Are you one of the many business owners in the Philippines who are scrambling to understand the new percentage tax under CREATE Law? Are you having trouble figuring out how it will impact your company? You’re not alone. In this blog post, we’ll answer some of the most commonly asked questions about the BIR New Percentage Tax. We hope that this information will help you make informed decisions about your business. Let’s get started!
Most of the businesses in the Philippines are engaged in buying and selling. Such companies are subject to percentage tax or value-added tax depending on the number of sales or income. In this article, we’ll help you to answer some of those commonly asked questions. We’ll highlight how to file percentage tax under create law.
Percentage tax under CREATE law
Before implementing CREATE law, the percentage tax rate is three percent (3%) of gross sales or gross receipts. However, due to create law in 2020, the percentage reduces from 3% to one percentage (1%) tax rate.
Percentage tax vs VAT
How can you know if your business is subject to percentage tax or value-added tax? You need to compute the gross sales or gross receipts, either expected or from the previous year. If the gross sales or receipts are less than three million, you are subject to percentage tax rates.
However, if it is more than three million (3,000,000), you are required to file under value-added tax at twelve percent (12%). Even if the business income or sales don’t exceed the vat threshold, you can still file under a value-added tax rate.
Frequently Asked Questions (FAQs)
Here are the commonly asked questions regarding the percentage tax under create law. If your questions are not listed below, drop your questions in the comment below.
Is percentage tax a deductible expense
Percentage tax is a deductible account of the gross income. However, you can only claim to the non-individual taxpayer. It means, if you’re filing individual tax under bir for 1701, any percentage tax payments are not a deductible expense account.
However, suppose the total amount of 3% has been claimed as a tax deduction in the annual income tax return. In that case, you cannot apply to carry over any overpaid amount from the previous percentage tax return.
Who are subject to percentage tax?
Primarily, any persons who are not VAT registered and whose gross income or sales is less than three million (3,000,000) thresholds will be subject to percentage tax. These include estates, trusts, partnerships, and corporations.
The percentage tax rate is one percent (1%) starting June 2020. However, some of these incomes may vary depending on the type of transactions. Here are some of those transactions and tax rates.
Was the decrease of Percentage tax rate of 1% intended for corporate taxpayers only?
CREATE law applied to both corporate and self-employed individual and professional taxpayers whose gross sales or receipts don’t exceed 3,000,000. However, this reduction doesn’t apply to cooperatives and self-employed individuals and professionals who opted to file at 8% income tax rates.
Are non-VAT registered taxpayers required to amend using 1% tax rates?
A non-VAT registered person can amend their previous percentage tax returns using the 1% tax rate to reflect the overpayment of taxes.
Any amendments of percentage tax returns will not be subject to penalty for carrying over the overpayment of percentage tax. Excess payments from the previous returns will be carry over to utilize the overpayment against the future tax liabilities.
How to file carry over the overpaid amount in bir form 2551q if there is no “carry over” option?
In the bir form 2551q, there is no option to carry over the overpaid amount. This form shows only the tax refund and issuance of tax credit certificates (TCC). Make sure to follow the guidelines below:
- For manual filing using bir form 2551q, use the options “to be refunded or to be issued tax credit certificate” should be used in filling for carryover. Replace the item as “To be Carried Over” on the return.
- For online filing using eFPS or eBIRForms, the option “To be Issued Tax Credit Certificate” is used in filing carry over. If you use this item, it is presumed as carry over the overpaid tax to the succeeding taxable quarter.
However, if you intend to make a refund, you must inform the BIR or RDO thru bir form 1914 or the “Application for Tax Credits/Refunds.”
Suppose you carry over the overpayment due to the decrease of percentage tax rates without amending the affected percentage tax returns to any quarters it disallowed. If you want to carry over the overpaid amount, you should amend it first before filing a carryover amount to a percentage tax return.
Note: Before filing to carry over the overpaid amount, make sure to file an amendment.
Can I refund the excess or overpayment from the previous percentage tax returns?
If you have excess from the previous percentage tax return due to a 3% to 1% tax rate reduction, you can file for a tax refund. Any person can file a tax refund under the following circumstances.
- Any person whose gross sales or receipts exceed three million (3,000,000) thresholds.
- If you choose to avail of the eight percent (8%) tax rate.
Can I file a tax refund from the overpaid taxes as Job Order (JO) or Service Contract Agreement (SCA)?
No. If you’re working as JO who availed substituted filing on Percentage tax, you can’t claim tax refund but only to carry over. Issue an authorization to file a tax refund and submit the certificate of withholding of percentage tax (bir form 2306) to your agency or government agency.
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The withholding agent will carry over the over-remitted taxes to the subsequent filing of percentage tax returns.
If you’re not a substituted filer, the overpayment is carried over to the next quarter.
What percentage tax should I withhold?
There are two types of withholding taxes involving government money payments. These are income tax and Sales tax. In income tax, it’s in the form of creditable withholding tax, while sales could be 5% or 1% creditable withholding tax.
Five percent (5%) creditable withholding is collected if the supplier is a VAT registered, and one percent (1%) if the supplier is subject to percentage tax.
How to file Percentage tax return under CREATE law?
In filing percentage tax, you can file manually or online filing. In the online filing of percentage tax returns, you can use eFPS or eBIRForms. Here are the procedures for filing and payment of returns. The filing of percentage tax returns should be twenty-five (25) days after the end of each taxable quarter.
Manual Filing
- Download and fill-up the bir form 2551q in triplicate copies.
- Pay the percentage tax amount with the Revenue Collection Officer (RCO) or Revenue District Office (RDO).
- Pay online using Gcash mobile payment, LandBank of the Philippines, or DBP tax Online.
Online Filing
1. Using eFPS
- Use the existing and enhanced bir form 2551q, which contains all the alphanumeric tax codes enumerated.
- Proceed to online payment by clicking the payment button using the different modes of payments.
2. Using eBIRForms
- Use the old bir form 2551q.
- Proceed to any Authorized Agent Bank (AAB) with the location of your business. Submit the duly accomplished BIR Form and other requirements.
Conclusion
Percentage tax under CREATE law provides incentives by reducing the tax rates from 3% to 1% tax rate. A person will be subject to percentage tax if the gross sales or receipts are less than three million pesos.
Recommended:New BIR Form 1709 issued for Related Party Transactions
Hello,
I am planning to rent out rooms (boarding house), approximately P15,000 per month income (P180K/yr), will I be 5ax free if I apply for Business permit? Or I will be under 1% percentage tax?
Also planning to get a Business permit, I am confused, will the Water and Electricity bill for my property becomes commercial rate (instead of residential)? Is that an automatic change once Business permit is applied?
Thank you in advance for your kind clarification and reply.
Yes! you will be subject to tax for 1%. and regarding the utility bills, it will be considered as commercial.
Thank you for your reply sir
Mau I ask too, once I registered this small rental business, how should I go through paying the tax? How will the computation of the total gross income be? Let’s say I don’t rent out all the rooms all the time (so that would be less than P180K per yr) plus the operating/maintenance expenses. Can I just fill up the filing tax form with the actual net income for the past yr? I mean will the BIR not ask for an official proofs for my income or need a CPA to certify my declared amount? Or do I have to maintain a record book as proof?
It depends as to what tax regime you will be subject. If you registered your business as subject to percentage tax it means you will be subject to gross income (not excluding expenses) multiply by 1%. However, if you apply as 8% then different computation.
If you want yo have an overview as to what type of tax should I apply for, then Ill be happy to assist you thru video call.
Good Day Sir!
If the business is registered as BMBE, is it also exempted from paying Percentage Tax?
Thanks in advance and more power to you.
Nope. BMBE is only exempted from paying personal tax or individual tax
We are in transportation business with 3% percentage tax are we included to 2% reduce of percentage tax?
Yes po as long as na you’re n9t a vat register nor vat qualified.
Good day, sir! May I ask, if a business entity is opted to tax at a preferential rate of 8%, will it still be subject to VAT or OPT? Thank you, sir!
Hindi na po kasi yung 8% is a substitute na po sa lahat na tax na babayaran.
hello. i just want to ask if i can still avail 1% tax rate in my third quarter .. if i avail 3% on my second quarter ( but Zero gross income) ?
Yes, you can still claim tax credit from the time of changes.
Hi, i am a lessor of a small commercial unit and i earn Php 80k per year. I am VAT registered but my gross earnings DO NOT exceed Php 3.0 mn. If i apply for percentage tax and pay the 1% percentage tax on gross receipts of Php80k earned in one year, should i apply for a change in the tax type in my BIR certificate? That is should there br a change in my tax type or an amendment before i make a payment?
Thank you very much.
Yes, you have to update your COR from vat to a non-vat registered.
Good evening po!
Ngayon ko lang po nalaman ang create law na 1% tax due sa Percentage tax po.. Can I still amend the 3rd and 4th of 2551Q 2020? and amend the 1st quarter and 2nd quarter 2021? Should I amend quarter by quarter? Thanks po and God Bless!
Yes po, amend niyo nalang siya.para magreflect yung adjustments
What is the ATC code for that 1% percentage tax ? since the supplier were asking for a BIR form 2307 we can’t provide for we don’t know the ATC assigned for this new percentage tax.
Magdownload ng bagong eBIRForm 7.9 na nasa link sa taas. 2551qV2018 ang gamitin dahil sa form na yon nadagdag sa page 2 ang additional PT010 sa pinakababa ng drop down ng ATC kung saan 1% na ang nakalagay.
Hello! 7.9 po ang gamit ko na version ebirform kaso naka 3% parin po ang PT010.
Hi po. Percentage tax po yung business ko ng year 2020, pero nagpa VAT register po ako beginning February 2021. Pwede ko pa rin po ba i-claim as pangbawas sa aking VAT returns yung excess between 3% at 1% ng binayaran ko for Q4 2020, Q3 2020 at January 2021? Thank you po
Yes, and I suggest Etax credit niyo nalang po yung ma refund niyo
Hello Sir,
Mag ask lang po kung pwede i amend yung zero filing ng 2551q last year?
Hello po.. Ask lang kung pwede po i amend yung zero filing last year 2021 ng 2551q. Thank you po.
Hi Sir,
Ask ko lang po until when po yung duration ng 1% sa PT filing.
Thanks po
Happy Easter! I am a retiree and had rented my real property for 30K/month since June 2020. I have never paid percentage tax since this is the first time I had leased a property and this is the only revenue we have with my retiree housewife. Actually, six month rents remained unpaid by the LESSEE for they experienced business slowdown due to the COVID pandemic but promises to pay.
I understand that I should be paying the 1% percentage tax and am willing. Will I also be paying my ITR with this rental revenue that was subjected to the 1% percentage tax?
I will be awaiting for your reply.
Thanks.
Yes, becuase the 1% tax is for the property while the ITR is for the person who subjected to tax.
Hello po. May over payment pa po ako from 2021 sa percentage tax. Pwede pa po ba un gamitin this 2022? Thank you.
eupdate niyo yun kasi still 3% parin yung babayaran niyo.
Hello po.. I have a grocery store what tax do I need to pay
Hi, did you register with BIR? Please check your COR if you have.
Hi, If I understand well percentage tax is not deductible for individual tax payer, so therefore when recording it on our books, it cannot go under tax and licenses expense I guess? Should we record it separately into Percentage tax expense and not deduct it for the income tax?
When computing taxable income from business, percentage taxes are deductible.
Hi, im a little confused with Percentage as per Tax Code. So PRIMARILY, any business not exceeding 3 Million in gross sales is subject to percentage tax. But this also excludes businesses whose operations are under the exemptions of VAT? so if operation is exempted from VAT under the NIRC as amended then the transaction is also exempted from PT?
If a business is exempt from Value Added Tax (VAT) under certain conditions in the Tax Code, it might be subjected to a 3% Percentage Tax instead, especially if it’s not VAT-registered and its sales don’t exceed PHP 3,000,000. Additionally, certain transactions involving specific goods or services that are exempt from VAT may have a special business tax ranging from 3% to 30%. The adjustment to the percentage tax was implemented on July 1, 2023.