Philippine business tax is easier to follow if you split it into two questions. First: are you VAT or Non-VAT? Second: how is your income taxed — percentage tax, graduated rates, or the 8% option? This is a map of the usual rules for 2026, not tax advice. Confirm your COR, rates, and deadlines with the BIR and your accountant before you file.
VAT is a 12% tax on most sales of goods and services. If you are VAT-registered, you add (or embed) that tax on VATable sales and may credit input VAT on qualified purchases. If you are Non-VAT, you do not charge 12% VAT. Many Non-VAT taxpayers instead pay a 3% percentage tax on gross sales or receipts — unless they validly elect the 8% income tax option, which replaces that percentage tax.
The usual VAT registration threshold is ₱3,000,000 of gross sales or receipts in a 12-month period. Cross it (or reasonably expect to) and VAT registration is generally required. Below it, you can stay Non-VAT, or you can register for VAT voluntarily. The threshold can be adjusted by law. Do not treat ₱3 million as frozen forever.
VAT vs Non-VAT at a glance
| Topic | VAT-registered | Non-VAT |
|---|---|---|
| When it applies | Gross sales generally over ₱3,000,000 in 12 months, or you elected VAT | Gross sales generally at or below the VAT threshold, and you are not VAT-registered |
| Sales tax | 12% VAT on VATable sales | No 12% VAT. Often 3% percentage tax on gross — unless you are on the 8% income tax option |
| Input tax | You may credit qualified input VAT | No input VAT credit |
| Typical BIR forms | 2550Q (quarterly VAT). 2550M may still apply depending on your registration | 2551Q if you pay percentage tax. Not 2551Q if you validly elected 8% |
eFPS and Ease of Paying Taxes grouping can move the filing day. Use the forms printed on your Certificate of Registration.
Sole proprietors, professionals, partnerships, and corporations can be VAT or Non-VAT. The split is driven by sales and registration, not by the entity name alone. Some sales are VAT-exempt even for a VAT-registered taxpayer (for example certain food, education, or housing items listed in the Tax Code). Mixed sales need extra care.
Entity type and the usual options
| Who | Can be Non-VAT? | Can be VAT? | 8% income tax option? |
|---|---|---|---|
| Sole proprietor or self-employed professional | Yes, if below the VAT threshold and not VAT-registered | Yes — required above the threshold, or by voluntary registration | Yes, if you are an individual, Non-VAT, within the threshold, and you elect it for the year |
| Partnership | Yes, if below the threshold and not VAT-registered | Yes | No. The 8% option is for qualified individuals, not the partnership itself |
| Corporation | Yes, if below the threshold and not VAT-registered | Yes | No. Corporations use corporate income tax, not the 8% individual option |
| Cooperative (special rules) | Often treated differently for percentage tax | Depends on activity and registration | No. Confirm the cooperative rules with your accountant |
Voluntary VAT registration is typically locked in for three years. Canceling VAT and switching paths is not a casual toggle.
These are different taxes. Percentage tax is a business tax on gross for many Non-VAT taxpayers. Graduated and 8% are income tax methods for individuals with business or professional income. Corporations do not pick 8%.
The three rates people mix up
| Method | What it taxes | Usual rate | Who it is for |
|---|---|---|---|
| Percentage tax (Section 116) | Gross quarterly sales or receipts | 3% (the temporary 1% CREATE rate ended 30 June 2023) | Non-VAT taxpayers who did not elect 8%. It is in addition to income tax under the graduated rates |
| Graduated income tax | Net taxable income (after allowable deductions or OSD) | 0% to 35% by bracket | The default for individuals. Required if you are VAT-registered or over the VAT threshold |
| 8% income tax option (flat on gross) | Gross sales/receipts and other non-operating income | 8% | Qualified individuals who are Non-VAT, within the ₱3,000,000 threshold, and who elect it. It is in lieu of graduated rates on that business income and in lieu of percentage tax |
If you are VAT-registered, you are on 12% VAT plus graduated income tax (individuals) or corporate income tax (companies). You cannot use 8% while VAT-registered.
If you are Non-VAT and did not elect 8%, you generally pay 3% percentage tax and, if you are an individual, graduated income tax on net income.
The 8% option is only for individuals (sole props and professionals, including the business portion of mixed-income earners) whose gross sales/receipts and other non-operating income do not exceed the VAT threshold, who are not VAT-registered, and who elect it for that year. Purely self-employed taxpayers compute 8% on gross in excess of ₱250,000. Mixed-income earners apply 8% to business gross without that ₱250,000 deduction on the business side — compensation is still taxed under the graduated rates.
Use these as illustrations only. Your invoices may be VAT-inclusive or VAT-exclusive. Withholding, exempt sales, and capital purchases change the result.
Worked examples (illustrative)
| Tax | Example facts | Computation | Result |
|---|---|---|---|
| VAT (tax-exclusive sale) | VATable sale ₱100,000; qualified input VAT ₱8,000 | Output VAT = 100,000 × 12%. Net VAT = 12,000 − 8,000 | ₱4,000 payable |
| VAT (tax-inclusive price) | Customer pays ₱112,000 VAT-inclusive | Net sales = 112,000 × 100/112. Output VAT = 112,000 × 12/112 | ₱12,000 output VAT |
| Percentage tax | Non-VAT, not on 8%. Quarterly gross ₱400,000 | 400,000 × 3% | ₱12,000 percentage tax for the quarter |
| 8% (purely self-employed) | Annual gross ₱1,200,000. Valid 8% election | 8% × (1,200,000 − 250,000) | ₱76,000 income tax (and no 3% percentage tax) |
| Graduated (simple) | Individual, net taxable income ₱500,000 | Tax on ₱400,000 bracket + 20% of ₱100,000 excess over ₱400,000 | ₱22,500 + ₱20,000 = ₱42,500 (before credits) |
Graduated brackets below. OSD or itemized deductions change net taxable income before you apply the table.
These are the TRAIN brackets still commonly used for individuals. Apply them to net taxable income, not to gross sales.
Individual graduated rates (TRAIN)
| Net taxable income | Tax |
|---|---|
| Not over ₱250,000 | 0% |
| Over ₱250,000 to ₱400,000 | 15% of the excess over ₱250,000 |
| Over ₱400,000 to ₱800,000 | ₱22,500 + 20% of the excess over ₱400,000 |
| Over ₱800,000 to ₱2,000,000 | ₱102,500 + 25% of the excess over ₱800,000 |
| Over ₱2,000,000 to ₱8,000,000 | ₱402,500 + 30% of the excess over ₱2,000,000 |
| Over ₱8,000,000 | ₱2,202,500 + 35% of the excess over ₱8,000,000 |
File the returns that match your Certificate of Registration. Calendar-year taxpayers commonly use the dates below. eFPS groups and later issuances can move the day. Weekend and holiday rules also apply. Seedflow’s tax calendar is a reminder list — it does not file for you.
Common BIR forms and usual due dates
| Form | What it is | Who usually files | Usual due date |
|---|---|---|---|
| 2550Q | Quarterly VAT return | VAT-registered | 25th day after the quarter (eFPS groups may differ) |
| 2550M | Monthly VAT declaration | VAT-registered, if this form is still on your COR | Often the 20th after the month, or your eFPS group date |
| 2551Q | Quarterly percentage tax | Non-VAT paying 3% percentage tax | 25th day after the quarter |
| 1701Q | Quarterly income tax (individuals with business or professional income) | Sole props, professionals, mixed-income earners | 60 days after Q1–Q3: 15 May, 15 Aug, 15 Nov. Q4 is in the annual return |
| 1701 or 1701A | Annual income tax for individuals | 1701A if purely business/profession; 1701 if mixed income | 15 April of the following year |
| 1702-RT (and quarterly 1702Q) | Corporate income tax | Corporations | Annual often 15 April; quarterly returns follow the corporate calendar |
| 0619-E / 1601-EQ / 1604-E | Expanded withholding | If you withhold on purchases | Monthly/quarterly/annual dates on your withholding calendar |
If you validly elected 8%, you generally do not file 2551Q. You still file 1701Q and the annual 1701/1701A. Always match the tax types on your COR.
"Pick the path that matches your COR — VAT or Non-VAT, percentage tax or 8%, graduated or corporate — then keep the books that feed those returns all year, not only at the deadline."
This article is a map of common 2026 rules, not a filing kit and not tax advice. Thresholds, forms, and due dates change. Confirm with the BIR and your accountant. Seedflow can store your VAT vs Non-VAT profile, calculate tax on invoices and bills, and remind you of dates. It does not generate or submit BIR returns today.