the primary purpose of teaching, giving lectures or conducting research at a university, college, school or educational institution or scientific research institution recognized by the Government of the first-mentioned State derives for the purpose of such teaching, lectures or research shall not be taxed in the first-mentioned State, for a period of two years from the date of his first arrival in the first-mentioned State." Under Article 20, an individual resident of China who visits the Philippines with a primary purpose to teach, give lectures, or conduct research at a university, college, school or educational institution or scientific research institution recognized by the Government of the Philippines, shall be exempt from income tax in the Philippines for a period not exceeding two years from the date of his arrival with respect to income from such activities. DETACa Accordingly, since BBB is a resident of China immediately before visiting the Philippines and she has a contract to teach with International School ,a recognized school in the Philippines, remuneration paid to BBB by International School is exempt from income tax in the Philippines for a period not exceeding two years from the date of her first arrival in the Philippines, pursuant to Article 20, paragraph 1 of the Philippines-China tax treaty. Based on the date of arrival stamped on her passport, the exemption of BBB is valid from July 23, 2012 to July 22, 2014 . This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed 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.