Jul 6, 2013

'Should I Register My Business?'

A few minutes ago, I saw a comment on an old post, The Woes of Business Registration in the Philippines. The commenter said, "When I tried to apply for [a mayor's permit], I was told not to bother to apply if my annual income would be below 100k."

I was struck by that statement from the municipal office. Although the commenter sounded almost outraged at municipal hall's implicit suggestion that she keep her business underground, I think the municipal hall actually did her a favor. Why?

If your income is less than P100k per year, it's almost not worth it to register when you consider the amount of time and money you'll need to spend on paperwork, etc., once you are a registered business. Here's a breakdown of everything you'll need to spend time and money on, once your business is registered:
  • P500 annual registration fee with the BIR.  This is a fixed amount, no matter how much or how little your income is.
      
  • Monthly filing of percentage tax. If you're non-VAT, this is 3% of your monthly revenue, that is, the total of your GROSS receipts. You need to file and pay for this on or before the 20th of the following month.
      
  • Official receipts or sales invoices. These expire every five years, so you should order only the number of booklets you can consume in that time. Any printer will tell you that the cost of five booklets and twenty booklets is almost the same, so if you order only a few booklets, you'll be paying a lot per piece.
       
  • Municipal permit. This is computed based on your annual gross revenues. If you only earn a little, you only need to pay a little, but remember, we're talking gross figures here, not net. Also the filing process takes a LOT of time – in our municipality, for instance, it takes at least one whole day (though I have never been that lucky). Renewal of municipal permit must be done yearly, before January 20.
      
  • Barangay permit. Depending on your barangay, this can also take a lot of time, and costs are fixed whether you are a big earner or a small fish.
      
  • Accountant fees. If you are not savvy at accounting, you will need the help of an accountant to make sure you do not make any tax filing mistakes, especially since the BIR can be very thorough at finding such mistakes, and their penalties are no laughing matter! The services of a good accountant can cost you around P3,000 per month. But in my case, after two years of working with an accountant, I have decided to start learning to do it all myself and found it is not so hard after all!
      
  • Accounting books. Yes, tax computation is not very hard, presuming you are using optional standard deduction and not itemized deductions. What kills me, though, is the filling up of the accounting books. Until today, I'm still not sure what to put in all those darned columns. (I'm writing stuff in them, yes, but I'm not sure if I'm doing it right.)
      
  • No income months. When you have income to pay taxes on, you can just go to the nearest accredited bank to pay and file your monthly percentage or annual income taxes. But if you have no income and therefore nothing to pay, you have to go directly to the faraway BIR Revenue District Office (RDO) to file your "no payment" reports.
       
  • Business closure. In case you eventually change your mind about having your business registered, remember that while it can be hard to start a business in the Philippines, it is even harder to close it. Businesses that close are subject to automatic audit by the BIR. View business registration as a sort of Hotel California: you can check in anytime you like, but oh boy, good luck when you try to leave.
So am I saying you should not register your business if you are earning less than P100k per year?

I never said such a thing. I only give the above information so that when you weigh the benefits and disadvantages of registering your business, you do so with open eyes.

ADDENDUM: If you are offering services, note that your clients are probably declaring your income to the BIR anyway, with the monthly Tax Withheld - Expanded form. So the BIR can definitely see that in your TIN, there is income being reported by the client but none being reported by you. If the day comes that the BIR gets more strict than it already is, you could be facing penalty fees, interest charges, and compromise fees.



The Nanay Notebook is written by Blessie Adlaon, a work-at-home and homeschooling mom of four. Check out our About page to know more about this blog's author and our policies on advertising, press releases, and reposting.

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