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Contact Us Blog /Taxes Percentage Tax for Businesses in the
Philippines – Explained!
Posted on July 28, 2020 Businesses in the Philippines may be able to register for VAT or Percentage Tax. Both are types of
business-related taxes incurred on the sale of services or goods. We previously wrote about VAT for corporations in the Philippines. In this article, we deal with
What is Percentage Tax in the Philippines? What is the Percentage Tax rate? What kind of businesses can
register for Percentage Tax? What’s the di erence between VAT and Percentage Tax? What are the ﬁling
requirements for Percentage Tax? This article explains the key elements of Percentage Tax in the Philippines! What is Percentage Tax?
Percentage Tax in the Philippines is a form of sales tax. The Percentage Tax computation is based on
gross sales, receipts or earnings (except for insurance companies which is based on the total premium
collected/paid) within the Philippines. Certain businesses in the Philippines that sell or lease goods, properties or services can be treated under
the Percentage Tax system. This may depend, for example, on the value of sales generated in a year or
the particular business model and industry. Title V of The National Internal Revenue Code of 1997 (as amended), otherwise known as the Tax Code
of the Philippines, outlines the various requirements and criteria for businesses under the Percentage Tax
regime. What kind of businesses can be subject to
The most common criteria used to understand if a business can fall under the Percentage Tax system in
the Philippines is as follows. Percentage Tax may be applicable for:
Businesses with gross annual sales and/or receipts not exceeding P3,000,000; and
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activities that may also fall under the Percentage Tax system. For example, domestic carriers, keepers of
garages, franchise grantees of water or gas utilities, lessees or operators of cockpits and racetracks,
banks and ﬁnance companies.
For a full list of businesses to which the Percentage Tax system may apply in the Philippines, you can
check out the BIR’s Percentage Tax Description under the section “Who are required to ﬁle“. How It Works Our Services About Us Careers Blog FAQ Rate of Percentage Tax Contact Us 3% is the general base rate of Percentage Tax on gross sales and receipts for standard non-VAT
The rate does vary, however, for more speciﬁc types of business. For example, the Percentage Tax rate
(and in certain cases, the monetary threshold rate) for banks, non-bank ﬁnancial intermediaries and
insurance agents all di er. You can check out the Percentage Tax rates for di erent kinds of businesses and activities in the BIR’s
Quarterly Percentage Tax Rates Table. Percentage Tax Vs. Value-Added Tax (VAT)
Value Added Tax, or VAT, and Percentage Tax are both business taxes collected from the sale of goods
and services. The taxes di er, however, in their applicability. Business owners must understand which tax
they are registered for and the ﬁnancial implications for their business.
Percentage Tax is a direct tax – the seller is the one who shoulders the tax and ﬁles it with the BIR.
Whereas, VAT is an indirect tax – the end consumer is charged for the tax, while the seller is responsible
for remitting to the BIR.
In the Philippines, the rate of VAT is 12%. To compute for VAT, deduct the input VAT from the output VAT
to arrive at the VAT due and payable. Again, to understand what is meant by input VAT and output VAT,
check out our recent article on VAT. Computing Percentage Tax is much simpler. Multiply the applicable Percentage Tax rate against the
taxable base (i.e. for standard businesses – the total value of the gross sales or receipts) and the resulting
amount is the Percentage Tax due and payable to the BIR
Let’s use an example! WXY Company is registered for Percentage Tax and is in the business of selling
goods. WXY Company sold goods worth P180,000 in a particular quarter. By applying the Percentage
Tax rate of 3%, WXY’s Percentage Tax due and payable to the BIR would be P5,400 for the quarter. Percentage Tax and Business Registration When registering with the BIR, companies can generally opt to register as a VAT taxpayer or a
Percentage Tax payer.
Remember – a businesses will have to fulﬁl the criteria referenced above to register for Percentage Tax!
If a business registers for Percentage Tax, once its gross annual sales and/or receipts exceed the
P3,000,000 monetary threshold, the business will become liable for VAT and should immediately seek
to change their tax registration status with the BIR to VAT registered. Filing and Payment of Percentage Taxes
The primary BIR Form required for the ﬁling of Percentage Tax in the Philippines is BIR Form No. 2551Q.
Percentage Tax in the Philippines is ﬁled on a quarterly basis. This Percentage Tax return should be ﬁled and paid to the BIR within 25 days after the end of each
For a full list of the relevant ﬁling requirements, check out the BIR Form 2551Q Guidelines.
Remember – the tax, compliance and regulatory framework in the Philippines can be di cult to
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