If you run a small business, freelance, sell online, or practice a profession in the Philippines and your annual gross sales or receipts stay at P3 million or below, you may qualify to switch to a much simpler tax setup. Many micro-scale operators use BIR Form 1905 — officially the Application for Registration Information Update/Correction/Cancellation — to elect the 8% flat income tax rate option or update their records to reflect micro enterprise treatment under the Ease of Paying Taxes (EOPT) Act. This change can reduce paperwork, eliminate the need to track every expense for deductions, and align your obligations with the simplified rules now available to micro taxpayers.

This guide explains exactly what “micro enterprise status” means in BIR terms, the legal basis, who qualifies, and the precise steps to fill and file Form 1905 for this purpose. It covers both the popular 8% income tax election (the most common reason micro operators file this form) and updates related to Barangay Micro Business Enterprise (BMBE) incentives.

What “Micro Enterprise Status” Means for BIR Purposes

Under Revenue Regulations No. 8-2024 implementing Republic Act No. 11976 (the Ease of Paying Taxes Act), the BIR classifies business taxpayers by annual gross sales:

Micro Taxpayer: Less than P3,000,000
Small Taxpayer: P3,000,000 to less than P20,000,000
Medium Taxpayer: P20,000,000 to less than P1,000,000,000
Large Taxpayer: P1 billion and above

Classification is generally based on your actual or declared gross sales and appears in your records through the Online Registration and Update System (ORUS). Micro classification brings simpler compliance — for example, micro taxpayers are not subject to mandatory audit solely for business closure or cancellation in many cases.

Separately, self-employed individuals and mixed-income earners whose gross sales/receipts do not exceed P3 million may elect the 8% income tax rate option under the National Internal Revenue Code (as amended by Republic Act No. 10963, the TRAIN Law) and detailed in Revenue Memorandum Order No. 23-2018. This option taxes only the gross sales/receipts in excess of P250,000 at a flat 8%, instead of graduated rates (up to 35%) plus the hassle of proving deductions or using the Optional Standard Deduction.

Electing the 8% rate effectively gives your micro-scale operation a simplified tax regime that matches its size. You still issue official receipts or invoices and maintain basic books, but filing becomes lighter.

Note on BMBE: If your business is formally registered as a Barangay Micro Business Enterprise under Republic Act No. 9178 (with a certificate from your LGU or DTI), you enjoy income tax exemption on BMBE-related income plus exemptions from VAT and percentage tax (subject to conditions). You update BIR records via Form 1905 to reflect these incentives.

Legal Basis and Key Rights

The 8% option rests on Section 24(A) of the NIRC as amended by the TRAIN Law. Existing individual business taxpayers (including mixed-income earners) signify their election by filing BIR Form 1905 at the beginning of the taxable year. Once elected, the choice is generally irrevocable for that year.

EOPT (RA 11976) and its implementing rules modernized classification and introduced tailored procedures for micro taxpayers to lower compliance costs.

You have the right to elect the simpler regime if you meet the gross sales threshold. The BIR must update your records (including ending the quarterly percentage tax form type 2551Q in most cases) once you properly file and they process the form.

Who Can Use Form 1905 to Change to Micro Enterprise Treatment?

You can file if you are:

An existing self-employed individual or mixed-income earner (compensation income + business/professional income) already registered with the BIR.
Currently on graduated rates or percentage tax and want to switch to the 8% option.
A BMBE-registered micro enterprise needing to add or update incentive details in BIR records.
Someone whose gross sales have dropped into the micro bracket and you want to align your tax type or expected sales declaration.

Corporations and partnerships generally cannot elect the 8% option (it is for individuals). They follow corporate income tax rules, though they may still benefit from micro classification for administrative ease.

Foreigners: Non-resident aliens engaged in trade or business or resident aliens follow similar registration rules but must usually present additional documents (passport, ACR I-Card, etc.). Foreign-owned entities face constitutional restrictions on certain activities and may need apostilled documents if supporting papers come from abroad. Purely foreign-owned retail or similar micro businesses are often restricted; consult the specific activity.

Step-by-Step Guide to Filling BIR Form 1905 for the 8% Option or Micro Update

Download the latest version (October 2025 ENCS or newer) from the official BIR website. The form is only four pages and straightforward.

Part I – Taxpayer Information (fill completely)

Enter your TIN (Taxpayer Identification Number).
Write your current RDO Code (Revenue District Office where you are registered).
Provide your active contact number.
Write your registered name exactly as it appears on your Certificate of Registration (COR). For individuals: Last Name, First Name, Middle Name, Suffix.

Part II – Reason/Details of Registration Information Update/Correction

This is where you indicate the change to micro/8% treatment.

Go to Field 6 – Other Updates Reason/Details.
Mark the box for “Avail of 8% Income Tax Rate Option”.
In the space provided, write a brief note such as “Election of 8% Income Tax Rate Option effective [Month/Day/Year]” or “Update to reflect micro taxpayer status under EOPT”.

If you are also adding BMBE incentives:

Use Field 7F – Change/Add Incentive Details/Registration.
Fill in the Investment Promotion Agency or issuing body (usually LGU/DTI), Legal Basis (RA 9178), Registration/Accreditation Number (your BMBE Certificate number), and relevant dates.

For other related changes (e.g., updating expected gross sales to stay under P3M or changing line of business to a micro-scale activity), use the appropriate sub-fields under Field 7.

Fill the Effectivity Date of Change (usually January 1 of the current taxable year for the 8% election, or the date you obtained your BMBE certificate).

Signature and Declaration

Sign the form over your printed name. The declaration includes consent under the Data Privacy Act of 2012. No notarization is normally required for this specific update.

Practical tip: Print at least two or three original copies. One stays with you, one goes to BIR, and extras are useful if they request additional stamping.

Required Documents and Where to File

Standard attachments for 8% election or micro update:

Accomplished BIR Form 1905 (2 originals)
Original Certificate of Registration (COR) — BIR will usually stamp and return an updated version
Photocopy of one valid government-issued ID (passport, driver’s license, UMID, PhilID, etc.)
For BMBE updates: Photocopy of your BMBE Certificate of Authority/Registration

No filing fee applies for this update.

Where and how to file:

Online (recommended for most people): Log in to the BIR Online Registration and Update System (ORUS) at orus.bir.gov.ph. Go to “Update Information,” select the 8% option or relevant fields, upload scanned documents, and submit. Many RDOs confirm processing within hours or one business day.
In person: Submit at the Client Support Section or Registration Unit of your registered RDO (or the RDO with jurisdiction over your business address). Walk-in processing is usually same-day for straightforward cases.

Timeline: File at the beginning of the taxable year (ideally January or early February) for the 8% election to cover the whole year. Late filing may mean you default to graduated rates for that year. For BMBE incentive updates, file as soon as you receive your certificate (generally within 30 days of the change to avoid penalties).

After processing, BIR updates your COR and internal records. You will receive a stamped copy.

What Changes After Approval?

You shift to the 8% regime: Calculate income tax as 8% of (gross sales/receipts minus P250,000). No need to itemize deductions or use OSD for the business portion.
You generally stop filing Quarterly Percentage Tax Return (BIR Form 2551Q) — the form type is end-dated.
You file Quarterly Income Tax Return (BIR Form 1701Q) and Annual Income Tax Return (BIR Form 1701).
Your micro taxpayer classification (if based on actual sales) brings lighter compliance — simpler bookkeeping expectations and fewer audit triggers for closure.
If you have BMBE registration, your records now reflect the tax exemptions.

Important reality check: If your gross sales exceed P3 million at any point during the year, you must update your registration (usually via another Form 1905) within the month following the month you exceeded the threshold. You become liable for VAT on transactions after the threshold and may owe percentage tax for part of the year. Monitor your sales monthly.

Common Pitfalls and Real-Life Scenarios

Filing too late in the year — Many freelancers wait until April and discover they are stuck with graduated rates plus percentage tax for the whole year. File early.
Forgetting to attach the COR — BIR often requires it to physically update and re-issue a stamped copy.
Wrong effectivity date — Using a mid-year date for the 8% election can create gaps; use January 1 (or the actual start if new).
Mixed-income confusion — The 8% applies only to your business or professional income. Compensation income remains under withholding tax rules.
Exceeding the threshold mid-year — A common story: an online seller has P2.8M by October, then a big order pushes them over. They must immediately update to VAT status.
BMBE paperwork mismatch — Submitting Form 1905 without the actual BMBE certificate delays incentive encoding.

Foreigner example: A resident alien running a small consultancy must still file Form 1905 for the 8% election but attaches passport and ACR I-Card copies. If documents originate from abroad, apostille may be needed for supporting papers in other contexts, though not usually for this form.

Frequently Asked Questions

Can I file BIR Form 1905 online through ORUS for the 8% option?
Yes. Log into ORUS, choose “Update Information,” select the 8% income tax rate option, upload your documents, and submit. Many taxpayers complete it in under 10 minutes and receive confirmation the same day.

What is the deadline to elect the 8% rate for 2026?
File at the beginning of the taxable year — ideally in January or early February 2026 — so it covers the entire year. Some RDOs accept it alongside your first quarterly return, but early filing is safest.

Do I still need to file percentage tax returns after switching to 8%?
In most cases, no. BIR ends the 2551Q form type when you elect the 8% option. You file 1701Q and 1701 instead.

What happens if my gross sales go above P3 million?
You must update your registration within the following month to reflect VAT liability on post-threshold transactions. You may also owe percentage tax for the period before the update. Monitor sales closely.

Is the 8% option the same as BMBE registration?
No. The 8% option is a tax computation choice for any qualifying individual with gross sales ≤ P3M. BMBE registration (under RA 9178) gives broader exemptions (income tax exemption on BMBE income, VAT/percentage tax exemption) but requires separate LGU/DTI registration and a certificate.

Can corporations or partnerships use Form 1905 for micro status?
Corporations follow different tax rules and cannot elect the individual 8% option. However, they can still be classified as micro taxpayers under EOPT for simplified procedures and may use Form 1905 for other updates such as address, activity, or incentive encoding.

Do I need to notarize Form 1905?
No notarization is required for the 8% election or standard micro updates.

How long does processing take?
Online via ORUS: often same day or within 1–2 business days. In-person at RDO: usually same day for complete applications.

What if I change my mind after filing?
The 8% election is generally irrevocable for the taxable year once made and processed.

Key Takeaways

BIR Form 1905 lets existing individual taxpayers elect the 8% flat income tax rate or update BMBE incentives — the practical way to align with micro enterprise treatment.
You qualify for the 8% option if your gross sales/receipts are P3 million or less; file early in the year (or via ORUS) and attach your COR.
After approval you file simpler returns (1701Q/1701) and avoid detailed deduction tracking for the business portion.
Monitor your gross sales — exceeding P3 million requires a prompt update to VAT status.
BMBE-registered micro enterprises use the same form (Field 7F) to encode their exemptions with BIR.
Use ORUS for convenience or visit your RDO with complete documents; no filing fee applies.
Keep basic sales records and issue official receipts/invoices regardless of the regime you choose.

This update gives micro operators a genuinely simpler path while staying fully compliant. If your situation involves mixed income, foreign ownership, or BMBE details that feel unique, prepare your documents and visit or contact your RDO — or consult a trusted tax practitioner for personalized guidance. The BIR continues to expand digital options like ORUS precisely to make these updates easier for ordinary taxpayers.