Philippines — Tax: Income Tax

Why this matters

Understanding income tax in the Philippines is crucial for relocating individuals to plan their finances and comply with tax regulations.

Key facts

• The 8% option applies to individuals earning from self-employment or the practice of a profession whose gross sales or receipts do not exceed the PHP 3 million VAT threshold.
• The 8% is charged on gross sales or receipts exceeding PHP 250,000, in lieu of graduated rates and percentage tax.
• It is not available to pure compensation earners, VAT-registered taxpayers regardless of receipts, or VAT-exempt taxpayers whose receipts exceeded PHP 3 million in the year.
• The election applies only to the taxable year in which it is made and must be signified again each year.
• The BIR 1701A return carries a separate graduated rate table effective 1 January 2023 onwards.

Steps

1. Step 1: Determine Tax Residency Status — Determine whether you are a resident or non-resident taxpayer in the Philippines. Resident taxpayers are taxed on their worldwide income, while non-resident taxpayers are taxed only on income sourced within the country.
2. Step 2: Calculate Gross Income — Calculate your total gross income from all sources, including employment income, self-employment income, and other sources of income.
3. Step 3: Apply Income Tax Rates and Exemptions — Apply the applicable income tax rates and exemptions to your gross income to determine your taxable income.
4. Step 4: File Tax Return — File your annual income tax return with the Bureau of Internal Revenue (BIR) within the prescribed deadline.

Common mistakes

• Assuming the 8% option carries over automatically: it must be elected again each year.