Filipino freelancers — virtual assistants, developers, designers, writers and online sellers — register with the BIR as self-employed individuals or professionals. Each year they must choose how to pay income tax: the 8% flat rate or the graduated rates plus percentage tax. The right choice can save tens of thousands of pesos.
Option A: 8% flat income tax
Tax = 8% × (gross sales or receipts + other non-operating income − ₱250,000). No expenses are deducted, and the 3% percentage tax is waived. Bookkeeping is simple: you mainly track gross receipts. Available only if your gross does not exceed ₱3,000,000 and you are not VAT-registered.
Option B: graduated rates plus percentage tax
Taxable income = gross − deductions, then apply the TRAIN tax table. Deductions may be itemized (actual, receipted expenses) or the Optional Standard Deduction (OSD) of 40% of gross. On top of income tax, non-VAT taxpayers pay 3% percentage tax on gross receipts (BIR Form 2551Q, quarterly).
Example 1: ₱1,200,000 gross, few expenses
- 8% option: (₱1,200,000 − ₱250,000) × 8% = ₱76,000.
- Graduated with 40% OSD: taxable ₱720,000 → ₱22,500 + 20% × ₱320,000 = ₱86,500, plus 3% percentage tax of ₱36,000 = ₱122,500.
The 8% option saves ₱46,500.
Example 2: ₱1,200,000 gross, ₱800,000 real expenses
- 8% option: still ₱76,000.
- Graduated, itemized: taxable ₱400,000 → ₱22,500, plus ₱36,000 percentage tax = ₱58,500.
Here graduated rates win — typical for online sellers with high cost of goods.
Example 3: ₱400,000 gross
8%: ₱12,000. Graduated with OSD: taxable ₱240,000 → ₱0 income tax, but ₱12,000 percentage tax. Practically the same; 8% is simpler.
Rule of thumb
For most service freelancers with low expenses, 8% is cheaper across almost the whole income range up to ₱3 million. Graduated rates only win when real, documented expenses exceed roughly 60% of gross income.
Deadlines to remember
- Quarterly income tax (1701Q): May 15, August 15 and November 15.
- Annual income tax return (1701 or 1701A): April 15.
- Percentage tax (2551Q), only if not on 8%: within 25 days after each quarter.
If you are paid in dollars, convert using the actual peso amount you received; the PHP–USD converter helps estimate. Freelancers who cross ₱3 million must register for VAT — see the VAT calculator. Consult a licensed CPA for complex situations.