Expat Tax In The Philippines – Ultimate Tips You Need To Know
Expat Tax In Philippines – Expat Living In Philippines
The Philippines consists of 7,107 islands, and a coastline twice the length of that of the United States. It can claim to be Asia’s Beach Capital. Have fun with the warm crystal blue waters of both the China Sea and the Pacific Ocean. The Philippines is home to long, white sand beaches and bodies of water filled with a variety of marine life. Read on to discover important tips on US Expat Tax In Philippines.
Boracay Island is know for its sugary white sand beaches and azure blue waters. It is located on the northwestern tip of Panay, Western Visayas. One of the most sought after destinations is the island is White Beach. It is touted as the “finest beach in the world”. The water surrounding the island is shallow and the sand is finer and brighter than most beaches in the archipelago.
With the boom in tourism and business processing outsourcing in the Philippines, demand for U.S. tax services for expatriate workers will also rise.
Top Expat Cities
Below is our top 9 list of cities in Philippines for expats (in no particular order):
The cost of living in the Philippines is generally low. International living reports that you could live comfortably on $800-$1,200 dollars a month covering your housing, healthcare, food, and taxes. If you have $100,000, that would be enough to cover a comfortable living for 10.5 years.
Guide To U.S. Expat Tax In Philippines
The Tax Samaritan country guide to U.S. expat tax in Philippines provides a general review of the tax environment of Philippines and how that will impact your U.S. expatriate tax return as a U.S. Expat In Singapore.
As a U.S. taxpayer, all worldwide income is subject to taxation and reporting. For most expatriates you have a requirement to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from Philippines and the U.S.
For example, certain benefits are tax free in Philippines. But, in the U.S. these benefits are likely to be benefits that are subject to inclusion as taxable income in U.S. As such, there are a number of considerations related to US expat tax in Philippines. This brief article will address a few of those considerations.
Philippines Expat Income Taxes
Who Is Liable For Income Taxes In Philippines
Resident citizens are subject to tax on worldwide income while nonresident citizens, resident aliens, and nonresident aliens are subject to tax on income from Philippine sources.
The residence of foreign nationals determination is by the length and nature of an individual’s stay in the Philippines.
An individual is not deemed to be a resident if he or she comes to the Philippines for a definite purpose that is immediately accomplished. However, if the individual has an intention to make his or her home temporarily in the Philippines; and stay in the country for a longer time, they may be a tax resident.
Those who reside in the Philippines with the intention to permanently live in the country are residents. Those who acquire resident status remain keep this status for tax purposes until they leave the country with clear intention of abandoning their residence in the Philippines.
Nonresident aliens are classified as either engaged or not engaged in trade or business in the Philippines. A nonresident alien who lives in the Philippines for more than a total of 180 days during any calendar year is considered to be engaged in trade or business in the Philippines; any other nonresident alien is considered not to be not engaged in trade or business in the Philippines.
Tax Year In Philippines And Tax Filing And Payment Rules
The Philippines follows the calendar year as its tax year.
An income tax return must be filed, and the tax due paid, on or before April 15th of the current year for income derived in the previous year immediately preceding the current year. The tax due can be paid in two installments. The first at the time of filing the return. And, the second on or before October 15th following the end of the preceding tax year. If the deadline falls on a Saturday, Sunday or holiday, the due date is the next business day. Filing and payment extensions are not applicable.
If required, failure to file and pay the income tax return exposes the taxpayer to a 25% surcharge, interest and a compromise penalty not exceeding PHP 50,000.
Interest shall be assessed and collected on any unpaid amount of tax, at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.
Expat Tax Withholding in Philippines
For nonresident aliens engaged in a trade or business in the Philippines, dividends, shares in profits of partnerships taxed as corporations, interest, royalties, prizes in excess of PHP1 0,000 and other winnings (including Philippine Charity Sweepstakes Office winnings) are subject to final withholding tax at a rate of 20% of the gross amount. Royalties on musical compositions, books and other literary works are subject to a final withholding tax at a rate of 10%. Nonresident aliens are subject to taxation on
capital gains derived from sales of real property or shares in domestic corporations.
Nonresident aliens not engaged in a trade or business in the Philippines are subject to a final withholding tax of 25% on gross income. This includes fringe benefits, from all sources in the Philippines.
However, capital gains derived from sales of real property or from sales of shares in domestic corporations are subject to the same tax rates imposed on citizens and resident aliens.
What You Need To Know About U.S. Expat Tax In Philippines
When dealing with U.S. expat tax in Philippines, there are a number of
preferential expat tax treatments that may benefit your U.S. expatriate tax return.
In fact, for many U.S. expats, the Foreign Earned Income Exclusion (IRS Form 2555) and other deductions/credits can potentially reduce your U.S. income tax liability to zero.
Some of these preferential tax treatments or benefits for U.S. expat tax in Philippines include:
- If you are a U.S. citizen or resident alien of the US and you live in the Philippines, your US expat tax in the Philippines is based on your worldwide income. As such you must file a U.S. return for all the years that you are residing in Philippines. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that has an annual adjustment for inflation ($107,600 for 2020). In addition, you can exclude or deduct certain foreign housing amounts depending on other factors if you exceed the initial exclusion. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
When it comes to your U.S. expat tax in Philippines, most U.S. expatriates
worry about “double taxation” (i.e.,” – paying income tax to two different
countries on the same income – the U.S. and Philippines).
A U.S. taxpayer working overseas in Philippines may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.
Don’t Make This Mistake
A common but dangerous mistake is the assumption that if there are zero taxes when claiming these tax benefits that there is not US expat tax filing requirement.
That is not true.
If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit are not granted automatically and must be claimed on a properly filed tax U.S. return.
When faced with US expat tax in the Philippines there are many tax items to consider.
But the above are by far the most common preferential tax benefits.
With top-notch experience and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.
Philippines Foreign Bank Account Reporting – The FBAR (FinCen Form 114)
Another important tax deadline that frequently applies to US expat tax in Philippines is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114).
The FBAR filing deadline is April 15th (or the preceding business day if April 15th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date. There is no extension available for the FBAR deadline. Any reports after this date are a delinquent FBAR. However, in recent years, an automatic extension till October 15th is applicable.
The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during
the tax year.
If you have bank accounts at BDO Unibank Inc. (BDO), Metropolitan Bank & TCO (Metrobank), Land Bank of the Philippines (LBP), Bank of the Philippine Islands (BPI) and Philippine National Bank (PNB), China Banking Corp or at another bank in Philippines or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.
Philippine banks pay interest on bank account deposits. The Bangko Sentral ng Pilipinas is an excellent reference source.
Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.
U.S. – Philippines Social Security Totalization Agreement
The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes.
These agreements must be taken into account when determining whether any individual is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.
As of this time, The Philippines has not entered into a Totalization Agreement with the United States thus there is no opportunity to avoid double taxation of social security income for US U.S. expat tax in the Philippines.
U.S.- Philippines Tax Treaty And Tax Relief For U.S. Expat Tax In Philippines
The United States currently has a tax treaty with the Philippines. Many of the articles apply to non-resident aliens for U.S. tax purposes but can also extend certain benefits to U.S. citizens, residents, and green card holders (limited by the ‘Savings Clause’) so it is important to understand if you qualify for these benefits. See our Tax Samaritan Takeaways below for other valuable references.
Tax Samaritan Takeaways For U.S. Expats In Philippines
Please click on the hyperlinks below for additional takeaways for your expat tax in Philippines:
IRS Publication 54, Tax Guide for US U.S. Citizens and Resident Aliens Abroad
Philippines Bureau of Internal Revenue
U.S. Embassy in the Philippines
Republic of the Philippines Department of Foreign Affairs
Need advise on how to keep my passport in lieu of the new bill passed in US congress saying if a tax payer owes the IRS more than 50,000 they will have their passports revoked.
In regards to the new bill passed, if you have delinquent tax returns and/or tax debts, now is the time to file your late tax returns and make payment arrangements to head off the possibility of having your passport revoked. To read more about the recent changes, please see the following article here IRS Revoke Passport. We would be happy to discuss your situation.
All About Randall Brody
Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax returns.