Taxation on Dual-Currency Salary in the Philippines (A practitioner-oriented overview as of 18 June 2025 – for general information only; not legal advice)
1. What is a “dual-currency salary”?
A dual-currency salary (DCS) is an employment arrangement in which an employee is paid part of his or her remuneration in Philippine pesos (PHP) and the balance in a foreign currency—most commonly USD, EUR, JPY, SGD or HKD. Multinationals use DCS to:
- Preserve an expatriate’s purchasing power amid FX swings.
- Simplify cross-border payroll funding.
- Hedge the employer’s revenue currency against peso outflows.
From a Philippine tax perspective, it is still one single compensation package; the split into two currencies has no effect on taxability, only on conversion mechanics.
2. Legal framework
| Source | Key provision for DCS compensation |
|---|---|
| National Internal Revenue Code (NIRC), as amended by* TRAIN* (RA 10963, 2017) & CREATE (RA 11534, 2021) | §§ 24-25 (income tax on individuals), § 34(C)(1) (foreign tax credits), § 33 (fringe benefits tax) |
| Revenue Regulations (RRs) & Revenue Memorandum Circulars (RMCs) | RR 02-98, RR 11-18, RMC 50-18, RMC 32-20: peso conversion, FX documentation, 2316 reporting |
| Bangko Sentral ng Pilipinas (BSP) Manual of Regulations on FX Transactions (2022) | Permits foreign-currency payroll remittances and sets reference rates |
| Labor Code & DOLE Department Orders | Require salary payment “in legal tender,” but DO 118-12 recognises FX-based allowances if convertible to pesos on demand |
| Double-Taxation Agreements (DTAs) | Article 15 “Dependent Personal Services” (OECD/UN Models) governs source-country taxing rights |
| Special Investment Regimes | PEZA, BOI, Clark/Subic, RHQ/ROHQ, Offshore Banking Units (OBUs) grant preferential employee tax rates |
3. Who is taxed—and at what rate?
| Category of employee | Income-sourcing rule | 2025 headline tax on compensation¹ |
|---|---|---|
| Resident citizen (works in PH) | Global income taxable in PH; foreign salaries included | Graduated 0 – 35 % under § 24(A) |
| Resident alien (legal stay ≥ 180 days) | PH-sourced only | Same graduated scale |
| Non-resident alien engaged in trade/business (stay > 180 days within CY) | PH-sourced only | Same graduated scale |
| Non-resident alien not engaged in trade/business (stay ≤ 180 days) | PH-sourced only | 25 % final withholding (§ 25(B)) |
| Expat in RHQ/ROHQ, OBU, petroleum service contractor | PH-sourced only | 15 % final withholding on gross (§ 25(C)(D)(E)) |
| Qualified Filipino seafarer / OFW (contracted overseas) | Salaries earned abroad exempt (§ 24(A)(2)) |
¹After TRAIN’s 1 Jan 2023 bracket adjustment; top rate falls to 30 % in 2026.
4. Converting the foreign-currency component to pesos
For monthly withholding Employer’s option, but must be consistent:
- Daily BSP reference rate on pay date, or
- Weighted monthly average published by BSP/BIR, or
- Company’s treasury rate if supported by bank dealing slips.
For year-end BIR Form 2316 / Form 1700 Use BSP weighted average rate for December payroll period (or the specific rate prescribed in any updated RMC).
Bookkeeping Maintain schedule reconciling:
- FX rate used
- Peso-equivalent taxable base
- Proof of inward remittance (if any)
- Corresponding tax withheld
5. Withholding-tax mechanics
| Step | Peso component | FX component |
|---|---|---|
| (1) Aggregate all cash salary, allowances, guaranteed bonuses, RSUs vested, deferred comp, plus non-cash taxable benefits. | Already in PHP. | Convert as in § 4. |
| (2) Apply BIR Revised Withholding Table (RR 11-2018). | Same table. | Same table (after conversion). |
| (3) Remit via Form 1601-C on or before the 10th (eFPS) / 15th (manual) day of following month. | Peso-denominated. | Peso-denominated. |
Common pitfalls: under-withholding due to late FX conversion; oversights when FX salary is transferred directly offshore.
6. Fringe benefits in foreign currency
- Company-provided housing, goods or services denominated in USD/EUR are converted to pesos on the actual date the benefit is granted.
- 35 % Fringe Benefits Tax (FBT) is applied on the grossed-up monetary value (GMV) after conversion (§ 33).
- For expatriates subject to 15 % preferential tax, FBT does not apply if the benefit is already part of “gross compensation.”
7. Social-security & statutory contributions
| Scheme | Basis if salary paid in FX |
|---|---|
| SSS (RA 11199) | Peso equivalent—subject to ceiling PHP 30 k (as of 2025). |
| PhilHealth | Peso equivalent—4.5 % – 5 % of monthly salary, cap PHP 362,500. |
| Pag-IBIG | 1 % – 2 % of monthly comp, peso-converted, cap PHP 5 k. |
The employer must remit in pesos; foreign-currency remittance does not satisfy the obligation.
8. Tax credits & treaty relief
- Resident citizens may claim a foreign tax credit (FTC) on the portion of salary taxed abroad (§ 34(C)).
- Double-taxation treaty relief (BIR Form 0901) must be applied for before taking relief at source.
- If the salary is split 60 % abroad / 40 % Philippines, FTC is limited to the Philippine tax attributable to the foreign-sourced portion.
9. Special regimes frequently paired with DCS
| Regime | Preferential employee tax | Interaction with DCS |
|---|---|---|
| PEZA & Clark/Subic FZ | None (regular rates for employees); but employer’s 5 % GIT makes FX funding easier. | FX salaries remain fully taxable; still subject to peso conversion. |
| RHQ/ROHQ (RA 9224) | 15 % final tax on gross compensation, regardless of amount. | Employer usually pays entire salary offshore to minimise FX fees; still disclose peso equivalent. |
| OBU (PD 1034) | Same 15 % rate. | Non-peso payroll permitted by BSP. |
10. Compliance checklist for employers
- Employment contract should state total compensation in single functional currency (e.g., “USD 100 k”), then specify the peso-FX split for payroll convenience.
- Payroll register must show: FX amount, conversion rate, peso equivalent, tax withheld.
- BIR Form 2316 must reflect peso equivalents only.
- Foreign-exchange outward/inward remittance records retained for 10 years (§ 203/222, NIRC).
- Data-privacy & AML: disclosing foreign bank details triggers NPC & AMLA filings if thresholds exceeded.
11. Practical planning points
- FX risk: fix a quarterly or semi-annual “blended corporate rate” to stabilise employee net-pay perception.
- Cash-flow: pay high-value bonuses in pesos to reduce FX sourcing; keep base pay in USD to meet expat budgeting needs.
- Audit: BIR often compares Form 2316 totals with BSP remittance records; mismatches invite deficiency assessments.
- Incentives: consider stock-option grants instead of large FX cash portions to defer tax until vesting.
- Tight labour market: DCS is popular for Filipino tech talent contracted by foreign start-ups without PH entity; remind them they are still resident citizens and must self-pay quarterly taxes via Form 1701Q.
12. Penalties for non-compliance
- Surcharge – 25 % (late filing) or 50 % (willful neglect) of basic tax (§ 248).
- Interest – 12 % p.a. (as of TRAIN) on unpaid tax (§ 249).
- Compromise penalties – per schedule.
- Criminal liability – up to PHP 10 m fine and imprisonment for willful failure to withhold/remit (§ 255).
13. Illustrative example
Scenario: Resident alien software engineer, annual package USD 60 k + PHP 1.2 m, paid monthly 50 % in USD offshore, 50 % peso in PH. BSP rate for April 2025 = PHP 56.25 : USD.
Monthly conversion: USD 2,500 × 56.25 = PHP 140,625. Total taxable comp: PHP 140,625 + PHP 100,000 = PHP 240,625. Tax withholding (RR 11-18 table, single earner): ~PHP 55,014.36. Employer remits peso tax; USD portion stays abroad. Year-end 2316 shows only PHP amounts.
14. Frequently asked questions
| Question | Answer |
|---|---|
| Can a Filipino citizen working for a Singapore start-up be paid entirely in SGD? | Yes, but the entire SGD salary is Philippine-taxable unless he qualifies as a non-resident citizen (i.e., physical presence abroad ≥ 183 days & permanent employment assignment). |
| Does BIR require the USD amount to be physically remitted to the Philippines? | No. Taxability depends on where services are rendered, not where cash is received. |
| What FX rate do I use if payroll spans two months? | Use the date the liability vests (i.e., last working day of the cut-off) or apply the BIR-accepted monthly average. |
| Are crypto payments covered? | Yes. Convert using BSP-registered VASP published rate on payout date; any subsequent appreciation is separate capital gain. |
15. Key take-aways
- Currency split does not change tax situs—the service location does.
- Convert first, tax second: all computations, filings, and statutory caps must be in pesos.
- Consistent FX methodology and complete documentation are your best defenses in a BIR audit.
- Expatriate-friendly 15 % regimes remain available but require strict entity qualification.
- Filipino remote workers paid in foreign currency must still self-declare unless tax is withheld by a PH employer.
Prepared by: [Your Name], CPA-Lawyer Member, Tax Management Association of the Philippines (TMAP)
(Reproduction permitted with attribution. Updated 18 June 2025.)