Business registration, tax filing and payment is mandatory for all businesses in the Philippines so that it can transact and operate legally. For small businesses, sometimes it becomes difficult to keep up with various tax requirements if you do not have an assigned personnel such as a bookkeeper or accountant to handle accounting and tax filing activities. You might get tax penalties if you have filed late and incorrect tax return or worse heavier and more serious sanctions as a consequence of refusal to file and pay taxes. Thus, we summarized a guide below to help small businesses on how to properly comply, understand taxes deeper, and hopefully avoid incurring penalties.
- Register your business
Register your business with DTI for sole proprietorship and SEC for partnership and corporation and secure business permit (or PTR for licensed professionals) in the municipality where the business is located. You also need to register with SSS, Philhealth, HDMF (if you have employees) and to appropriate agency as applicable.
Register then your business with the BIR and also your books of accounts, cash register machine/POS, as applicable, and obtain authority to print receipts and invoices before printing and using your receipts. Nonregistration will cause you penalties from P2,000-20,000 by the BIR.
- Know your tax obligations and benefits
- File and pay your tax – check the taxes that you need to file and the due date in the Certificate of Registration (COR) issued by the BIR when you first register. File way before due date at the Revenue District Office (RDO) where you are registered and pay corresponding taxes in any accredited agent banks of the BIR or at the BIR directly. This is to avoid long ques which often happens on the due date. For those who electronically file through eBIRform or EFPS, you should also file few days before the due date since confirmation email which is your proof of filing sometimes take time to arrive in your mailbox. Traffic jam in the BIR website also happens on the due date. You must also submit the required alphalist and attachments on or before its due date. Non-filing and non-payment of applicable taxes may result to penalties of P1,000 for every tax return, surcharge of 25%, and interest of 20% on unpaid taxes.
- Update your registration information – whenever there are changes to your business information such as change in registered address, activities, tax type details etc., you should fill out form 1905 and update your records with the BIR.
- Withhold taxes – if you are a withholding agent and you file monthly 1601E and 1601C, don’t forget to withhold taxes on expenses, purchase of goods, or services that you avail from suppliers. Failure to withhold will invalidate your expenses as deduction from your income hence increasing your tax liability. This is a common mistake of companies. In addition, not withholding will also cause you penalties from P1,000-25,000.
- Reconcile your taxes – the BIR can easily check if you are not declaring your income correctly by merely comparing your tax returns. They can also check with third party information such as your customers tax returns and if they declare an expense that does not tally to your income, you will be a candidate for audit.
- Use your tax credits – ensure that you collect your BIR form 2307 when customers or clients withhold taxes from you. This will be your proof of tax credits to be deducted from the income tax payable. Significant amount of taxes can be saved from these tax credits so these should be diligently collected.
- Get tax exemption – you can save up a lot of taxes if you have registered as Barangay Micro Business Enterprise (BMBE) in your local municipality. If you have a total asset of not more than P3M excluding land, you can check if you are qualified to register. This however, excludes licensed professionals.
- Issue receipts and invoices
Issue receipts or invoices for your sale transactions. Non-issuance of receipts and invoices may cause you penalty of P10,000 (1st offense) and P20,000 (2nd offense) while refusal to issue receipts is subject to penalty of P25,000 (1st offense) and P50,000 (2nd offense). Subsequent violations cannot be subject to compromise penalty.
- Keep accounting records
Always record your business transactions in the books of accounts that you registered with BIR and keep it in your office or place of business. This should be kept for a period of ten (10) years from the date of the last filing of income taxes. Hard copy of books or documents should be kept for five (5) years, soft copies – ten (10) years. Failure to keep records will cause you penalty of P1,000 up to P50,000. The books of companies with gross receipts or sales of more than P150,000 in any of the quarter of the taxable year need to be audited by an independent CPA accredited by the BIR. Otherwise, you will be penalized of up to P25,000.
- Display the necessary registration certificate and tax payment
As required by the BIR, the following must be displayed in a manner that can be easily seen on the business establishment:
- Certificate of registration
- Annual registration fee
- Authority to print receipts and invoices or authorized sticker/DECAL for the use of CRM/POS/CAS
- “Ask for Receipt” signage provided by the BIR
These are being checked during tax mapping operations by the BIR. Tax mapping is an activity conducted by the BIR from time to time in a local area to check compliance of businesses with registration requirements, filing, and bookkeeping. This is different from audit and conducted on a surprise visit. Not doing the above might cause you penalties of at least P1,000 per document that needs to be displayed and P1,000 per unit for authorized stickers.
- Be updated about new tax rules
There are a lot of ways to be informed such as reading news, joining a tax forum, attending seminars or eventually visiting the BIR website to get updates on what’s happening and whether there are new tax updates.
7. Hire a competent and trustworthy accountant
If you think hiring one will save you time and hassle, you should hire a trustworthy and competent accountant who is accredited by the BIR to do the accounting and tax filing for you. There are outsourced accounting which offers low monthly retainer which can equally help you with accounting and tax filing. This will cost less than hiring a full time in-house employee.
Tax law can be complicated and difficult to understand. That’s why it is best to consult with a qualified accountant who have sufficient experience in handling tax matters. This will surely save up a lot for you from possibly incurring tax penalties and BIR audit due to incorrect tax computation and filing.
Disclaimer: This article is published for general information only and does not substitute expert’s opinion. Any recent law, issuances, or rulings may cause this article inaccurate or obsolete at a whole or partially.