Is a Resident Citizen's Foreign-Sourced Income Taxable in the Philippines? NIRC Section 23 Explained
A Filipino citizen who resides in the Philippines is taxed on all income earned anywhere in the world — not just income earned locally — under Section 23(A) of the National Internal Revenue Code (NIRC). That includes foreign rental income, dividends from foreign stock, freelance or consulting income billed to overseas clients while living in the Philippines, and interest from a foreign bank account. This worldwide-taxation rule applies specifically to resident citizens; a nonresident citizen, including most Overseas Filipino Workers (OFWs), is taxed only on Philippine-source income instead — the distinction hinges on residency, not citizenship alone.
Organize Your Local and Foreign Income Records FREE →The citizenship-plus-residency rule under Section 23 #
Section 23 of the NIRC sorts individual taxpayers by two factors together — citizenship and residency — and worldwide taxation only applies to one specific combination of the two: a citizen who actually resides in the Philippines. The provision states the resident-citizen rule directly:
“A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines.”
This is deliberately narrower than “any Filipino citizen.” A citizen who has left the Philippines to establish residence abroad, or who qualifies as a nonresident citizen under the NIRC’s own test (most commonly an OFW physically working outside the Philippines for most of the taxable year), is taxed only on income sourced within the Philippines — foreign wages, foreign rental income, and other income earned abroad fall outside Philippine income tax entirely for that person. See Do OFWs Pay BIR Income Tax? Nonresident Citizen Filing Rules Explained for how that nonresident-citizen test works, and Why Filipino Seafarers Are Tax-Exempt OFWs Without the 183-Day Test for the seafarer-specific variant. The point where people most often get this wrong is assuming citizenship alone decides the rule — it doesn’t. A Filipino citizen who lives and works in Metro Manila but earns rental income from a condo unit in another country is a resident citizen, not a nonresident one, and that foreign rental income is fully taxable in the Philippines.
What counts as foreign-sourced income in practice #
Foreign-sourced income covers any income whose source — where the underlying activity, property, or service actually occurs — is located outside the Philippines, and it reaches a resident citizen in more forms than most people expect. Common examples that a Philippines-based resident citizen must declare:
| Type of income | Example |
|---|---|
| Foreign rental income | Rent from a property owned abroad, even if the tenant pays in foreign currency to a foreign bank account |
| Foreign dividends | Dividends from shares in a foreign (non-Philippine) corporation |
| Foreign-sourced service/freelance income | Consulting or freelance fees billed to and paid by an overseas client, for work the resident citizen performs while physically based in the Philippines still counts as Philippine-source under the “where performed” test — but income from work actually performed abroad (e.g., a short-term overseas assignment) is foreign-sourced |
| Foreign bank interest | Interest earned on a foreign currency deposit account held outside the Philippines |
| Gains from foreign investments | Capital gains from selling foreign stocks or other foreign property not covered by a specific Philippine capital gains tax rule |
The “where performed” nuance in the freelance/service row matters: for services, source generally follows where the work is physically done, not where the client is located — a Philippines-based freelancer working for a US client is earning Philippine-source income (see Do Freelancers Charge 0% VAT When Invoicing Foreign Clients? for the VAT-side treatment of that same scenario), which is a different question from whether that income is foreign- or Philippine-sourced for income tax purposes.
Does this create double taxation? #
Often a foreign country also taxes the same income at its source, but Philippine law and tax treaties provide mechanisms to reduce or eliminate the resulting double taxation rather than leaving a resident citizen to pay full tax twice. A resident citizen who pays foreign income tax on foreign-sourced income can generally claim a foreign tax credit against Philippine income tax due on that same income, subject to NIRC limitations, or rely on a tax treaty between the Philippines and the foreign country if one applies and provides more favorable relief. Where a treaty-based preferential rate is being claimed on that foreign income at its source (rather than a credit claimed here), see Tax Treaty Relief Application (TTRA) in the Philippines for that separate application process.
Worked example: a resident citizen with a foreign rental unit #
A Philippines-based accountant owns a condominium unit abroad, purchased years earlier, which she rents out to a local tenant for the peso equivalent of ₱40,000 a month. She lives and works full-time in Manila and has never established residency abroad, so she is a resident citizen under Section 23(A). That foreign rental income — ₱480,000 for the year — must be declared as part of her total taxable income on her Philippine annual income tax return, alongside her Philippine-source professional income, even though the property itself and the tenant are both outside the country. If the foreign country where the property is located also taxes that rental income, she may claim a foreign tax credit for the foreign tax paid, reducing (though not necessarily eliminating) the Philippine tax due on the same income, subject to the NIRC’s foreign tax credit limitations.
Summary #
A resident citizen — a Filipino citizen who actually resides in the Philippines — is taxed on worldwide income under NIRC Section 23(A), including foreign rental income, foreign dividends, and other income sourced abroad. A nonresident citizen, most commonly an OFW who qualifies under the NIRC’s residency test, is taxed only on Philippine-source income instead. Foreign tax credits and applicable tax treaties help resident citizens avoid paying full tax twice on the same foreign income, but the underlying obligation to declare it in the Philippines doesn’t go away simply because the income originated abroad.