TAX REFORM ACT OF 1997 (RA 8424) by wev47737


									TAX REFORM ACT OF 1997 (RA 8424)

         The enactment of Republic Act 8424 or the Tax Reform Act of 1997, provides wide-ranging tax
breaks to different groups of individuals including overseas Filipinos. According to Section 23 of the law, a
non-resident citizen will be taxed only on income derived from sources within the Philippines.

Non-resident Citizen

         A non-resident citizen is defined under the law as any of the following:

1.   A Citizen of the Philippines who establishes to the satisfaction of the Commissioner of the Bureau of
     Internal Revenue the fact of his physical presence abroad with a definite intention to reside therein

2.   A Citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either
     as an immigrant or for employment on a permanent basis

3.   A Citizen of the Philippines who works and derives income from abroad and whose employment
     thereat requires him to be physically present most of the time during the taxable year

4.   A Citizen who has been previously considered as non-resident citizen and who arrives in the
     Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise
     be treated as a non-resident citizen for the taxable year in which he arrives in the Philippines with
     respect to his income derived from sources abroad until the date of his arrival in the Philippines.

Tax Exemption

         Filipinos overseas are exempted from paying taxes on their earnings from foreign sources.

Filing of Information Returns

          Under Revenue Regulation No. 9-99 (Bureau of Internal Revenue 19 April 1999) non-resident
citizens, overseas Filipino workers, and seamen should file information returns by accomplishing BIR
1701C, or the new BIR Form 1703.

          The accomplished BIR Form 1701C or new BIR Form 1703, together with relevant supporting
documents such as the Employer’s Declaration of Income Earned, Financial Statements, should be filed not
later than 15 April following the taxable year at the Foreign Post (Philippine Embassy or Philippine
Consulate) or the Revenue District Office which has jurisdiction over the place of residence of the

Exemption from Tax on Interest Income from Foreign Currency Deposits

        Revenue Regulation 10-98 (Bureau of Internal Revenue, 25 August 1998) contains provisions that
exempt non-residents and overseas Filipino workers from payment of taxes on income derived from foreign
currency deposit units.

          Under said regulation, interest income which is usually or constructively received by a resident
citizen of the Philippines on interest income from a foreign currency deposit shall be subject to a final
withholding tax of seven and one-half percent (7.5%)). However, non-resident citizens who have foreign
currency deposit accounts are exempt from payment of taxes on interest income derived from said deposits.

         On the other hand, for a bank account that is jointly in the name of a non-resident citizen such as
an overseas contract worker or a Filipino seaman, and his spouse or dependent who is a resident in the
Philippines, fifty percent (50%) of the interest income from such bank deposit shall be treated as exempt
while the other fifty percent (50%) shall be subject to a final withholding tax of seven and one-half percent
         To be entitled to this exemption, the foreign currency bank account should be in the name of the
non-resident individual. He/She should also present any of the following documentary evidences:

1.   Immigration visa issued by the foreign government in the country where he/she is a resident of
2.   Certificate of residency which is issued by the Philippine Embassy or Consulate in the foreign country
     of his/her residence
3.   Certificate of the contract of employment of an overseas contract worker which is duly registered with
     the Philippine Overseas Employment Administration (POEA); or a Seaman’s Certificate, in the case of
     a Filipino seaman.

    In addition, the non-resident citizen or OFW should also execute a written permission allowing the
depository bank to inform the Commissioner of Internal Revenue that as a non-resident, he/she is exempt
from the tax on income from foreign currency deposit. A depositor who fails to comply with this
requirement shall not be entitled to the exemption privilege.

(Source: Handbook for Filipinos Overseas, pp. 49-51, 5th Edition, June 2000. Department of Foreign
Affairs, Commission on Filipinos Overseas, Manila, Philippines)

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