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 the property is owned and rented out by an individual.
 Local Business Tax: Paid to the local government by businesses earning rental income.

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

Less than ₱ 250,000 ($4,500)

Between ₱ 250,000 ($4,500) and ₱ 400,000 ($7,200)

Between ₱ 400,000 ($7,200) and ₱ 800,000 ($14,400)

Between ₱ 800,000 ($14,400) and ₱ 2 million ($36,000)

Between ₱ 2 million ($36,000) and ₱ 8 million ($144,000)

More than ₱ 8 million ($144,000)

Source: PWC

Foreigners’ income tax for rental income in the Philippines

Foreigners, however, pay another tax rate than the standard income tax rates of the Philippines.

 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:

1. 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.
2. 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.
3. 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.
4. 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.
I.
A. On Certain Passive Income of Individual Citizens and Resident Aliens

Passive Income Tax Rate

1. Interest from currency deposits, trust funds and deposit substitutes 20%
2. Royalties (on books as well as literary & musical compositions) 10%
- In general 20%
3. Prizes (P10,000 or less ) Graduated
Income Tax
Rates
- Over P10,000 20%
4. Winnings (except from PCSO and Lotto amounting to P10,000 or less ) 20%
- From PCSO and Lotto amounting to P10,000 or less exempt
5. Interest Income from a Depository Bank under the Expanded Foreign 15%
Currency Deposit System
6. Cash and/or Property Dividends received by an individual from a domestic 10%
corporation/ joint stock company/ insurance or mutual fund companies/
Regional Operating Headquarter of multinational companies
7. Share of an individual in the distributable net income after tax of a 10%
partnership (except GPPs)/ association, a joint account, a joint venture or
consortium taxable as corporation of which he is a member or co-venture
8. Capital gains from sale, exchange or other disposition of real property 6%
located in the Philippines, classified as capital asset
9. Net Capital gains from sale of shares of stock not traded in the stock 15%
exchange
10. Interest Income from long-term deposit or investment in the form of savings, Exempt
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form
prescribed by the Bangko Sentral ng Pilipinas (BSP)
Upon pre-termination before the fifth year, there should be imposed on the
entire income from the proceeds of the long-term deposit based on the
remaining maturity thereof:
Holding Period
- Four (4) years to less than five (5) years 5%
- Three (3) years to less than four (4) years 12%
- Less than three (3) years 20%