Apart from the usual income tax, if you are selling taxable products and services, then you have to be concerned with value-added tax (VAT). Others that who are VAT exempt will have to pay what is known as a percentage tax. If you own a business property, you also pay real estate tax. How can you possibly remember everything?
Avoid a Complex Audit
Whether you are a business neophyte or even if you have been dabbling in business for many years, you must be updated about what taxes you have to pay. Late payments, mistakes, and wrong computations will result in hefty penalties and surcharges. Worse of all, you can face a complex audit from the BIR. Any entrepreneur who has undergone one will tell you it is very stressful because you have to dig through your records, statements, invoices, and inventory lists. It is very much a nightmare to pay arrears!
To help you avoid an audit, here are the most common baseline taxes for business people. Your business may need to pay additional ones depending on your industry. It would be best to consult a professional to ascertain which amongst the complex tax codes are applicable for your company. But do note that as a business, whether sole proprietor, professional or corporation, the common tax types are the following. Let’s take a quick look!
Mandatory National Taxes
Here are the taxes you have to pay to the national government. Though it may seem a lot, it is vital to remember that your taxes are used to finance basic social services that every citizen benefit from. Taxes are also crucial for economic growth.
WHT-compensation: This withholding tax is levied on your employees’ salary or income. As the owner, you will deduct a specific portion from the said salary. On the monthly cut-off, you must remit this percentage to the BIR. Valid identification documents (birth certificate, driver’s license, passport, postal ID, etc.)
WHT-expanded: This withholding tax is is deducted from your payment for products or services to your supplier. The rates will vary depending on the nature of the income payment. This is payable every month and at the end of every quarter.
VAT or Percentage tax: Businesses that are VAT registered and earn a gross sale of more than P3 million annually are required to pay the value-added tax every month and quarter. In contrast, percentage tax is levied every quarter on businesses that are non-VAT registered, such as those who earn less than P3 million.
Income tax: This tax is calculated based on a graduated tax rates of 0% to 35% on your gross net taxable income instead of net income which is paid quarterly and annually. Do note that certain types of income are subject to special tax rates based on the nature of your business. There is also an 8n % tax rate that can be applicable to self-employed individuals like sole proprietors and professionals whose gross receipts do not exceed 3 million pesos VAT threshold and are not subject to other kinds of percentage tax. The taxpayer opting for this scheme will receive simplified taxation. It must be noted, though, that this is not mandatory for all self-employed individuals. It is imposed on the gross sales with no allowable deductions. Thus, those who wish to avail of this tax rate must do the matching to check which tax scheme would be most beneficial for their business.
Annual registration fee: All businesses in the country are mandated to pay a yearly P500 fee using BIR Form 0605.
Required Local Taxes
Local taxes are assessments made by your LGU. It is also used to fund public services in your locality from local road maintenance to garbage collection. Take a look at the most common taxes you’ll pay to your LGU.
Local business tax: If you want to renew your business permit, you must pay your annual local taxes to your Mayor’s Office, unless you are granted an exemption under the Local Government Code. The rate shall be assessed by your City Treasurer’s Office based on your previous year’s gross revenue. Note that you will also pay licensing fees, which goes to the LGU fund so that you can get your Mayor’s Permit.
Real estate tax: Should you own the real estate of your address of business, you also need to pay an annual property tax. Noteworthy, it is also imposed on all the other property owned by the business regardless if it is your address or not.
Watch this video on Common Taxes You Should File as a Business Owner.
Dealing with your taxes in the Philippines can be quite complex. You can file your taxes in 3 ways: eFPS, eBIR Forms, and Manual Filing by going to a BIR regional office. Payment of taxes can be also done through eFPS and other payment partners like Landbank, UnionBank, GCash and PayMaya. You must understand which filing system will work best for your business as each has its own requirements. Advice from a reliable professional is recommended if you don’t want to encounter any problems.
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