How Much is the Tax for Small Businesses in the Philippines? Your 2025 Guide

Running a small business in the Philippines means juggling multiple responsibilities - and understanding your tax obligations is one of the most important. Between percentage tax, income tax, and VAT, it’s easy to feel overwhelmed by rates, thresholds, and filing deadlines.

This guide breaks down exactly how much tax you’ll pay as a small business in the Philippines, which tax type applies to you, and how to calculate what you owe. Then, we’ll introduce you to Wise Business, which can simplify financial management for businesses that have frequent transactions with overseas customers, employees, and suppliers.

Table of contents
Understanding Philippine small business taxes Your taxable base: how gross sales and income matter Start here: calculating your gross sales/receipts Key tax types and rates for small businesses in the Philippines Filing and paying your taxes step-by-step Philippine small business tax FAQs

Understanding Philippine small business taxes

The Bureau of Internal Revenue (BIR) taxes all businesses operating in the Philippines. The amount you pay depends on your annual revenue, business structure, and the type of tax that applies to you.

The most important number to remember is PHP 3,000,000¹ - this threshold determines whether you pay percentage tax or VAT.

Your taxable base: how gross sales and income matter

There are two key terms to understand: gross sales/receipts and net taxable income.

Gross sales or receipts is your total revenue before deducting expenses. This determines whether you pay percentage tax or VAT.

Net taxable income is what’s left after you subtract allowable business expenses. This is used to calculate your income tax.

Mixing these up is one of the most common mistakes small business owners make, leading to incorrect calculations and potential penalties.

Start here: calculating your gross sales/receipts

To determine which tax regime applies to you, first calculate your annual gross sales or receipts - this is the total amount your business receives from customers over the year, before any deductions.

If your annual gross is:

• PHP 3,000,000 or less: You’ll pay percentage tax (3%)² and can elect the 8% income tax option if you’re a sole proprietor or professional³
• More than PHP 3,000,000: You must register for VAT and pay 12% on sales

This single figure is your starting point for understanding your entire tax obligation.

---

Key tax types and rates for small businesses in the Philippines

Percentage tax (3%)

If your business has annual gross sales or receipts of PHP 3,000,000 or less, and you’re not VAT-registered, you’ll pay percentage tax at 3% of your quarterly gross sales or receipts.

Example: quarterly gross receipts of PHP 500,000 = PHP 15,000 tax due (500,000 × 3%).

File using BIR Form 2551Q within 25 days after each quarter - 25 April, 25 July, 25 October, and 25 January.⁴

Using Wise Business to help you accurately convert your international payments to PHP makes these calculations easier - it also ensures you always get the mid-market rate.

Income tax

The 8% income tax option

Sole proprietors or professionals with gross sales below PHP 3,000,000 can choose an 8% income tax rate instead of graduated rates.

This applies to your gross sales/receipts plus other non-operating income, minus a PHP 250,000 allowance if you’re purely self-employed.³ This option replaces both your graduated income tax and the 3% percentage tax.

Example: purely self-employed with annual gross of PHP 1,200,000:

• (1,200,000 – 250,000) × 8% = PHP 76,000 annual income tax

File via quarterly returns (Form 1701Q) and annual return (Form 1701A).⁴

The 8% option works well if you have low deductible expenses, as you’re taxed on gross rather than documenting every deduction.

Graduated income tax rates

If you don’t choose the 8% option, you’ll pay graduated income tax on net taxable income. Under TRAIN law, 2025 rates are:

• Up to PHP 250,000: Exempt
• PHP 250,001 to PHP 400,000: 20% of excess over PHP 250,000
• PHP 400,001 to PHP 800,000: PHP 30,000 + 25% of excess over PHP 400,000
• PHP 800,001 to PHP 2,000,000: PHP 130,000 + 30% of excess over PHP 800,000
• PHP 2,000,001 to PHP 8,000,000: PHP 490,000 + 32% of excess over PHP 2,000,000
• Over PHP 8,000,000: PHP 2,410,000 + 35% of excess over PHP 8,000,000³

Corporate income tax

Philippine corporations pay 25% of net taxable income. Qualifying micro, small, and medium enterprises can pay 20%.

To qualify for the 20% rate under CREATE law, your corporation must have net taxable income not exceeding PHP 5,000,000 and total assets not exceeding PHP 100,000,000 (excluding land).

Corporations must also consider Minimum Corporate Income Tax (MCIT) - generally 2% of gross income from the fourth taxable year onwards if it’s higher than normal tax.

➡️Check out our Guide to BIR Tax Exemption for Small Business in the Philippines

Value Added Tax (12%)

Once annual gross sales or receipts exceed PHP 3,000,000, VAT registration becomes mandatory. You can also register voluntarily below this threshold.

VAT is charged at 12% on gross selling price or value of goods and services.

You can claim input tax credits - deduct VAT paid on business purchases from VAT collected on sales, remitting only the difference.

Example: PHP 120,000 output VAT collected – PHP 80,000 input VAT paid = PHP 40,000 owed to BIR.

File quarterly using BIR Form 2550Q within 25 days after each quarter.⁴

Important for international transactions: The Philippines implemented 12% VAT on digital services in late 2024. Non-resident digital service providers with customers in the Philippines exceeding PHP 3,000,000 annually must register and comply.

When receiving international payments or paying overseas suppliers, Wise Business helps you convert currencies at the mid-market exchange rate with transparent fees, ensuring accurate PHP figures for VAT calculations.

---

Comparing your business tax options

For small businesses below the VAT threshold, here’s how the options compare:

Tax option	Who it applies to	What it’s based on	Rate	What else you pay
Percentage tax²	Non-VAT businesses with annual gross ≤ PHP 3,000,000	Quarterly gross sales/receipts	3%	Plus graduated income tax on net income
8% income tax³	Sole proprietors/professionals with annual gross ≤ PHP 3,000,000 who elect this option	Annual gross sales/receipts + other non-operating income (minus PHP 250,000 allowance for purely self-employed)	8%	Replaces both percentage tax and graduated income tax
Graduated income tax³	All individual taxpayers who don't choose 8% option	Net taxable income	0-35% (progressive brackets)	Plus 3% percentage tax if non-VAT
VAT + income tax³	Businesses with annual gross > PHP 3,000,000	12% on gross sales; income tax on net income	12% + 0-35%	Both apply

The 8% option works well with minimal deductible expenses.

If you have substantial documented business expenses, graduated income tax on lower net income might cost less - though you’d also pay the 3% percentage tax.

Once gross sales exceed PHP 3,000,000 during the year, you must register for VAT and the 8% option no longer applies.

---

Filing and paying your taxes step-by-step

Calculate your tax

For percentage tax: Quarterly gross × 3%
Example: PHP 800,000 × 3% = PHP 24,000

For 8% income tax: (Annual gross – PHP 250,000 if purely self-employed) × 8%
Example: (PHP 1,800,000 – PHP 250,000) × 8% = PHP 124,000

For VAT: Output VAT (12% of sales) – creditable input VAT
Example: PHP 120,000 – PHP 80,000 = PHP 40,000 due

For corporate income tax: 20% (qualifying MSME) or 25% of net taxable income, compared to MCIT (2% of gross from fourth year) - pay whichever is higher.

File the correct forms

• Percentage tax: Form 2551Q
• VAT: Form 2550Q
• Individual quarterly income tax: Form 1701Q
• Individual annual income tax: Form 1701 (graduated) or Form 1701A (8%)
• Corporate income tax: Form 1702Q (quarterly) and Form 1702 (annual)⁴

File electronically through BIR's eFPS/eBIRForms system.

Meet your deadlines

• Percentage tax and VAT: 25th day after each quarter (25 April, 25 July, 25 October, 25 January)
• Individual quarterly income tax: 15 May, 15 August, 15 November
• Individual annual income tax: 15 April
• Corporate returns: Follow BIR tax calendar⁵

Late filing incurs a 25% surcharge on unpaid amounts, plus compromise penalties.⁶

Keep accurate records

Good bookkeeping helps you correctly compute gross versus net income, track VATable versus exempt sales, document input VAT, and meet quarterly deadlines. If dealing with international payments, convert foreign currency to PHP at appropriate rates for tax filings.

Don't forget local business taxes

National taxes aren’t everything. You’ll also pay local business taxes to your city or municipality and obtain permits like your mayor’s permit and barangay clearance. These vary by location, so check with your local government unit.

---

Philippine small business tax FAQs

Do small businesses pay tax in the Philippines?

Yes. All businesses are subject to taxation. At minimum, you’ll pay either percentage tax (3%) or VAT (12%) on sales, plus income tax on profits. The exact amount depends on your revenue, business structure, and which tax options you choose.

How do I know if I should pay percentage tax or income tax?

If you’re a non-VAT individual taxpayer with annual gross below PHP 3,000,000, you’ll typically pay both percentage tax (3% on gross) and graduated income tax (on net). However, you can elect the 8% income tax option, which replaces both. Once your gross exceeds PHP 3,000,000, you must register for VAT.

What if my business deals with international clients?

International transactions don’t change which taxes apply, but add complexity. If exporting goods or certain services to non-residents, you may qualify for VAT zero-rating, allowing input VAT credits.

For services used in the Philippines (including many digital services), standard 12% VAT applies if you go over the threshold.

The key challenge: accurately converting foreign currency payments to PHP for tax reporting. Using Wise Business ensures you get complete transparency over your international payments, and it keeps conversion costs down.

Proper separation of personal and business finances is crucial for clean bookkeeping.

---

Conclusion

Small business taxes in the Philippines boil down to a few key numbers:

• PHP 3,000,000 determines percentage tax versus VAT
• 3% on gross quarterly receipts below the threshold
• 8% optional flat income tax for qualifying sole proprietors
• 12% VAT rate once you exceed the threshold

Keep accurate records and understand which tax regime applies to your business. Whether paying 3% percentage tax, electing the 8% income tax option, or dealing with VAT, proper bookkeeping ensures you pay correctly and avoid penalties.

If frequently dealing with international customers or suppliers, managing cross-border finances efficiently becomes equally important.

➡️ Learn more about Wise Business versus personal accounts to find the right setup.

💡Are bank accounts limited to USD, EUR, or GBP options holding back your business? With a Wise Business multi-currency account, you can access over 10 local account numbers — far more currency options than the handful most banks offer. Plus, Wise makes it easy to hold, send, receive, and exchange 40+ currencies from a single account. With the freedom to send and receive payments in more currencies globally, you can focus on what matters most: growing a local business that knows no borders.

• Obtain account details to receive payments in USD, EUR, GBP, SGD, HKD and more for a one-time fee of 1,400 PHP.
• Zero fees when you get paid via ACH, FAST, InstaPay/PESONet, & other local transfers.
• Send money to pay invoices, suppliers & contractors fast, with less fees
• Always get the mid-market rate with transparent conversion fees starting from 0.57%.
• Pay your bills and ad-hoc overseas expenses using the Wise Business card without hefty foreign transaction fees.
• Seamless integrations with popular accounting software.

➡️Get started with Wise Business today

---

Sources:

1 - BIR Form Submission

2 - BIR Percentage Tax

3 - BIR Income Tax

4 - BIR VAT/Percentage Tax Returns

5 - BIR Tax Calendar

6 - BIR Tax Penalties

Sources checked on 8th October 2025.