Rental Income Tax in the Philippines (2026): BIR Registration, 8% vs Graduated Rates, and When VAT Applies

Carlo rents a 24-square-meter studio in Mandaluyong for ₱22,000 a month. For two years, the tenant paid via bank transfer without Carlo thinking anything of it. Then, in the same month, he received two requests: the tenant’s employer wanted a BIR-registered invoice because they took over the lease, and Carlo’s bank requested his latest income tax return to approve a second housing loan.

He had neither, and both requests went to the BIR. Most Filipino landlords handle rental income tax not through an audit, but because a tenant, lender, or buyer needs documents they cannot provide.

The rules are easier than many owners think, especially since the Ease of Paying Taxes (EOPT) Act started in 2024. This guide explains BIR registration, the 8% versus graduated choice, when the 3% percentage tax and 12% VAT apply, and what waiting costs in pesos.

Yes. Rent earned from property in the Philippines is taxable income, regardless of where the owner lives or works. The BIR considers leasing a business, so even one rented condo requires registration. There is no exemption for small landlords from registering, though there are exemptions from certain taxes, as explained in the sections below.

What Counts as Rental Income

Taxable rent is higher than the monthly payment. It covers all tenant payments and some may be taxed sooner than landlords think.

What Doesn’t Count, at Least Not Yet

A security deposit isn’t counted as income when you receive it since it might need to be returned. It only becomes income if you use it for unpaid rent or keep it for damages. Our guide to security deposit rules explains how much you can collect and when it should be returned.

The BIR doesn’t need to know about your individual tenant. Corporate tenants report their rent, and banks and buyers require ITRs and tax clearances.

Registration is a one-time task done via the BIR’s Online Registration and Update System (ORUS), which indicates your assigned Revenue District Office (RDO). If you have a TIN from your job, update that registration instead of acquiring a new one, as having two TINs is a violation.

What Changed Under the EOPT Act

The EOPT Act lowered the costs for small landlords to register and reduced penalties for those earning under ₱3 million a year.

Local Permits and Reporting for Commercial Space

Your city might need a mayor’s permit and barangay clearance for leasing, so confirm this with the business permits office. If you lease commercial space, RR 12-2011 requires you to submit a report on your tenants, their TINs, rents, and lease terms twice a year, by January 31 and July 31. Residential landlords typically do not need to comply.

Co-Owned, Inherited or Spouse-Held Property

Co-owners report their share of rent, and spouses equally divide any rent that can’t be assigned to one. Rent from inherited property belongs to the estate, which files its own return until the heirs settle the estate.

Many landlords end up paying too much. Each year, you can choose between two methods for calculating income tax on rent. The cheaper option depends on your other income and the property’s maintenance costs.

How Graduated Rates Work

Under graduated rates, you pay income tax on net rent after expenses, using the TRAIN Law table below. The optional standard deduction (OSD) reduces gross rent by 40%, with no receipts required. Itemized deductions include actual costs like loan interest (not principal), building depreciation, association dues, amilyar, repairs, and insurance, all requiring receipts and bookkeeping. Additionally, you must pay a 3% percentage tax on gross rent unless your units rent for ₱15,000 a month or less.

How the 8% Option Works

The 8% option combines the graduated income tax and the 3% tax into one tax: 8% of gross receipts without deducting expenses. It is available only for landlords who are not VAT-registered and have gross receipts of ₱3 million or less annually. If rent is your only income, the first ₱250,000 is deducted. If you also have a job, the ₱250,000 deduction is already applied to your salary, so the 8% tax applies to all of your rental income.

You choose 8% at registration or in your first-quarter return (Form 1701Q, due May 15), and this choice applies for the whole year. If you miss the deadline, you’ll automatically use graduated rates. If your receipts exceed ₱3 million during the year, you’ll switch to graduated rates, but the 8% already paid will be credited.

Four Landlords, Four Answers

Here’s how the two options stack up for four typical landlords.

A Simple Decision Rule

For most landlords, 8% is cheaper because it eliminates the 3% tax, and the ₱250,000 deduction helps if there is no other income. Graduated rates are beneficial mainly when expenses are high, often due to a new property with a large loan. However, savings only apply if you keep proof like the bank’s interest certificate, receipts, and a depreciation schedule, as the BIR can reject any unverified expenses.

To run your own numbers, use the calculator.

Percentage tax is a business tax on gross rent, distinct from income tax. Landlords not registered for VAT and on graduated rates must pay 3% of gross receipts quarterly using Form 2551Q. This rate was 1% from July 2020 to June 2023 before increasing back to 3% on July 1, 2023. Consequently, landlords setting rents during those years should recalculate their net.

Landlords who chose the 8% rate don’t pay it since it’s included in the rate. This also applies to landlords with residential units renting for ₱15,000 a month or less. Others on graduated rates pay it regardless of their profits. For a ₱25,000 unit, that amounts to ₱9,000 a year, typically the entire difference between the two options.

VAT concerns landlords, but few actually have to pay it. It only applies at 12% above a certain limit, and residential properties are mostly exempt.

The ₱3 Million Threshold

You need to register for VAT if your VAT-able leases earn over ₱3 million in a year, or if you expect them to. Otherwise, you pay a 3% percentage tax or an 8% rate.

The ₱15,000 Residential Rule

Residential units renting for ₱15,000 or less per month are exempt from VAT and the 3% tax, no matter how many you have. According to Revenue Regulations No. 13-2018, only rents above ₱15,000 are included in the ₱3 million count for VAT. This also applies to rooms, bedspaces, and dormitory units; for example, a boarding house charging ₱4,500 per bedspace remains exempt regardless of its occupancy.

Commercial Leases

Offices, stores, and warehouses don’t get a ₱15,000 exemption. All their rent is included in the ₱3 million limit, so one big commercial tenant can exceed that amount.

What Changes When You Cross ₱3 Million

Once VAT-registered, you charge 12% on rent, file Form 2550Q quarterly, and lose the 8% option. A key decision is whether your quoted rent includes VAT. A unit at ₱35,000 quoted as VAT-inclusive means ₱31,250 for you, while “₱35,000 plus VAT” totals ₱39,200 for the tenant. Clarify this in the lease and check the market with our guide to pricing your rental unit.

When a business rents your unit as an office or employee housing, it usually keeps 5% of the rent to send to the BIR. You get 95% in cash and a BIR Form 2307 for the 5%, which you can deduct from your income tax when filing.

Registration is beneficial because the 5% withheld is tax already paid, which only landlords using their own TIN can claim. Unregistered landlords forfeit this credit, even though they are still listed as payees on the company's filings. Corporate tenants are typically dependable payers, and many will only sign with a BIR-registered invoice.

File your taxes on time, even if you owe nothing, as missing a zero-tax return can lead to penalties. eBIRForms and online payment are available for all forms listed below.

Documentary Stamp Tax on the Lease Contract

Every lease contract has a documentary stamp tax (DST): ₱6 for the first ₱2,000 of annual rent plus ₱2 for each additional ₱1,000. A one-year lease at ₱22,000 a month incurs ₱530. A two-year lease at ₱25,000 a month totals ₱602 per year or ₱1,204. File it on Form 2000 within five days after the lease is signed. Both parties are responsible, so the lease should specify who pays.

Amilyar (Real Property Tax)

Amilyar is a local tax paid to the city, due whether or not the unit is rented, and can be deducted if you itemize. Our amilyar guide explains its calculation.

Short-Term Rentals

Airbnb and other short-term rentals have basic requirements: register, set a rate, and file quarterly. Don't rely on the ₱15,000 exemption, which doesn't apply to hotel-style rentals; treat nightly bookings as subject to percentage tax or VAT unless confirmed otherwise by your RDO. If you advertise online, RMC 38-2026 requires registered businesses with an online presence to show a BIR Registration Seal. Check our short-term vs long-term leasing comparison for more details.

Working abroad does not change the tax on a Philippine property. OFWs pay taxes only on income from the Philippines, and rental income from a Manila unit falls under this. They register and file taxes like any landlord, often using a relative or property manager with a special power of attorney. Returns can be filed online, so missing a deadline back home is the main concern. Choose a representative to file every quarter.

Foreign individuals who own a condo but live abroad are usually taxed 25% on gross rent, deducted by a corporate tenant. If foreigners stay over 180 days a year, they are taxed like residents. Holding property through a corporation faces a corporate income tax of 20% to 25% and requires more compliance, which only benefits larger portfolios.

Unregistered landlords are usually discovered not through random audits but by looking at documents from others, such as a tenant’s withholding return, or by noticing missing documents when a bank or buyer makes a request.

Assessments from previous years are more expensive than the actual tax. If a landlord never registered, they didn't choose the 8% rate, so those years are usually calculated using graduated rates plus a 3% tax. Additionally, under the EOPT Act, small taxpayers face a 10% surcharge and 6% annual interest, compared to 25% and 12% for larger taxpayers, along with a penalty for each unfiled return. Here’s what this means for Carlo.

If you’ve been renting without registering, the best option is to register now and consult a CPA about handling past years before the BIR increases fees.

Check this list when you register and every January.

Do I pay tax if my tenant is a relative?

Yes, if they pay rent. The BIR looks at the payment, not the relationship. If a relative lives in the unit for free, there is no rental income to report.

Can I deduct my mortgage payments?

Only the interest, and only on graduated rates with itemized deductions. The principal isn’t deductible, but depreciation on the building is. Under the 8% option, no expenses are deducted at all.

Do I need to register if I rent out my unit for only a few months?

Yes. Registration depends on earning rent, not on how long you earn it. If you stop renting for good, file BIR Form 1905 to close the registration. Otherwise the BIR keeps expecting returns, and every missed one adds a penalty.

I’m employed and rent out one unit. Which returns do I file?

Substituted filing through your employer no longer covers you. You file three quarterly 1701Q returns and one annual Form 1701 combining your salary (from your Form 2316) and your rent, plus the quarterly 2551Q if you’re on graduated rates and the unit rents above ₱15,000.

If my tenant pays the association dues, is that income?

Yes. When a tenant pays something you owe, the BIR treats it as additional rent. With itemized deductions you can deduct the dues as an expense; on the 8% option they just add to gross receipts.