RP on supporting OFWs

Deployment of Filipinos abroad as overseas contract workers (OCWs) or overseas Filipino workers (OFWs) have been increasing in recent years. Based on a recent count, an average of 100 OFWs leave the Philippines every hour to find well-paying jobs abroad.

Without a doubt, the deployment of OFWs has raised the income of millions of Filipinos. The remittances also helped sustain the economic growth of the Philippines. According to the Bangko Sentral ng Pilipinas, OFWs remittances reached the highest of $18.76 billion in 2010 marking an 8.2 percent growth from the $17.07 billion registered in 2009. The remittances represent 10 percent of the country’s gross domestic product (GDP).

No wonder that the government has been actively supporting the OFWs, putting in place rules and regulations protecting and furthering their welfare. One is the recently issued Revenue Regulations (RR) No. 1-2011 of the Department of Finance and the Bureau of Internal Revenue (BIR) which aims to clarify and define the tax treatment of income earnings and money remittances of OFWs.

RR No. 1-2011 implements certain tax concessions to OFWs, as follows:

• Income tax exemption – Under the RR, the income of an OFW arising out of his overseas employment is exempt from income tax. However, if an OFW derives income from business activities or properties in the Philippines, such income earnings will be subject to tax under Sections 24 (A) and (B) of the Tax Code as this is on the premise that an OFW is taxable only on income from sources within the Philippines.

• 7.5 percent final tax exemption – The RR also provides exemption from 7.5 percent 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 OFW or Filipino seaman and an individual (spouse or dependent) living in the Philippines, only 50 percent of the interest income will be treated as exempt while the other 50 percent will be subject to final withholding tax of 7.5 percent.

• Business tax – The RR provides that an OFW may be subject to 12 percent Value Added Tax (VAT) if in the course of his trade or business, he sells, barters, exchanges, leases goods or properties, renders services in the Philippines or imports goods into the Philippines pursuant to Sections 106 to 108 of the Tax Code, as amended. However, if his gross annual sales and/or receipts do not exceed the amount of Php1.5 million and he opted not to register as a VAT taxpayer, he shall be liable to pay instead 3 percent tax of his gross quarterly sales or receipts.

• DST exemption – The remittances of all OFWs, upon showing of the OEC or valid Overseas Workers Welfare Administration (OWWA) Membership Certificate by the beneficiary or recipient, shall be exempt from the payment of documentary stamp tax (DST). The RR further provides that remittances sent through the banking system, credited to beneficiaries or recipient’s account in the Philippines and withdrawn through an automatic teller machine (ATM) shall also be exempt from DST provided that the OFW shows the valid proof of entitlement when making arrangement for his remittance transfers.

• Other exemptions – Exemptions from other taxes and fees such as the travel tax and airport fee are also provided to OFWs upon showing of the proof entitlement (i.e. OEC) issued by the POEA.

The RR defines an OFW as referring to Filipino citizens employed in foreign countries, physically present in a foreign country as a consequence of employment thereat. To be able to avail of the tax incentives mentioned above, the OFW must be duly registered with the Philippine Overseas Employment Administration (POEA) with a valid Overseas Employment Certificate (OEC); and with a valid Seafarers Identification Record Book (SIRB) or Seaman’s Book in the case of seafarers or seamen.

The tax exemptions under the RR are certainly a relief to the OFWs and their families, amidst the havoc brought about by the weakening of the US dollar against the Philippine peso on the OFW remittances. But the same old question lingers, are these enough to soothe the sufferings and hardships of the OFWs and their families?

(Aniway L. Asi is a 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. –Aniway L. Asi (The Philippine Star)

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.comor aasi@kpmg.com)