Philippine Tax Compliance 101: What Every Business Needs to Know

• With heightened scrutiny, compliance goes beyond legal formality—it’s a strategic move to protect your business, avoid penalties, and build credibility.
• Businesses in the Philippines must navigate various national and local taxes, including income tax, VAT, percentage tax, withholding tax, and municipal fees—with clear monthly, quarterly, and annual deadlines.
• Ensure accurate reporting and timely filing by maintaining proper records and partnering with professionals like Manila Bookkeepers for hassle-free tax compliance.

In 2023, the Bureau of Internal Revenue (BIR) ramped up its tax enforcement efforts, collecting a record ₱2.34 trillion by November—an 8.6% increase from the previous year. Through intensified programs like Run After Fake Transactions (RAFT), Oplan Kandado, and a sweeping digital transformation initiative, the BIR is holding businesses to higher standards of accountability and transparency.

Now more than ever, tax compliance isn’t just a legal formality—it’s a strategic necessity for business to build credibility and contribute to national development. In this guide, we’ll break down the key rules and regulations around tax compliance in the Philippines—from the types of business taxes and filing schedules to best practices for staying compliant and avoiding costly penalties.

What is Tax Compliance?

Tax compliance refers to the process by which businesses and individuals ensure they follow the tax laws and regulations set by the government. It involves accurate reporting of income, expenses, and other financial data to the BIR and paying the appropriate taxes promptly. ​

Maintaining tax compliance is crucial for businesses to avoid legal repercussions, financial penalties, and reputational damage. Non-compliance can lead to audits, fines, and in severe cases, the suspension of business operations.​

Related Article: How Can Your Company Achieve Tax Compliance?

Types of Business Taxes in the Philippines

In the Philippines, businesses are subject to various types of taxes, depending on their structure, size, and activities. These taxes can be categorized into national taxes and local taxes. 

Here’s a comprehensive list of the types of Philippine business taxes:

National Taxes (Collected by the BIR)

1. Income Tax

• Corporate Income Tax – Paid by corporations on net taxable income.
  • Regular rate: 25% (20% for corporations with net taxable income not over ₱5 million and total assets not over ₱100 million)
• Minimum Corporate Income Tax (MCIT) – 2% of gross income (applies if higher than regular income tax).
• Improperly Accumulated Earnings Tax – 10% tax on earnings accumulated instead of being distributed to avoid tax.
• Fringe Benefits Tax – 35% tax on benefits given to managerial employees (shouldered by the employer).
• Final Withholding Tax on Passive Income – Varies by income type (e.g., 20% on interest income).

2. Value-Added Tax (VAT)

• 12% VAT on the sale of goods, properties, and services.
• Optional for businesses below the ₱3 million threshold (they can opt to register for VAT).

3. Percentage Tax (For non-VAT registered businesses)

• Businesses not registered for VAT and with annual gross sales or receipts not exceeding ₱3 million are subject to a 3% tax on their gross sales or receipts. ​

4. Excise Tax

• Levied on specific goods like alcohol, tobacco, petroleum, sweetened beverages, automobiles, etc.

5. Withholding Taxes

• Expanded Withholding Tax (EWT) – Applied to certain income payments such as professional fees, rentals, commissions. For the full list of EWT, click here.
• Withholding Tax on Compensation – Tax withheld from employee salaries based on BIR tax tables. To compute your employees’ withholding tax, visit the BIR’s Withholding Tax Calculator.
• Final Withholding Tax – Applied to passive income like royalties, dividends, interests, and for non-residents.

6. Capital Gains Tax (CGT)

• If the real estate is classified as a capital asset, the transaction is subject to a 6% CGT based on the gross selling price or the current fair market value—whichever is higher.

7. Documentary Stamp Tax (DST)

• Imposed on documents like loan agreements, leases, shares of stock, insurance policies, etc. For example, if real estate is classified as a capital asset, it is subject to a 1.5% Documentary Stamp Tax (DST) based on the actual selling price.

Local Taxes (Collected by LGUs)

1. Business Permit / Mayor’s Permit Fees

• Annual fee paid to operate legally within a locality. Fees typically range from ₱1,000 to ₱5,000, depending on factors like business location, type, and size.

2. Local Business Tax (LBT)

• Tax based on gross sales/receipts; rates vary per type of business and municipality/city.

3. Real Property Tax (RPT)

• Imposed on real properties (land, buildings, machinery). Usually 1% to 2% of assessed value annually.

4. Community Tax Certificate (CTC) / Cedula

• Required for business registration and legal transactions.

5. Other Local Fees and Charges

• Sanitary Inspection Fee
• Garbage Fee
• Fire Inspection Fee
• Signboard/Signage Fee
• Environmental Fee
• Barangay Clearance Fee

Key Tax Filing Deadlines and Payment Schedules

Adhering to tax filing deadlines is essential to avoid penalties. Key deadlines include:

1. Monthly Filings

• VAT Declarations (BIR Form 2550M): Due on the 20th day of the following month.​
• Withholding Tax on Compensation (BIR Form 1601-C): Due on the 10th day of the following month.

2. Quarterly Filings

• Quarterly Income Tax Returns:
  • BIR Form No. 1701Q – Quarterly Income Tax Return for Individuals, Estates, and Trusts:
    • 1st Quarter: On or before May 15 of the current taxable year
    • 2nd Quarter: On or before August 15 of the current taxable year
    • 3rd Quarter: On or before November 15 of the current taxable year
  • BIR Form No. 1702Q – Quarterly Income Tax Return for Corporations, Partnerships, and Other Non-Individual Taxpayers:
    • Must be filed within 60 days following the close of each of the first three quarters of the taxable year, whether using a calendar or fiscal year.
• Quarterly VAT Returns (BIR Form 2550Q): Due on the 25th day of the month following the close of the quarter.​

3. Annual Filings

• Annual Income Tax Returns: Due on or before April 15 of the following year. ​
• Audited Financial Statements (AFS): Corporations must submit their AFS to the BIR and the Securities and Exchange Commission (SEC) by April 15.

How to Ensure Full Compliance with Philippine Tax Laws

Staying compliant with Philippine tax laws is essential for maintaining smooth business operations and avoiding costly penalties. Here are key steps businesses should take:

1. Maintain Accurate Records

Keep comprehensive and organized records of all financial transactions—including income, expenses, assets, and liabilities. Proper documentation ensures that you have accurate tax reporting and serves as crucial evidence during audits or assessments.

2. Submit Tax Reports on Time

Strictly follow all filing deadlines for monthly, quarterly, and annual tax returns. Late submissions can lead to penalties and interest charges. Use tax calendars, digital reminders, or accounting software to stay on schedule and avoid missing due dates.

3. Consult Tax Professionals

Work with licensed accountants or tax consultants to make sure you are fully compliant with evolving tax regulations. These professionals (like Manila Bookkeepers) can provide expert guidance, minimize errors, and help identify legitimate tax-saving opportunities your business may qualify for.

By proactively following these best practices, businesses can strengthen their compliance posture, avoid legal setbacks, and contribute to the country’s broader economic development.

Don’t Let Tax Compliance Catch You Off Guard — Partner with the Experts!

With the BIR intensifying its tax enforcement and collection efforts, compliance is no longer just about ticking boxes. It’s about protecting your business, avoiding costly penalties, and staying one step ahead of regulatory changes.

Whether you’re a startup, SME, or a growing enterprise, Manila Bookkeepers is here to help you navigate the complexities of Philippine tax laws with ease and confidence. From accurate recordkeeping to on-time tax filings and professional advisory, we’ve got your back.

Ready to simplify your tax compliance?

Contact Manila Bookkeepers today and let our team of experts help you stay compliant, stress-free, and focused on growing your business.