Philippines Taxes for US Expats: Everything You Need to Know

Chances are that you stumbled across our guide after searching for something like “income tax rate Philippines.” If so, you’re in the right place.

It’s understandable if you’re confused about Philippines taxes for US expats. Navigating US tax laws can be a huge challenge on its own, and attempting to adhere to the US’s tax filing requirements and those of another nation can be even more difficult.

Fortunately, you don’t have to tackle the challenges associated with filing expat taxes alone. We’ve made filing your income tax in the Philippines much easier by compiling a list of fast facts, pro tips, key takeaways, and other information you can use to reduce your liability. 

What Makes the Philippines Such a Popular Destination?

The Philippines is known for its beautiful scenery, vibrant culture, hospitable climate, and wonderful people. It’s no wonder the country has become a hot spot for US expats.

You might have made your way to the Philippines to pursue career goals or permanently relocated after retirement. Regardless of what brought you there, familiarizing yourself with the tax requirements for US citizens living in the Philippines will make your time there more enjoyable and free of stress.

Fast Tax Facts for Americans Working in the Philippines 

Here’s a quick look at some must-know facts for expats in the Philippines:

• Tax Deadline: April 15th 
• Date Primary Tax Form Is Received: January 1st 
• Currency: Philippine Peso
• Population: 111 million
• Number of US Expats in the Philippines: Less than 100,000
• Capital City: Manila
• Primary Language: Tagalog and Cebuano
• Tax Treaty: Yes
• Totalization Agreement: No

The Philippines’ tax year aligns with the standard calendar year. As such, the tax year ranges from January 1st to December 31st. This makes it easy to file both sets of tax returns, as the documents are due at about the same time each year. 

When determining which tax return to file first, you should consider your classification in each nation.

For instance, if you’re filing as a resident of the Philippines, you should file this return before sorting out your US tax return. Conversely, if you haven’t yet achieved resident status in the Philippines, you’ll want to file your US return first.

What’s the Tax Rate for Foreigners in the Philippines?

Many nations tax US expats at different rates depending on whether they’ve earned residency status in said nation. However, the Philippines doesn’t adhere to this practice. Instead, everyone is subject to the same income-based tax rates, which are as follows:

• 0-250,000 Pesos: 0%
• 250,000-400,000 Pesos: 20%
• 400,000-800,000 Pesos: 25%
• 800,000-2,000,000 Pesos: 30%
• 2,000,000-8,000,000 Pesos: 32%
• Over 8,000,000 Pesos: 35%

The tax rates in the Philippines are significant. However, the nation makes several excellent social programs available to residents, including US expats. It’s also known for its low cost of living, which can offset some of the negatives associated with its high tax rates.

Key Takeaways

• Residents and non-residents are subject to the same tax rates
• Individuals making less than 250,000 pesos via in-country business pay 0% in taxes
• You may still have to pay US income taxes, even if you’re an expat living in the Philippines

Is There a Philippines-US Tax Treaty?

If you’ve been researching Philippines taxes for US expats, you’ve probably stumbled across the term “tax treaty” and wondered what it means.

Tax treaties are an important income tax-related document that every expat or aspiring expat should be familiar with. In short, they’re designed to protect US expats from double taxation.

Double taxation occurs when you have to pay a standard amount of income taxes to both the US and the nation in which you’re currently residing. For instance, let’s say that you fall into the 20% tax bracket in the Philippines and the 12% bracket in the United States. Without a tax treaty, you may end up paying up to 32% in income taxes!

Fortunately, there’s a Philippines-US tax treaty that protects you from double taxation. If you demonstrate that you’re paying income taxes in the Philippines, you can significantly reduce your tax liability to the US government. You can further reduce or eliminate your US tax liability by taking advantage of programs like:

• The Foreign Earned Income Exclusion
• The Housing Exclusion
• Foreign Tax Credits

These programs are generally available to US expats that have established majority residency in another nation or have a primary dwelling in a foreign country. 

For example, if you spend the majority of the year (182 or more days) in the Philippines, you would legally be considered a resident. You’d also be classified as a resident (in the eyes of US tax authorities) if your primary dwelling is in the Philippines.

In either scenario, you’d be eligible to take advantage of the FEIE, foreign tax credits, and housing exclusion.

The Foreign Earned Income Exclusion is one of the most valuable tools for reducing your tax liability. Under the FEIE, you can exclude a predetermined amount of your foreign earnings when filing your US tax returns.

The FEIE exemption amount is adjusted annually. In 2022, the exemption limit is $112,000, meaning any earnings under this limit are not subject to US income tax if you’re paying income taxes in the Philippines.

Is There a Philippines-US Totalization Agreement?

Unfortunately, there isn’t a Philippines-US totalization agreement. A totalization agreement is a type of treaty designed to prevent double taxation for social programs such as the Social Security program.

Under US tax law, citizens must pay 6.2% of their income toward Social Security taxes. This includes income generated in foreign nations. 

Suppose you were residing in a nation that has a totalization agreement with the US. In that case, you could reduce or eliminate your Social Security tax liability by demonstrating that you’re paying into your host nation’s comparable program.

However, since there’s no Philippines-US totalization agreement in place, you may still have to pay Social Security taxes, even if you don’t owe any US income taxes. 

Pro Tip: Since Social Security taxes are calculated using your “taxable income,” lowering your total taxable income can, in turn, reduce your Social Security tax liability. 

Where Do Americans Working in the Philippines Have to File Taxes?

Americans working in the Philippines (or any other foreign nation, for that matter) must file tax returns in the US and their host nation. This is because US tax requirements apply to all citizens, not just current residents. 

As a result, Americans working abroad often get caught in the tax gray area, leading to a very high total tax obligation. Here’s why:

If you’ve established yourself as a resident of the Philippines, you’ll be eligible to take advantage of programs like FEIE, foreign tax credits, and housing exclusions.

However, if you don’t meet Philippines residency requirements, you’re not eligible for these exemptions and will owe a standard amount of US income taxes. You’ll also owe a standard amount of taxes to the Philippine government. As previously shown, these two rates can add up to a significant sum.

Fortunately, you can reduce your tax liability and take advantage of the aforementioned programs by simply establishing residency in the Philippines. While establishing residency won’t reduce your Philippines tax obligations, it will decrease your US tax liability and save you thousands of dollars each year.

In addition to lowering your taxes, you’ll also receive additional protections under the Philippines-US tax treaty. As such, this simple measure should drastically reduce your chances of being double-taxed.

Key Takeaways

• If you work abroad, make sure you establish residency in the Philippines to decrease your tax liability
• If you’re eligible, take advantage of programs like FEIE and foreign tax credits
• The Philippines-US tax treaty should prevent or limit instances of double taxation

What Makes Someone a Philippines Resident?

Generally speaking, you’ll be considered a Philippines resident if you:

• Spend 182 or more days there in a calendar year
• Establish a primary domicile in the Philippines
• Live permanently (or for an extended period) in the Philippines and/or have previously filed as a resident

That third criterion allows you to establish residency status by living within the nation for a considerable time, even if you haven’t purchased a home there. Once you’ve established residency, you can reduce your US tax liability. However, you’ll still pay a standard Philippines income tax rate, as the nation doesn’t have different parameters for residents and non-residents. 

Even though establishing yourself as a resident won’t decrease your Philippines tax liability, it does have other advantages. For instance, you may be eligible to partake in and receive helpful benefits from certain social programs.

Filing Penalties in the Philippines

Under the Philippines-US tax treaty, the two nations agree to share information about an expat’s financial accounts. In light of this fact, you could find yourself in hot water if there are any discrepancies between your US and Philippines filings.

Both countries have incredibly strict penalty schedules, and even a relatively minor violation could cause you to incur thousands in fines. With that being said, make sure you carefully review your filing documents to ensure that they accurately reflect all reportable income.

Also, it’s vital that you file your returns on time and pay any money owed before the set deadlines. Otherwise, you’ll likely incur interest charges, late fees, and other penalties. 

Need Help with Your Philippines Taxes for US Expats?

Using the information above, you can file your US and Philippines taxes with confidence this tax season. The tips found in this guide will help you reduce your tax liability, take advantage of available credits, and save money.