Tax Treatment of Income of OFWs and OCWs

Filipino citizens employed abroad, physically present outside the Philippines due to employment.
Salaries and wages must be paid by an employer abroad and not charged to any Philippine entity.
Must be registered with the Philippine Overseas Employment Administration (POEA) and hold a valid Overseas Employment Certificate (OEC).
Seafarers must also be registered with POEA and possess both a valid OEC and Seafarers Identification Record Book (SIRB) or Seaman's Book issued by Maritime Industry Authority (MARINA).

OCWs/OFWs are taxable only on income sourced within the Philippines.
Income earned abroad from overseas employment is exempt from Philippine income tax.
Seafarers engaged in international trade are similarly treated as OCWs for tax purposes.
Income from business or property within the Philippines is subject to income tax:
- Regular income tax rates from 5% to 32%.
- Passive income subject to various final tax rates:
  - 20% on bank interest, royalties (except on books/literary/musical works at 10%), prizes over P10,000, and other winnings excluding PCSO/Lotto.
  - 7.5% exemption on certain foreign currency bank deposit interest upon proof of non-residency (OEC or Seaman's Book).
  - In joint bank accounts, 50% interest income is exempt, 50% subject to 7.5% final tax.
  - 10% on cash or property dividends.
  - Capital gains tax: 5%-20% depending on asset type and method of disposition.
  - Taxes on pre-terminated investments vary from 5%, 12% to 20% based on instrument and duration.

OCWs/OFWs engaged in business or trade in the Philippines may be subject to 12% Value Added Tax (VAT).
Gross sales/receipts must exceed P1,500,000 annually to require VAT registration.
If sales/receipts do not exceed P1,500,000 and VAT registration is not chosen, a 3% percentage tax applies.

Exemption from travel tax and airport fees for migrant workers upon presentation of valid OEC.
Remittances sent by OCWs/OFWs, upon showing OEC and OWWA Membership Certificate, are exempt from documentary stamp tax (DST).
Valid proof of entitlement copies must be secured and used by both remitter and beneficiary for DST exemption.
For remittances through banks credited to Philippine accounts and withdrawn by ATM, the OCW must present proof of entitlement.
Expired proof of entitlement disqualifies OCWs/OFWs from DST exemption.

Tax exemption applies strictly to income sourced from overseas employment.
Clear differentiation of income types (regular vs passive income) with distinct tax treatments.
Formal registration and certification (POEA registration and OEC) required to avail tax benefits.
Special consideration for seafarers as a distinct subclass of OCWs.
Business activity inside the Philippines by OCWs/OFWs subjects them to regular domestic business tax rules.
Specific procedural requirements and documentary proof needed to benefit from tax exemptions on remittances and travel-related fees.