How to pay yourself as a business owner: salary or drawings

Published Tuesday 6 October 2026

Table of contents

• Salary vs drawings: what’s the difference in the Philippines?
• How to pay yourself as a sole proprietor
• How to pay yourself from a partnership
• How to pay yourself from a One Person Corporation or corporation
• How much should you pay yourself?
• How to pay yourself as a business owner, step by step
• Pay yourself with confidence using Xero
• FAQs on paying yourself as a business owner

Key takeaways

• Sole proprietors pay themselves through drawings, while One Person Corporation (OPC) and corporation owners take a salary and can receive dividends
• Drawings don’t reduce your taxable income, so set money aside for income tax and your own government contributions as you go
• A salary is a deductible expense for your corporation, while dividends paid to resident citizens carry a 10% final tax
• Pay yourself a fixed amount on a regular schedule, then review it every quarter against your profit and cash reserve

Salary vs drawings: what’s the difference in the Philippines?

Your business structure decides how you pay yourself. Sole proprietors take drawings, while owners who work in their One Person Corporation (OPC) or corporation are paid a salary as employees.

What are owner’s drawings?

Owner’s drawings are money you take out of your business for personal use. In a sole proprietorship, you and the business are the same taxpayer, so a drawing is a withdrawal of your own profit.

In your books, drawings reduce your owner’s equity and stay off your profit and loss statement.

What is a salary?

A salary is a fixed, regular payment your corporation makes to you as an employee. Your corporation withholds income tax from each payment.

It also remits your contributions to the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth) and Home Development Mutual Fund (Pag-IBIG Fund).

Key differences between salary and drawings

The two methods differ in ways that affect both your tax bill and your cash flow. Here’s how they compare.

• Drawings are taxed as part of your business’s net income, while a salary is taxed as compensation through withholding
• A salary is a deductible expense for your corporation, while drawings leave your sole proprietorship’s taxable income unchanged
• Salaried owners share SSS contributions with their corporation, while sole proprietors pay the full SSS and PhilHealth amounts themselves
• Drawings can change each month with your profit, while a salary stays fixed until you change it through payroll

How to pay yourself as a sole proprietor

Most sole proprietors, including many freelancers, pay themselves through drawings. Before you start, register your business name with the Department of Trade and Industry (DTI) through its Business Name Registration System.

Next, register with the Bureau of Internal Revenue (BIR) using Form 1901 to get your Certificate of Registration. You can then issue receipts and file your taxes.

Income tax on your business profit

The BIR taxes your net income, which is your sales minus deductible business expenses. Only ordinary and necessary costs of running the business qualify, so your drawings leave the amount taxed unchanged.

Graduated rates of 0–35% apply to your net taxable income, with the first PHP 250,000 exempt, according to PwC’s Philippine personal income tax summary. If your gross sales and receipts are PHP 3 million or less, you can choose an 8% tax instead. This option is open only if you aren’t registered for value-added tax (VAT).

That 8% applies to gross sales and receipts above PHP 250,000, and it replaces both the graduated rates and percentage tax. Before you choose, estimate what you’d owe under each option.

Your annual BIR Form 1701 or 1701A is due by 15 April of the following year, according to PwC’s guide to Philippine tax administration. Your 2026 return is due 15 April 2027.

SSS, PhilHealth and Pag-IBIG contributions

As a sole proprietor, you register as a self-employed member and pay the full contribution yourself. For 2026, SSS takes 15% of your monthly salary credit (MSC), capped at PHP 35,000, according to this 2026 SSS contribution table.

PhilHealth’s premium for 2026 is 5% of your monthly income, as reported by the Philippine Information Agency. Payroll guides such as taxcalculator.com.ph put the income floor at PHP 10,000 and the ceiling at PHP 100,000.

Register with the Pag-IBIG Fund too, and confirm your monthly amount with the fund directly. These are current administrative rates that can change, so check them with SSS and PhilHealth before you pay.

How to pay yourself from a partnership

How partners pay themselves depends on which of the two partnership types you run. In both, partners usually take drawings against their share of the profit.

General professional partnerships

A general professional partnership (GPP) is formed by professionals, such as accountants or lawyers, to practise a shared profession. Under BIR Revenue Memorandum Circular No. 3-2012, the GPP itself pays no income tax.

Each partner pays income tax individually on their distributive share of the partnership’s income. Your share is subject to creditable withholding tax, and you report it on your own annual return.

For example, two accountants who run a GPP and split profit equally each report half of its net income on their personal returns.

Other partnerships

Partnerships that trade or run a business are taxed like corporations. The partnership pays corporate income tax on its profit before partners receive their shares.

Under the same rules, a partner’s share is generally treated like a dividend and subject to a 10% final tax. Confirm how this applies to your partnership with your accountant.

How to pay yourself from a One Person Corporation or corporation

An OPC lets a single stockholder incorporate under the Revised Corporation Code (Republic Act 11232). In an OPC or a corporation with several shareholders, the business pays you a salary if you work in it. You can also receive dividends.

Paying yourself a salary from your corporation

Your corporation registers you as a corporate officer with SSS, PhilHealth and the Pag-IBIG Fund, just like any other employee. It withholds tax on your compensation and remits your contributions.

Your salary is a deductible business expense, which lowers the corporation’s taxable income. Under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, corporate income tax is 25%, according to PwC’s Philippine corporate tax summary.

A 20% rate applies if net taxable income is PHP 5 million or less and total assets, excluding land, are PHP 100 million or less. The later CREATE MORE Act sets separate incentive rates for enterprises registered with investment promotion agencies. Most owner-run corporations stay on the standard rates.

Taking dividends

Dividends are a share of the corporation’s profit paid to you as a stockholder. Dividends paid to resident citizens carry a 10% final tax, according to the Chambers and Partners Corporate Tax 2026 guide.

For example, an OPC owner might take a steady monthly salary to cover household costs, then declare a dividend once the year’s profit is clear.

13th month pay and other benefits

As an owner-employee, you can receive 13th month pay like the rest of your team. PwC Philippines explains that 13th month pay and other benefits are exempt from income tax up to PHP 90,000.

How much should you pay yourself?

Pay yourself from the profit left after tax and contributions, while keeping a cash reserve in the business. Start with a fixed amount that covers your household budget, then raise it as profit grows.

Balancing business and household needs

Your pay has to work for two budgets. The business needs cash for bills, tax and future investment, while your household needs money for living costs and debt repayments.

As a business owner, you also fund your own insurance and retirement savings. Early on, you might take just enough for household costs and increase your pay once cash flow stabilises.

6 steps to work out your pay

This method uses general small-business budgeting practice, so adjust each step with your accountant. Work through it in order.

1. Work out your net profit for the month or quarter from up-to-date books
2. Set aside money for income tax and your SSS, PhilHealth and Pag-IBIG contributions
3. Keep a cash reserve in the business, sized with your accountant to suit your costs
4. Check that the remaining amount covers your household budget
5. Set a fixed amount and a regular payment date, such as monthly
6. Review your pay every quarter and adjust it as profit changes

A cash flow forecast shows whether upcoming bills leave room for your planned amount. Check it before each transfer.

Worked example for a sole proprietor

This illustrative example uses the 2026 graduated rates and assumes maximum contributions. Maria is a sole proprietor who expects PHP 1,200,000 in net taxable income for 2026.

Her income tax would be PHP 202,500: PHP 102,500 on the first PHP 800,000, plus 25% of the remaining PHP 400,000. SSS at the PHP 35,000 cap adds PHP 63,000 for the year, and PhilHealth at PHP 5,000 a month adds PHP 60,000.

That leaves PHP 874,500 before Pag-IBIG. If Maria keeps PHP 150,000 in the business as a reserve, she could draw about PHP 60,000 a month. The reserve figure is her own budgeting choice.

How to pay yourself as a business owner, step by step

Once you know your method and amount, a consistent routine keeps your records clean. Pay yourself from a dedicated business bank account so every transfer is easy to trace.

Paying yourself with drawings

Drawings take only a few minutes each time. Follow these steps for every withdrawal.

1. Confirm the amount against your latest profit and cash balance
2. Transfer the money from your business bank account to your personal account
3. Categorise the transfer as owner’s drawings in your accounting software
4. Move your tax and contribution set-aside into a separate savings account

Paying yourself a salary

A salary runs through payroll, just as it would for any employee. Follow these steps each pay period.

1. Set your salary based on your role and what the corporation can afford
2. Add yourself to payroll as a corporate officer
3. Withhold income tax and deduct your share of SSS, PhilHealth and Pag-IBIG contributions
4. Remit the withheld tax and contributions, then file the returns on time

Reviewing your pay each quarter

Check your financial statements each quarter to see whether profit supports a pay rise or a dividend. Up-to-date bookkeeping makes this review quick, because every drawing and expense is already categorised.

Pay yourself with confidence using Xero

Knowing how much you can safely take starts with clear, current numbers. Xero brings your bank feeds, reports and cash flow forecasts together, so you can keep cash flow healthy before each transfer.

You can also work with your accountant or bookkeeper in Xero in real time, so your salary and drawings plans stay on track. Choose a plan and get one month free to set up your pay routine.

FAQs on paying yourself as a business owner

Here are quick answers to common questions about paying yourself in the Philippines.

Can a sole proprietor pay themselves a salary in the Philippines?

You can transfer a fixed amount to yourself each month, but it still counts as drawings for tax purposes. To receive a deductible salary, you’d set up an OPC or corporation and work in it as an employee.

Are owner’s drawings taxable in the Philippines?

Drawings aren’t taxed as a separate item, because you pay income tax on your business’s full net income for the year. Leaving profit in the business or withdrawing all of it gives you the same tax bill.

Do I need to pay SSS, PhilHealth and Pag-IBIG if I’m self-employed?

Yes, and as a self-employed member you cover the full amount with no employer share. At current 2026 rates, that’s up to PHP 5,250 a month for SSS and PHP 500–5,000 a month for PhilHealth.

Is it better to take salary or dividends from my corporation?

A salary lowers your corporation’s taxable income, but you pay graduated income tax on it. Dividends come from after-tax profit and carry a final tax that stays off your annual return, so ask your accountant to model the right mix.

Can an OPC owner receive 13th month pay?

Yes, if you’re on payroll as a corporate officer, your OPC can pay you 13th month pay like any employee. Any amount above the PHP 90,000 combined exemption for 13th month pay and other benefits is taxed as compensation.

Should I open a separate bank account to pay myself?

Yes, a dedicated business account makes every drawing or salary payment easy to trace and categorise. It also gives you and your accountant clean records when you prepare your BIR returns.