You are probably wondering whether you will pay tax 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.
Expatriates living in the Philippines are considered at residents in the country when they are not yet Filipino nationals. Those who do not live in the Philippines are considered as non-residents.
Non-residents are divided into three sub-categories:
- foreigners making a more than 180 days stay in the country during a tax year and who are involved in a trade or business generating income in the Philippines. In case their stay exceeds 180 days during a calendar year, they are considered to be involved in a trade or business in the Philippines, even if actually it is not the case. Note that the factor of being involved in a trade or business in the Philippines includes personal services.
- foreigners who are not involved in any trade or business in the Philippines, but making a maximum of 180 days stay without receiving any revenue from the Philippines.
- special expatriates having an employment contract who will pay tax at a lower rate than non-residents, who are not involved in a trade or business in the Philippines. This generally applies to foreigners who are employed by regional or zonal head offices of multinational companies, foreigners employed by oil services contractors and subcontractors and foreigners employed in the offshore banking sector.
Foreign residents are required to pay tax on their net taxable income at different rates ranging from 5% to 32%. In their case, tax is deducted at source by the employer. Thus, they do not have to go to the Tax Office.
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.
In the case of special foreigners, income tax is deducted at source from their gross income at a rate of 15% before any other deduction is made. This means that the employer will deduct the amount directly from the foreigner's income.
Foreign residents, for their part, will pay tax 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 the company's dividends.
As regard non-resident aliens who are not involved in trade or business in the Philippines, they have to pay tax 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 tax 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.
In short, tax rates in the Philippines vary from 0% to 32% depending on the amount of income:
- 5% - 0 to 10,000 pesos
- 10% - 10,001 to 30,000 pesos
- 15% - 30,001 to 70,000 pesos
- 20% - 70,001 to 140,000 pesos
- 25% - 140,001 to 250,000 pesos
- 30% - 250,001 to 500,000 pesos
- 32% - more than 500,000 pesos
Value added tax (VAT) is deducted at a rate of 12% in the Philippines.
Corporate income tax is deducted at a rate of 30% of a company's net income. 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% on gains received from stock exchange and 1% of the sale price of gains from stock exchange.
Inheritance and property tax are deducted at rates ranging from 5% and 20%.
Social security contributions usually vary from 33.30 to 500 pesos, depending on salary scales.