Life Can Be Taxing in the Philippines.
Indeed it can. I just had a question from someone about my life here in the Philippines that made me think of this article, written several years back, and in need of an update. After all, I’m collecting all my data for filing my US Income taxes very soon now and there are many thing about income taxes in the Philippines for US persons which are widely misunderstood. About time for an update, IMO.
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- 1 Taxes For Foreigners (mainly US citizens) in the Philippines:
- 2 Internet Income Is ???
- 3 Advertising:
- 4 Affiliate Marketing:
- 5 Other Methods of Earning:
- 6 Regarding Philippine Tax Law Changes … If I Live Long Enough:
- 7 Conclusion:
- 8 If It Happens, It Happens. Not Holding My Breath
Here’s a great comment that came in a day or so ago from long-time reader Gary Wigle (thanks Gary). Gary said:
I read the other day that the Philippines is about to pass a law that will tax internet income. How will that affect you Dave?
This question brings up a number of issues, and it is especially timely, since the Tax Season is now very nearly upon us.
<Disclaimer ON > First, a disclaimer. I am not a CPA or any other form of qualified tax advisor. The following are my personal opinions only and should be taken as such … I do not give actual tax advice, prepare tax returns or offer any other tax-related services.
I use as my sources actual US IRS and Philippine BIR (Bureau of Internal Revenue) sources. I make every effort to be accurate in what I write about, but remember I am a lay person and not a professional in this field.
I consider my own tax tactics conservative, actually. I might be able to pay a lot less in taxes with professional help. My official advice to you is, you should probably use a professional unless you are sure of your own methods, or are in the area where you are already comfortable wit what you are paying. <Disclaimer OFF>
Taxes For Foreigners (mainly US citizens) in the Philippines:
My first thought upon reading Gary’s question is, “Bring It On”. I guess I am different to a lot of Americans. I actually welcome tax time. I am buying a new computer for business use only, with my tax refund (expensing it under Part 179) and making a business trip to Japan which will be partly tax deductible under the business travel rules.
Overall my US taxes are quite reasonable, especially after I take advantage of all the legitimate, IRS-approved income exclusions and legitimate small business deductions. I got a nice piece of change back last year, and I expect even a little more back this year, and since I collect from the US government alone about
20 25 times as much as I pay them, I will not bitch.
Many Americans, some almost rabid about taxes, fail to realize that US income taxes are some of the lowest in the world. Especially for those of us who earn money as an entrepreneur and aren’t sitting around stewing about this and that in that “suckers game” called a J*O*B
I don’t know anywhere else I would want to be a citizen of who taxes individual income less, so my basic tactic is just to pay what I have to and move on … life is to short to worry about taxes, and my “bite” seems totally reasonable to me.
Internet Income Is ???
That out of the way, the first thing to address in Gary’s query is, what the heck is “Internet Income”? Frankly, I have no idea. I certainly don’t receive any income ‘from the Internet’. never have and likely never will … I don’t know how to make money ‘from the Internet’ … anyone who knows different is welcome to chime in.
I haven’t heard of the proposed legislation Gary mentions, and I really can’t imagine what the term “Internet Income” means in the mind of the folks who are proposing such a tax.
Let me explain something here for the benefit of those who haven’t yet grasped the concepts of doing business online.
Here are just a couple examples of the way folks here in the Philippines earn money(real, actual money, not “Internet money”, whatever that is) using the the Internet as one of their tools, but not from the Internet, if you will.
One aspect of my business is selling pixels to Google and other advertising media buyers. You have no doubt noticed the Google AdSense ads which appear on this site. Each one consumes a certain number of pixels (screen real estate) with every page my server (located in Texas, US of A, publishes.
Google sells these pixels to advertisers who want to hawk their wares and pay me a commission … a share of the fee they earn from the ad … as consideration for the use of my screen real estate. Many of you probably don’t realize that Google is the largest advertising agency in the world, bar none. In fact the ads they sell (mainly from their AdWords program) is the largest renenue stream for Google. They make a LOT of money selling ads, and why not, it’s a great program for the company itse;f, unlsihers (guys like me who sell them space) and advertisers who have a relaible, measurable way to attract customers from all over the world.
In other words, my business is very little different from a fellow who owns billboards alongside a highway in the USA and charges a fee to let an advertiser place ads on the billboards.
Google, a US company pays me, a US citizen by direct deposit into my US credit union, for use of part of the output of my US-based server which I, in turn, lease from a US-based company. The “Internet” is the communications media which ‘stands up’ the “billboards” and the highway which brings the “eyeballs” to view the ads.
Now I am not a lawyer, so I will never say never, but it seems to me quite problematical for the Philippines to ever get their hands on that money. I am sure there is some way, possibly, but the devil will really be in the details. How will the Philippines even know if I make any income from Google?
Google, as a US corporation, has to report what they pay me to the US government. There is certainly no way the Philippine government can compel Google to also report to them. or no easy way, that’s for sure.
Google does report my earnings to the US government, and I am fine with that. I include the payments in my gross earnings precisely as US tax law tells me I must.
I do NOT report any of this income to the Philippine BIR (Bureau of Internal revenue), because as a non-citizen, non-resident here in the Philippines (I am in-country under the Balikbayan Privilege program) according to my reading of the Philippine BIR regulations, I am not required to report it.
Another way I earn money is an activity that is commonly called “Affiliate Marketing”, but that term is really shorthand that (inaccurately) describes what should be called “commissioned independent sales”.
I place ads on my own sites, ads which I either create myself or which the company wanting to have me sell their product for them provides.
I then write articles, recommend or otherwise influence views of my sites to buy a product (and I purposely am not earning from any companies in the Philippines that I know of).
When a sale is completed, the company who contracted me as an independent sales agent pays me, again, by direct deposit in the USA, a commission for my services in effectuating the sales.
Again, I suppose any law can be passed that says almost anything, but do you see huge problems in the Philippines even getting their hands on the information to even know what income is being earned from outside the Philippines?
Other Methods of Earning:
Another way I earn online is by creating and selling a product. I have a site which sells custom maps, which I make to order using a commercial mapping software. The client visits my website, orders what s/he wants, I make the map to order and ship it to the client electronically, attached to an email. The customer then pays me via my US PayPal account.
The client is in the US, the maps are delivered to the US and the money never leaves the USA.
Not only is this NOT “making money from the Internet” in any definition which makes sense to me, but whatever I earn comes directly from a US person or corporation paid directly to my US credit union or my US-based PayPal account.
Do I report this money to the US IRS when I file my taxes? Absolutely, that’s the law, but I fail to see any direct involvement with the Philippines.
Regarding Philippine Tax Law Changes … If I Live Long Enough:
That was my first thought regarding Gary’s query, I guess because I have already lived as long as I have in the Philippines.
If the Philippine government can enact a law that taxes me differently than I am currently taxed within my earning lifetime, well, more power to them.
The Philippine tax code instructions seem pretty clear that I do not have to report income that is earned outside the Philippines now. That. of course, could change. The Philippines is a sovereign nation and they certainly could change the rules, and I certainly will follow.
But just take a look, for example at the recently hotly debated Philippine Reproductive Health bill. Eleven years from introduction to being signed into law.
That’s actually a not an atypical length of time to get a law passed here.
Another example would be Philippine RA 9225, the “Dual Citizen” law which took years to get finalized and passed, and then several more years until the IRR was actually published and made its way ‘round the world to various embassies and consulates. Even today you’ll find reams of conflicting data on official sites about the process of reacquiring Philippine citizenship.
Bottom line is, if such a law or interpretation of the regulations becomes the law of the land here in the Philippines, I’ll comply with whatever the law compels me to do.
Taxes are just not that big of a deal to me. To the best of my knowledge I comply fully with US law and Philippine law to day, and I’ll continue to do so if the laws change on either side of the Pacific.
In fact, I’m kind of happy to pay taxes, because the alternative would be to be broke and not bringing in any money. So many people write and tell me hard luck story after hard luck story about being in a situation like this. Taxes are never more than a relatively small percentage of what I earn, so I basically pay them with a smile and move on to making even more money.
Also, since I am now over 70, not only can I earn as much as I want without reducing my Social Security retirement, every dollar Ido earn goes toward actually increasing my monthly SS earnings. Can’t beat that.
If It Happens, It Happens. Not Holding My Breath
With respect to the rumored “Internet Income” issue, I’ll just wait and see. May never happen. And if the Philippines does come up with a way to tax me, don’t forget I’ll get a dollar for dollar credit against my US income taxes for anything I pay to the Philippines, so it will pretty much be a “wash”.
Meanwhile, I’ll just keep on having more fun in the Philippines and not worry about how Life Can Be Taxing in the Philippines.