8% income tax option for freelancers in the Philippines
Who can choose 8% on gross sales instead of graduated rates, what the PHP 250,000 rule means and how it relates to percentage tax.
Individuals whose gross sales or receipts and other non-operating income do not exceed PHP 3,000,000 in the taxable year can choose between graduated income tax rates and a flat 8% on gross sales or receipts. This option comes from the TRAIN Act (RA 10963) and Section 24(A)(2)(b) NIRC. For individuals earning purely from self-employment or practice of a profession, the 8% applies to the amount in excess of PHP 250,000. According to BIR guidance, taking the 8% option means the taxpayer does not also pay the 3% percentage tax. Freelancers, consultants and small sellers often look at this option, so compare it with graduated rates before choosing.
- Eligibility: gross sales or receipts and other non-operating income not above PHP 3,000,000.
- Rate: 8% instead of graduated rates.
- Purely self-employed or professionals: the first PHP 250,000 is excluded from the base.
- The election is made the way the BIR rules describe, so ask your RDO.
How it works
Check your gross sales or receipts and other non-operating income for the year against the PHP 3,000,000 limit.
Compare the two methods. Graduated rates apply to net taxable income after allowed deductions. The 8% option applies to gross without itemized deductions.
Elect the option in the way the BIR prescribes, for example at registration or in the first quarterly return of the year. The rules are in BIR issuances such as RR 8-2018 and RMO 23-2018.
Issue an Invoice for each sale, with the buyer's details where needed. Since the EOPT Act the Invoice is the primary sales document.
Track your gross receipts through the year so you can see when you approach the limit.
Legal framework
- National Internal Revenue Code of 1997 (RA 8424), Section 24(A)(2)(b).
- TRAIN Act (RA 10963).
- Revenue Regulations No. 8-2018 and Revenue Memorandum Order No. 23-2018 (8% option guidelines).
- Ease of Paying Taxes Act (RA 11976).
Frequently asked questions
What is the 8% income tax option?
It is a flat 8% on gross sales or receipts and other non-operating income that an eligible individual can choose instead of graduated income tax rates. For purely self-employed individuals and professionals the first PHP 250,000 is excluded from the base.
What happens if my sales exceed PHP 3,000,000?
You no longer qualify for the option and you become liable for VAT once you exceed the VAT threshold. Ask your RDO how to handle the year in which the limit is crossed.
Do I still pay percentage tax under the 8% option?
Under BIR guidance, the 8% option is in lieu of both graduated income tax and the 3% percentage tax. Confirm your case on bir.gov.ph or with an accountant.
Is the 8% option better than graduated rates?
It depends on your costs. With high deductible expenses, graduated rates on net income can cost less. With low expenses, 8% is often simpler. Compare both with your own figures.
Does 4invoices compute my income tax or file my returns?
No. 4invoices does not compute income tax, does not file returns and does not connect to the BIR. It creates an invoice with a VAT rate per line, in any currency with an exchange rate, and gives you a PDF. The 6-month trial needs no card.