Nowadays, many Gen Z and Millennials are launching their businesses with a digital-first mindset. Taking advantage of online stores, freelancing, content creation, and consultancy, among others, is a big leap, especially for startups. However, it is common that many still find tax compliance confusing and hard to comply with – from registration, which tax returns to file, where to file it, and how the new tax reforms affect their business and operations.
In this article, we will guide Gen Z and Millennials alike when it comes to the legal basis behind tax obligations, provide highlights from key laws tailored to younger entrepreneurs, and showcase practical steps on how online tax filing in the Philippines work for Gen Z and Millennial small business owners based in the Philippines.
The Philippine Tax Landscape
First, we dive into what sets the baseline for individual and business taxation principles. Together, the following laws shape the modern small business tax environment:
1. National Internal Revenue Code (NIRC) and TRAIN Law
The NIRC of 1997, as amended by Republic Act 10963 (TRAIN LAW), represents the core of taxation. TRAIN Law, in effect since January 1, 2018, primarily:
- Introduces lower graduated taxes for higher brackets;
- Exempts individual taxpayers who earn up to P250,000 annually based on income tax; and
- Expands the VAT coverage and imposes other indirect taxes.
2. The Ease of Paying Taxes (RA 11976)
The Ease of Paying Taxes (EoPT) Act was implemented last January 22, 2024, which classifies taxpayers based on their annual gross sales:
- Micro: < ₱3M
- Small: ₱3M–<₱20M
- Medium: ₱20M–<₱1B
- Large: ≥ ₱1B
For smaller classifications, Revenue Regulation No. 8-2024 has been created for returns and mitigated penalties.
Related Article: The Benefits of the Ease of Paying Taxes Act
Gen Z and Millennials FAQs
1. Who Must Register – and When
According to Section 236 (A) of the Tax Code, any person or business who earns a taxable income shall register with the BIR before starting operations, filing returns, or paying taxes with the appropriate Revenue District Officer:
(1) Within ten (10) days from date of employment, or
(2) On or before the commencement of business, or
(3) Before payment of any tax due, or
(4) Upon filing of a return, statement or declaration as required.
Registration includes obtaining a Tax Identification Number (TIN), Certificate of Registration (COR), Authority to Print (ATP) receipts, and barangay/city permits.
**Note that the registration must contain the taxpayer’s name, style, place of residence, business and other information as required by law.
Related Article: From Ledger to Digital: Navigating Revenue Regulations No. 15-2024 for Online Business Tax
2. Tax Scheme of Your Choosing
Tax laws have been lenient when it comes to tax schemes. Under the TRAIN Law structure:
- First ₱250,000, taxable income is 0%
- ₱250,001–400,000 → 20%
- ₱400,001–800,000 → more complex schedule up to 35%
- Includes the first ₱250,000 exemption for self-employed Gen Z/Millennials.
On the other hand, 8% Flat Income Tax is also an option, wherein:
- Available to non-VAT self-employed individuals earning ≤ ₱3M annually.
- Applies to gross receipts, in lieu of graduated income tax + 3% percentage tax
- Must elect during Q1 filing or initial registration—once per year
- Great for low-expense digital freelancers, though deduction-based models may pay less via graduated rates.
Businesses which earned ≥ ₱3M annual gross sales shall register for 12% Value Added Tax (VAT). Moreover, those under this threshold shall pay 3% percentage tax every quarter (from a temporary 1% rate in June 2023, now reverting to 3%).
Tax Responsibilities for Young Business Owners
1. VAT on Digital Services Act
Republic Act 12023 or VAT on Digital Services Act is a relatively new law, which imposes 12% tax on digital services (e-books, apps, online courses) by providers who earn ≥ ₱3M annually. Hence, if you are a fully remote Gen Z/Millennial who owns digital services included on the taxable list, you are required to comply.
Related Article: VAT on Digital Services in the Philippines
2. Freelancers, Influencers, or Content Creators
Classified as self-employed/business persons, they are also liable for income tax and either VAT or percentage tax. For instance, if an online content creator opts for 8% flat rate on gross income and avoids the 3% percentage tax, the online creator shall opt for the first quarter.
Non-compliance would result in penalties and possibly audits under the BIR’s intensified focus on digital income.
3. Withholding Tax for E-Marketplaces
Revenue Regulation No. 16-2023 introduces a 1% withholding tax on gross remittances that comes from e-marketplaces and other digital market platforms such as Lazada, Shoppee, or GCash. With this, seller shall ensure that they have the correct business registration and is reporting this accurately in tax filings.
4. Filing Obligations
Here is a quick guide on which e-BIR forms you should file, and the purpose of each:
| Frequency | Form | Applies to |
| Quarterly | 1701Q, 2551Q/2550Q/2550M | Income + percentage or VAT |
| Annual | 1701, 2551Q, 2550Q/2550M | Yearly wrap-up |
| Monthly (VAT)* | 2550M | Optional monthly VAT filing for cash flow management |
- BIR Form 1701: For self-employed individuals or sole proprietors.
- BIR Form 1701A: For virtual assistants, freelancers, self-employed professionals, independent contractors, and entrepreneurs, whose income is primarily from business or professional activities.
- BIR Form 1701Q: For quarterly income tax filing, applicable to all the above taxpayers.
- BIR Form 2551Q: For self-employed individuals who pay a percentage tax instead of VAT, filed quarterly.
- BIR Form 0605: Used for penalties or specific BIR fees.
How to Pay and Register BIR Tax Online
For online tax filing in the Philippines, you may visit BIR’s ePAY. It provides the link for electronic payment channels of AAB which taxpayers can access for their tax dues and liabilities. It accepts tax payments through the following options: online, debit/credit, prepaid cards, and mobile payments.
For an end-to-end process for taxpayer registration as well as registration information update, you may visit Online Registration and Update System (ORUS).
Benefits: Taxpayer Classification
Props to TRAIN and EoPT laws, the following have been achieved so far:
- Income exempts and startup-friendly tax scales;
- Easier tax filing for micro/small taxpayers through shorter 2-page Income Tax Return (ITR), reduced penalties and lower interest rates; and
- For SMEs, quarterly VAT returns are now possible.
Bookkeeping and Tax Tools
- As part of digital transformation, BIR now mandates electronic systems for books, receipts, and eBIRForms.
- To streamline registration and tax filings, platforms are readily available online such as BIR’s ORUS.
- Barcode recording, Digital POS, and cloud accounting systems are also gaining popularity among Gen Z and Millennial business owners.
Penalties to Avoid
It is given that if a business does not comply with the necessary requirements, a penalty is at risk. Here are the following scenarios and the penalties it imposes:
- Non-registration would lead to P20,000 fine + 25-50% surcharge + 20% annual interest
- Illegal books or receipts can lead to business closure or shutdown under the BIR’s “Oplan Kandado” Program
- Late filing penalties ranging from P1,000-25,000, with similar surcharges
Practical Tips for Starting a Small Business
- Early registration – even with modest income, it deserves a legitimate setup. Take advantage of the BIR tax online.
- Choose the correct tax structure for your business – learn how to evaluate flat vs. graduated income rates
- Classify BMBE if eligible – income tax preparation for assets ≤ ₱3M
- Track sales and your receipts – best practice is to do daily logs for auditing purposes
- Monitor thresholds – crossing the threshold of P3 Million in sales will trigger VAT and small-medium taxpayer classifications
- Use e-tools – to prepare for online tax filing in the Philippines, consider readily available software such as Xero, QuickBooks, or BIR systems to ease compliance
- Stay informed – as the legislation evolves, the rule of tax compliance continually changes. Consider hiring a tax expert to keep yourself on the loop and be abreast of updates, avoiding possible mishaps in the future.
The Gen Z/Millennial Era of Taxation
Gen Z and Millennial business owners — consider yourselves lucky, as we have the benefit of digital-ready tax ecosystems, clear and simplified tax schemes, and BIR tax online support tools, in aid of modern times. With this alignment, it ensures continuous growth while avoiding penalties, and helps strengthen the credibility of your business, which are essential for clients and investors alike.
By registering your business, tracking sales, choosing the right tax regime, and filing taxes on time, Gen Z and Millennial businesses leaders can thrive in the Philippine digital market.
Hey, Gen Z & Millennial Business Owners, Let’s Make Tax & Finance Easy!
We see you. You’re building something to be proud of. Whether it’s a passion project, a small online shop, or an IT startup company, it’s something that not only needs to be celebrated, but to be cultured and be fruitfully maintained. But let’s be honest, tax filing, bookkeeping, and BIR compliance can be a bit overwhelming at times, especially when you are focused on creating your own craft.
That’s where we come in. Our Manila Bookkeepers Team specializes in helping businesses make their tax compliance happen. With our expert tax service, we’ll handle the numbers — so you don’t have to.
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