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.

Annual income tax return filing not later than April 2015 for 2014 calendar is fast approaching. Early preparation is best encouraged for a better tax compliance and management. As the saying in the movie, “The Mechanic” goes:

“Victory loves preparation.”

Listed below are some items we suggest you to take into account for the April 2015 filing of income tax return and audited financial statements in the Philippines:

Use of new Income Tax Returns in Philippines

For April 2015, June 2013 2011 versions of income tax returns are required to be used, both for manual filing, eBIR Forms filing (eBIR Forms) and electronic filing and payment system (EFPS). Please note of the following new things  on said forms:

BIR Form No. 1701 for self-employed individuals, professionals and freelancers

• Required information in all capital letters using black ink;
• A 12-page annual income tax return requiring more information;
• Details on external auditor/tax agent, if applicable;
• Spouse details for consolidation of returns;
• Schedule of itemized deductions – regular, and special;
• Balance Sheet or Statement of Financial Condition details;
• Supplemental information at the back of the income tax return. For transparency purposes, new annual income tax returns for individuals require disclosure of other income not subject to 5-32% income tax rates such as capital gains subjected to capital gains tax, passive income subjected to final withholding tax, exempt income, and etc. Please to Page 11 of the return and in completing the form, it may require you some details and information that may take you time to provide;
• Supplemental notes to financial statements under Revenue Regulations No. 15-2010 and Revenue Memorandum Orders No. 19-2011. Under the new forms, certain schedules are restored, instead of previously being required on the financial statements;

BIR ITR Form No. 1702 for corporations

• Use of proper BIR Form No. 1702-R for regular corporate income taxpayers, BIR Form No. 1702-EX for exempt corporations, or BIR Form No. 1702-MX for corporation with mixed tax regimes;
• Required information in all capital letters using black ink;
• Details on external auditor/tax agent;
• Spouse details for consolidation of returns;
• Schedule of itemized deductions – regular, and special;
•  Balance Sheet or Statement of Financial Condition details;
• Supplemental information in Schedule 9;
• Supplemental notes to financial statements under Revenue Regulations No. 15-2010 and Revenue Memorandum Orders No. 19-2011. Under the new forms, certain schedules are deleted, and instead, required them on the financial statements.;
• For those with special tax benefits, details on such benefits and comparison with tax implications as if the corporate taxpayer is under normal corporate income tax of 30%

Taxable income items

At this early, check on the components of the gross sales or gross receipts in relation to the . See to it that indeed they are taxable to avoid paying tax on items not yet subject to income tax like unrealized foreign exchange gains. These items are normally under other income. Read more on…Overview of Corporate Income Taxation.

Deductible expenses and supporting documents

As a rule, allowable deductions are ordinary and necessary business expenses and would tend to lower down income tax liability. No specific enumeration has been provided for as long as they were incurred in the conduct of trade or business  and complies the following basic requirements for deductibility:

• Must be supported with documents such as official receipts, and sales invoices;
• Must be withheld, if subject to withholding tax;
• Not contrary to law, public morals, policy or order.

 Creditable withholding tax certificates – BIR Form No. 2307

Creditable withholding tax certificates are advance income tax payments so that every peso withheld is a peso tax credits deductible from annual income taxes. Claims of withholding tax credits should be supported by certificates (BIR Form No. 2307) issued by clients or customers. As such, it might be a good move to summarize income subjected to creditable withholding taxes and the related certificates. If the clients or customers had not provided the certificates, then, this maybe the best early time to remind them to issue one for the amounts they withheld.

Tax planning 

Perhaps at this time (after the third quarter), the taxpayers may already have an estimate of its tax position at the end of 2012. Based on its tax position and its income tax component, it may be worth a while to re employ tax planning strategies. One some expenses might be deductible at year end, so taking serious thought about it and documenting them would be good. Here are some examples of year-end expenses:

• Accrual of salaries, bonuses, and other forms of compensation. Note however, that this would require a withholding tax to be deductible;
• Bad debts for worthless accounts based on supporting documents;
• Making charitable contributions to accredited donee institutions for full deductible donations

In applying the above, you might need the help of a professional for an effective and efficient implementation.

Improperly accumulated earnings tax (IAET)

Another most common errors of taxpayers is on the level of free retained earnings in relation to paid-up capitalization. Under Section 43 of the Corporation Code, unappropriated retained earnings are not allowed to exceed paid-up capital. Revised Securities Regulation Code requires a note to the audited financial statements with a concrete plan on the excess retained earnings. Section 29 of the Tax Code imposes a 10% penalty tax on improper accumulations so that a double check on the level of free retained earnings at the end of the year is highly recommended to determine implications and avoid the penalties. Read more on…Overview of 10% IAET in the Philippines.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@************er.org.

By: Tax and Accounting Center Philippines

Few months prior to the last day of filing calendar year annual income tax return for taxable year 2013, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 2-2014 dated 24 January 2014 entitled “New Income Tax Forms”.

New Annual Income Tax Returns Philippines

Starting the taxable year 2013, the following new income tax returns in the Philippines shall be used by those taxpayers who are mandatorily required to file annual income tax returns, and those not required to file but opted to file the same:

1. Individual Income Tax Returns Philippines

• BIR Form No. 1700 version June 2013 – Annual income tax return for individuals earning purely compensation income; and,
• BIR Form No. 1701 version June 2013 – Annual income tax returns for Self-employed individuals, estates, and trusts.

2. Corporate Income Tax Returns Philippines

• BIR Form No. 1702-RT version June 2013 – Annual income tax return for corporations, partnerships, and other non-individual taxpayers subject ONLY to REGULAR income tax rate of 30%;
• BIR Form No. 1702-EX version June 2013 – Annual income tax return for use ONLY by corporations, partnerships, and other non-individual taxpayers EXEMPT under the Tax Code and other special laws, with NO other taxable income; and,
• BIR Form No. 1702-MX version June 2013 – Annual income tax return for corporations, partnerships and other non-individuals with mixed income subject to multiple income tax rates or with income subject to special or preferential rate.

Please be guided on the proper annual income tax returns to be used for filing not later than April 15 of the following year for individual taxpayers (employees, freelancers, sole proprietorship, and the likes), and corporate taxpayers on calendar year, or not later than the 15th day of the fourth month following the end of fiscal year for corporate taxpayers on fiscal year basis.

How to get copies of the 2013 new income tax returns Philippines?

You have the following options to get new BIR forms for use in the filing of the annual income tax returns Philippines:

1. Through a download from the Bureau of Internal Revenue (BIR) website – http://www.bir.gov.ph/birforms/form_itr.htm#;
2. Through a pre-printed forms  from the Bureau of Internal Revenue office of registration (e.g. Revenue District Office);
3. For electronic filers under elctronic filing and payment system (EFPS), then, through the BIR EFPS facility upon availability; or
4. Through the eBIR returns upon availability.

Please be guided accordingly and happy filing season!

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.org, or you may post a question at Tax and Accounting Center Forum and participate therein.

Annual income tax return filing not later than April 2013 for 2013 calendar is fast approaching. Early preparation is best encouraged for a better tax compliance and management. As the saying in the movie, “The Mechanic” goes:

“Victory loves preparation.”

Listed below are some items we suggest you to take into account for the April 2013 filing of income tax return and audited financial statements in the Philippines:

Use of new BIR Forms 1700, 1701, and 1702

For April 2013, November 2011 versions of income tax returns are required to be used, both for manual filing and electronic filing and payment system (EFPS). Please note of the following new things  on said forms:

BIR Form No. 1700 and 1701

• Shading on filing out;
• Supplemental information at the back of the income tax return. For transparency purposes, new annual income tax returns for individuals require disclosure of other income not subject to 5-32% income tax rates such as capital gains subjected to capital gains tax, passive income subjected to final withholding tax, exempt income, and etc. Please refer to the back of the return and in completing the form, it may require you some details and information that may take you time to provide;
• Supplemental notes to financial statements under Revenue Regulations No. 15-2010 and Revenue Memorandum Orders No. 19-2011. Under the new forms, certain schedules are deleted, and instead, required them on the financial statements;

BIR Form no. 1702

• Shading on filing out;
• Supplemental notes to financial statements under Revenue Regulations No. 15-2010 and Revenue Memorandum Orders No. 19-2011. Under the new forms, certain schedules are deleted, and instead, required them on the financial statements.;
• For those with special tax benefits, details on such benefits and comparison with tax implications as if the corporate taxpayer is under normal corporate income tax of 30%

Taxable income items

At this early, check on the components of the gross sales or gross receipts in relation to the . See to it that indeed they are taxable to avoid paying tax on items not yet subject to income tax like unrealized foreign exchange gains. These items are normally under other income. Read more on…Overview of Corporate Income Taxation.

Deductible expenses and supporting documents

As a rule, allowable deductions are ordinary and necessary business expenses and would tend to lower down income tax liability. No specific enumeration has been provided for as long as they were incurred in the conduct of trade or business  and complies the following basic requirements for deductibility:

• Must be supported with documents such as official receipts, and sales invoices;
• Must be withheld, if subject to withholding tax;
• Not contrary to law, public morals, policy or order.

 Creditable withholding tax certificates – BIR Form No. 2307

Creditable withholding tax certificates are advance income tax payments so that every peso withheld is a peso tax credits deductible from annual income taxes. Claims of withholding tax credits should be supported by certificates (BIR Form No. 2307) issued by clients or customers. As such, it might be a good move to summarize income subjected to creditable withholding taxes and the related certificates. If the clients or customers had not provided the certificates, then, this maybe the best early time to remind them to issue one for the amounts they withheld.

Tax planning 

Perhaps at this time (after the third quarter), the taxpayers may already have an estimate of its tax position at the end of 2012. Based on its tax position and its income tax component, it may be worth a while to re employ tax planning strategies. One some expenses might be deductible at year end, so taking serious thought about it and documenting them would be good. Here are some examples of year-end expenses:

• Accrual of salaries, bonuses, and other forms of compensation. Note however, that this would require a withholding tax to be deductible;
• Bad debts for worthless accounts based on supporting documents;
• Making charitable contributions to accredited donee institutions for full deductible donations

In applying the above, you might need the help of a professional for an effective and efficient implementation.

Improperly accumulated earnings tax (IAET)

Another most common errors of taxpayers is on the level of free retained earnings in relation to paid-up capitalization. Under Section 43 of the Corporation Code, unappropriated retained earnings are not allowed to exceed paid-up capital. Revised Securities Regulation Code requires a note to the audited financial statements with a concrete plan on the excess retained earnings. Section 29 of the Tax Code imposes a 10% penalty tax on improper accumulations so that a double check on the level of free retained earnings at the end of the year is highly recommended to determine implications and avoid the penalties. Read more on…Overview of 10% IAET in the Philippines.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@************er.org.)