Taxes come in many shapes and sizes for entrepreneurs in the Philippines, and it’s not as straightforward as the Income Tax Return (ITR) of those who are employed. If you’re a sole proprietor, business owner, or freelancer this can be an even more daunting task because you’ll have to do it yourself or at least be actively involved in the filing process to some extent (if you hire an accountant).
Running a business already demands a lot of mental energy and adding your taxes to your laundry list can make it all the more “taxing”. To make this chore easier to manage for thriving entrepreneurs we’ve put together a comprehensive guide on the things you should know and the steps that you should take to file your taxes.
Table of Contents
VAT vs Non-VAT business
Before filing your taxes, you must first determine whether you fall into the VAT business category or the non-VAT. There are different tax rates for the two categories, and knowing where you fit can put you in a better position to comprehend your tax obligations. There are advantages and disadvantages of each category that can help business owners optimize their tax dues.
BIR Registered NON-VAT businesses are those that do not make more than the current limit in annual gross sales or receipts. Currently, BIR’S limit for non-vat businesses was set at ₱3,000,000. VAT businesses on the other hand are those who earn beyond the said limit.
TRAIN Law and how its overhauling tax rates
The Tax Reform for Acceleration and Inclusion (TRAIN) Law made some good changes that aim to make the tax system easier to understand and make it fairer for both individuals and businesses. It went into effect in 2018, and the implementation is gradually implemented until 2024 when the rates are fully realized.
Quarterly filing
Before the TRAIN law was passed, businesses had to file percentage taxes every month. Now, percentage taxes will only have to be filed every three months. This will save you a few trips to the Regional District Office (RDO). The law also made the BIR Form 2551Q, which is used for quarterly percentage taxes.
Eight percent tax rate
The 8% Gross Income Tax (GIT) rate is the biggest change brought about by the TRAIN Law. This gave small businesses a simpler way of calculating their quarterly taxes. This rate however is only optional, and may not necessarily mean you’ll be paying fewer taxes. It’s more straightforward for sure, and if you’re the type of business owner who doesn’t want to deal with a complicated breakdown of your income to determine your taxes, this is an easier method to do it.
Quarterly percentage tax rates
If you’re the type of business owner who is prudent in auditing your business income and would rather base your taxes on the BIR’s traditional tax rates to cut some corners on your taxes, here are the rates itemized by industry according to the BIR.
How to file your taxes?
There are three ways for you to file your taxes in the Philippines:
Manual filing
Even though you still have to go to the BIR’s office to file this way, most of the forms you need are easy to find, download, and print from the Internet. In a way, manual filing is a mix of both in-person and online processes.
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For individuals earning income only as employees and for marginal income earners, you will need to fill up three (3) copies of BIR Form 1701. You will also need the following documents:
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Certificate of Income Tax Withheld on Compensation or BIR Form 2316
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A waiver of the spouse’s right to claim an additional exemption
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Duly approved Tax Debit memo and proof of foreign tax credits.
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For individuals who are self-employed or deriving mixed-income, you will need to fill up three (3) copies of BIR Form 1701. The following documents are also needed:
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Certificate of Income Tax Withheld on Compensation BIR Form 2316, tax debit memo
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Proof of prior year’s excess tax credits, and
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Certificate of Income Payments not Subjected to Withholding Tax or BIR Form 2304.
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Electronic Filing and Payment System
The eFPS is a complete online tax filing process. This includes payments made online through the BIR website for attachments and taxes owed to the government. If a taxpayer wants to use the BIR eFPS services, they have to sign up through the BIR e-Lounge or go to the BIR website to find out what they need to do. They also have to keep an online banking service that works with the eFPS.
However, filing through the eFPS isn’t for everyone, this is only for businesses who fall into the following categories:
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Large taxpayers who are duly notified by the BIR
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The top 20,000 private corporations duly notified by the BIR
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The top 5,000 individual taxpayers duly notified by the BIR
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Taxpayers who wish to enter into contracts with government offices
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Corporations with paid-up capital stock of ₱10 million
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Entities registered with the Philippine Economic Zone Authority (PEZA) and those located within Special Economic Zones
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Government offices, insofar as remittance of withheld value-added tax (VAT) to business tax is concerned
Electronic BIR Forms
The Electronic BIR Forms, also called eBIRForms, were mostly for taxpayers who don’t use eFPS and their licensed tax agents could file their taxes in the Philippines in an easier and more accessible way. Revenue Regulation No. 6-2014 says that it must be done.
There are both offline and online parts to eBIRForms. The offline platform, which you can download and install on your computer, is the one that most people use. Their offline platform is a tax-preparation program that lets taxpayers fill out their tax forms and send them to the BIR without leaving the system. But this software is still very simple because it doesn’t compute your taxes.
Tax duties and number crunching all need a lot of work to accomplish, the least that you could do is to automate everything else that needs computing. While tax filing is purely reliant on the BIR’s available channels (which are still less than high-tech by the way), your invoice, inventory, audits, and income reports don’t have to follow the same fate!
One easy way to automate your business, especially the paperwork, is by adding a modern-day POS in the equation like StoreHub. Take control of your business with ease, and let our POS do the number crunching, analysis, and reports with just a few clicks.
Empower your business with StoreHub’s all-in-one management system today – a BIR-accredited POS system that lets you do more than just process payments and orders!
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