What is a Tax Residency Certificate (TRC) and How Can I Get It in the Philippines?
Introduction to Tax Residency Certificate
Let’s talk about Tax Residency Certificates and How to Get It if you live in the Philippines
Hey there, especially at social media influencers and globe-trotting bloggers and earners!
Ever heard of the Tax Residency Certificate (TRC) and wondered if it’s something you need?
In our global village, where your YouTube channel or Instagram feed can reach from Manila to Montreal, understanding TRCs is crucial.
Why? Because it’s all about making sure you’re not taxed twice on that hard-earned foreign income. Being a global influencer has its perks, but it also means getting smart with international tax laws.
As a resident of the Philippines, getting a TRC could be your golden ticket to leveraging tax treaty benefits. This means less financial stress and more funds for creating that content we all love! So, whether you’re a vlogging virtuoso or an Instagram icon, let’s dive into the world of TRCs and keep your finances as fabulous as your feed.
Now, let’s find out what TRCs are!
Double Tax Agreements
The Philippines has forty-three (43) effective Double Tax Agreements (DTAs).
Generally, Double Tax Agreements operate to avoid international double taxation.
These DTAs define what or who are considered “Residents” for treaty purposes.
There are instances, however, that foreign-sourced income or income derived from another State may be exposed to the risk of being subjected to international double taxation. And this circumstance has indeed burdened taxpayers.
What is a Tax Residency Certificate?
To avoid or at least minimize such risk, the Bureau of Internal Revenue, through the International Tax Affairs Division (ITAD), issues what is called a Tax Residency Certificate (TRC) to tax residents with foreign-sourced income and who intends to avail of the benefits provided under Double Tax Agreement between the Philippines and the country of source.
A Tax Residency Certificate (TRC) is issued to taxpayers who are classified as residents for treaty purposes, with foreign-source income and with intent to avail of the treaty benefits under the effective tax treaties between the Philippines and country of source.
- Office or Division responsible: International Tax Affairs Division (ITAD), Legal Service (LS)
- Classification : Complex
- Type of Transaction: G2C – Government to citizen
- Who may avail: Resident citizens/individuals/ Domestic corporations / non-individuals
Generally, the process to avail of a Tax Residency Certificate (TRC) is as follows:
| CHECKLIST OF REQUIREMENTS | WHERE TO SECURE |
| FOR THE RESIDENT CITIZEN (RC / INDIVIDUALS) | |
| 1. Duly accomplished BIR Form No. 0902 (Application Form for Tax Residency Certificate (TRC) for Treaty Purposes) – 1 original | RC |
| 2. Certified true copy of the following proofs of income: a. Contract duly signed by both parties, if available, or any competent proof of transaction (1 certified true copy); b. BIR-registered invoice/receipt issued by the taxpayer to the income payor and the relevant Authority to Print Receipts and/or invoices or Permit to use computerized Accounting System/Loose-leaf Receipts or Invoices (1 certified true copy); c. Proof or remittance if the foreign source income was already received by the domestic taxpayer (1 certified true copy). | RC |
| 3. Passport booklet or Original Residency Certificated issued by the Barangay Chairman if the applicant never left the Philippines (1 photocopy/ 1 original) | RC/Barangay Captain |
| 4. Annual Income Tax Return for the immediately preceding year (1 photocopy) | RC |
| 5. Notarized Special Power of Attorney (SPA) or authorization letter issued by the applicant to his/her authorized representative(s), which shall expressly state the authority to sign BIR Form No. 0902 as well as to file the TRC application (1 original). | RC |
| FOR DOMESTIC CORPORATION (DC) | |
| 1. Duly accomplished BIR Form No. 0902, which must be signed by the taxpayer or its authorized representative (1 original); | DC |
| 2. Proof of establishment in the Philippines (e.g. latest Articles of Incorporation or Partnership) (1 photocopy); | SEC |
| 3. Certified true copy of the following proofs of income: a. Contract duly signed by both parties, if available, or any competent proof of transaction (1 certified true copy); b. BIR-registered invoice/receipt issued by the taxpayer to the income payor and the relevant Authority to Print Receipts and/or Invoices or Permit to Use Computerized Accounting System/Loose-leaf Receipts or Invoices (1 certified true copy); and c. Proof of remittance if the foreign source income was already received by the domestic taxpayer (1 certified true copy). | DC |
| 4. List of partners if the applicant is a general professional partnership (GPP) (1 photocopy); | DC |
| 5. Annual Income Tax Return for the immediately preceding year (1 photocopy); | DC |
| 6. Notarized Special Power of Attorney (SPA) or authorization letter issued by the applicant to its authorized representative(s), which shall expressly state the authority to sign BIR Form No. 0902 as well as to file the TRC application (1 original). | DC |
| PROCESSING OF TRC APPLICATION WITH COMPLETE DOCUMENTS | ||
| CLIENT STEPS | AGENCY ACTIONS | PERSON RESPONSIBLE |
| 1. Submits to BIR the TRC application with complete documentary requirements/submits the additional documents requested per NTS. | 1. Receives the TRC application with complete documentary requirements or the additional documents requested per NTS, issues acknowledgment receipt to the taxpayer or authorized representative, and forwards it to the RRO; | Officer-of-the-day (OD) ITAD |
| None | 1.1. Records or logs the TRC application or the receipt of additional documents, prepares the RS (for new TRC application), and forwards the case docket/additional documents to the assigned CO; | RRO ITAD |
| None | 1.2. Evaluates the TRC application, verifies the applicant’s registration information thru the ITS, prepares the requested TRC or a letter denying the request (denial letter), whichever is necessary, updates the TRC database, then forwards the case docket to the Division Chief (DC)/Assistant Division Chief (ADC); | CO ITAD |
| None | 1.3. Reviews the TRC or denial letter, returns the docket for revision (if necessary) or for final printing; | DC/ADC ITAD |
| None | 1.4. Effects the suggested inputs of the ADC/DC, prints the final copy of the TRC or the denial letter, affixes initials, then forwards the case docket to the DC/ADC; | CO ITAD |
| None | 1.5. Reviews and affixes initials on the TRC or denial letter and forwards the case docket to the RRO- ITAD; | DC/ADC ITAD |
| None | 1.6. Updates the TRC database then forwards the case docket to the Legal Service (LS); | RRO ITAD |
| None | 1.7 Logs the receipt of the TRC case docket from ITAD and forwards the same to the Assistant Commissioner (ACIR)-LS; | RRO LS |
| None | 1.8 Reviews and/or signs the TRC/ denial letter then forwards it to the RRO-LS; | ACIR LS |
| None | 1.9 Logs and transmits the signed TRC/ denial letter to ITAD; | RRO LS |
| None | 1.10 Receives and logs the TRC/ denial signed by the ACIR-LS. | RRO ITAD |
Advantage of the Tax Residency Certificate in the Philippines
The TRC serves as proof that the tax resident is a resident of the Philippines and is, therefore, subject to tax in the Philippines on the basis of his/her/its worldwide income by reason of citizenship, residence or place of incorporation, as the case may be.
How to Use Your Tax Residency Certificate
After securing a TRC, tax residents may present it to the foreign tax authority to avail of the treaty benefits provided under the Double Tax Agreement (DTA) which may either be in the form of a tax exemption or a preferential tax rate.
Nonetheless, subject to the limitations provided under the National Internal Revenue Code, as amended, the appropriate amount of taxes paid in the country of source may be used as a credit against the Philippine tax payable in respect of that income.
Who is entitled to a Tax Residency Certificate?
The TRC shall only be issued to a resident citizen or domestic corporation with an existing Tax Identification Number (TIN) and who/which has complied with the documentary requirements as stated above (Revenue Memorandum Order No. 43-2020.
Failure to secure a Tax Residency Certificate or establish the fact of residency in a contracting state may result in the imposition of the regular tax in the state of source.
To protect, therefore, their foreign-sourced income, the International Affairs Tax Division (ITAD) of the Bureau of Internal Revenue (BIR) strongly urges Philippine tax residents to secure a TRC to avail of all treaty benefits and avoid international double taxation.
Treatment of Foreign Tax Credits When the Taxpayer Fails to Secure a TRC
Tax treaties operate to avoid international juridical double taxation in order to encourage foreign investments, among others.
International juridical double taxation is defined as the imposition of comparable taxes in two (or more) States on the same taxpayer in respect of the same subject matter and for identical periods.
When a State agrees to be bound by the provisions of a treaty, it does so on the understanding that by allocating taxing rights, said State either would lose its right to tax some items of income or may share taxing rights with the other state.
In the former, the source state does not tax the income which according to the tax treaty shall only be taxed in the residence state (or vice versa).
In the latter case, either of the contracting states may impose tax on an item of income with or without a limit, and the country of residence is obliged to allow as credit the taxes paid in the other state.
It bears stressing, however, that treaty benefits shall only be accorded to residents of either or both states.
The grant thereof is not automatic but is subject to presentation of proof of residency or a TRC in a contracting state. Failure to establish the fact of residency in a contracting state might result in the imposition of the regular tax in the state of source, i.e., without the benefit of the treaty.
To avoid being subjected to the regular tax imposed in the source state, Philippine taxpayers deriving income from another contracting state are hereby advised to always secure a TRC and present the same before the foreign tax authority to be entitled to treaty benefits.
What if you fail to secure a TRC?
Those who fail to secure a TRC shall not be allowed to claim foreign tax credits in excess of the appropriate amount of tax that is supposed to be paid in the source state had the income recipient invoked the provision/s of the treaty and proved his/her/its residency in the Philippines.
The Philippines should not be made to suffer for the failure of its tax residents to claim treaty benefits.
To achieve this purpose, tax auditors shall always ensure that Philippine taxpayers are only allowed the appropriate amount of tax credit which is equal to the amount of taxes that would be imposed on that item of income pursuant to the treaty.
Illustration:
X Corporation derived business profits of ₱10,000,000 in Country A, a treaty partner of the Philippines.
Under Country A’s tax law, business income derived by a nonresident is normally subject to tax at 30% while the tax treaty states that the business profits derived by an enterprise of the Philippines without a permanent establishment in Country A shall only be taxed in the Philippines.
If X Corporation invokes the provision of the treaty and proves its residency in the Philippines, Country A would not have the right to tax the said business profits since under the treaty, the prior right to tax belongs to the residence state.
As a result, X Corporation must pay a tax equivalent to 30%, the corporate tax rate in the Philippines, or ₱3,000,000 to the Philippine government only and not in Country A.
What if X Corporation fails to prove its residency in the Philippines?
If X Corporation fails to prove its residency in the Philippines, Country A would impose the regular tax rate of 30% on the said income.
In this case, Country A would then be justified in not applying the provisions of the treaty for X Corporation’s failure to prove its entitlement thereto.
Now, if X Corporation would be allowed to apply as credit against its tax due in the Philippines the taxes paid in the source state, the Philippines, instead of collecting, would be losing ₱3,000,000.
In such case, the tax auditor shall not allow as foreign tax credit the taxes paid in Country A but shall instead advise X Corporation to secure a TRC and file a claim for tax refund in Country A.
Getting a Tax Residency Certificate is a One-Step Process For taxpayers:
The taxpayer is only required to submit to the BIR the TRC application with complete documentary requirements and submit the additional documents requested.
Conclusion
Alright, guys, that wraps up our deep dive into Tax Residency Certificates (TRC)!
Remember, whether you’re a local influencer, a global content creator, or earning income outside of the Philippines, understanding TRCs is key to managing your international earnings wisely.
It’s all about smart financial moves to ensure you’re only taxed where you should be. So, go forth, create, influence, and inspire – but keep those taxes in check.
Stay savvy, stay sparkling, and as always, navigate this digital world with confidence and a bit of tax wisdom in your back pocket!
And as Your Tax Tita always says:
Source: RMO 51-2019; RMO 43-2020
