Tax Treatment of OFW Income

Overseas Contract Worker (OCW) commonly referred to as Overseas Filipino Worker (OFW) is taxable only on income from sources within the Philippines. This includes a seaman rendering services abroad as a member of the complement of a vessel engaged exclusively in international trade. The income of OCW or OFW’s arising out of his overseas employment is exempt from income tax.

If an OCW or OFW has income earnings from business activities or properties within the Philippines, such earnings are subject to Philippine income tax as follows:

a.      For Regular Income – Tax rate of 5%-32% of taxable income

b.      For Passive Income –

  i.               20% Final Tax on Interest Income from any currency bank deposit and yield or any monetary benefit from deposit substitutes and from trust funds and similar arrangements;

ii.               20% Final Tax on any royalties;

iii.               10% Final Tax on any royalty related on books, as well as literary works and musical compositions;

iv.               20% Final Tax on prizes (except prizes amounting to P10,000 or less which  shall be subject to regular income tax rate of 5 -32%) and other winnings (except Philippine Charity Sweepstakes and Lotto Winnings);

 v.               Exemption from 7.5% Final Tax on Interest Income from a depository bank under the expanded foreign currency deposit system upon presentation of proof of non-residency such as OEC or Seaman's Book. However, If the account is jointly in the name of the overseas contract worker or a Filipino seaman, and an individual (spouse or dependent) who is living in the Philippines, fifty percent (50%) of the interest income from such bank deposit will be treated as exempt while the other fifty percent (50%) shall be subject to a final withholding tax of seven and one-half percent (7.5%);

vi.               10% Final Tax on cash or property dividends

vii.                5%/10% Final Tax on net capital gains realized on sale, barter, exchange or other disposition of shares of stock in a domestic corporation (except shares sold or disposed of through the stock exchange);

viii.               6% Final Tax on capital gains from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets  based on gross selling price or current fair market value whichever is  higher;

ix.                       5% / 12% / 20% Final Tax on interest income from long term deposits or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other  investments evidenced by certificates in such form prescribed by the  Bangko Sentral ng Pilipinas which was pre-terminated by the holder before the fifth (5th) year.

Any trade or business of an OCW or OFW, if the gross annual sales or receipts do not exceed one million five hundred thousand pesos and opted not to register as a VAT taxpayer, shall be liable to pay 3% percentage tax on his gross quarterly sales or receipt.

All migrant workers shall be exempt from payment of travel tax and airport fee upon proper showing of proof of entitlement issued by the Philippine Overseas and Employment Administration. Further, the remittances of all OCWs or OFWs are exempt from the payment of documentary stamp tax.

(Revenue Regulations No. 1-2011, February 24, 2011)