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You are probably wondering whether you will have to pay taxes in the Philippines and at what rates. Find out the answers to your queries in this article.

When moving to the Philippines, especially if you are going to work or set up a business there, you will probably have questions regarding the local tax system. Indeed, as in most countries, you are likely to pay income tax, as well as other types of taxes in the Philippines. However, tax is deducted under several conditions and at varied rates for different categories of foreigners. It is best to inquire about these beforehand.

General principles

Expatriates living in the Philippines who are not yet citizens are considered resident aliens while foreigners who do not live in the Philippines are considered as non-resident aliens. If you’re already a citizen but you are not living in the country, you’re a non-resident citizen.

Generally, the following principles apply in terms of individual taxation in the Philippines:

  • citizens living in the country are taxable on all income derived from sources within and outside the Philippines;
  • non-resident aliens and non-resident citizens are taxable only on their income within the Philippines; and
  • Philippine citizens working as an overseas contract worker (OFW) is only taxable from his income within the Philippines.

In terms of businesses:

  • domestic corporations (created within the Philippines) are taxable on all income within and outside the country; and
  • foreign corporations, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the country.

Tax rates

Foreign residents are required to pay taxes on their net taxable income at different rates ranging from 5% to 32% (this is standard for all taxable individuals). In their case, the employer deducts taxes at the source. Thus, they do not have to go to the Tax Office.

In short, tax rates in the Philippines vary from 0% to 32% depending on the amount of income:

  • 5% - 0 to 10,000 pesos
  • P500 10% of the excess over P10,000 - 10,001 to 30,000 pesos
  • P2,500 15% of the excess over P30,000 - 30,001 to 70,000 pesos
  • P8,500 20% of the excess over P70,000 - 70,001 to 140,000 pesos
  • P22,500 25% of the excess over P140,000 - 140,001 to 250,000 pesos
  • P50,000 30% of the excess over P250,000 - 250,001 to 500,000 pesos
  • P125,000 32% of the excess over P500,000 - more than 500,000 pesos

Most foreigners in the country are classified as resident aliens due to the duration of their stay and employment period in the Philippines. Hence, as foreign residents, income received in the country is treated in the same way as those of Filipino nationals.

Foreign residents, for their part, will pay taxes according to their passive income from Philippine sources (dividends, interest, royalties, annuities, wages, real estate profits, etc.).

Non-resident foreigners involved in a trade or business in the Philippines will also pay income tax at the same rates. Moreover, a final tax is levied at a rate of 20% on dividends received by non-resident foreigners from companies within the Philippines.

As regards to non-resident aliens who are not involved in trade or business in the Philippines, they have to pay taxes at a rate of 25% on gross income received in the Philippines, unless these are plus-values received from the sale of shares in a national company or from real estate. In this case, capital gains taxes will apply.

Finally, foreigners employed by regional head offices of multinational companies, offshore banking and oil contractors have to pay a 15% tax based on their gross income.

Other taxes

Value-added tax (VAT) is deducted at a rate of 12% in the Philippines.

Corporate income tax is deducted at a rate of 30% (domestic) or 35% (foreign) of a company's net income derived within (and without for domestic) the Philippines. However, preferential rates and exemptions apply. Preferential rates generally range from 2 % to 20%.

Regional companies offices have to pay a 10% tax.

Property tax varies according to the location. In general, it does not exceed 3% of the estimated value.

Tax on capital income is deducted at a rate of 6% on real estate, 5% on up to 100,000 pesos and 10% for amounts in excess of 100,000 for capital gains from the sale of shares not traded in the stock exchange. The tax on sale, barter or exchange of shares in the stock exchange is one-half of 1%.

Inheritance and property tax are deducted at rates ranging from 5% and 20%.

Social security contributions by the employee usually vary from 36.30 to 581.3 pesos in 2018, depending on salary scales.

 Useful links:

Bureau of Internal Revenue
Social Security System 2018 table

We do our best to provide accurate and up to date information. However, if you have noticed any inaccuracies in this article, please let us know in the comments section below.