By: Hergie Anne C. De Guzman, CPA

The Philippine Government has been undertaking measures to prevent the spread of the COVID-19. This includes implementing a series of quarantines and restricting local and foreign travels, especially unnecessary travels. With the implementation of these, there are affected foreign individual or cross-border employees stranded in the Philippines and thereby causing issues and concern with regard to their taxability.

Revisiting Rules of Taxability of Income from Employment

Generally, the residence state has the power to tax the employment income of its resident taxpayers except when the employment is exercised in another State.

Exception to this exception is when the following conditions are met:

  1. The employee is not present in the Philippines for an aggregate period of 183 days in the taxable year of income (more than 120 and 90 days for residents of Poland and United States of America, respectively);
  2. The salary is paid to the employee by or on behalf of an nonresident employer of the Philippines; and, 
  3. The salary is not deductible against the profits of a permanent establishment of a foreign employer.

Philippines may tax the employment income of a foreign individual if any of the following is met:

  1. Presence in the Philippines for more than 183 days;
  2. The employer is a resident of the Philippines; and,
  3. The non-resident employer has a permanent establishment in the Philippines.

Are you a resident for tax purposes?

If you are a foreigner who has been prevented from leaving the Philippines due to the travel restrictions for COVID-19, you may be asking yourself the same question. We all know that tax treaties among countries determine an individual’s taxability and residence for tax purposes. BIR mentioned in the RMC that the tax treaty provisions will not be strictly applied to reduce the possible tax burdens and obligations and will consider such circumstances as “force majeure”.

The individual will not be regarded as being present in the Philippines for tax residence purposes for the period after the scheduled day of departure, provided that he/she leaves the Philippines as the circumstances would permit.

The RMC has laid down independent cases for illustration. 

Inadvertent Creation of Permanent Establishment

What is a Permanent Establishment (PE)?

Based on the Commentaries for Economic Co-operation and Development (OECD), PE exists if:

  • There is a place of business with some degree of permanence (not merely temporary or transitory) and,
  • Place through which the business of enterprise is wholly or partly carried on.

The issue on this is whether or not a PE has been unintentionally created due to the implementation of COVID-19 preventive measures.

  • Home Office PE 

Most employees of foreign enterprises are working from home to strictly follow the quarantine protocols. According to BIR, this would not create a PE of the foreign enterprise in the Philippines because the conduct of business activities lacks a certain degree of permanence and the home office is not at the disposal of the foreign enterprise.

However, it will be a PE if the home office is used on a continuous basis for carrying the business activities even after COVID-19 pandemic.

  1. Construction PE

Temporary interruptions of construction activities due to COVID-19 should still be included in computing the duration of a site and in determining whether such construction constitutes PE.

    2. Dependent Agent PE

Dependent agent will not create PE if the following are met:

    • The nonresident foreign corporation did not have permanent establishment in the Philippines before the effect of COVID-19;
    • There are no other changes in the company’s circumstances save for the extended stay of its employee, partner or agent in the Philippines because of travel restrictions; and,
    • The employee, partner or agent should leave the country as soon as the circumstances permit.

Documentary Requirements

The following documents are required to be submitted to BIR to prove that the extended presence of an individual is due to the impact of travel restrictions and quarantine for COVID-19:

  1. Authenticated sworn certification stating relevant facts and circumstances of the bona fide presence of the employee in the Philippines;
  2. Duly executed contract/s (needs to be consularized or apostille if executed abroad);
  3. Certified True Copy (CTC) of the confirmed booking or flight itinerary for original flight;
  4. CTC of the confirmed booking or flight itinerary for re-booked flight;
  5.  Certified copy of the travel advisory on the cancellation of flight issued by the airline company;
  6. CTC of boarding pass;
  7. CTC of employee’s passport, including blank pages; and,
  8. Other documents the BIR may deem necessary.


The RMC is effective immediately.

Read the full RMC 83-2020.