#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 fixed 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 office rent.
2. Is it true that even if I am not yet making profit I need to file taxes?
Upon registration with the Bureau of Internal Revenue (BIR), you are already required to file tax returns the following month depending on your tax type registration, whether you are making profit 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?
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 official receipts (ORs) even if my customers do not ask for it?
Yes. Failure or refusal to issue an official 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 file VAT returns (BIR Form 2550M) and pay the VAT due.
6. During my first 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 difficult 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 file audited financial statements and you need to hire the professional services of a CPA.
7. Will I use the same Tax Identification 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.
Unlike a sole proprietorship where the personal TIN of the owner is used by the head office and all branches, a corporation gets a separate TIN from the Securities and Exchange Commission (SEC).
Caveat: Using multiple (personal) TINs is punishable by criminal liability.
8. What are the deadlines I need to remember? How much is the penalty?
A reminder of the deadlines for filing and payment is printed at the bottom part of your Certificate 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;
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 file 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 specific 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.
On top of that, not paying taxes deprives millions of Filipinos of the benefits 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
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Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country's first social consulting enterprise, the Abrea Consulting Group, which offers strategic finance 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 firstname.lastname@example.org.