From Business Tax to Final Tax: Types of Taxes in the Philippines

Understanding the different types of taxes in the Philippines is more than just a financial obligation; it’s a crucial part of being a responsible citizen and informed taxpayer. Whether you’re earning a monthly salary, running a business, or investing in real estate, you are likely subject to a variety of taxes such as income tax, business tax, corporate income tax, and withholding tax.

These taxes fund vital government money payments and public services that benefit society as a whole. Broadly speaking, there are two categories of taxes in the Philippines: national and local taxes. National taxes are imposed under the National Internal Revenue Code and include income tax, value added tax (VAT), excise tax, capital gains tax, documentary stamp tax, and more.

Income derived from employment, known as compensation income, is often subject to income tax withheld, which may fall under either final withholding tax or expanded withholding tax, depending on the type of income. Additionally, the corporate income tax rate applies to entities earning taxable income from regular business activities, while the improperly accumulated earnings tax targets corporations that avoid distributing dividends.

On the other hand, local taxes are levied by local government units (LGUs) under the Local Government Code of 1991. These include percentage tax, a form of indirect tax applicable to businesses with gross annual sales below a specific threshold, and other business tax imposed at the city or municipal level.

In some cases, taxpayers may enjoy an income tax holiday, especially when investing in specific sectors or economic zones. Whether you’re dealing with capital assets, paying final tax, or navigating the rules around withholding tax withheld by your employer or clients, it’s important to know what tax is imposed on what type of income or transaction.

Familiarity with these concepts helps you stay compliant and make smarter financial decisions. In this blog, we’ll break down the different types of taxes in the Philippines to help you better understand how the system works, what your obligations are, and how each tax type applies to your situation.

Taxes under Philippine national taxes 

In the Philippines, there are several types of taxes that individuals, corporations, and even government entities are required to pay. These Philippine taxes are administered by the Bureau of Internal Revenue (BIR) and are crucial for funding public infrastructure, social services, and initiatives that promote public health and national development.

These national taxes are imposed under the National Internal Revenue Code, separate from local taxes collected by local government units under the Local Government Code. While local taxes support the needs of municipalities and provinces, national taxes have a broader scope, especially when it comes to income earned not only within the country but also from abroad.

Estate tax

An estate tax is charged when a real estate owner passes away, and their lawful beneficiaries decide to transfer land titles to their name at the owner’s time of death. Real estate titles would not be transferred to the heirs unless estate tax is paid. 

For example, if your father decided to transfer his Greta house and lot from Camella once he passes away, you would need to pay estate tax before transferring the title. 

Documentary stamp tax 

Documentary tax is a tax imposed on contracts, agreements, certificates, acceptance, sale, assignment, and other legal documents to prove that a transaction between two parties occurred.

Percentage tax

Percentage tax is a business tax imposed on business owners who sell or lease goods, services, properties, or services that are not VAT-registered and has a minimum yearly gross sale of PHP 550,000.

Capital gains tax

Capital gains tax is imposed on a seller or a business when they sell a valuable asset like jewelry, stocks, properties, and other goods considered capital assets or items of high value.

Income tax 

Income tax is imposed on individuals from their source of living, whether it’s a profession, business, trade, or property. A person’s income tax is different depending on their income bracket.

Withholding tax

The amount withheld from an employee’s wage and paid directly to the government for the employee’s partial income tax is referred to as withholding tax.

Value Added Tax (VAT)

VAT is a business tax imposed on sellers and vendors upon sale of goods, importation, sale of properties, or lease of goods. VAT is considered an indirect tax, and everyone indirectly pays for VAT every time they purchase anything in a retail store.

Excise tax

Just like VAT, an excise tax is an indirect tax. Excise tax is imposed on goods and products under the Tax Reform for Acceleration and Inclusion Law. These products include tobacco, liquor, or any drink with added sugars.

Donor’s tax

Donor’s tax is imposed on a gift, donation, or any free-of-charge transfer from benefactor to recipients. There are times when the BIR does not charge a donor’s tax on a donation, especially when these are donations for victims of calamities.

Corporate Income Tax

The corporate income tax is levied on the net income of domestic and resident foreign corporations. This includes income from foreign investment, as well as profits derived from the conduct of business in the Philippines.

The corporate income tax rate is applied to the corporation’s taxable income, which is generally calculated by subtracting allowable deductions from gross income. In some cases, businesses may benefit from tax incentives such as an income tax holiday depending on their industry and location.

Final Withholding Tax

The final withholding tax is a one-time, full and final payment on specific kinds of passive income, such as interest, dividends, or royalties, that are income subject to tax at the source. This tax is typically withheld by the payor and is not included in the recipient’s regular annual tax return.

It may apply to foreign currency deposits and other financial instruments listed in loan agreements, and it represents the final settlement of tax liability on the income concerned.

Expanded Withholding Tax

The expanded withholding tax (EWT) is a form of advance collection on income payments like rentals, professional fees, and certain business transactions. It reduces the tax payable when computing the taxpayer’s personal income or person’s income for the year.

The amount withheld is considered a tax credit against the final tax due. For example, a VAT registered professional may have EWT deducted from their fees before being paid. This tax applies to grossed up monetary value of transactions, including those involving gross selling price and gross income from services.

These national taxes work alongside others such as capital gains tax, donor’s tax, estate tax, value added tax (VAT), a consumption tax charged on gross sales, and percentage tax. Whether you are dealing with capital assets located in the country or preparing for a taxable quarter year, understanding how these taxes operate helps ensure compliance and good financial planning.

Taxes under Philippine local taxes

Franchise tax 

The franchise tax is a tax imposed on franchise businesses. Franchise taxes have a minimum of 50% rate of the 1% of the total annual gross for the current year of a franchise-operated. 

Basic real property tax 

Real property tax is a tax imposed on agricultural, commercial, industrial, mineral, and residential properties. The primary real property tax prescribed in the Philippines is 2% for cities and municipalities within Metro Manila and 1% outside Metro Manila.

Sand, gravel, and other quarry resources tax

LGUs can only charge up to 10% of the fair market value per cubic meter of quarry resources like gravel, sand, common stones, earth, and sand taken from public lands or waters.

Business of printing and publication tax

When they are published or printed, these taxes are also taken out of books, posters, pamphlets, cards, tarps, and other printed items.

Annual fixed tax for delivery trucks and vans

This tax is imposed on every vehicle that delivers distilled spirits, fermented liquor, food, cosmetics, tobacco, and other products from manufacturers directly or indirectly from the province. Under the law, the annual fixed tax is PHP 550.

Professional tax 

This tax is imposed on lawyers, doctors, architects, or any other profession that requires a board exam or licensure from the government. 

Amusement tax

This tax is imposed on films, theatrical plays, concerts, or any entertainment show. This tax is added to the price of admission and ticket price. 

Community tax 

Community tax is known as cedula. Any person at least 18 years of age can get a Community Tax Certificate to prove that they are a municipality resident. 

Barangay tax 

Small businesses like sari-sari stores with a gross sale of PHP 50,000 annually have to pay barangay tax. 

Barangay clearance 

This document from the barangay is legal proof that you are allowed to do something or start a business in a certain barangay. Generally, it is also used as proof of identity when dealing with the government or getting a job.

Why are Taxes Needed?

Taxes in the Philippines are more than just mandatory payments, they are the financial backbone of the nation. Collected primarily through the Bureau of Internal Revenue (BIR) and other government offices, taxes support a wide range of programs and services crucial to national development.

The Philippine government uses taxes to fund infrastructure development, education, healthcare, social welfare, and security. These government money payments make it possible to build roads and bridges, improve public transport, support schools and hospitals, and maintain national defense.

Every taxable year, individuals and corporations alike are required to contribute to this system. For instance, compensation income earned by employees, especially managerial employees and those receiving fringe benefits, is subject to withholding tax.

The income tax withheld constitutes the taxpayer’s partial or final payment, depending on the type of income. In cases where income is considered passive, such as royalties or interest, withholding tax withheld may serve as a full and final payment.

Self-employed individuals and service providers, such as those offering technical services, also pay taxes based on their gross annual sales or grossed up monetary income during a taxable quarter year. Corporations, including those engaged in lease goods, selling properties, or entering into loan agreements, pay income taxes, value added tax (VAT), an added tax on goods and services, and documentary stamp tax on certain transactions.

When it comes to property, taxes are levied not only on its sale but also on the property incident thereto, such as the transfer of capital assets located in the Philippines. These transactions may involve gains presumed to have been earned and taxed accordingly.

For two or more persons who co-own a property, each may be liable for their share, depending on said income and applicable tax rate. Even in matters of estate, the government imposes a tax on the net estate of a deceased person, ensuring that the transfer of wealth contributes to public funds.

In short, taxes are essential for the continued functioning of internal revenue systems and the progress of the nation. They are not just obligations, they are contributions to a better society. Every peso collected supports the operations of the government and builds a future that benefits all.

Conclusion

Understanding the different types of taxes in the Philippines, from withholding tax, value added tax, and documentary stamp tax to those related to capital assets located and compensation income, empowers every Filipino to become a more responsible citizen. These taxes, whether paid during a taxable year, a taxable quarter year, or upon a final payment, directly support our nation’s growth, from infrastructure development to the day-to-day functions of government offices.

As we fulfill our duties through taxes, we also invest in a future shaped by shared responsibility and civic participation. One way to secure that future is through smart, long-term investments—like owning a home.

Whether you’re a young professional, a growing family, or a returning OFW, owning a house and lot from Camella not only provides a comfortable, secure living space, but also places you in communities that thrive alongside national progress. Camella’s developments across the country are designed for Filipinos who dream of a better life, one built on stability, convenience, and value.

Make your hard-earned contributions count. Build your future. Get your own forever home from Camella today.