Philippines / Tax obligations / VAT or percentage tax

VAT or percentage tax

Two thresholds decide what a small Philippine business registers for and files every quarter. Getting the band wrong at registration is expensive to correct later.

Above ₱3,000,000 of gross sales you are a VAT taxpayer at 12%. Below it you are a micro taxpayer, and you pay either the 3% percentage tax or elect the 8% income tax rate on gross sales in lieu of graduated rates and percentage tax. The election is made at registration and again each year.

What the government charges

Item	Amount
VAT rate On gross sales, above the threshold	12%
Percentage tax On gross sales, below the threshold	3%
8% income tax option On gross sales in lieu of graduated rates, available below the threshold	8%
VAT threshold Gross sales for the taxable year	₱3,000,000

The ₱3,000,000 threshold is also the line that separates micro taxpayers from small ones under RR 8-2024, which is why it decides the e-invoicing exemption too.

Who needs this

Every business registering with the BIR, which must pick a tax type at registration.
Businesses crossing the threshold mid-year, which triggers a VAT registration.

Who does not

Businesses in a specifically exempt activity, which have their own rules.

How it is done

Estimate gross sales honestlyThe band is set on gross sales, not profit. Under-declaring to stay below the line is the most expensive shortcut available.
Elect at registrationThe 8% option is chosen in the registration itself and cannot be added later for the same year.
Watch the crossingA business that passes ₱3,000,000 becomes VAT-registered, with a new set of invoices and filings.
File quarterlyThe quarterly return is where the band actually bites. Late filing is penalised by the return, not by the year.

Deadline and what happens if you miss it

The VAT registration takes effect from the month following the threshold crossing, and the quarterly returns run on the BIR calendar. Missing a quarter compounds: each return carries its own compromise penalty.

Why files get refused at the counter

Registering as a percentage taxpayer while invoicing with VAT.
Electing the 8% rate after the first quarterly return of the year.
Exceeding the threshold and continuing to issue non-VAT invoices.

Who does what

You

Give an honest first-year sales estimate and the invoicing model.

LPP

Set the band at registration, diary the threshold, and flag the crossing before the invoices change.

Accredited partner

Files the registration and the quarterly returns.

Have this filed without the guesswork

Send the file to us. We confirm the current fee with the agency, prepare the documents, and tell you in writing what is missing before anything is submitted.

Start this case See our fees

Sources

BIR, registration and update system (tax type registration): https://orus.bir.gov.ph/faqs
RR No. 26-2025, taxpayer bands: https://bir-cdn.bir.gov.ph/BIR/pdf/RR%20No.%2026-2025.pdf

Last verified against the issuing agency on 2026-10-24. If an agency changes a fee or a deadline after that date, this page is out of date and we correct it before quoting.