[Ask the Tax Whiz] Am I required to file an annual income tax return?

I am an overseas Filipino who’s been working here in Riyadh, Saudi Arabia, for 10 years now since I graduated from college. I don’t have a tax identification number (TIN) yet in the Philippines. If I go home, will I be required to file an annual income tax return? Are there tax incentives for OFWs?

Overseas Filipino workers (OFWs) are not required to file an annual income tax return. Section 23 of the Tax Code provides that an OFW’s income from abroad or income arising out of his overseas employment is exempt from income tax.

OFWs are also exempt from travel tax, airport fees, and documentary stamp tax on their remittances. However, they have to be registered with the Philippine Overseas Employment Administration and possess a valid overseas employment certificate to claim the exemptions as provided in Section 35 of Republic Act No. 8042, or the Migrant Workers and Overseas Filipinos Act of 1995, as amended by Section 22 of RA 10022.

My small business went bankrupt before I left the Philippines in 2019. It was registered with the Department of Trade and Industry (DTI) and the Bureau of Internal Revenue (BIR) under my name. In 2020, I still filed my annual income tax return for 2019 just to be sure, but we closed the business already even before the lockdown. As an OFW, am I not exempted from filing an annual income tax return? Should I still file and pay taxes even if I have closed the business?

As an OFW, you are exempted from filing annual income tax, but only on your income from abroad.

Since you have a registered business under your name, you need to continue filing a no-payment return until you file for closure or cessation of business with the BIR.

I am a full-time employee of a multinational company here in Makati City. I don’t have other sources of income. Every year, our HR/Accounting issues BIR Form 2316 to all employees and we sign the bottom part for substituted filing. Do I still need to file my annual income tax return? Who is qualified for substituted filing?

You no longer need to file your annual income tax return yourself. You are qualified for substituted filing since you only have one employer and no other sources of income. Under Section 51-A of the Tax Code, those qualified for substituted filing:

• receive purely compensation income, regardless of amount
• only have one employer within the calendar year
• had their income tax withheld correctly by the employer

During the lockdown, my father lost his job in Manila. This forced him to go back to the province and get a job that only pays minimum wage. Is he required to file an annual income tax return? Will he pay any additional income tax even if he only receives minimum wage from his current job?

He is disqualified from substituted filing even if his new job pays minimum wage since he had two employers in the same year. He needs to consolidate his BIR Form 2316 from his previous and current employers and use BIR Form 1700 to file his annual income tax.

If his income tax had been withheld correctly by his previous employer, he will no longer pay any additional income tax since he is now receiving minimum wage which is exempted from income tax.

I started an online business during the pandemic. It was registered with the DTI and the BIR. However, my annual gross sales for 2020 only reached P250,000. Am I required to pay any income tax? What if I chose optional 8% during my first quarter filing – what do I file on or before April 15, 2021?

You are still required to file your annual income tax return (BIR Form 1701) but there is no income tax due since the first P250,000 income is exempted from income tax under the Tax Reform for Acceleration and Inclusion law.

If you chose optional 8%, you will use BIR Form 1701A. You may download the TaxWhizPH mobile app for free and file either BIR Form 1701 or 1701A free of charge.

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Mon Abrea, CPA, MBA, is the co-chair of the Paying Taxes-EODB Task Force. With the TaxWhizPH mobile app as his brainchild, he was recognized as one of the Outstanding Young Persons of the World, an Asia CEO Young Leader, and one of the Ten Outstanding Young Men of the Philippines because of his tax advocacy and expertise. Currently, he is the chairman and CEO of the Asian Consulting Group and trustee of the Center for Strategic Reforms of the Philippines – the advocacy partner of the Bureau of Internal Revenue, Department of Trade and Industry, and Anti-Red Tape Authority on ease of doing business and tax reform. Visit www.acg.ph for more information or email him at mon@acg.ph and download the TaxWhizPH app for free if you have tax questions.