Foreign-employed Pinoys not exempt from income tax – BIR

MANILA, Philippines - Filipinos employed by foreign governments, embassies, diplomatic missions and several international organizations are not exempted from paying income taxes, the Bureau of Internal Revenue (BIR) said in a memorandum circular.

The BIR cited Sec. 23 of the National Internal Revenue Code, which states that a Philippine resident-citizen is taxable on all income derived from sources within and outside the Philippines.

The agency issued the circular to emphasize that the exemption from withholding taxes on the compensation of officials and employees of foreign governments/embassies, missions and select international organization only applies to those individuals who were expressly and unequivocally identified in international agreements or laws.

The clarification was issued to sow confusion as many taxpayers from this sector fail to file their income tax returns on the assumption they are exempted from paying income taxes. 

Officials of the United Nations and its specialized agencies are exempt from Philippine income tax, regardless of their nationality and place of residence. However, only those officials whose names have been communicated to the Philippine government shall be covered by the tax exemption, the BIR said. 

Philippine nationals who were not granted tax exemption or immunities are required to file their annual income tax returns on or before April 15 each year using BIR Form 1700 or 1701, declaring their amount of their respective compensation income for the preceding taxable year for services rendered or performed for such foreign government embassy/mission, agency or international organization.

The annual income tax return should be filed with the Revenue Distrct Office, authorized agent bank or other proper office which has jurisdiction over the employee’s legal residence of principal place of business.  It may also be filed with the Revenue District Office or authorized agent bank.

Failure to do so would result in corresponding tax assessments, inclusive of surcharges and penalties.  The BIR may also initiate criminal actions against the erring individuals.

Philippine nationals claiming exemption from income tax under the terms and provisions of international agreements or under laws granting privileges to employees of international organizations should file an application for confirmation of tax exemption with the International Tax Affairs Division of the BIR.