A general professional partnership in the Philippines does not pay income tax on its earnings. Under Section 26 of the National Internal Revenue Code, the partnership is exempt, and each partner pays income tax individually on their distributive share of the net income.1Supreme Court E-Library. BIR Revenue Memorandum Circular No. 3-2012 – Tax Implications of General Professional Partnership That gives you a single layer of taxation at the partner level. It does not give the partnership a pass on filings, withholding, or record-keeping, and those are where most practitioners get into trouble.
The statute is explicit that a partner’s share is taxable when “actually or constructively received.”2Supreme Court E-Library. An Act Amending the National Internal Revenue Code So even if the partnership retains profits to cover future expenses, each partner still owes tax on their proportionate share for the year the income was earned. The partnership must also register, obtain its own TIN, and file an annual information return.3Bureau of Internal Revenue. BIR Form 1702-EX – Guidelines and Instructions Because the GPP itself owes no income tax, its receipts from clients are not subject to creditable expanded withholding tax.
How the Partnership’s Net Income Is Computed
The NIRC requires the GPP’s net income to be computed “in the same manner as a corporation.”2Supreme Court E-Library. An Act Amending the National Internal Revenue Code Gross receipts from professional services, less allowable business expenses, equals the net income available for distribution among the partners according to their profit-sharing ratio.
The partnership picks one of two deduction methods:
- Itemized deductions, where every qualifying business expense is documented with receipts. Common items include office rent, staff salaries, professional development, and supplies.
- The Optional Standard Deduction, a flat 40% of gross income with no supporting receipts required.4Supreme Court E-Library. BIR Revenue Regulations No. 2-2010
Once the choice is signaled on the annual return, it is irrevocable for that taxable year.4Supreme Court E-Library. BIR Revenue Regulations No. 2-2010
Why the Deduction Choice Matters for Partners
Revenue Regulations No. 2-2010 tied the partnership’s method to what individual partners can deduct on their own returns.
If the GPP itemized, each partner may still claim their own itemized deductions against their distributive share, but only for ordinary and necessary professional expenses the partnership did not already claim. You cannot deduct the same office rent twice.4Supreme Court E-Library. BIR Revenue Regulations No. 2-2010
If the GPP elected the OSD, partners get no further deductions from their distributive share. The 40% already stands in for all deductible expenses at both levels. And because the partner’s share is treated as gross income rather than gross receipts, the individual OSD does not apply to it either.4Supreme Court E-Library. BIR Revenue Regulations No. 2-2010
The practical guidance: if partners carry meaningful personal professional expenses outside what the firm pays for, itemizing at the partnership level preserves their ability to deduct those costs individually. Electing the OSD is simpler, but it closes that door for everyone.
Income Tax Rates for Individual Partners
Each partner’s distributive share is combined with any other personal income and taxed under the TRAIN Law graduated rates (Republic Act No. 10963), effective from 2023 onward:
- PHP 250,000 and below: 0%
- Over PHP 250,000 to PHP 400,000: 15% of the excess over PHP 250,000
- Over PHP 400,000 to PHP 800,000: PHP 22,500 plus 20% of the excess over PHP 400,000
- Over PHP 800,000 to PHP 2,000,000: PHP 102,500 plus 25% of the excess over PHP 800,000
- Over PHP 2,000,000 to PHP 8,000,000: PHP 402,500 plus 30% of the excess over PHP 2,000,000
- Over PHP 8,000,000: PHP 2,202,500 plus 35% of the excess over PHP 8,000,000
One route is closed. Partners of a GPP cannot elect the 8% flat income tax rate that TRAIN made available to other self-employed individuals, because the distributive share is already net of the partnership’s costs and expenses.5Bureau of Internal Revenue. Revenue Memorandum Circular No. 50-2018 Practitioners who assume they can pick the flat 8% for simplicity find out otherwise at filing time.
Withholding on Partner Distributions
The GPP acts as a withholding agent whenever it pays partners, whether the payment is a regular drawing, an advance, a profit share, an allowance, or a stipend. The creditable withholding tax rates are:
- 10% if the partner’s gross income from the GPP for the current year does not exceed PHP 720,000
- 15% if the partner’s gross income from the GPP exceeds PHP 720,0001Supreme Court E-Library. BIR Revenue Memorandum Circular No. 3-2012 – Tax Implications of General Professional Partnership
These amounts are not the partner’s final tax. They are advance payments credited against the partner’s total liability at year-end. If the graduated computation produces a higher figure, the partner pays the difference; if withholding exceeds actual liability, the partner claims a refund or carries the excess forward. The partnership must remit the withheld amounts to the BIR on time and issue a certificate to each partner, which the partner attaches to their annual return as proof.
Forms, Deadlines, and Where to File
The partnership files BIR Form 1702-EX, the annual information return for corporations and partnerships exempt from income tax. It reports gross receipts, the deduction method chosen, net income, and the breakdown of each partner’s share, including every partner’s name, TIN, and address.3Bureau of Internal Revenue. BIR Form 1702-EX – Guidelines and Instructions
Each partner files BIR Form 1701, the annual income tax return for individuals engaged in business or the practice of a profession. The distributive share from the GPP goes on that return alongside any other personal income, with the withholding certificates attached to support the credit claimed.
Filings go through the BIR’s eBIRForms system for most partnerships, or the Electronic Filing and Payment System (EFPS) for larger filers that meet the BIR’s threshold criteria.6Bureau of Internal Revenue. Electronic Bureau of Internal Revenue Forms (eBIRForms) Both the GPP’s information return and each partner’s individual return are due on or before April 15 of the year following the taxable year. Taxes are paid to authorized agent banks or through online payment channels by the same date.
Penalties for Late Filing and Non-Compliance
Missing the deadline adds up quickly. The NIRC imposes:
- A 25% surcharge on any tax due when a return is filed late or tax is not paid on time.7Bureau of Internal Revenue. Penalties for Late Filing of Tax Returns
- 20% annual interest on unpaid tax, running from the prescribed payment date until the balance is settled.7Bureau of Internal Revenue. Penalties for Late Filing of Tax Returns
- PHP 1,000 for each failure to file the information return, supply required information, or keep mandated records, capped at PHP 25,000 per calendar year.7Bureau of Internal Revenue. Penalties for Late Filing of Tax Returns
The surcharge and interest run concurrently. A partner who files a month late on a PHP 100,000 balance faces the PHP 25,000 surcharge plus interest from April 15 until payment. For the partnership, the BIR treats incomplete partner schedules and missing withholding certificates as separate failures, each carrying its own PHP 1,000 charge.
The information return is what lets the BIR cross-check each partner’s declared income against the partnership’s reported distributions. When those numbers do not line up, the mismatch is exactly the kind of signal that triggers an audit. The exemption at Section 26 is real; the compliance obligations around it are just as real.