QROPS Philippines| UK Pension Transfer to the Philipinnes
British expats living in the Philippines or wishing to retire in the Philippines can now transfer their pension into a QROPS to reduce tax, reduce currency fluctuations and for freedom of investment. British expats living in Philippines can take advantage of their offshore status and transfer their UK pension offshore to somewhere secure like New Zealand or Hong Kong and will no longer have to pay UK taxes on their pension if they stay offshore. British expats in the Philippines will also pay no income tax in the Philippines on their retirement income if they move their pension to a QROPS.
For Filipinos who have worked in the UK, you can also transfer your UK pension offshore to a QROPS. Filipinos can now transfer their pensions to a QROPS in order to avoid UK taxation on their pensions. If you are a Filipino and have worked in the UK for a substantial amount of time and built up a private pension or occupational pension scheme in the UK, it is definitely worth considering a QROPS to avoid up to 45% tax upon death.
Updated 2nd April 2017: New UK rules now mean that a UK pension transfer to a QROPS based outside the Philippines attracts a 25% exit tax.
There are currently no QROPS based in the Philippines, so if you want to transfer your UK pension, you are left with two options:
- Transfer your pension to a QROPS in Hong Kong or New Zealand. You pay a 25% exit tax upon transfer. There is no tax on income, growth or death. This may be an option for very large pension pots if you are near or at retirement age.
- Transfer your pension to an International SIPP. This would fall under UK tax rules. Thanks to Article 17 of the UK-Philippines DTA there is no tax in the UK as long as you inform HMRC that you are tax resident in the UK. There would be no tax on income in the Philippines due to Filipino law on foreign pension income. The only tax would be a tax on death after age 75. Any pension pot left to beneficiaries would be taxed at up to 45%. Please scroll down to read more information on how to set up an International SIPP.
QROPS Hong Kong for a Resident in the Philippines
Why move a UK pension to Hong Kong if you are tax resident in the Philippines as an expat or resident alien?
- A Hong Kong QROPS attracts zero tax on income, growth or death in HK
- There is now a 25% exit tax deducted at pension transfer for a QROPS in Hong Kong
- It attracts no tax in the Philippines for resident aliens. If you are an expat tax resident in the Philippines, you only pay tax on income derived in the Philippines. Since your pension was derived outside the Philippines before arrival, it can be paid into your bank account in the Philippines tax-free
- Freedom of choice of currency: Choose GBP or the US Dollar which more closely tracks the Philippine Peso (PHP)
- Freedom of choice of investments
- Secure and regulated pension scheme in Hong Kong
- 25% tax-free cash lump sum available at age 55+, the rest to provide an income for life
- No tax on death; entire pot can be transferred to your heirs and you can name the beneficiaries, e.g. your Filipino partner, children, step children, etc.
QROPS New Zealand for a Resident in the Philippines
- A New Zealand QROPS attracts zero tax on income, growth or death in New Zealand
- There is now a 25% exit tax for a NZ QROPS for residents in the Philippines
- Article 18 of the NZ-Philippines DTA gives the taxation rights to the Philippines
- There is no tax in the Philippines for resident aliens. If you are an expat who is tax resident in the Philippines, you only pay tax on income derived in the Philippines. Since your pension was derived outside the Philippines before arrival, it can be paid into your bank account in the Philippines tax-free
- Usually GBP investments only which are pooled and managed by a discretionary fund manager
- Secure and regulated pension scheme in New Zealand
- 30% tax-free at age 55, the rest to provide an income for life
- No tax on death; entire pot can be transferred to your heirs and you can name the beneficiaries, e.g. Flipino partner, children, etc.
Unsuitable QROPS for a Resident in the Philippines
Unsuitable may be too strong a word, but both Malta QROPS and Gibraltar QROPS attract tax.
- As there is no Malta-Philippines DTA, a Malta QROPS is taxed in Malta at up to 35% on income
- Gibraltar has no Double Taxation Agreements, so you would have to pay the 2.5% income tax at source, plus income tax in the Philippines
So, we recommend moving a UK pension to a QROPS in Hong Kong or New Zealand
Currency Transfers to the Philippines
If you are moving to the Philippines, you may wish to consider moving money from your UK account in British pounds (GBP) to a Philippine Bank account in Pesos (PHP).
Tax on a UK Pension in the Philippines
A private pension or final salary pension scheme, SIPP, SSAS or any non-government, non-civil service pension scheme is not taxed in the UK as long as you inform the UK tax authorities you are resident in the Philippines.
The UK-Philippines Double Taxation Treaty
The UK-Philippines DTA states that your UK pension will be taxed in the Philippines not in the UK as long as you prove you are resident in the Philippines.
The UK-Philippines DTA is covered under:
“PENSIONS Subject to the provisions of Article 18, pensions and other similar remuneration paid in consideration of past employment to a resident of a Contracting State shall be taxable only in that State.”
In other words, you can apply for your UK pension to be paid with no UK income tax deducted. Your UK state pension will also be paid out into the Philippines with no tax deducted and it is also indexed which is lucky.
Foreign pension income (e.g. a UK SIPP) received by resident aliens and non-resident aliens in the Philippines is not subject to income tax in the Philippines. The only tax you would face would be up to 45% tax on death in the UK after age 75.
The quote below comes from the Bureau of Internal Revenue, the tax authority in the Philippines.
“A resident citizen may be protected from double taxation, if the foreign source income has a tax treaty with Philippines, it may protect you from being taxed twice on the same income. Hence, one of the requirement you will provide is the certificate of residency.”
You can read more here on how to apply for a Certificate of Residency in the Philippines.
UK Pension Transfers to International SIPP for Residents in the Philippines
- 25% tax-free lump sum allowed from age 55
- Flexible drawdown allowed
- You can choose the currency, for instance, GBP or USD
- You can choose the investments or we can tailor a portfolio for you based on your risk profile
- No income tax in the Philippines as long as you inform HMRC in the UK and BIR in the Philippines
- No tax on death before age 75; where the lump sum is paid directly from the pension scheme to an individual who is the ultimate beneficiary, the lump sum death benefit is taxable subject to the recipient’s marginal rate of tax.
- Regulated in the UK and proteced by the Financial Services Compensation Scheme.
Tax on a UK State Pension in the Philippines
Due to the UK-Philippines Double Taxation Agreement, your UK state pension can be paid directly into your bank account in the Philippines with no tax deducted. It will also grow in line with the inflation rate (CPI).
In, other words, your UK state pension is index-linked and will be paid tax-free into your bank account in the Philippines.
Income Tax Rates in the Philippines 2016/17
Income tax rates in the Philippines are between 10% and 32%. A QROPS would not face any tax in the Philippines if you are a resident alien in the Philippines, i.e. at expat.
You can see the income tax rates table 2016 for the Philippines here.
The Philippines taxes its resident citizens on their worldwide income. Non-resident citizens and aliens, whether or not resident in the Philippines, are taxed only on income from sources within the Philippines.
For resident and non-resident aliens engaged in trade or business in the Philippines, the maximum rate on income subject to final tax (usually passive investment income) is 20%. For non-resident aliens not engaged in trade or business in the Philippines, the rate is a flat 25%.
Expatriates employed by certain entities or industries enjoy certain tax concessions. These expatriates include alien executives of offshore banking units, service contractors and subcontractors engaged in oil exploration activities, and regional headquarters and regional operating headquarters of multinational companies. They are taxed at 15% on their gross compensation income.
Why live or retire in the Philippines as a British expat?
Over 18,000 British expats live and work in the Philippines. With an estimated population of about 94 million people, the Philippines is the World’s 12th most populous country. An additional 11 million Filipinos live overseas. Most Filipinos speak English which makes working there easier for a British expat.
The Philippines were colonized by the Spanish and the Americans, but the Philippines has a rich cultural history with many ethnicities and religions imposing themselves on the country. The warm weather, blue seas and cheaper prices make the Philippines an attractive place for a British expat.
The Benefits of a UK Pension Transfer to QROPS Philippines
What are the benefits of a QROPS Philippines Pension Transfer for British expats?
• Avoid UK income tax
• Avoid UK dividends tax
• Avoid UK capital gains tax (CGT)
• Avoid UK death taxes after age 55
• Currency choice. You can choose to have your pension transferred to a QROPS denominated in USD, EUR or keep it in GBP
• Have the ability to make higher returns with freedom of investment
• Family Protection: Upon death, the entire pension pot gets passed on to your nearest and dearest
• Security: The pension is held in a secure jurisdiction such as New Zealand which has its own strong financial regulations which are tax efficient
What are the QROPS Options for British Expats in the Philippines
There are quite a few options available for British expatriates in the Philippines, but two stand out. New Zealand has a Double Taxation Agreement with the Philippines meaning that your pension can be paid out at source tax-free in New Zealand. You would avoid all UK taxation on your pension. However, all QROPS in NZ at the moment require a discretionary manager appointed. This unfortunately limits your options to five strategies. So, for those who want to buy whatever shares or mutual funds you like, this is not an option. However, particularly for older pensioners with a conservative outlook, then a QROPS in NZ may be a perfect fit. Furthermore, one of the benefits of a NZ QROPS is that you are allowed to take any increase in your pension pot after transfer as a lumps sum. So, for example, if your pension pot grew from 100,000 GBP to 200,000 GBP, you could take 100,000 GBP as a lump sum and use the other 100,000 GBP to provide you with an income for life.
For those who want a more flexible pension, then a QROPS transfer to Hong Kong may be a better fit. You can choose your investments as long as they are on a listed stock exchange and the trustees agree. There is zero tax in Hong Kong if you remain in the Philippines and there are strong Double Taxation Agreements with 27 countries, which means there are many other retirement destinations where you would pay zero income tax.
What tax would I pay in the Philippines on my QROPS pension transfer as a British expat?
In the Philippines you only pay tax on income derived in the Philippines, so not only would your pension grow tax free and be paid out gross at source, but the pension can be paid into a Filipino bank account and you do not have to pay tax on your pension. Furthermore, it is protected from death taxes after the age of 75.
If you wish to work in the Philippines, you would pay between 10% and 32% tax on any income you derive in the Philippines. Foreign nationals are subject to the graduated rates on compensation income and are entitled to deduct from gross income personal exemptions and health/hospitalization premium payments. There are no other deductions allowable from compensation income.
Do I Pay Tax on My UK State Pension in the Philippines
No, you would pay no tax on your UK state pension either. In fact, as a British expat in the Philippines, you are in a lucky position. Due to the nature of the Double Taxation Agreement between the UK and the Philippines, your state pension increases in line with inflation (the UK Consumer Price Index). Most British expats living in other Commonwealth countries have their state pension frozen. So, if you are to retire in the Philippines, then you are lucky in this regard. British expats in Thailand for example would have their state pension frozen.
What is a QROPS Philippines?
A Qualifying Recognized Overseas Pension Scheme (QROPS Philippines) allows your UK pension to be transferred offshore to reduce your tax burden. Effectively, you will no longer pay UK tax on your pension whilst you are offshore and after 10 years of living offshore, the reporting requirements to HMRC cease. These reporting requirements are done for you by the QROPS trustees in any case.
If you are living in Philippines at the moment, you can take advantage of your offshore address in order to move your UK pension into a QROPS Philippines to avoid further UK taxes down the line. A QROPS is an appropriate vehicle to avoid UK taxes if you are considering living or retiring abroad.
Should I Move My Pension to a QROPS Philippines
Do I need to move my pension to the Philippines?
No. There are no QROPS in the Philippines at present. Your pension can be transferred to a secure jurisdiction such as the NZ or Hong Kong where it will be out of the UK tax system and your pension will be paid gross and grow tax free. There is no tax in the Philippines on foreign retirement income for expats tax resident in the Philippines.
Do I need to live and retire in Philippines?
No, you can live anywhere offshore. As long as you are outside the UK, your QROPS will grow free of UK tax. If you ever return to live permanently in the UK, your will be taxed in the UK on your QROPS, but the tax burden may be reduced on death due to time spent abroad.
Pension tax relief for British expats, QROPS Philippines article written by QROPS Specialists.QROPS Philippines | Tax Relief for British Expats in the Philippines by Richard Malpass