7  New VAT Rules under Ease of Paying Taxes Act RA 11976 Philippines

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By: Garry Pagaspas, CPA

In an effort to streamline and facilitate tax compliance, Philippine government has been initiating numerous tax reforms. With the end view to ease the burden and make it more comfortable for taxpayers to file and pay their taxes along with related reports, Republic Act No. 11976 otherwise known as Ease of Paying Taxes” in the Philippines has been signed into law last January 5, 2024 and made effective last January 22, 2024 or within 15 days from publication last January 7, 2024.

 Under Republic Act No. 11976 otherwise known as “Ease of Paying Taxes” in the Philippines or “RA 11976 EOPT Ph”, the following are new Philippines Value Added Tax (VAT) rules being implemented by the Bureau of Internal Revenue (BIR) that taxpayers should be aware of:

1. Eased VAT registration and updates under RA 11976 EOPT Ph

Prior to RA 11976 EOPT Ph, taxpayers are required to file and pay PhP500.00 Annual Registration Fee (ARF) every year not later than January of each calendar year. Under RA 11976 EOPT Ph, such PhP500.00 Annual Registration Fee has been discontinued effective January 22, 2024 and so, taxpayers who have not yet paid for 2024 as of January 22, 2024 and for subsequent years are no longer required to file and pay PhP500.00 Annual Registration Fee. Further, under RA 11976 EOPT Ph, filing of registration update could be made either manually or online so it would become easier to effect changes on taxpayers’ registration, but this will not preclude BIR from conducting an audit to determine tax liability. VAT threshold of PhP3,000,000 is likewise bound to be adjusted every three (3) years based on Consumer Price Index of Philippine Statistics Authority so taxpayers could just watch out for such changes and determine impact for them accordingly.

2. Eased filing and payment of VAT under RA 11976 EOPT Ph

Prior to RA 11976 EOPT Ph, taxpayers are required to pay taxes strictly at the BIR Revenue District Office of registration and if registered under electronic filing and payment system (EFPS), the same should be filed and paid electronically. Should the taxpayer fail to do so, a surcharge of 25% of the basic tax shall be imposed as “wrong venue” filing and payment.

Under RA 11976 EOPT Philippines, filing and payment of taxes has been made easier. First, it provides that taxes in Philippines could be filed and paid either manually or electronically with the authorized agent bank (AAB), revenue collection officer (RCO) of the BIR office, or through a tax software provider. Secondly, it provided a “filing and payment anywhere”, not just within the coverage of BIR Revenue District Office of registration, but in any BIR Revenue District Office coverage. Thirdly, the 25% surcharge on the wrong venue has been abolished.

3. Eased VAT Invoicing under RA 11976 EOPT Ph

Prior to RA 11976 EOPT Philippines, sellers of goods are required to issue an Invoice while sellers of service are quired to issue an Official Receipts as basis for 12% VAT, and this becomes confusing at times resulting to disallowances of claims for tax credits on input VAT. To simplify VAT invoicing in Philippines, RA 11976 EOPT Ph came up with a uniform invoicing for both sellers of goods and sellers of services through issuance of a “VAT Invoice” as basis in Philippines for 12% Output VAT of the seller and Input VAT credit of the buyer effective April 27, 2024 upon the effectivity of RR 3-2024. Supplementary documents (e.g. delivery receipt, official receipt, acknowledgment receipt, billing statement, etc.) could also be used to document the transaction but will not become a valid proof of support for 12% Input VAT claim.

On transition, unused manual and loose leaf VAT Official Receipts in Philippines of sellers of services could still be used for 12% VAT transactions until December 31, 2024 but they have to strike “Official Receipts” and stamp as VAT Invoice (see Section 8(2), RR 7-2024), and submit an Inventory of such unused receipts within 30 days from effectivity of RR 7-2024 or until May 27, 2024. Alternatively, they could use such unused manual and loose leaf Official Receipts in Philippines until fully consumed as supplementary document with the phrase stamped on its face – “This document is not valid for claim of Input VAT’.

Certain information shall be contained in the VAT Invoice in Philippines under RA 11976 EOPT Ph and should the seller fail to indicate specific information, the seller could be held liable for such failure while the buyer could still claim the Input VAT from such VAT Invoice, despite being incomplete in details. For transactions of PhP1,000.00 or more, the rules previously require indicating “business style” and this rule has also been removed by RA 11976 EOPT Ph.

4. Simplified 12% VAT base and new input VAT on receivables under RA 11976 EOPT Ph

With the adoption of uniform VAT invoice for VATable sales in Philippines, RA 11976 EOPT Ph effectively adopted accrual basis of accounting for sellers of service making them liable for 12% based on billings for services rendered, instead of previously being liable for 12% VAT based on collections from services. Simply stated, sellers of services will now be liable for 12% VAT based on VAT Invoice in Philippines for services rendered, regardless of whether or not the customer or client pays them during the quarter. Should the customer or client fail to pay the VAT Invoice during the quarter, 12% VAT on such receivable/s from transactions that transpired upon the effectivity of the implementing rules (RR No. 3-2024) or starting April 27, 2024 could be allowed as VAT credit, provided such receivables has not yet been actually written off as worthless accounts for income tax purposes. In the event of recovery of such receivables, VAT portion will be added to the VAT liability on the quarter of recovery.

5. Enhanced VAT refund rules under RA 11976 EOPT Ph

Refund of excess Input VAT from zero-rated transactions will be acted upon by the BIR based on risk-level assessment: low risk requiring no further verification of duly submitted documents; medium risk requiring verification of at least 50% of its purchases and sales documents; and high-risk that would require 100% verification of duly submitted documents. Under RA 11976 EOPT Ph, if post-audit by the Commission on Audit (COA) resulted to disallowances, taxpayer should be made to account for such funds received based on COA rules for disallowances.

Previously, VAT refund process for excess Input VAT from zero-rated transactions should be completed by the BIR Philippines within 120 days from filing the application with complete documents and should the BIR fail to act (approve or deny) within such period, the taxpayer could file an appeal with the Court of Tax Appeals (CTA). This 120-day period was made 90 days in the previous amendment of the Tax Code but the 30-day appeal for inaction was removed. This appeal to CTA for BIR inaction is now restored under RA 11976 EOPT Ph.

For refund of VAT that was erroneously or illegally collected, the previous attempt to impose a processing period for BIR has been vetoed. Under RA 11976 EOPT Ph, it provides that the same should now be processed by the BIR within 180 days from submission of complete documents and inaction of the BIR is appealable to CTA within 30 days from lapse of the 180 days. Should BIR personnel/officer deliberately failed to act on such application, they could be held liable upon conviction under Section 269(J) of the Tax Code, as amended, for a penalty of PhP50,000 to PhP100,000 and/or an imprisonment of 5 to 10 years, among other penalties.

6. Reduces penalties for micro and small taxpayers under RA 11976 EOPT Ph

Under RA 11976 EOPT Philippines, certain concessions were made to micro (up to P3M gross sales) and small taxpayers (up to PhP 20M gross sales) such as the following:

• surcharge of 10% of basic tax instead of 25% surcharge on failure to file and pay in full, unless for willful neglect or filing a false or fraudulent tax returns intent to evade taxes where 50% surcharge applies;
• 6% interest instead of 12% interest on unpaid taxes;
• compromise penalty of PhP 500 for every failure to file and pay information returns, statements, or list, or keep any record, or supply any information as may be required but not to exceed PhP12,500 for all such failure during a calendar year.

While this seems a good thing, the author suggest micro and small taxpayers to focus on ensuring compliance instead of relying on these reduced penalties.

7. Enhanced period for keeping books of accounts

Prior to RA 11976 EOPT Ph, books of accounts and other accounting records are required to be kept within a period of ten (10) years and subsequent BIR issuance allowed keeping hard copies for first five (5) years and online copies for the next five (5) years.

Under RA 11976 EOPT Ph, books of accounts and other accounting records will only be required to be kept for a period of five (5) years reckoned from the day following the deadline in filing a return or from the date of late filing for the taxable year when the last entry was made in the Books of Accounts.  Under the implementing rules (see Section 4, RR 7-2024), they should be kept in hard copies for those under manual books of accounts and manual bound loose leaf books of accounts while those under computerized books of accounts, they could be kept in electronic copies.        

Profile:

Garry Pagaspas, CPA is a currently the Managing and Tax Partner of G. Pagaspas Partners & Co. CPAs (independent member firm of Allinial Global, 2^nd largest accounting association worldwide based on International Accounting Bulletin’s 2023 released survey) based in Makati City with Global Outsourcing offices in Kalibo, Aklan. Views in this article is personal to the author, not equivalent to a professional opinion and does not represent that of the organizations he is connected with.

In the world of external audits in Philippines, the spotlight often shines brightly on auditors and their responsibilities. However, there is a significant player behind the scenes whose role is equally pivotal yet sometimes overlooked—the management of the company in Philippines being audited. In this article, we will explore on the extent of management’s involvement in ensuring the accuracy of audited financial statements in Philippines and examine the vital role that external auditors in Philippines play in preserving this accountability.

The Power and Perils of Financial Statements in Philippines

Financial statements in Philippines serves as a treasure trove of information, offering a snapshot of a company’s financial health. It wields considerable influence over the decisions of various stakeholders, including investors, creditors, government agencies and the public, in general. The accuracy of financial statements in Philippines is pivotal for making well-informed choices, underscoring their reliability as paramount.

Financial Statements in Philippines is one of the most important documents in your business that is checked or monitored frequently by regulatory bodies, like Philippines Securities and Exchange Commission (SEC), and Bureau of Internal Revenue (BIR), among others. In the absence of a statutory audit in Philippines, there exists a presumption that these financial statements may harbor errors or misstatements, as they have not undergone audit in Philippines by an independent auditor in Philippines. Conversely, audited financial statements in Philippines impart credibility and provide reassurance to external stakeholders, enabling them to make informed decisions.

Management’s Mandate: Crafting Financial Statements in Philippines

Financial Statements in Philippines is the output of any company’s financial activity meticulously prepared and presented in an organized manner. The tasks involved in crafting the financial statements in Philippines is a multifaceted process that includes data gathering, recording, financial statement preparation, and the application of accounting standards in Philippines. Management, acting on behalf of the business entity, must prepare financial statements in Philippines that mirrored the financial activity transpired in an accounting period.

This responsibility of the management to prepare financial statements in Philippines cannot be delegated to any external entity, as management is intricately involved in the day-to-day operations, decision-making processes of the organization, whether in administrative or financial matters and later on the authorization or approval of the Financial Statements in Philippines for issuance. The internal controls, accounting policies, estimates, and judgments established, applied, and maintained by management all play pivotal roles in ensuring the fair preparation and presentation of financial statements.

The Philippine Auditor’s Lens: An External Perspective

An external audit in Philippines is the critical evaluation of a company’s financial statements by an independent party. This serves as checks-and-balances mechanism to ensure that the financial statements in Philippines are reliable to the statement users to make informed decisions.

During an external audit in Philippines, the statutory auditor scrutinizes the procedures and systems utilized by management in creating and presenting the financial statements in Philippines. With a professionally skeptical approach, statutory auditors in Philippines investigate the underlying transactions, internal controls, and policies in use. Through the external audit in Philippines, auditors deliver an informed judgment on whether the financial statements in Philippines are free from material errors or misstatements.

The Blame Game: Addressing Misconceptions

There have been instances where statutory auditors in Philippines have been wrongly blamed for failing to identify material misstatements in the financial statements in Philippines. However, it is important to understand that auditors in Philippines, while performing their duties diligently, are not responsible for the preparation of financial statements in Philippines. Their role is to examine and provide reasonable assurance on the financial statements prepared by the management.

Misconceptions can arise due to the expectation gap – a difference between what the public expects from statutory auditors in Philippines and what auditors can reasonably provide. Bridging this gap involves educating stakeholders on the true scope of an external audit and the respective roles of management and auditors in financial statement preparation. Typically, this information is incorporated in the engagement proposal, highlighting management’s obligations in the preparation and presentation of financial statements in Philippines.

A Balanced Partnership: Collaboration and Transparency

Management and statutory auditors in Philippines must work in harmony to establish a genuine partnership. Effective communication and cooperation between them are important to the successful completion of the audit. Management should furnish the requisite information and extend full cooperation during the audit procedure and this collaborative effort aids in addressing potential concerns and upholds the precision of financial statements in Philippines. In addition, Management should be transparent in the presenting financial data, enabling auditors to conduct a comprehensive evaluation. Conversely, statutory auditors in Philippines should be transparent about their discoveries and the constraints inherent in their audit process.

Striking the Right Note

In the realm of financial statements in Philippines, precision is the fundamental note that any Company must hit. The Management, as the primary person responsible for the fair preparation and presentation of the Financial Statements in Philippines plays a pivotal role in ensuring this note’s precision. On the other hand, External Auditors in Philippines, as independent examiner, confirm assertions of the Management financial data provided through its audit procedures and provide assurance reports on the reliability of the financial statements. It’s essential to move away from the blame game and instead comprehend the distinct roles both parties fulfill. Through collaboration, transparency, and education, we can bridge the gaps of such misconception, and can navigate through business that resonates trust and reliability for all who engage with it and makes a long lasting impact in the society.

The documentary requirements for the following registration-related transactions can be submitted electronically to the concerned Revenue District Offices (RDOs) via the TRRA Portal: 

1. Application for TIN under E.O 98 and ONETT; 
2. Registration of OFW and Non-Resident Citizens; 
3. Application for Authority to Print; 
4. Updating of Email Address using Application Sheet Form S1905; 
5. Transfer of Registration of Employees and Other Non-Business Taxpayers; and 
6. Updating of Maiden Name (for married female). 

To use the TRRA, taxpayer-applicants shall access the TRRA Portal through the BIR eServices icon at https://www.bir.gov.ph/ and follow the procedures below. 

1. Scan all the required documentary requirements in PDF copy not exceeding 4MB file size per file. The checklist of documentary requirements and the applicable form can be accessed by clicking the desired application in TRRA Portal. 
2. Select the frontline service to be availed of or the type of application. 
3. Select the RDO where the applicant is registered. In case the taxpayer is applying for TIN, the system will determine the RDO where the applicant is registered. In case the taxpayer is applying for TIN, the system will determine the RDO based on the address provided. Then, click the “Email your Application” button.
   Note: If after clicking the “Email your Application” button and the email program of the personal computer does not open, send the application (scanned documents) to the email address that will appear on the RDO selection.
   Taxpayer-applicant will receive an email acknowledgment of the receipt of the application from the official email address of the concerned RDO within three (3) working days from the date of email acknowledgment receipt of complete documentary requirements. 
4.  An email notification will be sent to the email address indicated in the taxpayer-applicant’s Application Form once the application has been successfully processed. In case of incomplete requirements, issues, or concerns in the application, a BIR officer shall contact the taxpayer. 

Originally published at GPP CPAs website.

As we live in a modern world, where everything you see is digital. Everyone needs to be up to date and must conform to the new rules and regulations of the world. And as everything now can be seen online, be it pictures, videos, music, anything, all can be looked up on the internet. That is why the rights of individuals over their personal data and enforcing the responsibilities of entities who process them are being acknowledged in the Data Privacy Act of 2012.

From then an independent body was created under RA No. 10173 or the Data Privacy Act of 2012 which is the National Privacy Commission or NPC. It is mandated to monitor and ensure compliance of the country with international standards set for data protection. The Commission safeguards the fundamental human right of every individual to privacy, particularly information privacy while ensuring the free flow of information for innovation, growth, and national development. One of its functions is to develop, promulgate, review, or amend rules and regulations for the effective implementation of the DPA (Data Privacy Act).

The Registration Process is where a PIC or PIP shall create an account by signing up on the NPC’s official registration platform (NPCRS) where it shall provide details about the entity.

Step 1. Account Creation

a. Access the National Privacy Commission Registration System (NPCRS) at https://npcregistration.privacy.gov.ph

b. Upon signing up, the PIC or PIP shall input the name and contact details of the Data Protection Officers (DPO) together with a unique and dedicated *email address, specific to the position of DPO.

The DPO email address should be unique per PIC/PIP. The email address and Philippine Cellphone Number provided will be treated as the official contact channels.

Step 2. Registration Proper

a. Login using credentials.

b. Select the Type of DPO/DPS Registration

– During registration proper, the PIC or PIP shall:

1) Encode the organizational details; name and contact details of the Head of the Organization or Head of the Agency.

2) Encode Data Processing System(s) details; all Data Processing Systems of the PIC or PIP at the time of initial registration.

3) Encode the details of Compliance Officer(s) for Privacy if applicable.

4) Upload the prescribed supporting documents as provided under Section 11, NPC Circular No. 22-04.

5) Click “Save Registration”

c. For Notarization

1) Export DPO Form (PDF Format) automatically created during DPS Registration.

2) Print and sign the downloaded form (both DPO and Head of the Organization or Agency).

3) Have the completely filled out form notarized.

4) Scan, upload, and submit notarized DPO Form.

NOTE: The submission of the PIC or PIP shall undergo review and validation by the Commission. In case of any deficiency, the PIC or PIP shall be informed of the same and shall be given five (5) days to submit the necessary requirements.

Step 3. Download the Certificate of Registration and NPC Seal of Registration

– Once the submissions have been validated and considered complete, the PIC or PIP shall be informed that the Certificate of Registration together with the NPC Seal of Registration is available for download.

An application for registration filed by a PIC or PIP must be duly notarized and be accompanied by the following documents:

A. For government agencies:

Special or Office Order, or any similar document, designating or appointing the DPO of the PIC or PIP;

B. For domestic private entities:

1. For Corporations:

a) A duly notarized Secretary’s Certificate authorizing the appointment or designation of DPO, or any other document demonstrating the validity of the appointment or designation of the DPO signed by the Head of the Organization with an accompanying valid document conferring authority to the Head of Organization to designate or appoint persons to positions in the organization.

b) Securities and Exchange Commission (SEC) Certificate of Registration.

c) Certified true copy of the latest General Information Sheet.

d) Valid business permit.

2. For One Person Corporation (OPC)

a) A duly notarized Secretary’s Certificate authorizing the appointment or designation of DPO, or any other document that demonstrates the validity of the

appointment or designation of DPO signed by the sole director of the One Person Corporation.

b) SEC Certificate of Registration

c) Valid business permit.

3. For Partnerships

a) A duly notarized Partnership Resolution or Special Power of Attorney authorizing the appointment or designation of DPO, or any other document that demonstrates the validity of the appointment or designation

b) SEC Certificate of Registration.

c) Valid business permit.

4. Sole Proprietorships:

a) A duly notarized document appointing the DPO and signed by the sole proprietor, in case the same should elect to appoint or designate another person as DPO.

b) DTI Certificate of Registration.

c) Valid business permit.

C. For foreign private entities:

1. Authenticated copy or Apostille of Secretary’s Certificate authorizing the appointment or designation of DPO, or any other document that demonstrates the appointment or designation, with an English translation thereof if in a language other than English.

2. Authenticated copy or Apostille of the following documents, with an English translation thereof if in a language other than English, where applicable:

a) Latest General Information Sheet or any similar document.

b) Registration Certificate (Corporation, Partnership, Sole Proprietorship) or any similar document.

c) Valid business permit or any similar document.

Non-stock corporations or foundations in the Philippines may be formed for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, such as trade, industry, agricultural, and like chambers, or any combination thereof. 

Certain accredited non-stock, non-profit corporations in the Philippines are exempt from income tax on donations, grants, and gifts provided they are: 

1. Organized “exclusively” for one or more of the following purposes: religious, charitable, scientific, athletic, social welfare, cultural purposes, or for the rehabilitation of veterans and; 

2. No part of their net income or asset belongs to or inures to the benefit of any member, organizer, officer, or any specific person. 

To set up a non-stock non-profit corporation in the Philippines, you must first be registered with different government agencies. This article might be a help to your generous and big heart, having in mind the welfare of the less fortunate, or just want to start a non-stock non-profit corporation. 

Incorporators 

Incorporators shall be not less than five (5) in number but not more than fifteen (15) and the majority of whom are residents of the Philippines. Resident or non-resident aliens (foreigners) can be incorporators of a non-stock corporation, provided that the majority of the incorporators are residents of the Philippines. 

Basic requirements for registration with the Securities and Exchange Commission (SEC) 

The documentary requirements of the Securities and Exchange Commission (SEC) in the Philippines are as follows: 

1. Name Verification Slip 

2. Articles of Incorporation and By-laws; 

3. Joint affidavit of two incorporators to change the corporate name; 

4. List of members certified by the corporate secretary, unless already stated in the Articles of Incorporation; and 

5. List of the names of contributors or donors and the amounts contributed or donated certified by the treasurer 

There is no fixed amount of contribution required but only such reasonable amount as the incorporators and trustees may deem sufficient to enable the corporation to start operation, except in the case of foundations which must have a minimum contribution of at least One Million Pesos (P1,000,000.00). 

Additional requirements: 

1. Endorsement/clearance from other government agencies, if applicable; 

2. For Foundations: Notarized certificate of bank deposit of the contribution which shall not be less than P1,000,000.00 and statement of willingness to allow the Commission to conduct an audit; 

3. For Religious corporations: Refer to Sections 109-116 of the Code, and an affidavit of affirmation or verification by the chief priest, rabbi, minister, or presiding elder; 

4. For Federations: Certified list of member associations by the corporate secretary or president; 

5. For Condominium corporations/associations: Master Deed with the primary entry of the Register of Deeds and Certification that there is no other existing similar condominium association within the condominium project. 

Once an application was submitted, the SEC evaluator will review the initial drafts for seven (7) working days and will email that the application is preapproved. After signing and uploading the generated forms, SEC will send another email if the application was approved and qualified for payment and you will receive a payment assessment form that should be paid within 45 days. Once paid, the digital COI will be received, and the original documents together with proof of payment will be submitted to the SEC office within 60 days from the date of incorporation in order to claim the original Certificate of Incorporation. 

Registration with the BIR 

The non-stock non-profit corporation must be registered with the BIR within 30 days from the date of Incorporation and obtain a Tax Identification Number (TIN), registration of book of accounts, and official receipts or invoices. Certain registration fees and taxes will be paid.  

If you wish to be tax-exempt, non-stock non-profit corporations in the Philippines are required to secure a BIR Tax Exemption Ruling.  

Business Permits and Licenses 

Non-stock non-profit corporations must also be registered in the Local Government unit (LGU) where the principal office address of the company is located and secure the business permit, barangay clearance, sanitary permit, fire safety inspection certificate, and other clearances in order to go operational. Certain registration fees will be paid. 

Employer Registration 

Employers for non-stock non-profits are required to be registered with Social Security System, Philippine Health Insurance Corporation, and Home Development Mutual Fund for the benefit of their employees. 

The Certificate of Compensation Payment/Tax Withheld (CCPTW), also known as BIR Form 2316, is an essential part of the Philippine tax system. BIR Form No. 2316 summarizes all the employees’ earnings, deductions, and taxes withheld, if there are any. In this article, we will delve into the details of BIR Form No. 2316, its purpose, and its importance for both employers and employees. 

1. Goal and Relevance of BIR Form No. 2316

BIR Form No. 2316 serves as a summary of an employee’s compensation income, tax withheld, and other relevant information for a particular calendar year. It assists both the company and the employee by ensuring transparency and compliance with tax laws. BIR Form No. 2316’s main goals and significance include the following: 

• Proof of Income: It serves as a record of the wages an employee received from a certain employer during the year. 
• Tax compliance: By displaying the right amount of taxes withheld by the employer, BIR Form No. 2316 makes it easier to calculate the employee’s yearly income tax liability. 

2. Components of BIR Form No. 2316 

• Information on the Employee and the Employer: This section contains the name, address, and taxpayer identification number (TIN) of the Employee and the Employer. 
• Compensation Income: This section of the form comprises the employee’s annual compensation income, which includes their basic salary as well as any additional taxable benefits such as allowances, bonuses, commissions, and other related compensation income. 
• Non-taxable/Exempt Compensation Income: BIR Form No. 2316 accounts for the tax-exempt or non-taxable compensation that lowers taxable income, such as the minimum wage earner’s basic pay, holiday pay, overtime pay, and night shift differential; de minimis benefits; 13^th month pay and other benefits (maximum of Php 90,000.00); and other non-taxable compensation. 
• Taxes Withheld: The entire amount of taxes that the employer withheld from the employee’s compensation income is stated in this section. 
• Other required fields:  
  The signature portion of the employer and employee, in which the certificate has been made in good faith, verified, and, to the best of their knowledge, true and correct, gives consent to the processing of information as contemplated under the Data Privacy Act of 2012 (Republic Act No. 10173) for legitimate and lawful purposes.  
  The signature portion of the employer and employee to be accomplished under substituted filing. An employee is qualified under substituted filing of the Income Tax Return (BIR Form No. 1700) if he or she received purely compensation income from only one employer in the Philippines for the calendar year and if his or her taxes have been correctly withheld by the employer (tax due equals tax withheld). 

3. Employer’s Responsibilities 

• Accuracy and Completeness: Employers are responsible for making sure the data on the form reflects the employee’s pay, taxes withheld, and other pertinent information. 
• Release: Employers must deliver a copy of BIR Form No. 2316 to each employee by January 31st of the following year, except if the employee is separated before the calendar year ends. The employee will receive a copy of BIR Form No. 2316 upon release of the final payment. 
• Submission: Employers must provide BIR Form No. 2316 and the alphalist to the Bureau of Internal Revenue (BIR) no later than February 28th of the following year. 

4. Employee’s Responsibilities 

• Verification: Employees should thoroughly go over the form to make sure that all the information—including compensation income, taxes deducted, and exemptions—is accurate. 
• Record-keeping: For future reference, potential BIR audits, and supporting documents with their personal application in banks or other agencies, employees should keep a copy of their BIR Form No. 2316 and other pertinent tax papers. 

Therefore, BIR Form No. 2316 is an essential form that permits correct income tax calculation and compliance for both the employer and employees. Employers must provide this form to their employers as proof of their income for the year. Understanding the purpose, contents, and responsibilities associated with BIR Form No. 2316 ensures transparency, smooth tax operations, and adherence to tax laws.

A Corporation is a legal entity that is separate and distinct from its owner or incorporators. It has legal rights and obligations similar to an individual. It can enter into contracts, loans, hire employees, pay taxes, etc. The ownership of a corporation is divided into shares of stock.

A Corporation issues the stock to individuals or other businesses, who then become owners or stockholders, of the corporation.

Advantages of a Corporation

• The risk and liability is limited only to the corporation. Owners are not personally liable.
• It is easy to increase capital through the issuance of stocks to investors
• It can be passed on to different owners
• It can exist indefinitely
• It has the capacity to act independently similar to individual
• The management or decision-making is shared by the board of directors, not the sole individual.

Disadvantages of a Corporation

• More costly to set up than a sole proprietor
• It is mandated by more government reportorial requirements and laws
• Higher capital requirements and operating cost
• Higher tax rates

Where to Register a Corporation?

Here are the government agencies where the corporation are required to register in the Philippines:

• Securities and Exchange Commission (SEC)
• Local Government Units (LGU) where your business is located:
  • Barangay
  • Mayor’s Office
• Bureau of Internal Revenue (BIR)
• If you have employees, you need to register with the following:
  • Social Security System (SSS)
  • Philippine Health Insurance Corporation(PHIC)
  • Home Development Mutual Fund(HDMF)
  • Department of Labor and Employment(DOLE)

Who may form a Corporation?

Any person, partnership, association, or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose or purposes. Provided, that natural persons who are licensed to practice a profession, and partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to organize as a corporation unless otherwise provided under special laws. Incorporators who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock.

How much is the Capitalization?

Stock corporations shall not be required to have a minimum capital stock, except as otherwise specifically provided by special law. However, some highly regulated companies or corporations are required to have a minimum capitalization based on the industry or equity of that certain entity.

Some domestic corporations with more than 40% foreign equity are required to have at least U$200,000.00 minimum paid-up capital if the registering corporation intends to operate as a Domestic Market Enterprise

Basic Documentary Requirements

• Name Verification Slip (may be secured online or at SEC Name Verification Unit)
• Articles of Incorporation (AI) and By-laws (BL)
• Treasurer’s Affidavit
• Joint affidavit of two incorporators to change the corporate name (not required if already stated in AI)

Additional Requirements

• Endorsement/clearance from other government agencies, if applicable
• Clearance from other Department of the Commission*
• For Corporations with more than 40% foreign equity: Application Form for registration under the Foreign Investments Act of 1991 (R.A. 7042, as amended)
• Endorsement/clearance from (a) Philippine Economic Zone Authority (PEZA) for the applicant under R.A. 7916, (b) Subic Bay Metropolitan Authority (SBMA) or Clark Development Corporation (CDC) for the applicant under R.A. 7227 and (c) Cagayan Economic Zone Authority (CEZA) for the applicant under R.A. 7922

References:
Republic Act 11232 or Act of Providing for the Revised Corporation Code
Republic Act No. 7042, as amended, also known as the Foreign Investment Act of 1991 (FIA)

Starting your business right is crucial to its future success. Starting right means everything should be legal and registered. Registering a business in the Philippines requires entrepreneurs to comply with various requirements provided by relevant government agencies, such as SEC and DTI. Depending on your business entity, the documents you provide may differ from one or the other.

Where to Register?

Here are the government agencies where the company or entity is required to register in the Philippines and the stages of registration.

Stage 1: Register the Company Name with the following government agencies:

• Securities and Exchange Commission the registrant is any of the following:
  1. Domestic Corporations(Stock or Non-Stock)
  2. Partnership
  3. One Person Corporation or
  4. Foreign Corporations

• Department of Trade and Industry for Sole Proprietorship

Stage 2: Obtain Business Permits from Local Government Unit (LGU) where the business address is located

Stage 3: Register and process registration with the Bureau of Internal Revenue

Stage 4: Register as an Employer with the relevant government agencies, such as:

1. Social Security System
2. Philippine Health Insurance Corporation
3. Home Development Mutual Fund
4. Department of Labor and Employment

What are the capital requirements?

• Securities and Exchange Commission

Under the Revised Corporation Code of the Philippines or Republic Act No. 11232, Section 12.

“Stock Corporations shall not be required to have a minimum capital stock, except as otherwise specifically provided by special law.”

However, some highly regulated companies or entities are required to have a minimum capitalization based on the industry or equity of that certain entity.

There is no minimum capital requirement to form a Partnership. Partners can mutually decide the capitalization to start a partnership business unless otherwise, the partnership has foreign participation.

• Department of Trade and Industry

The Philippine Law does not recognize a Sole Proprietorship as an entity separate from its owner, there is no formal capitalization of a sole proprietorship. The assets of the owner and the assets of the sole proprietorship are one and the same which is why sole proprietors are limited by the amount of capital available.

Where to start the registration process?

For Corporations (stock or non-stock), partnerships, One Person Corporations and Foreign Corporations, the registration process will start with the Securities and Exchange Commission (SEC) using the SEC Electronic Simplified Processing of Application for Registration of Company (eSPARC).

The system allows the applicant or his duly appointed representative to submit the proposed company name and input details of the articles of incorporation for review of the Commission.

The Regular Processing of the ESPARC application form is grouped into six (6) steps. Each step is composed of sections. The applicant must be able to complete all six steps to enable him to submit his application.

1. Name Verification
2. Company Details
3. Capital Structure
4. Company Officers
5. File Uploading
6. Application Review

For Sole Proprietorship with Business Name, the registration process will start on the online platform of the Department of Trade and Industry (DTI), the Business Name Registration System (BNRS) wherein it is the responsibility of the proprietor to ensure that the proposed Business Name conforms to the terms and conditions set forth under Republic Act. 3883 or otherwise known as the Business Name Law.

A Business Name (BN) shall refer to any name that is different from the true name of an individual which is used or signed in connection with her/his business on any written or printed receipts, including receipts for business taxes, duties, and fees and withdrawal or delivery receipts; any written or printed evidence of any agreement or business transaction; and any sign or billboard conspicuously exhibited in plain view in, or at the place of her/his business or elsewhere, announcing his /her business.

The annualization of compensation is a crucial procedure used by employers in the Philippines to calculate the correct tax due or refund of employees at year-end or during the separation of employees from the company. This procedure is used to ensure fair taxation and an accurate calculation of the withholding tax on compensation. It reduces income fluctuations, minimizes tax fraud, and fosters fair tax obligations by distributing income and deductions over the entire course of the year, regardless of the actual pay period, to accurately estimate taxpayers’ tax obligations.  

In this article, we will delve into why annualizing payroll is important in the Philippines. 

1. Managing income fluctuations 

In the Philippines, a lot of workers have irregular revenue patterns where they get bonuses, commissions, or overtime compensation at various times of the year. By averaging out the earnings over the entire course of the year, annualizing payroll provides a solution to these revenue swings. It gives a more realistic picture of a person’s yearly income, enabling the proper estimation of tax liabilities. 

2. Ensuring fair taxation 

By preventing people from abusing their tax obligations, annualizing payroll provides fair taxes. Without annualization, taxpayers might be able to earn a lot of money in a brief period and then do nothing for the rest of the year to avoid paying higher tax rates. Annualization makes the tax burden more evenly distributed and ensures fair taxation by considering all revenue for the year. 

3. Calculating the correct tax withholdings and refunds if any 

By appropriately deducting taxes from employees’ salaries, employers play a critical role in annualizing payroll. Employers can calculate the right amount of tax to withhold from each pay period by annualizing it, considering the employee’s projected yearly income. By reducing the possibility of underpaying or overpaying taxes, this strategy ensures compliance with tax laws and calculates the proper withholding tax or refund of employees. 

4. Making tax law compliance easier 

Payroll annualization makes it easier for both employers and employees to remain compliant with Philippine tax laws and regulations. Employers can correctly record and submit the right amount of taxes to the Bureau of Internal Revenue (BIR), avoiding fines or legal concerns. Employees who have their salary annualized are better able to comprehend their tax liabilities.  

Therefore, annualizing payroll is an essential procedure that properly equates withholding taxes and adheres to the tax rules. Annualization reduces income swings and prevents tax fraud by dividing income and deductions over a full year. It allows for precise tax deductions from employee pay and makes it easier to comply with tax laws. Payroll must be annualized, and both employers and employees must be aware of this fact to maintain the Philippines’ tax system’s fairness, transparency, and compliance.

Under the Social Security Act of 1997, Republic Act No. 8282, it is the policy of the State to establish, develop, promote, and perfect a sound and viable tax-exempt social security system suitable to the needs of the people throughout the Philippines, which shall promote social justice and provide meaningful protection to members and their beneficiaries against the hazards of disability, sickness, maternity, old age, death, and other contingencies resulting in loss of income or financial burden. 

To carry out the purposes of this Act, the Social Security System (SSS) was born. The Social Security System is a social insurance program in the Philippines for compulsory and voluntary members. Compulsory members are those that are employed, self-employed, household helpers, and Overseas Filipino Workers (OFW), while voluntary members are the separated employees and the non-working spouse. SSS gives its members protection against the economic and social distress caused by contingencies such as sickness, maternity, disability, retirement, death, funerals, and unemployment. 

The employer is mandated to remit contributions to SSS from both employer and employee every month from the start of operation with at least one employee. The employees’ membership will be effective on the first day of employment. 

The table below shows the regular contributions for the SS, the Employees’ Compensation (EC) that is paid only by the employer, and the Workers’ Investment and Savings Program (WISP) that are administered by the SSS. The 2023 SSS contribution rate is 14%. The 14% is composed of a 9.5% Employer share and a 4.5% Employee share, while the minimum Monthly Salary Credit (MSC) increased from P3,000 to P4,000 and the maximum MSC from P25,000 to P30,000. The WISP contribution is only required for employees who have a monthly salary credit of PHP 20,500 and above.

Reference for the image: SSS

The basis for the computation of the SSS contribution is gross compensation. Compensation is defined as all actual remuneration for employment, except the part of the remuneration received during the month that is more than the maximum MSC as provided under the Social Security Act of 2018 and this IRR [Sec. 8, (f)], including but not limited to the following: 

To give a better understanding of how SSS contributions are identified and computed, let us have an example: 
A, an employee of XYZ Company, has a monthly basic salary of P30,000, transportation, communication, and meal allowances of P5,000, and a performance incentive of P5,000. The total gross compensation is P40,000. This will be used to identify the contributions of the employer and employee by selecting the appropriate range of compensation. For the 40,000, the range will be P29,750 and above, which would result in an SSS ER Contribution of P2,880, which is composed of Regular SS of P1,900, EC of P30, and WISP of 950, while for the EE’s SSS Contribution, it is P1,350, which is composed of Regular SS of P900 and WISP of P450. 

The deadline for the regular employer to remit and pay the contributions is on the last day of the month following the applicable month. The employer is liable to his or her employees and must pay their benefits on the employee’s behalf. If there are unpaid contributions, employers are bound to pay for all unpaid contributions and penalties and be held liable for a criminal offense punishable by a fine or imprisonment.