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Posted November 17, 2019

Self Employed Rules


Self Employed Rules

  1. Self-employed with option to use 8%

    RA 10963 introduced the 8% GIT in lieu of both Income and percentage tax for small and medium self employed as follows : 

  • Non-Vat registered (Percentage taxpayers under Sec 116) with GS/GR/NOI is P3M or less ;
  • Non-VAT registered (Exempt from VAT and exempt from Percentage Tax under Sec 109) if GS/GR/NOI is P3M or less

2.Self Employed Graduated, No other Option

  • VAT registered regardless of GS/GR/NOI
  • Non-VAT registered if GS/GR/NOI is more than P3M
  • Other percentage taxpayers regardless of GS/GR- graduated except Section 116
  • Partners of a General Professional partnership (GPP)
  • BMBE and others with exemptions regardless of GS/GR.


3. Others

  • The availment of the 8% Income Tax rate option is done every taxable year
  • At the beginning of each taxable year, all individuals are subjected to graduated Income Tax rates
  • Self employed individuals who opted to avail of the 8% ITR is effective only for the current taxable year.
  • Self employed individuals shall signify the intention to elect the 8% ITR by filing form 1901 or 1905, as the case may be.

4. For new Business Registrant

  • Upon registration using BIR form no. 1901
  • On the initial quarter return (BIR form no. 2551Q and/or 1701Q) of the taxable year after the commencement of a new business/practice of profession.


5. For existing Business Individual Taxpayers

  • Filing of BIR form 1905 (Application for Registration Information Update) at the beginning of the taxable year, to end-date the form type of quarterly percentage tax. Provided that an option to avail the 8% ITR shall be selected in filing. 
  • 1st Quarterly percentage tax Return 
  • 1st Quarterly Income Tax Return. Otherwise, th graduated income tax rates shall apply. RMO 23-2018


6. Formula for Purely Self-employed P3M or < Opted for 8%

  • Gross Sales /Receipts
  • less : 250,000.00
  • Net Amount Taxable
  • Multiply by 8%
  • Equals Tax Due
  • Less l Creditable withholding tax if any
  • Balance - Payable  or Refundable


7. Formula for Purely Self-employed P3M or < Opted for Graduated

  • Gross Sales /Receipts
  • Less : Cost of Sales / Service
  • Gross Income
  • Less : Allowable Deductions
  • Equals : Net Taxable Income
  • Multiply by applicable rate (graduated)
  • Equals Tax Due
  • Less : Creditable withholding tax if any
  • Balance - Payable  or Refundable

*P250,000 at 0% is already considered in the sched


8. Formula for purely Self-employed > P3M No option

  • Gross Sales /Receipts
  • Less : Cost of Sales / Service
  • Gross Income
  • Less : Allowable Deductions
  • Equals : Net Taxable Income
  • Multiply by applicable rate (graduated)
  • Equals Tax Due
  • Less : Creditable withholding tax if any
  • Balance - Payable  or Refundable

*P250,000 at 0% is already considered in the sched




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