Taxation of Foreign Source Income is the tax levied on any income derived from sources outside the Philippines. All Philippine resident citizens and domestic corporations are taxable on all and any income derived from both local and international sources. That said, it is not unheard of for income from worldwide sources to be exposed to the risks of international juridical double taxation.
That said, it is important to avoid or minimize the risk of double taxation. To do so, taxpayers must avail of all benefits provided under an effective and valid tax treaty. This typically comes in the form of a preferential tax rate or tax exemptions, which are legal tax avoidance measures.
Additionally, subject to certain conditions in the Philippine Tax Code, an appropriate amount of taxes paid in the foreign country may, also, be used as a credit against the tax payable in the Philippines in respect of that income. If this sounds confusing for your, it would be prudent to work with a reputable accounting firm to help iron out your documents and ascertain tax compliance. Keep on reading to learn more about this issue.
Tax Treaties with Other Countries
If you are an overseas Filipino working abroad but with a permanent residence in the country or are a resident citizen making money from international sources, here are the countries with tax treaties with the Philippines and how you may avail of tax treaty benefits. Avoid paying penalties with the right knowledge.
The following nations have a tax treaty, or double taxation agreement, with the Philippines:
- Australia
- Austria
- Bahrain
- Bangladesh
- Belgium
- Brazil
- Canada
- China
- Czech Republic
- Denmark
- Finland
- France
- Germany
- Hungary
- India
- Indonesia
- Israel
- Italy
- Japan
- Korea
- Kuwait
- Malaysia
- Mexico
- Netherlands
- New Zealand
- Nigeria
- Norway
- Pakistan
- Poland
- Romania
- Russia
- Singapore
- Sri Lanka
- Spain
- Sweden
- Switzerland
- Thailand
- Turkey
- United Arab Emirates
- United Kingdom (UK) of Great Britain and Northern Ireland
- United States of America
- Vietnam
- India
- Qatar
How to Avail of Tax Treaty Benefits
To avail of the Tax Treaty benefits, you, as the resident citizen or domestic corporation in the Philippines, you must file and submit a Tax Residency Certificate (TRC) to the foreign jurisdiction’s tax authority. This is to prove that the individual is a resident of the Philippines, and is therefore obligated to pay tax in the Philippines based on his or her worldwide income, based on citizenship, residence, or place of incorporation.
Note that a TRC shall only be issued to a domestic corporation or resident citizen who possesses an existing Tax Identification Number, also colloquially known as the TIN. Additionally, he or she must meet the documentary requirements set by the BIR. The requirements needed are as follows:
For Individuals:
– A certified copy of the Contract signed by both parties
– BIR Form No. 0902
– A Notarized Special Power of Attorney (SPA) or authorization letter for the representative you grant authority to sign the BIR form 0902 and file your application for a TRC
– A certified copy of a BIR-registered invoice/receipt issued by the taxpayer to the income payor and the relevant Authority to Print Receipts and or Invoices or a certified copy of Permit to Use a Computerized Accounting System or Loose-leaf Invoices or Receipts to evidence transactions
– A certified copy of Proof of remittance in cases where income was received
– A Passport booklet photocopy or a Certificate of Residency if you did not leave the Philippines issued by the Barangay Chairman
– Annual Income Tax Return for the preceding year or the BIR Form No. 2316
For Non-Individuals:
– BIR Form No. 0902 that is signed by you or your chosen authorized representative
– Evidence of establishment of corporate entity in the Philippines, such as the certificate of incorporation
– A certified copy of the Contract signed by both parties
– A certified copy of a BIR-registered invoice/receipt issued by the taxpayer to the income payor and the relevant Authority to Print Receipts and/or Invoices or Permit to Use of a Computerized Accounting System or Loose-leaf Receipts or Invoices
– A certified copy of Proof of remittance in cases where income is received
– A complete list of partners, only for general professional partnerships (GPP)
– Annual Income Tax Return for the preceding year or BIR Form No. 2316
– A notarized Special Power of Attorney (SPA) or authorization letter for the representative you grant authority to sign the BIR form 0902 and file your application for a TRC
Any taxpayer, whether resident citizen or domestic corporation, who derives income from worldwide sources and fails to secure a TRC shall be prohibited and disallowed from claiming foreign tax credits and tax treaty benefits. If you want to take advantage of any of these benefits, talk to a reputable accounting firm.
Our team can help you minimize tax dues legally so you can keep more of your profits. We offer accounting, bookkeeping, tax, and business registration services. Call us for a free 30-minute consultation.
