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Do you know that there is a Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income? It was signed in Manila on October 1, 1976, and it entered into force on October 16, 1982, the thirtieth day following the exchange of the relevant instruments of ratification in Washington, United States on September 16, 1982. Its provisions on taxes apply on income derived or which accrued beginning January 1, 1983.
It is expressly provided under Article 4 of the tax treaty that:
“Remuneration described in Article 20, which pertains to Governmental Functions, and payments described in Article 19, which pertains to Social Security Payments, paid from the public funds of a Contracting State or a political subdivision or local authority thereof shall be treated as income from sources within that Contracting State only.
This means that the social security payments that you receive from the US government is considered as an income from sources within the United States.
Under the Philippine tax law, if you are an alien or foreigner and that includes a former Filipino, and you reside in the Philippines, you are taxable only on your income from sources within the Philippines. In that case, your social security benefits are not taxable in the Philippines.
However, dual Filipino citizens are considered as Filipino citizens, not aliens. Under the Philippine tax law, Filipino citizens who are residing in the Philippines are taxable on their income from sources within and outside the Philippines. Does it mean that your social security benefits from the US are now taxable in the Philippines?
“Article 19 - SOCIAL SECURITY PAYMENTS.
Social security payments and other public pensions paid by one of the Contracting States to an individual who is a resident of the other Contracting State (or in the case of such payments by the Philippines to an individual who is a citizen of the United States) shall be taxable only in the first-mentioned Contracting State. This Article shall not apply to payments described in Article 20 (Governmental Functions).”
“Article 20 - GOVERNMENTAL FUNCTIONS.
Wages, salaries and similar remuneration, including pensions, annuities, or similar benefits, paid from public funds of one of the Contracting States:
a) To a citizen of that Contracting State, or
b) To a citizen of a State other than a Contracting State who comes to the other Contracting State expressly for the purpose of being employed by the first mentioned Contracting State for labor or personal services performed as an employee of the national Government of that Contracting State, or any agency thereof, in the discharge of functions of a governmental nature shall be exempt from tax by the other Contracting State.”
Pursuant to those provisions of the Tax Treaty, social security benefits received by dual Filipino Citizens who retire or reside in the Philippines are not subject to Philippine income tax.
