Philippines has always been a country known to us individuals as a tourist destination. But it’s a completely different scenario out there. Philippines is one the leading ASEAN countries in terms of development, and the government has been urging stakeholders and investors to setup offshore companies in the Philippines. Every time investors set up a company in the Philippines, they are liable to pay a small amount of corporate tax for the betterment of the country they are set up in. Here are 5 tips that will help you in filing corporate tax in the Philippines
What is Corporate tax?
Corporate tax is a direct tax taken from the companies, that is usually imposed on the profits that the company earns during a financial year. This tax is calculated after deducting company expenses, that include cost of goods, company expenses, salaries, etc. Any expense that is made for the functioning of the company is tax deductible. The tax amount varies depending upon the country it is situated in.
Corporate Tax Structure in the Philippines
For the Philippines, the tax levied is 24% both for foreign companies and resident entities, which is 11% less than compared to that of 35% in 2009. This is levied on all expenditures done by the companies except for income from passive sources and from non-profitable educational institutions and hospitals. This rate is comparatively a little bit more compared to all the other ASEAN countries, which maintain an average of 23% corporate tax. Due to such high corporate taxes, most of them have to resort to tax evasion methods, of which the government of the Philippines has now passed a bill to reduce taxes by about 2% every year for the next two years and have a final rate of 20%.
Procedure for filing corporate tax in the Philippines
Before you start filing corporate taxes in the Philippines, here are some of the things that you should remember. A company is eligible to pay taxes in the Philippines, if
- The company is a mainland company, and earns income from within the country or anywhere outside the Philippines
- The company is an offshore company, and earns income from sources only within the Philippines.
The Bureau of Internal Revenue is the authority that regulates tax laws within the country. Here are the necessary documents that are required before filing your taxes to submit to the BIR. They are:
- Form 2304 of the BIR, that certifies income payments not subjected to withholding tax
- Form2307 of the BIR, that certifies creditable tax withheld at the source
- Tax Debit Memos, that are duly approved by the accountants of the company
- Documented proof of foreign tax
- Documented proof on previous year’s tax credits
Once done with the documents, here’s how to proceed for filing corporate taxes in the Philippines. There are three ways in which we can file taxes in the Philippines
- Online, via eFPS
- Offline, at the BIR office.
eFPS
eFPS is an electronic way of paying taxes to the government. This also includes the taxes that are due to the government paid over the BIR website. Taxpayers who want to use the eFPS system can do so by enrolling through the BIR e-lounge or through the BIR website, and link your company’s bank account with eFPS
BIR office
BIR office is another place where you can file your tax returns. What you need to do is download all the forms required and then submit them to the officer at the BIR and that’s it!
5 tips on filing corporate tax in the Philippines
Once you have followed the procedures, here are some tips that you can follow, to make filing your taxes easier
- Be well prepared beforehand: A well planned and well-prepared corporate tax filing depends upon your ability to understand the filing procedures and execute them in no time. this leads an early submission date and you can be tension free. On the other hand, preparing taxes late will lead to late payment fees that will add upon the existing tax you pay. To know more, please read our column about tax services in the Philippines.
- Hire a well-known accountant in town: Generally, we find it tough to file our tax returns and get confused. To overcome this, it is preferred to hire a well reputed accountant to file your taxes on your behalf. Make sure that the person should be trustworthy, so that you can avoid any fraudulent activities that are going on with the accountant.
- Choose a wise and well-known Auditor: In some cases, what happens is that the Government of the Philippines mandates to conduct a financial audit for the company by an external auditor. In that case, do not forget to appoint a well-known auditor, who is accredited by the BIR and SEC (Securities and Exchange Commission)
- Keep your Financial Records up to date: Despite having an account keeper or bookkeeper to manage your accounts, it is advisable that you keep a personal check on the accounts of your company, to prevent fraudulent transactions.
- Keep a check of your tax records and make sure they tally with your actual records: while filing taxes, make sure that the tax records that your company presents to the BIR are correct and are in compliance with your actual records that you have. This prevents errors while filing.
Benefits of filing corporate taxes in the Philippines
Here are some benefits of paying tax in the Philippines
- No audits will be conducted by the BIR, to tally the submitted documents with the actual documents
- Paying taxes on time will have a benefit on the credit rating of the company.
- Paying corporate taxes will also have a good impression of the company in the society, and can attract more investors
- And last but not the least, paying taxes is a social responsibility to the country. This will benefit he county and the community.
So, here are 5 tips on filing corporate taxes in the Philippines. We at Business Setup Worldwide do provide taxation services in the Philippines. Our experienced line up of consultants will help you in filing taxes, identify tax risks, plan your tax filing and much more. Contact us for more, we are always there to help you out!
