During the 1980s, foreign remittances, particularly those made by overseas Filipino workers (OFWs), made up two percent (2%) of the Philippines’ Gross Domestic Product. Over time, this has increased to an estimated five hundred percent (500%) today, with OFWs remitting over four hundred billion US dollars annually to their relatives back home.
One salient question you may be asking is whether large money transfers are taxable. As of the current economic situation, the Philippines does not place a value-added tax (VAT) on remittances. However, other tax laws may still be applicable. Non-compliance with these laws may result in penalties.
Noteworthy, depending on where, why, and to whom you are sending money to, either you or the recipient may have to shoulder the following costs:
1. Business Income Taxes
Business remittance payments are applicable to business transactions that are virtually, and almost always, larger in sum than personal remittances. Transfers can range from tens of thousands to hundreds of thousands of US dollars.
Since these transactions cost much more to execute given the amount, and since businesses rarely rely on foreign remittances compared to individuals, the Philippine government collects fifteen percent (15%) of profits after tax sent from overseas branches to home or main offices in the Philippines. Noteworthy, this tax does not apply to companies operating in the Philippine Economic Zone Authority (PEZA).
2. Gift Taxes
On rare occasions, personal remittances may amount to much larger than business remittances. While senders and recipients do not view these payments as gifts as they are meant for living expenses, Philippine tax authorities do consider them the former. Remittances exceeding USD 15,000 in a single year, all excess will be subject to a gift tax. The tax amount will vary depending on different circumstances surrounding the transactions.
Notably, some remittances sent by senders based in the US are exempt from gift tax if they meet at least one of the following conditions:
– Minor Dependent Child: If the remittance is directly addressed to a minor child and for the benefit of this minor child.
– Family Members: While family remittances should technically be considered for gift taxes, you may opt to divide the remittance among family members so that the amount does not exceed the non-taxable amount.
– Remittance to your own, personal bank account: Legally, you cannot send a gift to yourself. You may remit the money to your personal account and then have someone withdraw it. Do note that senders must report transactions to the IRS if they exceed ten thousand US dollars annually.
3. Income Taxes
Income taxes in the Philippines vary from five to thirty-three percent (15-33%). Remittance receipts on the part of the recipient are considered taxable if it exceeds 15,000 USD. Any failure to declare remittances will result in a twenty-five percent (25%) penalty of the total remittance amount. The government will also add an extra twenty percent (20%) in interest. Additionally, the Philippine laws on the topic of willful tax evasion may be applied, and the recipient may be required to pay a fifty percent (50%) tax fraud penalty.
For Overseas Filipino Workers who are registered with the Philippine Overseas Employment Administration (POEA), taxes must be paid to wherever they are currently residing; and additionally, they are exempt from paying income taxes in the Philippines.
If you feel uncertain about your situation and want to avoid a major tax audit, especially for your family members who receive the remittances, you must seek the help of a certified public accountant. Avoid having to fret over BIR problems and solutions with the guidance of a CPA. Besides, it is your social obligation to pay the correct taxes because it is used to found public projects which all citizens benefit from.
Give our team at UNA a call so we can advise you and your relatives on what to do regarding your remittances. It would be a terrible shame if your hard-earned money will be wasted on paying BIR penalties and fines which could have been avoided in the first place. Besides, you don’t want your good name ruined by a tax evasion charge. Find out more with our free 30-minute consultation.