Income tax on rent, worked example, in Philippines

Taxation Researcher | June 25, 2022

Non-resident couple´s joint monthly rental income1 US$1,500 US$6,000 US$12,000
Annual Rental Income 18,000 72,000 144,000
Less: Expenses3 50% 9,000 36,000 72,000
= Taxable Income 9,000 36,000 72,000
Income Tax Rates4
Up to PHP250,000 0% - - -
PHP250,000 - PHP 400,000 20% 200 1,200 1,200
PHP400,000 - PHP 800,000 25% - 4,000 4,000
PHP800,000 - PHP 2,000,000 30% - 1,000 12,000
PHP2,000,000 - PHP 8,000,000 32% - - -
Over PHP 8,000,000 35% - - -
Annual Income Tax Due 200 6,200 17,200
Other Taxes
Value Added Tax (VAT)5 12% 540 8,640 17,280
       
Tax Due as % of Gross Income 1.89% 20.61 23.84%
Thanks to:
Punongbayan & Araullo

Notes


1 The property is jointly owned by husband and wife.

2 Exchange rate used: 1.00 USD = 50.00 PHP

3 Estimated values. Income-generating expenses are deductible when calculating taxable income. Typical deductions are repairs and maintenance, depreciation, and taxes and licenses.

4 Rental income earned by nonresident individuals is taxed at progressive income tax rates.

INCOME TAX

TAXABLE INCOME, PHP (US$) TAX RATE
Up to 250,000 (US$ 5,000 ) 0%
250,000 - 400,000 (US$ 8,000 ) 20% on band over US$ 5,000
400,000 - 800,000 (US$ 16,000 ) 25% on band over US$ 8,000
800,000 - 2,000,000 (US$ 40,000 ) 30% on band over US$ 16,000
8,000,000 - 8,000,000 (US$ 160,000 ) 32% on band over US$ 40,000
Over 8,000,000 (US$ 160,000 ) 35% on all income over US$ 160,000
Source: Global Property Guide

5 A 12% Value Added Tax (VAT) is imposed on residential property leases that satisfy certain conditions. The VAT burden is generally shouldered by the tenants.

Properties with rental payments exceeding PHP12,800 (US$272) per month received by landlords whose gross annual rental income exceed PHP1,919,500 (US$40,840) are subject to 12% VAT.

Properties with rental payments exceeding PHP12,800 (US$272) per month received by landlords whose gross annual rental income does not exceed PHP1,919,500 (US$40,840) are not subject to 12% VAT. Instead, it will be liable for percentage tax at a flat rate of 3% levied on the gross rent.


Non-Resident Couple (Through a Local Corporation):


Non-resident couple´s joint monthly rental income1 US$1,500 US$6,000 US$12,000
Annual Rental Income 18,000 72,000 144,000
= Taxable Income 18,000 72,000 144,000
Income Tax 3
Flat rate 25% 4,500 18,000 36,000
Annual Income Tax Due 4,500 18,000 36,000
Tax Due as % of Gross Income 25.00% 25.00% 25.00%
Thanks to:
Punongbayan & Araullo

Notes


1 The property is jointly owned by husband and wife.

2 Exchange rate used: 1.00 USD = 50.00 PHP

3 Rental income earned by nonresident individuals is taxed at a flat rate of 25%.