Complete tax guide for Small Businesses

A small business in the Philippines pays income tax plus either 3% percentage tax or 12% VAT. A sole proprietor with sales of ₱3,000,000 or less can replace both with a single 8% tax on sales above ₱250,000.

Updated October 16, 2026

Written by the TaxCalculator.com.ph Editorial Team, led by , Founder
Cherry De Vega, Bookkeeping and Compliance ReviewerReviewed by Cherry De Vega, Bookkeeping and Compliance ReviewerBookkeeping and BIR filings for small businesses since 2018

The short answer

On ₱1,500,000 of yearly sales, a purely self-employed, non-VAT sole proprietor on the 8% option pays ₱100,000: 8% × (₱1,500,000 − ₱250,000). On graduated rates with the 40% optional standard deduction, the same sales cost ₱127,500 income tax on ₱900,000 taxable income, plus ₱45,000 percentage tax (3% of ₱1,500,000), or ₱172,500 in all. A small corporation pays 20% of net taxable income if that income is ₱5,000,000 or less and total assets are ₱100,000,000 or less, excluding land.

Open the Annual Income Tax Calculator

Key takeaways

Tax obligations

Annual Income Tax Return (Sole Proprietorship)
Sole proprietors report business income on BIR Form 1701, or Form 1701A if they use the 8% rate or the 40% optional standard deduction. Taxable income is taxed at the graduated rates (0% up to ₱250,000, then 15% to 35%), or 8% applies to gross sales above ₱250,000 (NIRC Sec. 24(A)(2)). The return covers the preceding year and is due April 15 (NIRC Sec. 51(C)(1)).

Deadline: April 15 of the following year

Form: 1701 or 1701A

Quarterly Income Tax Return (Sole Proprietorship)
Sole proprietors file BIR Form 1701Q for the first three quarters regardless of the amount of gross income. Under NIRC Sec. 74, the declaration is due May 15 and the next installments August 15 and November 15. The quarterly payments are credited against the annual return.

Deadline: May 15, August 15 and November 15

Form: 1701Q

Corporate Income Tax Returns
A corporation files a quarterly declaration within 60 days after the close of each of the first three quarters, and a final adjustment return on or before April 15, or the 15th day of the fourth month after a fiscal year ends (NIRC Sec. 77(B), as amended by RA 11976). The rate is 25%, or 20% for a corporation with net taxable income of ₱5,000,000 or less and total assets of ₱100,000,000 or less, excluding land (NIRC Sec. 27(A)). The 8% option is for individuals only.

Deadline: Quarterly within 60 days after each of the first three quarters; annual on or before April 15 (calendar year)

Form: 1702Q; 1702-RT, 1702-MX or 1702-EX

Quarterly Percentage Tax (non-VAT)
A seller that is not VAT-registered and whose sales are at or below ₱3,000,000 pays 3% of gross quarterly sales (NIRC Sec. 116, as amended by RA 11976). A sole proprietor who elected the 8% option does not pay it. Example on ₱375,000 of quarterly sales, 3% × ₱375,000 = ₱11,250.

Deadline: Quarterly

Form: 2551Q

Quarterly Value-Added Tax (VAT) Return
A VAT-registered business reports 12% output VAT on its sales, less creditable input VAT on its purchases. Since January 1, 2023 the return is filed and paid within 25 days after the close of each quarter; the monthly Form 2550M is no longer required (NIRC Sec. 114(A)).

Deadline: Within 25 days after the close of each quarter

Form: 2550Q

Withholding Tax Remittance
A business with employees withholds income tax from their salaries and remits it on Form 1601-C. A business that is a withholding agent for expanded withholding remits on Form 0619-E (monthly) and Form 1601-EQ (quarterly) and gives the payee Form 2307. Micro-taxpayer status does not automatically exempt a business from creditable withholding. The proposed RA 11976 exemption was vetoed; check the withholding rules for each covered payment.

Form: 1601-C; 0619-E and 1601-EQ; 2307 to payees

Registration process

  1. Step 1: Register the business name or entity

    A sole proprietor registers the business name with the Department of Trade and Industry (DTI). A partnership or corporation registers with the Securities and Exchange Commission (SEC).

  2. Step 2: Get your barangay clearance and mayor's permit

    Apply at your barangay and at your city or municipal Business Permits and Licensing Office. Fees, requirements and local business tax follow your LGU's revenue code. The permit is renewed every year.

  3. Step 3: Register with the BIR on or before you start

    File BIR Form 1901 (sole proprietor) or Form 1903 (corporation or partnership) with the Revenue District Office for your business address, or online where available. Registration is due on or before the commencement of business (NIRC Sec. 236(A), as amended by RA 11976). There is no annual registration fee since RA 11976; you pay ₱30 documentary stamp tax on the Certificate of Registration.

  4. Step 4: Choose your income tax option

    A sole proprietor with expected sales of ₱3,000,000 or less who is not VAT-registered decides between the 8% option and graduated rates. Elect 8% on the first quarter return of the year; the choice cannot be changed for that year (RR 8-2018). Run both through the income tax calculator before you file.

  5. Step 5: Register as an employer if you hire

    Register with SSS, PhilHealth and Pag-IBIG as an employer when you hire, and withhold income tax from salaries for remittance on Form 1601-C.

  6. Step 6: Update your registration to VAT when sales cross ₱3,000,000

    Once gross sales for the past 12 months exceed ₱3,000,000, or are expected to in the next 12, register for VAT (NIRC Sec. 236(F)) and switch from Form 2551Q to Form 2550Q. A VAT-registered seller can no longer use the 8% option.

  7. Step 7: Apply for BMBE registration if your assets qualify

    A business with total assets of ₱3,000,000 or less, excluding land, may apply to the city or municipal treasurer for a BMBE Certificate of Authority (RA 9178 Secs. 3 and 4). Services by licensed professionals do not qualify. A BMBE is exempt from income tax on income from its operations (Sec. 7) but still files its BIR returns.

Calculators for Small Businesses

  • Annual Income Tax Calculator

    Compute your 2026 Philippine income tax on salary or business income under the TRAIN graduated rates, with a step-by-step breakdown of every bracket.

  • Percentage Tax Calculator

    Calculate 3% percentage tax for non-VAT registered businesses with gross annual sales ≤ ₱3M (per NIRC Section 116, current rate effective July 2023).

  • VAT Calculator

    Add or extract 12% VAT on any price, and see when annual gross sales above ₱3,000,000 require VAT registration in the Philippines.

  • Withholding Tax Calculator

    Estimate Philippine compensation withholding or creditable tax on professional fees and other payments. Check the transaction type, exclusions and applicable rate.

Taxes that apply

  • Income Tax

    Income tax in the Philippines is a progressive annual tax on individual and corporate income, with individual rates from 0% to 35% under the TRAIN Law and a 25% corporate rate under CREATE. Individuals file BIR Form 1700, 1701, or 1701A; corporations file Form 1702.

  • Withholding Tax

    Tax deducted at source by employers and payors, remitted to BIR on your behalf.

Common questions

How much is the tax for a small business in the Philippines?

It depends on structure and sales. A purely self-employed, non-VAT sole proprietor with ₱600,000 of yearly sales pays ₱28,000 on the 8% option: 8% × (₱600,000 − ₱250,000). On graduated rates with the 40% optional standard deduction the same owner pays ₱16,500 income tax on ₱360,000, plus ₱18,000 percentage tax, ₱34,500 in all. At ₱1,500,000 of sales the 8% option is ₱100,000 against ₱172,500. A domestic corporation uses 20% only when both the qualifying income and asset conditions are met.

Does a small business need to pay tax?

Yes. Every business registers with the BIR on or before it starts (NIRC Sec. 236(A)) and files its returns even when income is low. Form 1701Q is filed regardless of the amount of gross income. The zero bracket still helps a sole proprietor on graduated rates, since the first ₱250,000 of taxable income is taxed at 0%. A possible income tax exemption for qualifying small firms is the BMBE exemption under RA 9178.

What is considered a small business for tax purposes?

The BIR sorts taxpayers by gross sales under RR 8-2024: micro is below ₱3,000,000, small is ₱3,000,000 to below ₱20,000,000, medium is ₱20,000,000 to below ₱1,000,000,000. The class sets lighter penalties for micro and small taxpayers. Separately, a corporation qualifies for the 20% rate on net taxable income of ₱5,000,000 or less and total assets of ₱100,000,000 or less, excluding land.

Is there a tax exemption for small businesses?

A Barangay Micro Business Enterprise with total assets of ₱3,000,000 or less, excluding land, is exempt from income tax on income from its operations (RA 9178 Sec. 7). Services by licensed professionals do not qualify (Sec. 3). Apply for the Certificate of Authority through DTI/Negosyo Center under the Go Negosyo Act. It still registers with the BIR and pays VAT or percentage tax on its sales.

Should I register for VAT or stay on percentage tax?

VAT registration is mandatory once gross sales for the past 12 months exceed ₱3,000,000, or are expected to in the next 12 (NIRC Sec. 236(F)). At or below it, you pay 3% percentage tax unless you choose to register for VAT, which buyers who want VAT invoices may prefer. VAT registration ends eligibility for the 8% option.

What happens if I file or pay late?

Late tax carries a 25% surcharge and 12% annual interest (NIRC Secs. 248 and 249). Micro and small taxpayers pay a 10% surcharge and 6% interest instead (RA 11976 Sec. 45; RR 6-2024). Example: ₱10,000 of percentage tax paid 3 months late by a micro taxpayer adds ₱1,000 surcharge and ₱150 interest (₱10,000 × 6% × 3/12).

How long must I keep business records?

Five years, counted from the day after the deadline for filing the return for the year of the last entry, or from the filing date if the return was filed late (NIRC Sec. 235, as amended by RA 11976).

Start with your business structure

For a sole proprietor, compare 8% and graduated income tax. The ₱250,000 reduction in the 8% calculation applies to purely self-employed income; a mixed-income earner does not deduct it again from business income. For a corporation, use the corporate tax rules, not the individual 8% option.

Use the percentage-tax calculator for the separate Section116 sales tax where applicable. BMBE registration is handled through DTI/Negosyo Center under the Go Negosyo Act; it does not replace BIR registration.

Sources & References (5)

Primary sources and the laws, regulations, and official issuances this page relies on. Each citation links directly to the issuing authority’s document.

  1. LawPhil Project (Arellano Law Foundation). “NIRC Sec. 24(A) / Sec. 27: individual graduated/8% rates and corporate 25%/20% CREATE rates.” lawphil.net. National Internal Revenue Code, Sections 24 and 27, as amended by RA 10963 and RA 11534. Accessed .
  2. LawPhil Project (Arellano Law Foundation). “RA 9178 (BMBE Act): income tax exemption for Barangay Micro Business Enterprises.” lawphil.net. Republic Act No. 9178 (Barangay Micro Business Enterprises Act of 2002). Accessed .
  3. Bureau of Internal Revenue. “NIRC Sec. 109/116: ₱3M VAT threshold; quarterly VAT (Form 2550Q).” bir.gov.ph. National Internal Revenue Code, Sections 109 and 116; RA 11976 (EOPT). Accessed .
  4. Bureau of Internal Revenue. “BIR Forms 1701/1702 and registration (1901/1903).” bir.gov.ph. BIR registration and income tax return forms. Accessed .
  5. Bureau of Internal Revenue. “TRAIN Law (RA 10963).” bir.gov.ph. Accessed .

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