The Philippines, known for its rich culture and warm hospitality, offers a unique and dynamic environment for US expats seeking investment opportunities. However, managing finances in the Philippines requires an understanding of both US and Philippine tax rules, as well as a clear strategy for adapting to local market conditions.
In this guide, we’ll dive into key investment and financial planning considerations for US expats in the Philippines.
Financial planning as an expat
Creating a comprehensive financial plan tailored to your life goals and risk tolerance is essential but complex for international Americans. US and local tax and reporting rules need to be taken into account, along with your current situation and future plans and risks relating to regional investments and currency rate fluctuations to ensure you invest in a tax-optimal manner that will also help you achieve your future financial goals. While most financial advisors in the US aren’t familiar with cross-border and international tax treaties and considerations, working with an expat-specialist cross-border financial advisor will let you establish a financial plan to ensure you make the most out of your adventure overseas.
Banking for Americans living in the Philippines
Opening a bank account in the Philippines is straightforward for expats holding a valid residency visa. It is often necessary to open a local bank account for receiving income, managing expenses, and paying local bills. While it’s possible to use US credit or debit cards for cash withdrawals, doing so normally incurs higher fees.
Popular local banks for expats include BDO Unibank, Bank of the Philippine Islands (BPI), Metrobank, and UnionBank. These banks typically offer services designed for foreign clients.
Currency risk management
Managing currency risk is an important consideration for Americans in the Philippines. Exchange rate fluctuations can affect your investment values and purchasing power. To mitigate these risks, consult with a financial planner who specializes in expat finances. If you plan to stay in the Philippines long-term, consider diversifying your investments into local currency investments. Conversely, if you plan to return to the US, maintaining investments primarily in US assets may be more prudent.
When it comes to transferring money internationally, again the value of your transfer can be impacted by exchange rates and fees. Specialized currency brokers can provide better rates and lower fees compared to banks. Keep abreast of market trends to make informed decisions about when to convert currencies or hedge against risks.
Tax considerations for Americans in the Philippines
Americans living in the Philippines have to file US taxes every year reporting their worldwide income, as well as being subject to local taxes. This is because the US is one of very few countries that taxes based on citizenship, rather than residence. When filing your US tax return however, you may be able to utilize IRS provisions such as the Foreign Earned Income Exclusion and the Foreign Tax Credit to eliminate double taxation.
In addition to filing form 1040, US expats must adhere to various reporting requirements related to foreign bank and investment accounts, businesses, and trusts:
- FBAR (Foreign Bank Account Report): Required if you have a combined total of over $10,000 in foreign financial accounts at any time during the year. This form is submitted online to the US Treasury.
- IRS Form 8938: Necessary if you have more than a certain amount in foreign financial assets (the filing thresholds are dependent upon whether you file singly or married).
- IRS Form 8621: This form is used to report investments in non-US mutual funds, classified by the IRS as Passive Foreign Investment Companies (PFICs).
- IRS Form 5471: For reporting related to a non-US corporation.
Failing to file these forms can result in penalties, and the US receives financial information about US expats directly from foreign banks.
In terms of Philippines taxes, expats are liable for local taxes on income sourced in the country. Filipino personal income tax rates range from 0% to 35%. In addition to personal income tax, here are some other Filipino taxes expats should be aware of:
- Property Tax: Applied to real estate holdings.
- Capital Gains Tax: Imposed on the sale of certain assets.
- Withholding Tax: Applied to specific income types, such as dividends and royalties.
- Value Added Tax (VAT): A standard rate of 12% is applied to the sale of goods and services.
While there is a tax treaty between the US and the Philippines, its benefits are limited for most US expats. Consulting a tax professional who understands both US and Filipino tax laws and who specialized in cross-border taxation can help you maximize benefits and minimize tax obligations.
Global investing opportunities
The Philippines offers diverse investment opportunities in local stocks, bonds, real estate, and burgeoning industries. However, approach local investments with caution, diligence and thorough research. Investing globally carries inherent risks, including due to currency fluctuations and local political and economic as well as international events. To manage these risks while aiming for optimal returns, it’s advisable to diversify your portfolio across various asset classes and regions, promoting a more balanced approach to long-term financial growth.
Some US brokers won’t work with US expats, however a US expat financial advisor will be able to advise you as to the best way for you to continue investing in the US from overseas.
A word of caution: certain foreign investments, especially non-US mutual funds, ETFs and other pooled foreign investment types may be classified as Passive Foreign Investment Companies (PFICs) by the IRS. Investing in PFICs triggers additional US reporting implications, and often results in higher tax rates, so it’s essential to be mindful of PFICs when developing your investment strategy. Engaging a financial advisor familiar with international investing for US expats can help you identify suitable opportunities that align with your risk tolerance and help you achieve your financial goals.
In general, for US citizens we recommend keeping brokerage investment accounts in the USA and limiting local investment to property and cash products such as term deposits.
Retirement planning
Retirement planning is an important part of your overall financial strategy. If you’re planning to retire in the Philippines, it may be sensible to hold local investments that will provide local income, while as well as US investments for stability, growth and diversification. Aim to build multiple pillars of retirement income, such as Social Security, private pensions, employer-sponsored retirement plans, and rental income. While you can contribute to US retirement accounts while living in the Philippines, bear in mind that local tax laws may not recognize their benefits. You can receive US social security payments directly into a Filipino bank account.
Cross-border family considerations
If you’re part of a cross-border family, additional financial considerations arise. These include managing dual tax obligations, understanding inheritance laws and estate planning in both countries, and optimizing financial structures for your international needs. Seek advice on whether to file your US tax return jointly or as ‘married filing separately’ to avoid unexpected taxes and complications.
Americans in the Philippines might also consider global health insurance for comprehensive medical coverage that can also include repatriation to the US in case of emergencies. Your expat financial advisor can help you find the right health insurance options for your needs.
Expert guidance
The guidance of a financial advisor specializing in US expats living in the Philippines provides personalized insights, strategies and tax and investment optimizations, helping you to save money and achieve your financial goals. They will help navigate the intricate financial landscape you face as an American living in the Philippines.
If you have any questions about financial planning as an American living abroad, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.
