Taxation of Reimbursable Expenses in the Philippines

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Reimbursable expense is an expense a taxpayer pays for and in behalf of another. It involves two (2) things where tax implications may come in – one is the payment of the expense for and in behalf of another, and the second is the receipt of the reimbursement of such amount. Payment for reimbursable expenses in behalf of another Under this, the agent (the one paying in behalf of another) will pay the third party for and in behalf of the principal (the one actually bound to pay and in whose payment is accommodated by another). The tax implication is the application of withholding taxes on reimbursable expenses in the Philippines. While the amount paid by the agent is not its expense, it is nevertheless bound to account for the withholding taxes (most especially income payments of top twenty thousand principals). Under the rules, the person in control of payment of an

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Dissolution and Liquidation of Corporations in the Philippines

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Not all corporations are successful in its business operations in the Philippines and not all domestic corporations in the Philippines are meant forever. Like humans, corporate life comes to an end and this is what is technically referred to as dissolution and liquidation. Dissolution in the Philippines is the stage of terminating the life of a corporation and liquidation in the Philippines is the process of winding up the affairs, settlement of corporate obligations / debts and distribution of remaining corporate assets through liquidating dividends in the Philippines. Dissolution of a corporation in the Philippines under the Corporation Code of the Philippines (Batas Bambansa Bilang 68 or BP No. 68) could be involuntary upon Securities and Exchange Commission’s (SEC) complaint coupled with a prescribed process of notice and hearing or voluntary based on the application of the corporation with the SEC. Voluntary dissolution of corporation in the Philippines come in

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Taxation of Educational Institutions in the Philippines

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In the prior post, we shares the types of educational institutions in the Philippines. In this article, let us share some points on the taxation of educational institutions in the Philippines – income taxation, value added taxation, and real property taxation. The Constitution of the Philippines provide for tax exemptions and privileges as follows: “Article XIV, Section 4(3). All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions, subject to the limitations provided by law, including restrictions on dividends and provision for reinvestment.” Article XIV, Section 2(4) Subject to conditions prescribed by law, all grants, endowments, donations, or

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Corporate Dividend Declaration in the Philippines

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In a corporate set-up, dividend in the Philippines represents the share of the owners of the corporation – the stockholders. An effective dividend policy in the Philippines would be a coordination of corporate earnings and cash position. A domestic corporation in the Philippines would normally declare dividends in the Philippines to distribute its earnings accumulated through the unrestricted or free retained earnings. More dividend distribution means more earnings for the stockholders and would attract more potential investors. Others would declare dividend as a remedial measure to minimize the impact of 10% improperly accumulated earnings tax in the Philippines (10% IAET), and further avoid SEC sanctions for violation of Section 43 of the Corporation Code of the Philippines on excess of free or unappropriated retained earnings over paid-up capitalization. For some, dividend declaration is simply a capital restructuring device by transferring free retained earnings to capitalization to increase paid-up capitalization in

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Types of Educational Institutions in the Philippines

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Philippines is a largely educated population and the best English speaking country, as we claim it! Do you subscribe to this the way we do? Do not get us wrong and we do not intend to argue on that point. We subscribe to that anyway because as a matter of policy, primary and secondary education is mandatory and English is taught all throughout until college. Nevertheless, this article would tend to share the different broad classifications of educational institutions in the Philippines preparatory towards better appreciation of the applicable tax rules. For tax tax purposes, educational institutions are distinguished from one another based on the nature of its structure or the charter that creates the same. Here are the broad classifications: Proprietary educational institution Proprietary educational institution is one registered with the Securities and Exchange Commission (SEC) as a private stock corporation to engage in maintaining and administering a school –

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Repatriating Foreign Investment Income from the Philippines

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For a successful foreign investments in the Philippines, the common concern is how to repatriate such foreign investment income to his home country. Common factors to be considered is the source of foreign currency, and tax implications of such investment income. For a foreign investment registered with the Bangko Sentral ng Pilipinas (BSP or Central Bank of the Philippines) the source of foreign currency for the purpose of repatriating income from Philippine foreign investment is not much of a problem because it could simply buy foreign currency from BSP authorized agent banks. On the other hand, tax implications of income on such foreign investments in the Philippines could vary depending on the nature of such investments. Notably, there could be lot more ways to structure foreign investments in the Philippines and minimize taxes. Here are some of the few common ways: Dividends income of Foreign corporation in the Philippines Investments

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BSP Registration of Foreign Investments in the Philippines

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For a foreign investor in the Philippines intending to do business in the Philippines, one common question is: Is a foreign investment required to be registered with the Bangko Sentral ng Pilipinas ( BSP or Central Bank of the Philippines)? By foreign investments, it shall mean an equity investment made by non-Philippine national in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank which shall assess and appraise the value of such assets other than foreign exchange (Section 3(c), RA No. 7042 – Foreign Investments Act or FIA). Under the Manual of Regulations for Foreign Transactions of the BSP, inward foreign investments may be in any of the following forms: foreign direct investments in Philippine firms or enterprises either in cash or in kind  (e.g. machinery and equipment; raw materials, supplies, spare parts, and other items including intangible assets necessary for the

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Tax-free Provisions on Agreements in the Philippines

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In some contracts, especially, with non-resident foreign corporations and entities, a provision on taxes is almost always included. This provision normally mentions who among the parties would shoulder the applicable taxes in the Philippines. Some scenario on such contracts and agreements would provide that any and all applicable taxes in the Philippines shall be shouldered by the Philippine company or entity. This would mean that the foreign party will receive the agreed consideration, net of applicable taxes. This is what we call as “tax – free covenant” or “tax-free provision” in the  agreement or contract in the Philippines. Under such scenario, the critical part is the determination of the taxable base because some taxes are chargeable to the payee (the non-resident or foreign party), while some are chargeable to the (resident of Filipino party). This scenario is covered by Section 57(C) and hereunder we quote: “Section 57(C). Tax-free covenant Bonds –

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In-house Seminar Series at MSI – ECS Phils., Inc.

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Once again, Tax and Accounting Center, Inc. (TACI) has been entrusted to deliver a Comprehensive Business Accounting  and Tax Compliance Seminar for a group of IT guys of MSI – ECS Phils., Inc. (MSI-ECS). through their energetic AVP Product Support and MIS Division, Mr. Tom Pascual.  Said seminar is with the end view of developing the bookkeeping skills of participant representatives of MSI-ECS and develop a thorough understanding on the BIR compliance and tax management regulations for purposes of efficient and effective handling of MSI-ECS’ day-to-day software related sales and activities (e.g. oracle systems distribution, installation, and customization). It was a six-day tax and accounting seminar series program and was strategically structured to attain the above objectives.  As usual, the tax and accounting seminars are handled by our Resource Speakers who were actively involved in the practice of profession, and are members of the academe as professors of accounting and taxation in some universities

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Taxation of Software Payments in the Philippines

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Payment of the applicable taxes on software payments based on the classification of the income payment (income tax and/or value added tax), is accounted for as follows depending upon the tax classification of the seller as follows: I. Royalty payments to non-resident foreign licensor Royalty payments for software purchases from foreign licensor is subject to the following taxes: 12% Value added tax (VAT) in the Philippines Royalty payments for the use of a copyright over a softwares are subject to 12% VAT imposed upon the foreign licensor seller. The payor in control of the payment of VAT on the software payments shall be responsible for the withholding of VAT in behalf of the non-resident payee. For the purpose, the payor shall file a separate for and in behalf of the non-resident payee using BIR Form No. 1600 – Monthly Remittance Return of Value-added Tax and Other Percentage Tax Withheld. The duly filed

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