Tax Liability of OFW on Income Derived from Sources Outside the Philippines

August 9, 1988 BIR RULING NO. 377-88 21 (b) 000-00 377-88 Gentlemen : This refers to your letter dated May 17, 1988 requesting information relative to the tax liability of Filipino Overseas workers on income derived by them from sources outside the Philippines. It is represented that your Office deals with Filipino Overseas Workers who as President Corazon Aquino put in her recent speech in HongKong, are the country's modern-day heroes for having a share in our economic recovery through their dollar remittance; and that what is actually happening now is that some foreign sources impose tax on their income and the Philippine government imposes another tax on same income. In reply, please be informed that a citizen leaving the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a more or less permanent basis and contract workers whose contract or employment are renewed from time to time within or during the taxable year under such circumstances as to require them to be physically present abroad most of the time during the taxable year, shall be considered as a non-resident for such taxable year with respect to the income he derived from foreign sources from the date he actually departed from the Philippines (Sec. 20(e)(2) Tax Code, as amended). Pursuant to Section 21(b) of the Tax Code, as amended, non-resident citizens, like Filipino overseas workers, are subject to tax upon the taxable income derived by them from all sources without the Philippines during each taxable year computed in accordance with the following schedule: cdtech If the amount subject to tax is: Not over U.S. $6,000.00 1% Over U.S. $6,000.00 but not over U.S. $20,000.00 U.S. $60 plus 2% of excess over U.S. $6,000.00 Over U.S. $20,000.00 U.S. $340 plus 3% of excess over U.S. $20,000.00 Moreover, in computing the taxable income subject to tax under Section 21(b) the following deductions shall be allowed from gross income derived by a non-resident citizen from sources without the Philippines: (1) An allowance for personal exemption in the amount of two thousand dollars (U.S. $2,000), if the person making the return is a single or a married person legally separated from his or her spouse; or four thousand dollars (U.S. $4,000), if the person making the return is married or head of the family, as defined in Section 29 of the Tax Code; and (2) The total amount of the national income tax actually paid to the government of the foreign country of his residence. For this purpose, every non-resident citizen availing of this deduction shall attach to his Philippines income tax return a copy of the income tax return he has filed with the government of the foreign country of his residence. (Sec. 29(m), Tax Code, as amended) It is admitted that the foreign country in which the Filipino overseas worker resides impose a tax on his income derived in said country. At the same time, said income is subjected to tax by the Philippine Government. Accordingly, it is for this reason that, under the aforesaid Section 29(m) of the Tax Code, the amount of tax paid to the foreign country can be deducted from the gross income of non-resident Filipino citizens before computing the tax payable to the Philippine Government. Undoubtedly, this provision seeks to lessen or eliminate the burden of Philippine income taxation as it affects our citizens residing abroad. cdri Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner