October 13, 2003

BIR RULING NO. 013-03

101 22 (E) 000-00

DCCD Engineering Corporation

SOL Office Condominium Building
112 Amorsolo Street, Legaspi Village
1229 Makati City

Attention: Hermenegildo P. Manzano, Jr.

Corporate Secretary and Treasurer

Gentlemen :

This refers to your letter dated May 21, 2001 requesting for a ruling on
whether or not your regular employees assigned abroad qualify under the
"non-resident citizen" status and are, therefore, exempt from income taxes
and consequently from withholding taxes.
It is represented that DCCD Engineering Corporation (DCCD) is a
domestic corporation registered with the Securities and Exchange
Commission. It is an integrated engineering consulting firm generating
projects from local as well as from foreign sources both from the public and
private sector. It was able to secure a water supply project in Phnom Penh,
Cambodia requiring it to supervise for twenty (20) months the construction
phase thereof. The regular compensation of the employees sent abroad
including their thirteenth-month pay, project bonuses, sick leaves, vacation
leaves and other benefits are paid here in the Philippines.
In reply, please be informed of the following:
Re: First Query

Section 22(E) of the NIRC provides:

"Sec. 22. Definitions. — When used in this Title:

xxx xxx xxx

(E) The term 'nonresident citizen' means:

(1) A citizen of the Philippines who establishes to the
satisfaction of the Commissioner the fact of his
physical presence abroad with a definite intention
to reside therein.

(2) A citizen of the Philippines who leaves the Philippines

during the taxable year to reside abroad, either as
an immigrant or for employment on a permanent
basis.

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 (3) A citizen of the Philippines who works and derives
income from abroad and whose employment
thereat requires him to be physically present
abroad most of the time during the taxable year.

(4) A citizen who has been previously considered as

nonresident citizen and who arrives in the
Philippines at any time during the taxable year to
reside permanently in the Philippines shall likewise
be treated as a nonresident citizen for the taxable
year in which he arrives in the Philippines with
respect to his income derived from sources abroad
until the date of his arrival in the Philippines.

xxx xxx xxx

The regular employees you send to Phnom Penh, Cambodia to

supervise the construction of the water supply project of said country may
qualify as "nonresident citizens" of the Philippines under Section 22 (E) (3) of
the NIRC of 1997, supra., if their employment requires them to be present in
that foreign country most of the time during the taxable year, i.e., they stay
there for at least one hundred eighty-three (183) days or more.
The fact that their salaries are paid here in the Philippines does not
mean that they do not derive income from abroad as the situs of
compensation income is the place where the services are rendered pursuant
to Section 2.78.1 of Revenue Regulations No. 2-98, to wit:
"Sec. 2.78.1 Withholding of Income Tax on Compensation
Income —
xxx xxx xxx

(10) Compensation for services performed outside the

Philippines. —
Remuneration for services performed outside the Philippines by
a resident citizen of the Philippines for a domestic or a resident
foreign corporation or partnership, or for a non-resident corporation
or partnership, or for a non-resident individual not engaged in trade
or business in the Philippines shall be treated as compensation which
is subject to tax.

A non-resident citizen as defined in these regulations is taxable

only on income derived from sources within the Philippines. In
general, the situs of the income whether within or without the
Philippines, is determined by the place where the service is
rendered."

In view of the foregoing, said employees are not subject to income tax.
Section 23(C) of the NIRC of 1997 provides:
"(C) An individual citizen of the Philippines who is working and
deriving income abroad as an overseas contract worker is taxable
only on income from sources within the Philippines . . . ."

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 This ruling is being issued on the basis of the foregoing facts as
represented. However, if upon investigation, it will be disclosed that the
facts are different, then this ruling shall be considered as null and void.
DcAaSI

Very truly yours,

(SGD.) GUILLERMO L. PARAYNO, JR.

Commissioner of Internal Revenue

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