First-year tax costs of registering a small business.
First-year tax cost
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Business tax
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DST on capital
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Income tax
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Your breakdown
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The tax side of opening a business
Registering a business in the Philippines carries two very different kinds of cost. There are the fixed paperwork fees, the local government permits, the registration charges, the small documentary requirements, and there are the taxes your business will owe once it starts earning. This estimator focuses on the second group, the recurring tax cost of a typical first year, because that is the number that actually shapes whether a venture pays. It pulls together three things the BIR (Bureau of Internal Revenue) levies: a business tax on your sales, documentary stamp tax if you incorporate, and income tax on your profit.
What it deliberately leaves out is the local-government layer. Mayor's permits, barangay clearances, sanitary and fire inspection fees, and the rest vary by city and municipality, and no national formula can predict them. Treat the output as the BIR-side tax cost and budget separately for your LGU charges. Every rate quoted here is the figure this calculator applies; confirm the current rates and thresholds with the BIR before you rely on them.
How the three components stack up
The first component is your business tax, and which one you pay turns on size. Stay at or below the PHP 3,000,000 VAT threshold and you pay a percentage tax this tool sets at 3 percent of gross. Cross it and you become a VAT taxpayer charging 12 percent. The second component, documentary stamp tax, only applies if you set up a corporation, charged on the original issue of shares at PHP 2 for every PHP 200 of par value. A sole proprietor skips it entirely. The third is income tax: a sole proprietor runs profit through the graduated individual table, while a corporation pays corporate income tax.
One honest caveat on the corporate figure. This calculator applies the 25 percent regular corporate rate and compares it to the 2 percent minimum corporate income tax on gross, taking whichever is higher. It does not apply the reduced 20 percent rate that small domestic corporations can qualify for, because that relief also depends on an assets test the tool does not capture. If your company is genuinely small, your real corporate tax could be lower than shown, so check your eligibility with the BIR.
A VAT-registered corporation, first year
Model a corporation projecting PHP 4,000,000 of gross, PHP 1,000,000 of net income, and PHP 2,000,000 of paid-up capital. Because gross clears the VAT threshold, the business tax is 12 percent of PHP 4,000,000, which is PHP 480,000. Documentary stamp tax on the share issue is PHP 2 per PHP 200 of the PHP 2,000,000 capital, which is PHP 20,000. Corporate income tax is 25 percent of the PHP 1,000,000 net, PHP 250,000, comfortably above the PHP 80,000 minimum, so PHP 250,000 stands. The first-year tax cost totals PHP 750,000, using the rates this calculator applies.
Sole proprietor or corporation?
The structure toggle changes the answer more than most founders expect. A sole proprietor avoids documentary stamp tax on shares altogether and is taxed on profit through the graduated table, where the first PHP 250,000 is exempt, so a small operation can owe very little income tax. A corporation pays the stamp tax up front and a flat corporate rate from the first peso of profit, which is heavier at low income but offers liability protection and a cleaner path to outside investment. A common early mistake is incorporating reflexively for a one-person service business, then paying corporate tax and stamp duty that a sole proprietorship would have sidestepped. Run both structures here and weigh the tax gap against the non-tax reasons to incorporate.
Does this estimate include the cost of the permits themselves?
No. The mayor's permit, barangay clearance, BIR registration fee, books of account, and inspection charges are not modelled, because they are set locally and differ from one city to the next. Ask your LGU's business permits and licensing office for its current schedule and add that to the tax figure shown here.
Is the 3 percent percentage tax the same as VAT?
No, they are alternatives, not extras. A non-VAT business under the PHP 3,000,000 threshold pays the 3 percent percentage tax on gross and charges no VAT. A VAT-registered business charges 12 percent VAT and does not pay the percentage tax. You are in one regime or the other, and crossing the threshold moves you from the first to the second.