Income earned abroad by Overseas Filipino Workers (OFWs) is exempt from Philippine income tax, but any earnings generated within the country—such as rental income from real estate—remains taxable. This clarification was made by Public Attorney’s Office (PAO) Chief Atty. Persida Rueda-Acosta in her daily column published in The Manila Times.
The legal opinion was in response to a letter from the child of an OFW nurse currently working in Vietnam. The sender asked if their mother, who also owns two condominium units in the Philippines being rented out, is required to pay taxes.
Quoting Section 23(C) of the National Internal Revenue Code, Acosta wrote: “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.”
She explained that since the nurse is earning her salary outside the Philippines, this income is not subject to Philippine taxation. However, the situation is different when it comes to income from renting out property within the country.
“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,” Acosta noted.
She further said the rental earnings may also be liable for a 12% Value Added Tax (VAT) under Sections 105 and 108 of the Tax Code, provided the leasing is conducted in the course of trade or business.
Additionally, rental contracts are subject to Documentary Stamp Tax (DST), which imposes P6 for the first P2,000 of annual rent and an extra P2 for every P1,000 or fraction beyond that amount.
