Philippines Taxes for US Expats: Everything You Need to Know
- Living as a US Expat in the Philippines
- The Philippines at a Glance
- US Expat Taxes in the Philippines
- What's the Tax Rate for Expats in the Philippines?
- Where Do Americans Working in the Philippines Have to File Taxes?
- Determining Tax Residency in the Philippines
- Filing Penalties in the Philippines
- Essential Tax Forms for US Expats in the Philippines
- Is There a Philippines-US Tax Treaty?
- Is There a Philippines-US Totalization Agreement?
- Navigating Tax Compliance for US Expats in the Philippines
Living as a US Expat in the Philippines
The Philippines is a popular destination for US expats due to its stunning scenery, lively culture, welcoming climate, and friendly locals. Whether you’ve moved there permanently or are pursuing career opportunities, it’s essential to understand the tax obligations for US citizens residing in the Philippines.
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. Read on to learn more about Philippines Taxes for US expats.
The Philippines at a Glance
- Primary Tax Form for Residents: BIR Form 1700
- Tax Year: Calendar year (January 1st to December 31st)
- Tax Deadline: April 15
- Currency: Philippine peso (PHP)
- Population: Approximately 109 million
- Number of US Expats: Unknown
- Capital City: Manila
- Primary Language: Filipino and English
- Tax Treaty: Yes
- Totalization Agreement: No
US Expat Taxes in the Philippines
As a US expat living in the Philippines, it’s important to know your tax obligations in both the US and the Philippines. As a resident of the Philippines, you are subject to income tax on all income earned, including income earned outside of the country.
However, the Philippines does have a tax treaty with the US to prevent double taxation on your income. It’s important to keep track of all income earned and any taxes paid to ensure compliance with both countries’ tax laws.
Additionally, US expats in the Philippines may be eligible for certain tax credits and deductions, such as the foreign tax credit, which can help reduce their overall tax burden.
What’s the Tax Rate for Expats 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.
- 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.
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 mitigate your Philippines tax obligations, it will decrease your US tax liability and save you thousands of dollars each year.
Determining Tax Residency in the Philippines
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, you must file your returns on time and pay any money owed before the set deadlines. Otherwise, you’ll incur interest charges, late fees, and other penalties.
Essential Tax Forms for US Expats in the Philippines
As a US expat living in the Philippines, staying informed about your tax obligations to the US government is important. One of the primary tax forms that US citizens abroad must complete is Form 1040. All US expats must file this standard tax form regardless of location.
Additionally, US expats in the Philippines may need to file Form 2555 to claim the Foreign Earned Income Exclusion. This exclusion allows US expats to exclude up to a certain amount of their foreign-earned income from US taxes. It’s important to note that this exclusion only applies to earned income, not passive income, such as investment income.
US expats in the Philippines may also need to file other tax forms, such as the Foreign Bank Account Report (FBAR) if they have foreign financial accounts that exceed a certain threshold. Failure to file FBAR can result in severe penalties.
Staying current with US tax obligations as an expat in the Philippines is essential to avoid potential legal or financial issues.
Is There a Philippines-US Tax Treaty?
Yes, The US has a Tax Treaty with the Philippines. Tax treaties are vital income tax-related documents 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 the US and the nation where you reside. For instance, let’s say you fall into the 20% tax bracket in the Philippines and the 12% bracket in the United States. You may pay up to 32% in income taxes without a tax treaty!
Fortunately, a Philippines-US tax treaty 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 most 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.
You could take advantage of the FEIE, foreign tax credits, and housing exclusion in either scenario.
The Foreign Earned Income Exclusion is one of the most valuable tools for reducing 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. For the 2022 tax year, the exemption limit was $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 treaty designed to prevent double taxation for social programs such as Social Security.
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 with 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 no Philippines-US totalization agreement is in place, you may still have to pay Social Security taxes, even if you don’t owe any US income taxes.
Navigating Tax Compliance for US Expats in the Philippines
By applying the information provided above, you can approach this tax season with confidence when filing your US and Philippines taxes. The tips outlined in this guide will help you minimize your tax liability, maximize eligible credits, and ultimately save you money.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.