8% tax vs. graduated rates: which one should a freelancer in the Philippines pick?
Ezra Anglo · builds ResibooThis is general information, not tax advice — the right call depends on your actual numbers and can change year to year. Confirm your situation with a CPA and the BIR website before filing.
Short answer: the 8% option is one flat rate on gross sales or receipts, replacing both the graduated income tax and the 3% percentage tax. Graduated rates tax your net income (after deductions) on a rising scale, plus you separately owe the 3% percentage tax. Which one is cheaper depends almost entirely on how much of your revenue is eaten up by documented business expenses.
The two options, side by side
| 8% flat rate | Graduated rates | |
|---|---|---|
| Taxed on | Gross sales/receipts (self-employed portion) | Net taxable income, after deductions |
| Rate | 8%, flat | 0%–35%, rising with income (Section 24(A)) |
| Percentage tax | None — the 8% covers it | 3% separately, unless VAT-registered |
| ₱250,000 deduction | Applies if you have no compensation income | Not a separate deduction — it's baked into the graduated table |
| Bookkeeping burden | Lower — no need to substantiate every expense for tax purposes | Higher — deductions need receipts to back them up |
| Who can't use it | VAT-registered, or required to be (over ₱3M gross), or subject to other percentage taxes | Anyone can use it — it's the default if you don't elect 8% |
Who gets the ₱250,000 deduction
If self-employment or professional practice is your only income, the first ₱250,000 of gross sales/receipts in a year is exempt before the 8% rate applies. If you're a mixed-income earner — a day job plus freelance work — that ₱250,000 deduction doesn't apply to the self-employed side, because it's already accounted for in the tax table on your compensation income.
A simple way to estimate which is cheaper
The 8% rate skips deductions entirely, so it tends to win when your documented, deductible expenses are a small share of your revenue — common for service-based freelancers whose main cost is their own time. Graduated rates tend to win once expenses are a large share of revenue — common for online sellers with real cost of goods, or anyone with heavy subscriptions, contractor payments, or equipment costs they can properly substantiate.
As a rough gut-check: if your provable business expenses run below roughly a fifth of your gross revenue, the 8% option is usually worth running the numbers on. Above that, graduated rates plus itemized deductions (or the standard 40% optional deduction, if you'd rather not itemize at all) start closing the gap or winning outright. This is a starting point for a conversation with an accountant, not a rule to file on — actually compute both for your numbers before deciding.
The one thing both options share
Neither choice does away with the record-keeping requirement. Even under 8%, you still need to register books of accounts and keep receipts — you're just not using them to compute this particular tax. And if you ever want to switch to graduated rates in a later year, or if you're audited on a year you filed under 8%, having every invoice from that year organized is what makes the conversation with your accountant fast instead of a scramble through a shoebox.
See registering as self-employed with the BIR for where this election actually gets made, and tracking business expenses as a freelancer or online seller for the habit that keeps your numbers ready either way.
Resiboo captures the expense side regardless of which rate you elect — scan every business receipt as it comes in, and export a clean CSV whenever your accountant needs to run the comparison for you.
Frequently asked questions
- Can I switch between the 8% option and graduated rates every year?
- Yes, the election is made per taxable year — usually at registration, on your first quarterly income tax return of the year, or when you update your registration. Once made for that year, it's irrevocable for that year.
- Is the 8% option available to everyone self-employed?
- No. It's unavailable if you're VAT-registered or required to be (gross sales/receipts over ₱3,000,000), or if you're subject to certain other percentage taxes under the Tax Code besides the general 3% one.
