Rental Property Income

[OnMyWay]

I know we have a few members that have property / apartments that they rent out and thus get income.

We are considering investing in a rental property and if we do, I want to have all my bases covered.  Any property would be in my wife's name.

She has no regular income now.  From what I can find out, she would need to pay Philippine income tax on the profit from the rental house.  In our case, the monthly expenses would be low because we would not have a mortgage, so almost all the rent paid would be income.

If there was some way she did not pay tax on the income, then, technically, I would have to declare the income on our joint U.S. income tax return.

Any thoughts on any of this?  Do most landlords in the Philippines report the income?

[jimeve]

2 hours ago, OnMyWay said:

I know we have a few members that have property / apartments that they rent out and thus get income.

We are considering investing in a rental property and if we do, I want to have all my bases covered.  Any property would be in my wife's name.

She has no regular income now.  From what I can find out, she would need to pay Philippine income tax on the profit from the rental house.  In our case, the monthly expenses would be low because we would not have a mortgage, so almost all the rent paid would be income.

If there was some way she did not pay tax on the income, then, technically, I would have to declare the income on our joint U.S. income tax return.

Any thoughts on any of this?  Do most landlords in the Philippines report the income?

wife rents out a small house for 12,000 per month and she/we pay 1,080 pesos every quarter. I don't know how they get these figures.

[OnMyWay]

6 minutes ago, jimeve said:

wife rents out a small house for 12,000 per month and she/we pay 1,080 pesos every quarter. I don't know how they get these figures.

Yes, I read that there are two schemes if your only income is from a business.  You can pay a lower tax based on gross receipts, or go with the regular tax tables based on the income after expenses.  It is probably better to use the first method if there are not a lot of expenses.

[fillipino_wannabe]

If the rent is less than 15k per month then it's VAT exempt, higher then you'll need to add VAT to the price. 

No income tax if she earns less than 250k pesos per year, can file a form but pay nothing.

[hk blues]

3 hours ago, OnMyWay said:

I know we have a few members that have property / apartments that they rent out and thus get income.

We are considering investing in a rental property and if we do, I want to have all my bases covered.  Any property would be in my wife's name.

She has no regular income now.  From what I can find out, she would need to pay Philippine income tax on the profit from the rental house.  In our case, the monthly expenses would be low because we would not have a mortgage, so almost all the rent paid would be income.

If there was some way she did not pay tax on the income, then, technically, I would have to declare the income on our joint U.S. income tax return.

Any thoughts on any of this?  Do most landlords in the Philippines report the income?

Based on my experience as a self-employed Online Teacher (your wife may or may not come under same regimen but best she check with local BIR) I guess she'd have to report the income and pay taxes on anything above 250K IF she has no other income -  20% of income between 250K and 400K through a quarterly return for Income Tax BUT quarterly percentage tax MAY also payable - 3% of income regardless of amount.  Other option is to choose 8% regimen which means no percentage tax and 8% of income above 250K.  

As I say, best to take a walk to local BIR and they will confirm what's required.

[hk blues]

59 minutes ago, OnMyWay said:

Yes, I read that there are two schemes if your only income is from a business.  You can pay a lower tax based on gross receipts, or go with the regular tax tables based on the income after expenses.  It is probably better to use the first method if there are not a lot of expenses.

Close but not completely correct - Option 1 Standard tax : Income Tax based on a table with the first 250K tax free then 20% between 250K and 400K BUT you can choose to have 40% allowance OR deduct actual expenses AND percentage tax which is 3% of all income with no deductions.  Option 2: 8% of all income with first 250K tax free and no percentage tax.  

[OnMyWay]

35 minutes ago, fillipino_wannabe said:

If the rent is less than 15k per month then it's VAT exempt, higher then you'll need to add VAT to the price. 

No income tax if she earns less than 250k pesos per year, can file a form but pay nothing.

I didn't want to get into too much detail to complicate things, but here in the freeport we don't own; we buy a long term lease.  Then, when we "rent" the property that has the long term lease, the "renter" has a sub-lease agreement with the landlord and the freeport.  The freeport gets a 5% tax' on the sub-lease.

I have never heard of VAT being involved so maybe this leasing situation is different?  All the houses lease for more than 15K a month.

[jimeve]

4 minutes ago, hk blues said:

Based on my experience as a self-employed Online Teacher (your wife may or may not come under same regimen but best she check with local BIR) I guess she'd have to report the income and pay taxes on anything above 250K IF she has no other income -  20% of income between 250K and 400K through a quarterly return for Income Tax BUT quarterly percentage tax MAY also payable - 3% of income regardless of amount.  Other option is to choose 8% regimen which means no percentage tax and 8% of income above 250K.  

As I say, best to take a walk to local BIR and they will confirm what's required.

I really don't understand! my wife's income is under 250,000, then why is she paying income tax on her rental property?

[hk blues]

6 minutes ago, jimeve said:

I really don't understand! my wife's income is under 250,000, then why is she paying income tax on her rental property?

I did start my post saying based on my experience as a self-employed teacher - rental income may be taxed under a different regiment. 

That said, looking at the forms I complete income from profession and income from business are taxed the same way - I had to set myself up as a 'business'  first but it was relatively simple. 

Again, I am only explaining my case and it's best to talk to the people at the local BIR as rules vary according to regional office interpretation/application.  

[jimeve]

Rental Income Tax Philippines |

Non-resident couple's joint monthly rental income1		US$1,500	US$6,000	US$12,000
Annual Rental Income		18,000	72,000	144,000
Less: Expenses3	90%	16,200	64,800	129,600
= Taxable Income		1,800	7,200	14,400
Income Tax Rates4
Up to PHP10,000	5%	20	20	20
PHP10,000 - PHP30,000	10%	80	80	80
PHP30,000 - PHP70,000	15%	90	240	240
PHP70,000 - PHP140,000	20%	-	560	560
PHP140,000 - PHP250,000	25%	-	400	1,100
PHP250,000 - PHP500,000	30%	-	-	1,320
Over PHP500,000	32%	-	-	-
Annual Income Tax Due		190	1,300	3,320
Other Taxes
Value Added Tax (VAT)5	12%	540	8,640	17,280
Tax Due as % of Gross Income		4.06%	13.81%	14.31%
Thanks to:

Notes

Rental Property Taxes Philippines

Edited February 1, 2019 by jimeve