Who qualifies for the 8% flat tax rate?

Self-employed individuals and professionals whose annual gross sales do not exceed PHP 3,000,000. Mixed-income earners (those with both compensation and self-employed income) do not qualify.

How is the 8% flat tax computed?

(Gross Sales or Receipts minus PHP 250,000) multiplied by 8%. Example : PHP 600,000 gross receipts, tax is (600,000 - 250,000) x 8% = PHP 28,000.

Can I claim deductions with the 8% flat tax?

No. The 8% is computed on gross sales, not net income. You cannot claim itemized deductions or OSD.

Is the 8% rate better than graduated rates?

It depends. The 8% is simpler and usually better for service providers with low expenses. If expenses exceed 40–50% of gross income, graduated rates may result in lower tax.

How do I switch to the 8% flat tax rate?

New registrants select it on BIR Form 1901. Existing taxpayers file BIR Form 1905. Election must be made at the start of the taxable year or within 30 days of starting a business.

Does the 8% rate include percentage tax?

Yes. The 8% flat tax replaces both the graduated income tax AND the 3% percentage tax. No separate 2551Q filing needed.

8% Flat Tax Rate for Self-Employed Filipinos: Complete Guide (2026)

Q: What is the 8% flat tax rate?

The 8% flat tax rate is a simplified tax option under the TRAIN Law (RA 10963). It lets qualified self-employed individuals pay 8% on gross sales exceeding PHP 250,000, replacing both the graduated income tax and the 3% percentage tax.

Most self-employed Filipinos don’t realize they might be overpaying taxes. If your annual gross sales are under PHP 3 million, the 8% flat tax rate from the TRAIN Law (Republic Act No. 10963) could be your ticket to simpler filing and lower taxes.

What’s the catch? There isn’t one. Instead of computing tax based on net income after deductions, the 8% rate applies directly to your gross sales or receipts over PHP 250,000. It replaces both your income tax and the 3% percentage tax in one calculation.

✅ Key takeaway: If your annual gross sales are PHP 3 million or below and you want straightforward tax computation, the 8% flat rate may be your best option.

What Is the 8% Flat Tax Rate?

The 8% flat tax rate is an optional tax scheme introduced under the TRAIN Law (RA 10963). It simplifies tax compliance for self-employed individuals and professionals by applying a single 8% rate to gross sales exceeding PHP 250,000. This single payment replaces two separate tax obligations : your graduated income tax and the 3% percentage tax.

💡 Pro tip: If you’re a freelancer or service provider with minimal expenses, the 8% rate almost always results in lower taxes and fewer forms to file each year.

Who Qualifies for the 8% Rate?

You can elect the 8% flat tax rate if:

Requirement	Details
Taxpayer type	Self-employed individual or professional (sole proprietor, freelancer, independent contractor)
Gross sales/receipts	PHP 3,000,000 or less per taxable year
VAT status	Must not be VAT-registered

You cannot use the 8% rate if:

You are a mixed-income earner (both employee and self-employed income)
Your gross annual sales exceed PHP 3,000,000
You are VAT-registered
You are a corporation or partnership

⚠️ Important: Mixed-income earners cannot use the 8% rate even if their self-employed income is below PHP 3M. You must be purely self-employed to qualify.

8% vs Graduated Rates

Factor	8% Flat Tax	Graduated Rates
Tax base	Gross sales (minus PHP 250,000)	Net income after deductions
Tax rate	Single rate of 8%	0% to 35% by bracket
Deductions	None	Itemized or 40% OSD
Percentage tax	Included	Separate 3% filing
Recordkeeping	Minimal	Receipts and expense records required
Best for	Freelancers, service providers, low-expense businesses	Retailers, high-expense businesses

Graduated Tax Table

Taxable Income	Tax Due
Up to PHP 250,000	0%
PHP 250,001 to PHP 400,000	15% of excess over PHP 250,000
PHP 400,001 to PHP 800,000	PHP 22,500 + 20% of excess over PHP 400,000
PHP 800,001 to PHP 2,000,000	PHP 102,500 + 25% of excess over PHP 800,000
PHP 2,000,001 to PHP 8,000,000	PHP 402,500 + 30% of excess over PHP 2,000,000
Over PHP 8,000,000	PHP 2,202,500 + 35% of excess over PHP 8,000,000

Example Comparison

Scenario : PHP 800,000 gross receipts, PHP 300,000 expenses (net income of PHP 500,000).

8% rate : (PHP 800,000 - PHP 250,000) x 8% = PHP 44,000 total. Graduated rates : PHP 42,500 income tax + PHP 24,000 percentage tax = PHP 66,500 total.

The 8% rate saves PHP 22,500 in this case. But if expenses were higher, graduated rates could work out cheaper.

Rule of thumb: If deductible expenses are under 40% of gross income, the 8% rate is likely better. If expenses are higher, graduated rates may save more.

💡 Pro tip: Use the graduated rates if your business actually spends more than 40% of revenue on rent, supplies, and salaries. The 8% rate penalizes high-expense businesses.

How to Compute Your Tax Under the 8% Rate

Formula : (Gross Sales or Receipts - PHP 250,000) x 8% = Tax Due

Gross Receipts	Tax Due
PHP 500,000	PHP 20,000
PHP 1,000,000	PHP 60,000
PHP 2,000,000	PHP 140,000
PHP 3,000,000	PHP 220,000

⚠️ Important: The PHP 250,000 threshold is the tax-exempt amount available to all individual taxpayers. If your gross sales are PHP 250,000 or less, your tax is zero — but you must still file your ITR.

How to Elect the 8% Rate

New Businesses

Indicate your choice on BIR Form 1901 when registering.

Existing Taxpayers

File BIR Form 1905 at your RDO to change your rate option.

Timing :

Election must be made at the start of the taxable year or within 30 days of starting a business
Your choice applies for the entire taxable year
You must elect each year to keep the 8% rate
Default is graduated rates if no election is made

⚠️ Important: Missed the deadline? You are locked into the graduated rate for that year. File Form 1905 before the next taxable year.

Filing Requirements

If you elect the 8% flat tax, here are the forms you need to file. Note that since the 8% rate includes the percentage tax, you skip the 2551Q quarterly filing — four fewer filings per year.

Form	Frequency	Deadline
1701Q	Quarterly (Q1-Q3)	May 15, Aug 15, Nov 15
1701 / 1701A / 1701-MS	Annual	April 15 of following year

The BIR introduced a simplified form called the BIR Form 1701-MS for micro and small taxpayers. If your gross sales are under PHP 3 million, you can use this form instead of 1701 or 1701A. See our BIR Form 1701-MS guide for details.

Upcoming 2026 Deadlines

Deadline	Form
August 15, 2026	1701Q (Q2)
November 15, 2026	1701Q (Q3)
April 15, 2027	1701 / 1701A / 1701-MS (Annual)

Elect the 8% option before January 1, 2027 to use it for the next taxable year.

Common Misconceptions

“The 8% rate is automatic.” You must elect it through BIR Form 1901 or Form 1905. Default is graduated rates.

“I still need to pay percentage tax separately.” No. The 8% rate replaces both the income tax and the 3% percentage tax.

“The 8% applies to my total gross sales.” It applies to gross sales exceeding PHP 250,000. The first PHP 250,000 is tax-exempt.

“I can use the 8% rate even if I’m VAT-registered.” No. Only available to non-VAT taxpayers.

“I can switch mid-year.” No. Your election is locked for the entire taxable year.

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Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional for your specific situation.