07/05/2018 #AskTheTaxWhiz: Top 10 frequently asked tax questions by startups

BUSINESS

#AskTheTaxWhiz: Top 10 frequently asked tax questions by startups

The Tax Whiz tackles everything entrepreneurs need to know about taxes, including whether taxes are due even if
a company is unpro table, local business taxes, and important deadlines

Mon Abrea
Published 7:25 PM, November 03, 2016
Updated 7:25 PM, November 03, 2016

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07/05/2018 #AskTheTaxWhiz: Top 10 frequently asked tax questions by startups

1. What are the taxes I need to pay as a startup?

There are at least 3 types of taxes you need to pay:

(1) income tax - if you are a sole proprietor or self-employed, your business income is subject to graduated income
tax from 5% to 32%, while if you incorporate your business, you pay the xed 30% corporate income tax;

(2) business tax - if your annual gross sales or revenues exceed P1,919,500, your sales or revenues will be subject
to 12% value-added tax (VAT); otherwise it will be subject to 3% percentage tax;

(3) withholding taxes - applicable to those with salaried employees and third party contractors, including lessors
for o ce rent.

2. Is it true that even if I am not yet making pro t I need to le taxes?

Upon registration with the Bureau of Internal Revenue (BIR), you are already required to le tax returns the
following month depending on your tax type registration, whether you are making pro t or not, and even if you are
not yet operating.

3. Is the business permit different from annual income tax due to the BIR? If yes, is it
deductible from my annual income tax?

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07/05/2018 #AskTheTaxWhiz: Top 10 frequently asked tax questions by startups

Yes. The business permit is a local business tax imposed by the local government and is different from the
national tax imposed by the BIR. It is based on the annual gross sales or receipts with rates that vary depending on
the nature of your business.

No. It is not deductible directly from annual income tax due, but it is an allowable deduction from your taxable
income to reduce your income tax due.

4. Am I required to issue o cial receipts (ORs) even if my customers do not ask for it?

Yes. Failure or refusal to issue an o cial receipt is subject to a penalty not less than P1,000 but not more than
P50,000 and imprisonment of not less than 4 years.

5. If I have not yet started my operations, am I already required to pay taxes?

You are only required to pay taxes if there are taxes due. For instance, if you earned and collected VATable sales
last month, then you are required to le VAT returns (BIR Form 2550M) and pay the VAT due.

6. During my rst year, do I already need to hire a full-time accountant to handle my BIR
compliance? How about an external auditor?

As long as you can handle the bookkeeping yourself, there is no need to hire a full-time accountant yet. However,
the moment you grow your business it will be di cult to manage if you still have to do it yourself.

It depends. If your gross quarterly receipts or sales exceed P150,000, you are required to le audited nancial
statements and you need to hire the professional services of a CPA.

7. Will I use the same Tax Identi cation Number (TIN) if I decide to open another business,
not a branch?

No. You only have to get one TIN in your lifetime except if you intend to incorporate a business.
Hi! What do you think of new ways of
paying, such as debit and credit cards?
Unlike a sole proprietorship where the personal TIN of the owner is used by the head o ce and all branches, a
Let us know
corporation gets a separate TIN from the Securities and Exchange Commission by answering this
(SEC).
survey!
Caveat: Using multiple (personal) TINs is punishable by criminal liability.
Sure!
8. What are the deadlines I need to remember? How much is the penalty?
X

A reminder of the deadlines for ling and payment is printed at the bottom part of your Certi cate of Registration
(COR): 
a) Income Tax Return is due within 60 days after the end of each quarter while annual return is due every April 15;

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07/05/2018 #AskTheTaxWhiz: Top 10 frequently asked tax questions by startups

b) VAT is due monthly on or before the 20th day of the succeeding month and quarterly on or before the 25th day
following the close of each taxable quarter;

c) Withholding Tax - Expanded, Compensation, and Final is due on or before the 10th day of the month following
the month the withholding was made.

The following penalties apply:

a) A surcharge of 25% for failure to le and/or pay any internal revenue tax at the time or times required by law or
regulation;

b) A surcharge of 50% in case a false or fraudulent return is willfully made;

c) Interest at the rate of 20% per annum on any unpaid amount of tax from the date prescribed for the payment
until it is fully paid;

d) Compromise penalty of up to P50,000.

9. Are there speci c forms I need to use? Are these forms available online?

The following are some of the basic BIR forms a business needs to use which are available online.

For Self-Employed Individuals, Estates, and Trusts:

BIR Form 1701Q - Quarterly Income Tax Return

BIR Form 1701 - Annual Income Tax Return

For Corporations and Partnerships: 

BIR Form 1702 - Annual Income Tax Return
BIR Form 1702 Q - Quarterly Income Tax Return (For Corporations and Partnerships)

Other BIR forms available:

BIR Form 2550M - Monthly Value-Added Tax Declaration

BIR Form 2550Q - Quarterly Value-Added Tax Return
BIR Form 2551M - Monthly Percentage Tax Return (for not VAT-registered)
BIR Form 1601C - Monthly Remittance Return of Income Taxes Withheld on Compensation
BIR Form 1601E - Monthly Remittance Return of Income Taxes Withheld (Expanded)

10. Will I go to jail if I don't pay my taxes?

Yes. Tax evasion is a crime. Taxpayers who do not pay the right taxes, either by under declaring revenues or over
declaring expenses, face civil and criminal liabilities.

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07/05/2018 #AskTheTaxWhiz: Top 10 frequently asked tax questions by startups

On top of that, not paying taxes deprives millions of Filipinos of the bene ts they should be getting from the
government, assuming there is no corruption.

In this regard, the Center for Strategic Reforms of the Philippines (CSR Philippines) in partnership with Integrity
Initiative, the Department of Trade and Industry, and the Bureau of Internal Revenue recently signed a
Memorandum of Agreement to promote ease of doing business and honesty in paying taxes. – Rappler.com

Got a question about taxes? #AskTheTaxWhiz! Tweet @rapplerdotcom or email us at business@rappler.com.

Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy o cer of
the country's rst social consulting enterprise, the Abrea Consulting Group, which offers strategic nance and tax
advisory services to businesses and professionals. Mon's tax handbook, Got a Question About Taxes? Ask the Tax
Whiz! is available in bookstores nationwide. Follow Mon on Twitter (@askthetaxwhiz) or visit his group's Facebook
page. You may also email him at consult@acg.ph.

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