BIR Order No. 037-2024: New Corporate Tax Brackets

October 17, 2024

The Philippines’ Bureau of Internal Revenue (BIR) has introduced Revenue Memorandum Order (RMO) No. 037-2024, a transformative reform reshaping the corporate tax landscape by establishing new tax brackets based on business size, income, and type. Practical in 2024, this regulation aims to align tax obligations with a company’s earning capacity, streamline compliance for smaller enterprises, and enforce stricter oversight for larger ones. As businesses adapt to these changes, this article provides a comprehensive guide to the new Philippines business tax rate structure, its implications, compliance requirements, and related reforms, offering actionable insights for companies operating there.

New Philippines Business Tax Rate Brackets: What You Need to Know

The BIR’s RMO No. 037-2024 introduces a tiered tax system to promote fairness and efficiency in corporate taxation. Below are the key details of the new tax brackets:

Classification Criteria: Businesses are grouped into micro, small, medium, and large taxpayers based on annual gross sales, operating size, and business type, as outlined in Revenue Regulations (RR) No. 8-2024. For example, micro taxpayers typically have gross sales below PHP 3 million, while large taxpayers exceed PHP 1 billion.
Tax Rates: Micro businesses face a flat 1% tax rate on gross income if opting for the simplified regime, while small and medium enterprises (SMEs) are taxed at 20% on net taxable income. Large corporations pay the standard 25% corporate income tax (CIT), with potential reductions under the CREATE Act.
Transition Period: To align with the new brackets, businesses must confirm their classification via the BIR’s Online Registration and Update System (ORUS) by Q1 2025.
Industry-Specific Adjustments: Certain sectors, such as manufacturing or retail, may face tailored thresholds to reflect the operational scale, ensuring equitable taxation.
Reclassification Process: Companies with significant revenue changes must update their status annually to avoid penalties, with ORUS facilitating seamless reclassification.

This tiered system ensures that smaller businesses benefit from lower Philippines business tax rates while larger enterprises face proportionate obligations, fostering a balanced tax environment.

Compliance Requirements Under RMO No. 037-2024

Adhering to the new tax brackets requires businesses to meet specific tax compliance obligations, particularly with the BIR’s push for digitalization. The following points outline the requirements:

Digital Filing Mandate: As per Revenue Memorandum Circular (RMC) No. 77-2024, corporate taxpayers must file returns electronically via eBIRForms or authorized banks by April 2025 to ensure accurate bracket reporting.
Documentation Standards: Large taxpayers must submit detailed financial statements and undergo regular audits, while SMEs benefit from simplified reporting forms.
Annual Confirmation: Businesses must verify their taxpayer classification annually through ORUS to reflect gross sales or business-type changes.
Penalties for Non-Compliance: Failure to file correctly or misclassification incurs a 25% surcharge and 12% annual interest, as stipulated in RMC No. 77-2024.
Record-Keeping: Companies must maintain records for at least three years, with large enterprises requiring more extensive documentation to support audit processes.

Compliance with these requirements is essential to avoid penalties and leverage the benefits of the new Philippines business tax rate structure, particularly for MSMEs.

Tax Incentives and the CREATE Act Connection

The new tax brackets align with broader reforms, including the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act and its proposed CREATE MORE Act. These incentives complement the Philippines business tax rate framework:

Income Tax Holidays (ITH): Qualifying businesses in special economic zones may receive ITH for 4–7 years, reducing their effective tax rate to zero.
Reduced CIT Rates: Registered enterprises under CREATE may qualify for a 5% tax on gross income earned instead of all taxes, particularly for export-oriented firms.
SME Benefits: Micro and small businesses opting for the simplified regime face lower tax burdens, enhancing cash flow for reinvestment.
Investment Deductions: Companies investing in priority sectors, such as renewable energy, may claim enhanced deductions, lowering their taxable income.
CREATE MORE Act: Proposed expansions include extended ITH periods and broader eligibility, pending legislative approval as of July 2025.

These incentives make the Philippines attractive for business registration, provided they align with the new tax brackets and comply with BIR regulations.

Digitalization and Its Impact on Tax Compliance

The BIR’s push for digital tax administration, as outlined in RMC No. 77-2024 and the Ease of Paying Taxes Act (R.A. No. 11976), significantly affects compliance with the new Philippines business tax rate structure. Key aspects include:

Mandatory e-filing: All corporate taxpayers must use eBIRForms or authorized agent banks for tax submissions, streamlining processes for SMEs.
Online Registration Updates: The ORUS platform allows businesses to update their taxpayer classification, ensuring accurate bracket placement.
Digital Service Taxation: Online businesses and digital service providers face new tax obligations, with VAT registration thresholds aligned with micro and small business brackets.
Penalties for Non-Digital Compliance: Failure to adopt e-filing results in penalties, including a 25% surcharge and 12% interest on unpaid taxes.
Support for MSMEs: The Ease of Paying Taxes Act simplifies VAT refund processes and reduces filing frequency for micro businesses, easing compliance burdens.

Digitalization enhances efficiency but requires businesses to adapt quickly to avoid penalties under the new tax regime.

Challenges and Opportunities for Businesses

The new Philippines business tax rate structure presents opportunities and challenges for businesses. Navigating these complexities is critical for compliance and growth:

Opportunity for MSMEs: Lower tax rates and simplified reporting reduce financial and administrative burdens, enabling reinvestment and expansion.
Challenge for Large Enterprises: Stricter audits and detailed reporting requirements increase compliance costs, necessitating robust accounting systems.
Digital Transition: Businesses must invest in digital tools to meet e-filing mandates, which may strain smaller firms with limited resources.
Risk of Misclassification: Incorrect taxpayer classification can lead to penalties, requiring careful gross sales and business type monitoring.
Need for Expert Guidance: The complexity of RMO No. 037-2024, combined with related regulations, underscores the importance of consulting trusted providers like Triple i Consulting to ensure compliance and optimize tax strategies.

Given the intricate nature of these reforms, partnering with Triple i Consulting, a leading tax advisory firm in the Philippines, is vital for businesses to navigate the new tax landscape effectively and avoid costly errors.

Why the New Tax Brackets Matter for the Philippine Economy

The introduction of RMO No. 037-2024 reflects broader economic goals, making the Philippines business tax rate structure a pivotal reform. Its significance includes:

Promoting Tax Equity: Tiered tax rates ensure businesses pay according to their capacity, reducing the burden on smaller enterprises.
Supporting MSME Growth: Simplified compliance and lower tax rates empower micro and small businesses, contributing significantly to GDP and employment.
Enhancing Competitiveness: Alignment with CREATE Act incentives attracts foreign investment, particularly in priority sectors like technology and manufacturing.
Modernizing Tax Administration: Digital filing and ORUS streamline processes, reducing administrative bottlenecks and improving revenue collection.
Encouraging Compliance: Clear penalties and audit requirements deter tax evasion, fostering a culture of transparency and accountability.

These reforms position the Philippines as a business-friendly environment, but their success depends on practical implementation and compliance.

Wrapping Up

The BIR’s RMO No. 037-2024 marks a significant shift in the Philippines’ business tax rate structure, introducing tiered brackets that balance equity and efficiency. By aligning tax obligations with business size and type, the reform supports MSMEs while ensuring large enterprises meet stricter compliance standards. Coupled with digitalization efforts and incentives under the CREATE Act, these changes enhance the Philippines’ appeal as a business destination. However, the complexity of compliance, from digital filing to accurate classification, requires careful navigation. Businesses must stay informed and proactive to leverage opportunities and avoid penalties.

Is Assistance Available?

Yes, Triple i Consulting, a trusted provider of tax advisory services in the Philippines, offers expert guidance to navigate the complexities of RMO No. 037-2024. Contact us today to schedule an initial consultation with one of our experts: