Local Business Tax in the Philippines: Your Essential Guide to Compliance and Rates [2025]

Running a business or launching a startup in the Philippines means understanding and dealing with various taxes, and one of the most important is the local business tax. If you’ve ever felt confused about how much you owe, when to pay, or how to calculate it properly, you’re not alone.

This guide breaks down everything you need to know about the local business tax in the Philippines. We’ll walk you through what LBT is, how to compute it, key deadlines, and common mistakes to avoid. Plus, we’ll show you how managing your international payments with Wise Business can make tracking your income easier and keep you compliant.

Table of contents
What is local business tax (LBT) in the Philippines? Understanding your local business tax obligations How to compute your local business tax Key filing and payment deadlines Common LBT pitfalls and how to avoid them The Wise Advantage for Seamless International Business Finance Management Frequently asked questions

What is local business tax (LBT) in the Philippines?

Local business tax is a mandatory tax levied by provincial, city, or municipal governments on businesses operating within their jurisdiction.

Unlike national taxes that go to the Bureau of Internal Revenue (BIR), LBT goes directly to your local government unit (LGU) - whether that’s your province, city, or municipality.

The authority to collect LBT comes from the Local Government Code of 1991, which gives LGUs substantial power to generate their own revenue. The money collected funds important local public services like education, infrastructure, waste management, and healthcare.

Because each LGU sets its own rates and schedules within the framework of national law, what you pay in Manila might be completely different from what you’d pay in Cebu or Davao. This local variation makes it essential to check your specific city or municipality’s tax ordinance - you can do this by visiting their website, or contacting their Business Permit and Licensing Office (BPLO) directly.

Understanding your local business tax obligations

LBT isn’t optional, and it’s not a one-time payment.

You need to pay it regularly as long as your business operates.

The basis for calculating local business tax is your gross sales or gross receipts from the previous calendar year. Gross receipts means all money actually or constructively received for services or goods sold. This excludes discounts, VAT, sales returns, and excise tax, but includes pretty much everything else that comes into your business.

What counts as gross receipts?

Revenue should be counted only when you actually receive it, not when you invoice it. This is crucial if you’re tracking international payments. Platforms like Wise Business automatically give you transparent records of exactly when overseas payments hit your account.

Different types of businesses face different tax rates. Manufacturers and contractors typically pay lower rates than retailers or service providers, but the exact percentages depend entirely on your LGU’s ordinance.

Seamless accounting integration means less manual work

Receipts = record=keeping, which makes accurate record-keeping central to LBT compliance and avoiding LBT fines.

To make accuracy easy, Wise Business integrates directly with popular accounting platforms, which means your transaction data flows automatically - no more downloading CSVs, emailing statements, or manually reconciling transactions across currencies.

As Wise Business customer, Jonathan Dizdarevic, co-founder of anyIP put it:

“Before, I had to remember to export monthly statements for two companies, in different currencies. Now, the online accounting platform just fetches them from Wise. I don’t even think about it.”

➡️Read the full story of how anyIP streamlined their financial operations with Wise Business.

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How to compute your local business tax

Working out your local business tax rate in the Philippines is a straightforward process, but you need to consult your specific LGU’s revenue code for exact rates.

Step 1: Identify your business activity and LGU

First, determine which category your business falls into (manufacturing, retail, services, etc.) and confirm which LGU jurisdiction you’re operating in.

Step 2: Find your LGU’s tax ordinance

Visit your city or municipal hall to get a copy of the specific revenue code that applies to your area. Never assume rates are uniform across the Philippines.

Step 3: Determine applicable tax rates

Tax rates will vary from place to place and across business types, so it’s vital that you check with your LGUs.

But, here are some example rates:¹

• Manufacturers and contractors are generally taxed between 0.165% and 0.5%
• Banks and other financial institutions are generally also capped at 0.5%
• Retailers are typically capped at 2% in major cities
• Wholesalers are typically taxed between 0.018% and 0.5%

However, it’s not always as simple as working out a percentage. Many LGUs use a schedule of fixed annual amounts based on predetermined gross receipts brackets - for example, less than PHP 5,000, or PHP 5,000 to PHP 9,999.

💡If you run an MSME or BMBE in the Philippines, check out our helpful tax resource below: ➡️Tax for Small Businesses in the Philippines

Step 4: Calculate your tax liability

Let’s say you run a retail business in an LGU that charges 2% on gross sales, and you had PHP 1,000,000 in gross sales (excluding VAT) in 2024. Your calculation would be:

Gross Receipts × Rate = Tax Due

PHP 1,000,000 × 0.02 = PHP 20,000

If your LGU uses a fixed schedule instead, you’d simply find your gross receipts bracket and pay the corresponding amount.

What about multiple branches?

If you have multiple business locations, LBT is paid proportionally across branches based on gross receipts generated at each location. Each branch pays tax to its respective LGU according to local situs rules.

Key filing and payment deadlines

Missing a tax deadline can be costly. Late payments come with hefty penalties that eat into your profits, and repeated violations can put your business at risk of closure. Here’s what you need to know about when to file and pay your local business tax.

Annual mayor’s permit and business permit renewal

The typical deadline for renewing your mayor’s permit and paying your annual LBT is January 20 each year for most LGUs.² However, barangay permits and BIR registration may have slightly different deadlines. Always verify with your local office, and watch for any extensions that may be announced.

Quarterly or annual LBT filing

LBT may need to be paid either annually upon business permit renewal or quarterly, within 20 days after the close of each quarter. The exact timing varies by LGU, so check your permit forms or official calendar.

Penalties for late payment

Late payment triggers a 24% per annum surcharge on the unpaid tax until you settle the full amount.² Continued non-compliance can lead to business closure, asset seizure, and even criminal proceedings for extended evasion.

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Common LBT pitfalls and how to avoid them

Even well-intentioned business owners can trip up when it comes to local business tax. Small mistakes in record-keeping or assumptions about how LBT works can snowball into serious compliance issues. Here are the most common errors Filipino entrepreneurs make - and how to steer clear of them.

Misinterpreting LGU ordinances: LBT is highly localised. Never assume uniform rules apply everywhere. Always check your specific LGU's business tax code.

Incorrect or incomplete record-keeping: Mistakes in declaring gross sales and receipts, underreporting, or failing to include all sources of income can lead to BIR audits and significant penalties. Maintain up-to-date, accurate books, and include all income from international payments via platforms like Wise.

Missing deadlines: Failing to renew business permits or pay LBT on time results in surcharges, accumulated interest, and risk of business closure.

Relying on personal accounts for business: Using personal accounts instead of business accounts complicates compliance, financial tracking, and may risk disallowance of claims or deductions. A dedicated business account keeps everything clean and audit-ready. You can see how Wise Personal and Wise Business stack up here.

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The Wise Advantage for Seamless International Business Finance Management

💡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

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Frequently asked questions

Do businesses have to pay local taxes?

Yes, all businesses operating in the Philippines must pay local business tax to their respective LGU. It’s mandatory and ongoing.

What is the basis of local business tax in the Philippines?

The primary basis is your gross sales or gross receipts from the previous calendar year, excluding discounts, VAT, sales returns, and excise tax.

How can I find out the specific local business tax rates for my area?

Contact your city or municipal treasurer’s office and request a copy of your LGU's revenue code or tax ordinance. Never rely on rates from other areas - they vary significantly.

Are any businesses exempt from LBT?

Yes, newly registered businesses are generally exempt from paying LBT in their first year of operations. After this, all businesses are subject to LBT apart from non-profits, PEZA-registered enterprises, and organisations involved in the production and distribution of oil and petrol.²

💡Check out our helpful resource on: ➡️BIR Tax Exemption for Small Businesses

Conclusion

Local business tax doesn’t need to be complicated. The three things that matter most: know your LGU’s specific rates and schedules, keep accurate records of all your gross receipts, and pay on time to avoid the 25% surcharge and monthly interest charges.

If you’re dealing with international clients, you’ll have to deal with another layer of challenge - making sure every overseas payment is properly tracked and accounted for. A business account that handles multiple currencies transparently (like Wise Business) makes this much easier, especially when tax season arrives and you need to prove exactly what you earned and when.

Get these basics right, and you can spend less time worrying about LBT deadlines and more time actually running your business.

➡️Get started with Wise Business today!

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Sources:

1 - Filepino - Local Business Tax

2 - Bureau of Local Government Finance - LBT

Sources checked on 24th October 2025.