8% Flat Tax (Individuals)

The 8% flat tax is an optional simplified income tax regime introduced by the TRAIN Law for self-employed individuals and professionals. Under this option, you pay 8% of all gross sales or receipts exceeding ₱250,000 annually — with no deductions for expenses and no separate percentage tax. The combination of income tax and percentage tax into one simplified rate makes bookkeeping significantly simpler.

The 8% option is available only to individuals (not corporations) whose gross annual sales or receipts do not exceed ₱8,000,000. It must be elected at the beginning of the year (indicated on the first quarterly return) and applies for the entire taxable year. Mixed income earners (those with both compensation and business income) can elect 8% only on their business income component.

In practice: Freelance graphic designer Kris Villanueva earns ₱900,000 in professional fees in 2025. Under 8% flat tax: Tax due = 8% × (₱900,000 − ₱250,000) = 8% × ₱650,000 = ₱52,000. Under graduated income tax, Kris would need to compute net taxable income after deductions, but if her deductions are minimal, the 8% rate might actually be higher — or the graduated rate might be more favorable if she has significant business expenses to deduct.

Why it matters: The 8% option eliminates percentage tax (saving 3% of gross receipts) and the need to track business deductions — but it only makes mathematical sense when your profit margin is high and your deductions are few. A rule of thumb: if your net profit is more than 73% of gross revenue, the 8% flat tax is likely favorable. If you have significant expenses (rent, salaries, supplies), the graduated rate with deductions may be lower.

The election for 8% flat tax must be made on or before the due date of the first quarterly return (May 15 for Q1). Failure to elect on time means you are on the graduated rate for that year.