BUSINESS TAXATION

REX B. BANGGAWAN, CPA, MBA

BUSINESS TAXES
WHAT IS BUSINESS?

“HABITUAL ENGAGEMENT IN A COMMERCIAL

ACTIVITY”
Not considered business
Business for mere subsistence
Privilege stores (RR16-2013)

NOTE: Non-resident sellers are conclusively presumed

engaged in business despite absence of habitual
engagement in a commercial activity
Registration of Business Taxpayers
Value Added Taxpayers
Non-Value Added Taxpayers
 Types of Sales or Receipts
EXEMPT SALES/RECEIPTS – No business taxes
SERVICES SPECIFICALLY SUBJECT TO OPT –
Subject to percentage taxes only at various rates
VATABLE SALES/RECEIPTS – Other sales or receipts
not exempted and not imposed specific percentage
taxes
Exempt Sales of Goods or Properties
Sales of basic necessities to senior citizens and PWDs
Sales of exempt goods
Sales of goods by cooperatives
Sales of residential properties
Export sales by non-VAT person
Treaty-exempt sales of goods
Tax-free exchange of property
Sales of gold to the BSP
(SECRET Tax-free Gold)
Exempt sales of services
Schools
Employees
Agricultural contract growers and millers
Residential leasing
Cooperatives
Hospitals
Home owner’s association and condominium
corporations
Exempt sales of services…
Lease of passenger or cargo vessels and aircrafts,
including machineries and spare parts
Treaty-exempt services
Regional or Area Headquarters of multinational
companies
International carriers
Printers or publishers
Essential services to senior citizens and PWDs
(SEARCH2 VA TRIPS)
Other exempt sales or services
Sales of goods or services subject to special laws
Sales by persons not engaged in business
Sales of assets held for use by non-VAT taxpayers
Exempt sales: a detailed look
A/M food products –
“In original state” means unprocessed foods for human
consumption
Food of things for ultimate human consumption
Agricultural contract growers/millers
Hospital services – within hospital, except:
Sales of medicine (except in-patient sales)
Services of professionals
Employment – covers compensation, fringe benefits
including directors fees (this is not business)
Regional Area Headquarter of Multinational
company (this is not business)
Educational services – schools accredited by CHED,
TESDA and or Dep-Ed
Real Properties
Sale of real properties
 by non-dealers (casual sale)

 By dealers of:
 low-cost housing units (must comply with HUDCC price limit)

 socialized housing units (P450,000)

 residential lots (P1,919,500)

 residential dwellings (P3,199,200)

Lease of residence – rental per unit per month do not

exceed P15,000
International transport of passengers by
International carriers
Cooperatives – all cooperatives of any forms so long
as with a CGS, except electric cooperatives
New Exemptions
Association dues, membership fees, and other
assessments and charges collected on a purely
reimbursement basis by homeowners’
associations, condominium and corporations
Sale of gold to the BSP
Sales of medicines and drugs prescribed for
diabetes, high cholesterol and hypertension
beginning January 1, 2019
Services specifically subject to
Percentage Taxes
Mnemonics for Specific % tax: BICAP FLOW
Banks
International carriers
Common carriers
Certain amusement places
PSE sales
Franchises
Life Insurance
Overseas Communication
Winnings
Banks and non-bank FIs
Interest income
From short-term loans – 5%
From long-term loans* – 1%
Other items of gross income (except dividends) – 7%

*Long-term = more than 5 year remaining maturity

Rates structure same with non-bank FIs, except that

their other income is subject to 5% tax
International carriers
Pertains to airlines or shipping carriers owned by
foreign corporations – 3% on Gross Philippine Billings
on transport of non-passengers

Rules on transshipment:
Domestic transshipment
Foreign transshipment
Common Carriers and Keepers of Garage
Carriers by land on their transport of passengers only
– 3%
Includes jeepneys, public utility buses, taxis and car
for hire

Note: RR9-2007 on new presumptive quarterly

gross receipts
Certain Amusement Places
Places of boxing exhibitions – 10%
Places of professional basketball games – 15%
Cockpits, cabarets, night club or day clubs – 18%
Jai-alai and race tracks – 30%

Note: Exemption on world or oriental boxing

championship
PSE sales of stock
Types of sales:
Sale by an investor: 60% of 1% of the gross selling price
Sale in an IPO – (REPEALED BY RA 11469)
Certain Franchises
Franchise of TV and Radio – 3%
(Up to P10M annual gross receipts)

Franchise of Gas and Water – 2%

Life Insurance
On proceeds of direct life insurance which includes
evidence of indebtedness – 2% (RA 10001)
The term “life insurance” also includes group
insurance, health and accident insurance policies
Reinsurers are exempt.
Overseas Communication
 10% on gross payment of the service

Exception: Calls made by

Diplomats
International organizations
News services
Government
Winnings
On jai-alai and race track – 10% on winnings net of
any cost of ticket

Exception: combination bets on race tracks – 4%

Double forecast/Daily double
Trifecta
Quinella
Special exemption to the % tax
Cooperatives
Self-employed individuals and professionals (SEP)
availing of the 8% on gross sales and/or receipt and
other non-operating income
Compliance
Form 2551Q on or before the 25th day of the month
following the end of the quarter
 The VAT Threshold on Vatable
Sales/Receipts
Franchisees of TV or radio – P10M sales or receipt
during a year (special threshold)
All other businesses – P3,000,000 vatable sales or
receipts in any 12-month period (general threshold)
Taxpayer classification
Those below the VAT threshold – subject to 3%
General Percentage tax as non-VAT taxpayer
Those above the VAT threshold – Mandatorily
required to register to VAT
VAT registration
Mandatory – when VAT threshold is exceeded
Voluntary – when taxpayer opted to become VAT
taxpayer
THE VALUE ADDED TAX
The VAT model for VAT taxpayers
Output VAT X
Less: Input VAT X
VAT due X
Less: Tax credit X
VAT still due X
Sources of Output VAT
Regular Output VAT – 12%
Sale of goods
Sale of services
Sale of real properties
Transactions deemed sales
Zero-rated VAT – 0%
List of transactions deemed sales
Consignment if not withdrawn in 60 days
Usage not in the course of business
Withdrawal of goods for personal use
Dacion en pago
Property dividend
Retirement from or cessation of business
Change of status as VAT taxpayer to a non-VAT
taxpayer
Seller’s option on exempt goods
Sellers may opt to apply the 12% VAT on the sales of
exempt goods
Such option shall be irrevocable for three years.
Basis and Timing of Recognition: Output VAT
Basis Timing
Sales of goods Selling price Month of sale
Sales of Gross receipts Month of
services collection
Sale of real Gross selling Month of sale
properties price (SP or or by
FMV w/e is installment
higher)
Transaction Fair market Month deemed
deemed sales value sales
ZERO-RATED SALES OF GOODS
Direct Exports
Sale of goods, supplies, equipment to persons engaged
in international shipping or transport (must be
exclusive of international transport use)
Sales to persons or entities whose exemption under
special law or international agreement to which the
Philippines is a signatory effectively subject such sales
to zero rates
Sales to export processing zones (under status quo)
Previously considered Export Sales – now
taxable
Sales between export traders
Sales to export-oriented enterprises or to their bonded
manufacturing warehouses
Sales to BOI-registered manufacturers/producers
ZERO-RATED SALES OF SERVICES
Sales of services to non-residents
Rendered in the Philippines
Paid for in acceptable foreign currencies
Transport of passengers by Domestic air or sea carriers
from Philippines to a foreign country
Sale of power or fuel generated through renewable
sources of energy
Zero-rates sales of services
Sales to persons exempt under special laws or
international agreements
Services rendered to persons engaged in international
shipping or air transport operations (must be exclusive
on international transport service)
Input VAT
Input VAT – the VAT paid on purchases including
incentives allowed by the law as credit against Output
VAT

Not all input VAT payments are creditable

Requirement for creditable input VAT
It must be paid in the course of business
It must be billed by a VAT supplier
Evidenced by an VAT invoice or VAT receipt
Sources of Input VAT
Transitional input VAT
Regular input VAT
Purchase of goods
Purchase of services
Purchase of capital goods - MAAC
Presumptive input VAT
Standard input VAT
Input VAT carry-over
The amortization on Depreciable capital
goods
If MAAC do not exceed P1M – claim input VAT
outright in month of purchase
If MAAC exceeds P1M – amortize input VAT over
months of useful life not exceeding 60 months

The amortization treatment shall no longer be allowed

for depreciable capital goods purchased after Year 2021.
Presumptive input VAT
Manufacturers of Processors of
Sardines
Mackerel
Milk
Cooking oil
Packed noodles
4% of primary agricultural purchases
Standard input VAT
Government agencies or GOCCs are required to
withhold a 5% final VAT on selling price
Withholding does not apply to purchases of goods or
services arising from projects funded by Official
Development Assistance (ODA).
Beginning January 1, 2021, this VAT withholding
system will shift from final to a creditable system
Form 1600
Tax Credits on VAT due
Estimated VAT payments (2550M)
VAT withheld by the government, GOCCs and LGUs
Advanced VAT
Others
Payment of advanced VAT
Applicable to only:
Manufacturers of:
refined sugar
Flour
Owners/Transporters of timber
The advanced VAT is treated as tax credit against VAT
due.
Compliance
Monthly – Form 2550M on or before the 20th day
following the end of the month
Quarterly – Form 2550Q on or before the 25th day
following the end of the quarter
End of Discussion

Thank you!