OFW Guide: BIR Explains Tax Rules for OFWs

OFW Guide: BIR Explains Tax Rules for OFWs

Mar 9, 2011



The continued rise in the remittances of overseas Filipino workers (OFWs) prompted the Bureau of Internal Revenue (BIR) to issue an advisory detailing the rules on how to tax an overseas Filipino worker (OFW). According to Bangko Sentral ng Pilipinas (BSP), OFW remittances have been rising continuously since 2003. The USD7.58 billion OFW remittances recorded in 2003 rose to USD18.76 billion in 2010.



The government agency is hoping that with the advisory, tax administration would be easier as it would serve as a guide on how to view the incomes of OFWs that are earned inside and outside of the Philippines.



The BIR is also hoping that the guidelines would avoid confusions and tax issues regarding taxation procures for OFWs. In the advisory that is contained in Revenue Regulations No. 1-2011, the BIR Commissioner, Kim S. Henares clearly defined the term OFW or overseas contract worker (OCW).



According to Revenue Regulations No. 1-2011, OFW is a Filipino citizen who holds a job outside the Philippines and is physically present in that foreign country where the job is. Their salaries and wages are paid by an employer abroad and is not borne by any entity or person in the Philippines.





Henares said, “To be considered an OCW or OFW, one must be duly registered as such with the Philippine Overseas Employment Administration (POEA) with a valid overseas employment certificate (OEC).”





A Filipino seafarer or seaman is also defined as one who is paid for services rendered abroad as a member of a crew on a vessel that is exclusively engaged in international trade.





A seaman is required to have an Overseas Employment Certificate (OEC), POEA Registration, and a seafarer’s identification record book or a seaman’s book from the Maritime Industry Authority.





According to Revenue Regulations No. 1-2011, the wage or income of an OFW that is earned out of the country is exempted from income tax. However, the earnings of an OFW from a business venture or any other property in the Philippines is subject to tax obligations.





In addition, the income of a business that is owned by an OFW can be exempted from the 12-percent value-added tax provided that the OFW opts not to be registered as a VAT taxpayer and if the annual gross business income does not exceed Php1.5 million. The business of an OFW that is not VAT-registered is subject to the quarterly 3-percent gross revenue tax.





Remittances from OFWs are also exempted from the documentary stamp tax (DST). However, according to BIR rule, in the case of OFW remittances sent through banks, the recipient is required to show proof of entitlement to DST exemption such as OEC or Overseas Worker Welfare Administration (OEC) certificate.





All OFWs also enjoy exemption from paying travel tax and airport fees, although they are required to show proof that they are legal migrant workers.