REVENUE MEMORANDUM ORDER NO. 23-2018 issued on May 21, 2018 prescribes the policies, guidelines and procedures in the availment of the eight percent (8%) Income Tax Rate option for individuals earning from self-employment and/or practice of professions. In general, income of self-employed individuals (includes Single Proprietors, Professionals and Mixed Income Earners) is subject to the graduated Income Tax rates. Self-employed individuals earning income purely from self-employment/business and/or practice of profession whose gross sales and/or receipts and other non-operating income does not exceed the Value-Added Tax (VAT) threshold of Three Million Pesos (₱ 3,000,000.00) shall have the option to avail of the following: a. Graduated income tax rates as provided under Section 24 (A)(2)(a) of the National Internal Revenue Code (NIRC), as amended; or b. Eight percent (8%) tax on gross sales or receipts and other non-operating income in excess of Two Hundred Fifty Thousand Pesos (₱ 250,000.00) in lieu of the graduated Income Tax rates and Percentage Tax under Section 116 of the NIRC, as amended. Individuals earning income both from compensation and from self-employment (business or practice of profession) or Mixed Income Earners shall apply the following Income Tax rates: a. The compensation income shall be subject to graduated Income Tax rates; and b. The income from business or practice of profession shall be subject to the following:  If the gross sales/receipts and other non-operating income do not exceed the VAT threshold of ₱ 3 Million, the individual has the option to be taxed at: i) graduated Income Tax rates; or ii) Eight percent (8%) Income Tax rate based on gross sales/receipts and other non-operating income.  If the gross sales/receipts and other non-operating income exceeds the VAT threshold, the individual shall be subject to the graduated Income Tax rates. The following criteria should all be satisfied to be able to qualify and avail of the 8% Income Tax rate option: a. Individuals (Single Proprietor or Professional or Mixed Income Earner) earning from self-employment and/or practice of profession; b. Taxpayers whose gross sales/receipts and other non-operating income did not exceed the ₱ 3 Million VAT threshold during the taxable year; c. Taxpayers registered and subject only to Percentage Tax under Section 116 of the NIRC, as amended; or taxpayers exempt from VAT or other Percentage Taxes; and d. Taxpayer must have signified his/her intention to elect the 8% Income Tax rate. Self-employed individuals shall signify their intention to elect the 8% Income Tax rate in filing any of the following: a. For New Business Registrant i. Upon registration using BIR Form No. 1901 and/or 1701Q; or ii. On the initial quarter return (BIR Form No. 2551Q and/or 1701Q) of the taxable year after the commencement of a new business/practice of profession. b. For existing Individual Business Taxpayers i. Filing of BIR Form 1905 (Application for Registration Information Update) at the beginning of the taxable year, to end-date the form type of quarterly Percentage Tax. Provided that an option to avail the 8% Income Tax rate shall be selected in filing the initial quarterly Income Tax return for Income Tax purposes; or ii. 1 st Quarterly Percentage Tax Return; and/or iii. 1 st Quarterly Income Tax Return. The 8% Income Tax rate option is not available to the following individual taxpayers who shall correspondingly be taxed based on the graduated Income Tax rates: a. Purely Compensation Income Earners; b. VAT-registered taxpayers, regardless of the amount of gross sales or receipts and other non-operating income; c. Taxpayers exempt from VAT or Other Percentage Taxes whose gross sales/receipts and other non-operating income exceeded the ₱ 3 Million VAT threshold during the taxable year; d. Taxpayers who are subject to Other Percentage Taxes under Title V of the Tax Code, as amended, except those subject under Section 116 of the same Title; e. Partners of a General Professional Partnership (GPP); f. Individuals enjoying Income Tax exemption. Individual person who is exempted from Income Tax, such as those registered Barangay Micro Business Enterprises (BMBEs) is bound to the choice that it made to avail itself the privilege under Republic Act No. 9178 for the entire period of its registration with the BIR pursuant to Department Order No. 17-04. The BMBE cannot avail both BMBE status (exempted from Income Tax, but liable to other internal revenue tax) and the 8% Income Tax rate option (in lieu of the graduated Income Tax rates and Percentage Tax) at the same time since taxpayers are not allowed to avail of double or multiple tax exemption under different laws, unless specifically provided by law. At the beginning of each taxable year, all individuals are subjected to graduated Income Tax rates. The 8% Income Tax rate option of self-employed individuals is effective only for the current taxable year when the election has been made, and shall automatically revert back to the graduated Income Tax rates at the beginning of the succeeding taxable years. Thus, the availment of the 8% Income Tax rate option is required to be signified and selected every taxable year, if the taxpayer wishes to be covered by such Income Tax rate. The Income Tax rate option, once elected, shall be irrevocable, and no amendment of option shall be made for the taxable year it has been made. Self-employed individual who is qualified and availed of the 8% Income Tax rate option is not required to file the Quarterly Percentage Tax Return but is required to: i) file the Quarterly Income Tax Return, unless exempted by any revenue issuances; ii) file the Annual Income Tax Return [Financial Statement (FS) is not required to be attached]; iii) signify the intention to avail the 8% Income Tax rate every taxable year; iv) maintain Books of Accounts and issue receipts/invoices. A taxpayer shall automatically be subjected to graduated Income Tax rates and be liable to VAT prospectively. He/She shall attach an audited FS in filing of the annual Income Tax return, if the gross annual sales and/or receipts exceed the amount of ₱3 Million anytime during the current taxable year when the option was made. He/She shall immediately update his/her registration within the month following the month he/she exceeded the VAT threshold to reflect the change in tax profile from non-VAT to a VAT taxpayer. Percentage Tax shall be imposed from the beginning of the year until taxpayer is liable to VAT. Taxable income for individuals earning income from self-employment/practice of profession shall be based on the net taxable income, if taxpayer opted to be taxed at graduated rates or has failed to signify the 8% Income Tax rate option; and the gross sales/receipts and other non-operating income in excess of ₱250,000, if the 8% Income Tax rate is availed by self-employed individuals earning income from purely selfemployment and/or practice of profession. However, in case of Mixed Income Earner, the taxable income is based on the gross sales/receipts and other non-operating income without the ₱250,000 reduction, if the option availed is the 8% income tax rate. The provision under Section 24(A)(2)(b) of the Tax Code, as amended, which allows an option of 8% income tax rate on gross sales/receipts and other non-operating income in excess of ₱250,000 is available only to self-employed individuals earning income purely from self-employment and/or practice of profession. The ₱250,000.00 reduction from taxable gross sales/receipts and other non-operating income is not applicable to mixed income earners since it is already incorporated in the first tier of the graduated Income Tax rates applicable to compensation income. For Mixed Income Earner, the excess of the ₱250,000.00 over the actual taxable compensation income is not deductible against the taxable income from business/practice of profession under the 8% Income Tax rate option. The total tax due shall be the sum of the tax due from compensation computed using the graduated Income Tax rates and the tax due from self-employment/practice of profession resulting from the multiplication of the 8% Income Tax rate with the total of the gross sales/receipts and other non-operating income. Self-employed individuals may signify their intention to elect the 8% Income Tax rate option by filing an Application for Registration Information Update (BIR Form No. 1905) at the beginning of the taxable year. Self-employed individuals availing the 8% Income Tax rate option shall still be registered with “Percentage Tax – Quarterly” tax type, and the 2551Q form type shall be end-dated. On the beginning of the following/each year, the 2551Q form type shall be automatically registered in the BIR registration system to confirm that the taxpayer is subject to graduated Income Tax rates and required to file the quarterly Percentage Tax return, unless an Application for Registration Information Update to avail the 8% Income Tax rate for the said taxable year has been submitted to the concerned Revenue District Office or the 8% Income Tax rate option has been elected during the filing of the 1st Quarterly Percentage or Income Tax Return. A Non-VAT individual taxpayer who availed of the 8% Income Tax rate and whose subsequent cumulative gross sales and/or receipts exceeded the ₱3 Million threshold during the taxable year shall be liable to pay Income Tax under the graduated Income Tax rates and shall be allowed a tax credit for the previous quarter/s Income Tax payment/s under the 8% Income Tax rate option. The taxpayer shall be required to update his/her registration immediately within the month following the month he/she exceeded the VAT threshold. The taxpayer shall automatically be liable to VAT prospectively starting the first day of the month following the month when the threshold is breached. The taxpayer shall pay the required Percentage Tax covering the sales/receipts and other non-operating income from the beginning of the taxable year or commencement of business/practice of profession until the time the taxpayer becomes liable to VAT. A VAT-registered person whose gross sales and/or receipts for three (3) consecutive years did not exceed the amount of ₱3 Million may update his registration from VAT to Non-VAT, in order to qualify to avail the 8% Income Tax rate option, on or before the first quarter of a taxable year, following rules and regulations on registration, updates, verification, and the inventory and cancellation of VAT invoices/receipts.