Tax Tips for Small Businesses in the Philippines
Unlike large companies and corporations, small companies and micro businesses may not afford to establish a tax and accounting department or hire accounting firms to do the tedious tasks of taxation, accounting and bookkeeping for their business. That is why they sometimes have to do those tasks by themselves. If you own a micro or small business in the Philippines, the following are 25 quick tax tips that you should remember:
1. Attend business, tax and accounting seminars. Whether you will hire a bookkeeper or do the bookkeeping by yourself, attending short seminar or training can help you learn the basics of accounting, bookkeeping and tax compliance in the Philippines.
2. Consult with a business or tax consultant. You can also consider consulting with a business or tax consultant before you start your business. With a reliable and trusted consultant, you can disclose private information about your business to gain deeper ideas and answers to your business and taxation questions.
3. Join business and tax communities. To further increase your knowledge in business, accounting and taxation, you can join online forums, groups and communities to ask questions and learn from the expert members. You can also join our BusinessForum.Ph for free to ask questions about Philippine business and taxation. Furthermore, you can regularly read our blogs for fresh business and tax tips in the Philippines.
4. Register your business before operation. Make sure that you will operate a business with a license to avoid penalties and forced closure of your business by the authorities. Register your business with the DTI, SEC, Mayor’s Office, BIR, SSS, PhilHealth, Pag-Ibig Fund and other government agencies that your business is required to register. Registering with the BIR and Mayor’s Office (LGU) will be your basis for paying national and local taxes, respectively.
5. Check if you can register as a BMBE. If your business doesn’t actually belong to small business category but to microbusiness category in the Philippines, check if your business can register as a Barangay Micro Business Enterprise (BMBE) under RA 9178 to enjoy income tax exemption and other privileges. Read our post “how to register as a Barangay Micro Business Enterprise (BMBE) in the Philippines” to learn more.
6. Register your books of accounts. Make sure that you register your books of accounts (general journal, ledger, etc.) before you use them. Also remember that you don’t need to register new set of manual books of accounts unless the pages of your current registered books are fully exhausted. You are not also required to submit your books for investigation when registering a new set of manual books of accounts (please read full text of BIR RMC No. 82-2008). If you will be using a Computerized Accounting System, Cash Register Machine (CRM) and Point of Sales Machine (POS), you also have to apply for permit to use them or register them with the BIR.
7. Register your official receipts and or invoices. Your official receipts and invoices should be registered with the BIR and must be printed by BIR accredited printers. Check out BIR’s list of Authorized Printers of Receipts and Invoices in the Philippines.
8. Display your certificate of registration and other documents that the BIR requires to display at your business place. Display your BIR certificate of registration (BIR Form 2303), Ask for a Receipt” Notice (ARN), and others that are required to be displayed conspicuously at your business establishment to avoid paying penalty during BIR tax mapping. Take note that your books of accounts must also be found at your business establishment as this may also be a ground for penalty during tax mapping.
9. Hire a quality bookkeeper if you can. Hire a bookkeeper if you think hiring one will save you more time and money than doing bookkeeping by yourself. When hiring a professional bookkeeper, make sure that he or she is reliable, competent and trustworthy. Also check if the bookkeeper is a registered professional with the BIR and is also paying his or her own taxes. Well, if your bookkeeper doesn’t pay any tax from his own professional income, then how can he compute and file your tax with integrity?
10. Hire a BIR accredited CPA or tax practitioner. Make sure that the CPA who will certify your Financial Statements or the tax practitioner that will represent your business with the BIR are BIR accredited. Check out this List of Accredited Tax Practitioners in the Philippines as published by the BIR.
11. Compute your taxes as early as you can. You can try to compute your taxes as you earn your income and set aside money as you receive your income so that you can have cash to pay your taxes when they are due. For example, if you are required to pay 3% Monthly Percentage Tax on your gross revenue, you can set aside 3% of your income every time you receive them and use the money you’ve kept to pay your percentage tax when month due comes.
12. File your BIR returns and pay your taxes before due date. If you can compute your tax dues earlier, you will have more time to prepare for your tax return, find money for payment, and file it to the BIR or to an Accredited Agent Bank (AAB). Don’t make it a habit to file your tax returns on due date so that you can avoid long queue and cramming that often lead to incorrect computation and information filled up in your declarations.
13. Check your BIR returns if your attachments are complete. In every BIR Form, there are Instructions and Guidelines printed on the last page. You can check “when and where to pay the return”. You can also find there the list of attachments required in filing that return. Just read it and follow the instructions. For example, when you claim creditable taxes, you have to attached the certificate of creditable taxes you claim for that period.
14. Review the computation and information on your tax returns. The BIR conducts pre-audit procedure by just looking at the taxpayers’ BIR Returns. If they would find incorrect computation and wrong information on your Income tax return and other declarations, you will be subjected for further examination. Thus, always review your tax returns or declaration for incorrect information and computation.
15. Always tally your records to the BIR returns you are filing. Make sure that the entries in your books of accounts, whether manual or computerized, agree to your BIR returns or declarations.
16. Always tally your BIR returns to your other declarations. Make sure that your BIR Returns agree to each other. For example, your gross revenues or sales declared in Percentage Tax Returns should agree to the gross revenues or sales declared on your Income Tax Return. Moreover, your salaries and wages expense declared must agree with what you have declared in your Income Tax return and Withholding Taxes on Compensation (BIR Form 1601-C) or Annual Information Return of Income Taxes Withheld on Compensation (BIR Form 1604-CF).
17. Declare your income correctly. The BIR may conduct investigation on your customers and may determine their expenses which show the purchases they have made from you. Remember that your customers’ purchases are your sales or income. Thus, if your customers declare those purchases and you did not declare them as your sales, the BIR may find out and confirm that you are under declaring your income or evading your taxes.
18. Always issue OR or invoices properly. Not issuing Official Receipts and invoices to your customers are penalized by the BIR. You also have to enter the right information and VAT computation (for VAT registered taxpayers) in your receipts and invoices to avoid additional penalties. Moreover, the BIR may also ask a sample of your OR or invoices during tax mapping, thus, always use your receipts and invoices the proper way.
19. Record your business transactions in your books of accounts regularly. If you are a service provider, you may only have a few transactions every month. But if you run a trading or merchandising business, you may actually have several transactions every day. To avoid backlogs in bookkeeping, record your business transactions on time.
20. Regularly update your BIR Relief for VAT registered taxpayers. The BIR Relief is a relief on the part of the BIR, but on the part of the taxpayer, it’s a boring and tedious task. Making entries to the BIR relief should not be done at the time it is already required to be filed with the BIR. This will only result to cramming, erroneous entries, and amount that don’t agree to your VAT Returns.
21. Separate your business and personal expenses. Expenses that are attributable to your business or practice of profession are the only ones that may become allowable deductions to your taxable income. Thus, make sure you are separating your personal expenses from your business expenses.
22. Update your taxability and other tax information. If you’re a NonVAT registered taxpayer, check if your total annual sales for the next year will already warrant you or your business to register as a VAT taxpayer. Also check other changes to your business that will require you to update your registration with the BIR, such as having additional types of taxes, change of address, etc.
23. Always ask for certificate of creditable withholding taxes. If your customers or clients withhold tax on their income payment to you, ask certificate of creditable withholding taxes from them so that you can claim these as deductions to your income taxes or business taxes, whichever it is applicable.
24. Be aware of the Anti-red tape law in the Philippines. Read and understand Republic Act No. 9485 otherwise known as the “Anti-Red Tape Act of 2007? to know your rights and privileges when transacting with the BIR, LGUs, and other government agencies. This law aims to promote efficiency in the delivery of government services to Filipinos.
25. Keep updated. There are many other important things that a business owner in the Philippines must learn about taxation, compliance accounting and bookkeeping. Hence, don’t stop learning and always keep updated with the new tax laws, BIR issuances and rulings. You can always check BIR’s homepage (www.bir.gov.ph) to read what’s new. You can also visit our blog regularly to get important business and taxation tips.
Disclaimer: New and subsequent laws, BIR issuances and tax rulings may render the whole or part of the article obsolete or inaccurate. This post was published for general information only and is not provided to serve as legal, tax, or investment advice. Hence, we do not guarantee and is not liable for the accuracy or completeness of any information provided herein or in any outcome as a result for using this information.