Knowing the tax for rental income in the Philippines is the first thing you should learn about when considering investing in real estate in the country. While the Philippines is well-known as a popular travel destination, it is also a great place to start a rental business. Thanks to the country’s inexpensive cost of living and hospitality, there has been an increase in expats wanting to live or even retire in the country.
Who needs to pay real estate rental income tax in the Philippines?
Many forget to consider rental income tax when considering property taxes in the Philippines. Nevertheless, it’s important to consider rental income tax, as any individual or entity earning property rental income in the Philippines is subject to tax obligations and must follow the BIR requirements regarding house rental in the Philippines. Those who must pay rental income tax include residents and non-residents who earn income from renting out their properties in the Philippines. In most cases, the property owner or landlord is responsible for paying taxes on the rental income.
Tax for rental income in the Philippines
There are several property taxes in the Philippines, such as property purchase tax and tax for rental income in the Philippines, including:
- Personal Income Tax: Paid if an individual owns and rents the property.
- Local Business Tax: Paid to the local government by businesses earning rental income.
Do you want help filing taxes for rental income in the Philippines? Please leave your details below or email us at [email protected] for more information or help with taxes in the Philippines.
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Personal Income Tax
The tax for rental income in the Philippines is progressive, meaning the more you earn, the higher the tax rate you will pay. The rate depends on the total income you have made the whole year. The rate is as follows:
| Taxable income | Tax rate |
|---|---|
| Less than ₱ 250,000 ($4,500) | 0% |
| Between ₱ 250,000 ($4,500) and ₱ 400,000 ($7,200) | 15% |
| Between ₱ 400,000 ($7,200) and ₱ 800,000 ($14,400) | 20% |
| Between ₱ 800,000 ($14,400) and ₱ 2 million ($36,000) | 25% |
| Between ₱ 2 million ($36,000) and ₱ 8 million ($144,000) | 30% |
| More than ₱ 8 million ($144,000) | 35% |
Foreigners’ income tax for rental income in the Philippines
Foreigners, however, pay a tax rate higher than the Philippines’ standard income tax rates.
- Foreign residents: 25% of the gross rental income.
- Foreign non-residents: 35% of the gross rental income.
When do you pay income tax?
Foreigners engaged in trade or business, such as property rental business, must file an annual Income Tax Return (ITR). It summarizes their total income, deductions, and credits for the year. The usual deadline for filing the annual Income Tax Return is April 15 of the following year.
Further, there is also a requirement for filing quarterly income tax returns due on the following dates:
- 1st quarter: On or before May 15
- 2nd quarter: On or before August 15
- 3rd quarter: On or before November 15
However, don’t worry if you think you will pay two kinds of income tax since these quarterly payments will advance the annual income tax liability. Precise payment of the taxes on rental income in the Philippines is crucial. It will ensure compliance with the law and prevent potential penalties or legal issues related to non-payment or underreporting of income.
How to calculate tax for rental income in the Philippines?
If you’re in the Philippines, it’s crucial to understand the specific steps involved in calculating the tax for rental income. Below is a detailed guide to help you through this process:
- Calculate the gross rental income: The first step involves computing your gross rental income. This sum is the rent you’ve collected from your real estate properties throughout the year.
- Identify allowable deductions: You need to subtract your allowable deductions. In the context of tax for rental income, these deductions are specific expenses you’ve incurred that are deducted from your gross rental income. Common allowable deductions for real estate rental income tax are costs related to repairs and maintenance, property taxes, and mortgage loan interests.
- Apply the relevant tax rate: It’s essential to apply the appropriate tax rate. For rental income in the Philippines, the standard tax rate is 25% for resident citizens and resident aliens. However, non-resident aliens are subject to a 35% real estate rental income tax rate.
- Calculate your tax for rental income: The final step is the actual calculation of your rental income tax in the Philippines.
To illustrate, here’s a simplified example of calculating real estate rental income tax in the Philippines:
Gross rent income: ₱ 230,000 ($4,140)
Allowable deductions: ₱ 30,000 ($540)
Taxable income: ₱ 200,000 ($3,600)
Tax rate: 25%
Rental income tax: ₱ 50,000 ($900)
This example shows the importance of each step in ensuring that your tax for rental income is calculated accurately. By adhering to these guidelines, property owners can navigate the challenges of real estate rental income tax in the Philippines, fostering compliance and financial transparency.
Local Business Tax
All entities doing business must have a business permit. The law requires that such business permits be displayed so customers can see them when transacting. To acquire this business permit, payment of local business tax is necessary.
The specific rate depends on the local tax regulations or ordinances established by the local government unit where you can find the business. Most local tax ordinances specify an annual amount based on gross sales or receipts, while other rates are a percentage of gross sales or receipts. These rates can vary depending on the type of business activity, meaning that a single entity engaged in multiple business lines may be subject to different rates.
When is local business tax due?
You can settle it annually before January 20 or quarterly within the first 20 days of January and the first month of each subsequent quarter.
Get help with filing property taxes in the Philippines
Navigating the complexities of property taxes in the Philippines, especially for those living abroad or with multiple investments, can be challenging. Own Property Abroad offers support for property owners, including assistance with all types of property taxes, such as rental income tax, Capital Gains Tax (CGT), Real Property Tax (RPT), Transfer Tax, Value Added Tax (VAT), and Documentary Stamp Tax (DST).
Our legal team is experienced in the Philippine tax system and is dedicated to ensuring that your tax filings are accurate, timely, and compliant with local regulations. Whether you need help understanding your tax obligations, optimizing your tax payments, or simply managing the annual filing process, Own Property Abroad is here to assist. You can leave your details below or email us at [email protected] for more information or assistance with property taxes in the Philippines.
Talk with our tax agent in the Philippines
Frequently Asked Questions (FAQs)
Is rent tax deductible in the Philippines?
Rent expenses are generally not deductible for individuals who rent residential properties for personal use. However, businesses can deduct rent expenses as a business expense when leasing commercial properties for business purposes.
What is the TRAIN Law in the Philippines?
The TRAIN law is a significant law that amended specific tax regulations in the Philippines. Notably, it provided that individuals earning an annual income below ₱ 250,000 ($4,500) are exempted from income tax. The VAT threshold increased to ₱ 3 million ($54,000), which meant that smaller businesses with annual sales below such amount were exempt from VAT.
What is rental income tax in the Philippines TRAIN Law?
Rental income forms part of your income tax, subject to the progressive rates. The tax rates and thresholds for rental income are determined by the individual’s total annual revenue, as outlined in the tax brackets specified in the law.
4 Responses
What are the tax consequences of rental business on building property upon the death of the owner?
My husband and I are both retired, no job, only monthly pension. We own a house and lot in Bulacan and still paying for its monthly amortization of Php54,000 per month for two more years. We want to rent out this house and lot for Php20,000 per month. Please tell me if we need to file rental income tax and how much we have to pay?
We are planning to build a commercial space for rent. The rentable space is 117 sqm. And if the gross income is 117,000 php, and we have to pay 56k for the loan. How much will be the tax?
Hi Alex, for a commercial space in the Philippines with a gross income of PHP 117,000 and loan expenses of PHP 56,000, your taxable income would be the gross income minus deductible expenses, including loan payments. Tax rates vary, but for income tax, it generally ranges from 20% to 30% for corporations.