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Frequently Asked Questions

8% Income Tax Rate
Who are qualified to avail the 8% income tax rate?
To avail the 8% IT rate, the following criteria should all be satisfied:

  • Individuals (i.e., single proprietors, professionals and mixed income earners) earning from self-employment/business and/or practice of profession;
  • Taxpayers whose gross sales/receipts and other non-operating income did not exceed PHP3m during the taxable year;
  • Must be registered and subjected only to percentage tax or is exempt from VAT/other percentages; and
  • Must have signified the intention to elect the 8% thru any of those enumerated under Sec. II (7) of RMO 23-2018.
How can I signify my intention to elect the 8% income tax rate?
Self-employed individual shall signify the intention to elect the 8% income tax rate in the filing any of the following:

New Business Registrant
  1. Upon registration (using BIR Forms No. 1901 and/or 1701Q); or
  2. On the initial quarter return (BIR Forms No. 2551Q and/or 1701Q) of the taxable year after the commencement of a new business/practice of profession.

Existing Individual Business Taxpayers
  1. File BIR Form No. 1905 at the beginning of the taxable year to end-date the form type of quarterly percentage tax provided that the option to avail the 8% IT shall be selected in the initial 1701Q; or
  2. 1st Quarterly Percentage Tax Return; and/or
  3. 1st Quarterly IT Return.

Otherwise, the graduated income tax rates shall apply.
Who are not qualified to avail the 8% income tax rate?
The 8% income tax rate option is not available to the following individual taxpayers and correspondingly shall be taxed based on the graduated income tax rates

  • Purely compensation income earners;
  • VAT-registered taxpayers, regardless of the amount of gross sales/receipts and other non-operating income;
  • Taxpayers exempt from VAT or other percentage taxes whose gross sales/receipts and other non-operating income exceeded PHP3m during the taxable year;
  • Taxpayers subject to Other Percentage Taxes under Title V of the Tax Code, as amended;
  • Partners of a General Professional Partnership; and
  • Individuals enjoying IT exemption (e.g., Barangay Micro Business Enterprises).
What are the procedures in availing 8% income tax rate?
Self-employed individual availing of the 8% Income Tax Rate should do the following:

New Business Registrant
  1. Submit BIR Form No. 1901, together with the complete requirements, to the concerned revenue district office (“RDO”) having jurisdiction over the place of residence or where the Head Office is located.

Existing Individual Business Taxpayers
  1. Submit BIR Form No. 1905, together with the Certificate of Registration (“COR”), to the concerned RDO where the taxpayer is registered. The updating/replacement of the COR is only for the first time availment of the 8% IT rate.
What are the things that a taxpayer who is qualified and availed of the 8% income tax rate option needs to remember?
  1. Required to file the Quarterly Income Tax Return (BIR Form No. 1701Q), unless exempted by any revenue issuances;
  2. Required to file the Annual Income Tax Return (Financial Statement is not required to be attached)
  3. Not required to file the Quarterly Percentage Tax Return (BIR Form No. 2551Q)
  4. Required to signify the intention to avail the 8% income tax rate every taxable year.
  5. Required to maintain books of accounts and issue receipts/invoices.
A taxpayer shall automatically be subjected to graduated income tax rates, liable to VAT prospectively and attached an audited FS in filing of the annual income tax return, if the gross annual sales and/or receipts exceed the amount of Three Million Pesos (P3,000,000.00) anytime during the current taxable year when the option was made. He shall immediately update his registration within the month following the month he exceeded the VAT threshold to reflect the change in tax profile from non-VAT to a VAT taxpayer. Percentage tax shall be imposed from the beginning of the year until taxpayer is liable to VAT.
How can I compute my income tax using the 8% rate?
The income tax is computed using eight percent (8%) of gross sales/receipts and other non-operating income in excess of P250,000 in lieu of the graduated income tax rates and percentage tax under Section 116 of the NIRC, as amended.