Author Topic: Protect your worldwide income from double taxation  (Read 3512 times)

Offline Art, just a re(tired) Fil-Am

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Protect your worldwide income from double taxation
« on: June 03, 2014, 02:09:16 PM »
http://tinyurl.com/o36f2am

How can one properly file and record income received as well as taxes paid to protect them from double taxation?

Most countries protect their citizens from double taxation. Hence, many countries have forged Double Taxation Agreements, or what are commonly known as tax treaties, with their trading countries. At present, the Philippines has tax treaties with 37 countries.

A tax treaty resorts to several methods to prevent double taxation.

First, it sets out the respective rights to tax of the state of source and of the state of residence with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting states. For example, in the Philippines-Netherlands tax treaty, the sale of shares of stocks is taxable only in the country of residence of the shareholder. Such exclusivity in the taxing jurisdiction guarantees that a Filipino will only be taxed once if he has investment in this treaty country.

For other items of income or capital, both states are given the right to tax, although the amount of tax that may be imposed by the state of source is limited. For example, in the case of dividends in the Philippines-US tax treaty, the Philippines may tax the dividends paid by a Philippine company to a United States resident company at a rate not exceeding 20% or 25%. Under the most-favored-nation clause, the rate can go as low as the lowest rate imposed by the Philippines on dividends paid to other nationalities under other tax treaties. The percentage may vary depending on the circumstances present to the taxpayer.

The second method for the elimination of double taxation applies whenever the state of source is given a full or limited right to tax together with the state of residence. In this case, the treaties make it incumbent upon the state of residence to allow relief in order to avoid double taxation. Go to this link to continue: http://tinyurl.com/o36f2am

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Offline Lee2

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Re: Protect your worldwide income from double taxation
« Reply #1 on: June 03, 2014, 06:26:34 PM »
More information on what a US citizen or resident alien might have to pay taxes on if living in the Philippines and earning income there.
Foreign Earned Income Exclusion http://tinyurl.com/cbo4jju

Quote
If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($91,500 for 2010, $92,900 for 2011, $95,100 for 2012, and $97,600 for 2013). In addition, you can exclude or deduct certain foreign housing amounts.
You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer. Refer to Exclusion of Meals and Lodging in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, and Publication 15-B, Employer's Tax Guide to Fringe Benefits for more information.

:) Happily married since 1994 & live part of the year in Cebu and the rest in S. Florida.

Offline Art, just a re(tired) Fil-Am

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Re: Protect your worldwide income from double taxation
« Reply #2 on: June 03, 2014, 07:56:57 PM »
Geez! If I was earning $92,900 to $97,600 a year, I wouldn't be living in the Philippines today!
We're retired and living on a fixed income other than for the annual COLAs we may or may not get every year depending on the U.S. economy!
So, we're not concerned about all this double taxation topic on here, which doesn't really apply to most retirees already living in the Philippines, but lucky for those who are still working and making those kind of income overseas and residing in the Philippines as their home base! 
« Last Edit: June 03, 2014, 10:06:56 PM by Gray Wolf »
"Life is what we all make it to be"!
"It's always a matter of money"!
"Do on to others as they would do on to You, but do it first"!
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"Que Sera Sera"!

Offline Lee2

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Re: Protect your worldwide income from double taxation
« Reply #3 on: June 03, 2014, 08:10:40 PM »
I posted the information to show people that most of us do not have to worry about double taxation, although we all pay taxes while living in the Philippines in the form while paying Value Added Tax (VAT) on most things we buy, so the incomes for some of us are taxed back home as well as in the Philippines.
:) Happily married since 1994 & live part of the year in Cebu and the rest in S. Florida.

Offline bcnorth

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Re: Protect your worldwide income from double taxation
« Reply #4 on: June 04, 2014, 01:36:57 PM »
Lee,
I am a new person to this board and know almost nothing about taxation in the Philippines. However, I have been a dual citizen for a great many years and for tax purposes I am a resident Canadian citizen and a non-resident U.S. citizen. As you note, the U.S. taxes its citizens on worldwide income.  My income is quite modest as I am semi-retired. That is, I receive pension income plus I also receive a small amount of employment income. You presented IRS material showing that one can exclude foreign earnings up to $97,600 and so theoretically unless one's income is extremely high one shouldn't need to pay any tax on income earned outside of the U.S. I just pulled out a copy of my 2013 U.S. tax I and I have filled out materials on each one of some 51 pages. A major problem is that there are a number of exceptions on the exclusion of foreign earnings. Moreover, if one receives even a small amount of interest from a stock one owns in a foreign country or interest from a foreign bank then it may very well be subject to tax (see IRS Form 1116 dealing with the alternative minimum tax and Foreign Tax Credits). Moreover, even being a non resident American citizen, if I sell property I own in a foreign country and make a substantial profit, then I will likely need to pay tax on it. In the past an American dual citizen living in another country "kind of forgot" to include such things as foreign interest, business profits and lottery winnings on the U.S. tax form. Now the IRS shares bank and brokerage information with other countries. One is at serious risk by "kind of forgetting" about income made in foreign countries.
 I emphasize I know neither about the taxation system in the Philippines nor have I read the U.S./Philippines tax treaty though I plan to do so in the near future. 

Offline starrt

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Re: Protect your worldwide income from double taxation
« Reply #5 on: June 04, 2014, 07:37:44 PM »
DISCLAIMER -- I AM NOT AN EXPERT IN THIS, SO PLEASE TAKE THAT INTO ACCOUNT WHILE READING THIS!

This is an interesting, and very confusing, subject.

Most countries have tax treaties with most other countries. The reason for that is to prevent double taxation. In most cases a person who pays tax to one country and then reports the taxable amounts to another country, will only be liable for paying the taxes once. However, which country gets the taxes paid to them is the very confusing part.

I am Canadian, working for a Canadian company, and will continue doing so while in the Philippines. The rules and regulations and tax treaty that I have read on the Canadian Government web site essentially say that since I am working for a Canadian company and will still have reasonable ties to Canada while living abroad, such as a bank account, real property, etc, then I will have to pay taxes in Canada, and not have to pay any in the Philippines.

Once I retire, and no matter where I live or what ties I have or do not have to Canada, the pension income that I will be receiving from the Canadian pension plan will be taxable only in Canada.

As for other countries it may or may not be different, but mostly it should be the same sort of deal.

I hope this has not added, too much, to the general confusion. The end result is, if in doubt, speak to a professional in the field of tax accounting or tax law.

Thomas

Offline bcnorth

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Re: Protect your worldwide income from double taxation
« Reply #6 on: June 04, 2014, 11:40:39 PM »
Thomas, in your taxation discussion you write, “. . .if in doubt, speak to a professional in the field of tax accounting or tax law.” I totally agree and for that reason employ the Edmonton branch of KPMG, the international tax and financial consulting firm to file both my American and Canadian income taxes. Only two countries in the world, the U.S. and Eritrea, require their citizens to file taxes on their “world-wide income”. It is the “world-wide income” that is the trap and when you add in dual citizens also having to pay taxes in both countries it becomes a double trap.
As you note, Canada has taxation treaties with other countries normally preventing double taxation and if a Canadian completely cuts financial ties with Canada then the individual pays no Canadian tax. Being simply a Canadian citizen is wonderful.

Offline suzukig1

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Re: Protect your worldwide income from double taxation
« Reply #7 on: June 05, 2014, 07:50:17 AM »
...Only two countries in the world, the U.S. and Eritrea, require their citizens to file taxes on their “world-wide income”...

It's this statement (as written) that confuses people.  Invariably (almost anyway) someone will post later something like "Do you mean that if I have income from overseas ... "

This statement applies to people that are not residents of their country of citizenship.

Almost all countries tax their citizens on world wide income if they are residents of their country of citizenship.
« Last Edit: June 05, 2014, 07:59:32 AM by suzukig1 »

Offline BingColin

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Re: Protect your worldwide income from double taxation
« Reply #8 on: June 05, 2014, 08:07:02 AM »
There are double taxation treaties between many pairs of countries but each one is a seperate and individual treaty. While they could have a lot in common, they are different to meet the requirements of that pair of countries. In the case of foreigners living in the Philippines you must only take note of those between the Philippines and your home country.

Offline bcnorth

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Re: Protect your worldwide income from double taxation
« Reply #9 on: June 05, 2014, 09:35:50 AM »
SuzukiG1
I apologize to you for not being a bit more clear about double taxation for I have had my own fights with the American Internal Revenue Service and lost! I have found a bit more information I believe might be helpful.
See IRS discussion of U.S. Citizens and Resident Aliens Abroad where it is written: “If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.” Also see the Wall Street Journal article by John D. McKinnon entitled “Tax History: Why U.S. Pursues Citizens Overseas” May 18, 2012. He writes: “The U.S. is the only country that taxes its citizens on their world-wide income, no matter where they live.OK, there’s also Eritrea. It imposes what is derisively termed a “diaspora tax” on its citizens.” I also managed to find a brief discussion on the U.S. and its worldwide taxation of income in an on-line taxation service for U.S. citizens called The National Association of Enrolled Agents (NAEA). “. . .this model of citizenship-based taxation of worldwide income has remained in the law since it was enacted in 1861, even as the rest of the world has gravitated to a different model, one that simply considers where the taxpayer is living at the moment. Over the years, there has been no serious attempt by lawmakers to end the taxation of citizens who do not reside in the U.S. Instead, the focus of the debate has generally been on the extent to which the earnings of Americans working overseas should be taxed –by both the country of work/residency and the United States."
I certainly am no tax expert and I am just as confused by income tax regulations in various countries as anyone reading on this board. Needless to say, I wish everyone the very best in dealing with unpleasant  tax
buggers. 

 


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