Rental Income Tax in the Philippines: How to Compute and File

Rental income is taxable in the Philippines, and landlords have a real choice to make on how it gets taxed — picking wrong can mean paying more than necessary.

Your two options

Option 1 — Graduated income tax rates. Rental income gets added to your total taxable income and taxed on the standard progressive table (0% to 35%), with the first ₱250,000 of taxable income exempt. You can deduct legitimate rental-related expenses (repairs, property management fees, depreciation) to reduce taxable income, but you need to substantiate them with receipts.

Option 2 — 8% flat rate on gross receipts. Available if your total gross receipts (from rental plus any other self-employment/professional income) don't exceed ₱3,000,000/year. You pay a flat 8% on gross rental income — no expense deductions, but also far less recordkeeping. This is usually the simpler and often cheaper option for landlords with a single rental unit and minimal deductible expenses.

Which one is actually cheaper?

If your deductible expenses are low relative to your rental income, the 8% flat rate is usually the better deal — you skip the graduated table entirely below the exemption threshold in effect. If you have significant deductible expenses (major repairs, financing costs, property management fees), the graduated route with itemized deductions can come out ahead. Running both computations once a year, or asking an accountant to, is worth the hour it takes.

VAT and percentage tax

If your gross rental income exceeds ₱3,000,000/year, you're required to register for VAT and charge 12% on rent. Below that threshold, you're generally subject to a 3% percentage tax on gross receipts instead (unless you've elected the 8% flat rate, which already covers this).

How to register your election

• New to filing? Indicate your preferred regime on BIR Form 1901 when you first register.
• Already registered? File BIR Form 1905 to update your registration, and formally elect the 8% option on your first-quarter Form 1701Q for the year — this election is generally locked in for the year once made.

Keep records regardless

Even under the 8% flat rate where you don't itemize deductions, keep official receipts for rent collected — the BIR can request these, and clean records make any future audit far less stressful.

Source: Respicio & Co.'s guide to computing rental income tax and Taxumo's graduated vs. 8% comparison.