Blog · Philippines
8% Flat Tax vs Graduated Rates: Which Saves Filipino Freelancers More?
A detailed comparison at different income levels so you can choose the tax option that keeps more money in your pocket.
When you register as a self-employed individual with the BIR in the Philippines, you face a critical decision: opt for the 8% flat income tax rate or stick with the graduated income tax rates under the TRAIN Law. The right choice can save you tens of thousands of pesos every year.
How the 8% Flat Tax Works
Under Section 24(A)(2) of the Tax Code (as amended by TRAIN Law), self-employed individuals and professionals can choose a flat 8% income tax rate on their gross sales or receipts in excess of PHP 250,000.
Key points about the 8% flat tax:
- The first PHP 250,000 of gross income is tax-exempt
- 8% is applied to income above PHP 250,000
- No itemized deductions allowed
- Only available if gross receipts don't exceed PHP 3,000,000
- Replaces both the graduated income tax and percentage tax
How Graduated Rates Work
Under the graduated tax system (TRAIN Law), your taxable income is calculated as gross income minus allowable deductions, and taxed at the following rates:
| Taxable Income | Tax Rate |
|---|---|
| Up to PHP 250,000 | 0% |
| PHP 250,001 – 400,000 | 15% of excess over 250K |
| PHP 400,001 – 800,000 | PHP 22,500 + 20% of excess over 400K |
| PHP 800,001 – 2,000,000 | PHP 102,500 + 25% of excess over 800K |
| PHP 2,000,001 – 8,000,000 | PHP 402,500 + 30% of excess over 2M |
| Over PHP 8,000,000 | PHP 2,202,500 + 35% of excess over 8M |
With graduated rates, you can deduct business expenses, which lowers your taxable income. The trade-off is that you need to maintain detailed records and file with itemized deductions.
Side-by-Side Comparison at Different Income Levels
Here's how the two options compare for typical Filipino freelancers:
| Annual Gross Income | 8% Flat Tax | Graduated (with 40% expenses) |
|---|---|---|
| PHP 300,000 | PHP 4,000 | PHP 0 |
| PHP 500,000 | PHP 20,000 | PHP 15,000 |
| PHP 1,000,000 | PHP 60,000 | PHP 72,500 |
| PHP 2,000,000 | PHP 140,000 | PHP 235,000 |
| PHP 3,000,000 | PHP 220,000 | PHP 402,500 |
Note: Graduated calculation assumes 40% of gross income as deductible expenses. Actual results depend on your specific deductions.
When to Choose the 8% Flat Tax
- Your income is between PHP 300,000 and PHP 3,000,000 — the 8% rate is generally lower than graduated rates for most freelancers in this range
- You don't have many deductible expenses — service-based freelancers with low overhead (writers, designers, virtual assistants) benefit most
- You want simpler compliance — no need to track and itemize every business expense
When to Choose Graduated Rates
- Your income is below PHP 300,000 — you pay zero tax under graduated rates if your taxable income (after deductions) is under PHP 250,000
- You have high deductible expenses — if your business expenses exceed 40-50% of gross income, graduated rates may work better
- Your income exceeds PHP 3,000,000 — the 8% option is not available above this threshold
The Breakeven Point
The breakeven point — where 8% flat tax equals graduated tax — depends on your deductible expenses. As a rule of thumb:
- If your deductible expenses are less than 40% of gross income, the 8% flat tax is usually better
- If your deductible expenses are more than 40% of gross income, graduated rates may save you more
Use our tax calculator below to compare both scenarios with your actual numbers and find out which option puts more money in your pocket.
Want to see how Philippine tax rates compare to other countries? Use our tax comparison tool or explore the complete freelance tax rates guide.