How Much is The Tax for a Small Business in the Philippines? Calculate with CloudCFO

Last updated on January 30, 2026

“How much is the tax for small businesses in the Philippines?”

This is a common question for many small business owners, as understanding and managing taxes is a crucial part of running a compliant and successful business. Managing a small business comes with many responsibilities, and understanding local tax regulations is one of the most important ones to ensure your business stays on the right side of the law.

With a range of taxes and rates that business owners must track, having a clear understanding of these obligations and how to compute them is essential to staying ahead of your taxes. While a tax management service can provide valuable assistance, knowing the basics will empower you to make informed decisions as a business owner.

The Different Types of Taxes for Small Businesses

Before diving into how to file taxes for businesses in the Philippines, it’s vital to familiarize yourself with the various taxes applicable to small businesses. Here’s an overview of the key taxes you may need to pay:

1. Income Tax

Small businesses in the Philippines with a net taxable income of less than 5 million pesos and total assets not exceeding 100 million pesos are eligible for a reduced income tax rate of 20%. If your income exceeds these thresholds, a 25% rate applies.

2. Withholding Tax

If you have employees, suppliers, or other relevant transactions, you must consider withholding tax. This requires small businesses to withhold a portion of payments made to employees, contractors, and suppliers and remit these amounts to the Bureau of Internal Revenue (BIR).

3. Value-Added Tax (VAT) or Percentage Tax

Businesses with annual gross sales exceeding 3 million pesos must register for Value-Added Tax (VAT), which is a 12% tax on the sale of goods and services. For those with annual gross sales below this threshold (≤3 million pesos), a 3% percentage tax is an alternative.

4. Local Business Tax

Local Government Units (LGUs) impose a local business tax based on the location and nature of the business. This tax is usually calculated as a percentage of your gross receipts and varies by city or municipality.

5. Real Property Tax

Real Property Tax (RPT) is a local tax imposed on real estate properties, such as land and buildings. It is calculated as a fixed percentage of the property’s taxable value and collected annually by LGUs. Rates may vary depending on the property’s location and classification.

Calculating How Much is the Tax for Small Businesses in the Philippines

Now that you know the different types of taxes that your small business may encounter, we’ll help you optimize your tax planning strategy. Here’s a simple guide to help you calculate these:

Income Tax

To calculate your income tax, first determine your net taxable income by subtracting allowable deductions (like operating expenses, salaries, and rent) from your gross income.

Net Taxable Income Formula:

Net Taxable Income = Gross Income – Allowable Deductions

Apply the appropriate income tax rate based on your net taxable income:

• For businesses with net taxable income below 5 million pesos: Net Taxable Income x 20%
• For businesses with net taxable income above 5 million pesos: Net Taxable Income x 25%

For example, if your gross income is 6 million pesos and your allowable deductions are 2 million pesos, your net taxable income is 4 million pesos. As a small business, you qualify for the 20% rate.

4,000,000 pesos x 20% = 800,000 pesos

VAT

If your business is VAT-registered, compute 12% of your gross sales:

VAT = Gross Sales x 12%

For example, if your gross sales for the quarter is 2,500,000 pesos, your VAT would be:

2,500,000 pesos x 12% = 300,000 pesos

Percentage Tax

For non-VAT registered businesses that have opted for the percentage tax:

Percentage Tax = Gross Sales x 3%

For example, if your gross sales for the quarter is 500,000 pesos, your percentage tax would be:

500,000 pesos x 3% = 15,000 pesos

Local Business Tax

Local business taxes vary by location but are typically calculated as a percentage of gross receipts:

Local Business Tax = Gross Receipts x Local Tax Rate

For example, if your gross receipts are 2 million pesos and your LGU has a tax rate of 1%, the tax is as follows:

2,000,000 pesos x 1% = 20,000 pesos

Simplifying the Tax Process for Small Businesses

Understanding and accurately calculating your business taxes is essential for the success of any small business. While it may seem overwhelming, using a tax compliance checklist and having the right calculations can simplify the process significantly.

If your small business needs guidance or you’re looking for a team to manage your taxes, consider reaching out to CloudCFO. Our team of experts can help you navigate local tax regulations, file your taxes correctly, and ensure your business stays compliant.

Reach out to us today and let us take away the stress from managing your taxes.