Dear PAO,

My mother is currently an Overseas Filipino Worker (OFW), who works as a nurse in Vietnam. Because of her work, she was able to send us to school. She was also able to purchase two (2) condominium units which she rents out for additional income.

In this regard, I would like to inquire if she has to pay any tax as an OFW? I heard from a friend that an OFW’s earnings are exempt from tax. We hope you can give us clarity on this.

James

Dear James,

To answer your query, we first state paragraphs (B) and (C) of Section 23 of the 1997 Tax Code of the Philippines, as revised, which provide: “

SEC. 23. General Principles of Income Taxation in the Philippines. – Except when otherwise provided in this Code:xxx “

(C) An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income derived from sources within the Philippines: Provided, That a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker; xxx” Based on your narration, your mother is a Filipino citizen, but she is not in the country as she is currently employed as a nurse in Vietnam. Thus, based on paragraph (C) of Section 23 of the Tax Code, as revised, her salary as an OFW nurse in Vietnam is considered as income derived from a source without the Philippines, i.e. the activity and origin of the income is outside the Philippines. As such, the same is not taxable under Philippine law.

However, you also mentioned that she owns two (2) condominium units which she rents out for additional income. Now, in accordance with paragraph (C) of Section 23 of the Tax Code, as revised, since these condominium units are located in the Philippines, rental income from them are considered as income from sources within the Philippines, and thus, subject to Philippine income tax.

For reference, below is the income tax rate applicable beginning 2023, as amended by Republic Act (RA) 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (Train) Law:

Moreover, the rent on the properties may also be subject to the 12% Value Added Tax (VAT). This is because Sections 105 and 108 of the Tax Code, as revised, provides that, a person, who in the regular course of trade leases properties shall be levied, assessed, and collected, a value-added tax equivalent to twelve percent (12%) on the gross sales derived from the use or lease of properties.

Finally, the lease executed by your mother and her tenants is likewise subject to Documentary Stamp Tax (DST) in accordance with Section 194 of the Tax Code, as revised, which states that, on each lease, agreement, memorandum, or contract for hire, use or rent of any lands or tenements, or portions thereof, there shall be collected a documentary stamp tax of Six pesos (P6.00) for the first Two thousand pesos (P2,000), or fractional part thereof, and an additional Two peso (P2.00) for every One Thousand pesos (P1,000) or fractional part thereof, in excess of the first Two thousand pesos (P2,000) for each year of the term of said contract or agreement. We hope that we were able to answer your queries. This advice was based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Thank you for your continued trust and support.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]