A. Income Tax
1. Sole Proprietorship
The income of a sole proprietorship is included in the individual owner’s gross income, with the business expenses considered as part of the allowable deductions. In other words, the Sole Proprietorship does not file a separate income tax return from that filed by its owner. The graduated rate of 5% to 32% depending on the amount of taxable income is used.
Partnerships and joint ventures are generally taxed as corporations. They file their own income tax returns separate from the partners.
The normal corporate income tax (NCIT) rate for domestic corporations is 30% of the taxable income. The taxable income is the gross income less allowable deductions such as cost of goods and salaries.
Minimum Corporate Income Tax (MCIT)
If there is no taxable income, the corporation is still required to pay the minimum corporate income tax of 2% of the gross income.
B. Other types of Tax
1. Value Added Tax (VAT)
The 12% VAT applies to:
a. All persons who sell, barter, exchange, or lease goods or properties or render services in the course of trade or business whose annual gross sales or receipts exceed PhP 1,919,500; and
b. Those who import goods.
VAT registered enterprises collect (or pass on) VAT from their customers (called output VAT) and pay VAT to its suppliers of goods and services (referred to as input VAT). The law requires the remittance of the difference between output and input VAT. So, if a business makes gross sales of PhP 300 million, then the output VAT is PhP 36 million. If the total input VAT paid to suppliers total PhP 20 million, then the taxpayer must remit PhP 16 million VAT to the government.
2. Percentage Tax
Percentage Tax is a business tax imposed on persons or entities who sell or lease goods, properties or services in the course of trade or business whose gross annual sales and/or receipts do not exceed PhP 1.92 million and who are not VAT-registered.
3. Excise Tax
Excise taxes are taxes imposed on the production, sale or consumption of a commodity.
a. Specific Tax – excise tax based on weight or volume capacity or any other physical unit of measurement.
b. Ad Valorem Tax – excise tax based on selling price or other specified value of good or articles.
4. Documentary Stamp Tax (DST)
DST is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. The amount of the DST will depend upon the document, instrument, agreement or papers subject of the tax. Failure to pay DST on the required documents can result to the inadmissibility of such document in court for legal purposes, among others.
5. Real Property Tax
Real Property Tax is imposed by the local government on the ownership and use of land, buildings, machinery and other improvements not specifically exempted by law.
6. Local Business Tax
Local Business Tax is a tax imposed by the local government on businesses operating within the local government unit. Typically, the tax is based on the gross sales of the business the year before the tax is collected.
7. Income Tax for Employees
An employer is required to withhold the taxes of its employees on a monthly basis. For the computation of withholding tax, the BIR has provided a tax table. Minimum wage earners are exempted from the withholding tax.
Fringe benefits Tax
A fringe benefit is any good, service or other benefit granted in cash or kind by an employer to a managerial or supervisory employee. This is taxed by 32% of the grossed up monetary value of the benefit but such tax is deductible from the employer’s gross income.
De Minimis Benefits
These are benefits of relatively small value (such as medical assistance of PhP 10,000 and below) given by the employer to promote health and goodwill of the employees. These are not taxed but are also not deductible from the employer’s gross income.
C. Reportorial Requirements
Every registered withholding agent on compensation is required to file a Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form 1601-C).
Sole proprietors must file their income tax as individuals on or before April 15 of each year.
All corporations are required to file a quarterly income tax return on a cumulative basis for the preceding quarters and a final or adjustment return, on or before April 15. Taxes must be paid upon filing of the tax declaration.
Corporations must also file Monthly VAT Declarations (BIR Form 2550M) no later than the 20th day following the close of the month. They are also required to file a Quarterly VAT Return (BIR Form 2550Q) not later than the 25th day following the close of the taxable quarter.