Tax Guide for MSMEs
gvaquino cpas. accounting. auditing. advisory.
TYPES OF TAXPAYERS
Individual taxpayers are natural persons who earn income from various sources, such as compensation, business, profession, or property. Corporate taxpayers are juridical persons who are created or organized under the law of the Philippines or any foreign country, such as domestic corporations, foreign corporations, or partnerships. Individual taxpayers and corporate taxpayers have different tax rates, tax bases, tax exemptions, and tax obligations under the Philippine tax system.
Individual Taxpayer
Individual taxpayers are further classified into subtypes, such as resident citizens, non-resident citizens, resident aliens, and non-resident aliens, based on their citizenship and residency status.
Non-Individual Taxpayer
Corporate taxpayers are also further classified into subtypes, such as domestic corporations, partnerships, cooperatives, resident foreign corporations, non-resident foreign corporations, and special corporations, based on their place of incorporation and operations.
COMMON TAX TYPES
Value-Added Taxes
A 12% tax on the value added to goods and services sold or imported in the Philippines.
Percentage Taxes
A 3% tax on the gross receipts of certain businesses that are exempt from VAT, such as small-scale miners, common carriers, and franchise holders.
Income Taxes
A tax on the income or profit of individuals or corporations, less deductions authorized by law. Income tax rates vary depending on the type and status of the taxpayer, ranging from 0% to 35% for Individual taxpayers and 20%-25% for corporations, partnerships, and cooperatives.
Registration Fees
A one-time fee of PHP 500 paid by individuals or corporations who are required to register with the BIR as taxpayers.
Withholding Tax - Expanded
A tax withheld by the payor or buyer from the income payments to the payee or seller, such as professional fees, commissions, rentals, and royalties. Expanded withholding tax rates vary depending on the nature of the income payment, ranging from 1% to 32%
Withholding Tax - Compensation
A tax withheld by the employer from the compensation income of the employee, such as salaries, wages, bonuses, and allowances. Withholding tax on compensation rates are based on the employee’s taxable income and personal exemptions, following a graduated tax table.
Documentary Stamp Taxes
A tax on documents, instruments, loan agreements, and papers that show the acceptance, assignment, sale, or transfer of an obligation, right, or property. DST rates vary depending on the type and value of the document, instrument, loan agreement, or paper, ranging from PHP 0.15 to PHP 15 per PHP 200 of value.
Final Taxes
A tax on certain passive incomes of individuals and corporations, such as interest, dividends, prizes, and winnings. Final tax rates vary depending on the type and source of the passive income, ranging from 5% to 20%.
The SICk System of Taxation
Surcharges
Additional charges imposed on taxpayers who fail to file or pay their taxes on time, or who willfully neglect or refuse to comply with the tax laws. . Surcharges range from 25% to 50% of the basic tax due, depending on the nature and extent of the violation.
Interests
Additional charges imposed on taxpayers who fail to pay their taxes on or before the due date, or who underpay their taxes due to negligence or fraud. . Interests are computed at the rate of 12% per annum on the unpaid amount from the due date until the date of full payment
Compromise Penalties
Amounts paid by taxpayers to settle their tax liabilities or cases without undergoing a formal investigation or litigation. Compromise penalties are based on a certain percentage of the basic tax assessed, depending on the classification and gravity of the tax violation.
[Kickbacks]
Illegal payments or commissions given by taxpayers to government officials or employees in exchange for favorable treatment or reduction of their tax liabilities. . Kickbacks are considered as acts of corruption and are punishable by law.
