Are you a self-employed earning income purely from self-employment or the practice of a profession? Here the facts that you should know before filing your professional tax. This article will discuss things you should know about the train tax law in the Philippines. You will see how you can apply the new income tax of 8% for the practice of a profession. For more details, visits BIR Homepage!
What is the Individual Income Tax Train Tax Law 2019?
Any individual earning income from self-employment/business and or practice of profession whose gross income/sales revenues and other non-operating income does not exceed the 3,000,000 VAT threshold shall have the following options:
- First, graduated income tax rates
- or 8% tax on gross receipts/sales and other non-operating income more than 250 000 but not exceeding the VAT threshold.
What is the New Individual Tax Rate in the Philippines?
The 8% Income tax rate is not automatic to any self-employed; they must meet the following criteria:
- Individuals whose gross receipts/sales, including non-operating income, should not exceed 3,000,000 VAT thresholds during the taxable year.
- A taxpayer earning exclusively from self-employment or practice of a profession,
- Must indicate the intention to opt for an 8% income tax rate upon registration or during the initial quarter return of the taxable year after the start of your business.
- Must be registered and subject to percentage tax and exempt from VAT (Value Added Tax)
Disqualified to Opt to 8%
Not all individuals can avail of this 8% income tax rate for the practice of a profession. The following individuals are disqualified from using the tax rate for exercise or work or self-employed because either:
- Tax-exempt individuals
- VAT registered individuals regardless as to the annual gross sales/receipts
- Under Employer-employee relationship
- Whose gross receipts/sales and other non-operating income exceed the VAT threshold of 3,000,000.
- Partners of a GPP (General Professional Partnership)
- Subject to Other Percentage Taxes
Professional Tax Base for 8% Tax Rate
The taxable income of self-employed or professional practice shall be based on the gross sales/receipts and other non-operating income. The tax rate is 8% more than 250 000.
Self-employed or professional individuals can reduce 250 000 from the gross sales/receipts as long as their earnings are purely from the practice of profession or business.
The mixed-income earner cannot avail of the reduction of 250 000. In computing, the taxable compensation income is a net of 250,000 as not taxable income. You cannot claim one deduction for two tax returns.
For filing quarterly individual tax returns, practicing their profession cannot allocate the 250 000 into four quarters. The 250 000 deductions were considered to design the revised quarterly income tax rate returns, which reflect the total quarterly computation.
Percentage Tax of 3%
Any individual who will meet the qualification to opt 8% income tax rate will not file and pay the 3% tax rate. The 8% tax rate is instead of the income tax rates and the percentage tax rate. Read more to find out the comparison of using 8% and normal income tax rates.
Is an Individual under a contract of Service or Job Order Arrangement self-employed? Well, any individual who is under the contract or job order arrangement is self-employed. They are subject to the applicable withholding taxes depending on their employer.
Suppose You shall withhold individual works in a public or government sector, both income and the applicable business taxes. However, if the annual gross receipts are less than 250, 000 it is exempted from withholding tax upon submitting a Sworn Declaration of Gross Receipts/Sales.
However, if the income is from a private entity, shall withhold only the income tax since the individual shall pay the corresponding business tax.
In addition, if the Job Order personnel received only 6 000 or less per month from his employer. It shall be exempted and required to execute the sworn declaration so that the lone income payor shall make no income tax withholding on the stated income payment.
Applicable Withholding Tax Rate
Any individual who failed to submit a sworn declaration to the employer is subject to 10% income tax. However, if the individual is employed by a government entity, the same income is also subject to either a 3% percentage tax or 5% withholding VAT, whichever is applicable.
- passive incomes that are subject to withholding tax under the train tax law 2018.
- How to Register as BMBE
- Minimize Tax Legally
If you’re practicing professions that are not subject to the income tax rate, you have the option either to avail of 8% professional tax or 3% percentage. Your practice of profession will be subject to 8% as long as the income is more than 250,000 as exempted income. You can also the total deductions of 250,000 provided that all gross sales are only from the practice of professions. Furthermore, you can file a 3% percentage if the gross sales or receipts should not exceed the 3,000,000 thresholds. Therefore, professional tax is one to minimize your tax.