Rental income is taxable, but the rules confuse a lot of landlords. There is income tax, then a separate business tax (VAT or the percentage tax), and a withholding tax that some tenants deduct. The good news: for most small paupahan owners it is simpler than it looks. Use the free estimator below to get a quick picture, then read on for what each tax means.
The three taxes on rental income, in plain terms
As a Filipino landlord, your rental income can touch three different taxes. Not all of them apply to everyone:
- Income tax, on your profit from renting, like any other income.
- VAT or percentage tax, a business tax on your gross rent. You pay one or the other, or neither if you are exempt.
- Expanded withholding tax (EWT), only when a business tenant rents your property, they deduct it and remit it for you.
1. Income tax (and the 8% shortcut)
Your rental profit is added to your taxable income and taxed at the graduated rates (0% up to ₱250,000, then rising to 35%). But if your total gross receipts are ₱3 million or less a year, you can choose a flat 8% tax on gross receipts above ₱250,000, in place of both the graduated income tax and the percentage tax. For many small landlords, the 8% option is both cheaper and far less paperwork.
2. VAT vs percentage tax (and the ₱15,000 exemption)
This is the part most landlords get wrong:
- If you rent residential units for ₱15,000 a month or less per unit, you are exempt from both VAT and the percentage tax. The income is still subject to income tax, but there is no business tax on the rent.
- If your annual gross rent is over ₱3 million, you are VAT-registered and charge 12% VAT (usually passed to the tenant).
- In between, residential rent above ₱15,000 or commercial rent, with gross ≤ ₱3M, is generally subject to the 3% percentage tax (unless you took the 8% option, which replaces it).
3. The 5% withholding tax on rent
When your tenant is a registered business that uses the property in its trade, that tenant must withhold 5% of the rent and remit it to the BIR on your behalf. This is the “withholding tax on rent” landlords ask about. Important: it is not an extra tax, it is a prepayment that you credit against your income tax at filing time. Individual or household tenants do not withhold anything.
A simple example
Say you rent out two units at ₱12,000/month each, ₱288,000 gross for the year, to household tenants. Because each unit is at or below ₱15,000/month, you owe no VAT and no percentage tax. No business tenant means no 5% withholding. You only deal with income tax, and since gross is well under ₱3M, you can take the 8% option: 8% of (₱288,000 − ₱250,000) = about ₱3,040 for the year. Clean and simple. The estimator above does this math for your own numbers.
Rental income tax for OFWs (non-resident citizens)
If you are an OFW renting out a property back home, here is the part that trips up most overseas landlords: your salary abroad is not taxed in the Philippines, but your rental income here is.
Under the National Internal Revenue Code, an OFW is classified as a non-resident citizen, taxed only on income from sources within the Philippines. Your overseas employment income is exempt. But rent from a Philippine property is Philippine-sourced income, so it is taxable and you still need to file.
Good news: you are taxed the same as a local landlord
A common myth is that OFWs pay a flat 25% on rental income. That is wrong. The flat 25%-on-gross rate applies only to non-resident aliens (foreigners) not doing business here, not to Filipino citizens working abroad.
As a non-resident citizen, your Philippine rental income is taxed on net income using the same graduated rates every local landlord uses, and the same 8% option and ₱15,000 VAT/percentage-tax exemption explained above are available to you too. The graduated bands:
- Up to ₱250,000 a year, 0%.
- ₱250,001 to ₱400,000, 15% of the excess over ₱250,000.
- ₱400,001 to ₱800,000, 20% of the excess over ₱400,000.
- ₱800,001 to ₱2,000,000, 25% of the excess over ₱800,000.
- ₱2,000,001 to ₱8,000,000, 30% of the excess over ₱2,000,000.
- Over ₱8,000,000, 35% of the excess over ₱8,000,000.
So if your unit earns ₱8,000/month (₱96,000/year), you are under the ₱250,000 threshold and owe ₱0 income tax, though you must still file and may have percentage-tax obligations. The calculator above works for you exactly as it does for a resident landlord.
What an OFW landlord still has to do
- File an annual ITR (BIR Form 1701 for self-employed or mixed income, or 1700 if rental is your only Philippine income) declaring the rental income.
- Keep paying the percentage tax or VAT and any local taxes covered above, being abroad does not waive them.
- Authorize someone to file and pay for you. You cannot queue at the BIR from abroad, so most OFW landlords give a trusted relative a Special Power of Attorney (SPA) to handle BIR filing, receive payments, and manage the property.
Doing this from another time zone is exactly where a record-keeping app earns its keep, you can see every payment and receipt from your phone, so the relative filing on your behalf is working from the same numbers you are.
Practical tips for landlords
- Register with the BIR. Renting is a business activity; register and issue official receipts.
- Keep every receipt and record. Your tax is computed on income minus allowable expenses, records lower your tax and protect you.
- Compare 8% vs graduated each year, for many small landlords 8% wins, but not always.
- Track withholding. If a business tenant withholds 5%, get the BIR Form 2307 so you can credit it.
Frequently asked questions
Is rental income taxable in the Philippines?
Yes. Rental income is taxable. You pay income tax on it, and depending on your gross receipts, either VAT or the percentage tax. Residential units at ₱15,000/month or less per unit are exempt from VAT and percentage tax, but the income is still subject to income tax.
What is the 5% withholding tax on rent?
When a business tenant uses the property in its trade, it withholds 5% expanded withholding tax from the rent and remits it. It is not extra tax, it is a prepayment you credit against your income tax. Household tenants do not withhold.
What is the 8% tax option for landlords?
If gross annual receipts are ₱3 million or less, you may opt for a flat 8% income tax on gross above ₱250,000, in lieu of the graduated income tax and the percentage tax. Often simpler and cheaper for small landlords.
Do I need to issue receipts and register with the BIR?
Yes. Renting is a business activity, so register with the BIR, issue official receipts, and keep records. See our rent receipt template.
Is this rental tax calculator accurate?
It gives a simplified estimate based on current rules. Your actual tax depends on your registration, individual vs corporate filing, deductions, and the latest BIR issuances. Confirm with the BIR or an accountant before filing.
Do OFWs pay tax on rental income in the Philippines?
Yes. An OFW's foreign salary is exempt, but rental income from a Philippine property is Philippine-sourced and taxable. You file an annual ITR and are taxed on net income at the graduated rates, the same rates a local landlord pays.
Are OFWs taxed a flat 25% on rental income?
No. The flat 25%-on-gross rate applies only to non-resident aliens (foreigners), not to Filipino citizens working abroad. As a non-resident citizen you use the graduated rates and are taxed on net income.
How do OFWs file rental income tax while abroad?
By giving a trusted relative a Special Power of Attorney to file and pay at the BIR on your behalf, or by using an authorized representative or accountant.
Taxes feel heavy until you see which ones actually apply to you, and for most small paupahan owners, it comes down to income tax plus good records. Keep clean books and the rest is manageable. When you are ready to make record-keeping effortless, you can start free with ArmaRenta.
Sources & further reading
- Bureau of Internal Revenue, Taxation of Non-Residents, on how non-resident citizens are taxed only on Philippine-sourced income.
- National Internal Revenue Code (RA 8424), as amended by the TRAIN Law (RA 10963), full text at the Lawphil Project, and the BIR at bir.gov.ph.
- VAT exemption for residential units leased at ₱15,000/month or less and the percentage tax, per BIR regulations on the lease of residential units.
- Our related guides: SPA for OFW landlords, Rent Control Act (RA 9653), and rent receipt template.
This article is general information for Filipino landlords, not tax or legal advice. Tax rules change, confirm with the BIR or an accountant before filing.
Eli is the founder of ArmaRenta, the property management app built for Filipino landlords. He writes about running a paupahan the smart way, clear contracts, on-time rent, and staying compliant without the stress.