Calendar Year vs Fiscal Year: How to Change Your BIR Accounting Period Using Form 1905

A Philippine corporation changes its accounting period — from calendar year to fiscal year, fiscal to calendar, or one fiscal period to another — by filing BIR Form 1905 with its Revenue District Office (RDO) and completing the accounting-period-change section of the form. Individual taxpayers cannot make this change at all: only corporations and partnerships may elect a fiscal year under the National Internal Revenue Code (NIRC). This guide covers the basic rule, who qualifies, how Form 1905 handles the change, and the short-period return the transition triggers.

Calendar Year vs Fiscal Year: The Basic Rule #

Under NIRC Section 43, taxable income is generally computed based on the taxpayer’s annual accounting period, which is either a calendar year or a fiscal year. A calendar year always ends December 31. A fiscal year is any 12-month period ending on the last day of a month other than December — for example, a fiscal year running July 1 to June 30. The accounting period a taxpayer uses determines when its annual income tax return is due and which months fall inside each taxable year.

• Calendar year — always January 1 to December 31
• Fiscal year — any 12-month period ending on the last day of any month except December
• The choice of accounting period affects the due dates of quarterly and annual income tax returns, since these are computed relative to the close of the period, not a fixed calendar date

Who Can Elect a Fiscal Year #

Only corporations and partnerships may adopt a fiscal year as their accounting period; individual taxpayers, including self-employed professionals and sole proprietors, must use the calendar year without exception. This distinction under NIRC Section 43 means a freelancer or single proprietorship cannot switch to a fiscal year no matter how their business cycle runs, while a registered corporation has the flexibility to align its accounting period with its actual operating pattern.

• Individuals (employees, self-employed, mixed-income earners, sole proprietors) — calendar year only
• Corporations and partnerships — may use either calendar year or an elected fiscal year
• A newly formed corporation states its chosen accounting period at BIR registration; an existing corporation that wants to change it later must file BIR Form 1905

How to Change: BIR Form 1905, Section C #

A corporation changes its accounting period by filing BIR Form 1905 (Application for Registration Information Update/Correction/Cancellation) and completing the section covering accounting-period changes, which requires selecting the type of change and stating the new period’s start month and effectivity date. This is the same multi-purpose form used for RDO transfers and other registration updates — see BIR Form 1905: How to Update Your Registration Information or Transfer RDO for the form’s other uses.

When completing this section of BIR Form 1905, the taxpayer indicates:

1. Which of the three change types applies
2. The new accounting period’s starting month
3. The effectivity date of the change, in MM/DD/YYYY format

File the form with the RDO where the corporation is registered, and confirm current supporting-document requirements with that RDO before submitting, since documentary requirements can vary by transaction type.

The Short-Period Return You Can’t Skip (Worked Example) #

Changing an accounting period does not skip or merge any months of income — the stub period between the old year-end and the start of the new accounting period must still be reported on its own short-period return, filed and taxed as if it were a complete taxable year. This is a general, well-established mechanical consequence of switching periods: whatever months fall between the two year-ends need their own return before the new cycle begins.

Consider Sunrise Retail Corp., a Philippine subsidiary of a US parent company that reports on a July 1–June 30 fiscal year for group consolidation. Sunrise has been registered with the BIR on a calendar-year basis since incorporation. To align its local reporting with the parent’s group calendar, Sunrise’s controller decides to shift the company’s accounting period from calendar year to a fiscal year ending every June 30. In practice:

1. Sunrise files BIR Form 1905, checking “Calendar Year to Fiscal Year” in the accounting-period section.
2. The form specifies July as the new accounting period’s start month, with an effectivity date marking the first day of the new fiscal year.
3. Because Sunrise’s last complete calendar year closed December 31, the months from January 1 to June 30 of the transition year form a stub period that falls before the new fiscal year begins on July 1.
4. Sunrise must still file a short-period annual income tax return covering that January–June stub, even though it spans only six months rather than a full twelve — following the standard NIRC pattern of a return due on the 15th day of the fourth month after the close of a taxable period, applied here to the close of the short period rather than a full year.
5. Only after that short-period return is filed does Sunrise’s regular fiscal-year cycle (July 1–June 30) take effect going forward.

Skipping the short-period return is the most common misstep in this transition — the stub months are still taxable income and still require their own filing, separate from both the old calendar-year return and the first full fiscal-year return that follows.

Why Companies Change Their Accounting Period #

Corporations typically change their accounting period for one of two practical reasons: aligning with a foreign parent company’s group reporting calendar, or aligning with the business’s natural operating cycle. Neither reason changes the mechanics above — the same BIR Form 1905 filing and short-period return apply regardless of motive.

• Group reporting alignment — a Philippine subsidiary of a multinational often adopts the parent’s fiscal year so consolidated financial statements close on the same date across all group entities, simplifying consolidation and audit timelines.
• Business-cycle alignment — a company whose peak season falls around the calendar year-end (such as a retailer whose busiest months are November–January) may prefer a fiscal year-end outside that peak, so year-end inventory counts and closing procedures don’t collide with the busiest operating period.

Whichever accounting period a corporation settles on, keeping track of the resulting return due dates matters just as much as the change itself — see 2026 BIR Tax Filing Deadlines Calendar: Monthly, Quarterly, and Annual Returns for how quarterly and annual deadlines are computed once a fiscal year is in place.

Summary #

Individual taxpayers must use the calendar year; only corporations and partnerships may elect a fiscal year under NIRC Section 43. A corporation that wants to switch — calendar to fiscal, fiscal to fiscal, or fiscal back to calendar — files BIR Form 1905, completes the accounting-period-change section with the new period’s start month and effectivity date, and files with its RDO. The transition always produces a short-period return covering the stub months between the old and new year-ends, which is taxable and due on its own timeline even though it covers less than twelve months. Get that short-period filing right, and the new fiscal-year cycle proceeds cleanly from there.