The Local Government Tax line on your Philippines invoice is how Outstaffer recovers local business tax, a tax the Philippine local government charges Outstaffer's Philippine company. The charge is 1% of each employee's total payroll: base salary, statutory contributions, 13th month, leave, allowances and night differential. Outstaffer passes it through to you as part of the cost of employment.
Note: You can check every part of this charge yourself. The calculation is set out below, and each law is linked to its official source.
Why Outstaffer pays local business tax
Outstaffer has its own registered company in the Philippines. That company is the legal employer of your team, so it runs payroll, pays your team and meets every local employment obligation.
Philippine cities charge local business tax on the gross receipts of businesses operating in their area. Gross receipts include the money Outstaffer's Philippine company receives to pay your team. The local government charges the company 1% of those receipts.
Paying local business tax is a condition of renewing the company's business permit each year. Without a current business permit, the company cannot legally operate, or employ your team, from the city where it is registered. Local business tax is therefore a real and unavoidable cost of employing your team in the Philippines.
How the charge is worked out
The Local Government Tax line is 1% of each employee's total payroll, rounded to the nearest whole dollar, in your billing currency (AUD or USD).
Included in total payroll: base salary, statutory contributions (Social Security Insurance, Philippine Health Insurance Corporation and Home Development Mutual Fund), 13th Month Entitlement, Annual Leave, allowances and night differential.
Not included: the EOR Premium, health insurance, equipment and the Cross Border Fee.
Example calculation
This example uses sample figures for one employee, in AUD. The Local Government Tax line is 1% of total payroll: 1% of 6,028.00 is 60.28, shown as 60.00 after rounding.
Invoice line | Amount (AUD, sample) |
Payroll | |
PH Base Salary | 4,875.00 |
Social Security Insurance | 96.00 |
Philippine Health Insurance Corporation | 68.00 |
Home Development Mutual Fund | 5.00 |
13th Month Entitlement | 406.00 |
Annual Leave | 374.00 |
PH Remote Work Expenses | 54.00 |
PH Night differential | 150.00 |
Total payroll | 6,028.00 |
Local Government Tax (1% of total payroll, rounded) | 60.00 |
Health Insurance | |
Health - Local Health Insurance | 75.00 |
Outstaffer fees | |
EOR Premium | 454.00 |
The 1% Local Government Tax is calculated on the Payroll lines only. It is not charged on Health Insurance or Outstaffer fees.
Where you will see the charge
On your invoice: one line per employee, described as Local Government Tax, listed with that employee's payroll lines.
In the cost of employment platform: one line per employee, shown as Local government tax in the compliance section, alongside the Cross border fee.
When it is billed: your monthly Philippines invoice is issued in advance for the following calendar month, around the 10th of the month. Issue dates differ by country: see The Monthly Cycle: Key Dates Explained.
After payroll is run: any difference is adjusted on a reconciliation invoice or credit note, shown as Philippines Payroll - Local Government Tax Reconciliation.
Final pay: final pay amounts carry a Local Government Tax line at 1% of the final pay amounts.
Is Outstaffer making money from this charge?
No. The Local Government Tax line is a pass-through of a tax Outstaffer's Philippine company has to pay.
A pass-through of the cost of employment: you pay 1% of total payroll, the same rate the local government charges.
Only payroll-related tax is passed through: the local government charges 1% on all the money Outstaffer's Philippine company receives, not only your team's payroll. It also receives the Cross Border Fee and the funds for Outstaffer's own staff and operations in the Philippines. Outstaffer pays the local business tax on those receipts itself and does not pass it through.
No Philippine VAT is added: Outstaffer's Philippine company does not add 12% Philippine VAT to your team's costs. See "Why no Philippine VAT is added" below.
The law behind the charge
Local business tax is set by national law and applied by each city. These are the rules that apply to Outstaffer's Philippine company:
Cities can tax business receipts: the Local Government Code of 1991 (Republic Act 7160) gives Philippine cities and municipalities the power to tax businesses on their gross receipts (Sections 143 and 151). Each city sets its own rates and rules by local ordinance, within the limits of the Code.
Payroll counts as gross receipts: gross receipts are the total amount a business receives for its services, excluding only VAT, discounts and returns (Republic Act 7160 Section 131(n)). As your team's legal employer, Outstaffer's Philippine company receives your team's payroll as part of its services. Bureau of Internal Revenue rulings on manpower providers take the same position (BIR Ruling No. 213-2015).
The tax is paid to the city of registration: a business with its principal office in a city and no branches elsewhere pays its business tax to that city (Republic Act 7160 Section 150; Department of Finance Local Finance Circular No. 001.2022). It is paid annually or quarterly (Republic Act 7160 Section 165).
A business permit is required to operate: a business must hold a business permit, often called a Mayor's Permit, to legally operate in a city (DTI-DILG Joint Memorandum Circular No. 01, s. 2010). The permit is renewed every year (Republic Act 11032).
The tax must be paid before the permit is issued: local taxes are assessed and paid before the city releases or renews the business permit (DILG-DTI-DICT Joint Memorandum Circular on business permit processing). A business operating without a current permit faces penalties and closure under the city's ordinances.
Why no Philippine VAT is added
Outstaffer's Philippine company provides its services to Outstaffer's Australian company, outside the Philippines, and is paid in foreign currency. These services are VAT zero-rated under National Internal Revenue Code Section 108(B)(2), as confirmed by the Supreme Court in Microsoft Philippines v. Commissioner of Internal Revenue. No 12% Philippine VAT is added. Local business tax is a separate local tax, so it still applies.
What your Terms of Service say
Under our Terms of Service, you agree to pay the full Cost of Employment for your team. Cost of Employment includes "local government, municipal and statutory registration, filing and compliance costs" (clause (g)) and "payroll taxes and levies" (clause (b)). Local Government Tax on your Philippines invoice is a pass-through on that basis.
What happens if this charge is not paid?
The Local Government Tax line is part of your monthly Subscription Invoice. It is due and payable in full, with the rest of the invoice.
Your Subscription Invoice funds your team's payroll. Outstaffer needs the full invoice paid in cleared funds by the payroll cutoff: 11:59pm on the 28th of the month (Melbourne time), or the 27th (local time) for Clients in the United States, to release your team's next payroll. Under our Terms of Service, invoices for EOR Services must be paid in full, even if part of the invoice is disputed.
Important: If your Subscription Invoice is short-paid, including by leaving out the Local Government Tax line, your team's payroll may not be released on the scheduled pay date.
If you have a question about the Local Government Tax line, pay your invoice in full and raise the question with your Customer Success Manager.
Who to contact
Questions about the Local Government Tax line or your invoice: contact your Customer Success Manager. You can book a call or send a request from the My Team page in the Outstaffer platform, or email your Customer Success Manager directly. See How to Contact Your Customer Success Manager.
For how the Local Government Tax label is used in other countries, see What Is Local Government Tax?.