Taxwise Or Otherwise
By Edmund James Opinio
“No more to Pag-IBIG!” is the message of Circular No. 421 released in January by the Home Development Mutual Fund (HDMF), also known as Pag-IBIG. The Circular highlighted three points concerning foreign nationals who are working or assigned to work in the Philippines.
First, employers should no longer withhold and remit the Pag-IBIG contributions of their foreign employees to the HDMF. Second, contributions made by the foreign national and his/her employer to the HDMF, including accrued dividends, can be refunded by filing an application for claims. Last, the mandatory enrollment of foreign nationals with Pag-IBIG, due to their compulsory membership with the Social Security System (SSS), is now repealed. Thus, foreign nationals working in the Philippine are no longer required to be registered with Pag-IBIG.
Since the content of the Circular is quite general, I inquired with some Pag-IBIG officials who participated in drafting the Circular in order to understand the rationale behind the issuance and the procedures for refunding the contributions.
RATIONALE BEHIND THE ISSUANCE
Due to the short and temporary tenure of their stay in the Philippines, foreign nationals shall no longer be mandatorily covered by the agency. This conclusion was developed after a series of studies and deliberations within the agency, which stemmed from the various inquiries they have received from employers regarding the Pag-IBIG coverage of foreign nationals.
FOREIGN NATIONALS COVERED BY THE CIRCULAR
Circular No. 421 applies to foreign nationals living and working in the Philippines; and those who have already left the country, for the purpose of claiming a refund for the contributions that they had previously made to the agency.
However, those who are considered naturalized Filipino citizens are not covered by the Circular, and thus, are still covered by the mandatory registration with Pag-IBIG.
COVERAGE OF THE REFUND AND EFFECTIVITY OF THE CIRCULAR
The refund will cover all contributions made by the foreign national and shall be considered a withdrawal of the employee and employer’s contributions, including accrued dividends.
The circular took effect on Feb. 1, after its publication in People’s Journal. The agency expects that contributions should have ceased by then. Nevertheless, if employers still remit contributions from February onwards, all such contributions made shall be included in the refund claim.
PROCEDURE FOR WITHDRAWING THE CONTRIBUTIONS
i. Documentary requirements
The documents needed to claim a refund of the contributions are the same as a claim for provident fund benefit with the agency. These are: a) HDMF Downloadable Form: Application for Provident Benefits (APB) Claim (under Reason for Claim, the applicant should choose Others and indicate Foreign national refund); b) Two valid IDs of the expatriate employee; and c) a Notarized Special Power of Attorney if filed through an authorized representative, along with two valid IDs of the representative.
While the above documents are the general requirements, employers or foreign nationals are advised to inquire about any additional documents their respective Pag-IBIG branches may need for the processing of their claims.
As a general rule, any document executed outside the Philippines by foreign nationals must be authenticated by the Philippine Consulate in the country where they are located. On the other hand, documents executed in Apostille-contracting countries and territories (under the Apostille Convention) do not need to be authenticated by the Philippine Embassy or General Consulate after Apostillization by the relevant foreign government agency.
ii. Timeline of processing the claim
If the foreign national has only one employer, Pag-IBIG will process the claim within three to five working days.
In the case of multiple employers, the processing will take at least 20 working days since Pag-IBIG needs to consolidate all contributions made from the various branches and validate the accuracy of such information. To facilitate data validation, the individual must accurately list down the names of all his or her employers and the periods of employment.
iii. Manner of payment/refund
A refund will be made through the issuance of a check in the name of the foreign national. If the check is to be encashed through a representative, a separate SPA is needed. Since the check will be under Land Bank of the Philippines, it is advisable for the individual to verify with their respective LANDBANK branches if there are other requirements and procedures for their representatives to encash the check.
VOLUNTARY CONTRIBUTIONS FOR FOREIGN NATIONALS
If a foreign national decides to enroll as a member despite the issuance of the Circular, he/she may do so subject to the review and approval of the Agency.
Alternatively, foreign nationals may consider the agency’s MP2 savings program, which is a voluntary savings platform for members who wish to save more and earn higher dividends. Interested individuals may inquire directly with the agency or access the Pag-IBIG website for details.
ISSUANCE OF IMPLEMENTING RULES AND REGULATIONS (IRR)
Because the agency is currently finalizing its internal business rules for branch processing of claims and updating its systems for this purpose, the formulation of the IRR remains under discussion and for consideration. In the meantime, the agency will be releasing a memorandum directed to the employers as guidelines for the Circular.
However, even while the IRR is pending release, the agency is accepting applications for refund claims.
TAXATION OF THE REFUND
Since the refund represents a withdrawal of contributions from the agency, like in the case of retiring employees or those individuals who will permanently depart from the Philippines, the withdrawn contribution is considered a mere return of capital, hence is a non-taxable payment to the foreign national.
Considering the costs (such as delivery charges for transport of requirements) and additional documents required to be submitted (such as Consular Authentication Certificate, SPA, etc.) by foreign nationals who have already left the country, it would be judicious for the company and the foreign nationals to balance the objectives of the circular against its impact on refund claims. Transaction costs may outweigh the refundable sum since the contribution only amounts to P200 per month, comprising both the employer and employee’s shares. Nevertheless, Pag-IBIG’s new policy remains a spark of good news for its foreign national members who can now expect a windfall from their hard-earned contributions.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Edmund James Opinio is a consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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