May 14, 2011

The Bureau of Internal Revenue (BIR) Seminar

This morning, I attended the seminar required by the Bureau of Internal Revenue for newly registered businesses. I registered Escrive Writing and Editing, a writing and editing group.

So today I am writing about what I learned at the BIR seminar.

1. BIR is divided into different regional offices, which is divided into different revenue districts, with their own revenue district offices (RDOs). Since I used to work in Quezon City, I was registered under RDO 040. Now that I have left my QC job and have put up a business in Rodriguez, Rizal, which is in RDO 045, I had to move my BIR registration from RDO 040 to RDO 045. (Incidentally, I had to do that before I could register my business.)

2. You need to pay at the revenue district where you are registered. Now that I'm registered at RDO 045, if I pay my taxes anywhere in revenue district 040, they may accept my payment there, but I will be penalized 25% of my basic tax due to wrong venue of filing.

3. You don't have to go to the BIR office to pay. You can pay at any authorized agent bank (AAB) within your revenue district, or you can pay at a BIR collection office, often found at the municipal hall. Just be sure to bring your required forms with you, for stamping.

4. There are two kinds of businesses: VAT and non-VAT. If your gross income is 1.5 million pesos per year or more, you are automatically classified under VAT. If your gross income is less than 1.5 million per year, you qualify for non-VAT.

However, even if you are earning less than 1 million annually, you may also want to register as VAT if you are targeting VAT clients. The reason: VAT businesses will normally not transact with non-VAT businesses, because then, they will not be able to declare their purchases from you under their expenses. (There is a somewhat complex explanation to that. For now, just trust me on this.)

5. There are required forms for registering a business, depending on whether you are registering as an individual or as a corporation/organization. For more information on business registration, click here.

Individual Corporation/Organization
Form 1901: basic information
Form 1903: basic business information
Form 0605: P500 for each business, plus penalty if you register with the BIR more than a month after you get your municipal/mayor's permitForm 0605: payment form, also P500 for each distinct business entity
Form 2000: needed only if you're leasing/renting your place of business; cost is P1 for every P1,000 annual rentForm 2000: needed only if you're leasing/renting your place of business; cost is P1 for every P1,000 annual rent
Contract of lease or proof of ownership or certification from owner that they allow you to use their property for business without charge (attach proof of ownership from the signatory)Contract of lease or proof of ownership or certification from owner that they allow you to use their property for business without charge (attach proof of ownership from the signatory)
DTI registration (original and copy)DTI registration (original and copy)
Mayor's permit (orig + copy)Mayor's permit (orig + copy)
Marriage contract (orig + copy)SEC Certificate of Registration (Certificate of Incorporation/Certificate of Co-Partnership
Birth certificates of children (orig + copy)Corporation by-laws
Location sketchLocation sketch

6. Schedule of payments
  • Monthly income: If non-VAT, pay 3% of gross income, and use Form 2551M. For VAT, you need an accountant to compute and sign this document for you. Use Form 2550M.

    Due: 20th day of the following month for both VAT and non-VAT. If no income, put in "no transaction" and have the form stamped by the bank or BIR officer.

  • Monthly remittance return of creditable income taxes withheld: This is applicable if you rent/lease your place of business, or if you hire freelancers.

    Due: 10th day of the following month. For December, it is due on the 15th day of January.

    This is 5% of your monthly rent, deductible from your total arrangement with your landlord. For instance, if you and the landlord agree to a P10,000 rent, you only need to pay him/her P9,950, then you should pay the P50 (5%) to BIR using Form 1601E. (For details on using this with freelancers, see item 8 of this blog article.)

    The law authorizes you to withhold and remit this tax. Your landlord should be aware of this law if he is registered with the BIR. If he is not aware of it and he would not allow you to withhold and remit the 5%, you can report him to the BIR, and he will be penalized P50,000 for operating an unregistered business (i.e., rentals).
  • Monthly remittance return of income taxes withheld on compensation: You are required to file this monthly if you have regular employees from whom you are withholding taxes. This includes household help if you registered them as employees when you registered your business. Use Form 1601C.

    10th day of the following month.

  • Quarterly income: amount depends on income. Minimum of 5% if your quarterly taxable income is not over P10,000. Can reach up to 32% if your income exceeds P500,000. Use Form 1701Q for individuals, 1702Q for corporations. You can deduct expenses here, but not your personal exemptions.

    Due: April 15 for the first quarter, August 15 for the second quarter, November 15 for the third quarter

  • Annual income: similar to quarterly income but mainly reflects your fourth quarter income and here you can now deduct your personal exemptions. Use Form 1701 if individual and 1702 for corporations.

    Due: April 15 the following year.
7. Official receipt (OR) for services, sales invoice (SI) for goods. Only now did I realize that the SI is as good as an OR for item sales. Our lecturer said, "If your customer insists on an OR, you can give both OR and SI, but mark the OR "non-deductible for tax purposes" so that they can't declare the same expense twice."

8. Freelance services can be declared as expenses using the Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded), or Form 1601-E. Then you have to issue to the freelancer payee a Certificate of Creditable Tax Withheld At Source form (Form 2307). This was of especial concern to me because I work with freelance writers, whom I cannot declare as employees because (1) they are already employed and (2) assignments are seasonal.

To be able to issue a Form 1601-E, you need to have "Withholding Tax - Expanded" among your registered activities. (I had to have my Certificate of Registration amended for this.) Then, you need to file this form monthly, along with your percentage tax, whether or not you had freelancer services that month. If you do not have anything to pay, just mark "no" in the question "4. Any taxes withheld?"

Note that for freelancers, the tax you need to withhold is usually 10% the first half of the year and 15% the second half. The usual practice is to deduct this from the amount you pay the freelancer, so make sure the freelancer knows what you are doing or they will wonder why they received only P900 when your agreed upon payment was P1,000.

This can also be useful for businesses that get other part-time, contractual, or freelance help. (I did not learn this from the seminar but from calling the Tax Payers' Assistance Service department, at 929-7676, loc. 7241.)

9. You need to file your taxes for the month that you get your certificate of registration. If you get your certificate of registration on March 30, you have to file for the month of March, because the computer will not care that it's only one day to April. Just put in "No Transaction" in the monthly form you file.

10. You need to get your  books of account stamped before you use them. You can get them stamped when you have your certificate of registration. You don't need to have them restamped every year. You can use them year after year after year until the pages are used up.

(UPDATE: It seems the rules have been changed. Two people -- one of my readers and my accountant -- have told me the books of accounts now need to be re-registered on or before December 31 every year.)

So that's what I learned from the BIR seminar.

Oh, there's one more thing:

Remember that at the start of the year, our Congress and Senate allocate trillions of pesos in the country's budget to fund the salaries of our policemen, teachers, health workers, etc., and award contracts for the building of infrastructure.

All this money is practically spent at the start of the year—but it has not been collected yet. This is where the Bureau of Internal Revenue comes in.

If the Bureau of Internal Revenue is not able to collect this money, the government will need to borrow it from other countries—then we are left to suffer from the interest rates.

Or the government is forced to enter into Build-Operate-Transfer (BOT) contracts, such as those that created our expressways and metrorails. These were all built without spending a single centavo of tax payers' money. But when they inevitably get transferred to the investor, the government is left helpless to control toll price increases and fare hikes on the metrorail.

This helplessness could have been avoided if we had paid tax so that the government did not need to enter BOT contracts. We reap what we sow.

This is why we need to pay our taxes.

By the way, dear readers, if you have questions on how to fill out your tax forms or other tax-related concerns, here is the Bureau of Internal Revenue's hotline: 981-8888. They have very helpful phone agents. But do not try to email them your questions; their email agents do answer after many days, but the answers are practically useless.

I would like to thank Mr. Elmer A. Torcuator for giving us this free seminar at RDO 045. I hope, sir, you are reading this so that you can correct any errors in information that may have inadvertently slipped in.

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