Today, I will be writing about some general information on taxation by Philippine Government on non-Filipinos, specifically on non-resident alien individual. I hope this will be of use to you, your relatives and friends.
First of all, there are two classifications of these foreigners and they are as follows:
1) Those who are engaged in trade or business - which means that they are foreign individuals who stay here in the Philippines for more than 180 days. Usually, their income is subject to Income Tax just like an ordinary citizen of the Philippines or resident alien doing business in the Philippines. Thus, gross taxable income less their personal exemption equals net taxable income which is subject to the graduated rate ranging from 5% to 32 %. This is based on Section 25(A)(1) of the Philippine Tax Code which states that:
SEC. 25. Tax on Nonresident Alien Individual. -
(A) Nonresident Alien Engaged in trade or Business Within the Philippines. -
(1) In General. - A
nonresident alien individual engaged in trade or business in the
Philippines shall be subject to an income tax in the same manner as an
individual citizen and a resident alien individual, on taxable income
received from all sources within the Philippines. A nonresident alien
individual who shall come to the Philippines and stay therein for an
aggregate period of more than one hundred eighty (180) days during any
calendar year shall be deemed a 'nonresident alien doing business in the
Philippines'. Section 22 (G) of this Code notwithstanding.
Likewise, these individuals are required to file their Income Tax Return using the BIR Form 1701(Annual Income Tax Return for Self-Employed Individuals, Estates and Trusts) with the Accredited Agent Banks on our before April 15 the next calendar year.
2) Those who are not engaged in trade or business - which means that they stay here in the Philippines for less than 180 days. Their usual income are their passive income (such as interest, dividends, rents,etc.) and it is subject to the Final Income Tax at the flat rate of 25%. Except for the sale of real property considered as capital asset which is subject to 6%. This is in accordance with Section 25(B) of the same code, thus:
SEC. 25. Tax on Nonresident Alien Individual. -
(B) Nonresident Alien Individual Not Engaged in Trade or Business Within
the Philippines. - There shall be levied, collected and paid for each
taxable year upon the entire income received from all sources within the
Philippines by every nonresident alien individual not engaged in trade
or business within the Philippines as interest, cash and/or property
dividends, rents, salaries, wages, premiums, annuities, compensation,
remuneration, emoluments, or other fixed or determinable annual or
periodic or casual gains, profits, and income, and capital gains, a tax
equal to twenty-five percent (25%) of such income. Capital gains
realized by a nonresident alien individual not engaged in trade or
business in the Philippines from the sale of shares of stock in any
domestic corporation and real property shall be subject to the income
tax prescribed under Subsections (C) and (D) of Section 24.
In addition to Income Tax, they are also subject to Value Added Tax (VAT) and Documentary Stamp Tax (DST), if applicable.
In the second classification, it is the obligation of the Filipino payor, who is considered the withholding agents, to deduct the corresponding Final Income Tax from the total amount of income of the foreign individual and remit it to the Accredited Agent Bank using the BIR Form 1601F (Monthly Remittance Return of Final Income Taxes Withheld).
In the second classification, it is the obligation of the Filipino payor, who is considered the withholding agents, to deduct the corresponding Final Income Tax from the total amount of income of the foreign individual and remit it to the Accredited Agent Bank using the BIR Form 1601F (Monthly Remittance Return of Final Income Taxes Withheld).
However, there are Tax Treaties, which provides for the tax exemptions of foreign individuals. You may seek assistance from the International Tax Affairs Division of the Bureau of Internal Revenue (BIR) regarding this to avail of the exemptions.
Taxation on Foreign Corporation will be tackled in my incoming post. So keep reading and enjoy!
As always... God bless and good day!
