Taxes in the Philippines: A Guide for Local and Foreign Businesses

January 23, 2026

Understanding taxes in the Philippines is essential for local entrepreneurs and foreign investors alike, as the tax system encompasses a wide range of national taxes administered by the Bureau of Internal Revenue (BIR) and local taxes imposed by cities and municipalities (LGUs).

These include corporate income tax (CIT) under the CREATE Act, value‑added tax (VAT), excise tax, documentary stamp tax (DST), local business tax (LBT), real property tax (RPT), and various withholding taxes, each with specific rates, filing deadlines, exemptions, and penalties for non‑compliance. Compliance demands monthly, quarterly, and annual filings—even for businesses with minimal or zero transactions—making professional support essential to avoid fines, interest, and audit complications.

Corporate Income Tax (CIT) Under CREATE Act

Corporate income tax serves as the primary business tax, fundamentally altered by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

Domestic corporations (incorporated in the Philippines) and resident foreign corporations (RFCs, like branches) pay 25% CIT on taxable income derived from worldwide sources, or the 1% minimum corporate income tax (MCIT) on gross income if higher. Non‑resident foreign corporations (NRFCs) face 25% CIT on Philippine‑sourced gross income without deductions, while regional operating headquarters (ROHQs) also pay 25% (increased from 10% pre‑CREATE).

Small domestic corporations with net taxable income ≤ PHP 5 million and total assets ≤ PHP 100 million qualify for a preferential 20% CIT rate, with MCIT suspension available under certain conditions. Domestic entities tax worldwide income; foreign corporations tax only Philippine sources.

Annual income tax returns (1701 for individuals/sole proprietors, 1702 for corporations/partnerships) are due April 15; quarterly returns (1701Q/1702Q) are due the 15th of May, August, and November.

Value-Added Tax (VAT) and Percentage Tax

VAT at 12% is the main indirect tax on most sales of goods, properties, services, and leases.

Businesses with annual gross sales ≤ PHP 3 million are exempt from VAT and instead pay 3% tax on gross receipts. CREATE exemptions include UNESCO‑listed educational materials, COVID‑19 drugs/vaccines/devices, PPE raw materials, and prescription medicines for specific diseases.

Monthly VAT returns (Form 2550M) due 20th of the following month; quarterly (2550Q) due 25th after quarter‑end. Percentage tax returns follow similar schedules.

Excise Tax on Specific Goods

Excise taxes target luxury goods, sin products, and environmentally sensitive items under the TRAIN Law framework.

Alcohol: PHP 28.15 per proof liter (fermented liquor) to PHP 61.60 per proof liter (spirits).
Tobacco products: PHP 54 per pack (20 sticks) for cigarettes; higher for premium brands.
Petroleum products: PHP 2.50 per liter (lubricants) to PHP 10 per liter (diesel).
Automobiles: PHP 4 million to PHP 6 million based on engine displacement and vehicle type.
Sweetened beverages: PHP 12 per liter of sugar content.

Payment must occur before goods leave production facilities or upon import, with detailed schedules published in BIR revenue issuances.

Documentary Stamp Tax (DST)

DST imposes fixed taxes on formal documents evidencing specific transactions.

Loan agreements: PHP 1.50 per PHP 200 of principal (doubled from PHP 1.00 under TRAIN).
Share certificates: PHP 2.00 per PHP 200 of par value (doubled from PHP 1.00).
Property sales: PHP 1.50 per PHP 200 of consideration or fair market value.
Insurance policies: PHP 0.50 per PHP 200 of premium.
Bills of exchange/promissory notes: PHP 0.60 per PHP 200 of the amount.

DST returns (Form 2000) are due within 5 days after the month-end, with penalties for late payment.

Local Business Tax (LBT)

LGUs levy LBT based on gross sales/receipts from the previous calendar year.

Rate cap: Maximum 3% of gross receipts, varying by municipality (1-3%).
Graduated schedules: Many LGUs use tiered rates based on gross sales volume.
Payment options: Annual by January 20, or quarterly (20th of the first month of each quarter).
Exemptions: BOI/PEZA pioneers (4-6 years), cooperatives, SEZ enterprises.
Non-registered income: May still be taxable if conducted within the LGU jurisdiction.

LBT requires a BIR registration certificate, audited financials, and prior year receipts computation.

Real Property Tax (RPT) and Other Local Taxes

RPT taxes real property used in business operations.

Metro Manila: Up to 2% of assessed value.
Provinces: Up to 1% of assessed value.
Payment schedule: Annually by March 31 or quarterly installments.
Early payment discounts: 10-25% depending on timing.
Other local taxes: Franchise tax, amusement tax, advertising tax, and community tax.

Property tax declarations must be filed annually; idle land surcharges apply for undeveloped properties.

Withholding Taxes Overview

Withholding taxes apply to specific payments.

Final withholding on passive income (interest 20%, dividends 10% domestic/15% foreign, royalties 10‑20%). Creditable withholding on compensation (0‑35%), professional fees (1‑10%), and rentals (5%). Quarterly filings (1601‑EQ for creditable, 1601‑FR for final).

Tax Filing Deadlines Summary

Deadlines are non‑negotiable and vary by tax type.

Income Tax:

Annual ITR (1701/1702): April 15.
Quarterly (1701Q/1702Q): 15th May, Aug, Nov.

VAT/Percentage:

Monthly (2550M/2551M): 20th next month.
Quarterly (2550Q/2551Q): 25th after quarter.

DST (2000): 5th next month.
Withholding: Quarterly 10th/15th.
LBT: Jan 20 annually or quarterly.
RPT: March 31 annually.

Differences for Local versus Foreign Businesses

Tax treatment varies significantly between local (domestic) and foreign business entities based on incorporation status and income sourcing rules.

Domestic corporations: Tax worldwide income at 20-25% CIT; eligible for small corporation rate (≤PHP 5M income, ≤PHP 100M assets).
Resident foreign corporations (RFCs): Branches pay 25% CIT on Philippine-sourced income only; subject to branch profit remittance tax (15%).
Non-resident foreign corporations (NRFCs): 25% final tax on Philippine gross income without deductions.
ROHQs/Regional Headquarters: 25% CIT on qualifying affiliate services (up from 10% pre-CREATE).
Incentivized entities: PEZA/BOI firms get 5% gross income tax or income tax holiday (4-17 years) but face stricter compliance.

Foreign entities face additional withholding taxes on service fees and stricter substance requirements under BEPS-aligned rules.

Penalties For Non-Compliance

Non-compliance with Philippine tax obligations triggers escalating financial and criminal penalties.

Late filing (no tax due): PHP 1,000 fixed penalty.
Late filing (tax due): 25% surcharge + 12%/year interest + PHP 3,000-25,000 compromise penalty.
Non-filing: 50% surcharge + 25% failure-to-pay penalty + criminal liability (fines PHP 10,000+, imprisonment).
LGU penalties (LBT/RPT): 25% surcharge + 2%/month interest; property distress warrants possible.
Repeated violations: License suspension, blacklisting from incentives, and criminal prosecution under NIRC Section 255.

Penalties compound monthly, making early compliance correction critical to avoid exponential costs.

Final Insights

Taxes in the Philippines encompass a comprehensive system of national taxes administered by the BIR—including corporate income tax (20-25% under CREATE), VAT (12%), excise taxes on specific goods, documentary stamp tax, and withholding taxes—alongside local government taxes like business tax (up to 3%) and real property tax (1-2%). Local and foreign businesses must maintain strict compliance across monthly, quarterly, and annual filing deadlines, even during low-activity periods, with exemptions available under incentive programs like PEZA and BOI, but requiring rigorous documentation and performance standards.

Non-compliance carries severe consequences, including surcharges (25%), interest (12-24% annually), compromise penalties (PHP 1,000-25,000), and potential criminal liability, making proactive tax management essential for sustainable operations.