Percentage tax 3% and BIR Form 2551Q in the Philippines
What non-VAT businesses pay on quarterly gross sales, when Form 2551Q is due and how it differs from VAT.
Percentage tax under Section 116 of the National Internal Revenue Code is a 3% tax on the gross quarterly sales or receipts of persons who are not VAT-registered and whose annual gross sales or receipts do not exceed PHP 3,000,000. The CREATE Act (RA 11534) temporarily reduced the rate to 1% from 1 July 2020 to 30 June 2023, and the rate returned to 3% on 1 July 2023. The quarterly return is BIR Form 2551Q, filed and paid within 25 days after the end of each taxable quarter. Individuals who choose the 8% income tax option do not also pay this tax, according to BIR guidance.
- Rate: 3% of gross quarterly sales or receipts (1% from July 2020 to June 2023).
- Who: non-VAT taxpayers within the PHP 3,000,000 limit.
- Return: BIR Form 2551Q, due 25 days after each quarter.
- Different from VAT, which is filed on Form 2550Q.
How it works
Confirm that you are a non-VAT taxpayer and that your annual gross sales or receipts stay within PHP 3,000,000.
Add up the gross sales or receipts of the quarter. Percentage tax is charged on gross, not on profit.
Apply the rate in force for the period. It is 3% from 1 July 2023.
File BIR Form 2551Q and pay within 25 days after the end of the quarter, using the filing and payment channels listed by the BIR.
Watch the threshold. Above PHP 3,000,000 you fall under VAT, so check the VAT registration rules with your RDO.
Legal framework
- National Internal Revenue Code of 1997 (RA 8424), Section 116.
- CREATE Act (RA 11534), temporary 1% rate.
- Ease of Paying Taxes Act (RA 11976).
- BIR Form 2551Q guidelines and instructions.
Frequently asked questions
Who pays the 3% percentage tax?
Non-VAT taxpayers whose annual gross sales or receipts do not exceed PHP 3,000,000. It is a tax on gross sales instead of VAT.
Why was the rate 1% for a period?
The CREATE Act reduced it to 1% from 1 July 2020 to 30 June 2023 as relief. From 1 July 2023 the rate is 3% again.
When is Form 2551Q due?
Within 25 days after the end of each taxable quarter. Check the BIR calendar for weekend and holiday adjustments.
Can a freelancer avoid percentage tax?
Under BIR guidance, an eligible individual who elects the 8% income tax option does not pay percentage tax. Whether that suits you depends on your figures, so see the dedicated page or ask an accountant.
Does 4invoices file Form 2551Q or add percentage tax?
No. 4invoices 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.