Filing your taxes is a crucial thing in running your own business, no matter the size. Tax services in Manila say that even a small business like a sole proprietorship, a type of business owned by just one individual, cannot be remiss in paying taxes. The entire expenses and income of the business, as well as assets and liabilities, go through the sole owner, the individual’s ITR, or income tax return. The tax identification number of the owner and the business are one.
The same goes for professionals, freelancers, self-employed individuals, and individuals who run their own small online businesses. If you are one of the mentioned individuals, all you need to do is to make sure to register your business so that your invoices and receipts can be issued. It is best to keep all of your expense receipts to easily determine the true net income of your business, which is the number that determines the amount you have to pay to the BIR.
Filing your taxes is necessary and it’s something you do either monthly, quarterly, or annually (depending on the nature of your business). Taxes are your obligation to the government and it is necessary to pay them if you want to continue operations. According to accounting services in the Philippines, you must comply with it if you do not want to face penalties and criminal offenses. If you need help with what and when you need to pay your tax, below are some simple guidelines and details that could help you with tax filing.
Percentage Tax (Monthly and Quarterly)
Percentage tax is imposed on individuals, entities, or transactions who:
- sell/lease goods, properties, or services in the course of trade and business and are exempt from VAT under section 109 of the NIRC, whose gross sales/receipts annually do not exceed 1,919,500 pesos and are not VAT registered
- engage in BIR-identified industries
Monthly Percentage Tax (BIR Form 2551M)
This should be filed within 20 days following the end of each month. The monthly percentage tax is computed as sales tax equal to the monthly gross sales of 3%.
The following are the documents required when filing:
- If applicable, duly issued creditable tax certificate
- If applicable, duly approved tax debit memo
- for amended returns, proof of payment, and previously-filled return
- If filed by an authorized representative, an authorization letter
Quarterly Percentage Tax (BIR Form 2661Q)
This should be filed within 20 days after the end of each taxable quarter. The quarterly percentage tax reports a total of 3 months for a particular income earned in a quarter.
The following are the documents required when filing:
- If applicable, duly issued creditable tax certificate
- If applicable, duly approved tax debit memo
- for amended returns, proof of payment, and previously-filled return
- If filed by an authorized representative, an authorization letter
Income Tax (Annually and Quarterly)
Quarterly Income Tax (BIR Form 1701Q)
The quarterly income tax is your individual income tax. The income you get from your business will be subjected to a 5% to 32% graduated income tax. This graduated income tax you need to pay will be payable quarterly. But if you plan to incorporate your business, you will pay the 30% fixed corporate income tax. You need to file this tax on or before the 60th day after the closing of a quarter.
Annual Income Tax (BIR Form 1701)
The annual income tax is based on your net income for the previous year. This is due on the 15th of April every year.
Withholding Taxes (BIR Form 1601C/BIR Form 1601E)
If you have employees you need to pay salaries to, withholding taxes applies to you. It applies to third-party contractors including the lease or rent for a certain place.
The following are the forms used for withholding taxes:
- Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form 1601C)
- Expanded Monthly Remittance Return of Income Taxes Withheld (BIR Form 1601E)
Bookkeeping services in the Philippines say that whatever form you use, the due date is on or before the 10th day of the month following the month the withholding was made.
Another thing you need to remember is to renew your licenses and permits every year, due on or before January 20.
Penalties and Fees
- 25% Surcharge if you fail to file and/or pay any internal revenue tax at the required time by law or regulation.
- 50% Surcharge if you willingly and purposely make false returns.
- 20% interest rate per annum if you fail to pay any unpaid tax from the date prescribed for the payment until you make full payment.
- Compromise penalty
These are a few simple highlights and not a comprehensive list of business taxes. Sometimes, you may need to pay more based on your business structure and the kind of field you’re engaged in. There are also local community taxes to consider, depending on your business address. All these details may feel very confusing if you need assistance, don’t hesitate to reach out to our team of CPAs. We offer accounting services in Pasig, serving domestic and international clients.
