Income Tax Rates for Non-VAT Taxpayers

Income Tax Rates for Individuals

Individuals, including citizens residing in the Philippines, citizens residing outside the Philippines, and resident aliens, pay income tax on taxable income. They may choose for graduated tax or 8% tax on gross sales or receipts and other non-operating income exceeding ₱250,000, in lieu of the graduated income tax rates. The graduated tax schedule may apply if an individual chooses for itemized deductions of allowable expenses or the optional standard deductions of 40% of his gross sales.

Graduated tax schedule effective January 1, 2023 and onwards

The taxable income of an individual will be subject to tax based on the following schedule:

Not over ₱250,000 : 0%

Over ₱250,000 but not over ₱400,000 : 15% of the excess over ₱250,000

Over ₱400,000 but not over ₱800,000 : ₱22,500 + 20% of the excess over ₱400,000

Over ₱800,000 but not over ₱2,000,000 : ₱102,500 + 25% of the excess over ₱800,000

Over ₱2,000,000 but not over ₱8,000,000 : ₱402,500 + 30% of the excess over

₱2,000,000

Over ₱8,000,000 : ₱2,202,500 + 35% of the excess over

₱8,000,000

Section 5 of RA No. 10963 or TRAIN Law that amended Section 24 of the NIRC.

Mixed Income Earners or Individuals Earning Compensation and Business or Professional Income

The taxable income of mixed income earners will be subject to the following rules:

1. Compensation Income will be taxed using the graduated rates.

2. Business or Professional Income: If total gross sales/receipts and other non-operating income do not exceed the VAT threshold, they can choose between the graduated tax rates or the 8% tax on gross sales/receipts and other non-operating income. If total gross sales/receipts and other non-operating income exceed the VAT threshold, the graduated tax rates apply.

Section 5 of RA No. 10963 or TRAIN Law that amended Section 24 of the NIRC.

Minimum Wage Earners Exempt from Income Tax

Minimum wage earners are exempt from income tax on their taxable income, including holiday pay and overtime pay.

Section 5 of RA No. 10963 or TRAIN Law that amended Section 24 of the NIRC.

Income from sources within and outside the Philippines subject to tax based on different type of individuals

1. A citizen of the Philippines residing within the Philippines is taxed on all income derived from sources both within and outside the Philippines.

2. A citizen of the Philippines residing outside of the Philippines is taxed on income derived from sources within the Philippines. This includes overseas contract workers.

3. An alien who is a resident of the Philippines is taxed on income derived from sources within the Philippines.

4. A nonresident alien individual engaged in trade or business within the Philippines is taxed on income received from sources within the Philippines.

5. A nonresident alien individual not engaged in trade or business within the Philippines is taxed on their entire income from sources within the Philippines.

Section 24 and 25 of the NIRC as amended

Generally, Domestic Corporations Income Tax Rate is 25%

Section 6 of RA 11534 or Create Law that amended Section 27 of the NIRC provides that an income tax rate of twenty-five percent (25%) effective July 1, 2020, is hereby imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every corporation organized in, or under the laws of the Philippines. Provided, that corporations with net taxable income not exceeding Five million pesos and with total assets not exceeding One hundred million pesos (P 100,000,000.00), excluding land on which the particular business entity's office, plant, and equipment are situated during the taxable year for which the tax is imposed, shall be taxed at twenty percent (20%).

Proprietary Educational Institutions and Hospitals Income Tax

Section 6 of RA 11534 or Create Law that amended Section 27 of the NIRC provides that non-profit proprietary educational institutions and hospitals shall pay 10% on their taxable income. However, from July 1, 2020, to June 30, 2023, they are taxed at a rate of 1%. If the gross income from unrelated trade, business, or activity exceeds 50% of the total gross income, they are taxed at the regular corporate income tax rate. The term 'unrelated trade, business or other activity' means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function.

Government-Owned or -Controlled Corporations (GOCCs) Income Tax

Section 6 of RA 11534 or Create Law that amended Section 27 of the NIRC provides that all corporations, agencies, or owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Home Development Mutual Fund (HDMF), the Philippine Health Insurance Corporation (PHIC), and the local water districts shall pay such rate of tax upon their taxable income as are imposed upon corporations or associations engaged in a similar business, industry, or activity.

Resident Foreign Corporations 25% Income Tax Rate

Section 7 of RA 11534 or Create Law that amended Section 28 of the NIRC provides that a corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be subject to an income tax equivalent to twenty-five percent (25%) of the taxable income derived in the preceding taxable year from all sources within the Philippines effective July 1, 2020.

Nonresident Foreign Corporation 25% Income Tax Rate

Section 7 of RA 11534 or Create Law that amended Section 28 of the NIRC provides that a foreign corporation not engaged in trade or business in the Philippines, effective January 1, 2021, shall pay a tax equal to twenty-five percent (25%) of the gross income received during each taxable year from all sources within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income.