Fringe Benefits Tax in the Philippines

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Fringe benefit is a special form of benefits you provide your employees on in addition to their salaries and wages.  It means any good, service or other benefit furnished or granted in cash or in kind by an employer – corporate or sole proprietor, to an individual employees. Providing the employees with such fringe benefits may be based on your company policy, or based on the contract with your employees. It could be a business related expense tending to personally benefit the employee like a vehicle to be used for business meetings and for personal travels, or a purely personal expense intended to benefit the employee like housing personnel – house maid or family drivers.  In either case, they are treated as business expenses because they represents your expense payments relative to their employment. However, you have to pay fringe benefits tax in order for you to be allowed to

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Internal Revenue Taxes in the Philippines

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The National Internal Revenue Code of 1997 (Tax Code) under Republic Act No. 8424, as amended or the Tax Reform Act of 1997 enumerates the internal revenue taxes imposed and administered by the Bureau of Internal Revenue (BIR) under Section 21 as follows: SEC. 21. Sources of Revenue. – The following taxes, fees and charges are deemed to be national internal revenue taxes: (a) Income tax; (b) Estate and donor’s taxes; (c) Value-added tax; (d) Other percentage taxes; (e) Excise taxes; (f) Documentary stamp taxes; and (g) Such other taxes as are or hereafter may be imposed and collected by the Bureau of Internal Revenue. For better understanding, let us give you an overview of each of them. These taxes are of general tax classifications, and may contain sub classifications. In classrooms, these taxes are divided in two (2) parts – Part I for Income Taxes, and Part II – for Transfer

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Tax Compliance of Freelancers in the Philippines

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By: Garry Pagaspas, CPA As Wikipedia.Org defines the term “Freelancer”, and hereunder we quote: “A freelancer, freelance worker, or freelance is somebody who is self-employed and is not committed to a particular employer long term. These workers are often represented by a company or an agency that resells their labor and that of others to its clients with or without project management and labor contributed by its regular employees. Others are completely independent. ‘Independent contractor” would be the term used in a higher register of English. Fields where freelancing is common include;  music, journalism, publishing, screenwriting, film making, acting, photojournalism, cosmetics, fragrances, editing, event planning, event management, copy editing, proofreading, indexing, copy writing, computer programming, web design, graphic design, website development, consulting, tour guiding, video editing, video production and translating.” It seems that the freelancer is a broad term applied to self-employed individuals or individuals hired as independent contractors and not as an employee

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11 Tax Exempt De Minimis Benefits to Employees

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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. This concept has initially been introduced by Revenue Regulations No. 8-2000 sometime in year 2000 amending Revenue Regulations 3-98, and underwent a number of amendments, to include a material impact under Revenue Regulations No. 15-2011 dated March 16, 2011, and Revenue Regulations No. 8-2012 dated May 11, 2012. As of this writing, the latest amendment is Revenue Regulations No. 1-2015 dated January 5, 2015. For the employer, 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, let us enumerate the

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8 Features of Withholding Tax on Compensation in the Philippines

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Withholding tax on compensation is an approximate of income tax liability on compensation required to be withheld by the employer upon every payment or accrual or recording of salaries and wages in its books of accounts. It has been said that withholding tax has been a good contributor of internal revenue in the level of individual taxpayers perhaps because the employer automatically deducts the tax upon every payroll and that most sole proprietors are on small scale and once it grows, corporate entity conversion comes into play. For you to further understand the withholding tax on compensation, let us discuss some of its features to serve as a guide for your application. 1. Applies to employer-employee relationship. For this withholding tax on compensation to apply, you must establish the fact that there is an employer-employee relationship between the payor and the payee. In its absence, other tax type may apply

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Accounting for Withholding Taxes in the Philippines

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We had been browsing some search terms leading to our pages, blog posts and articles when we noticed the search phrase “accounting for withholding tax entries“, and this invites our attention to make a simple article on the accounting entries related to withholding taxes.  To start with, please note that under the tax rules, “obligation to withhold arise upon your payment, accrual, or recording in the books of an expense subject to withholding taxes, whichever comes earlier” As such, we show you the sample related accounting entries in the books of the payor-withholding agent and that of the payee. To illustrate: Let us assume that Company A secured the professional services of Mr. Juan de la Cruz amounting to P100,000, exclusive of 12% VAT, or a total of P112,000.00. What are the related accounting entries, assuming Mr. Juan de la Cruz’ income does not exceed P720,000.00 and the withholding tax rate is

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7 Features of Withholding Tax System in the Philippines

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Withholding tax is the most basic tax type that each and every taxpayer engaged in trade or business or in the practice of profession must learn. Upon registration of their respective business entities, withholding tax type is a must and it may come in three (3) tax types as sub classifications as follows: Expanded withholding tax (EWT) or Creditable withholding tax (CWT) under monthly BIR Form No. 1601E and annual BIR Form No. 1604E with Alphalist of Payees; Withholding tax on compensation (WC) under monthly BIR Form No. 1601C and part of annual BIR Form No. 1604CF with Alphalist of Employees; Final withholding tax (FWT) under monthly BIR Form No. 1601F and part of annual BIR No. 1604CF with Alphalist of Employees/Payees; To develop a deeper understanding of the withholding tax system in the Philippines, let us discuss some of its basic features. 1. Automatic constitution of resident payor of

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Tax Savings on Regional Operating Headquarters

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By: Garry S. Pagaspas Under Section 2(3) of Republic Act  No. 8756, Regional Operating Headquarters (ROHQ)  is defined as a foreign business entity which is allowed to derive income in the Philippines by performing the following qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets: general administration and planning business planning and coordination sourcing and procurement of raw materials and components corporate finance advisory services marketing control and sales promotion training and personnel management logistic services research and development services and product development technical support and maintenance data processing and communication, and, business development An ROHQ is actually a foreign corporation that is licensed to do business in the Philippines to strictly engage in the above specific and limited services. It shall offer its services only to its affiliates, branches or subsidiaries, as declared in its registration with the

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Basic Income Taxation of Corporations in Philippines

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By: Garry S. Pagaspas, CPA Let me share you an overview on how corporate income taxation applies in the Philippines, in general. Let us start with the understanding of the thing called “corporation” by its nature as defined in the Corporation Code of the Philippines and for tax purposes as defined by the National Internal Revenue Code of the Philippines. Please refer hereunder for easy reference: Corporation Code of the Philippines “Section 2. Corporation defined. – A corporation is an artificial being created by operation of law, having the rights of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.“ National Internal Revenue Code (NIRC), as amended “Section 22(B). The term “corporation” shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participation), association, or insurance companies, but does not include general professional partnerships and joint venture or

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Taxation of Director’s Fees in the Philippines

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Under Section 23 of the Corporation Code of the Philippines, and hereunder we quote: Section 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is a no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified. They are the brains and the wisdom of the corporation that their maneuvering greatly affects the success or failure of the corporate venture. In exchange their services as a member of the Board of Directors (BOD), directors may be given monetary considerations. They are not normally being compensated for serving as

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