Purpose and coverage
- These Revenue Regulations clarify who is considered an OCW or OFW for taxation purposes.
- They define the tax treatment of OCW/OFW income earned within and without the Philippines.
- They cover Filipino citizens working abroad as overseas contract workers whose employment is documented through POEA issuances.
- They cover seafarers or seamen who receive compensation abroad in international trade complementing roles, when documented through POEA and maritime authorities’ records.
Definitions: OCW and OFW
- Section 2 defines OCW/OFW as Filipino citizens employed in foreign countries and physically present in the foreign country because of their employment there.
- Section 2 requires that OCW/OFW be duly registered with the POEA with a valid Overseas Employment Certificate (OEC).
- Section 2 treats seafarers or seamen as Filipino citizens receiving compensation for services rendered abroad as members of the complement of a vessel engaged exclusively in international trade.
- Section 2 requires seafarers/seamen to be duly registered with the POEA with a valid OEC and either a valid Seafarers Identification Record Book (SIRB) or Seamanas Book issued by MARINA.
Core rule: income tax exemption
- Section 3(A) states that Section 23(C) of the National Internal Revenue Code of 1997 provides that a Philippine citizen working and deriving income from abroad as an OCW is taxable only on income from sources within the Philippines.
- Section 3(A) provides that, as a result, OCW/OFW income arising out of overseas employment is exempt from income tax.
- Section 3(A) provides an exception: if an OCW/OFW has income earnings from business activities or properties within the Philippines, that local income is subject to Philippine income tax.
Regular income tax on Philippine-sourced earnings
- Section 3(A)(a) provides that regular income from within the Philippines is subject to Philippine income tax at a 5%–32% rate of taxable income under Section 24(A).
Passive income and final taxes
- Section 3(A)(b) provides that passive income is subject to the following final taxes:
- 20% Final Tax on interest income from any currency bank deposit and yield/monetary benefits from deposit substitutes and trust funds and similar arrangements.
- 20% Final Tax on royalties.
- 10% Final Tax on royalties related on books, literary works, and musical compositions.
- 20% Final Tax on prizes (except prizes amounting to P10,000 or less, which are subject to regular income tax rates of 5%–32%).
- 20% Final Tax on other winnings (except Philippine Charity Sweepstakes and Lotto winnings).
- Exemption from the 7.5% Final Tax on interest income from a depository bank under the expanded foreign currency deposit system 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 an individual (spouse or dependent) living in the Philippines:
- 50% of the interest income is treated as exempt; and
- the other 50% is subject to final withholding tax of 7.5%.
- 10% Final Tax on cash or property dividends.
- 5% / 10% Final Tax on net capital gains realized on sale, barter, exchange, or other disposition of shares of stock in a domestic corporation (except shares sold/disposed through the stock exchange).
- 6% Final Tax on capital gains from the sale, exchange, or other 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.
- 5% / 12% / 20% Final Tax on interest income from long-term deposits or investment in savings, common/individual trust funds, deposit substitutes, investment management accounts, and other investments evidenced by certificates in forms prescribed by Bangko Sentral ng Pilipinas that are pre-terminated before the fifth (5th) year.
VAT and percentage tax for Philippine business
- Section 3(B) provides that an OCW/OFW may be subjected to 12% VAT if, in the course of trade or business, the OCW/OFW:
- sells, barters exchanges, or leases goods/properties,
- renders services in the Philippines, or
- imports goods into the Philippines,
pursuant to Sections 106 to 108 of the National Internal Revenue Code of 1997.
- Section 3(B) provides that if the OCW/OFW’s gross annual sales and/or receipts do not exceed P1,500,000 and the OCW/OFW opted not to register as a VAT taxpayer, the OCW/OFW is liable instead to pay 3% percentage tax on gross quarterly sales or receipts.
Travel tax and airport-fee exemption
- Section 3(C) provides that Section 35 of Republic Act No. 8042 (the Migrant Workers and Overseas Filipinos Act of 1995), as amended by Section 22 of Republic Act No. 10022, exempts all migrant workers from the payment of travel tax and airport-fee.
- Section 3(C) requires proper showing of proof of entitlement, including the Overseas Employment Certificate (OEC) issued by the POEA.
Documentary stamp tax exemption on remittances
- Section 3(C) provides that remittances of OCWs/OFWs are exempt from documentary stamp tax (DST) imposed under Section 181 of the National Internal Revenue Code of 1997.
- Section 3(C) conditions the DST exemption on presentation of a valid proof of entitlement: an OWWA Membership Certificate issued by OWWA, evidenced through the OCW/OFW beneficiary or recipient.
- Section 3(C) requires that, in addition to the original copy, a duplicate copy or certified true copy of the proof of entitlement be secured by the OCW/OFW from the POEA or OWWA for use by the beneficiary in availing the DST exemption.
- Section 3(C) provides that if a proof of entitlement is no longer valid, it shall not entitle the OCW/OFW to any DST tax exemption.
Responsibility when remittances use banking systems
- Section 3(C) provides that for OCW/OFW remittances sent through the banking system, credited to a beneficiary’s/recipient’s Philippine account, and withdrawn through an ATM, the OCW is responsible to show valid proof of entitlement when arranging the remittance transfer.