Tax Considerations And Issues

[Gold Heart]

This is my first year living in the Philippines and my status by definitions under tax regulations is a bit complex. This is why while in previous years I've used a tax program -- this year I'm seeking professional help. For example, I only lived here for 1/2 the year, continue to maintain my US home, and continue to work a US job. Next year may be simpler and easier.There are economic issues that affect decisions on where assets are held and earnings are generated. I'm trying to learn these in advance so I can better plan to otimize my earnings and reduce taxes. I'd like to confirm from my reading, the highest individual tax rate in the Philippines which has a graduated tax rates, is for incomes over 500K pesos at 34%. (source: bureau of internal revenue: http://www.bir.gov.p.../tax_income.htm) This compares to the US tax rate above $ 372K of 35%. The income levels that are being graduated in the Philippines are much lower. For $ 11K income, the US tax on that amount is only %15 while the Philippines tax rate is 34%. Given this, it may be best to keep earnings income entirely in the US to minimize taxes. ?If I'm interpreting correctly from reading, passive income is taxed at a maxium 20% rate -- perhaps lower with a Dollar account.1. Interest on any peso bank deposit 20% 2. Royalties (except on books as well as literary & musical composition - 10%) 20% 3. Prizes (except prizes amounting to P10,000 or less -5%) 20% 4. Winnings (except from PCSO and lotto) 20% 5. Interest Income of Foreign Currency Deposit 7.5% 6. Interest from long-term deposit Holding Period - Four (4) years to less than five (5) years 5% - Three (3) years to less than four (4) years 12% - Less than three (3) years 20% So it may be advantageous to get interest earnings here if US income is greater than 35K as that puts you in a 25% tax bracket.However, Mr Lee has pointed out that interest on foreign deposits greater than 10K must be reported in the US. So you may still get taxed on the earings minus the Philippines tax.Thanks for sharing any knowledge and experience.

Edited February 15, 2010 by Gold Heart

[Mr Lee]

This is my first year living in the Philippines and my status by definitions under tax regulations is a bit complex. This is why while in previous years I've used a tax program -- this year I'm seeking professional help. For example, I only lived here for 1/2 the year, continue to maintain my US home, and continue to work a US job. Next year may be simpler and easier.There are economic issues that affect decisions on where assets are held and earnings are generated. I'm trying to learn these in advance so I can better plan to otimize my earnings and reduce taxes. I'd like to confirm from my reading, the highest individual tax rate in the Philippines which has a graduated tax rates, is for incomes over 500K pesos at 34%. (source: bureau of internal revenue: http://www.bir.gov.p.../tax_income.htm) This compares to the US tax rate above $ 372K of 35%. The income levels that are being graduated in the Philippines are much lower. For $ 11K income, the US tax on that amount is only %15 while the Philippines tax rate is 34%. Given this, it may be best to keep earnings income entirely in the US to minimize taxes. ?If I'm interpreting correctly from reading, passive income is taxed at a maxium 20% rate -- perhaps lower with a Dollar account.1. Interest on any peso bank deposit 20% 2. Royalties (except on books as well as literary & musical composition - 10%) 20% 3. Prizes (except prizes amounting to P10,000 or less -5%) 20% 4. Winnings (except from PCSO and lotto) 20% 5. Interest Income of Foreign Currency Deposit 7.5% 6. Interest from long-term deposit Holding Period - Four (4) years to less than five (5) years 5% - Three (3) years to less than four (4) years 12% - Less than three (3) years 20% So it may be advantageous to get interest earnings here if US income is greater than 35K as that puts you in a 25% tax bracket.However, Mr Lee has pointed out that interest on foreign deposits greater than 10K must be reported in the US. So you may still get taxed on the earings minus the Philippines tax.Thanks for sharing any knowledge and experience.

Just to clarify what I said to you.While I find it strange that they decided to name it FBAR, :thumbs-up-smile: it does say that A. Any United States person who has a financial interest in or signature authority, or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar yearReporting of foreign accountsSo declaring the interest and reporting the account may be two different things. I do both to play it safe, in any year that our accounts have exceeded that due to property purchases. I am not positive they require that the interest be declared but I have never known the US to allow anyone to make anything they did not have to pay taxes on.

[tropicalwaste]

But if you have a good wife your 10k doesnt have to be reported in the U.S. because its your wifes wink wink.. I in essence in the UK have a salary of upto

[Gold Heart]

This is my first year living in the Philippines and my status by definitions under tax regulations is a bit complex. This is why while in previous years I've used a tax program -- this year I'm seeking professional help. For example, I only lived here for 1/2 the year, continue to maintain my US home, and continue to work a US job. Next year may be simpler and easier.There are economic issues that affect decisions on where assets are held and earnings are generated. I'm trying to learn these in advance so I can better plan to otimize my earnings and reduce taxes. I'd like to confirm from my reading, the highest individual tax rate in the Philippines which has a graduated tax rates, is for incomes over 500K pesos at 34%. (source: bureau of internal revenue: http://www.bir.gov.p.../tax_income.htm) This compares to the US tax rate above $ 372K of 35%. The income levels that are being graduated in the Philippines are much lower. For $ 11K income, the US tax on that amount is only %15 while the Philippines tax rate is 34%. Given this, it may be best to keep earnings income entirely in the US to minimize taxes. ?If I'm interpreting correctly from reading, passive income is taxed at a maxium 20% rate -- perhaps lower with a Dollar account.1. Interest on any peso bank deposit 20% 2. Royalties (except on books as well as literary & musical composition - 10%) 20% 3. Prizes (except prizes amounting to P10,000 or less -5%) 20% 4. Winnings (except from PCSO and lotto) 20% 5. Interest Income of Foreign Currency Deposit 7.5% 6. Interest from long-term deposit Holding Period - Four (4) years to less than five (5) years 5% - Three (3) years to less than four (4) years 12% - Less than three (3) years 20% So it may be advantageous to get interest earnings here if US income is greater than 35K as that puts you in a 25% tax bracket.However, Mr Lee has pointed out that interest on foreign deposits greater than 10K must be reported in the US. So you may still get taxed on the earings minus the Philippines tax.Thanks for sharing any knowledge and experience.

Just to clarify what I said to you.While I find it strange that they decided to name it FBAR, it does say that A. Any United States person who has a financial interest in or signature authority, or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar yearReporting of foreign accountsSo declaring the interest and reporting the account may be two different things. I do both to play it safe, in any year that our accounts have exceeded that due to property purchases. I am not positive they require that the interest be declared but I have never known the US to allow anyone to make anything they did not have to pay taxes on.

Thanks for clarifying. I interpreted it as both are required -- which as you indicated is likely given the US desire to get tax revenue.I'll have to ask some other SRRV participants what they do and share my findings. Not to say they are all necessarilly following the requirements.

[tom_shor]

It was my understanding that income from foreign sources is not taxed in the Philippines. If this is correct you shouldn't have to pay Philippine taxes on that income.

[bundynbeaches]

"It was my understanding that income from foreign sources is not taxed in the Philippines. If this is correct you shouldn't have to pay Philippine taxes on that income. "Ok, so I want to mix it up here a bit thenI'm Australian working in Kyrgyzstan for a Canadian company and being paid in US dollars. (I think this is how it is to work)If my pay is put into a Philippine bank account, it won't be taxed ?Someone somewhere has their hand out, surely?I realise the interest will be taxable and I am working on finding out what that rate is...............looks like 20%, but if I register my home location with my new employer as Philippines there is going to be some tax paid to somebody.I'm thinking it'll be the Canadian govt with their hand out.I am no accountant, and I'll be contacting a decent one when I next get home.Just fishin here right now (another thing I haven't done in three years in China)

[TheMason]

"It was my understanding that income from foreign sources is not taxed in the Philippines. If this is correct you shouldn't have to pay Philippine taxes on that income. "Ok, so I want to mix it up here a bit thenI'm Australian working in Kyrgyzstan for a Canadian company and being paid in US dollars. (I think this is how it is to work)If my pay is put into a Philippine bank account, it won't be taxed ?Someone somewhere has their hand out, surely?I realise the interest will be taxable and I am working on finding out what that rate is...............looks like 20%, but if I register my home location with my new employer as Philippines there is going to be some tax paid to somebody.I'm thinking it'll be the Canadian govt with their hand out.I am no accountant, and I'll be contacting a decent one when I next get home.Just fishin here right now (another thing I haven't done in three years in China)

Unless you earn the money in the Philippines, it is not subject to PR income tax. How you register your home location with your employer is probably irrelevant unless they have a physical office in the Philippines, then you MIGHT be considered a local employee. If you're here on a tourist visa of some sort, your income won't be taxed by the RP. Its one of the benefits of living in the Philippines. I earn a salary over the Internet working for US based companies. I'm not subject to income tax in either country, although I do have to pay US self-employment taxes of about 15%.

[bundynbeaches]

"It was my understanding that income from foreign sources is not taxed in the Philippines. If this is correct you shouldn't have to pay Philippine taxes on that income. "Ok, so I want to mix it up here a bit thenI'm Australian working in Kyrgyzstan for a Canadian company and being paid in US dollars. (I think this is how it is to work)If my pay is put into a Philippine bank account, it won't be taxed ?Someone somewhere has their hand out, surely?I realise the interest will be taxable and I am working on finding out what that rate is...............looks like 20%, but if I register my home location with my new employer as Philippines there is going to be some tax paid to somebody.I'm thinking it'll be the Canadian govt with their hand out.I am no accountant, and I'll be contacting a decent one when I next get home.Just fishin here right now (another thing I haven't done in three years in China)

Unless you earn the money in the Philippines, it is not subject to PR income tax. How you register your home location with your employer is probably irrelevant unless they have a physical office in the Philippines, then you MIGHT be considered a local employee. If you're here on a tourist visa of some sort, your income won't be taxed by the RP. Its one of the benefits of living in the Philippines. I earn a salary over the Internet working for US based companies. I'm not subject to income tax in either country, although I do have to pay US self-employment taxes of about 15%.

Mason, cheers for that.Like I said, I'll be trying to talk to a decent accountant soon, but first hand info is still better than a guy in Sydney or Brisbane reading through a book to find out how it all works

[Art2ro]

Just slightly off the topic, but within the main topic in general! I just realized January 1st, 2012 is on a Sunday! Therefore U.S. Government pensions will be deposited on a business day on December 29th, 2011 for those who reside in the U.S. and a day after in Philippines! Also that will mean, an extra month of pay is added to our 2011 income tax filing before the April 15, 2012 deadline! Does that make any difference to anyone? To me, it's just that much more I will owe IRS because my tax bracket will have gone up and my Federal tax with holdings will be insufficient to break even! Oh well, that's how the cookie crumbles! Luckily we don't have to pay any State tax since we been out of the U.S. for the entire year of 2011!

[Steve & Myrlita]

Just slightly off the topic, but within the main topic in general! I just realized January 1st, 2012 is on a Sunday! Therefore U.S. Government pensions will be deposited on a business day on December 29th, 2011 for those who reside in the U.S. and a day after in Philippines! Also that will mean, an extra month of pay is added to our 2011 income tax filing before the April 15, 2012 deadline! Does that make any difference to anyone? To me, it's just that much more I will owe IRS because my tax bracket will have gone up and my Federal tax with holdings will be insufficient to break even! Oh well, that's how the cookie crumbles! Luckily we don't have to pay any State tax since we been out of the U.S. for the entire year of 2011!

Don't worry, the early pay is for banking & conveniences only. Even though January's payment may arrive Dec 29, 2011, it should still credit as Jan 1, 2012. Edited November 24, 2011 by Steve & Myrlita