VAT or not: the ₱3 million line
Past ₱3 million in sales in any 12 months, you register for VAT, and a sole proprietor's 8% option ends. Watch Carla's 2024 cross the line.
← 1.3 Sole prop or OPC/corporation?Business is growing
Back in 2024, Carla was still a sole proprietor, not VAT-registered, paying the 8% income tax. Sales grew every month, and by June she'd sold ₱1.03 million.
Her accountant's question: "When do you hit three million?"
The line: ₱3 million
Once your sales pass ₱3,000,000 in any 12 months, you must register for VAT. Below it, you're a non-VAT taxpayer.
By October, Carla was at ₱2.19 million.
What counts as sales
The line is about gross sales: everything customers pay for your goods, across all your stores and channels, before marketplace fees.
Not your payouts, and not just one store. Four shops at ₱800,000 each is ₱3.2 million.
Below the line: non-VAT
A non-VAT business pays 3% percentage tax on its sales, filed quarterly on the 2551Q.
A sole proprietor can choose the 8% income tax instead, which replaces the 3%: that's what Carla did.
11.11: over the line
November's 11.11 sale brought in ₱900,000. Carla's total jumped to ₱3.09 million.
Now she has to register for VAT. From then on she charges 12% VAT, files the quarterly 2550Q, and claims the VAT she pays on stock and marketplace fees (Lesson 4).
Any 12 months, not just January to December
The ₱3 million test runs over any 12 months in a row: October to September counts as much as January to December.
A seller who stays under ₱3M each calendar year can still cross it in a rolling 12 months.
Goodbye, 8%
The 8% option is only for sole proprietors at ₱3 million or less who aren't VAT-registered. Pass the line and it's gone, for the whole year: Carla's 2024 income tax is worked out at the graduated rates instead.
That can mean a bigger tax bill at year-end. Better to see it coming.
What Carla did next
She registered for VAT. That part wasn't a choice. Then she asked a separate question: stay a sole proprietor, or form a company? VAT applies either way, so it didn't decide anything.
| Stay a sole proprietor | Form an OPC | |
|---|---|---|
| Pros |
|
|
| Cons |
|
|
Want the numbers? Lesson 7.3 computes the tax for both, at different sales →
She chose the OPC, mainly to keep business debts off her savings, and formed Kuting Kitchen OPC in 2025. Its sales were already past ₱3M, so it registered for VAT from day one: that's why the 2303 in Lesson 1.2 lists VAT.
The lesson: add up your last 12 months every month, and talk to your accountant before you reach ₱3 million, not after.
Pop Quiz: VAT, 3% or 8%?
Pick what each seller pays on top of income tax, or instead of it.
Dani, a sole proprietor, sold ₱1.8 million in the last 12 months and chose the 8% option.
Under ₱3M and on 8%: the 8% replaces both the graduated income tax and the 3%.
Elle Home OPC sold ₱2.4 million in the last 12 months and isn't VAT-registered.
Under ₱3M and non-VAT: 3% percentage tax. The 8% option is only for sole proprietors.
Fe, a sole proprietor on 8%, has sold ₱3.4 million in the last 12 months.
Past ₱3M: she must register for VAT, and the 8% option is gone for the year.
General information for learning, not tax advice. Carla, Kuting Kitchen and the sellers in the exercise are fictional. When exactly to register for VAT after crossing the line, and from when VAT applies, is set by BIR's rules: confirm the timing with your RDO or accountant.
Ready to check what you learned?
3 quick questions on the next page. Pick an answer to see why.
Take the check →