The government collects tax from your earnings to pay for public services provided. These deductions are usually made automatically by your employer.

Income Tax

When living and working in the Philippines, you will pay Income Tax. There are different rates of Income Tax depending on how much you earn in one year. Not all income is taxable and you're only taxed on "taxable income" above a certain level.

Taxable income includes:

• Earnings from employment
• Earnings from self-employment
• Gains derived from dealings in property
• Interest
• Rent
• Pensions
• Royalties, prizes and winnings
• Dividends
• Annuities

Non-taxable income includes:

• Life insurance
• Amount received by insured as return of premium
• Gifts
• Compensation for injuries or sickness
• Other benefits

For more details, you can go to this page of the Bureau of Internal Revenue (BIR) website.

Exemptions

There are a number of exemptions that can reduce your tax bill:

• For single individual or married individual judicially decreed as legally separated with no qualified dependents: PHP 50,000
• For head of family: PHP 50,000
• For each married individual: PHP 50,000

An additional exemption of PHP 25,000 can be claimed for each qualified dependent but only up to four qualified dependents. This additional exemption can be claimed by:

• The husband who is deemed the head of the family unless he explicitly waives his right in favor of his wife
• The spouse who has custody of the child or children in case of legally separated spouses
• Individuals considered as the head of the family supporting qualified dependents

Tax Rates

Tax rates range from 5% to 32% depending on the amount of net taxable income. For details on the rate corresponding to each net taxable income range, you can refer to the table on this page.

Expats

Expats will need to register with the nearest BIR office. Many countries have reciprocal agreements with the Philippines to avoid double taxation. To check if your country has an agreement with the Philippines, go to Question 22 and 23 of the BIR FAQ page.

Reporting

Income tax is collected in different ways, depending on the type of income and whether you're employed or self-employed:

• If you're an employee, your employer will deduct or withhold income tax from salary payments to you. Amounts withheld are treated as advance payments of tax due. They are refundable to the extent they exceed tax as determined on tax returns.
• If you're self-employed, you'll be responsible for filling in the tax return form and paying your own tax.

Refunds

A tax refund for employees is the excess of tax withheld over the tax due on their annual gross compensation income. The employer is responsible for computing any tax refund and paying it out to the employee.

VAT

VAT is charged on most goods and services such as food and entertainment. It is included in the marked price of items. As of 2016, VAT is 12 percent.

Certain goods and services are exempt from VAT. More information can be found here.

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