Sep 24, 2014

BMBE Frequently Asked Questions

I've been receiving so many questions about BMBE, I decided to post this FAQ for quick reference.

If you have questions that are not answered here, please ask them in the comments box below and I will update this post.

What is BMBE?

The Barangay Micro Business Enterprises Act of 2002, or RA 9178, is a law that (theoretically) allows businesses with assets worth less than 3 million pesos to be exempted from paying income tax.

Aside from a few other benefits, BMBE also exempts you from the minimum wage law.

Am I qualified?

If you are a sole proprietor or corporation with assets worth less than P3 million, you are probably qualified.

I am a sole proprietor. What assets are we talking about here?

If you are a sole proprietor, we're talking about your personal assets, since your business assets and personal assets are one and the same.

The only thing that is not included in the computation of assets is the value of the building and land on which your business is located.

I am registered as a professional. Do I qualify for BMBE?

According to my conversation with the BIR contact center officials, probably not.

I operate a branch/franchise. Can I apply for BMBE?

No. Only main offices can apply for BMBE.

How do I apply for BMBE status?

Please see my detailed post on that:

And how much does it cost to apply?

P1,000 is the maximum application fee.

If I am approved as BMBE, does that mean I won't have to pay taxes anymore?

Well, first, BMBE applications are approved by the municipal hall, but tax exemptions are approved by the BIR.

Just because you are approved as a BMBE by the municipal/city hall does not necessarily mean you will be granted income tax exemption by the BIR. The DTI knows this situation, and apparently, it's not illegal for the BIR to do that.

Now even if the BIR does grant you income tax exemption, it only means you won't have to pay income tax anymore. You still have to pay the 3% monthly percentage tax.

Will I still need to issue official receipts (ORs) or sales invoices (SIs)?

Absolutely. By the way, make sure your ORs and SIs are printed by BIR-accredited printers. Click the link for the official list of BIR-accredited printers for 2014.

Do they sell ORs/SIs at the BIR?

There may be BIR employees that act as middlemen for these printers. It will save you money if you avoid middlemen and refer to the list instead and contact the printers yourself.

If I get income tax exemption, will I still need to file my ITR?

The last time I asked the BIR, they told me it was required to file, even if you have nothing to pay.

Note that if you are a BMBE, you won't have the option to compute your income tax using the optional standard deduction method (OSD). You'll have to itemize your expenses.

If you don't have an accountant, computing taxes through the itemized expense method can be a headache.

I've gone to my municipal/city hall to apply as BMBE, but nobody seems to know what it is or how to do it.

That always happens. Keep asking and go where they tell you to go. The employees usually want to help, they really just don't know or remember the process.

If you pester the people at the municipal/city hall long enough, somebody who remembers the process will overhear you or notice the hullaballoo, and you'll finally get the help you need.

What if the official I end up talking with really has no idea what the BMBE law is about?

When this happens to you (and it will), call DTI's Bureau of Micro, Small, and Medium Scale Enterprises Development (BSMED) office and let the BSMED official talk to the municipal/city hall official, government office to government office. That should work.

Here are BSMED's numbers: 751-0384 / 890-4968 / 897-7596 / 897-1693. Save those on your phone.

Any more bad news?

Why, yes! When you get your income tax exemption, many of your clients' accountants will not know how to handle your payments as a BMBE entity. They will still insist on withholding tax from you because that's the only way they know how to report the payments they give you as an expense.

To prepare for this scenario, make sure you also get a special certificate (cost: P50) that specifically states you are exempted from income tax and, therefore, from tax withheld at source. Here is mine; you can use it as your template (click to enlarge):

Also, in all my invoices, I add the following note:
This subcontractor is registered as a Barangay Micro-Business Enterprise (BMBE) sole proprietor under RA 9178. Income tax is not part of her registered tax activities, and her withholding tax rate is 0%. A copy of her certificate of exemption from tax withheld at source is available upon request. To report this payment as an expense through Form 1601-E, please mark item 13 in the form as YES and specify RA 9178.

With all these hassles, why again do I want to apply for BMBE?

Because the income tax rates in the Philippines are incredibly high, and if you can be exempted from paying them, you will save a lot of money.

Is there no other way I can save on taxes?

There is! If you are operating a very small business with an annual gross income not exceeding P100,000, you are exempted from paying the monthly percentage tax of 3%.

For more information, read Revenue Memorandum Circular No. 7-2014.

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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