What Is the 8% Income Tax Rate for Self-Employed Individuals?
The 8% income tax rate is a flat tax under NIRC Section 24(A)(2)(b), as amended by the TRAIN Law (RA No. 10963), for qualifying self-employed individuals and professionals. It applies to gross sales or receipts and other non-operating income in excess of ₱250,000 and replaces both graduated income tax rates and the percentage tax under NIRC Section 116, as implemented by RR No. 8-2018 and RMO No. 23-2018 (May 21, 2018).
Track Your Gross Receipts for the 8% Option FREE →How does the 8% income tax rate work? #
The 8% rate taxes a simplified gross base instead of net income after deductions. For pure self-employed individuals and professionals, the tax is 8% of gross sales/receipts and other non-operating income in excess of ₱250,000 for the year, provided annual gross does not exceed ₱3,000,000 and the option was validly elected under RMO No. 23-2018.
That structure is intentional: the ₱250,000 reduction for pure self-employed earners mirrors the first bracket of the graduated table, while the flat 8% replaces both income tax under the graduated schedule and the Section 116 percentage tax that non-VAT businesses would otherwise pay. Because the tax sits on gross receipts, Optional Standard Deduction (OSD) and itemized deductions do not apply once the 8% option is elected — a point RR No. 8-2018 and RMO No. 23-2018 reinforce by treating the election as a gross-based regime, not a net-income regime. For how OSD works when you stay on graduated rates instead, see Optional Standard Deduction vs Itemized Deductions.
Who qualifies for the 8% option? #
Eligibility turns on registration status, income type, and the annual VAT threshold — not on job title. Under RMO No. 23-2018, the taxpayer must earn from self-employment or a profession, stay at or below ₱3,000,000 in gross sales/receipts and other non-operating income, be non-VAT (Section 116 only or otherwise exempt), and have signified the 8% election for that year.
Qualifies if all of the following are true:
- Individual earning from self-employment and/or practice of a profession (including mixed income earners)
- Gross sales/receipts and other non-operating income do not exceed ₱3,000,000 during the taxable year
- Registered and subject only to percentage tax under Section 116, or otherwise exempt from VAT or other percentage taxes
- Has signified the intention to elect the 8% rate for that year
Disqualified under the same RMO: purely compensation earners; VAT-registered taxpayers (regardless of sales level); taxpayers whose gross exceeds ₱3,000,000; partners in a General Professional Partnership (GPP); taxpayers subject to other percentage taxes under Title V other than Section 116; and individuals enjoying income tax exemption (for example, registered BMBEs cannot stack BMBE income-tax exemption with the 8% option).
Mixed income earners may still elect 8% on the business or professional portion — but the ₱250,000 reduction does not apply to that business gross. That rule is covered separately in 8% Income Tax for Mixed Income Earners.
Worked example: pure self-employed consultant #
A freelance systems analyst with no compensation income illustrates how the 8% option ignores documented expenses and taxes only the gross excess over ₱250,000. The same election also substitutes for Section 116 percentage tax on those receipts for the year under NIRC Section 24(A)(2)(b) and RMO No. 23-2018.
| Item | Amount |
|---|---|
| Gross professional receipts | ₱1,100,000 |
| Other non-operating income | ₱0 |
| Documented business expenses | ₱180,000 (ignored under 8%) |
| Excess over ₱250,000 | ₱1,100,000 − ₱250,000 = ₱850,000 |
| 8% income tax | 8% × ₱850,000 = ₱68,000 |
Under the 8% option, the ₱180,000 of expenses does not reduce the tax base — the tax is on gross excess, not net income. The same election also substitutes for Section 116 percentage tax on those receipts, so the consultant does not separately compute 3% percentage tax on the same gross for that year. For a side-by-side decision against graduated rates, see 8% Income Tax Rate vs Graduated Rates.
How do you elect, and how long does it last? #
The 8% option is year-specific and irrevocable for that year. Individuals default to graduated rates each January; signify again on BIR Form 1901 and/or the first BIR Form 1701Q (new) or via BIR Form 1905 plus the first quarterly return (existing). See How to Elect the 8% Income Tax Rate.
Once elected, the taxpayer generally must file quarterly and annual income tax returns, maintain books of accounts, and issue receipts or invoices — but is not required to file the quarterly percentage tax return for Section 116 while the election remains valid. If cumulative gross later exceeds ₱3,000,000 mid-year, RMO No. 23-2018 switches the taxpayer to graduated rates and VAT prospectively; see What Happens If You Exceed ₱3 Million Under the 8% Income Tax Option?.
Frequently asked questions #
What is the 8% income tax rate under Philippine tax law? #
The 8% income tax rate is a flat tax under NIRC Section 24(A)(2)(b), as amended by the TRAIN Law (RA No. 10963), that qualifying self-employed individuals and professionals may elect on gross sales or receipts and other non-operating income in excess of ₱250,000, in lieu of both graduated income tax rates and the percentage tax under Section 116.
Who can elect the 8% income tax rate? #
Self-employed individuals, professionals, and mixed income earners whose gross sales/receipts and other non-operating income do not exceed the ₱3,000,000 VAT threshold may elect the 8% rate if they are not VAT-registered, are subject only to Section 116 percentage tax (or are otherwise VAT-exempt), and are not partners in a General Professional Partnership.
Is the 8% tax computed on net income or gross receipts? #
The 8% tax is computed on gross sales or receipts and other non-operating income — for pure self-employed individuals, only the amount in excess of ₱250,000 — not on net income after business expenses. Electors cannot claim the Optional Standard Deduction or itemized deductions against that gross base.
Does electing 8% replace percentage tax under Section 116? #
Yes. Under NIRC Section 24(A)(2)(b) and RMO No. 23-2018, a valid 8% election is made in lieu of both the graduated income tax rates and the percentage tax under Section 116, so a qualified elector generally files BIR Form 1701Q instead of BIR Form 2551Q for that Section 116 liability.
Can VAT-registered taxpayers use the 8% income tax rate? #
No. RMO No. 23-2018 disqualifies VAT-registered taxpayers from the 8% option regardless of how low their gross sales or receipts are. Partners in a General Professional Partnership and taxpayers subject to percentage taxes other than Section 116 are likewise disqualified.
Summary #
The 8% income tax rate is a TRAIN Law option that lets qualifying self-employed individuals pay a flat 8% on a gross-receipts base — with a ₱250,000 excess rule for pure self-employed earners — instead of graduated rates plus Section 116 percentage tax. Confirm eligibility under RMO No. 23-2018, elect it properly each year, and remember that OSD and itemized deductions are not available once you are on the 8% gross regime.