Income Tax Return Compliance for Expats in the Philippines

As a developing economy, the Philippines is home to many opportunities for locals and foreign nationals. Consequently, the Philippines has seen an increase in the number of foreigners working in the country, particularly in flourishing business districts like Bonifacio Global City, Cebu, Makati, Ortigas, and even in economic zones like Laguna, Cavite, and Batangas.


While filing taxes can be a breeze for Filipino citizens, it is slightly more difficult for expatriates to do. Therefore, there are numerous things to consider. One of the many issues expats should consider is whether it is necessary to file their ITR. Let’s take a look at them below:

Special Government Stipulations

Due to this sudden influx of expats, the Philippine government has placed safeguards to prevent non-compliance with ITRs, launching a campaign in 2019, wherein the Philippine Bureau of Internal Revenue coordinated with other government agencies to ensure that expatriates comply with and pay the correct taxes. 


In that same year, the Philippine Economic Zone Authority (PEZA) issued Memorandum Circular No.2019-016, necessitating that all economic zone locators submit:


  1. Taxpayer Identification Number (TIN) of foreign nationals employed under the ecozone locator enterprises
  2. Income Tax Returns (ITR) of foreign nationals who are under employment by the said locators

The General Rule for Exapts

As a general rule, expats making their income in the Philippines or are residents of the Philippines are required to file their ITR in the Philippines. Only those who are covered by substitute filing are exempt from doing this. 

Concept of Substitute Filing

Substitute filing essentially means that the expat earning compensation income from a single employer, who properly withholds taxes, will no longer need to file an ITR of their own as a Certificate of Withholding Taxes on Compensation will do in lieu of such. Non-resident aliens doing business in the Philippines, however, do not qualify for substitute filing.

Split Pay Arrangement or Tax Equalization

There may be other more complex arrangements for expats working in the Philippines. With this also comes slightly more rules to note down. For example, for expatriates on a split pay arrangement, meaning being a recipient of compensation from a foreign affiliate and local employer, or those on tax equalization, meaning foreign employer takes responsibility for paying all worldwide effective taxes for expats while expats pay taxes to their home country, are subject to a different tax scheme.


 Expats on a split pay arrangement or tax equalization scheme must determine the amount of salary they receive abroad in relation to their service in the Philippines. This income must be used in computing Philippine income taxes. Income may be taxable even if it comes from the foreign company if it is for assigned work in the Philippines, but often these compensations are no longer subjected to withholding tax. Expats who fall under this category are required to file their ITR.

Foreign Nationals Working in the Country

Noteworthy, only Philippine-sourced income is taxable for foreign nationals working in the country. Income from employment performed in the Philippines, like salaries, allowances, and benefits, is treated as Philippine-sourced income and is therefore taxable. 

Enjoy Specific Tax Reliefs for Expats

Filipino citizens are not the only ones capable of availing of tax relief. Expats may also claim income tax relief in accordance with international tax treaties entered by the Philippine government. Under most treaties, state that an expat who is residing in a treaty country shall not be required to pay income tax on employment carried out in the Philippines if the employee lives in the Philippines for a period of less than 180 or 90 days for the taxable year. Availing of the exemption provided by the treaty requires tax treaty filing with the BIR.

Seek Professional Advice

There are a lot of things to remember when preparing your taxes, especially as an expat. Just keep these things in mind for easier tax filing. You may also access all the BIR forms and read more on the nuances of the ITR filing process for expats. Additionally, you may also seek help from our CPA firm. We offer audit and accounting services to ensure your company is tax compliant. As a foreigner in the Philippines, it is understandable why all these can be complex and confusing. Thus, guidance from a professional team will ensure you can avoid errors that can result in stiff penalties. Call us for a free 30-minute consultation.