Taxes don't have to be dreadful! Understand the different types as you journey through different business milestones.
We’ve dreaded taxes ever since we created them — and it’s understandable. From complicated tax tables to lengthy forms, they can easily get on our nerves. But no legal business can survive without working on their taxes.
Invest some time to understand Philippine business taxes and it won’t be as dreadful as you think. Here is a quick guide on the most common types of taxes that you’ll encounter at different milestones of your business:
After sorting out your DTI or SEC Certificates and Business Permits, head over to the BIR Revenue District Office governing your business location within one month from date of issuance. Be on time to avoid penalties.
Register and renew annually through BIR Form 0605. The registration fee is Php 500 plus certification fees during your first application, and must be paid on or before January 31 every year thereafter. BIR Form 0605 is a general form filled out when there is no applicable Tax Return form, so don’t be surprised if you see this form being used for your other BIR related payments, such as advance payments, and heaven forbid, penalties and payments for BIR collection notices.
BIR officers will let you know when you’ll be able to claim your Certificate of Registration or BIR 2303. Make photocopies and display this in your store or office. Other government agencies or your suppliers and clients may ask for a copy before making their first transaction with you.
Have BIR-approved receipts issued after the initial registration by submitting BIR Form 1906 (Application for Authority to Print Receipts and Invoices). You only need to refile every 5 years, or when you run out of invoices during that period. If you have a cash register machine or POS, use BIR Form 1907.
Transactions must also be regularly recorded in BIR-stamped books of accounts. Submit BIR Form 1905 to register your loose-leaf or computerized books of accounts (may take the form of journals, ledgers, cash receipts and disbursements). Once you have filled up your books, you can register new ones by re-filing BIR Form 1905 and submitting photocopies of the first page of your old books.
Documentary Stamp Tax
This is charged when requesting for new certificates, original or Certified True Copies of tax returns, or business permit documents. It’s a tax on documents, instruments, or loan agreements. It represents the acceptance, assignment, sale, or transfer of obligations, rights, or properties.
Congratulations, your business is making money! As a quick guide, your Certificate of Registration or BIR 2303 will indicate the type of taxes you need to pay.
Whether you are a sole proprietor, partnership, or corporation, this is the tax everybody has to pay.
Here’s the difference on how it is paid:
Percentage tax applies to small businesses with gross annual sales not exceeding PHP3 Million and are not VAT-registered. A percentage tax between 3-30% is imposed for sold or leased goods, properties, or services. This is filed quarterly through BIR Form 2551Q on or before the 25th of April, July, October, and January.
Value Added Tax
Remember the 12% VAT you always see on your receipt when you purchase something? The business owner puts this amount together and remits it to the government as a sales tax. This is for businesses with products or services subjected to VAT or has gross annual sales exceeding PHP3 Million. This is filed monthly through BIR Form 2550M on or before the 20th of the following month, and quarterly through BIR Form 2550Q on or before the 25th of April, July, October, and January.
With the TRAIN Law in place, there is also a new tax option for self-employed individuals whose gross sales/receipts for the year does not exceed P3,000,000. This is the new 8% Income Tax Rate on Gross Sales/Receipts, which is as straightforward as it sounds – you pay 8% on all sales receipts issued. You may opt to apply for this when you register, or migrate your current tax scheme to this through a series of processes, but there’s a catch. Being a new offering, the policies are not yet clear on when or how this should be paid, so you might have to visit your Revenue District Office more often to check.
Withholding Tax on Compensation
Employers are required to withhold or keep a portion of the employee’s income for tax remittance to the government. This is filed through BIR Form 1601C and must be paid on or before the 10th of the following month. When there is an applicable Expanded or Creditable Income Tax to withhold from employees (indicated on your BIR 2303), this is filed through BIR Form 1601E and must be paid on or before the 10th of the following month. These taxes are reflected in your employees’ Annual Income Tax, and are reflected as deductions in the payslips you issue to them.
Capital Gains Tax
Some business owners may opt to sell their unused equipment or properties to bring in more cash to the business. This way, they can better manage these funds. This is particularly beneficial if their assets have appreciated in value overtime. As a seller who benefited from this transaction, you have to pay Capital Gains Tax through BIR Form 1706. Filing has to be within 30 days following the sale or exchange of assets. The tax rates are as follows:
When your business is booming, it’s always a good idea to pay forward the blessing. If you plan to do this by donating to charities, you have to follow BIR’s donor tax requirement. It’s at 6% of the donation’s gross amount plus documentary stamp taxes. This is filed using BIR Form 1800 within 30 days from your donation date. The first Php 250,000 donation is tax exempt.
Now that you know more about the taxes you will come across, what next? In case you are wondering, here’s how you can fill up the tax forms:
To pay, BIR also offers several convenient options:
Knowing these Philippine business tax forms, terms, and schedules (along with electronic platforms) will guide you through the process of running your MSME. If it still gets confusing, don’t hesitate to ask fellow businessmen, accountant friends, or BIR representatives.
For a comprehensive list of deadlines, click here.
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