A Compehensive Guide to Business Tax Deductions in the Philippines

June 11, 2025

Starting a business in the Philippines is an exciting venture, but navigating the complexities of taxation can be challenging. One key difficulty is knowing what you can deduct from your taxable income to maximize savings and ensure compliance with BIR regulations.

We’ll explain what tax deductions are, their advantages, the common allowable deductions in the Philippines, and a simple overview of how to claim them for business expenses.

What Are Tax Deductions?

Tax deductions are expenses that businesses can subtract from their gross income to reduce the amount of income subject to tax. In the Philippines, the Bureau of Internal Revenue (BIR) allows businesses to claim certain expenses as deductions, provided they are legitimate, necessary, and directly related to the business operations. By lowering taxable income, deductions reduce the overall tax liability, freeing up funds for reinvestment or operational needs.

For example, if your business earns ₱1,000,000 in revenue and incurs ₱300,000 in deductible expenses, only ₱700,000 is taxed. This mechanism incentivizes businesses to keep accurate records of their expenses and claim deductions appropriately.

How Tax Deductions Benefit Businesses

Tax deductions offer several advantages for businesses:

Lower Tax Liability: Deductions directly reduce taxable income, meaning you pay less in taxes. This can significantly improve cash flow, especially for businesses with high operational costs.
Encourages Investment: By allowing deductions for expenses like equipment purchases or employee training, the government encourages businesses to invest in growth and development.
Financial Flexibility: Reduced tax payments mean more capital to reinvest in marketing, inventory, or hiring, helping businesses stay competitive.
Compliance and Savings: Properly claiming deductions ensures compliance with BIR regulations while maximizing savings, and avoiding penalties for underreporting or errors.

Understanding and utilizing deductions effectively can make a substantial difference in a business’s financial health. The best way to make sure you’re taking full advantage of tax deductions is to consult with a professional tax consultation service.

Common Allowable Tax Deductions in the Philippines

The BIR outlines specific business expenses that qualify as deductible under the National Internal Revenue Code. Below are some of the most common allowable deductions for businesses in the Philippines:

Operating Expenses: These include rent, utilities, office supplies, and repairs necessary for day-to-day operations. For instance, a retail store can deduct the cost of electricity or lease payments for its shop.
Employee-Related Costs: Salaries, wages, bonuses, and contributions to employee benefits like SSS, PhilHealth, and Pag-IBIG are deductible, provided they are properly documented.
Depreciation: The cost of capital assets like machinery, vehicles, or computers can be deducted over time through depreciation, reflecting their gradual wear and tear.
Professional Fees: Payments for services like accounting, legal advice, or consultancy directly related to the business are deductible.
Advertising and Marketing: Expenses for promotions, such as social media ads or print campaigns, can be claimed as long as they aim to generate business income.
Bad Debts: If a client fails to pay for goods or services, the uncollectible amount may be deductible, provided it was previously included in the business’s income.
Interest Expenses: Interest paid on business loans is deductible, but only the portion used for business purposes qualifies.

To claim these deductions, businesses must maintain proper documentation, such as receipts, invoices, and contracts, and ensure expenses are reasonable and business-related. The BIR may disallow deductions if records are incomplete or if expenses are deemed personal or excessive.

Our bookkeeping outsourcing service can help you keep accurate records and help your business get the best tax deductions.

How to Claim Tax Deductions in the Philippines

Filing tax deductions requires careful preparation to ensure compliance with BIR regulations. Here are the required steps:

Register Your Business with the BIR: Ensure your business is registered with the BIR and has a Taxpayer Identification Number (TIN). This is a prerequisite for filing taxes and claiming deductions.
Keep Accurate Records: Maintain detailed records of all business expenses, including receipts, invoices, and bank statements. Use accounting software or hire a bookkeeper to organize transactions.
Choose Your Tax Regime: Businesses in the Philippines can opt for either the Itemized Deduction method or the Optional Standard Deduction (OSD). The OSD allows a flat 40% deduction of gross income without needing to itemize expenses, which can be preferable for small businesses with low expenses. Itemized deductions require detailed documentation but may yield higher savings, especially for medium to large businesses.
File the Appropriate Tax Forms: For most businesses, the BIR Form 1701 (for sole proprietorships) or BIR Form 1702 (for partnerships and corporations) is used to report income and deductions. These forms are filed annually, with quarterly returns (BIR Form 2551Q or 2550Q) for certain taxes like VAT. You can find the forms on the BIR’s official website.
Submit on Time: Annual income tax returns are due by April 15 of the following year for individuals and partnerships, or the 15th day of the fourth month after the fiscal year for corporations. Quarterly returns have specific deadlines based on the business’s fiscal calendar. Don’t be late or you’ll face costly penalties.
Seek Professional Help: Getting assistance from a professional tax service provider ensures compliance and that you get the most savings from your tax deductions. We’ll help with audits or any BIR inquiries.

Final Thoughts

Understanding and leveraging tax deductions is a powerful tool for businesses in the Philippines. By reducing taxable income, deductions help businesses save money, reinvest in growth, and stay compliant with BIR regulations. Work with a tax consultation service to navigate the process smoothly and maximize your savings.

Ensure Your Business Stays Compliant with Our Expert Support

Navigating Philippine business regulations can be challenging. Beyond securing the necessary permits, proper accounting must be handled by a qualified professional. Unfortunately, failure to adhere to these strict regulations can lead to costly fines or even get your business suspended.

That’s where Triple i Consulting comes in. We’re among the best accounting outsourcing companies in the Philippines, offering bookkeeping, payroll, auditing, and tax consultation services. So let our experienced lawyers and accountants provide comprehensive support for your business, so you don’t have to stress over the paperwork.

You can find a list of our legal and accounting services here.