Expat Taxes for Americans in the Philippines

There are many reasons for U.S. citizens to settle down in the Philippines: a low cost of living, beautiful beaches, a friendly culture, and delicious cuisine, to name a few. But settling down in the Philippines, or any other country, as a U.S. citizen does not waive any tax obligations.

Our expat tax lawyers are breaking down what you need to know about taxes as an expat living in the Philippines.

U.S. Expat Taxes in the Philippines

Since the U.S. taxes on citizenship, and not residency, no matter where you live throughout the tax year, you are required to file a U.S. tax return with the IRS. Taxable foreign income for Americans living in the Philippines includes wages, dividends, retirement income, and interest earned.

In addition to filing a U.S. tax return, there are other forms you may be required to file. If you hold more than $10,000 in a Filipino bank account, you will be required to file a Foreign Bank Account Report, commonly referred to as FBAR. If you hold foreign assets that are valued at more than $200,000, you will be required to file FATCA Form 8938. These foreign asset reporting forms are used to prevent tax evasion from U.S. citizens who live and work abroad.

Philippines Tax Rates

While you will be required to file a U.S. tax return while living in the Philippines, you may also be required to pay taxes to the Filipino government, to account for income earned while living and working in the country. The income you will be taxed on is dependent on your residency status. If you are considered a resident of the Philippines, you will be required to pay taxes on Philippine income and foreign-sourced income, while non-residents are only taxed on Philippine income.

The tax rate is the same for residents and non-residents, and follows an income-based structure, similar to the United States tax rates. The tax rates for this tax year are:

• If you earned up to PhP 250,000, you will be taxed 0%.
• If you earned anywhere from PhP 250,000 to PhP 400,000, you will be taxed 20%.
• If you earned anywhere from PhP 400,000 to PhP 800,000, you will be taxed 25% on excess income, and you will pay PhP 30,000 on column 1 income.
• If you earned anywhere from PhP 800,000 to PhP 2,000,000, you will be taxed 30% on excess and you will pay PhP 130,000 on column 1 income.
• If you earned anywhere from PhP 2,000,000 to PhP 8,000,000, you will be taxed 32% on excess and you will pay PhP 490,000 on column 1 income.
• If you earned more than PhP 8,000,000, you will be taxed 35% on excess and you will pay PhP 2,410,000 on column 1 income.

Who Is Considered a Filipino Resident?

The residency status in the Philippines can be complicated, but generally speaking, you are considered a resident if you reside in the country and have no plans, defined date or set timeline to leave the country.

If you are considered a non-resident, due to an anticipated date of leaving the country, you may also face different tax status depending on the time you’ve spent in the country. If you reside in the country for less than 180 days, you will be considered a non-resident alien, and will not be considered to be involved in Filipino business or trade. If you are a non-resident who resides in the country for longer than 180 days, you will be considered to be operating in Filipino business or trade, and will have to pay taxes as such.

Is there a U.S.-Philippines Tax Treaty?

The U.S. has tax treaties with many countries, in an effort to help citizens and residents avoid double taxation, and the Philippines is no exception.

Double taxation is when expats must pay a standard amount of income taxes to the U.S. and the country they currently reside in. For example, if you fall into the 30% tax bracket in the Philippines and the 24% tax bracket in the US for your 2023 tax year, you would pay up to 54% in income taxes sans tax treaties. Luckily, the tax treaties prevent double taxation.

There are many provisions in the U.S.-Philippines tax treaty that are put in place for citizens to optimize their savings while living abroad, including additional ways to help lower your tax liability in the US through programs like the:

• Foreign Earned Income Exclusion: For the 2023 tax year, the maximum exclusion is $120,000 per person, meaning earnings under this threshold are not subject to US income tax.
• Foreign Tax Credits
• Housing Exclusion or Deduction

But one of the important pieces of the treaty is the FATCA information sharing requirements between the two countries. This means that the Filipino government can share information about an individual’s foreign accounts with the IRS, so they can view your foreign held assets and bank accounts. This FATCA information sharing means you will need to be diligent in reporting your foreign-held assets within the Philippines, since the IRS will have access to records to verify what has been reported through FBAR or FATCA Form 8938.

The tax treaty has other implications that may or may not be relevant to your individual situation while living and working in the Philippines. For assistance deciphering the U.S.-Philippines tax treaty and how it can change your tax season, contact Evolution Tax and Legal’s expat tax attorney.

When Are Taxes Due in the Philippines?

The Filipino tax system follows the same structure as the U.S. tax system: taxes are based on the calendar year, from January 1 to December 31. Taxes are due to the government on April 15 following the end of the tax year.

Social Security in the Philippines

If you are employed by a Filipino company while living in the country, you’ll be required to contribute to the social security fund in the Philippines. These payments will be made monthly based on your income, and your employer is required to contribute to the social security system as well. If you are self-employed in the Philippines, it is optional to pay into the social security system.

As the US does not have a totalization agreement with the Philippines, this is an area where you may see double taxation, as you begin filing taxes in both the United States and the Philippines. Self-employed individuals can opt to continue paying into U.S. social security, and avoid paying into the Filipino social security system.

Is Foreign Income Taxed in the Philippines?

If you are considered a resident of the Philippines, you will be taxed on all income earned, regardless of the country in which it was earned and whether or not it was Filipino-based. If you are considered a non-resident, you will only be taxed on income that is earned within the Philippines or income derived from Filipino-based business operations.

Other Taxes in the Philippines

In addition to taxes paid on income, dividends, and interest, there are other forms of income that are taxable in the Philippines. Non-cash compensation is considered taxable, including benefits or taxes that may have been paid on your behalf by an employer. These non-cash benefits are given a monetary value and taxed at a lower rate than typical income, and there is no exception for non-residents or foreign nationals.

File U.S. Taxes With Evolution Tax and Legal’s U.S. Expat Tax Services

Filing taxes as an expat can be extremely complicated, but it doesn’t have to be. The seasoned expat tax professionals at Evolution Tax & Legal have the knowledge and experience to help you make your international tax season a breeze. Contact the team to learn more about our international tax services.