QuestionsQuestions (BIR REVENUE REGULATIONS NO. 1-2011)
To clarify who are considered OCWs/OFWs for tax purposes and to define the tax treatment of their income earned within and outside the Philippines.
They must be physically present in a foreign country because of their employment there; their salaries and wages are paid by an employer abroad and not borne by any entity/person in the Philippines; and they must be duly registered as such with POEA with a valid Overseas Employment Certificate (OEC).
Seafarers/seamen are Filipinos who receive compensation abroad as members of the complement of a vessel engaged exclusively in international trade. They must be duly registered with POEA with a valid OEC and have a valid Seafarers Identification Record Book (SIRB) or Seamanas Book issued by MARINA.
They are taxable only on income from sources within the Philippines. Hence, income arising out of overseas employment is exempt from Philippine income tax.
Such income earnings from within the Philippines are subject to Philippine income tax under the regular or passive income tax rules specified in RR No. 1-2011.
Regular income is taxed using the regular individual income tax rates of 5% to 32% of taxable income.
20% final tax on interest income from any currency bank deposit and yield/monetary benefit from deposit substitutes and from trust funds and similar arrangements.
(a) 20% final tax on royalties; (b) 10% final tax on royalties related to books, as well as literary works and musical compositions.
(a) If P10,000 or less, it is subject to the regular income tax rates of 5%–32%; (b) if more than P10,000, it is subject to 20% final tax, except for Philippine Charity Sweepstakes and Lotto winnings.
Exemption from 7.5% final tax upon presentation of proof of non-residency such as OEC or Seamanas Book. If the account is jointly in the name of the OCW/seaman and a Filipino spouse/dependent living in the Philippines, 50% of the interest is exempt and the other 50% is subject to 7.5% final withholding tax.
Dividends: 10% final tax on cash or property dividends. Shares (net capital gains): 5%/10% final tax on net capital gains realized on sale, barter, exchange or other disposition of shares in a domestic corporation (except shares sold/disposed through the stock exchange).
It imposes a 6% final tax on capital gains from the sale/exchange/disposition of real property located in the Philippines classified as capital assets based on the gross selling price or current fair market value, whichever is higher.
It provides final tax rates of 5%/12%/20% depending on the prescribed classification/rule (as stated in the regulation) for interest income from the specified instruments evidenced by certificates prescribed by BSP which are pre-terminated before the fifth (5th) year.
VAT may apply if, in the course of trade or business, the OCW/OFW sells/barters/exchanges/leasing goods or properties, renders services in the Philippines, or imports goods into the Philippines under Sections 106 to 108 of the NIRC. If gross annual sales/receipts do not exceed P1,500,000 and the person opted not to register as VAT taxpayer, then 3% percentage tax of gross quarterly sales/receipts applies instead.
Proper showing of proof of entitlement such as the Overseas Employment Certificate (OEC) issued by the POEA.
Remittances are exempt from DST upon showing of the OEC of valid OWWA Membership Certificate by the OCW/OFW beneficiary or recipient. Proof must be obtained by the OCW/OFW from POEA or OWWA (with original plus duplicate or certified true copy) and the duplicate/certified true copy is to be held/used by the beneficiary to avail the DST exemption.
It is the responsibility of the OCW to show the valid proof of entitlement when arranging the remittance transfer. A proof of entitlement no longer valid does not entitle the OCW/OFW to any DST tax exemption.
It takes effect immediately.