How income tax works in Philippines
Resident Filipino citizens are generally taxed on income from sources within and outside the Philippines. Non-resident citizens and aliens are generally taxed only on Philippine-source income. For employment and personal services, the place where the work is performed is usually central to the source analysis.
Compensation, business and professional income generally uses the graduated schedule after allowable deductions or the applicable optional standard deduction. Employers normally withhold compensation tax through payroll, while self-employed taxpayers make quarterly and annual filings.
A self-employed individual whose gross sales or receipts and other non-operating income do not exceed the PHP 3 million VAT threshold may elect an 8% tax on the amount above PHP 250,000. The election is available only to an eligible non-VAT taxpayer and replaces both graduated income tax and the Section 116 percentage tax for the covered business income.
Benefits for managerial and supervisory employees can be subject to a separate 35% fringe-benefits tax on the grossed-up monetary value. SSS, PhilHealth and other payroll contributions are separate from income tax and affect the employee and employer cost of hiring.
Income tax brackets in Philippines
| Bracket | Rate | Notes |
|---|---|---|
| PHP 0 to PHP 250,000 | 0% | No income tax on this taxable-income band |
| PHP 250,001 to PHP 400,000 | 15% | On the excess over PHP 250,000 |
| PHP 400,001 to PHP 800,000 | 20% | PHP 22,500 plus 20% of excess over PHP 400,000 |
| PHP 800,001 to PHP 2,000,000 | 25% | PHP 102,500 plus 25% of excess over PHP 800,000 |
| PHP 2,000,001 to PHP 8,000,000 | 30% | PHP 402,500 plus 30% of excess over PHP 2,000,000 |
| Over PHP 8,000,000 | 35% | PHP 2,202,500 plus 35% of excess over PHP 8,000,000 |
Tax rates at a glance
- Taxable income up to PHP 250,000
- 0%Exempt band
- PHP 250,001 to PHP 400,000
- 15% of excess
- PHP 400,001 to PHP 800,000
- PHP 22,500 + 20%
- PHP 800,001 to PHP 2,000,000
- PHP 102,500 + 25%
- PHP 2,000,001 to PHP 8,000,000
- PHP 402,500 + 30%
- Over PHP 8,000,000
- PHP 2,202,500 + 35%
Who benefits most
These profiles tend to benefit most when the rules match their real residence, payroll and business setup.
EmployeesExpatsContractorsSelf-employed professionalsOverseas Filipinos
Watch out for
- The PHP 250,000 threshold applies within the tax computation. It does not mean every person earning more than PHP 250,000 receives a separate PHP 250,000 cash allowance in every filing scenario.
- The 8% choice is based on gross sales or receipts, not net profit, and it is generally unavailable once the individual is VAT-registered. A taxpayer who exceeds PHP 3 million must move back to the regular rules.
- Foreign employers do not automatically make work performed in the Philippines foreign-source. Residence, work location, employment relationship and treaty provisions should be reviewed together.
- Payroll withholding is not the same as the final annual liability for every taxpayer. Self-employed, mixed-income and investment-income taxpayers may have additional returns, credits and withholding certificates to reconcile.
Frequently asked questions
What is the top income tax rate in the Philippines?
The top personal income-tax rate is 35% on taxable income above PHP 8 million, before considering separate taxes and payroll contributions.
Who can use the 8% tax option?
An eligible non-VAT self-employed individual with gross sales or receipts and other non-operating income not exceeding PHP 3 million may elect 8% on the qualifying gross amount above PHP 250,000 in lieu of graduated income tax and percentage tax.
Are resident Filipinos taxed on foreign income?
Generally yes. Resident Filipino citizens are taxed on income from Philippine and foreign sources, while non-resident citizens and aliens are generally taxed only on Philippine-source income.