Letter of Authority (LOA): A Must-have for Tax Assessments in the Philippines

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By: Ivan Marx Olarte, CPA On September 5, 2018, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 75-2018, which highlights the mandatory requirement of a Letter of Authority (LOA) during tax assessments. This RMC specifically refers to a Supreme Court ruling from the case of “Medicard Philippines, Inc. vs. the Commissioner of Internal Revenue.” On the aforementioned case, the BIR issued Preliminary Assessment Notice (PAN) and later, a Formal Assessment Notice (FAN) to Medicard for deficiency VAT. However, a Letter of Notice (LN) is issued instead of an  LOA. In the Supreme Court ruling, it has clearly differentiated the LN from an LOA. Specifically, the Court pointed out the three major differences between the two: An LOA is specifically required under the National Internal Revenue Code (NIRC) prior to an examination of a taxpayer. An LN is a mere notification to the taxpayer that there is

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PFRS for Small Entities: A Simplified Framework for Philippines’ Micro and Small Businesses

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By: Ivan Marx Olarte, CPA The Philippine economy is composed of more than 90% of micro and small enterprises. Like the bigger businesses, these smaller entities are mandatory as well to submit financial reports to the tax authorities and other applicable government agencies like the Securities and Exchange Commission (SEC). However, the struggle of complying with the required financial reporting standard has been there for quiet long, causing these smaller businesses to just ignore the requirements rather than comply due the complex nature of the available financial reporting frameworks. To recognize the significant contributions of these business players, the standard setting bodies in the Philippines developed a more simplified and more tailored standards to meet the financial reporting needs of small entities, these standards promote easier application of accounting concepts to specific business transactions. Through the joint efforts of the Financial Reporting Standards Council (FRSC), the Board of Accountancy (BOA),

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IFRS 16 versus IAS 17: Updates on Lease Accounting and Its Impact on Financial Statements

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By: Ivan Marx Olarte, CPA   The year 2019 is drawing near. Comes with the change of year is the change in the accounting for leases through the implementation of International Financial Reporting Standards (IFRS) 16. This is a new accounting standard superseding the old standard for leases, International Accounting Standards (IAS) 17. Issues on Old Standard IAS 17 requires companies to identify whether they have substantially all the risks and rewards related to the leased asset and accounts for the transaction either as a finance lease or an operating lease in accordance with this assessment. Finance lease requires companies to recognize a leased asset and lease liability measured at the present value of the minimum lease payments. Payments will be recognized in two ways: as payment of interest on lease liability and reduction of the lease liability. Depreciation expense is also recognized related to the leased asset. Operating leases

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Interest on Tax Deficiency under TRAIN Law

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By: Ivan Marx Olarte, CPA Penalties are imposed by the Bureau of Internal Revenue (BIR) for non-compliance or incorrect compliance with the tax laws and regulations in the Philippines. In line with the Tax Reform for Acceleration and Inclusion (TRAIN) Law, the BIR issued the Revenue Regulations (RR) No. 21-2018 which provides for the implementation of the provision of the TRAIN law amending the imposition of deficiency and delinquency interest on unpaid taxes. Under the TRAIN Law, the interest rate for deficiency and delinquency taxes shall be equal to twice the effective legal rate set by the Bangko Sentral ng Pilipinas (BSP) for loans and similar forbearance of money in absence of any express agreement. Currently, the enacted legal interest rate is 6%. Any change in the legal interest rate imposed by BSP will prompt the Commissioner of Internal Revenue (CIR) to issue a Circular regarding such change. Unpaid tax

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Withholding Tax on Professional Fees under TRAIN RA 10963 Philippines

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By: Garry S. Pagaspas, CPA Tax Reform for Acceleration and Inclusion (TRAIN) or Republic Act No. 10963 (RA 10963) which has been effective January 1, 2018 has introduced reforms in withholding taxes in the Philippines. Implementing rules and regulations of TRAIN RA 10963 Philippines or Revenue Regulations No. 11-2018 (RR 11-18) further amending Revenue Regulations No. 2-1998 (RR 2-98, as amended) has not only provided guidelines on such tax reforms, but went beyond by compiling and consolidating such items subject to expanded withholding tax in Philippines under Section 2.57.2, Revenue Regulations No. 2-1998, as amended, from 29 (Sec.2.57.2(A) to AA) items to 21 items (Section 2.57.2(A) to U). Items of professional fees in the Philippines is one of those consolidated and this is what we will tackle here. Withholding tax rates of professional fees under TRAIN RA 10963 Philippines Under RR 11-18 amending Section 2.57.2 of RR 2-98, as amended,

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21 Items Subject to Expanded Withholding Tax under TRAIN RA 10963

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By: Garry S. Pagaspas, CPA To implement the tax reforms on Creditable or Expanded Withholding Tax (EWT) in the Philippines under the Tax Reform for Acceleration and Inclusion (TRAIN) or Republic Act No. 10963 (RA 10963) effective January 1, 2018, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 11-2018 dated January 31, 2018 (RR 11-18) in Philippines amending Revenue Regulations No. 2-1998 (RR 2-98). Below are the 20 items subject to creditable withholding tax in the Philippines under TRAIN or RA 10963): 1. Withholding tax on professional fees, talent fees, etc. for services rendered – 5% /10% individuals or 10%/ 15% corporations (Sec. 2.57.2(A), RR 2-98) By implications of the tax reforms under TRAIN RA 10963 in Philippines, withholding tax on professional fees is now 5% of gross income if annual income not exceeding PhP3M, otherwise, 10% of gross income for individuals, while professional fees to juridical entities

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Updated Tax Exempt De Minimis Benefits under TRAIN RA 10963 Philippines

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De minimis benefits are benefits of relatively small values provided by the employers to the employee on top of the basic compensation intended for the general welfare of the employees. Being of relatively small values, the same is not being considered as a taxable compensation and as such,  not subject to income tax and withholding tax on compensation. The amount of de minimis provided is a deductible salaries expense, while for the employee, it would constitute as an additional salary that is not deducted withholding tax on compensation. To further appreciate the tax exemptions, below is the updated list of de minimis benefits in the Philippines both to managerial and rand-and-file employees with some items updated in amounts by Revenue Regulations No. 29-2025 dated October 27, 2025, amending Revenue Regulations No. 2-1998, as amended (previously amended by Revenue Regulations No. 11 – 2018 (RR 11-2018) implementing the Tax Reform for

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Income Tax Exemption of Religious Institutions or Churches in Philippines

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By: Garry S. Pagaspas Being an entity registered with the Securities and Exchange Commission (SEC) as non-stock religious institution or church in Philippines does not automatically mean income tax exemptions and considering that tax exemption is an exception, extra care should be made on determining the applicable tax exemptions of religious corporations, institutions, associations, or church in the Philippines with respect to its income, receipts, revenues (e.g. tithes and offerings, donations  from members, etc.) from religious operations. By this article, let us tackle the income tax exemptions of religious corporations or institutions or churches in the Philippines imposed by the Bureau of Internal Revenue (BIR). Under Section 30(E), National Internal Revenue Code, as amended, religious institutions or corporations in the Philippines are exempted from income tax, as follows: “Section 30(E). Non-stock corporation or association organized and operated exclusively for religious, xxx, no part of its net income or asset shall

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Tax Implications of Representative Office in Philippines

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By: Garry S. Pagaspas Multinational companies and foreign corporations are allowed to do business in the Philippines as a representative office in the Philippines under the Corporation Code of the Philippines (Batas Pambansa Bilang 68), Foreign Investments Act (Republic Act No. 7042), and related implementing rules and regulations. Under this, a foreign corporation’s legal entity abroad is being licensed to do business in the Philippines through a formal application form (SEC Form No. F-104 and related documentations) as a representative office of liaison office is a cost center entity fully subsidized by the parent company but could deal directly with clients of the parent company abroad undertaking activities such as but not limited to information dissemination and promotion of parent company’s products as well as quality control of products. Based on such operations, let us take up the Bureau of Internal Revenue (BIR) tax implications of representative office in the

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10 Tax Avoidable Errors on 2017 annual financial statements and income tax returns Philippines

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By: Garry S. Pagaspas, CPA Filing 2017 year-end tax compliance requirements – e.g. 2017 income tax returns  with attached 2017 audited financial statements in the Philippines is fast approaching as the filing dates are unfolding comes April 15, 2018. This is a busy season for accountants, auditors, entrepreneurs, finance and accounting personnel, and taxpayers in the Philippines, in general. During 2017 tax seasons in the Philippines, the following tax mistakes on the audited financial statements (AFS) and annual income tax returns (ITR) in the Philippines should be avoided: 1. Excessive Retained earnings subject to 10% IAET in Philippines Improper accumulation of earnings after tax is subject to 10% improperly accumulated earnings tax (IAET) and an indicator of the same on the face of the audited financial statements is the glaring excessive free retained earnings that is more than the paid-up capitalization. Under Section 43 of the Corporation Code of the Philippines,

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