Wondering if you’re eligible to avail of the 8% income tax rate for self-employed and professionals under the TRAIN tax law?
Wonder no more since the Bureau of Internal Revenue (BIR) has finally released an official memorandum explaining the mechanics of the 8% tax rate availment option. The updated and detailed 8% income tax rules for professionals and self-employed can be found here, but if you’re interested to know how to actually register and avail of this option, just continue reading below.
Here are the instructions as explained in BIR’s Revenue Memorandum Order (RMO) 23-2018.
Eligibility Requirements to Avail of 8% Tax Rate
Based on the BIR memo, the taxpayer must meet ALL four (4) criteria in order for the taxpayer to be eligible to register for the 8% tax rate availment option:
- Individuals (Single Proprietor or Professional or Mixed Income Earner) earning from self-employment and/or practice of profession;
- Taxpayers whose gross sales/receipts and other non-operating income did not exceed the P3,000,000 VAT threshold during the taxable year;
- Taxpayers registered and subject only to percentage tax under Section 116 of the NIRC, as amended; or taxpayers exempt from VAT or other percentage taxes; AND
- Must have signified their intention to elect the 8% income tax rate thru any of the enumerations under Section II(7) of this Order.
In addition, the BIR reiterates that the following taxpayers are NOT eligible to avail of the 8% tax rate option.
- Purely Compensation Income Earners;
- VAT-registered taxpayers, regardless of the amount of gross sales or receipts and other non-operating income;
- Taxpayers exempt from VAT or other percentage taxes whose gross sales/receipts and other non-operating income exceeded the P3,000,000 VAT threshold during the taxable year;
- Taxpayers who are subject to Other Percentage Taxes under Title V of the Tax Code, as amended, except those subject under Section 116 of the same Title;
- Partners of a General Professional Partnership (GPP);
- Individuals enjoying income tax exemption.
The above taxpayers shall be taxed based on the graduated income tax rates prescribed under Section 24 (A)(2)(a) of the NIRC, as amended. Click here if you want to view the new Income Tax Rates under TRAIN.
Registration Information Update
From the BIR’s RMO 23-2018:
- Self-employed individual may signify the intention to elect the 8% income tax rate option by filing an Application for Registration Information Update (BIR Form No. 1905) at the beginning of the taxable year.
- Self-employed individual availing the 8% income tax rate option shall still be registered with “Percentage Tax – Quarterly” tax type, and the 2551Q form type shall be end-dated. On the beginning of the following/each year, the 2551Q form type shall be automatically registered in the BIR registration system, to confirm that the taxpayer is subject to graduated income tax rates on the beginning of the year and required to file the quarterly percentage tax return, unless an application for registration information update to avail the 8% income tax rate for the said taxable year has been submitted to the concerned Revenue District Office or by selecting the 8% income tax rate option in filing the 1st Quarterly Percentage or Income Tax Return.
- A Non-VAT individual taxpayer who availed of the 8% income tax rate and subsequently his cumulative gross sales and/or receipts exceeded the Three Million Pesos (P 3,000,000.00) threshold during the taxable year shall be liable to pay income tax under the graduated income tax rates. The income tax shall be computed under the graduated income tax rates and shall be allowed a tax credit for the previous quarter/s income tax payment/s under the 8% income tax rate option. Taxpayer shall be required to update his/her registration immediately within the month following the month s/he exceeded the VAT threshold. Taxpayer shall automatically be liable to VAT prospectively starting the first day of the month following the month when the threshold is breached. The taxpayer shall pay the required percentage tax covering the sales/receipts and other non-operating income, from the beginning of the taxable year or commencement of business/practice of profession until the time the taxpayer becomes liable to VAT.
- A VAT-registered person whose gross sales and/or receipts for three (3) consecutive years did not exceed the amount of Three Million Pesos (P 3,000,000.00), may update his registration from VAT to Non-VAT in order to qualify and avail the 8% income tax rate option, on or before the first quarter of a taxable year, following rules and regulations on registrations, updates, verification, and the inventory and cancellation of VAT invoices/receipts.
Registration Procedures to Avail of 8% Tax Rate
A. Self-Employed Individual Availing of the 8% Income Tax Rate
A.1 New Business Registrant
Submit Application for Registration by accomplishing BIR Form No. 1901, to the concerned Revenue District Office having jurisdiction over the place of residence or where the Head Office is located, together with the complete documentary requirements.
A.2 Registration Information Update
Submit Application for Registration Information Update by accomplishing BIR Form No. 1905, to the concerned Revenue District Office where the self-employed individual is registered, together with the Certificate of Registration (COR) for replacement or updating.
(Note: The updating or replacement of the COR is only for the first time availment of the 8% income tax rate. There is no need to replace the COR in the succeeding years.)
B. Revenue District Office – Client Support Section shall:
- Receive the Application for Registration (BIR Form No. 1901) or Application for Registration Information Update (BIR Form No. 1905) of self-employed individuals availing of the 8% income tax rate option together with the COR.
- Validate if the taxpayer is qualified to avail of the 8% income tax rate option pursuant to Section II(4) of this Order.
- For existing taxpayers and new business registrants availing of the 8% income tax rate option during registration of business:
3.1 Integrated Tax System
- a. Tag the 8% income tax rate option by selecting “8% Income Tax Rate” in the List of Values under the Special Code field;
- b. Add/Update the following applicable ATCs in the 1701 and 1701Q form types:
- i. II015 Business Income – 8% IT Rate;
- ii. II017 Income from Profession – 8% IT Rate; or iii. II016 Mixed Income – 8% IT Rate
- c. Register tax type: Percentage Tax – Quarterly;
- d. Add form type 2551Q and applicable ATC;
- e. End-date form type 2551Q: filing end-date = 03/31/20xx or the last day of the
applicable quarter, if the new business registrant registers after the first quarter.
3.2 Electronic Tax Information System – Taxpayer Registration System
a. In the Incentive Details Tab:
- i. Tag the 8% income tax rate option by selecting “8% Income Tax Rate”
in the List of Values under the Investment Promotion Agency; - ii. Number of years = 1
- iii. Incentive end date = 12/31/20xx
b. Add/Update the following applicable ATCs in the 1701 and 1701Q form types:
- i. II015 Business Income – 8% IT Rate;
- ii. II017 Income from Profession – 8% IT Rate; or
- iii. II016 Mixed Income – 8% IT Rate
c. Register tax type: Percentage Tax – Quarterly;
d. Add form type 2551Q and applicable ATC;
e. Suspend form type 2551Q: filing end-date = 03/31/20xx or the last day of the
applicable quarter, if the new business registrant registers after the first quarter.
4. Generate COR with “PT” printed on the face of the certificate and manually print the reminder at the bottom portion of the certificate:
“If qualified and opted to avail of the 8% income tax rate, the filing of quarterly percentage tax return is not required for the current taxable year the option was made.”
5. Release the new COR to the taxpayer.
C. Information Systems Project Management Service (ISPMS)/ Information Systems Development & Operations Service (ISDOS) shall:
C.1 Integrated Tax System
1. Add the “8% Income Tax Rate option” in the List of Values under the Special Code
field.
2. Create and run a script that will:
- 2.1 Automatically “end-date/suspend” the form type 2551Q when the individual taxpayers file the BIR Form No. 2551Q/1701Q and when the “8% income tax rate” check-box is selected for the 1st quarter period and tag the “8% income tax rate option” LOV under the special code field. This will remain suspended until the end of the taxable year. The tax type “PT” should not be removed in the Certificate of Registration when printed.
- 2.2 Automatically open the filing end-date or lift the suspension of 2551Q and remove the tagging of “8% income tax rate option” LOV under the special code field, starting January 01 of the succeeding year, for all individual taxpayers who elected the 8% income tax rate option thru manual tagging, filing of 2551Q and/or 1701Q.
- 2.3 No stop-filer/open cases shall be generated for the 2551Q return for the taxable year when the 8% income tax rate option was made.
C.2 Electronic Tax Information System – Taxpayer Registration System
1. Add the “8% Income Tax Rate option” in the List of Values under the Investment
Promotion Agency field in the Incentive Details tab.
2. Create and run a script that will:
- 2.1 Automatically “suspend” the form type 2551Q when the individual taxpayers file the BIR Form No. 2551Q/1701Q and when the “8% income tax rate” check-box is selected for the 1st quarter period and tag the “8% income tax rate option” in the List of Values under the Investment Promotion Agency field in the Incentive Details tab. This will remain suspended until the end of the taxable year. The tax type “PT” should not be removed in the Certificate of Registration when printed.
- 2.2 Automatically open the filing end-date or lift the suspension of 2551Q and remove the tagging of “8% income tax rate option” in the List of Values under the Investment Promotion Agency field in the Incentive Details tab, starting January 01 of the succeeding year, for all individual taxpayers who elected the 8% income tax rate option thru manual tagging, filing of 2551Q and/or 1701Q.
- 2.3 No stop-filer/open cases shall be generated for the 2551Q return for the taxable year when the 8% income tax rate option was made.
Source: Bureau of Internal Revenue (BIR www.bir.gov.ph)
