The Philippines has globally computed income tax for its resident citizens. Like non-resident citizens and aliens, they are only liable to tax on income derived from sources in the Philippines even if they are not residents of the Philippines.
The tax paid on the income accruing from the business of aliens whether resident or not depends on the type of income it is that is, compensation income, income taxed at source or final tax income or any other income.
Fringe benefits tax (FBT)
Expenses borne by the employer in providing fringe benefits to managerial and supervisory staff are charged to FBT at a flat rate of 35%* of the grossed-up value of the aforesaid benefits. Employees who may prescribe and implement management policies that involve hiring, transferring, promoting, demoting, suspending, firing, recalling or assigning employees are on the managerial employees list. Supervisory employees are those who properly recommend such managerial actions if the exercise of authority on behalf of the employer is not mechanical or ministerial but involves the exercise of discretion. FBT is a terminal tax that is paid on a calendar quarterly basis by the employer and forms part of the fringe benefit expense that is tax deductible. Employee benefits subject to FBT are now excluded from the employee’s assessable income.
Social taxes
The maximum amount of social tax that can be paid by the foreign national employee for the tax year 2024 is PHP 46,200. Social taxes are payments made to the SSS and the PHIC.
Employees of foreign countries now working in the Philippines may no longer pay their HDMF otherwise known as the Philippines Social Security System.
Some of the features of the pension scheme include; The employers are expected to match the employees’ contributions.
Standard rates applicable to income that is subjected to final tax
On income subject to final tax (mostly passive investment income) for both resident and non-resident aliens carrying on trade or business in the Philippines. The maximum rate is 20%. For non-resident aliens who do not have trade or business within the territory of the Philippines then the rate of tax is a flat twenty-five percent. For further information, go to Income Determination and look at Capital gains and investment income.
From the tax rates for business income, it is pretty clear that various types of businesses are subjected to different tax implications.
The graduated income tax rates above also apply to an individual, citizen or a resident alien, who earns income through business or practice of a profession being self-employed.
However, an individual who has gross sales/receipts and other non-operating income not exceeding the VAT threshold (which is currently pegged at PHP 3 million) may opt to be taxed either at However. An individual who has gross sales/receipts and other non-operating income not exceeding the VAT threshold (which is currently pegged at PHP 3 million) may opt to be taxed either at:
Eight percent (8%) on gross sales/receipts and other non-operating income over Two hundred fifty thousand (Php250,000) instead of the graduated income tax rates and percentage tax (business tax).
the graduated tax rates.
Business income which is taxed under a graduated scale shall also be liable for business tax, that is 12% VAT or 3% percentage tax whichever is applicable.
Value-added tax (VAT)
The services that involve entertainers, musical, radio, movie and television and stage directors; and professional athletes; and services of customs, real estate, stock, immigration and commercial brokers are subject to 12% VAT. The VAT is based on the gross sales that is the contract price which includes compensation, service fee, rental or royalty. The amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable period/quarter for the services rendered or to be rendered to another person but excluding VAT.
Applicable only if the person is exempt from VAT. In case the enterprise is VAT registered, graduated rates shall apply not depending on the gross sales/receipts.
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