Nonresident (i.e. whose stay in the country does not exceed 180 days) foreigners are liable to tax on their Philippine-sourced income. Married couples are required to compute their individual income tax liability separately but they must file a joint tax return.
Nonresident foreigners are classified depending on business activities and the applicable taxation rules depend on this classification:
- Nonresident foreigners engaged in trade or business in the Philippines
- Nonresident foreigners not engaged in trade or business in the country
Non-resident foreigners engaged in trade or business in the Philippines: net income is taxed at progressive rates. Taxable income is computed by deducting income-generating expenses and personal allowances from gross income.
Nonresident foreigners who are not engaged in trade or business in the Philippines: gross income is taxed at 25%. No deductions or allowances are available to nonresident foreigners who are not engaged in trade or business in the country.
Real estate tax is levied on Philippine real property and the applicable rate varies depending on the location. The maximum rate that a city or municipality within Metro Manila may impose is 1% while cities and municipalities outside Metro Manila may levy the tax at the rate not exceeding 2%. The owner has the option to pay the tax in four equal installments on or before the last day of each calendar quarter.
FOREIGN ACQUISITION OF A PHILIPPINE PROPERTY
A foreign acquisition of Philippine real estate is only allowed in the following cases:
- Acquisition before the 1935 constitution
- Acquisition thru hereditary succession if the foreign acquiree is a legal heir.
- Purchase of not more than 40% interest as a whole in a condominium project (Republic Act No. 4726, otherwise known as the Condominium Act)
- Purchase by a former natural born Filipino citizen subject to the limitations prescribed by law.
- Foreign nationals and or corporations may 100% own a Philippine condominium or town home
- For private land, residential home with land lot and or commercial building with land lot ownership, the foreign national and/or corporation forms a Philippine Corporation to take ownership of the property.
- A Philippine Corporation by law will be a maximum of 40% foreign owned, and a minimum of 60% Filipino owned with a minimum of five incorporators.