BIR will Tax earnings from undocumented Overseas Filipino Workers

Bureau of Internal Revenue keeps hard-and-fast rules for OFWs

AS the government's top revenue earner, the Bureau of Internal Revenue (BIR) has a daunting task to collect P1.066 trillion this year. While others will take their chances of winning the lottery's jackpot prize, the BIR is faced with a dilemma as revenue collection is not a game of chance.  To collect what they believe is rightfully owed from the taxpayers, the BIR asserted its vigilance on clarifying provisions of tax laws and regulations.

In February 2011, the BIR issued Revenue Regulations (RR) No. 1-2011, which provides for the tax treatment of income earnings and money remittances of Overseas Contract Workers (OCWs) or Overseas Filipino Workers (OFWs).  As defined in the regulation, OCWs, or commonly known as OFWs, are Filipino citizens employed in foreign countries, who are physically present in that country in order to perform work. Their income out of employment is basically sourced outside the Philippines. To be qualified as an OCW, these Filipinos must be duly registered with the Philippine Overseas Employment Administration (POEA) and must have valid Overseas Employment Certificates (OECs).

According to the same regulation, OFWs are exempt from paying income taxes for income earned abroad. This is simply a reiteration of the Tax Code provision which states that a Filipino citizen who is working and deriving income from abroad as a contract worker is taxable only on income from sources within the Philippines.  Simply put, an OFW's income arising out of his overseas employment is exempt from Philippine income tax.

Other than the income tax exemption, RR No. 01-2011 likewise clarified that OFWs are entitled to tax exemption on travel tax and airport fee upon presentation of a valid OEC. In addition, all funds wired home by OFWs shall be exempt from Documentary Stamp Tax (DST).

RR 1-2011, however, imposes a condition before OFW remittances shall be exempt from DST. This condition is reiterated in the recently released RR 11-2012.  Remittances sent by OFWs are exempt from DST provided that recipients must show proof that the money really came from OFWs. The following documentary proof may be presented by senders or recipients of the remittance to avail themselves of the DST exemption: (1) the OFW's OEC; (2) valid membership certificate from Overseas Workers Welfare Administration (OWWA); and (3) electronic receipt issued by the POEA.

Remittances coursed through banks and remittance companies are also entitled to the DST-exemption. The BIR reminded the said entities to strictly implement the presentation of required documentary proof before allowing OFWs and their recipients to drive down the DST payment. The new regulation (RR 11-2012) reiterates that it is the responsibility of the OFW to show a valid proof of entitlement when making arrangements of the transfer. For monitoring purposes, the tax bureau required all local banks and money transfer companies to submit a quarterly summary of OFW remittances. This report shall include the name of the OFW sender, name of recipient, the amount of remittance, and the proof of entitlement to DST exemption.

Should an OFW fail to faithfully comply with the regulation's requirements, he may not be allowed to enjoy the tax perks available to him under the basic principle that tax exemption is strictissimi juris against the taxpayer.

The new RR imposing stricter monitoring will help enhance the BIR's compliance check and help ensure that only legitimate OFWs receive the tax exemption privilege granted to OFWs.  This is clearly aligned with the stepping up efforts of the BIR to increase tax collections.

Hanna Karen V. Almario is Supervisor for Tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. This article is for general information purposes only and should not be considered as professional advice to a specific issue.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email manila@kpmg.com  or halmario@kpmg.com

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