Bookkeeper with Reasonable Service/Retainer's Fee?

[derkaisser]

---

How to Compute Income Tax in the Philippines (Single Proprietorship)
by Victorino Abrugar at Taxation

How to compute annual income tax in the Philippines for self-employed individuals, such as proprietors and professionals? Computing income tax expense and payable is different for individuals and corporations. Taxable corporations may be taxed using a fixed income tax rate. On the other hand, if you are a self-employed professional or an owner of a single proprietorship business, your income tax expense is computed using a graduated tax rate. It is a progressive tax which the tax rate increases as the taxable base amount increases. This means that the higher taxable income you have, the higher your income tax expense is. The following are the requirements, instructions and procedures to compute and file your income tax return.

The tax form you will use

For self-employed individuals such as proprietors, professionals and those with both business and compensation income, you will use BIR Form 1701 (please click here to download form). It must be prepared in 3 copies (one for BIR, one for the Authorized Agent Bank and one for your copy).

Documentary requirements

Below are the documentary requirements that should be attached with the return, if applicable. For taxpayers earning both business income and compensation income, BIR Form 2316 should be attached.

1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
4. Waiver of the Husband’s right to claim additional exemption, if applicable
5. Duly approved Tax Debit Memo, if applicable
6. Proof of Foreign Tax Credits, if applicable
7. Income Tax Return previously filed and proof of payment, if filing an amended return for the same year
8. Account Information Form (AIF) or the Certificate of the independent CPA with Audited Financial Statements if the gross quarterly sales, earnings, receipts or output exceed P 150,000.00
9. Proof of prior year’s excess tax credits, if applicable

Computation of Income Tax Due and Payable

The following are simple steps to calculate your income tax payable.

1. Compute your taxable Compensation Income (positive) or excess of Deductions over Taxable Compensation Income (negative). Here is how you will compute it.

a. Determine your Gross Taxable Compensation Income. This is the income you earn from your employer during the taxable year. If you are earning purely from your business or you are not employed, then you can leave it blank.
b. Determine your premium paid on Health and or Hospitalization, which should not exceed Php 2,400 per year. If none, then leave it blank. *
c. Determine your Personal and Additional Exemptions as follows:

Personal Exemptions:

For single individual or married individual judicially decreed as legally separated with no qualified dependents………………………………………P 50,000.00
For head of family……………………………P 50,000.00
For each married individual *…………P 50,000.00

Note: In case of married individuals where only one of the spouses is deriving gross income, only such spouse will be allowed to claim the personal exemption.

Additional Exemptions:

* For each qualified dependent, a P25,000 additional exemption can be claimed but only up to 4 qualified dependents

The additional exemption can be claimed by the following:
* The husband who is deemed the head of the family unless he explicitly waives his right in favor of his wife
* The spouse who has custody of the child or children in case of legally separated spouses. Provided, that the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions allowed by the Tax Code.
* The individuals considered as Head of the Family supporting a qualified dependent

d. Add the amounts in (b) and (c), then deduct the total from the amount in (a) to arrive at your taxable Compensation Income (positive) or excess of Deductions over Taxable Compensation Income (negative).

2. Compute your gross taxable business or professional income. Here is how you will calculate it.

a. Determine your sales, receipts or revenues for the taxable year.
b. Determine your cost of sales or cost of services.
c. (a) minus (b) will simply give you your gross taxable or professional income.

3. Compute your total taxable business or professional income by simply adding result in (2) and your other taxable income.

4. Compute your Net Income. Your Net Income is equal to result in (3) minus your allowable deductions. Your allowable deductions can be either:

a) Optional Standard Deduction – an amount not exceeding 40% of the net sales for individuals and gross income for corporations; or

b) Itemized Deductions which include the following:

Expenses
Interest
Taxes
Losses
Bad Debts
Depreciation
Depletion of Oil and Gas Wells and Mines
Charitable Contributions and Other Contributions
Research and Development
Pension Trusts

Note: A taxpayer engaged in business or in the practice of profession shall choose either the optional or itemized deduction (described below). He shall indicate his choice by marking with “X” the appropriate box, otherwise, he shall be deemed to have chosen itemized deduction. The choice made in the return is irrevocable for the taxable year covered.

Reminder: There are expenses that have ceilings or limits as deductibles to your taxable income, such as interest expense, representation and entertainment expense, etc. To learn more, please read our article “Deductible Expenses (Allowable Deductions) in the Philippines”.

5. Compute you total taxable income by adding the result in #4 (Net Income) to the result in #1 (taxable Compensation Income or excess of Deductions over Taxable Compensation Income). If the result is negative or it becomes a loss, then you will not have a tax due for the taxable year, otherwise, continue to the next step.

6. Compute your Income Tax Due. This is also your income tax expense incurred during the taxable year. Calculate your tax due for the taxable year using the following tax rate table.

Income tax rates for self-employed taxpayers

Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to be paid at the time the return is filed and the second installment 15 of the same year at on or before July the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.

7. Compute your Income Tax Payable. This is the tax you are still liable at the end of the year. To calculate your income tax payable, deduct your income tax due with the following tax credit/payments, if available.

-Prior Years’ Excess Credits
-Tax Payments for the First Three Quarters
-Creditable Tax Withheld for the First Three Quarters
-Creditable Tax Withheld Per BIR Form No. 2307 for the 4th Qtr.
-Tax Withheld Per BIR Form No. 2316
-Foreign Tax Credits
-Tax Paid in Return Previously Filed, if you have already file and this is your Amended Return
-Other Payments made

8. Compute your Total Payable. If unfortunately, you fail to pay your income tax on or before the due date, the following penalties will be imposed and will be added to your total amount payable.

1. A surcharge of twenty five percent (25%) for each of the following violations:
a) Failure to file any return and pay the amount of tax or installment due on or before the due dates;
b) Filing a return with a person or office other than those with whom it is required to be filed;
c) Failure to pay the full or part of the amount of tax shown on the return, or the full amount of tax due for which no return is required to be filed, on or before the due date;
d) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of Assessment (Delinquency Surcharge).

2. A surcharge of fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, for each of the following violations:
a) Willful neglect to file the return within the period prescribed by the Code or by rules and regulations; or
b) In case a false or fraudulent return is willfully made.

3. Interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, on any unpaid amount of tax, from the date prescribed for the payment.

A simple illustration of computing total income tax payable is shown below:

Gross Income (Gross business income, compensation income and other income)
Less: Allowable Deductions (Itemized or Optional) (refer to # 4)
Equals: Net Income
Less: Personal & Additional Exemptions (see #1)
Equals: Net Taxable Income
Multiply by Tax Rate (5 to 32%) (refer to # 6)
Equals: Income Tax Due
Less: Tax credits & payments (refer to #7)
Equals: Income tax payable
Add: Penalties (Surcharge, interests & compromise) (refer to #
Equals: Total amount payable

Procedures for paying and filing

1. Fill-up BIR Form 1701 in triplicate copies.

2. If there is payment:
a. Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701, together with the required attachments and your payment.
b. In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701, together with the required attachments and your payment.
c. Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer

3. For “No Payment” including refundable/ creditable returns, returns with excess tax credit carry over, and returns qualified for second installment:
a. Proceed to the Revenue District Office where you are registered or to any established Tax Filing Centers established by the BIR and present the duly accomplished BIR Form 1701, together with the required attachments.
b. Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.



Deadline

Final Adjustment Return or Annual Income Tax Return - On or before the 15th day of April of each year covering income for the preceding year

For more information, such as who are the individuals exempt from income tax and other tax related information, please visit this web page (Tax Info) from the Bureau of Internal Revenue (BIR). Updates to this article will be provided when necessary.

Update 1 (April 28, 2011)
For professionals and freelancers, such as online entrepreneurs, bloggers, web designers, mixed income earners, etc., who keep on asking how to register with the BIR and pay their income taxes, we have published an article titled “How to Register with the BIR (for Professionals)” for your guide.

Update: The BIR issued Revenue Regulation No. 19-2011 on November 2011 requiring self-employed individual taxpayers to use the revised BIR Form 1701 for the income tax return covering and starting December 31, 2011 for filing on or before April 15, 2012. For more information about the instructions and guidelines on filing the said return, please refer to the last page of the new form provided in the link above (in the tax form you will use section).

Lifted from : How to Compute Income Tax in the Philippines (Single Proprietorship) | Business Tips Philippines

IF THE ABOVE PROCEDURES AND REQUIREMENTS SEEM TOO TIME CONSUMING FOR YOU (BUSINESSMEN AND ENTREPRENEURS), WE CAN HELP!

Feel free to contact me here and at 0923-819-6268 and email me: ccmaraat@gmail.com and my friend and colleague Joseph (the one who put up this thread) 0922-941-0412. Let's talk.

[BatmanBeyond]

How to File Income Tax Return in the Philippines

by Victorino Abrugar at Law & Government, Taxation
How to File Income Tax Return in the Philippines

How to file your annual income tax return in the Philippines? On April 15, 2011, every individual or entity (eg., partnership or corporation), who are required to file their income tax return and or pay their corresponding income tax due and payable should already be done doing such obligations. To avoid being penalized and being imposed with additional charges, such as interest, surcharge and compromise due to non-filing and nonpayment on time, it is wise to file your income tax return as early as possible. The following are steps and guidelines in filing and paying income taxes.


Who are required to file?

The following individuals and entities who are required to file income tax return.

A. Individuals

1. Resident citizens receiving income from sources within or outside the Philippines

a) Employees deriving purely compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year
b) Employees deriving purely compensation income regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return
c) Self-employed individuals receiving income from the conduct of trade or business and/or practice of profession
d) Individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession
e) Individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax
f) Individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing
g) Marginal income earners

2. Non-resident citizens receiving income from sources within the Philippines
3. Aliens, whether resident or not, receiving income from sources within the Philippines

B. Corporations no matter how created or organized including partnerships
1. Domestic corporations receiving income from sources within and outside the Philippines
2. Foreign corporations receiving income from sources within the Philippines
3. Taxable partnerships

C. Estates and trusts engaged in trade or business


Who are not required to file Income Tax returns?

The following individuals are not required to file income tax returns:

1. An individual who is a minimum wage earner
2. An individual whose gross income does not exceed his total personal and additional exemptions
3. An individual whose compensation income derived from one employer does not exceed P 60,000 and the income tax on which has been correctly withheld
4. An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies, petroleum service contractors and sub-contractors and offshore-banking units, non-resident aliens not engaged in trade or business)
5. Those who are qualified under “substituted filing”. However, substituted filing applies only if all of the following requirements are present :

a) the employee received purely compensation income (regardless of amount) during the taxable year
b) the employee received the income from only one employer in the Philippines during the taxable year
c) the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer
d) the employee’s spouse also complies with all 3 conditions stated above
e) the employer files the annual information return (BIR Form No. 1604-CF)
f) the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.



Who are exempt from Income Tax?

The following individuals are exempt from income tax:

1. Non-resident citizen who is:

a) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein
b) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis
c) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year
d) A citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at any time during the year to reside permanently in the Philippines will likewise be treated as a non-resident citizen during the taxable year in which he arrives in the Philippines, with respect to his income derived from sources abroad until the date of his arrival in the Philippines.

2. Overseas Filipino Worker, including overseas seaman

An individual citizen of the Philippines who is working and deriving income from abroad as an overseas Filipino worker is taxable only on income from sources within the Philippines; provided, that a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade will be treated as an overseas Filipino worker.

Note 1: A Filipino employed as Philippine Embassy/Consulate service personnel of the Philippine Embassy/consulate is not treated as a non-resident citizen, hence his income is taxable.

Note 2: An individual, though exempt from income tax, is still required to file his or her income tax return (BIR form 1700).


BIR Forms to be used and documentary requirements/attachments

The following are the BIR Forms to be used for filing annual income tax return for different types of taxpayers.

1. BIR Form 1700 – Annual Income Tax Return (For Individual Earning Purely Compensation Income Including Non-Business/Non-Profession Related Income) – Please check the links at the bottom of this post for the new and revised BIR 1700 form as of November 2011.

Documentary Requirements:

a) Certificate of Income Tax Withheld on Compensation (BIR Form 2316)
b) Waiver of the Husband’s right to claim additional exemption, if applicable
c) Duly approved Tax Debit Memo, if applicable
d) Proof of Foreign Tax Credits, if applicable
e) Income Tax Return previously filed and proof of payment, if filing an amended return for the same taxable year

2. BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those With Both Business and Compensation Income). Please check the links at the bottom of this post for the new and revised BIR 1701 form as of November 2011.

Documentary Requirements:

a) Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable
b) Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
c) Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
d) Waiver of the Husband’s right to claim additional exemption, if applicable
e) Duly approved Tax Debit Memo, if applicable
f) Proof of Foreign Tax Credits, if applicable
g) Income Tax Return previously filed and proof of payment, if filing an amended return for the same year
h) Account Information Form (BIR Form 1701 AIF) or the Certificate of the independent CPA with Audited Financial Statements if the gross quarterly sales, earnings, receipts or output exceed P 150,000.00
i) Proof of prior year’s excess tax credits, if applicable

3. BIR Form 1702 – Annual Income Tax Return (For Corporations and Partnerships). Please check the links at the bottom of this post for the new and revised BIR 1702 form as of November 2011.

Documentary Requirements:

a) Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304), if applicable
b) Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
c) Duly approved Tax Debit Memo, if applicable
d) Proof of Foreign Tax Credits, if applicable
e) Income tax return previously filed and proof of payment, if amended return is filed for the same taxable year
f) Account Information Form (BIR Form 1702 AIF) and/or the Certificate of the independent CPA with Audited Financial Statements, if the gross quarterly sales, earnings, receipts or output exceed P150,000.00
g) Proof of prior year’s excess tax credits, if applicable

Note: Quarterly income tax returns (BIR Form 1701Q and BIR Form 1702Q) shall also be filed on or before their corresponding due dates. But for the purpose of simplifying this article, we only include income tax returns filed annually.


Computation of income tax due and payable

To learn about the preparation and computation of the income tax due and payable, please visit and read the following articles we have published in this site:

How to compute annual income tax payable in the Philippines (for individuals)

How to compute annual income tax payable in the Philippines (Partnerships and Corporations)


Steps and procedures for filing income tax return

1. Fill-up corresponding BIR Form (BIR Form 1700, 1701 or 1702) in triplicate.

2. Attach the corresponding documentary requirements

3. If there is payment:

a) Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered and present the duly accomplished BIR Form (return), together with the required attachments and your payment.
b) In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form, together with the required attachments and your payment.
c) Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

4. For “No Payment” Returns including refundable returns, and for tax returns qualified for second installment:

a) Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form, together with the required attachments.
b) Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.


Deadlines

The following are the deadlines and due dates of filing income tax returns:

1. BIR Form 1700 – Annual Income Tax Return (For Individual Earning Purely Compensation Income Including Non-Business/Non-Profession Related Income)

Deadline: On or before the 15th day of April of each year covering taxable income for the preceding taxable year

2. BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those With Both Business and Compensation Income)

Deadline: Final Adjustment Return or Annual Income Tax Return – On or before the 15th day of April of each year covering income for the preceding year

3. BIR Form 1702 – Annual Income Tax Return (For Corporations and Partnerships)

Deadline: Final Adjustment Return or Annual Income Tax Return – On or before the 15th day of the fourth month following the close of the taxpayer’s taxable year

Note:
For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession, when the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to be paid at the time the return is filed and the second installment 15 of the same year at on or before July the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.


Other Income tax returns required for certain individuals and entities

BIR Form No. 1703- Annual Income Information Return for Non-Resident Citizens / OCWs and Seamen (for foreign-sourced income)

Description
This information return is filed in triplicate by Non-resident citizens and Overseas Contract Workers (OCWs), including qualified Filipino seamen, on income derived from sources abroad.

An individual citizen of the Philippines who is working and deriving income from abroad as an overseas worker is taxable only on income from sources within the Philippines. Income from sources within the Philippines should be filed in either Form 1700 or Form 1701.

Filing Date
This information return is filed not later than the April 15 of the year following the taxable year in which the income was earned.

BIR Form No. 1704 Improperly Accumulated Earnings Tax Return

Description
This form is to be filed by every domestic corporation classified as closely-held corporation except banks and other non-bank finan-cial intermediaries, insurance companies, taxable partnerships, general professional partnerships, non- taxable joint ventures and enterprises duly registered with the Philippine Economic Zone Authority (PEZA) under R.A. 7916, and enterprises registered pursuant to the Bases Conversion and Development Act of 1992 (R.A. 7227), and other similar laws, shall render a true and accurate tax return in accordance with the provision of the Tax code.

Filing Date
The return shall be filed within 15 days after the close of the year immediately succeeding taxpayer’s covered taxable year.

Disclaimer:
New and subsequent BIR rulings, issuances and or laws may render the whole or part of the article obsolete or inaccurate. Furthermore, there may also be other relevant information that have been missed to include in this article. For more information, please visit the Bureau of Internal Revenue (BIR) website.

Update: The BIR has already issued new and revised BIR Forms 1700, 1701, 1702. You can also used the Interactive forms to easily fill-up these forms. Check out our articles regarding this matter. You will also find guidelines and instructions on how to use the new forms, as well as the Interactive forms.

From How to File Income Tax Return in the Philippines | Business Tips Philippines

[BatmanBeyond]

How to Compute VAT Payable in the Philippines

Feb 16, 2011 by Victorino Abrugar at Law & Government, Taxation
How to Compute VAT Payable in the Philippines

How to compute Value Added Tax (VAT) payable in the Philippines? Any person or entity who is engaged in trade, business or in the practice of profession may be liable to business taxes. Business taxes can be either a Percentage tax or a Value Added Tax. Furthermore, a taxpayer can be a VAT registered or a Non-VAT registered taxpayer. In this article, we will tackle how to compute VAT Payable and file the monthly and quarterly VAT returns.


What is a Value Added Tax?

Value-Added Tax is a business tax in the form of sales tax. It is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.


Who Are Required To File VAT Returns

The following persons or entities are required to file VAT returns:

1. Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed One Million Five Hundred Thousand Pesos (P1,500,000.00).
2. A person required to register as VAT taxpayer but failed to register
3. Any person, whether or not made in the course of his trade or business, who imports goods


Who may opt to register as VAT and what will be his liability?

1. Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with the RDO that has jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for every separate and distinct establishment.
2. Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transactions which would have been exempt under Section 109(1) of the Tax Code, as amended [Sec. 109(2)].
3. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business covered by the law granting the franchise may opt for VAT registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax Code).
4. Any person who elects to register under optional registration shall not be allowed to cancel his registration for the next three (3) years.

The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the calendar quarter and shall pay the registration fee unless they have already paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for administrative reason deny any application for registration. Once registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration.


What are the BIR forms used in filing VAT Returns?

VAT returns are filed monthly using the Monthly Value Added Tax Declaration Return BIR Form 2550M and quarterly using the Quarterly Value Added Tax Declaration Return BIR Form 2550Q. To download forms, please click here to go to the BIR forms download page.


How to compute Value Added Tax Payable

Value Added Tax Payable is normally computed as follows:

1. Computing Net VAT Payable on VAT “exclusive” Sales/Receipts

Total Output Tax Due or Total Vatable Sales/Receipts x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases x 12%
Equals: VAT Payable


Sample Computation of VAT Payable:

Let’s assume that,
Total Vatable Sales (VAT exclusive) = P100,000
Total purchases with VAT receipts (VAT exclusive) = P70,000

P100,000 x 12% or P12,000
- P70,000 x 12% or P8,400
VAT Payable = P3,600

2. Computing Net VAT Payable on VAT “inclusive” Sales/Receipts

Total Output Tax Due or Total Vatable Sales / 1.12 x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases / 1.12 x 12%
Equals: VAT Payable

Sample Computation of VAT Payable:

Example based on the above assumption:
Total Vatable Sales (VAT inclusive) = P112,000
Total purchases with VAT receipts (VAT inclusive) = P78,400

P112,000 /1.12 x 12% or P12,000
- P78,400 /1.12 x 12% or P8,400
VAT Payable = P3,600

Or an alternative computation:

P112,000 /9.333 or P12,000
- P78,400 /9.333 or P8,400
VAT Payable = P3,600

Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or services by any person registered or required to register under Section 236 of the Tax Code.

Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local purchase of goods, properties or services, including lease or use of property in the course of his trade or business. It shall also include the transitional input tax determined in accordance with Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.

Total Vatable Purchases are your total purchases from VAT registered suppliers. This should be supported with VAT receipts.

Note:
VAT exempt sales, zero rated sales, purchases not qualified for input tax, and other input taxes (if any) should also be shown in the VAT returns. See BIR Forms.


How, when and where to File VAT Returns?

Documentary Requirements

1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax At Source (SAWT), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Authorization letter, if return is filed by authorized representative.

Procedures

1. Fill-up BIR Form No. 2550M (for monthly VAT declaration) or 2550Q (for quarterly VAT declaration) in triplicate copies (two copies for the BIR and one copy for the taxpayer)
2. If there is payment: File the Monthly VAT declaration, together with the required attachments, and pay the VAT due thereon with any Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District Office (LTDO) where the taxpayer (head office of the business establishment) is registered or required to be registered.

The taxpayer must accomplish and submit BIR-prescribed deposit slip, which the bank teller shall machine validate as evidence that payment was received by the AAB. The AAB receiving the tax return shall stamp mark the word “Received” on the return and machine validate the return as proof of filing the return and payment of the tax.

In places where there are no duly accredited agent banks, file the Monthly VAT declaration, together with the required attachments and pay the VAT due with the Revenue Collection Officer (RCO) or duly authorized Treasurer of the Municipality where such taxpayer (head office of the business establishment) is registered or required to be registered.

The RCO or duly authorized Municipal/City Treasurer shall issue a Revenue Official Receipt upon payment of the tax.

3. If there is no payment:
File the Monthly VAT Declaration, together with the required attachments with the RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent or duly authorized Municipal/ City Treasurer of Municipality/City where the taxpayer (head office of the business establishment) is registered or required to be registered.

Deadline

Monthly VAT returns BIR Form 2550M:
Not later than the 20th day following the end of each month (manual filing)

Quarterly VAT returns BIR Form 2550Q:
Within twenty five (25) days following the close of taxable quarter (manual filing)

For EFPS filing, please visit the BIR website for detailed and updated dates of deadlines.

Reference:
BIR Tax information on Value Added Tax
Sections 105 to 115 of the National Internal Revenue Code of 1997, as amended

Disclaimer: New and subsequent BIR rulings, issuances and or laws may render the whole or part of the article obsolete or inaccurate. For more information, please inquire or consult with the BIR.


From: How to Compute VAT Payable in the Philippines | Business Tips Philippines

[BatmanBeyond]

How to Make Your Small Business Legal

Feb 20, 2012 by Victorino Abrugar at Registration, Small Business

businessman on the goYou started it as a hobby, and then you’ve decided to start a small business out of it. It can be online, such as website development, search engine optimization, graphic designing or selling stuff on the Internet. It might also be something you’ve started at home without the Internet, such as scented candle making, cake baking, dressmaking, or providing talent lessons to interested students. Now, with your growing customers or clients, you might want to register your small business with the right government agencies to make it legal. I’m not entirely saying that your small business is illegal, but operating a business and earning significant income without the proper license to operate might be against some laws, especially tax laws. To learn how to legalize your small business, here are some discussions and resources to guide you.


Start registering your business

You can register your business with the right government agencies either as a sole proprietorship, partnership or a corporation. These different types of businesses have their own characteristics. A sole proprietorship is fully owned and controlled only by its sole owner – the proprietor. A partnership is owned by multiple owners called partners. A corporation, which is a separate legal entity from its owners, is owned by shareholders or stockholders. You may read our post about the “advantages and disadvantages of forming a corporation” to learn more about establishing a corporation.

If you don’t have partners or co-owners on your small business, you can opt to register your business as a sole proprietorship. This type of business is the easiest and least expensive to register compare to partnership and corporation. It is also easy to dissolve and can be transformed into a partnership or a corporation if decided in the future.


Business registration in the Philippines

If you’re doing business in the Philippines, you may read our article on how to register a business in the Philippines. This article will give you resources on how to register your business with the different Philippine government agencies and units, such as SEC (Securities and Exchange Commission) for corporations and partnerships, DTI (Department of Trade and Industry) for registering your business name, Mayor’s Office for getting Mayor’s business permit, and BIR (Bureau of Internal Revenue) for registering your business, official receipts, and books of accounts.

The BIR requires every business establishment in the Philippines to display their certificate of registration, proof or BIR return for payment of current annual registration fee, poster “Ask for BIR Receipt” or “Notice to the Public to demand receipts/invoice, and others that the bureau may require. They also conduct regular tax mapping to examine if these requirements are followed by businesses and may imposed penalties once a business doesn’t adhere to it.


Benefits of registering your small business

Every business should be run with the proper authority or license to operate. A number of small business owners or professionals who generate income from their business or practice of profession don’t want to register or legalize their business to avoid paying and spending on taxes and licenses. But avoiding the law will not make any business go far in terms of success. There are many advantages of registering even a small business. Some of these advantages are the following:

1. You will have your own official receipts and invoices which your customers or clients will insist to ask
2. You will not be penalized or imprisoned by the tax authorities and other licensing agencies for not registering your business
3. A registered business will invite more customers, suppliers, investors and even creditors
4. You can open business bank accounts
5. You can also apply for small business loans
6. You can hire full time employees just like other registered companies
7. You can maintain your business reputation and promote it to the public
8. You can pay taxes and contribute with the government
9. You can also have your own income tax return as your proof of income for obtaining loans and for transacting with the government agencies
10. and many others.

Now, if you want to be a business person with integrity and legality, it would be wise if you can start legalizing your small business now. Finally, a legal business is not only achieved through registration, business owners should also consistently fulfill their tax, licensing and reportorial obligations.


From: How to Make Your Small Business Legal | Business Tips Philippines

[BatmanBeyond]

How to Close a Company in the Philippines

In the Philippines it is relatively easy to open up a corporation or business, however after some years of operation for whatever reason you may need to close the business as well. This is actually extremely more difficult and complicated to do.

When closing a business there are 3 main offices in which the filing must take place.

The Local City Hall where the business is registered
The BIR office in which the company is registered
The Securities and Exchange Commission of the Philippines

The Local City Hall Clearance

I'm going to assume that the business is registered with the City Hall, has a Mayor's Permit and is in good standing.

The first thing that must be done is write a letter to the City Hall informing them that you wish to close the business. They will ask for you computation of the previous years sales and a copy of the last income tax return. Each city has its own calculation, but they will come up with an assessment of how much you owe the city based on your previous years sales. After you complete the payment they will give you a release.

This step of the process can take place in about 3 weeks time.

The BIR

Now you must file a letter informing the BIR that your business will be closing and file with them you most recent Financial Statement. They will then conduct an investigation and bring to light any tax issues that you might have. Depending on how long your business operated for, this step can take up to 1 year, especially if they decide you still owe the government money, and even more especially if you decide you don't.

You should consult with a tax consultant before meeting with the BIR to help guide you through the process.

After they have decided that your business is closed they will issue you Tax Clearance Certificate, indicating you have settled with the BIR.

The Securities and Exchange Commission

If you have already received the clearance form the City Hall and from the BIR, the final step is to file with the SEC. You will be required to present a board resolution shortening the length of the corporation and filing for its closure. You must place a classified ad in a newspaper of circulation posting that your company will be closed and giving a location where all legal notices may be served.

At this time companies or individuals have the opportunity to come forward and serve you with any legal summons. You must post the ad once a week for a period of 3 weeks and get an affidavit of publication from the publisher. Present this, the Tax Clearance from BIR, the City Hall Clearance, and the Board Resolution to close the company to the SEC monitoring department for review.

If everything is correct and in order you should receive an official notice from the SEC notifying you that the company has been closed.

As you can see while a business can be set up in less than 1 week to actually close one done the proper way is a lengthy difficult process.

If you have any questions please post comments, and if you need a consultant to help you wind down your business, Contact us for more details and to arrange an appointment.

From: How to Close a Company in the Philippines

[BatmanBeyond]

Tax Guide Philippines

Apr 20, 2011 by Victorino Abrugar at Tax Tips, Taxation
Tax Guide Philippines

If you’re looking for an online tax guide in the Philippines, this blog strives to provide you that. We know that taxation is an essential part of doing business. We also understand that it may involve anyone who earns income, whether it’s from business, profession or compensation. Taxes are not to be ignored; they should be prioritized to avoid future financial, moral, civil and even criminal troubles. Thus, we need to adequately be oriented and educated with our tax responsibilities with the government.

We have already published several tax articles, tips and guidelines, which aim to provide our concerned readers the necessary information they need to manage their tax obligations. In order to realize that goal, we have listed and summarized the following articles on Philippine taxation for your convenience.


Registration:

If you are not yet registered with the Bureau of Internal Revenue as a self-employed taxpayer, who is either engaged in sole proprietorship business or in the practice of profession, you may read our article titled, “How to register your business with the BIR.” That article also includes registration of corporations with the Bureau. Moreover, the BIR has published a “Tax guide for Professionals” in their website for more information related to the registration requirements and taxability of a professional.


Taxes to pay:

If you’re a registered self-employed taxpayer or if your want to register such, you may read our article, “What taxes should I pay in the Philippines for self-employed individual” to learn the tax liabilities you should settle on time.


Business taxes:

Business taxes include Value Added Tax and percentage taxes. The following articles will give you an idea on their nature and how to compute for your business taxes in doing business and practicing your profession in the Philippines:

Business taxes in the Philippines
How to compute VAT payable in the Philippines
How to compute Percentage tax in the Philippines


Income tax:

For computing annual income tax and preparing the related returns (ie., BIR forms 1701 or 1702), the following articles will guide you to accomplish those tasks, whether it is for individual, corporation or taxable partnerships.

How to compute income tax (self-employed)
How to compute income tax for corporations and partnerships
How to file income tax return in the Philippines
Deductible expenses and allowable deductions


Tax avoidance:

To legally avoid unnecessary taxes, reduce possibility of a BIR audit, and save your money from additional charges, such as penalties, interest, surcharge and compromise, these articles can help you.

How to avoid BIR audit
20 tips to avoid BIR tax penalties


Withholding taxes:

If you employs people who are required to pay their income tax, and or if you pay for rentals, or other income payments subjects to expanded withholding tax, these articles will help you compute the amount of taxes you should withhold and remit with the BIR:

How to compute withholding tax on compensation
How to compute expanded withholding tax


Deadlines:

Do you wonder when should you file and pay your annual and quarterly income taxes? You should learn when before it is too late. We have posted the “BIR Tax filing and payment deadlines for income taxes here.


Penalties:

So you haven’t made it on the due date? Now you don’t have any clue how much total penalties you should pay for the late filing of your tax return? Here is a simple guide to compute the extra charges you should pay with the BIR: Penalties for late filing of tax returns in the Philippines.

There you are, I hope those articles and information above will guide you on your way to managing your tax obligations. We will continuously write tax articles and fill this post with important information that will guide every taxpayer in our nation. For now, have a great day and we hope for your best results and success!


Taken from: Tax Guide Philippines | Business Tips Philippines

Please contact me at 0922-9410412 for inquiries.

[BatmanBeyond]

Under Philippines Law, a Partnership is a separate legal entity from that of the participants in the partnership. Partnerships may either have unlimited liability for the debts and obligation of the partnership (a general partnership), or one where one or more of the partners have unlimited liability and some partners have liability only up to the amount of their capital contributions (a limited partnership). It need to consist of two (2) or more individual. A partnership might be suitable for foreign companies to partner with Philippines companies for business ventures.

Similar to a Sole Proprietorship except for two individuals, both usually are responsible for all the actions of the partnership. Great arrangement for two corporations involved in a joint venture.

Requirements

Partnership with less than P3,000.00 capital only need to register their name with Department of Trade and Industry DTI.
Partnership with more than P3,000.00 capital must register with Securities and Exchange Commission (SEC).
Submission of duly notarized Articles of Partnership.
If one of the Partners is a foreigner submission of SEC form F-105.
Licenses and clearance from necessary government offices
Filing of Tax Identification Number TIN with Bureau of Internal Revenue BIR.
If employing individuals must register with government offices.
Business permit and Mayor's License for city of operation.


Procedure

Secure reserved name from DTI
Present accomplished forms/docs for processing and evaluation to SEC
Present Verification from local bank of minimum paid up capital in trust account
Present Requirements if one of the partners is a Foreigner or Corporation
Pay filing fees to cashier
Claim Registration from records division from Records Division
Complete with all applicable government agencies.

[BatmanBeyond]

How to Get Mayor’s Business Permit in the Philippines

Feb 4, 2011 by Victorino Abrugar at Business, Business Startup, Registration
How to Get Mayor’s Business Permit in the Philippines

How to get a Mayor’s Business Permit or license in the Philippines? A business permit or license from the Local Government Units (LGU) is one of the important requirements for every business or company to operate in the Philippines. LGUs can be cities or municipalities, and procedures for obtaining a permit may vary depending on the ordinances the city or municipality will implement. This means that obtaining a business permit in Makati City may become different from getting it in Manila or Cebu City.

Securing a business permit from the Mayor’s Office can only be done after the registration of your business with the Department of Trade and Industry or DTI (for single proprietorship) and with the Securities and Exchange Commission or SEC (for partnership and corporation). The following are the usual steps and requirements for getting a Mayor’s Business Permit for typical cities in the Philippines.


Requirements for New Business

1. Barangay Clearance
2. DTI Business Name Certificate (Single Proprietor)
3. Certificate of SEC Registration / Articles of Incorporation (for Corporation) / Articles of Partnership (for Partnership)
4. Public Liability Insurance (for Restaurants, Cinemas, Malls, etc.)
5. Authorization Letter of owner with ID
6. Lease Contract / Tax Declaration
7. SSS (Certification / Clearance)
8. CTC (Community Tax Certificate-CEDULA)


Steps for Securing a Business Permit (for New Business in Manila)

1. Application and submission of requirements
The accomplished business transaction form together with the requirements shall be submitted to the Bureau of Permits (BP). The BP personnel shall encode the business transaction form details and the requirements for processing and computation of business permit fee. The BP personnel shall issue a computer generated Business Identification Number (BIN) slip to the applicant.

2. Assessment of business tax and regulatory fees
The applicant shall proceed to the License Division of the City Treasurer’s Office for computation and assessment of Business Tax and Regulatory Fees. The applicant shall present the issued Business Identification Number to a licensing officer on duty. The latter shall then compute and generate the License and Regulatory Fees Form which shall be given to the applicant.

3. Payment of license and regulatory fees
The applicant shall proceed to the cashier and shall present the issued License and Regulatory Fees (LRF) Form. The cashier shall receive and record the payment of the applicant and shall validate the LRF Form which will serve as the Official Receipt.

4. Release of Business Permit
The applicant shall go back to the Bureau of Permits office. After verifying the Official Receipt, a personnel will generate the Business Permit and it will be released to the applicant upon signing of the BP Director.

Note: Business permits are renewed every year. Renewal period is usually on the first month (January) of the calendar year depending on the city or municipality ordinance. Penalties are imposed upon business on failure to renew business permit.

From: How to Get Mayor's Business Permit in the Philippines | Business Tips Philippines

[BatmanBeyond]

Tax

The tax and regulations become more complex every year. Failure to comply with obscure sections of the tax code can result in costly interest and penalties. Proper understanding and utilization of tax incentives can significantly reduce your tax liability. We are ready to help you comply with all applicable tax laws and minimize your tax burden including the development of tax-saving strategies. Our tax services include:

Tax return preparation

Representation in tax examinations

Evaluation of tax impact of investments

Planning for changes in income tax laws

[BatmanBeyond]

Tax consultation is a crucial part to any financial planning services. Determining current and future strategies for proactive taxation and accounting systems in businesses and organizations is important. Proper consultation can put in place a blue print for success and a well-prepared understanding of applicable Tax Code provisions in certain transactions and how they will effect your business.

We have a suite of tax consultation services to assist companies or completely manage their accounting departments. Our team of qualified CPAs posses the knowledge and tools to complement any organizations needs.

Services range from clarification of certain accounting implications, to representation with the Bureau of Internal Revenue(BIR) and the Local Government Units (LGUs) with respect to specific problems involving national and local taxation, respectively. We will also provide constant updating of new accounting and tax guidelines as they are published and released by the BIR.

Contact us (0922-9410412) to speak with our team and to find out more information on how to help your business.