Business Taxes 101: Filing Income Tax for First-Time Business Owners

In this article:

• Understanding Your Tax Responsibilities
• Choosing the Right Income Tax Rate
• Filing Income Tax for Business Owners
• Filing Attachments Through eAFS
• Paying Your Business Taxes
• Understanding Value Added Tax (VAT)
• Understanding Other Percentage Tax (OPT)
• Legal Ways to Lower Taxes for Businesses
• Staying Compliant While Growing Your Business

Filing taxes is a key part of running a business in the Philippines. Beyond daily operations, business owners are expected to keep accurate records, report their income properly, and meet deadlines set by the Bureau of Internal Revenue (BIR). These responsibilities are essential to keeping your business compliant and avoiding unnecessary penalties.

For many first-time and seasoned entrepreneurs, tracking transactions, organizing receipts, and preparing the correct tax forms can be one of the most challenging aspects of managing a business. Without the right systems in place, balancing these tasks with day-to-day operations can quickly become overwhelming.

At Globe Business, we understand that staying compliant goes hand in hand with having the right support. As a trusted partner to growing enterprises, we provide digital solutions that help simplify financial tracking, improve record-keeping, and make tax compliance more manageable.

After learning how to register a business and complete the key steps to operate legally, this guide will walk you through filing your income tax return, explain the different types of taxes, and share legal ways to reduce your tax obligations.

Understanding Your Tax Responsibilities

Before filing your business taxes, it is important to understand the types of taxes that apply to your business. Your BIR Certificate of Registration outlines the tax types you are required to file, along with their corresponding deadlines.

For most small business owners, tax compliance includes these obligations.

• Filing Business Owner Income Tax (Quarterly and Annual)
• Choosing between Value Added Tax (VAT) or Other Percentage Tax (OPT)
• Using the required forms, such as BIR Form 2307

Understanding these obligations early helps you avoid missed filings and unnecessary penalties.

Choosing the Right Income Tax Rate

One of the first decisions you will make as a taxpayer is choosing between the Graduated Income Tax Rate and the 8% Preferential Tax Rate. This choice affects how much tax you pay for the entire year.

Choosing the right tax rate and deduction method can significantly impact how much tax you pay, making this one of the most important decisions for first-time business owners.

Filing Income Tax for Business Owners

The BIR now requires most taxpayers to file their taxes electronically using eBIRForms or the Electronic Filing and Payment System (eFPS). For small business owners, eBIRForms is the most commonly used platform. Here are the steps for using it.

Step 1: Download and set up eBIRForms.

• Download the latest version of the eBIRForms and install it on your computer.
• Enter your TIN, name, address, ZIP Code, RDO, line of business, and contact details.
• Confirm that your email address is correct, as all confirmations are sent to that address.

Note: eBIRForms is a platform that covers 36 BIR Forms. It lets you fill out and submit tax forms online.

Step 2: Choose the correct tax form.

You will need to file both quarterly and annual income tax returns for each of your businesses. The form you use will be the same regardless of your chosen tax rate.

• Quarterly Filing

   

  • Use BIR Form 1701Qv2018.
  • It covers the first three quarters of the year: January-March, April-June, and July-September.

   

  Note: You do not need to file a quarterly income tax return for the fourth quarter (October-December), as your annual filing covers this period.

• Annual Filing

   

  • Use BIR Form 1701A if your income comes only from your business or profession.
  • Use BIR Form 1701v2018 if you are a mixed-income earner.

Here are some important income tax deadlines to keep in mind as a business owner.

• Quarterly Deadlines

   

  • 1st Quarter: On or before May 15
  • 2nd Quarter: On or before August 15
  • 3rd Quarter: On or before November 15

• Annual Deadline

   

  • On or before April 15 of the following year

   

  Example: Income earned in 2025 must be filed by April 15, 2026.

Step 3: Fill out the required information.

How you fill out your tax return will depend on the tax rate and deduction method you selected for your business. Here are the steps based on your chosen set-up.

• 8% Preferential Tax Rate

   

  • Select “Single Proprietor.”
  • Under Alphanumeric Tax Code (ATC), choose “Business Income – 8% IT Rate.”
  • The system will automatically apply the 8% rate in Section 16.
  • Proceed to section Schedule II (8% IT Rate) and enter your gross sales or receipts.
  • The system will automatically compute your tax due once your income exceeds ₱250,000.

• Itemized Deductions

   

  • Select “Single Proprietor.”
  • Under ATC, choose “Business Income – Graduated IT Rates.”
  • In section number 16, select “Graduated Rate per Tax Table.”
  • Then, in number 16A, select “Itemized Deduction.”
  • Go to Page 2, Part V, and enter your taxable income using Schedule 1 (Graduated IT Rate).
  • Once your taxable income exceeds ₱250,000, the system will automatically compute your tax due. If it does not, your tax due will remain zero.

• Optional Standard Deduction (OSD)

   

  • Select “Single Proprietor.”
  • Choose the appropriate ATC for your business income.
  • In Number 16, select “Graduated Rate per Tax Table.”
  • In Number 16A, select “Optional Standard Deduction.”
  • Go to Page 2, section Schedule I – For Graduated IT Rate, and enter your taxable income.
  • After entering your sales or revenue, the system will automatically apply the 40% deduction and compute your taxable income.

Tip: Always click “Validate” to check for errors before submission.

Step 4: Submit and save confirmation.

After submission, save and print your tax return, and keep the Tax Return Receipt Confirmation sent to your email. It confirms that you have successfully filed your tax return.

Filing Attachments Through eAFS

If your tax return requires attachments such as audited financial statements or tax credits, you must submit them through the Electronic Audited Financial Statements (eAFS) system.

What is eAFS?

eAFS is an online platform provided by the BIR that allows you to upload and submit your tax-related documents online. You use it to send supporting files for your income tax return, such as audited financial statements and other required attachments.

You are required to use eAFS if any of these apply to you.

• Your business has Audited Financial Statements, which is common for VAT-registered businesses or those earning over ₱3,000,000.
• You filed your Annual Income Tax Return online.
• You need to submit supporting documents, such as BIR Form 2307 and other required attachments.

eAFS serves three key purposes.

• Convenience: You can submit documents online without going to a BIR office.
• Compliance: It records that you submitted your attachments before the deadline.
• Completeness: It supports your ITR filing because eBIRForms and eFPS do not allow uploading attachments.

Once submitted, you will receive an eAFS Submission Reference Number (SRN) as proof of submission.

While eAFS offers convenience, it is important to understand what eAFS does not do.

• It is not used for filing your tax return.
• It is not a payment platform.
• It is not required if you have no attachments to submit.

A good rule of thumb is that if you filed your tax return online and have documents to attach, you should use eAFS. If you do not have attachments, you can skip this step.

Is There a Deadline for Filing Through eAFS?

The deadline for submitting through eAFS follows your income tax filing schedule.

• Annual filing: On or before April 15
• Quarterly filing:
  • 45 days after the quarter (for individuals)
  • 60 days after the quarter (for corporations)

How to File Through eAFS?

• Step 1: Register an account.

   

  • Go to the eAFS website.
  • Create an account if you do not have one by clicking "Not Registered?" and filling out your taxpayer information.
  • Make sure all details are accurate, as corrections can be difficult later on.

• Step 2: Log in.

   

  After registration, log in using your credentials. On the dashboard, click “File Upload” to start submitting your documents.

• Step 3: Prepare your documents.

   

  • Make sure all files are in PDF format and do not exceed 4.8 GB in total.
  • Follow the required file naming format generated by the system. For example, if you are submitting an AFS, the format is EAFSXXXXXXXXXAFSTYMMYYYY.
  • Upload only the documents that apply to your filing.

• Step 4: Upload your files.

   

  Click “+ Choose” to upload your documents. Make sure the file names match the system-generated format to avoid errors.

• Step 5: Submit and save. 

   

  After uploading, submit your documents and save your Submission Reference Number (SRN). It confirms that you have successfully submitted your attachments.

Paying Your Business Taxes

You can pay your taxes through different methods.

• Authorized banks such as Landbank, Development Bank of the Philippines, and UnionBank
• Online payment channels like PESONet

When paying through banks, prepare printed copies of your tax return and confirmation. Online payments offer a more convenient option, especially for small business owners managing multiple responsibilities.

Understanding Value Added Tax (VAT)

VAT is a type of tax added to the price of goods or services. While customers pay this tax, your role as a business owner is to collect and remit it to the BIR.

VAT generally applies to businesses with annual gross sales or receipts exceeding ₱3,000,000, with a standard rate of 12%. Some businesses may also choose to register voluntarily depending on their operations.

To understand how VAT works, you need to know these two components.

• Output VAT: The 12% tax you charge your customers
  • Computed as: Sales × 12%
  • Example: If you sell a service for ₱15,000, the Output VAT is ₱1,800.
• Input VAT: The 12% tax you pay on business purchases
  • Computed as: Purchases × 12%
  • Example: If you buy materials worth ₱4,000, the Input VAT is ₱480.

Based on the examples above, your VAT payable is as follows:

Output VAT (₱1,800) - Input VAT (₱480) = VAT Payable (₱1,320)

There are a few important points to keep in mind.

• You can only claim Input VAT if you have valid VAT receipts or invoices.
• If your Input VAT is higher than your Output VAT, you can carry it forward or apply for a refund if qualified.

Additionally, you have to file your VAT regularly based on these deadlines.

• Monthly: On or before the 20th of the following month
• Quarterly: On or before the 25th after the end of the quarter

Tip: Use digital bookkeeping tools to accurately record your sales and purchases. It will make it easier to compute your VAT correctly.

How to File Your VAT?

You can file your VAT through the eBIRForms platform. Simply follow these steps.

• Step 1: Access your VAT form.

   

  Open eBIRForms and choose the appropriate VAT form based on your filing schedule. BIR Form 2550M is for monthly VAT filing, while BIR Form 2550Qv2024 is for quarterly VAT filing.

• Step 2: Enter basic filing details.

   

  • In #1, select the “Calendar” option.
  • In #3, choose the correct month or quarter you are filing for.
  • In #13, select your taxpayer classification (Micro, Small, Medium, or Large).
  • Indicate "No" if you are not availing of any tax relief. It ensures your VAT return matches your actual reporting period.

• Step 3: Input your sSales (Output VAT).

   

  • Go to Page 2 of the form.
  • In Item #31, enter your total sales or receipts.
  • The system will automatically compute your Output VAT (12%).

   

  Note: Base your figures on official receipts and recorded transactions.

• Step 4: Input your purchases (Input VAT).

   

  • In Item #44, enter your total purchases.
  • The system will compute your Input VAT and deduct it from your Output VAT.

   

  Note: Only include purchases with valid VAT invoices or receipts.

• Step 5: Review your VAT Payable.

   

  • After entering all required amounts, the system will automatically compute your VAT Payable.
  • Review all entries carefully to ensure accuracy.

• Step 6: Validate, save, and submit your return.

   

  • Click “Validate” to check for missing or incorrect information.
  • Once complete, save and print your VAT return.
  • Submit the finalized form through eBIRForms.

   

  Note: Keep a copy of your submitted return and confirmation for your records.

If you’re VAT-registered, you must also submit a Summary List of Sales and Purchases (SLSP). It is a detailed report of all your transactions for the period, including both sales and purchases.

The SLSP supports your VAT filing by providing a breakdown.

• All sales transactions, whether taxable, zero-rated, or exempt
• All purchases from suppliers, including those with Input VAT

You can submit the report electronically through the BIR RELIEF system or your RDO's designated submission channel. It is usually due on or before the 25th day after the taxable period, aligned with your VAT filing deadline.

Failing to submit the SLSP on time may result in penalties of up to ₱25,000 per year and could lead to disallowed Input VAT claims or further audit by the BIR.

Understanding Other Percentage Tax (OPT)

OPT is filed and paid quarterly, with deadlines on April 25, July 25, October 25, and January 25 of the following year. While OPT is simpler than VAT, accurate record-keeping is still essential. 

Make sure you record your sales properly, issue receipts correctly, and ensure each one clearly indicates that your business is “Non-VAT Registered.”

Legal Ways to Lower Taxes for Businesses

You can legally reduce your tax obligations without cutting corners or risking compliance. Here are some practical ways to lower your taxes.

• Keep complete supporting documents. Ensure valid receipts for all expenses, so you can deduct them from your taxable income.
• Separate personal and business expenses. Ensure that your tax computation includes only legitimate business expenses.
• Maximize allowable deductions. Claim qualified expenses, such as operating costs and depreciation, to reduce your taxable income.
• Maintain organized records. Keep accurate, up-to-date records to support your filings and keep you prepared for audits.
• Seek professional advice when needed. Work with a tax consultant or certified public accountant to identify opportunities to reduce your taxes and ensure accurate filing.

Staying Compliant While Growing Your Business

As your business moves beyond registration and into daily operations, managing your business taxes becomes part of your long-term responsibilities as an owner. At the same time, tax compliance is not just about filing. It also requires clear visibility over your finances, accurate records, and reliable processes that support your decisions.

Globe Business, the connectivity backbone enabling digital-ready businesses, helps simplify how you manage transactions, organize financial data, and meet tax requirements through our digital solutions, so you can spend less time worrying about compliance and more time growing your business.

Give your business the foundation it needs to stay organized, make smarter decisions, and move forward with confidence with Globe Business Small Business Starter Bundles.

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