Guide to business tax and tax services in the Philippines

28 June 2022

Mazars shares a short guide to business tax and tax services in the Philippines for small to medium business owners.

Paying for business taxes is a consistent obligation of any firm or establishment, and familiarity with its processes will allow you to avoid excessive expenses. It’s recommended that start-ups familiarise themselves with its various types and services before completely delving into the economic market; doing this will help prevent hefty tax penalties or incarceration.

While it’s perfectly acceptable to leave these duties to your bookkeeper or accountant, it’s best to have sufficient knowledge to determine if they are performing their tasks as expected.

Kinds of Taxes in the Philippines

There are only two kinds of taxes in the Philippines, both of which are mandated and handled by the National Internal Revenue Code, along with the consistent amendments being added to that law; these are:

  1. National Taxes
    -  These taxes are directly given to the government, which will be remitted to the Bureau of Internal Revenue (BIR) afterwards. Business owners commonly pay more national taxes than local taxes since these include Excise tax, income, Value Added Tax (VAT) and many more.
  2. Local Taxes
    - This tax is paid to the local government units (LGUs) around your business location. Examples of these locations include municipalities, cities, and barangays. The actual local taxes are community, amusement, professional, and many more.

Types of business tax in the Philippines

  • VAT
    - also considered an indirect tax, VAT is one of the most common taxes for all establishments since it is gathered from the seller if any of their services, leases, or goods are sold. About twelve percent (12%) of VAT is taken from these transactions, and all of them are remitted to the BIR monthly. Note that the amount paid is taken from the value given to the product’s cost. However, if the business’ projected sales are lower than expected, they will be exempt from paying VAT.
  • Excise tax
    - this is considered an add-on to the VAT. These are placed on goods, services and leases created in the Philippines and take effect when consumed or moved to domestic sales. They are also added to businesses that deal with the production of alcohol, tobacco, and other recreational products.
  • Percentage Tax
    - This tax is paid if your company is unregistered to VAT; its amount is taken from a certain percentage of your sales. It is also added to a business if its gross annual receipts and deals do not exceed the required amount.
  • Income Tax
    - Business taxes like these are paid to your business’ net earnings. Two kinds of income tax can be attributed to your business:
    • Individual Income Tax – This is attributed if your business is a sole proprietorship since the funds received are considered “personal income” and need to be taken in your Individual Tax Return (ITR).
    • Corporate Income Tax – This tax is given when your business is structured as a corporation, which pays its income taxes as a different entity. This means that added taxes on dividends will be paid as a stock owner.
  • Import Tax
    - If your business deals with the importation of goods into the Philippines. These include machines, raw parts, and industrial equipment. 
  • Compensation Taxes
    - Business owners need to pay for their employees’ welfare, including withholding and remitting to the appropriate government entities about their income withholding taxes, maintaining Philhealth benefits or Medicare benefits, and proving SSS premiums.
    • Withholding Taxes – these taxes are taken from the deductions to employee and vendor payments.

Business tax services

Whether you’re a small, medium, or large business owner, managing these tax obligations can become quite cumbersome, some establishments often seek to employ companies that provide tax services.  These firms employ teams that have the technical expertise and specialist knowledge on how to provide efficient services and organised planning so you can effectively manage your tax.

These services include the following:

  • Private client tax services
    • Gives tax-efficient structuring including advice on residency and domicile
    • Provides estate planning and wealth succession vehicles
    • Helps with dispute resolution
    • Create a lifetime cash flow analysis
    • Aid with tax compliance such as filing returns
    • Gives advice on charitable giving and philanthropy
  • National and domestic tax services
    - Firms can give tax advice on different tax topics such as:
    • Corporate income tax
    • Personal income tax
    • Employment tax
    • VAT & indirect tax
    • Tax compliance
  • VAT and indirect tax services
    • Full service advisory services on general or specific customs and VAT issues.
    • Identifying and managing VAT and indirect tax risks.
    • Dealing with customs and indirect tax litigation issues due to non-compliance or investigation
    • VAT/customs audit support and VAT/customs scan.
    • VAT and indirect tax compliance impact on supply chain management and business model optimisation (BMO).
    • Advising on VAT and indirect tax issues during the M&A process (incl. due diligences and drafting/checking VAT clauses).
    • ‘VAT group cross-check’ – an analysis of your group structure and processes.
    • VAT risk management concepts, including advisory in terms of tax compliance management systems (TCMS).
    • VAT and indirect tax consultancy as interface between VAT/customs law and criminal tax law.
    • Representation during appeal and finance court proceedings.
    • VAT advisory services in connection with IT implementations VAT and customs compliance and outsourcing. 
    • National and international staff training, upon request customised for the various functional areas of your company (e.g. sales, procurement, accounting).
    • VAT reviews (‘Health Checks).
    • Consultancy in respect to export control compliance.
    • Assistance with applications for binding tariff information (BTI) and Authorized Economic Operator (AEO).
  • International Tax Services
    • Full-service international corporate tax advice including:
      • Corporate structuring;
      • Corporate transactions including M&A and IPOs;
      • Global tax credits and incentives.
    • Guidance on the tax implications of worldwide mobility and employment.
    • VAT and indirect taxes.
    • Transfer pricing.
    • Risk analysis on global initiatives such as the OECD’s BEPS.
    • Compliance assistance including helping build strong internal teams.
    • Global employee mobility.
    • Specialist advice for privately-owned businesses, business owners and high net worth individuals that are operating internationally.