2022 Annual Income Tax Return Filing Reminders in the Philippines

By: Kenneth Lanoy, CPA

Filing tax returns and payment of tax due, if any, is a recurring obligation of every taxpayer to support the coffers of the government. In the Philippines, accountants, auditors, and staffs are equipped with time, energy, and knowledge for the preparation of the financial statements of the operations during the previous year and of course, the Annual Income Tax Returns (Annual ITR) in the Philippines. Let me share with you some pointers to consider for your 2022 Annual ITR preparation.

1. APPROPRIATE INCOME TAX RATE TO BE USED

For individual taxpayers, the income tax rate until December 31, 2022, are shown as follows:

For corporate taxpayers, the regular income tax rate in the Philippines of 25% or 20% for the 2022 annual ITR depends on the classification as follows:

DOMESTIC CORPORATION

In general, Domestic Corporations (DC) are taxed at a rate of twenty-five percent (25%) on taxable income derived from within and outside the Philippines. However, twenty percent (20%) may be applicable if the DC’s net taxable income does not exceed Five Million Pesos (PhP5,000,000.00) AND total assets does not exceed One Hundred Million Pesos (PhP100,000,000.00), excluding land on which the particular business entity’s office, plant and equipment are situated.

RESIDENT FOREIGN CORPORATION

In general, Resident Foreign Corporations (RFC) are taxed at a rate of twenty-five percent (25%) on taxable income derived from within the Philippines. The Branch Office of a foreign country is one example of this category since it carries out the business activities of the head office and derives income from the host country.

NON-RESIDENT FOREIGN CORPORATION

In general, Non-Resident Foreign Corporations (NRFC) are subject to a twenty-five percent (25%) Final Withholding Tax on income derived from within the Philippines. The NRFC may apply for a Tax Treaty Relief Application (TTRA) or Request for Confirmation to avail lower rates under the Double Taxation Agreement of the Philippines and the foreign country.

MINIMUM CORPORATE INCOME TAX (MCIT)

MCIT of two percent (2%) of the gross income as of the end of the taxable year beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations. Provided, That effective July 1, 2020 until June 30, 2023, the rate shall be one percent (1%). The tax due will be whichever is higher between MCIT and the Regular Rate.

CORPORATIONS WITH SPECIAL REGISTRATIONS

Corporations having special registrations such as PEZA and BOI, availing incentives on their registered activity such as Income Tax Holiday (ITH), 5% Special Corporate Income Tax or Enhanced Deduction (ED) should secure a Certificate of Entitlement for Tax Incentives (CETI) to be attached to the filed AITR.

EXEMPT CORPORATIONS

Under Revenue Memorandum Order No. 38-2019, Corporations availing exemptions under Sec, 30 of the Tax Code, as amended, should secure a Certificate of Tax Exemption (CTE) which is valid for three (3) years from the date of effectivity specified in the Ruling and may be revalidated for another period of three (3) years.

2. FILING ANNUAL ITR IN PH NOT LATER THAN APRIL 17, 2023

Annual ITR in the Philippines is normally due for filing on the 15th day of the 4th month following the end of the taxable year – e.g. fiscal year or the calendar year as follows:

For 2023, April 15 falls on a non-working day so the last day would be the immediately following working day or April 17, 2023, without any penalty for later filing of 2022 annual ITR in the Philippines.

3. PROPER FILING PLATFORM – e.g. EFPS or eBIR & ANY AAB PAYMENT

In general, taxpayers who are required to file electronically but filed and paid manually (e.g. filed through eFPS and paid manually) shall be liable for violation tantamount to Wrong Venue filing that may be subject to a surcharge of 25% of the amount due.

For the 2022 Annual ITR, BIR issued Revenue Memorandum Circular No. 32-2023 stating that taxpayers may file and pay the taxes due to any Authorized Agent Banks (AABs) and Revenue Collection Officers (RCOs), notwithstanding the Revenue District Office (RDO) jurisdiction, without the imposition of penalties for wrong venue filing and provide guidelines as follows:

4. INSTALLMENT OPTION FOR 2022 ANNUAL ITR FOR INDIVIDUALS

Individual taxpayers whose tax due is in excess of P2,000 may elect to pay the tax in two (2) equal installments, in which case, the first installment shall be paid at the time the return is filed and the second installment on or before October 15, 2023. If any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable together with the delinquency penalties. However, installment payment is not available to corporate taxpayers and is required to pay as they file.

5. PROPER ATTACHMENTS TO THE 2022 ANNUAL ITR

As a rule, taxpayers who file the 2022 annual ITR in the Philippines electronically should submit attachments to AITR within fifteen (15) days from the statutory deadline either manually to the BIR or through eAFS. The following documents may be relevant and applicable as AITR attachments:

6. MAXIMIZE TAX ASSETS – NOLCO, excess MCIT carry-over, CWT’S ETC.

Consider also the following tax assets that may be relevant to your income tax computations may be overlooked sometimes.

NET OPERATING LOSS CARRY-OVER (NOLCO)

Net Operating Loss of business or enterprise for any taxable year immediately preceding the current taxable year, which had not been previously offset as a deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss. However, Net Operating Loss incurred for taxable years 2020 and 2021 shall be allowed to carry over the same as a deduction from its gross income for the next five (5) consecutive taxable years.

EXCESS OF MCIT CARRY-OVER

Any excess of the minimum corporate income tax over the normal income tax shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years.

CREDITABLE WITHHOLDING TAX CERTIFICATE (e.g. BIR Form Nos. 2316 and 2307)

The amount of creditable withholding tax withheld shall be allowed as a tax credit against the income tax liability of the payee in the quarter of the taxable year in which income was earned or received. Kindly make sure that complete information is reflected such as Name, Designation, TIN, and signature (wet-signed or e-signed). Never forget to report to the Summary Alphalist of Withholding Taxes for BIR Form No. 2307 claimed as a tax credit.

SUMMARY:

The taxes paid by taxpayers is used to fund the operations and economic development of the government. Learning what to consider in the filings and reports help taxpayers to avoid penalties and save from the burden in the future. As the saying goes, ignorance of the law excuses no one from compliance therewith.

Kenneth Lanoy is a Certified Public Accountant and currently, the Team Leader of the Tax Department of G. Pagaspas Partners & Co., CPAs, an affiliate full-arm accounting firm of TaxAcctg Center and a member firm of Allinial Global, ranked as the second largest accounting association in the world by International Accounting Bulletin. He is currently working with several global clients in Advertising, BPO, Wholesale, and Retail Industries and he is part of the team handling VAT Refunds and ICPA engagements.