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8% Tax or Graduated Rates? How Filipino Freelancers Should Choose

The 8% option is usually cheapest for freelancers with low expenses, but not always. Worked examples show when graduated rates with itemized deductions win.

By Muhammad Ahmad. Published . 2 min read.

Want to run your own numbers?Philippines Freelancer Tax Calculator: 8% vs GraduatedOpen the calculator

Every self-employed Filipino with gross receipts of ₱3 million or less has to pick how to pay income tax for the year: a flat 8% on gross receipts above ₱250,000, or graduated rates on net income plus a 3% percentage tax. The choice is usually made in the first quarterly return, and it sticks for the year, so it's worth doing the math once.

The two routes

  • 8% option: 8% of gross receipts above ₱250,000, replacing both income tax and percentage tax. Not available if you're VAT-registered or over ₱3 million.
  • Graduated route: 0% to 35% on net income (after the 40% optional standard deduction or itemized expenses), plus 3% percentage tax on gross.

A typical freelancer: 8% wins

A virtual assistant or developer with ₱1.2 million of receipts and ₱150,000 of expenses:

₱1,200,000 gross, ₱150,000 expenses

  1. 8% option

    (₱1,200,000 − ₱250,000) × 8%equals₱76,000.00

  2. Graduated with OSD

    tax on 60% of ₱1,200,000 + 3% × ₱1,200,000equals₱122,500.00

  3. Graduated with itemized

    tax on (₱1,200,000 − ₱150,000) + 3% × ₱1,200,000equals₱201,000.00

  4. Cheapest

    lowest of the threeequals₱76,000.00

The 8% option costs ₱76,000, against ₱122,500 with the OSD and ₱201,000 itemizing. The 3% percentage tax is what makes the graduated route expensive for people with low costs.

A high-expense business: itemizing can win

Now take ₱2.8 million of receipts with ₱2 million of genuine, documented expenses, such as a small agency paying subcontractors:

₱2,800,000 gross, ₱2,000,000 expenses

  1. 8% option

    (₱2,800,000 − ₱250,000) × 8%equals₱204,000.00

  2. Graduated with OSD

    tax on 60% of ₱2,800,000 + 3% × ₱2,800,000equals₱406,500.00

  3. Graduated with itemized

    tax on (₱2,800,000 − ₱2,000,000) + 3% × ₱2,800,000equals₱186,500.00

  4. Cheapest

    lowest of the threeequals₱186,500.00

Here itemized deductions cost less than the 8% option, because tax falls on a small net profit instead of the whole gross. The catch is paperwork: itemizing needs receipts and proper books of account.

If you also have a job

Mixed-income earners, with a salary as well as freelance work, can still choose 8% on their business receipts, but without the ₱250,000 exclusion, since the salary already uses the tax-free band.

Tip: Decide before your first quarterly return of the year. If you don't elect the 8% option in time, graduated rates and percentage tax apply for the whole year.

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