———Note: Certain claims here regarding income tax may or may noy\t be correct. Consult a tax advisor knowledgeable of both county’s laws.————–
OK, I doubt I’ll be able to keep this post up too long … people reading it and copying my idea are liable to crash my server … but hey I’ll post it anyway … a surefire guideline for how to become a millionaire in the Philippines … start with two million.
Yeah, OK, big ha ha … that joke is so old it has white whiskers … and it’s also a good description for how to make a million at ranching in Colorado, starting an aircraft charter service, buying and selling homes in the US, and several other businesses I have a nodding acquaintance with.
But seriously, I have some thoughts along these lines that maybe are worth putting down on (digital0 paper. I’ve been thinking about this for a week or so now, ever since a guy made a comment on another guy’s blog (my friend Bob Martin, veteran of more than 8 years full-time in the Philippines who lives and blogs out of Davao City). The comment was a compliment about something Bob had written and it wound up with the statement, "You could have been a millionaire if you had stayed in the US."
It really made me wonder a bit … what particular points would cause a rational man to hold the opinion that a person with the talent and drive to become a millionaire would be able to become one in the US and not in the Philippines? I’ve thought about it quite a bit in the past week or so … unfortunately the gentleman who made the comment has not chosen to expand on his thoughts, even though both Bob and I have asked him to.
Neither bob nor I are dollar millionaires (although i suspect Bob is a lot closer to it than I am). In my case I have the blessing (and curse) of substantial pension incomes that takes away a lot of drive I might have … although thoughts like that gentleman expressed almost make me want to try, just to see what will happen. Bob is much younger than me, has many more years of experience as an independent businessman, has a college degree and a few other things in his background that makes him a bit better equipped, so I think it’s entirely possible he will become a dollar millionaire before he decides to sit back and coast … if he chooses to do so.
But agreeing, for the sake of argument, that either Bob or I could become millionaires will get us to the operative question … would it be easier to become a millionaire in the US or in the Philippines?
My opinion is, the choice of country to live in doesn’t make a whole lot of difference, but there are some specific and very real advantages to making money in the Philippines as opposed to making money in the US. Here are a few of my reasons:
- Overall cost of living is much cheaper. This is especially important to younger folks who still have families at home … kids have to eat even when income slows down.
- Labor is cheap. need a maid to keep the place clean while you concentrate on making money? $60 or $70 a month will do. Want new power outlets so you can move your computer and make your home office more efficient? $10 or $15 for materials and labor. Need a typist, a bookkeeper, a lawyer? All much cheaper than in the US.
- Tax structure is great. Under Philippine law you do not owe taxes on income sourced outside the Philippines, and you don’t, of course, owe state and local taxes in the US. You still have the same US federal income tax liability, but when I look at the amount of paperwork I had to deal with 9and checks I had to write) to run even a tiny business in Colorado I am amazed that I put up with that nonsense for so many years. (Some US states try to ‘stick their beak in anyway, but if your former state does, just ‘fire’ them … there is no requirement that you be a resident of any US state, so you can pick and chose to suit.
- The Internet makes it all the same world. I do my banking online, handle my credit cards online, buy, administer and sell web properties online and with VOIP services, like Skype, I talk with clients or business partners exactly as if they were in the next room … for free. the time difference is a factor, but it’s often a plus factor. for example I have been doing some custom mapping work for a client in New York. My business day starts as he is going home … he calls, discusses what he wants and then I have 16 hours or so to get things done and in his inbox before he comes to work in the morning … it can work well.
I guess i could go on, but this is already long enough. I’m sure there will be a lot of people who have different thoughts on this, so please, sing out and le’s discuss. Why do you think it’s easier … or harder … to get rich in the Philippines?
———Note: Certain claims here regarding income tax may or may noy\t be correct. Consult a tax advisor knowledgeable of both county’s laws.————–
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thanks for you comments on my site!
its nice to see people with an open mind.
Let me just make a clarification…. I don’t have a college degree, I actually was bored with college and dropped out….
Thanks for the writeup, Philly.
Living Off … ice of you to drop by. Thanks for the comment and the kind words.
Minadanao Bob … oh, I didn’t know that, welcome to the club of college dropouts then … I heard you mention LSU and put two and two together .. coming up with 5 as I so often do.
I to could not stand the boredom and the lack of current thinking at college … how anyone can spend the money they do these days to get yesterday’s education is beyong me … although I guess Sergey and Larry finished at Stanford … certainly Bill Gates didn’t bother … What abut Warren Buffet … the only guy I know that could give Bill Gates a job … I’ll have to check out Warren’s bio.
I think that Warren probably did finish college. He is more of the generation that valued that greatly.
I did go to LSU for 2 years, and I also went to Montana State University for one year. At the middle of my first year at LSU I got a great job, and I continued job and school for a while, but after a year or more I didn’t see the reason!
Yep you are right on that count, Bob. Warren actually went to to the Wharton School for several years and then finished his BS at a different school and went on to earn an MS.
The Wharton School, University of Pennsylvania, 1947–1949
B.S. University of Nebraska, 1950
M.S. in Economics, Columbia University, in 1951.
Well, I agree with you. Some of my friends’ acquaintances choose to have business there in the Philippines. They venture into call center business.
Filipinos are globally competitive in the whole Asia. They speak the language. They’re hardworking, humble, and well-educated too.
What I like about the Filipinos is that they’re hospitable and very accomodating.
And also, the value of your money is considerable to have a business there. If I choose to have business there, we can help their economy and provide jobs and that would prevent Filipinos from going abroad just to work.
Hi Eric,
Welcome and thnaks for your comment. I have afew areas where I am not in clear agreement with you … overall I certainly am.
1. “they speak the language”. Well, 10 or 20 years ago that was really true. Today, as a real man in the real world I find that especially under 30 year olds, Filipino English is becoming attrocious. The numberone issue of every call center company is finding people who can speak English … especially without the lazy sing-song “valley girl” variety so common in the higher priced schools. This needs work and it needs work now for the country to maintain an advantage.
2. They are humble: Well, I hate to say it but ‘humble’ is about the worst quality for gettingahead in businessthere can be. I know so many young, educated intelligent young Filipinos who are just hangingaround, waiting for somethingto happen, rather than believeing in themselves and doing somehting. If I were ‘king’ for a day, I’d forbid the phraae, “if only”, it is the curse of the Philippines.
But hey, those are just my impressions, thanks again for stopping by.
Quote: “Under Philippine law you do not owe taxes on income sourced outside the Philippines…,”
There may exist an International Tax Treaty between Philippines and another country for the avoidance of Double Taxation on Income and prevention of fiscal evasion with respect to income taxes. According to BIR, “At present, there are 31 Philippine Tax Treaties in force.” Usually, income like rent, interest and dividends are dealt with in particular. Normally, to prevent double taxation, non-resident taxes at rates specified in the treaty are withheld and foreign tax credits allowed. Some countries require reporting of world income and taxes paid at country’s tax rate. Foreign tax credits are then deducted to get around the double taxation issue.
Hi Ellen,
Thanks for visiting and for your useful comments. Indeed there is a treaty between the US and the Philippines, see
US-Philippines Income Tax Treaty
This would be very important to someone earning money here in the Philippines, or earning money from both countries … to avoid double taxation.
But as I originally stated, a foreigner earning only from foreign sources has no obligation to the BIR here in the Philippines .. or so I believe to be the case.
Many Americans move here thinking they can avoid US taxes on their retirement incomes sourced in the US, in general this is not true .. the US requires all citizens to report all income, world-wide, but the Philippine BIR doesn’t levy the same sort of requirement on foreigners earning from _outside_ the Philippines.
Thanks again for your info.
In most cases, the term “Resident” plays a big role and one must read the definition in the treaty very carefully. Before moving to the Philippines, I guess it is wise to determine where you choose to become a “resident” legally. If it is in the Philippines, will this trigger a “deemed sale of all assets in USA?” If so, are you liable for taxes on capital gains from this “deemed sale”? Also, do you later then report all your income earned in the US to the BIR?
If this is the case, I would decide not to become a resident of the Philippines, just remain a “foreigner” if what you are saying is correct
! What do you think?
Cheers,
I see several qustions in one there, Ellen. First, let me address what I meant to say and which the tax code seems to agree with. For those interested in pursuing further see:
http://www.bir.gov.ph/taxcode/1577.htm
(B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines. – There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines by every nonresident alien individual not engaged in trade or business within the Philippines as interest, cash and/or property dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodic or casual gains, profits, and income, and capital gains, a tax equal to twenty-five percent (25%) of such income. Capital gains realized by a nonresident alien individual not engaged in trade or business in the Philippines from the sale of shares of stock in any domestic corporation and real property shall be subject to the income tax prescribed under Subsections (C) and (D) of Section 24…
I am not a lawyer or an account therefore everyone should seek their own competent advice. However, unlike the US IRS Code, this reads pretty simple. As a non-resient ailen _not_ engaged in business in the Philippines I only owe on money sourced in the Philippines … example would be my bank accounts and the required 25% tax is deducted as it is accrued by the bank, so I feel I am well covered there.
Paragraph A of that section does give me some concern as it seems to indicate that resident ailiens are subject to tax on all sources of income. I would say that anyone contemplating permanent residency ought to seek competent advice then. I have yet to hear of any resident ailen having an issue with this but that is hardly an authoritative staement … very interesting that you pointed htis out, thnaks.
As far as ‘deemd sale’ of property when becoming a resident alien? Wow, that is a new one n me. Again, I am not a professional but this sounds ludicrous on the face of this. Are you saying that aperson can only own property in one country at a time and only in the country s/he resides in leaglly? It is certainly legal for a resident or non-resident alien to own property in the US …and perhaps other countries and it’s certainly possible to be legal resident of more than one country. I must learn more about this.
Yes – Resident is the key word and it is defined in the treaty. So based on what you quoted from the tax laws here, we can assume that if you are resident of both countries, you have to file world income in both countries and claim the respective taxes paid as credit in each tax return(?) Here’s another kicker – some countries have their own definition of resident – i.e. if you are a US citizen, however you have become a resident/immigrated of/to another country, you can still be deemed a US “resident” for tax purposes if you visited and stayed in US for a number of months as specified in the ACt. Hence, you must file world income there too. I just used USA as an example here, not necessarily that it is a fact over there.
As for deemed sale of assets, I am not saying that a person can only own property in one country at a time. You can if you are allowed, but you just have to pay the appropriate taxes
.
Normally, there is a lot of paperwork to file in order to de-register as a resident of a country. Once approved, you become a non-resident of that country, and all your assets are “deemed” sold for tax purposes. But, there is usually a way around paying the taxes: by filing another form and deferring the taxes to when the assets are actually sold.
I am not a tax specialist but I had to deal with these issues myself. Whatever you find out in your research, please let me in on it
.
Thanks,
Ellen
Although you say you aren’t an expert, Ellen, I sense you know one heck of a lot about the Filipino side of the law .. give us a hint as to where you are and what you do for a living, sounds like you deal with some of these issues a lot.
As far as the US residency tax issue goes, for the average American considering moving to the Philippines it makes little or no difference. A US citizen owes US income tax on all earned income (and most unearned income), no matter s/he resides. There is an exemption regarding citizens who work outside the US … it’s complicated and doesn’t apply to most readers here, because they won’t be coming to the Philippines and earning a salary. Some US states are picky about residency/non-residency but that is an issue it’s easy to deal with … there is no requirement for a US citizen to legally be a resident of any state and in some cases it’s worth changing one’s legal residence before migrating … California being one prime example of a troublesome one.
But in the intended audience I am writing to here, these are the facts as I (with layman’s knowledge) understand them:
You will owe US federal income tax on any money you are paid from the US or elsewhere … salary, business income, investment income, pensions, etc.
You may owe taxes to one or more US states for money earned there.
If you were to go in business, say online where all your income came from sources outside the Philippines, you likely don’t owe the Philippines any tax on that amount.
If you earn money from sources inside the Philippines you almost certainly do owe tax to thee Philippines and probably the US as well.
The tax treaty that we started this conversation with governs how much and to whom … in general the tax treaty precludes double taxation … you get credit with one government for waht you paid to the other … but that is an oversimplification, just for illustrative purposes.
I will not be researching this any further unless I decide to start a business here or earn money here, which aside from my bank accounts (which I already pay Philippine tax on) I have no earning potential on the horizon.
Actually, I’m sorry I brought the whole issue of taxes up, it gives me a headache
Hahaha. That’s why I retired early, because it gives me a headache. It’s been several years but I was an accountant and I dealt with mostly the Canadian and Norwegian treaty on the corporate side. I quickly read through the US and Canadian treaty with the Philippines – didn’t want to go into too much detail because of the headache factor – and it almost looks like ALL treaties were written by one person. And, I haven’t attempted to read the Philippine tax laws at all that was why I was asking you or maybe your readers would know. I have dealt with the Norwegian and Canadian tax authorities and they ARE difficult to deal with. One issue took me almost 2 years to resolve – migraine galore!
I am currently in Samal, Davao Gulf. Sorry to bring this matter up, but going back to my very first comment on June 23rd, I was just noting that one must certainly do their own research. Each country is different.
You have a good site here, and I am enjoying reading your articles and also the comments from your readers.
Ellen
whew…*head spinning*….
…this topic is actually good fodder to chew on and understand (if that is possible)as there may or may not be taxation considerations on one’s move to the Philippines…
Thanks for maiking the effort and in taking the time to comment Ellen and Philly!
marshall
@marshallmellow: Indeed it is a valuable subject. I shouldn’t, perhaps, brush it off so fast … but hey, I’m not doing this for a J*O*B
. Look for some more discussion/information here soon.
It’s actually a lot simpler for Americans than say our Australian or UK fellow expats, becuase the tax (and benefit) laws in those countries change a _lot_ depending on how long you have been away from the homeland. In the US we basically just have t take care of our taxes same as always and most of our government benefit programs don’t come and go based on residency.
@Ellen: Absolutely no need for “sorry” Ellen, it’s an umportnat matter … and one that there is very little good information on. In one’s home country it’s relatively easy to find a good tax advisor … accountant. tax lawyer, etc. To find someone with equal expereince in two or more countries? Wow, that would be a real find!
So you are liivng on Samal? Lucky you! I visited Samal not long ago and I really enjoyed it … you must know my freinds Bob and Feyma Martin, then?
Yup – sailed over from New Zealand last year in our ketch. Met Bob and Feyma when they came to visit Samal and I invited them over. Great people! It’s fairly quiet and serene here and I always enjoy people who come visiting. Feyma just couldn’t get a grip on how I could stay here and do “nothing” – hahaha. It is nice for me – this doing “nothing” – but I just finished setting up an accounting system for a business start up and a budget/feasibility model for it. Took me less than 3 days – so my brain hasn’t shrivelled up after all.
So do come and visit when you’re around – just don’t start any brainstorming cuz I have enough grey hairs as it is.
)
@Ellen: Ahhh, sailed there on your own ketch … fantastic. Do live on the yatch or just use it as a mode of transportation? I used to wrk with a fellow in California who was a pretty highly-placed executive with a large company there. He had gone through a divorce some years back andpart of the settlement was something like ‘she got the house, he got the boat’. He continued living abord even years later because it was convenient to work and when he wanted to get away for a weekend it more or less just involved untying the mooring lines. Someother high level folks in the same company would sometimes make jokes behind his back about ‘poor Freed’ and how he was till suffering from the breakout … I never laughed, though, he’s the only guy I dealt with in that company whom I had a trace of envy for.
Want to share a picture of the craft? I’m always ready to feature housing and transport from the Philippines in any form.
@Ellen: Something I forgot to tack on to the last comment regarding your business activities. A Britisher I know who moved to Manila some years back had along career in upper-echelon banking. He retired and resolved to move here and live a life of leisure.
However, one of his areas of expertise … anti-money laundering techniques … has been in huge demand since 9-11, and last I heard he had more airline miles that he had accumulated back when he had a regular job. He’s lucky to get home on weekends.
A German friend is a security expert. I met hm at a business meeting in Makati (why was _I_ in a business meeting … ah, that’s a story in itself) and found out he lives very close to the Manila airport … because he’s flying in and out at all hours of the day or night on any day of the week. Not really a ‘retirement’.
For those with professional business expertise? Beware doing ‘just the occasion job’. Apparently it can be like an alcoholic taking ‘just the occasional drink’.
You are so right, but no worries, just did it to help out, not for financial gains. Unfortunately, unlike so many who want to come to PI to retire, we came to help out my family – this means work. But it is not that bad, because we find that for the first time in our travels, we can actually save. We are not paying boatyard fees, prices of food relatively cheap, medical is cheap, etc etc. Besides, Davao is typhoon free and Samal security is good so we are safe and the boat is safe. We are also trying to “advertise” Davao and Samal to the sailing community. We hope to encourage more sailors to come over and boost tourism here. Word of mouth spread like wildfire in our community and can put “Davao and Samal” on the map. It is not a cruising haven, but it certainly is a very good typhoon hole. Now, it is quite lonely cuz we are the only sailing yacht here.
I don’t have a website, but I did create a page for lack of nothing better else to do, at http://members.virtualtourist.com/m/100afa/
Cheers,
Ellen
ps the boat is indeed our second home – a mobile home
@Ellen: Yes I like the idea of living in a mobnile home a lot
I think I’m going to try to do some features on boats/living abord practicalities, etc. I feel many who have retired here are like me … I don’t really want a big house and alot of responsibilities … and there is no one single placein the Philippines I am wanting to settle. In many ways a boat has alot of advantages … although you do need, probably, to home port somewhere like Davao, where there’s vistually no typhoon danger.
There is a large and active yacht club on the Subic Freeport. I know of some folks who live aboard in Manila, I’m sure there should be many water-related stories.
Thnaks for sharing. (BTW I liked that Virtual Tourist Site, I think I’ll sign up there and document some of my travels.)
Hi Philly. To some point you are correct. I don’t have any idea on how to become a millionaire in US as I never had the chance to do it. But given the chance, I would love to try it out.
If you are earning dollars and is living here in Philippines, definitely, it won’t take much long before you become a millionaire. The question boils down as to be a Philippine Peso Millionaire or a US Dollar Millionaire.
I’m not sure I follow … but you need no permissions to become a millionaire, just do it. The difference between a peso millionaire and a dollar millionaire is a multiplier of about 46 at today’s exchange rate. Best of luck.
Hi just thought i would tell you something.. This is twice now i’ve landed on your blog in the last 3 weeks searching for completely unrelated things. Spooky or what?
I guess I just have a lot of information here, Barry …hope you found something of value.