Philippines Rental Income Guide

the Philippines rental income taxation for 2026. The guide covers: the IIT at 0% to 35% on the rental income — if the property is owned personally, the rental income is subject to the graduated income tax rates; the 25% corporate rate — if the property is held by the corporation, the rental income is subject to the corporate income tax at 25% (or 20% for the small corporations with the net taxable income not exceeding PHP 5 million and the total assets not exceeding PHP 100 million); the 40% OSD on the gross income — the "Optional Standard Deduction" of 40% of the gross rental income may be claimed instead of the itemised deductions; the no separate rental tax regime — the Philippines does NOT have the separate tax regime for the rental income; the CGT at 6% on the property sale — the capital gains tax on the sale of the real property classified as the "capital asset".

Rental Income — IIT at 0% to 35% (Personal Ownership)

Graduated IIT rates — 0% to 35%: The rental income received by the individual from the personally owned property is subject to the graduated income tax rates (the "IIT" — the "Individual Income Tax"): 0% for the taxable income up to PHP 250,000; 15% for PHP 250,000 to PHP 400,000; 20% for PHP 400,000 to PHP 800,000; 25% for PHP 800,000 to PHP 2 million; 30% for PHP 2 million to PHP 8 million; and 35% for over PHP 8 million. The rental income is added to the other income (the employment income, the business income) to determine the total taxable income and the applicable bracket.
Rental income — passive vs active: The BIR classifies the rental income as the "passive income" if the landlord does NOT provide the significant services (the "pure lease" of the residential or the commercial space). The passive rental income is subject to the standard graduated IIT rates — there is NO separate "passive income" tax rate for the rental income. The rental income is reported on the BIR Form 1701 under the "other income" or the "business income" schedule.
No separate rental tax: The Philippines does NOT impose the separate "rental income tax" (unlike the some other countries with the special "real estate income" regimes). The rental income is treated as the ordinary income subject to the standard graduated rates. The landlord is NOT subject to the VAT on the rental income unless the total annual gross receipts exceed PHP 3 million (the VAT threshold).

Rental Income — 25% Corporate Rate (Corporate Ownership)

Corporate income tax — 25%: If the real property is held by the corporation, the rental income is subject to the corporate income tax (the "CIT") at the standard rate of 25%. The CIT is imposed on the net taxable income (the gross rental income minus the allowable deductions — the depreciation, the maintenance, the property management fees, the real property tax).
Reduced rate — 20% for small corporations: The domestic corporation with the net taxable income not exceeding PHP 5 million and the total assets not exceeding PHP 100 million (excluding the land) is subject to the reduced CIT rate of 20%. The reduced rate is available under the "CREATE Act" (the "Corporate Recovery and Tax Incentives for Enterprises Act" — the "RA 11534").
Dividend tax on distribution: The rental income earned by the corporation and distributed to the shareholders as the dividends is subject to the: (a) 10% dividend tax for the individual shareholders (the "final withholding tax"), or (b) the dividend exemption for the corporate shareholders (the "inter-corporate dividend exemption" under the Section 40 of the NIRC).

40% Optional Standard Deduction (OSD)

OSD at 40% of the gross income: The taxpayer may claim the "Optional Standard Deduction" (the "OSD") of 40% of the gross income from the rental activity, instead of the itemised deductions (the actual expenses). The OSD is the "deemed deduction" — the taxpayer does NOT need to substantiate the actual expenses. The OSD is the simple and the commonly used method for the individual landlords.
OSD vs itemised deduction: The OSD is beneficial when the actual expenses are less than 40% of the gross rental income. The itemised deduction is better when the actual expenses exceed 40% (the high maintenance, the high depreciation, the high property tax). For example: the gross rental income of PHP 1,000,000 — the OSD = PHP 400,000; the taxable income = PHP 600,000; the IIT = PHP 600,000 × 20% = PHP 120,000 (if PHP 600,000 is the total taxable income).
Irrevocable choice: The choice between the OSD and the itemised deduction must be made on the annual ITR and is irrevocable for the tax year. The taxpayer may switch between the methods each year — the "annual election" is permitted. The OSD is available only to the individuals — the corporations must use the itemised deduction.

No Separate Rental Tax Regime

Standard tax treatment: The Philippines does NOT have the separate "rental income tax" or the "landlord tax" regime. The rental income is taxed under the standard income tax rules — the graduated IIT rates for the individuals, the corporate tax rates for the companies. There is NO "flat rate" option for the rental income (unlike the some other countries that allow the flat 10% or 15% on the rental income).
Percentage tax (3%): If the total annual gross receipts from the rental activity are below PHP 3 million, the landlord may be subject to the "percentage tax" at 3% of the gross receipts (the "BIR Form 2551M" — the "monthly percentage tax return") instead of the VAT. The percentage tax is the "business tax" separate from the income tax. If the gross receipts exceed PHP 3 million, the landlord must register for the VAT at 12%.
Real property tax: The landlord must also pay the "Real Property Tax" (the "RPT") to the LGU — the local tax on the land and the buildings. The RPT rate is up to 2% of the assessed value (the "assessed value" = the market value × the assessment level). The RPT is deductible from the rental income for the income tax purposes.

CGT at 6% on Property Sale

Capital gains tax — 6%: The sale of the real property classified as the "capital asset" (not the "ordinary asset" — the property held for the sale in the ordinary course of the business) is subject to the capital gains tax (CGT) at 6% of the gross selling price or the fair market value (the "zonal value" by the BIR), whichever is higher. The CGT is the "final tax" — the seller does NOT report the capital gain on the ITR.
Exemption — principal residence: The CGT on the sale of the "principal residence" (the taxpayer's primary home) is exempt if: (a) the proceeds are fully reinvested in the new principal residence within 18 months, (b) the taxpayer has NOT availed of the exemption in the previous 10 years. The exemption is claimed using the "BIR Form 2007" (the "Application for the Exemption from the Payment of the Capital Gains Tax").
Creditable withholding tax (CWT) vs CGT: The CGT at 6% is the "final withholding tax" — the buyer withholds the 6% from the purchase price and remits it to the BIR. The seller does NOT include the capital gain in the ITR. If the property is held as the "ordinary asset" (the "dealer" in the real estate), the gain is subject to the graduated IIT rates (NOT the 6% CGT).