NAME: __________________________________

Overseas Contract Worker

QE- TAXATION 2022 (INCOME TAXATION)  Overseas Contract Workers (OCW’s) refer to Filipino citizens
SUMMARY DISCUSSION ON INDIVIDUALS employed in foreign countries, commonly referred to as
Prepared by: REYNALDO, JR. C. BEDONIO, CTT Overseas Filipino Workers (OFW), who are physically present in
a foreign country as a consequence of their employment
DAY #_:____________________________ thereat.
(date)
 Their salaries and wages are paid by an employer abroad and is
not borne by any entity or person in the Philippines.
Classification of Individual Taxpayers
 To be considered as an OCW or OFW, they must be duly
1. Resident citizen (RC)
registered as such with the Philippine Overseas Employment
2. Nonresident citizen (NRC)
Administration (POEA) with a valid Overseas Employment
3. Resident alien (RA)
Certificate (OEC). RR No. 1-2011)
4. Non-resident alien (NRA)
 A seaman who is a citizen of the Philippines and who receives
a. Engaged in trade or business (ETB)
compensation for services rendered abroad as a member of the
b. Not engaged in trade or business (NETB)
complement of a vessel engaged exclusively in international
trade shall be treated as an overseas contract worker. (Section
Nonresident citizen
23 (C), RA 8424)
The following are considered NRC (Section 22 (E), RA 8424):
 In order for seafarers or seamen to be considered as OCW’s or
1. A citizen of the Philippines who establishes to the satisfaction of the
OFW’s they must be duly registered as such with the Philippine
Commissioner of the fact of his physical presence abroad with a
Overseas Employment Administration (POEA) with a valid
definite intention to reside therein.
Overseas Employment Certificate (OEC) with a valid Seafarer’s
2. A citizen of the Philippines who leaves the Philippines during the
Identification Record Book (SIRB) or Seaman’s Book issued by
taxable year to reside abroad, either as an immigrant or for
the Maritime Industry Authority (MARINA).
employment on a permanent basis;
3. A citizen of the Philippines who works and derives income from
 For taxation purposes, OCWs are classified as nonresident citizen
abroad and whose employment thereat requires him to be
physically present abroad most of the time (for 183 days or more)
Resident Alien
during the taxable year;
Resident alien means an individual whose residence is within the Philippines
4. A citizen who has been previously considered as nonresident citizen
and who is not a citizen thereof (Section 22 (F), RA 8424).
who arrives in the Philippines at any time during the taxable year to
The following are considered as resident alien:
reside permanently in the Philippines shall be considered a
1. A person who comes to the Philippines for a definite purpose which
nonresident citizen for the taxable year in which he arrives in the
in its nature may be promptly accomplished is a transient.
Philippines with respect to income derived from sources abroad
2. An alien, who comes to the Philippines for a definite purpose,
until the date of his arrival in the Philippines.
which, by its nature, would require an extended stay making his
home temporarily in the Philippines;
 Citizens not classified under this category are considered
Resident Citizen
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 3. An alien who shall come to the Philippines with no definite intention Philippines are subject to basic income tax under Section 24 (A)
as to his stay. of the tax code.
 It is a tax deducted from the income to be paid to the payee or
 An alien who has acquired residence in the Philippines retains his seller.
status as a resident until he abandons the same and actually depart  It is constituted as full and final payment of the income tax
from the Philippines. liability. Hence, the income subjected to this tax is no longer
included in the income tax return of the individual taxpayer
Non-resident Alien subject to basic income tax under Section 24 (A) of the tax code
1. Engaged in trade or business (Section 25 (A), RA 8424)  It cannot be credited/deducted against the basic income tax due
 An alien individual actually engaged in trade or business in the  The liability for the payment of the tax is primarily on the payor
Philippines, and as the withholding agent.
 An alien who comes in the Philippines for an aggregate period
of more than 180 days during the calendar year during any *Passive Income derived from Philippine sources subject to FWT:
calendar year shall be deemed a non-resident alien doing 1. interest income
business in the Philippines. 2. royalties
2. Not engaged in trade or business – those NRAs not included above. 3. dividends
4. prizes
Sources of Taxable Income: 5. other winnings
Taxpayer Taxable Sources
RC within and without the Phils.
NRC, RA, OCW, NRA-ETB, NRA-NETB within the Phils. Only

Types of Income Taxes:

1. Basic income tax on regular or ordinary income
2. Final withholding tax on passive income derived from the
Philippines sources
3. Capital gains tax on sale of shares of stock of unlisted domestic
corporations
4. Capital gains tax on sale of real properties located in the Philippines

 The total amount of the taxes above is known as “total income tax
expense”

Final withholding tax (FWT) on passive income

 Applicable only to passive income from sources within the
Philippines. Passive incomes derived from outside of the

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Passive income derived from Philippine sources subject to FWT:  Dividends

 Interest income

 Royalties ****Non-taxable JV
Joint ventures or consortium organized for the following purposes:
1. Construction projects
2. Engaged in petroleum, coal, geothermal and other energy
operations pursuant to an operating or consortium agreement
under a service contract with the Government

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  Prizes Capital gains tax (CGT) and Stock Transaction Tax (STT) on sale of shares of
DC

 Winnings

 Sale of shares of a domestic corporation NOT thru LSE (directly to

the buyer) is subject to CGT.
Formula is computing the capital gain:
Selling price XXX
Acquisition cost (XXX)
*NOT Included are winnings exempt from income tax such as but not Net capital gain XXX
limited to: Rate 15%
- winnings under Sec. 126 of the Tax Code [ Winnings from horse racing – CGT XXX
subject only to OPT of 4% or 10% as the case may be]
 Under RR 6-2013, the value of the shares of stock at the time of
- prizes and awards made primarily in recognition of religious, charitable, sale shall be the fair market value. In determining the value of
scientific, educational, artistic, literary, or civic achievement but only if: of the shares, the Adjusted Net Asset Method shall be used
a. The recipient was selected without any action on his part to enter the whereby all assets and liabilities are adjusted to market values.
contest or proceeding For purposes of discussion in this review material, the selling
b. The recipient is not required to render substantial future services as a price is assumed to be the market value computed using the
condition to receiving the prize or award. aforementioned method, assuming the latter is not provided.
 All individual taxpayers are subject to CGT on shares of stock of
- all prizes and awards granted to athletes in local and international sports domestic corporations
competitions and tournaments whether held in the Philippines or abroad
and sanctioned by their national sports associations.  Sale of shares of domestic corporation thru LSE is not subject to
income tax but to “a business tax” under Section 127(A) of the Tax
Code:
Tax rate beginning Jan 1, 2018: STT of 6/10 of 1% of GSP
 Sale of shares of stock of a foreign corporation is subject to basic
income tax.
 The CGT and STT are applicable only to shareholders/investors
because for income taxation purposes, sale of shares of stock by a
dealer in securities regardless of whether the shares were sold
directly to a buyer or thru LSE, is subject to basic income tax.
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 Moreover, issuance of shares by the issuing corporation is not
subject to tax except DST and Stock Transaction Tax on Initial Public
Offering under Section 127(B) of the Tax Code.

Capital gains tax (CGT) on sale of Real Property

Requisites:
1. The real property must be a capital asset; and
2. It must be located in the Philippines
Taxation of NRA-NETB
FORMULA: Capital Gains Tax = TAX BASE x 6%
NRA-NETB is subject to:
Tax Base:
1. 25% FWT on ALL
1. Selling Price
a. Ordinary Income
2. Fair Market Value
b. Passive Income derived from sources within the Philippines
3. Zonal Value
(including interest income from long-term bank deposit or
 Whichever is HIGHER
investment and PCSO/Lotto winnings except interest income on
bank deposit under FCDU)
Options of the SELLER in case of sale to Government or any political
2. CGT on sale of shares of a domestic corporation directly to a buyer
subdivisions or agencies or GOCC’s:
3. CGT on sale of a real property classified as capital asset located in
1. Pay 6% CGT or
the Philippines
2. Pay Basic Income Tax
Basic Income Tax
Exemption on Sale of Principal Residence
 Use the graduated tax rate or tax table, as amended
Requisites for Exemption:
 Income subject to basic tax are:
1. The property sold must be the principal residence of the seller
a. Ordinary income (i.e. compensation income, business income)
2. Proceeds is fully utilized in acquiring or constructing a new principal
b. Passive income derived abroad by RC’s
residence
c. Capital gains not subject to CGTs
3. Utilization must be made within 18 calendar months from the date
 Income subject to basic tax is reflected in the income tax return
of sale or disposition
of the taxpayer.
4. Notify the BIR Commissioner within 30 days from the date of sale or
 Generally subject to CWTs which may be deducted from the
disposition of the intention to avail the exemption
basic income tax due.
5. The said exemption can only be availed once every 10 years.
 It is the payee (income earner) who has the responsibility to file
Partial exemption/taxable portion: the return and pay the applicable tax.
If there is no full utilization of the proceeds of sale or disposition, the
portion of the gain presumed to have been realized from the sale or
disposition shall be subject to capital gains tax as follows:

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 b. Liable for 3% Percentage Tax under Section 116 of the NIRC.
As such (a) VAT registered taxpayers or (b) those liable for Percentage Taxes
under Title V of the NIRC (except for Sec 116) have no other option than to
be taxed using the graduated rates.

 Unless the taxpayer signifies in the 1 st Quarter Return of the

taxable year the intention to elect the 8% income tax, the
taxpayer shall be considered as having availed of the graduated
Provided, that after 2022, the taxable income tax levels in the above rates under Section 24(A) of the Tax Code, as amended, and
schedules shall be adjusted once every five (5) years, through rules and such election shall be irrevocable.
regulations issued by the Department of Finance, upon recommendation of Provided, that at any time during a given taxable year, a taxpayer’s
the Commissioner, after considering among others, the effect of the same of gross sales or receipts exceeded the VAT threshold (3,000,000, as
the 5-year cumulative inflation rate. amended; he/she shall automatically be subjected to the graduated
rates under Section 24(A)(2)(a) of the Tax Code, as amended, with
Self-Employed and/or Professionals (SEP) the following rules/guidelines:
Sec. 24(A) 2(B) of the Tax Code as amended by RA10963 (TRAIN Law)  The taxpayer shall be allowed an income tax credit of quarterly
provides the following rules for SEP: payments initially made under the 8% income tax option.
 Taxpayer is likewise liable for business tax(es), in addition to
income tax. A percentage tax pursuant to Section 116 of the Tax
Code, as amended, shall be imposed on the first 3,000,000. The
excess of the threshold shall be subject to VAT.
 Percentage tax due on the P3,000,000 shall be collected without
penalty, if timely paid on the due date immediately following
the month the threshold was breached.

Minimum Wage Earners

**Provided, the SEP is: The term “statutory minimum wage (SMW)” earner shall refer to a worker
1. Non-VAT registered in the private sector paid the statutory minimum wage, or to an employee
2. Not engaged in VAT-exempt sales/transactions in the public sector with compensation income of not more than the
3. Not subject to other OPT other than Sec. 116. statutory minimum wage in the non-agricultural sector where he/she is
assigned (RR 10-2008). MWEs are exempt from income tax on:
Note:
 Sec. 116 is a business tax, not an income tax. It is computed as 1. Minimum wage
3% of gross sales/receipts and other operating income. 2. Holiday pay
 The option to be taxed at 8%** is available only to taxpayer who 3. Overtime pay
are 4. Night shift differential
a. Non-VAT registered 5. Hazard pay

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 b. Expense account
Basic income tax of Married Individuals c. Vehicle of any kind
 Married individuals (i.e., husband and wife) are required by law d. Household personnel, such as maid, driver and other
to file a consolidated income tax return, but they shall compute e. Interest on loan at less than market rate to the extent of the
separately their individual income tax. difference between the market rate and the actual rate granted
 Income which cannot be definitely attributed to or identified as f. Membership fees, dues and other expenses borne by the employer
income exclusively earned or realized by either of the spouses, for the employee in social and athletic clubs or other similar
the same shall be equally divided between the spouses for organizations
purposes of determining their taxable income. g. Holiday and vacation expenses
 If the spouses are only physically separated and there is no legal h. Educational assistance to the employee or his dependents
separation, they are still required by law to file consolidated or i. Life or health insurance and other non-life insurance premiums or
joint returns for which they are considered as jointly and similar amounts in excess of what the law allows; and
severally liable to the tax. j. Expenses for foreign travel

Income tax of Senior Citizens (SC) and Persons with Disability (PWD) The following fringe benefits are not subject to FBT:
 For income taxation purposes, SCs and PWDs are taxable in the 1. Fringe benefits given to rank and file employees (not subject to FBT
same manner as an ordinary individual taxpayer. Hence, SCs and but subject to basic income tax)
PWDs deriving returnable income are required to file their 2. Housing benefits/privilege:
income tax returns and pay the tax as they file the return. a. Of military officials of the Armed Forces of the Philippines (AFP)
 SCs/PWDs are MWE-exempt from income tax on the said b. Which is situated inside or adjacent (within 50 meters from the
compensation income perimeter of the business premises) to the premises of a
 If aggregate gross income does not exceed P250,000, he business or factory.
shall ,be exempt from income tax and shall not be required to c. Which are “temporary” for an employee or for a temporary
file income tax return. housing unit of three (3) months or less.
3. Expenses incurred by the employee which are paid by the employer
Fringe Benefits Tax (FBT) and De Minimis Benefits and expenses paid for by the employee but reimbursed by his
FBT is a final withholding tax imposed on the gross-up monetary value of the employer, provided:
fringe benefit furnished, granted or paid by the employer to managerial or a. The expenditures are duly receipted for and in the name of the
supervisory employees, whether such employer is an individual, employer
professional partnership or corporation, regardless of whether the b. It does not partake the nature of a personal expense
corporation is taxable or not, or the government and its instrumentalities. attributable to the employee
(Section 33, RA 8424, RR No. 3-98) 4. Allowances subject to liquidation (tax exempt allowances)
The term “Fringe Benefit” means any good, service, or other benefit  Allowances not subject to liquidation are taxable.
furnished or granted by an employer in cash or in kind, in addition to basic  Representation and transportation allowances which are fixed
salaries, to an individual employee (except rank and file employee) such as in amounts and are regularly received by the employees as part
but not limited to the following: of their monthly compensation (exempt from FBT but subject to
a. Housing basic income tax).

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5. Reasonable business travel expenses: De Minimis Benefits
 Inland travel expenses (such as expenses for food, beverages The following are de minimis benefits under RR 1-2015 (amending RR 8-
and local transportation) during foreign travel. 2012, RR 5-2011, RR5-2008):
 Lodging cost in hotel (or similar establishments) amounting to a. Monetized unused vacation leave credits of private employees not
an average of US$300 or less per day during foreign travel. exceeding ten (10) days during the year.
 Cost of economy and business class airplane ticket for foreign b. Monetized value of vacation and sick leave credits paid to
travel. government officials and employees.
 70% of the cost of first class airplane ticket for foreign travel. c. Medical cash allowance to dependents of employees not exceeding
- BUSINESS travel expenses “within the Philippines” are generally P1,500 per employee per semester of P250 per month ((RR 11-2018;
assumed to be reasonable in amount. TRAIN Law)
6. Educational assistance d. Rice subsidy of P2,000 or one (1) sack of 50-kg. Rice per month
TO THE EMPLOYEE, provided: amounting to not more than P2,000 (RR 11-2018; TRAIN Law)
a. The education or study is directly connected with the e. Uniform and clothing allowance not exceeding P6,000 per annum
employer’s trade, business or profession, and (RR 11-2018; TRAIN Law)
b. There is a written contract between them that the employee is f. Actual yearly medical benefits not exceeding P10,000 per annum
under obligation to remain in the employ of the employer for a g. Laundry allowance not exceeding P300 per month
period of time they have mutually agreed upon h. Employees achievement awards, e.g., for length of service or safety
achievement, which must be in the form of a tangible personal
TO THE DEPENDENTS OF THE EMPLOYEE, provided that the property other than cash or gift certificate, with an annual monetary
assistance was provided through a competitive scheme under the value not exceeding P10,000 received by the employee under an
scholarship program of the Company. established written plan which does not discriminate in favor of
7. Contributions of the employer for the benefit of the employee on highly paid employees
the following: i. Gifts given during Christmas and major anniversary celebrations not
a. Pursuant to the provisions of existing law, such as under SSS and exceeding P5,000 per employee per annum
GSIS j. Daily meal allowance for overtime work and night/graveyard shift
b. Similar contributions arising from provisions of any other not exceeding twenty five percent (25%) of the basic minimum
existing law wage.
c. To retirement, insurance and hospitalization benefit plans k. Starting January 1, 2015, benefits received by an employee by virtue
8. The cost of premiums borne by the employer for the group of a collective bargaining agreement (CBA) and productivity
insurance of his employees. incentive schemes, provided, that the total annual monetary value
9. Fringe benefits which are/if: received from both CBA and productivity incentive schemes
 Authorized and exempted from income tax under the Tax Code combined, do not exceed P10,000 per employee per taxable year.
or under any special law
 The fringe benefit is required by the nature of or necessary to BIR Ruling No. 293-2015 (CBA/CAN and Productivity Incentive Pay):
the trade, business or profession of the employer.  If not more than P10,000 – considered as de minimis
 For the convenience or advantage of the employer  If more than P10,000- the entire amount shall be included in the
“other benefits” with P90,000 ceiling

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Note:
 This ruling shall apply only to benefits under CBA and
productivity incentive schemes.
 CBA is also referred to as CAN (collective negotiation
agreement)

13th month Pay and “other benefits”

13th month pay and other benefits received by officials and employees of
public and private entities not exceeding P90,000 beginning January 1, 2018
under the TRAIN Law are exempt from income tax and creditable
withholding tax on compensation income. Amount “in excess of P90,000” Formula in computing the Fringe Benefits Tax and Monetary Value
should form part of an individual’s gross income and would be subject to Beginning January 1, 2018 under the TRAIN Law
income tax and applicable creditable withholding taxes.

“Other benefits” under RR2-98 as amended by RR3-2015 include:

 Christmas bonus
 Productivity incentive bonus
 Loyalty awards
 Gifts in cash or in kind and other benefits of similar nature actually
received by officials and employees of both government and private
offices

 Gifts given during Christmas and major anniversary celebrations Monetary Value: In general, the valuation of fringe benefits shall be as
not exceeding P5,000 per employee per annum shall be treated follows:
as “de minimis” benefits. Any excess shall be included as part of
“other benefits” [RR 10-2008 as amended by RR 5-2011, RR8-
2012 and RR 1-2015].

Exceptions: Monetary Value of Housing and Motor Vehicle as shown below:

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 inclusion in the monthly withholding tax remittance on compensation, as
well as in the prescribed alphalists, etc.

With respect to those alien individuals who are employed by foreign

principals and who are assigned to render services exclusively to those local
entities, otherwise known as “seconded employees or secondees”, they are
likewise subject to the regular income tax rates. It is grounded on the
principle of situs of taxation considering that the services rendered by these
alien individuals are being paid by the foreign principals or advanced by
these local entities.

Filing of Income Tax Returns

Manner of Filing

Filing of Tax Returns may be made through:

 Manual filing
 Electronic Filing and Payment System (eFPS)
 eBIR Forms

1. final withholding tax on passive income

Manual Filing
Jan to Nov 10th day of the month following the
month the withholding was made
December January 15 of the succeeding year

Treatment of alien individuals employed in the Philippines by Regional or 2. capital gains tax
Area Headquarters and Regional Operating Headquarters of Multinational a. shares of stock- 30 days after each transaction
companies, offshore banking units and petroleum service contractors and b. real property – 30 days following each sale or other
subcontractors (previously known as special employees) disposition

RMC 116-2019 dated October 18, 2019 provides that, the respective income 3. fringe benefits tax – shall be filed and the tax paid/remitted not
of the alien individuals employed by the above-stated entities are now later than the last day of the month following the close of the
similarly taxed as income of regular employees of locally established quarter during which withholding was made (TRAIN Law; RR 11-
entities. Accordingly, these alien individuals are subject to the same 2018).
administrative requirements of the BIR imposed on other regular
employees, such as the substituted filing, issuance of BIR Form 2316, 4. Basic income tax
 Apply calendar year

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  Purely compensation income earners: April 15 of the succeeding  Aliens, whether resident or not, receiving income from sources
year within the Philippines
 For business income earners including income from practice of
profession: Not Required to File:
The individual taxpayer is required to file a quarterly tax return  An individual who is a minimum wage earner
(regardless of the results of operations) as follows:  Marginal income earner (self-employed whose annual gross
1st quarter May 15 (TRAIN Law) sales and/or receipts do not exceed P100,000)
2nd quarter Aug 15 (or 45 days after end of Quarter)  An individual whose income has been subjected to final
3rd quarter Nov 15 (or 45 days after end of Quarter) withholding tax [including non-resident aliens not engaged in
Annual return April 15 of the succeeding year (same with 1 st trade or business].
quarter return for income earned prior to TRAIN Law)  Those who are qualified under “substituted filing” of income tax
returns.
Required to File:
 Resident citizens receiving income from sources within or However, substituted filing applies only if all of the following
outside the Philippines. requirements are present:
 Employees deriving purely compensation income from 2 or a. The employee received purely compensation income
more employers, concurrently or successively at anytime during (regardless of amount) during the taxable year
the taxable year. b. The employee received the income from only one employer
 Employees deriving purely compensation income regardless of in the Philippines during the taxable year
the amount, whether from a single or several employers during c. The amount of tax due from the employee at the end of the
the calendar year, the income tax of which has not been year equals the amount of tax withheld by the employer
withheld correctly (i.e. tax due is not equal to the tax withheld) d. The employee’s spouse also complies with all 3 conditions
resulting to collectible or refundable return. stated above
 Self-employed individuals receiving income from the conduct of e. The employer files the annual information return (BIR Form
trade or business and/or practice of profession. No. 1604-CF) the employer issues BIR Form No. 2316 (Oct
 Individuals deriving mixed income, i.e., compensation income 2002 ENCS version) to each employee.
and income from the conduct of trade or business and/or
practice of profession.
 Individuals deriving other non-business, non-professional
related income in addition to compensation income not
otherwise subject to a final tax.
 Individuals receiving purely compensation income from a single
employer, although the income of which has been correctly
withheld, but whose spouse is not entitled to substituted filing
 Non-resident citizens receiving income from sources within the
Philippines THE END

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