Pinoy expats

Pinoy expats

by Marivic C. Espano

With increasing globalization, it has been observed that employees have become more internationally mobile. In addition to the overseas contract workers (OCW) and seamen working abroad, we now have an increasing number of Filipino professionals employed by multinational companies who are given regional responsibilities in varied areas of operations — finance, IT, human resources, sales, etc.

Because of the relatively lower cost of living in the Philippines compared to other business centers in the region, these individuals remain based here although they are required to travel and visit operations in countries outside the Philippines.

Similarly, with the growing number of local companies tapping foreign markets, more Filipino employees are now being sent abroad to identify business opportunities, promote products or to actually implement the contracts that their company had won.

How are these Pinoy expats taxed in the Philippines?

The Pinoy expats that I described above do not qualify as OCWs since they do not have work contracts registered with the Philippine Overseas Employment Administration (POEA). These Pinoy expats remain under the employment of local companies or Philippine subsidiaries or affiliates of multinational companies.

Nonetheless, just like OCWs, these Pinoy expats will still be exempt from Philippine income tax on the compensation they received in connection with their work abroad if they qualify as non-resident citizens.

As defined, the term "nonresident citizen" refers to a Philippine citizen who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside there, or a Philippine citizen who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis.

Accordingly, one who has left the Philippines to work abroad under an employment or immigrant visa, or for the reason that he has acquired foreign citizenship, is considered a nonresident citizen. He will not be liable to pay income tax on the salaries he receives while working abroad or any income from his properties outside the Philippines.

A third definition of a nonresident citizen is also provided in the law — one who works and derives income from abroad and whose employment there requires him to be physically present abroad most of the time during the taxable year.

This one is ambiguous. Must the employer be foreign, or can it be a local entity? When can an individual be deemed to be abroad most of the time? If, upon the instruction of his employer, he went to Hong Kong for three months, returned to the Philippines after the assignment, then was sent to Singapore and China, each for two months, all within the same calendar year, will he qualify as a nonresident citizen under the definition?

These questions have been the subject of various rulings issued by the Bureau of Internal Revenue (BIR). In summary, the rulings held that there is no requirement on the nationality of the employer. A Philippine citizen who has a local employer will qualify as a nonresident citizen if, in connection with this employment, he is abroad for most of the time of the year.

One of the rulings cited a situation where the Filipino is seconded abroad to work on a project of his employer with a foreign client. The BIR has defined the phrase "most of the time" to mean that the said citizen shall have stayed abroad for at least 183 days in a taxable year.

Relatedly, it has also been asked whether the 183 days, for purposes of determining qualification of non-residency during a particular taxable year, shall be counted on a continuous or aggregate basis. Previous tax rulings had been silent on this is sue.

Recently, however, the BIR issued a ruling holding that the subject employee qualified as a nonresident since his stay abroad was for an aggregate period exceeding 183 days. The emp loyee described in the ruling was a marketing and research officer of a local real property company. As part of her responsibilities, she performs advertising, promotional, research and marketing activities abroad targeted at foreign-based Filipinos. For the year that was the subject of the ruling, she stayed abroad for an aggregate period of 252 days.

Interestingly, in a tax seminar held by our firm on pre-filing reminders where Deputy Commissioner Nelson Aspe was a resource speaker, this question was posed.

The kind Commissioner expressed the view that in deciding whether the individual can be considered a nonresident, his intention to reside abroad, in connection with the activities he performs there, must be ascertained. For example, if a Filipino visits different countries as part of his responsibilities as vice-president for sales of a Philippine company, he may remain to be considered a Philippine resident if he maintains his place of abode in the Philippines, even if his work required him to be out of the country for an aggregate period of more than 183 days.

Once again, this is an area requiring clarification from BIR. Our Pinoy expats need guidance in complying with their tax liabilities.

(The author is a tax partner at Punongbayan & Araullo, a member firm within Grant Thornton International Ltd. For comments and inquiries, please e-mail Marivic.Espano@pna.ph or call 886-5511.)