Philippines services
Income tax in the Philippines is a direct tax on the net or gross income of individuals and corporations. Under the National Internal Revenue Code (NIRC), as amended by recent laws like the EOPT Act and CREATE MORE, the system emphasizes a “pay-as-you-file” and “file-and-pay anywhere” mechanism to simplify compliance.
Income tax may be imposed through:
The applicable method depends on the classification of the taxpayer and the nature of income earned.
Compliance generally requires quarterly and annual income tax filings with the Bureau of Internal Revenue (BIR).
| ITEM | Summary |
|---|---|
| Who pays income tax | Individuals & corporations earning taxable income |
| Individual tax rates | Graduated 0%–35% |
| Optional 8% tax | Available for self-employed under ₱3M threshold annually |
| Corporate tax rate | 25% (or 20% for qualified small corporations) |
| Filing frequency | Quarterly + Annual |
| Individual annual deadline | April 15 |
| Corporate annual deadline | 15th day of 4th month after year-end |
| Governing law | NIRC, as amended |
Pursuant to Section 51 of the NIRC, every individual subject to income tax is required to file an income tax return, except those expressly exempted by law.
Individuals required to file include:
Under Sections 52 and 53 of the NIRC, the following entities are required to file income tax returns:
Certain taxpayers are exempt from filing income tax returns, subject to statutory conditions:
Income tax classification depends on residency and source of income:
Individual compensation income is subject to Graduated income tax rates based on net taxable income, with rates ranging from 0% to 35%. The current tax table has been effective since
January 1, 2023:
| Annual Taxable Income (PHP) | Income Tax Rate / Tax Due |
|---|---|
| ₱250,000 and below | 0% |
| Over ₱250,000 up to ₱400,000 | 15% of the excess over ₱250,000 |
| Over ₱400,000 up to ₱800,000 | ₱22,500 + 20% of the excess over ₱400,000 |
| Over ₱800,000 up to ₱2,000,000 | ₱102,500 + 25% of the excess over ₱800,000 |
| Over ₱2,000,000 up to ₱8,000,000 | ₱402,500 + 30% of the excess over ₱2,000,000 |
| Over ₱8,000,000 | ₱2,202,500 + 35% of the excess over ₱8,000,000 |
Self-employed individuals and professionals with annual gross receipts below PHP 3,000,000 may opt for an 8% flat tax on gross receipts (in lieu of graduated income tax rates and percentage tax).
This option simplifies compliance but removes eligibility for itemized deductions.
Individuals file different income tax returns depending on the type of income earned. The table below summarizes the correct form, who should use it, and the filing deadline.
| Form | Who Files | Frequency | Deadline |
|---|---|---|---|
| BIR Form 1700 | Individuals earning purely compensation income | Annual | On or before April 15 following the taxable year |
| BIR Form 1701 | Self-employed individuals, professionals, and mixed-income earners using graduated tax rates | Annual | On or before April 15 following the taxable year |
| BIR Form 1701-MS | Micro/Small taxpayers (<₱20M sales) | Annual | April 15 |
| BIR Form 1701A | Self-employed individuals opting for the 8% flat tax regime | Annual | On or before April 15 following the taxable year |
| BIR Form 1701Q | Self-employed and mixed-income earners | Quarterly | May 15, Aug 15, Nov 15 |
Filing can be done:
Under the “File and Pay Anywhere” rule, taxpayers may settle tax dues at any Authorized Agent Bank (AAB) or RDO nationwide without penalty.
Non-individual taxpayers include:
Domestic corporations
The following corporate income tax (CIT) rates apply to domestic corporations:
| Income Classification | Applicable tax rate |
|---|---|
| Net taxable income from all sources (general rule) | 25% |
| Net taxable income of domestic corporations with total assets not exceeding ₱100 million and net taxable income not exceeding ₱5 million | ₱20 |
| Minimum Corporate Income Tax (MCIT) on gross income, beginning in the fourth taxable year following commencement of business operations, applicable when MCIT exceeds the regular 25% CIT | 2% |
| Net income of proprietary educational institutions and non-profit hospitals, provided gross income from unrelated trade, business, and other activities does not exceed 50% of total gross income | 10% |
| Non-stock, non-profit educational institutions and other qualified non-profit organizations, provided all assets and revenues are used actually, directly, and exclusively for exempt purposes | Exempt |
Defined as foreign corporations engaged in trade or business in the Philippines through a branch or similar establishment. The following tax rate applies:
| Income Classification | Applicable tax rate |
|---|---|
| Net taxable income derived within the Philippines (general rule) | 25% |
| Nonresident Cinematographic Film Owner, Lessor or Distributor | 25% |
| Income of international carriers based on Gross Philippine Billings | 2.5% |
| Interest income from foreign currency loans granted by Foreign Currency Deposit Units (FCDUs) of depository banks to residents, other than Offshore Banking Units (OBUs) or other FCDUs | 10% |
| Income of FCDUs of depository banks from foreign currency transactions with non-residents, OBUs, other FCDUs, and BSP-authorized local commercial banks (including branches of foreign banks) | Exempt |
| Income of regional or area headquarters of multinational corporations that do not derive income from the Philippines | Exempt |
The following corporate tax rates apply to non-resident foreign corporations with respect to gross income derived from sources within the Philippines:
| Income Classification | Applicable tax rate |
|---|---|
| Net taxable income derived within the Philippines (general rule) | 25% |
| Registered Business Enterprises (Enhanced Deductions Regime) | 25% |
| Nonresident owner or lessor of vessels chartered to Filipino nationals – gross rentals, lease, or charter fees | 4.5% |
| Nonresident owner or lessor of aircraft, machinery, or other equipment – gross rentals or fees | 7.5% |
Allowable deductions are governed by Sections 34 and 40 of the NIRC, as amended.
Pursuant to Sections 34(A–K) of the NIRC, taxpayers engaged in trade, business, or profession may deduct ordinary and necessary expenses incurred in carrying on their operations, provided these expenses are legitimate, directly related to the business, and properly substantiated.
The BIR places strong emphasis on documentation and recordkeeping. A deduction may be legally valid but still disallowed if supporting documents are incomplete or non-compliant.
Common deductible expenses include:
Each category has its own documentation standards.
For an expense to be deductible, it must satisfy all of the following:
Failure to meet any of these conditions may result in disallowance during a BIR audit.
Under the EOPT Act, failure to withhold tax does not automatically disallow the expense as a deduction. However, the taxpayer remains liable for the unpaid withholding tax, penalties, and interest.
Under Section 34(L), NIRC, taxpayers may elect an Optional Standard Deduction equivalent to 40% of gross sales or gross receipts (for individuals) or 40% of gross income (for corporations), in lieu of itemized deductions. The election is irrevocable for the taxable year.
The Optional Standard Deduction simplifies compliance by allowing taxpayers to deduct a fixed percentage of income without tracking individual expenses, making it attractive for businesses with minimal overhead or limited documentation. Itemized deductions, on the other hand, may result in a lower tax liability when actual operating expenses exceed the OSD threshold, but they require strict recordkeeping and full substantiation. The choice between the two is therefore a trade-off between tax optimization and administrative burden, and should be evaluated annually based on expense structure and documentation readiness.
Non-individual taxpayers must:
Filing can be done:
Filing your ITR is only half the compliance requirement; the attachments are what “prove” your numbers to the BIR. In 2026, the submission process is almost entirely digital through the eAFS (Electronic Audited Financial Statements) portal.
Below is a summary of the common tax attachments required to secure before the April 15 deadline.
Based on the latest SEC guidance (2026), the audit threshold is:
If you meet the audit requirement, you only need to hire an SEC-accredited external auditor if your company falls into one of these categories (known as Groups A, B, and C):
| Company Type | Financial Threshold | Type of Auditor Required |
|---|---|---|
| Micro Entity | 0.5% | Premium or installment |
| Small/Medium Entity | 0.20% | Premium/contribution |
| Public Company | Assets ≥ ₱50M + 200 Shareholders | SEC-Accredited (Group A) |
| Large Entity | Assets/Liabilities ≥ ₱500M | SEC-Accredited (Group A) |
| Regulated Entity | Any amount (w/ Secondary License) | SEC-Accredited (Group B/C) |
Any individual or entity earning taxable income is generally required to file an income tax return, unless specifically exempt under the NIRC. This includes employees, self-employed professionals, business owners, mixed-income earners, corporations, and foreign entities earning Philippine-sourced income.
Only self-employed individuals and professionals may use the 8% income tax option. Corporations are not eligible.
Individuals whose annual gross receipts do not exceed ₱3,000,000 may elect an 8% flat tax on gross receipts in lieu of graduated income tax rates and percentage tax. This simplifies compliance because deductions are no longer required — tax is computed directly on gross receipts.
Once elected, the 8% option applies for the entire taxable year and cannot be revoked mid-year. Businesses with high operating expenses may benefit more from the graduated system with itemized deductions instead.
No. VAT and income tax are separate tax systems. Input VAT is creditable only against output VAT, not against income tax. However, VAT paid that is not creditable (for example, VAT on exempt operations) may sometimes be treated as a business expense for income tax purposes, subject to accounting rules.
Yes. Corporations may elect the OSD equivalent to 40% of gross income in lieu of itemized deductions. This option reduces bookkeeping complexity but may increase tax if actual expenses exceed the 40% threshold. The election is irrevocable for the taxable year and must be indicated in the return.
To claim itemized deductions, taxpayers must maintain valid official receipts, invoices, payroll records, contracts, proof of payment, and accounting records showing the business purpose of each expense. Receipts must include required details such as TIN, business name, and transaction description. Expenses without proper substantiation may be disallowed during audit even if they were actually incurred.
If the BIR disallows expenses, the taxpayer’s taxable income increases, which results in additional income tax, penalties, and interest. The taxpayer may contest the findings through administrative protest, but proper documentation is the strongest defense. Inadequate recordkeeping is one of the most common causes of audit assessments.
