Computing the 8% Flat Income Tax

The 8% flat income tax rate is an alternative tax regime available to individuals in the Philippines, particularly for self-employed individuals and professionals with gross sales or receipts below the VAT threshold. Here's how to compute the 8% flat income tax:

For Individuals (e.g., Self-Employed Individuals and Professionals):

Determine Gross Sales or Receipts:

Calculate your total gross sales or receipts from your business or profession for the taxable year. This includes all income earned before any deductions.

Compute the Optional Standard Deduction (OSD):

For individuals, the OSD is a flat rate of 40% of gross sales or receipts, which represents allowable deductions for business or professional expenses.

Multiply the gross sales or receipts by 40% to determine the OSD.

Compute Taxable Income:

Subtract the OSD from the gross sales or receipts to arrive at the taxable income subject to the 8% flat income tax rate.

Apply the 8% Flat Income Tax Rate:

Multiply the taxable income by the 8% flat income tax rate to compute the income tax due.

File and Pay Income Tax:

File your income tax return (ITR) using the appropriate BIR form for individuals (e.g., BIR Form 1700).

Pay the computed income tax due to the BIR on or before the deadline for filing and payment, which is typically on or before April 15 of the following year.

It's important to note that under the 8% flat income tax regime, taxpayers are not allowed to claim other deductions or exemptions aside from the optional standard deduction for individuals. Additionally, taxpayers who opt for the 8% flat income tax rate are not required to file quarterly income tax returns. However, they are still required to file an annual income tax return and pay the corresponding tax due.