Filing income tax returns (ITR) is mandatory for all business entities in the Philippines, including partnerships. However, accurate filing and computation can be challenging, and errors may result in penalties or even trigger an audit. To help you stay compliant, we’ll guide you through how to compute and file your ITR for partnership businesses.
For ITR filing for self-employed individuals, sole proprietors, and corporations, refer to our other blog posts on our website.
What is an Income Tax Return?
An ITR is a document filed with the Bureau of Internal Revenue (BIR) that details a taxpayer’s income, deductions, and tax obligations. It helps determine the amount of tax a person or business needs to pay.
Understanding Partnerships and Tax Obligations
In the Philippines, a partnership is treated as a separate legal entity from its partners. It must register with the Bureau of Internal Revenue (BIR) and obtain its own Tax Identification Number (TIN). Partnerships are generally taxed like corporations. However, General Professional Partnerships (GPPs)—such as law or accounting firms that earn income from professional practice. For GPPs, each partner is taxed individually on their share of the net income.
Regardless of the type, all partnerships are still required to file annual income tax returns and other related forms, even if they do not owe taxes.
Types of Partnerships and Their Tax Treatment
Ordinary Partnerships
- Subject to income tax like corporations, they are required to:
- File quarterly ITR using BIR Form 1702Q
- File annual ITR using BIR Form 1702-RT
- Withhold and remit taxes if applicable
General Professional Partnerships (GPPs)
GPPs are formed by professionals (e.g., doctors, lawyers, accountants) to practice their common profession. They are not taxed as entities, but they must:
- File BIR Form 1702-EX (Annual ITR for Exempt Corporations)
- Distribute net income to partners, who will then declare their share in their personal ITRs.
Step-by-Step Guide to Filing ITR for Partnerships
1. Register Your Partnership
Before filing taxes, make sure your partnership is registered with the:
- Securities and Exchange Commission (SEC)
- Bureau of Internal Revenue (BIR)
- Local Government Unit (LGU)
You must also:
- Secure a Certificate of Registration (BIR Form 2303)
- Register books of accounts
- Print official receipts or invoices
2. Prepare Financial Statements
Prepare the following documents:
- Audited Financial Statements
- Income Statement
- Balance Sheet
- Partners’ Capital Accounts
Ensure accuracy in all financial data to avoid mistakes when computing taxes.
3. Compute Taxable Income
For ordinary partnerships, taxable income is computed as:
Gross Income – Allowable Deductions = Taxable Income
You can choose between:
- Itemized Deductions, where you list actual business expenses
- Optional Standard Deduction (OSD), which is 40% of gross income
Example Computation 1: Using Itemized Deductions
- Gross Income: ₱1,000,000
- Itemized Deductions (actual expenses): ₱300,000
- Taxable Income: ₱1,000,000 – ₱300,000 = ₱700,000
Example Computation 2: Using Optional Standard Deduction (OSD)
- Gross Income: ₱1,000,000
- OSD (40% of gross income): ₱400,000
- Taxable Income: ₱1,000,000 – ₱400,000 = ₱600,000
4. Determine the Applicable Tax Rate
Ordinary partnerships are generally taxed at 25% (for income above ₱5 million and assets above ₱100 million) or 20% (for smaller businesses and entities under the CREATE Law).
Example: Large Partnership (25% Tax Rate)
- Gross Income: ₱8,000,000
- Itemized Deductions: ₱2,000,000
- Taxable Income: ₱8,000,000 – ₱2,000,000 = ₱6,000,000
- Corporate Income Tax (25%): ₱6,000,000 × 25% = ₱1,500,000
GPPs, again, are not taxed as a separate entity. Each partner is taxed individually on their share of the net income.
5. File Quarterly and Annual Returns
Income tax return is filed quarterly and annually using the forms below:
- Quarterly: Use BIR Form 1702Q (due 60 days after the end of each quarter)
- Annually: Use BIR Form 1702-RT (due every April 15 for calendar year filers)
GPPs should file BIR Form 1702-EX instead of 1702-RT.
6. Pay Taxes and Submit Returns
All partnerships in the Philippines must now file their Annual Income Tax Return (AITR) electronically, as required by updated BIR regulations. Manual filing is no longer allowed unless specifically permitted by the BIR (e.g., system issues or special cases).
You can file through:
- eBIRForms – The standard platform for most partnerships, available as downloadable software or online submission.
- eFPS – Required only for large partnerships or those mandated by the BIR based on income level or tax agent use.
Although online filing offers convenience, it makes it harder to get support from government agencies and even small errors can lead to penalties or trigger an audit. Let us help ensure your income tax return is accurate, complete, and compliant.
7: Pay Your Income Tax
After filing, partnerships must pay any tax due on or before the deadline to avoid penalties, interest, or surcharges.
Payment options include:
- GCash or Maya – Ideal for quick payments with smaller amounts.
- Online banking – Via banks connected to the BIR payment gateway.
- Authorized Agent Banks (AABs) – For in-person transactions or if online payment fails.
Always keep your official receipt or confirmation as proof of payment in case of audit.
Final Thoughts
Filing income tax returns for partnerships in the Philippines requires proper preparation, computation, filing, and meeting the deadline. If you’re using itemized deductions, it’s best to seek professional help to ensure your financial statements and supporting documents are accurate and complete. Our team of experienced accountants will ensure a streamlined filing process while minimizing your tax liability.
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