Attention: PH Citizens with a Foreign Source Income

Are you working with foreign clients but with Filipino citizenship and residence? Do you have foreign income yet considered a domestic owned corporation domiciled in the PH? Are you concerned about how taxation works when your income comes from a foreign source as an OFW yet your permanent address is in the Philippines? If so, this article will be of great help to help avoid penalties for erroneous returns.

According to many tax services in Manila, Filipino individuals or local corporations can be taxed on all the income they receive worldwide sources. This includes income derived from foreign sources outside the country. If you fall into this category, it is very likely that the income you earn from foreign sources will be subject to juridical international double taxation.

List of Countries with Double Taxation Agreements with the PH

When you’re high at risk for double taxation, this means the imposition of comparable taxes in two or more stats for the same income and payment periods. The following is the list of the countries that have double taxation agreements (DTAs) with the Philippines:

How to Minimize the Double Taxation Legally

Expert tax and audit services in the Philippines advise that since double taxation cannot be stopped, the least that an individual or corporation can do is to minimize it by taking advantage of existing and valid tax treaty benefits.  The tax treaty benefits can either be in the form of a preferential tax rate or tax exemption. However, do note that the Tax Code has certain limitations on the appropriate amount you are expected to pay. For example, the taxes paid in a certain foreign country covering a particular income could be used as a credit against your tax dues to the BIR.

Moreover, you’ll only be able to avail of these benefits with countries that made a tax treaty agreement with the Philippines. To get the full treaty benefits, you would need to submit a TRC or a Tax Residency Certificate to the foreign jurisdiction. This certificate proves that you are indeed a Filipino resident and are subject to Philippines tax based on your foreign source income.

How to Apply for TRC

You will only be issued a TRC if you have an existing TIN or Tax Identification Number. Aside from having your TIN, the following is the list of required documents both for the individuals and non-individuals. Expert accounting services in the Philippines state that you must comply with all the requirements to be issued a TRC:

Individuals

• BIR Form No. 0902
• Certified copy of Contract signed by both parties
• Certified copy of BIR-registered invoice/receipt issued by the taxpayer to the income payor and the relevant Authority to Print Receipts and/or Invoices or certified copy of Permit to Use Computerized Accounting System/Loose-leaf Receipts or Invoices
• Certified copy of Proof of remittance (if income was already received)
• Passport booklet photocopy or Barangay Chairman issued Certificate of Residency if you did not leave the Philippines
• BIR Form No. 2316 or Annual Income Tax Return for the preceding year
• Notarized Special Power of Attorney (SPA) or authorization letter for the representative you authorize to sign the BIR form 0902 and file your TRC application

Non-Individuals

• BIR Form No. 0902 (signed by you or your authorized representative)
• Evidence of establishment in the Philippines
• Certified copy of Contract signed by both parties
• Certified copy of BIR-registered invoice/receipt issued by the taxpayer to the income payor and the relevant Authority to Print Receipts and/or Invoices or Permit to Use Computerized Accounting System/Loose-leaf Receipts or Invoices
• Certified copy of Proof of remittance (if income was already received)
• List of partners (for GPPs or general professional partnerships)
• BIR Form No. 2316 or Annual Income Tax Return for the preceding year
• Notarized Special Power of Attorney (SPA) or authorization letter for the representative you authorize to sign the BIR form 0902 and file your TRC application

Individual and corporate tax payers with income from foreign sources who are unable to secure the TRC may end up paying more. Without a TRC, you cannot claim foreign tax credits in excess of the appropriate amount of tax paid in the source state. As the one who receives the foreign income, you invoke the provisions of any treaty and must prove residency in the country based on Revenue Memorandum Order No. 43-2020 section 5.

If you don’t know what to do, it would be best to consult a certified public accountant to prepare all your documents and ascertain tax compliance. Call our tax and accounting services in Pasig for assistance. We offer free 30-minute consultations to get you started.