Income tax is the tax on what your lending business actually earned after expenses. It sits at the top of the compliance pyramid — everything else (withholding, percentage tax, DST) either feeds into it or runs alongside it. Two laws govern the rate: the TRAIN Law for individuals and the CREATE Law for corporations. Because almost every licensed lending company is a corporation, CREATE is the one that matters most.
This guide explains how the rate is determined, how to get from your books to net taxable income, and how the return is filed.
Corporations: the CREATE Law rate
The CREATE Law (Republic Act No. 11534) reformed corporate income tax. For a domestic corporation like a lending company, the rate is no longer a flat number — it depends on size:
So a lending company with ₱3,000,000 of net taxable income and modest assets pays 20%, or ₱600,000. A larger company that crosses either threshold — net taxable income above ₱5M, or total assets (excluding the land it sits on) above ₱100M — pays the regular 25%. There is also a Minimum Corporate Income Tax (MCIT) that can apply from your fourth year of operations if it exceeds your regular tax; it is a floor, not an addition, and lenders with thin margins should watch for it.
Individuals: the TRAIN graduated table
If you run a lending business as a sole proprietor rather than a corporation — which RA 9474 does not allow for licensed lending companies, but which applies to certain small financing arrangements — your income is taxed on the TRAIN graduated table:
| Annual net taxable income | Tax |
|---|---|
| Up to ₱250,000 | 0% (exempt) |
| ₱250,000 – ₱400,000 | 15% of the excess over ₱250,000 |
| ₱400,000 – ₱800,000 | ₱22,500 + 20% of excess over ₱400,000 |
| ₱800,000 – ₱2,000,000 | ₱102,500 + 25% of excess over ₱800,000 |
| ₱2,000,000 – ₱8,000,000 | ₱402,500 + 30% of excess over ₱2,000,000 |
| Over ₱8,000,000 | ₱2,202,500 + 35% of excess over ₱8,000,000 |
From your books to net taxable income
The rate is the easy part. The real work is arriving at net taxable income, and this is where your bookkeeping earns its keep. Start with gross income — for a lender, that is mostly interest income, plus service fees, penalties, and other charges. From that you subtract allowable deductions: salaries, rent, interest expense on your own borrowings, professional fees, taxes and licenses, depreciation, and, importantly for lenders, bad debts that meet the BIR's write-off requirements.
You can choose itemized deductions or the Optional Standard Deduction (OSD) of 40% of gross income. OSD is simpler and needs no receipts, but itemizing usually wins for lenders with real, documented expenses. The choice is annual, so model both before you file.
Filing BIR Form 1702
Corporations file the annual income tax return on BIR Form 1702 — 1702-RT for those on the regular rate — generally due on or before April 15 of the following year, with the audited financial statements attached. You also file quarterly income tax returns (1702Q) during the year, paying tax on a cumulative basis so the annual return simply trues up what you have already remitted. Individuals file 1701 (annual) and 1701Q (quarterly).
Because your AFS is attached to the annual return and later filed with the SEC, your income tax figure and your audited statements must agree. Reconcile them before you file, not after a BIR notice.
Watch the Minimum Corporate Income Tax
The MCIT deserves its own attention because it surprises thin-margin lenders. Starting in the fourth taxable year of operations, a corporation compares its regular income tax against a 2% Minimum Corporate Income Tax computed on gross income, and pays whichever is higher. In a lean year — say you booked heavy bad-debt write-offs and your net taxable income is near zero — your regular tax might be tiny, but the MCIT on gross income can still apply. The good news is that any excess MCIT you pay over your regular tax can be carried forward and credited against regular tax in the next three years, so it is a timing cost rather than a permanent one. Still, budget for it: a year you expected to owe almost nothing can quietly carry an MCIT bill.
This is another reason to keep gross income and deductions cleanly separated in your books all year. When the annual return forces the regular-versus-MCIT comparison, you want both numbers to fall out of your ledger instantly rather than being reconstructed under deadline pressure.
Let the rate compute itself
Manually deciding whether you fall under 20% or 25%, then rebuilding gross income and deductions from scattered records, is where errors creep in. LendKoPH derives your income and expense totals straight from your loans and books and applies the current CREATE or TRAIN rate automatically — so your quarterly and annual figures are consistent with the statements your auditor signs.
Tax law changes. The thresholds and rates here reflect CREATE and TRAIN as they stand, but always confirm the current rules with your accountant before filing a return.
Frequently asked questions
What income tax rate does a lending corporation pay?
Under the CREATE Law, 20% if net taxable income is ₱5M or less and total assets excluding land are ₱100M or less; otherwise the regular 25%.
Which form do lending companies file for income tax?
Corporations file BIR Form 1702 annually (1702-RT for the regular rate) plus quarterly 1702Q returns. Individuals file 1701 and 1701Q.
Can I use the Optional Standard Deduction?
Yes. You may elect the 40% OSD instead of itemizing. It needs no receipts but often results in higher tax for lenders with substantial documented expenses, so compare both each year.
Can lending companies deduct bad debts?
Yes, bad debts that are actually ascertained to be worthless and written off during the year, and that meet the BIR’s requirements, are deductible — an important deduction for lenders.
