Registered businesses in the Philippines, both foreign and local, are required to file their taxes to two government bodies, namely the Bureau of Internal Revenue (BIR), the Philippine tax authority, and the Local Government Unit where the business is located. The taxes filed to these bodies are, respectively, known as national taxes and local taxes.
Tax Rates for 2021 onwards
Tax rates are subject to changes annually based on your income and various taxation reforms. However, as stipulated in the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, a reduction in corporate tax rates (CIT) for certain types of corporations will be observed. The CIT is to be reduced by one percent (1%) yearly in the next 5 years and a half. Eventually, the tax rate is expected to reach twenty percent (20%) by 2027 and onwards.
National Taxes (BIR)
There are currently four main types of national taxes of corporations in the Philippines. These include:
1. Income Tax
2. Value-Added Tax (VAT)
3. Excise Tax
4. Documentary Stamp Tax
1. Income Tax
As written in the CREATE Act, the corporate income tax (CIT) rates for both domestic and resident foreign corporations (RFC) is twenty five percent (25%) and based on taxable income or one percent (1%) minimum corporate income tax (MCIT) taxed from gross income, whichever comes out higher.
Non-resident foreign corporations (NRFC) are also subject to the twenty-five percent (25%) CIT rate. For regional operating headquarters (ROHQ), the twenty-five percent (25%) CIT rate still applies.
For domestic corporations with net taxable income not exceeding P5M and gross assets not exceeding P100M, a twenty percent (20%) CIT rate is levied. Noteworthy, domestic corporations are taxed both on international and local income. Foreign corporations, on the other hand (meaning incorporated outside the economic zone of the Philippines), are only taxed on the source of income derived from operations in the Philippines.
Income tax is due every 15th of April, with the payment made on this date covering the period from January to December.
2. Value-Added Tax
The VAT is at twelve percent (12%). This tax is applied to the taxable gross selling price of properties, goods, and the gross value of receipts from services rendered and lease of properties.
Companies operating inside the Philippines with actual gross sales not exceeding P3M are exempted from remitting and filing VAT. Under the Create Act, the following exemptions on VAT are in effect until further notice:
– Sale of prescription drugs
– All drugs, vaccines, and medical equipment used to treat COVID-19
– Sale, distribution, importation, printing, and publishing of educational materials under the UNESCO agreement
– FDA approved drugs and treatment for COVID-19
VAT deadlines are scheduled on a monthly and quarterly basis.
3. Excise Tax
Do not forget to attach the necessary documents when claiming tax credits. Make sure to have the corresponding certificates, documents, or other proof that will vouch for your eligibility to claim Tax Credits.
6. Claiming Over and Beyond Allowable Deductions
Excise taxes are applicable to goods and services produced or manufactured in the Philippines for domestic consumption or sales.
Excise taxes have no specific deadline, but they must be paid prior to the removal of applicable goods and services from their place of production.
4. Documentary Stamp Tax
DSTs are imposed on company documents, instruments, loan agreements, and papers that show the assignment, acceptance, transfer, or sale of any right, obligations, or property.
DSTs are required to be filed within five days after the close of each month when the taxable documents were made.
Local Taxes
Local taxes are those imposed and collected by the Local Government Units where a business is located. The tax rates then depend on what is mandated by the LGU. The two main types of taxes under local taxes are:
1. Real Property Tax
2. Business Tax
1. Real Property Tax
This is a tax corporations must pay on their land, buildings, or any machinery considered as real property. This tax is charged annually based on a fixed proportion of the taxable value of the real property.
Real property tax must be paid for annually and in full on or before March 31, or in quarterly installments.
2. Local Business Tax
Local Business Taxes are computed based on the gross sales of a company’s previous fiscal year. The rates vary across localities, but do not exceed three percent (3%).
The Philippine Bureau of Local Government Finance (BLGF) has noted down the following exemptions from paying the Local Business Tax.
– Any business certified by the Philippine Board of Investments as a pioneer or non-pioneer
For four to six years beginning the date of registration.
– Businesses that manufacture, produce, refine, sell, or distribute oil, gas, and other products of petroleum
– Cooperatives registered with the Cooperative Development Authority
– Philippine Economic Zone Authority registered companies and those registered in Special
Economic Zones
Local Business Taxes must be paid yearly, on or before the 20th of January, or quarterly.
Avoid penalties and fines by filing the correct taxes. Besides, you need to have paid for the correct fees to renew your business registration and permit. If you have trouble with your accounting and bookkeeping, you will also find it difficult to calculate the correct tax dues. In this regard, it would be prudent to seek professional assistance. Call our team of Certified Public accountants for a free 30-mintue consultation to ensure you are compliant with all tax requirements.
