Sole prop or OPC/corporation?
Carla started as a sole proprietor, then formed Kuting Kitchen OPC. Same shop, different taxpayer. Here's what changed, side by side.
← 1.2 Reading your 2303Same shop, new paperwork
Carla started out selling as herself: Carla Santos, doing business as Kuting Kitchen. In 2025 she formed Kuting Kitchen OPC, a company with her as its only owner.
Same cat food, same Shopee store. So what changed?
A sole proprietorship is you
As a sole proprietor, the business is Carla. She registers the shop name with DTI and herself with BIR, under her own TIN.
Most online sellers start this way: it's quick, cheap and simple.
An OPC or corporation is a separate company
Kuting Kitchen OPC is its own legal person: registered with the SEC, then with BIR under its own TIN. Carla owns it, but she isn't it.
An OPC (One Person Corporation) has a single owner, who names a nominee to take over if needed. A regular corporation has two or more. BIR taxes both the same way. So does a partnership.
Income tax: two different rules
Sole proprietor: graduated rates, where the first ₱250,000 of income a year is tax-free, or the 8% option on sales above ₱250,000, if sales stay at ₱3 million or less and you aren't VAT-registered.
OPC or corporation: 20% of net taxable income, or 25% once that passes ₱5 million or assets pass ₱100 million. No tax-free first ₱250,000.
Different forms
Sole proprietors file the 1701Q three times a year and the 1701 or 1701A once a year. Micro and small ones can use the shorter 1701-MS.
Companies file the 1702Q three times a year and the 1702-RT once a year.
The SEC adds its own filings
A company files financial statements with the SEC every year. Corporations also file a General Information Sheet; an OPC files its appointment of officers instead.
A sole proprietor has no SEC filings, just a DTI renewal every five years.
Who pays if the business owes
A sole proprietor's business debts are her own: her savings and property answer for them.
A company's debts are the company's. Carla's personal money stays out of it, as long as she keeps the company's money separate from her own.
Why switch to a corporation?
Becoming VAT-registered doesn't require a company: a sole proprietor past ₱3M simply registers for VAT. People form an OPC or corporation for other reasons:
- Limited liability, the main one: business debts stay off your own savings.
- Business money kept apart from family money.
- Continuity: an OPC's nominee keeps it running if you can't.
- Credibility with big suppliers, buyers and banks.
- Tax, but only at large profits. On ₱700,000 of taxable income, a sole proprietor pays ₱82,500 at graduated rates; a company pays 20%, ₱140,000, plus 10% on profit taken out as dividends. Run your own numbers in Lesson 7.3 →
What doesn't change
Both register before selling, issue invoices, keep books, withhold tax when they pay staff or rent, and send e-invoices from 31 December 2026 unless they're micro taxpayers.
Both also face the same ₱3 million VAT line. That's the next section.
Pop Quiz: who files what?
Pick each seller's business type and yearly income tax return.
Ana sells phone cases on TikTok Shop. She registered the shop name with DTI.
DTI means a sole proprietorship: Ana files the individual 1701 (or 1701A).
Ben and his cousin registered BC Trading Corp. with the SEC.
Two owners and SEC registration: a corporation, which files the 1702-RT.
Liza registered Liza Bakes OPC with the SEC. She's the only owner.
One owner, SEC-registered: an OPC. It files the corporate 1702-RT, not Liza's personal 1701.
General information for learning, not tax or legal advice. Kuting Kitchen and the sellers in the exercise are fictional. Which structure suits you depends on your plans; talk to an accountant or lawyer before switching.
Ready to check what you learned?
3 quick questions on the next page. Pick an answer to see why.
Take the check →