Which taxes does an entrepreneur have to pay? How much?

The country’s taxation system is governed by the Tax Reform Act 1997, passed into law on December 11, 1997 and became effective on January 01, 1998. Please click here for an overview of all the taxes in the Philippines.

The taxes commonly applicable for entrepreneurs are:

Corporate Income Tax (CIT) – 2% or 30%

Also known as a business tax, is a tax imposed on businesses incorporated in the Philippines and which derive income from within the Philippines. The CIT rate in the Philippines is 30%. The minimum corporate income tax (MCIT) of 2% on annual gross income is imposed on corporations with zero or negative taxable income.

Value Added Tax (VAT) - 12%

VAT is an indirect tax on the consumption of goods and services. A person that is registered for VAT is called vendor. VAT must be included in the selling price of every taxable supply of goods or services made by a vendor. The current standard VAT rate in the Philippines is 12%.

• Pursuant to RA No. 9337 and upon the recommendation of the Secretary of Finance, the President raised the VAT rate to 12% effective 1 February 2006.
• The Tax Reform Act of 1997 also provides for transactions that are subject to 0% VAT as well as transactions that are exempt from VAT.

Withholding tax

Withholding tax refers to the tax required to be deducted by an employer from an employee’s remuneration. Every employer is required to deduct an amount from the salary of each employee premium contributions remittable to a social security fund and medicare system to finance the retirement, sickness, disability, health and other social security benefits of the employee. The employer is also required to remit a counterpart contribution for the employee. The amount of premium contributions by the employer and employee depends on the salary bracket of each employee, based on a pre-calculated table of contributions.

Capital Gains Tax (CGT) – 5% or 10%

Shares that are not listed and traded in the local stock exchange are subject to a 5% capital gains tax for the first PHP 100,000 and a 10% rate applies for excess thereof

Stamp Duty

Stamp duty is a tax that is levied on legal documents, instruments, loan agreements and acceptances,  assignments, sales or transfers of obligations, rights or property and other business instruments. The rate of tax depends on the nature of the document and transaction.

Stock Transaction Tax – 0.5%

Transfer of shares through the local stock exchange is subject to stock transaction tax at the rate of 0.5%.

Excise Tax

Excise taxes are imposed on certain goods (such as cigarettes, liquor, petroleum products, mineral products, and motor vehicles) manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition. Excise taxes are also imposed on certain imported goods, in addition to the VAT and customs duties.

Percentage Tax

Percentage tax is a business tax that is based on gross sales or receipts of the taxpayer. The tax rate depends on the type of establishment or business. A person who is exempt from VAT and is not a VAT-registered person or entity is subject to percentage tax of 3%. However, the person may apply for optional registration as a VAT- registered person and shall be liable to the VAT. This includes persons whose annual sales or receipts do not exceed PHP1,919,500and have not elected to register for VAT.

Gift Tax

Gift tax is levied on the transfer by any person (resident or non-resident) of property by donation and is imposed even if the transfer is in trust or otherwise (direct or indirect), and the property is real or personal, tangible or intangible. The rates of tax are progressive from 2 percent to 15 percent based on the net gifts. The first PHP100,000 of the net gifts is exempt from tax and the maximum rate is applicable on the net gifts in excess of PHP10 million. When the donee is a stranger, the tax payable by the donor is 30 percent of the net gifts. The 30 percent gift duty rate also applies to corporations. Certain gifts are exempt from tax.

For more detailed information on the taxes, please refer to the ‘Doing Business in the Philippines’ publication by Ernst & Young which can be found in the blue ‘useful links’ box.

How do I pay for my tax?

The BIR is tasked to administer the collection of internal revenue taxes pursuant to the Tax Code. All taxpayers are required to secure from the BIR a unique Taxpayer Identification Number (TIN) which will be indicated on all tax returns filed with the BIR. Taxpayers will also have to register with the BIR Revenue District Office (RDO) having jurisdiction over the place of business of the taxpayer. The book of accounts, invoices, and receipts of a taxpayer will have to be registered with the RDO before these are used.

Please click here for the e-tax portal of the Philippines

Corporate Income Tax (CIT)

Payment of corporate income tax is made through a self-assessment system where the taxpayer files a tax return reflecting the revenues, deductions and the tax due. The annual income tax return is due on the fifteenth day of the fourth month following the close of the calendar or fiscal year.

Value Added Tax (VAT)

For detailed information on the VAT in the Philippines, please click here

Withholding Tax

For detailed information on the taxes that are classified as withholding tax, please visit here

Useful Links

• Doing Business in the Philippines (Ernst & Young)

• The Philippines Tax Profile - KPMG