RR No. 1-2011: Defines the tax treatment of income earnings and money remittances of an Overseas Contract Worker or Overseas Filipino Worker

Summary

RR No. 1-2011 defines the tax treatment of income and money remittances of an Overseas Contract Worker (OCW) or Overseas Filipino Worker (OFW).

Key points

1. Overseas income. Income from overseas employment is exempt from Income Tax. Income from business activities or properties within the Philippines is subject to Philippine Income Tax.
2. Regular and passive income. Regular income under Section 24 (A) is taxed at 5 -32% of taxable income. Passive income under Section 24(B) is taxed by final tax: 20% on bank deposit interest, royalties (10% for books, literary works and musical compositions) and prizes over P 10,000 and winnings, 10% on dividends, 5%/10% on net capital gains from shares of stock not sold through the exchange, and 6% on capital gains from real property classified as capital assets.
3. Deposit interest exemption. Interest from a depository bank under the expanded foreign currency deposit system is exempt from the 7.5% Final Tax upon proof of non-residency such as an OEC or Seaman’s Book. If the account is joint with a spouse or dependent living in the Philippines, 50% is exempt and 50% bears a 7.5% Final Withholding Tax.
4. VAT and percentage tax. An OCW or OFW in trade or business may be subject to 12% VAT under Sections 106 to 108 of the NIRC of 1997, as amended. If gross annual sales and/or receipts do not exceed P 1,500,000 and the person did not register as VAT taxpayer, a 3% Percentage Tax on gross quarterly sales or receipts applies instead.
5. Travel tax and airport fee. All migrant workers are exempt from travel tax and airport fee upon valid proof of entitlement, such as an OEC issued by the POEA.
6. DST on remittances. Remittances of OCWs or OFWs are exempt from Documentary Stamp Tax upon showing the OEC or a valid OWWA Membership Certificate. For remittances sent through banks and withdrawn by ATM, the OCW or OFW must show valid proof when arranging the transfer, and an invalid proof gives no exemption.

Who is affected

• Overseas Contract Workers and Overseas Filipino Workers
• Migrant workers
• Beneficiaries of OCW/OFW remittances

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.