U.S. Expats and American Taxation in the Philippines
6 min read
October 26, 2022
October 26, 2022
At a glance
The Philippines has a lot to offer adventurous Americans looking for a life abroad. Warm weather, pristine beaches, and a…
The Philippines has a lot to offer adventurous Americans looking for a life abroad. Warm weather, pristine beaches, and a low cost of living draws U.S. expats from all walks of life, but just because you’ve escaped to paradise doesn’t mean you’ve also escaped your U.S. tax obligation.
American taxation in the Philippines can be tricky to understand, but we’re here to help make it easier on you.
Ready to file your U.S. taxes from the Philippines? Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, H&R Block is here to help.
How U.S. taxes work for Americans living in the Philippines
The main thing you should understand is if you’re a U.S. citizen or Green Card holder, you likely have to file a U.S. tax return from the Philippines each year. The United States tax system is based on citizenship, not place of residency. That means it doesn’t matter if you live in Massachusetts or Manila—if you’re an American you’re taxed on income.
Taxable foreign income for Americans living in the Philippines includes:
- Rental Income
Not only do you have to file U.S. taxes from the Philippines, but you may have additional financial reporting requirements. To combat overseas tax evasion, the U.S. has two additional financial reporting requirements for Americans with money in foreign accounts.
For example, if you have $10,000 in Philippine accounts (or other offshore financial accounts) at any one time in the year, you’ll have to file a Foreign Bank Account Report (FBAR). If you have foreign assets with a value greater than $200,000, you may also have to file FATCA Form 8938.
If you’re starting to worry about double taxation (Philippines and U.S.), don’t sweat: The U.S. has three tools you can use to lower your U.S. bill and avoid Philippine/U.S. double taxation:
- Tax treaties – To prevent double-taxation, the U.S. has tax treaties with individual countries, including the Philippines.
- The Foreign Earned Income Exclusion and Housing Exclusion– The FEIE and housing exclusions allows Americans living abroad to exclude up to a certain amount of foreign earned income if they meet certain requirements.
- Foreign Tax Credit – The Foreign Tax Credit allows Americans to claim a dollar-for-dollar credit on foreign taxes paid if they meet certain requirements.
Because there are a variety of factors that can dictate which option would be best for you, you should seek the guidance of an expert and leave your U.S. taxes to a pro.
I’m retiring to the Philippines. What do I need to know about U.S. taxes?
If retiring to the Philippines is your long-term goal, you should first understand how taxes work when retiring abroad:
- Even if you retire abroad you still may have to file a U.S. tax return
- You’ll still have to report money in any foreign financial accounts on your FBAR if you meet the requirements
- Your tax-free Philippine investment accounts are not tax-free in the United States. Americans living in the Philippines may have opened a tax-free account — such as the PERA (Personal Equity Retirement Account). Most overseas investment accounts are not tax-free in the U.S. and investing in a foreign mutual fund (known as a PFIC) will cause extra reporting and tax obligations.
The U.S./Philippines tax treaty
We mentioned above that the U.S. has tax treaties with certain countries, and the Philippines is no different. While the U.S./Philippines tax treaty has dozens of provisions, an important one is the agreement to comply with FATCA reporting — meaning the two countries can exchange information about an individual’s financial accounts. Considering the hefty fines and penalties that come from not reporting your assets (upwards of $10,000 in fines per year), it’s worth it to have a U.S./Philippines tax expert go through your documents to make sure you’re reporting the correct amount.
Basics of Philippines taxes for U.S. citizens
As an American living in the Philippines, you may have to pay Philippine taxes. Here at H&R Block, we dedicate our expertise to U.S. taxes. If you have questions specific to your Philippine tax return, it’s best to speak to an expert on local Philippine taxes. Whether or not you have to file is dependent on your residency status:
- Philippine residents are taxed on both Philippine income and foreign-sourced income
- Philippine non-residents are only taxed on Philippine income
Who qualifies as a Philippine resident?
How do you know if you’re a Philippine resident or non-resident? You should speak with a Philippine residency expert, but generally, you’re considered a resident if you have no definite date set or plan to leave the country. Even if you’re considered a non-resident, your tax rate can change based on how long you’re living in the Philippines — if you’re a non-resident and you spend less than 180 days in the Philippines, you’re considered a nonresident alien not engaged in a Philippine trade or business.
If you’re a nonresident who spent more than 180 days there, you’re considered a nonresident alien who is engage in a Philippine trade or business.
Philippine income tax rates for U.S. expats
The Philippine tax year is based on the calendar year, from January 1 till December 31. Your Philippine tax return is due on April 15. Americans living in the Philippines have set income tax rates, ranging from 0% to 35%.
2022-2023 Philippine Tax Rates for Residents and Non-Residents Engaged in a Philippine Trade or Business
|Taxable Income||Tax Rate on Excess||Tax on column 1|
|PhP 0 – PhP 250,000:||0%||–|
|PhP 250,000 – PhP 400,000:||20%||–|
|PhP 400,000 – PhP 800,000:||25%||PhP 30,000|
|PhP 800,000 – PhP 2,000,000:||30%||PhP 130,000|
|PhP 2,000,000 – PhP 8,000,000:||32%||PhP 490,000|
|Over 8,000,000:||35%||PhP 2,410,000|
How to file U.S. taxes from the Philippines
Need to file U.S. taxes from the Philippines? Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, H&R Block is here to help. Here’s how to file your U.S. expat taxes online:
- Head on over to our Ways to File page
- Pick your journey—in the driver’s seat with our online DIY tool or letting a Tax Advisor take the wheel
- Once you’re through your chosen journey, you review your return and pay
- We file your return with the IRS
- You sit back and relax knowing your taxes were done right
How H&R Block can help Americans living in the Philippines with taxes
If you’re a U.S. citizen living in the Philippines, tax returns likely aren’t at the forefront of your mind until it’s time to file. Luckily for you, our expat tax services are tailored for Americans abroad, making the process simple and your tax season stress-free.
Start your U.S./Philippine expat taxes for free today!
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