Taxes are often one of the most important factors for investors and entrepreneurs when deciding whether to do business in a country. If businesses aren’t careful, they may be taxed by both countries on the same income, resulting in double taxation. Philippine tax treaties protect businesses from this, allowing them to pay the correct amount while staying compliant with international agreements. Read more to learn what tax treaties are, how they work, which countries have them, and the key requirements for claiming treaty benefits.
What Is a Tax Treaty?
A tax treaty, also known as a double tax agreement (DTA), is a bilateral agreement between two countries that defines how tax is handled when a taxpayer earns income across borders. These treaties allocate taxing rights between the source country (where the income is earned) and the residence country (where the taxpayer is based).
A tax treaty’s primary purpose is to prevent double taxation, which occurs when both countries try to tax the same income. These agreements also aim to prevent tax evasion, promote transparency, and facilitate international trade and investment.
Tax Treaty Relief: How Tax Treaties Help Foreign Businesses
Tax treaty relief refers to the application of benefits under a tax treaty, such as reduced withholding tax rates or tax exemptions. It allows eligible foreign individuals or businesses to avoid or minimize double taxation on income earned in the Philippines.
Without this relief, the company may be taxed at the regular Philippine withholding tax rates (ranging from 15% to 30%) and then again in their home country.
Here’s a breakdown of tax treaty benefits:
- Avoid double taxation on income such as dividends, royalties, and interest. For example, if a foreign company receives dividends, interest, or royalties from a Philippine entity, the local withholding tax rate may be significantly reduced, but only if tax treaty relief is properly claimed.
- Lower withholding tax rates for cross-border payments
- Certainty and clarity on which country has taxing rights
- Recognition of foreign tax credits, allowing businesses to offset taxes paid in the Philippines against their domestic tax obligations
Countries Currently Covered by Tax Treaties
The Philippines has tax treaties with over 40 countries, including the United States, Japan, Australia, and members of the European Union.
- Australia
- Austria
- Bahrain
- Bangladesh
- Belgium
- Brazil
- Canada
- China
- Czech Republic
- Denmark
- Finland
- France
- Germany
- Hungary
- India
- Indonesia
- Israel
- Italy
- Japan
- Korea (Republic of Korea)
- Kuwait
- Malaysia
- Netherlands
- New Zealand
- Nigeria
- Norway
- Pakistan
- Poland
- Qatar
- Romania
- Russia
- Singapore
- Spain
- Sweden
- Switzerland
- Thailand
- Turkey
- United Arab Emirates
- United Kingdom
- United States of America
- Vietnam
Other countries may not claim tax treaty relief until they form their own agreement with the Philippines.
Claiming Tax Treaty Relief: Key Requirements
To enjoy tax treaty benefits in the Philippines, foreign entities must file a Tax Treaty Relief Application (TTRA) with the Bureau of Internal Revenue (BIR). Depending on the nature of the transaction, this process must be completed before or within a prescribed period after the income is earned.
The general requirements include:
- Letter-request
- Application Form duly signed by the nonresident income recipient or its authorized representative
- Tax Residency Certificate (TRC) for the relevant period, duly issued by the tax authority of the foreign country in which the income recipient is a resident
- Bank documents/certificate of deposit/telegraphic transfer/telex/money transfer evidencing the payment/remittance of income
- Withholding tax return with the Alpha list of Payees
- Proof of payment of withholding tax
- Notarized Special Power of Attorney (SPA) issued by the nonresident taxpayer to his/her authorized representative(s), which shall expressly state the authority to sign the Application Form as well as to file the TTRA or request for confirmation
How to Apply for Tax Treaty Relief
To benefit from tax treaty relief in the Philippines, foreign businesses must submit a Tax Treaty Relief Application (TTRA) to the Bureau of Internal Revenue (BIR). Here’s a quick overview of the process:
- File before payment is made or due – The TTRA must be submitted before the income is paid or becomes payable to the foreign entity.
- Prepare the required documents listed above.
- Wait for BIR evaluation – The BIR will assess the application to confirm eligibility for tax treaty benefits, such as reduced withholding tax or exemptions..
- Compliance with deadlines – Late or incomplete filings may lead to full taxation under Philippine law.
The process can be document-heavy and time-sensitive. Failing to submit a TTRA or submitting it late may lead to the denial of treaty benefits, meaning the income will be taxed at standard Philippine rates. Contact us if you have questions or are having difficulty with the process.
Final Thoughts
Tax treaty relief allows foreign businesses to operate in the Philippines without being unfairly taxed. By taking full advantage of existing tax treaties, companies can avoid unnecessary double taxation, reduce costs, and maintain good standing with tax authorities. Check if your country has a tax treaty with the Philippines, prepare complete and accurate documents, and submit them on time.
Do You Need Assistance Claiming Tax Treaty Relief?
Applying for tax treaty relief in the Philippines can be complicated, especially with the strict documentation requirements and deadlines set by the Bureau of Internal Revenue (BIR). Missing a document or filing late may result in a denied application and double taxation.
That’s where Triple i Consulting comes in. We’re among the best accounting outsourcing companies in the Philippines, offering bookkeeping, payroll, auditing, tax advisory, and other compliance-related services. Let our experienced lawyers and accountants provide comprehensive support to your business, so you don’t have to stress over the paperwork.
Contact us today to schedule an initial consultation with one of our experts:
- Fill out the form below
- Call us at: +63 (02) 8540-9623
- Send an email to: info@tripleiconsulting.com
