For newly registered companies in the Philippines, understanding and managing tax obligations is crucial for compliance hassle free and successful business operations. Navigating the tax landscape can be complex, with various types of taxes and contributions required at different stages of the business lifecycle. Familiarity with these tax types helps ensure that companies meet their legal obligations and avoid penalties.
Importance of Understanding Tax Types for Compliance for Newly Registered Companies in the Philippines
Understanding tax types is crucial for newly registered companies in the Philippines to ensure compliance and avoid potential legal and financial pitfalls. Each tax type, from Corporate Income Tax to Value-Added Tax (VAT) and local business taxes, comes with specific filing requirements, deadlines, and rates that businesses must adhere to. Awareness of these obligations helps companies accurately calculate and remit taxes, reducing the risk of penalties and interest charges for late or incorrect payments.
Proper understanding also facilitates better financial planning and budgeting, as companies can allocate resources more effectively and avoid unexpected costs. Compliance with tax regulations not only helps in maintaining a good standing with tax authorities but also builds a reputation of reliability and integrity, which is essential for long-term business success.
Moreover, staying informed about tax requirements enables companies to take advantage of available tax incentives and deductions, optimizing their tax liabilities.
What Are the Tax Types Being Filed By Newly Registered Companies in the Philippines?
Corporate Income Tax
Corporate Income Tax is a tax imposed on the net income of a corporation. It serves to contribute to the government’s revenue and is a primary tax obligation for all registered corporations. Newly registered corporations must file their Corporate Income Tax returns quarterly and annually, detailing their income, expenses, and net profit. The current tax rates are 25% for domestic corporations and 20% for those with net taxable income not exceeding PHP 5 million and with total assets not exceeding PHP 100 million. Companies must file their tax returns within the period prescribed by the Bureau of Internal Revenue to avoid late filing and payment penalties.
| Tax Return | Deadline |
| Quarterly Income Tax Return | 60 days after end of each quarter |
| Annual Income Tax Return | on or before the 15th day of the 4th month after closing of taxable year |
Value-Added Tax (VAT)
Value-Added Tax (VAT) is a consumption tax levied on the sale of goods and services. Companies with gross sales exceeding PHP 3 million annually are required to register for VAT. VAT-registered businesses must file their VAT returns quarterly, providing detailed reports on their sales and purchases. The VAT rate is set at 12%, and companies must submit their VAT returns and payments by the 25th day of the month following the end of each quarter.
Percentage Tax
Percentage Tax is an alternative tax for businesses that do not meet the threshold for VAT registration. It also applies to certain types of sales or services (i.e. Domestic Carriers and Keepers of Garage, International carriers etc.) and is calculated based on a percentage of gross sales or receipts. The standard rate is 3%. Companies that are not VAT-registered but are eligible for this tax must file their returns quarterly, by the 25th day of the month following the end of the quarter.
Withholding Taxes
Withholding taxes are amounts that must be withheld from payments to employees or suppliers of goods and services and must be remitted to the Bureau of Internal Revenue (BIR) on a regular basis. There are several types:
- Withholding Tax on Compensation: This tax is withheld from employees’ salaries and wages. The rates vary based on income brackets, with monthly withholding due by the 10th of the following month.
- Expanded Withholding Tax: This applies to various payments such as professional fees and rentals. The rates vary depending on the nature of the payment, and returns are filed monthly by the 10th of the following month.
- Final Withholding Tax: Imposed on certain income such as interest or royalties, this tax is deducted at the source. The rates and filing requirements vary, but generally, returns are due by the 10th of the following month.
Documentary Stamp Tax (DST)
Documentary Stamp Tax (DST) is levied on specific documents, instruments, and transactions such as deeds of sale, mortgages, and certificates. The tax ensures proper documentation and recording of these transactions. Companies must file DST returns and make payments within 5 days after the close of the month when the execution of documents or instruments or transactions took place. The rates depend on the document or transaction type.
Local Business Tax (LBT)
Local Business Tax (LBT) is a municipal tax imposed on businesses operating within a local government’s jurisdiction. The rate varies depending on the locality and the size of the business. Newly registered companies must pay Local Business Tax and obtain a permit or license first before they could legally operate here in the Philippines.
Other Mandatory Statutory Contributions
- Social Security System (SSS) Contributions: These contributions provide employees with benefits such as retirement, disability, and sickness. Employers must remit SSS contributions monthly, based on the employee’s salary.
- PhilHealth Contributions: This provides health insurance coverage. Employers are required to contribute to PhilHealth monthly, with the contribution rate split between the employer and employee.
- Home Development Mutual Fund (Pag-IBIG) Contributions: These contributions are for housing benefits of the employee-members and are deducted from employees’ salaries monthly, with employers giving an equal share of contribution.
Computation of Corporate Income Tax
The computation of corporate income tax involves the following steps:
[1] Gross Income: Calculate the gross income, which includes all revenues earned from business operations excluding income already subjected to Final withholding tax (such as interest income on bank Peso account deposit).
[2] Allowable Deductions: Subtract allowable deductions from gross income to arrive at the taxable income. Allowable deductions include:
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- Business expenses (e.g., salaries, rent, utilities)
- Cost of goods sold (COGS) or cost of service
- Depreciation expense
[3] Taxable Income: The resulting amount after deductions is the taxable income.
[4] Applying Tax Rates: Apply the appropriate CIT rate to the taxable income. For SMEs, the 20% rate is applied, while other corporations use the 25% rate.
Deductions and Exemptions
Certain deductions and exemptions can be applied to reduce taxable income:
- Optional Standard Deduction (OSD): Corporations can opt for an OSD equivalent to 40% of their gross income instead of itemized deductions.
- Net Operating Loss Carry-Over (NOLCO): Net operating losses can be carried over and deducted from taxable income for up to three consecutive years.
- Special Economic Zones and PEZA: Companies operating in special economic zones and those registered with the Philippine Economic Zone Authority (PEZA) may be eligible for tax holidays or reduced tax rates.
- Incentives under CREATE Act: The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act provides various tax incentives, including income tax holidays (ITH), enhanced deductions, and special corporate income tax rates for certain businesses.
Compliance and Reporting
Timely filing and payment of taxes are critical to avoid penalties and legal issues. Non-compliance can result in fines, interest on unpaid taxes, and even legal consequences. Companies should maintain accurate records and adhere to the mandated deadlines to ensure smooth compliance. Regular audits and reviews can help in staying updated with tax obligations.
Navigating the various tax types for newly registered companies in the Philippines is essential for maintaining legal compliance and avoiding financial penalties. Understanding and managing Corporate Income Tax, VAT, Percentage Tax, Withholding Taxes, DST, Local Business Tax, and other contributions are fundamental to successful business operations.
At Filepino, we specialize in guiding businesses through their tax obligations with ease and accuracy. Our expert team can help you understand and manage all required tax types, ensuring compliance and minimizing stress. By staying informed and diligent, companies can effectively manage their tax responsibilities and contribute positively to their growth and sustainability.
… and you might just need our assistance.
Are you ready to ensure your newly registered company in the Philippines meets all its tax obligations? Set up a consultation with FilePino today! Call us at (02) 8478-5826 (landline) and 0917 892 2337 (mobile) or send an email to info@filepino.com.