The Philippine tax system is continuously being modified as more and more interest groups and finance experts call for reforms. Given this, you would do well to work with financial and legal experts who can help you stay on top of any new regulation at all times.
Tax laws are a reality businesses have to face. Non-compliance can lead to hefty fines and penalties. Knowledge of tax laws can not only help prevent controversies and litigation, but also present solutions to avoid unnecessary taxes and reduce your tax liabilities.
To encourage economic growth, the government has offered a variety of tax incentives in various areas of doing business, particularly for export companies. Our tax experts can help you take full advantage of these incentives.
Business Taxes in the Philippines
Business taxes may be categorized as follows:
- National Taxes – paid to the national government through the Bureau of Internal Revenue (BIR)
- Local Taxes – paid to the local government in the city or municipality where the business is registered
- Custom Duties – paid to the Bureau of Customs when you import anything for your business
The most common business taxes include:
[1] Corporate Income Tax – this applies to businesses formed as corporations. As a separate entity, corporations are taxed separately from their individual incorporators or shareholders. The statutory tax rate is 30% of taxable profit.
[2] Individual Income Tax – if your business was set up as a sole proprietorship or partnership, the income you derive from it should be part of your Individual Tax Return (ITR). For partnerships, the income you make should be declared regardless of whether you get a distribution or not.
[3] Value-Added Tax (VAT) – almost all products and services in the Philippines are subject to a 12% VAT that companies must remit to the BIR quarterly or monthly.
[4] Excise Tax – this is applied to certain goods manufactured in or imported into the Philippines for domestic sales or consumption. Products subject to excise taxes include tobacco, alcohol, petroleum, automobiles, imported non-essential goods (e.g., jewelry and perfume), and others. Excise tax rates depend either on the product’s weight or volume, or its selling price.
[5] Percentage Tax – applies to non-VAT registered companies whose annual gross sales do not exceed P1,919,500.
[6] Withholding Tax on Salaries and Payments – this applies to salaries paid to employees, as well as to payments made to providers of goods and services for the business. It is remitted by the business to the BIR. In effect, the business is serving as an agent for the BIR by collecting taxes in advance.
[7] Local Business Tax – this applies to all businesses and is paid to the local government (city or municipality) at the same time as the application for the renewal of your business permit. Local business taxes may vary according to the nature of business.
Other taxes, such as an environmental tax or a real property tax, may also apply.
However, there may also be exemptions for which your business could qualify. Consult our tax experts to learn more about how you can manage your taxes effectively.
