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TAXPAYERS

SELF-EMPLOYED AND PROFESSIONALS

Annual Gross Sales or Income is ≤3 million Annual Gross Sales or Income is >3 million
 First Option  Based on Net Income, a graduated tax
8% of Gross Sales or Receipts and rate of 0% - 35% plus VAT
Other income in excess of P250,000
 Second Option
Graduated Income tax rate of 0% - 35%
plus 3% percentage tax
Income and Payments to Self-Employed Individuals and Professionals subject to 8%:
 Professional Fees, talent fees, commissions for services rendered
 Income distribution to beneficiaries of Estates and Trusts
 Income payments to certain brokers and agents
 Income payments to partners of general professional partnership
 Professional fees paid to medical practitioners and
 Commission of independent and/or exclusive sales representative and marketing agents of
companies

8% Optional tax is not available to:


 Taxpayer that earns purely compensation income
 VAT-registered taxpayer, regardless of the amount of gross sales/receipts and other non-operating
income
 Taxpayer exempt from VAT or other percentage taxes whose gross sales/receipts and other non-
operating income exceeded the 3M VAT threshold during the taxable year
 Taxpayer who is subject to Other Percentage taxes
 Partners of GPP by virtue of their distributive share from GPP which is already net of cost and
expenses
 Individuals enjoying income tax exemption (registered BMBEs)

Audited Financial Statement


-is not required to be attached in filing the final income tax return if the optional 8% rate is opted and
the gross sales/receipts and other non-operating income does not exceed the 3M VAT threshold
-is required as an attachment to the annual income tax return if taxpayer is subject to graduated income
tax rates even if the gross sales/receipts and other non-operating income is less than the VAT threshold

Signifying of Election of 8% income tax rate for Self-Employed individuals


 New Business Registrant
-upon registration using BIR Form 1901 and or 1701Q or
-on the initial quarter return BIR Form 2551Q and/or 1701Q of the taxable year after the
commencement of a new business/practice of profession
 Existing Individual Business Taxpayers
-Filing of BIR Form 1905 (selected in filing for the initial quarterly income tax return)
-1st Quarter Percentage Tax Return
-1st Quarter Income Tax Return
Self-Employed Individual who is qualified and availed of the 8% income tax rate is:
 Required to file the Quarterly Income Tax Return, unless exempted by any revenue issuances
 Required to file the Annual Income Tax Return (FS is not required to be attached)
 Required to signify the intention to avail the 8% income tax rate every taxable year
 Required to maintain books of accounts and issue receipts/invoices
 Not required to file the Quarterly Percentage Tax Return

Computation:

Optional 8% (below VAT threshold) Graduated income tax rate


Gross Sales xx Gross Sales and Receipts xx
Gross Receipts xx Less: Cost of Sales (xx)
Total Sales/Receipts xx Gross Income xx
Less: (250,000) Less: Operating Expenses (xx)
Taxable Income xx Taxable Income xx
Tax Due (8%) xx Tax Due (less 250K x G rate) xx
N! aside from income tax, taxpayer is liable to pay business tax

Opted 8% but exceed VAT threshold in last Quarter


Gross Sales xx
Gross Receipts xx
Total Sales/Receipts xx
Less: Op Expenses (xx)
Taxable Income xx
Tax Due (G rate) xx
Less: 8% income tax
paid in previous Q (xx) -N! total sales/receipts for the 3Q less the allowed 250,000 deduction
Annual Income Tax xx
Payable

MIXED INCOME EARNERS


-earn both from compensation and from self-employment (business or practice of profession)
 Compensation Income –subject to graduated income tax rates
 Income from business or practice of profession
-VAT threshold consideration and options for self-employed and professionals applies
-250,000 reduction from taxable gross sales/receipts and other non-operating income is not applicable
to mixed income earners since it is already incorporated in the first tier of the graduated income tax
rates applicable to compensation income.