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RMO No. 23-2018: Prescribes the policies, guidelines and procedures in the availment of the eight percent (8%) Income Tax Rate option for individuals earning from self-employment and/or practice of professions

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Summary

RMO No. 23-2018 sets the policies, guidelines and procedures for the eight percent (8%) Income Tax Rate option of individuals earning from self-employment and/or practice of professions.

Key points

  1. Who has the option. Self-employed individuals with income purely from self-employment or practice of profession, whose gross sales or receipts and other non-operating income do not exceed the VAT threshold of ₱3,000,000, choose between graduated rates under Section 24(A)(2)(a) of the NIRC or 8% on the amount in excess of ₱250,000, in lieu of graduated rates and Percentage Tax under Section 116. Mixed income earners tax compensation at graduated rates, and may use 8% on business income only if it does not exceed ₱3 Million.
  2. Qualifying criteria. All must be met: an individual earning from self-employment or profession, gross receipts within the ₱3 Million threshold, registered and subject only to Percentage Tax under Section 116 or exempt from VAT or other Percentage Taxes, and a signified election of the 8% rate.
  3. How and when to elect. New registrants elect upon registration using BIR Form No. 1901 and/or 1701Q, or on the initial quarter return (2551Q and/or 1701Q). Existing taxpayers file BIR Form 1905 at the start of the taxable year, or elect in the 1st Quarterly Percentage Tax Return or 1st Quarterly Income Tax Return.
  4. Who cannot use it. Purely compensation earners, VAT-registered taxpayers, exempt taxpayers who exceeded ₱3 Million, those subject to Other Percentage Taxes except Section 116, partners of a General Professional Partnership, and income tax exempt individuals. A BMBE cannot use BMBE status and the 8% option at the same time.
  5. Yearly election and filing duties. Everyone starts each year at graduated rates, so the election must be made every taxable year and is irrevocable for that year. Those on 8% do not file the Quarterly Percentage Tax Return, but file quarterly and annual income tax returns without attached financial statements, maintain books and issue receipts or invoices.
  6. Mixed income and exceeding ₱3 Million. For mixed income earners the 8% applies to gross receipts without the ₱250,000 reduction. A non-VAT taxpayer who passes ₱3 Million moves to graduated rates and VAT prospectively, gets credit for earlier 8% payments, and must update registration within the month following the month the threshold was exceeded.

Who is affected

  • Self-employed individuals, single proprietors and professionals
  • Mixed income earners
  • VAT-registered persons seeking to update to Non-VAT

Deadlines and effectivity

  • Election made every taxable year
  • Registration update within the month following the month the ₱3 Million threshold was exceeded
  • VAT to Non-VAT update on or before the first quarter of a taxable year, after three (3) consecutive years of gross sales not exceeding ₱3 Million

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.

Copies of BIR issuances are hosted here for reference. For the official version, check bir.gov.ph. Summaries by Tax Resources PH are not a substitute for the full text or professional advice.