US Expat Tax In The Philippines

US Expat Tax In The Philippines

Expat Living In The Philippines

As you may know, the Philippines has a low cost of living and is well known for its friendly and smiling people. Living overseas in the Philippines will be a thrilling social experience with its old world culture and charm.

There is a lot to see and do in the Philippines. The country is blessed with a beautiful environment and skillful people whose talented hands created some of the most magnificent man-made structures in the world. Some of the sites that you should see include the UNESCO World Heritage Site, Banaue Rice Terraces; The well-preserved Spanish-style architecture in the historic town of Vigan, Ilocos Sur; The Baroque-style Philippine World Heritage site churches: the San Agustin Church in Paoay, Ilocos Norte, the Nuestra Senora de la Asuncion Church in Santa Maria, Ilocos Sur, San Agustin Church in Intramuros, Manila, and the Santo Tomas de Villanueva Church in Miag-ao, Iloilo.

The Philippines is a tropical country with one of the longest coastlines in Asia. It has numerous beaches most with fine powdery white sand and clean, clear and cool blue waters.

Below is a list of our top 9 cities/regions in the Philippines for foreigners to reside in (in no particular order):

  • Bacolod
  • Bicol Region
  • Cagayan de Oro
  • Cebu
  • Davao City
  • Iloilo
  • Manila
  • Pampanga
  • Zamboanga

Guide To US Expat Tax In The Philippines

The Tax Samaritan country guide to US expat tax in the Philippines is intended to provide a general review of the tax environment of the Philippines and how that will impact your U.S. expatriate tax return as a U.S. Expat In the Philippines.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for US expat tax in the Philippines you are required 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 the Philippines and the U.S. For example, certain benefits may be tax free or excluded from taxable income in the Philippines, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to US expat tax in the Philippines and this brief article will address a few of those considerations.

Philippines Expat Income Taxes

Who Is Liable For Income Taxes In The Philippines

In the Philippines, resident citizens are subject to tax on worldwide income. Nonresident citizens, resident aliens and nonresident aliens are subject to tax on income from Philippine sources.

Who Is A Tax Resident Of The Philippines
For foreign nationals, residence is determined by the length and nature of an individual’s stay in the Philippines. A person who comes to the Philippines for a definite purpose that is promptly accomplished is not deemed to be resident, but a person who comes for a definite purpose requiring an extended stay exceeding two years risks being considered a resident. Aliens who reside in the Philippines with the intention to remain permanently are considered a resident. Aliens who acquire residence in the Philippines remain residents until they depart with the intention of abandoning that residence.

Nonresident aliens are classified as either engaged or not engaged in trade or business in the Philippines. A nonresident alien who stays in the Philippines for more than a total of 180 days during any calendar year is deemed to be engaged in trade or business in the Philippines; any other nonresident alien is deemed to be not engaged in trade or business in the Philippines.

Tax Year In The Philippines And Tax Filing And Payment Rules

The tax year in the Philippines is the calendar year. An income tax return must be filed, and the tax due paid on or before April 15 for income derived in the preceding calendar year.

What You Need To Know About Living And Working In The Philippines For Your U.S. Expat Tax Return

When dealing with US expat tax in the Philippines, there a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats it will reduce your U.S. taxes to zero.

Some of these preferential tax treatments or benefits for US expat tax in the Philippines include the:

  • If you are a U.S. citizen or a resident alien of the United States and you live in the Philippines, US expat tax in the Philippines is based on your worldwide income and as such must file a U.S. return for all the years that you are residing in the 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 is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
  • When it comes to US expat tax in the Philippines, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and the Philippines. A U.S. taxpayer working overseas in the 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.

A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a return for US expat tax in The Philippines does not need to be filed. 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 applicable to the outcome of your tax liability until they are claimed on a filed tax 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 experienced 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.

The Philippines Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to US expat tax in the Philippines is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – FinCen Form 114).

The FBAR filing deadline is June 30th (or the preceding business day if June 30th 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 filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).

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 Banco De Oro Unibank (BDO), Metropolitan Bank, Bank of the Philippines Islands (BPI), Land Bank of the Philippines, Philippine National Bank (PNB) or at another bank in the 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.

U.S. – The Philippines Social Security Totalization Agreement

All individuals working in the Philippines must pay social security contributions. The employee’s contribution is approximately 3.39% of salary and is withheld by the employer. The employer’s contribution is approximately 7.39% of employees’ salaries. Self-employed persons must be covered.

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 alien 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 opportunity to avoid double taxation of social security income for US expat tax in the Philippines.

U.S.- The Philippines Tax Treaty And Tax Relief For US Expat Tax In The Philippines

The U.S. currently has a tax treaty with The Philippines. Please click on the link to the U.S. – Philippines Tax Treaty.

Qualified Dividends In The Philippines For Your Foreign Corporation or Investment

Since 2003, dividends paid to individual shareholders from either a domestic corporation or a “qualified foreign corporation” are subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States. Philippine foreign corporations are eligible for this lower “qualified” dividend rate and can be a significant benefit for reduced US expat tax in The Philippines.

Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our US expat tax in the Philippines. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in the Philippines. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.

Click the button below to request a Tax Preparation Quote today to get started with the preparation of your return for US expat tax in the Philippines or to request a free 30-minute tax consultation.

Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US expat tax in the Philippines and throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about US expat tax in the Philippines. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with US expat tax in the Philippines. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional US expat tax in the Philippines advice based on your individual needs.

2 responses to “US Expat Tax In The Philippines
  • 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.

      Best regards,

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