Alzona, James Ryan M.

BSMA 4-1

Choosing an Entity
 Sole Proprietorship
 Simplest and least formal type of business structure
 Single individual has full control and authority over the business
 Owner or proprietor owns all the assets of the company but is also solely responsible for all
its liabilities
 Partnership- two or more persons bind themselves to contribute money, property, or industry
into a common fund with the intention of dividing the profits among themselves
 Corporation
 Artificial being created by operation of law
 Right of succession and the powers, attributes, and properties expressly authorized by law
or incidental to its existence
Non-Tax Considerations

Sole Proprietorship Partnership Corporation

Registration Simplified Extensive Extensive

Little paperwork Registration with the Registration with the

needed SEC requires more SEC requires more
paperwork paperwork
One only need to apply
for a business name
and register the
business with the DTI
Cost of Registration Minimal Computed based on Computed based on
capital contribution of the amount of
partner authorized capital
stock
Control Sole owner has All partners act as The affairs of the
complete control over agent of the corporation is
business decisions partnership managed by the Board
of Directors/Trustees
Profits Profits enjoyed by the Profits distributed Shareholders share in
sole owner among partners profits only when
dividends are declared
and distributed
Losses Losses suffered by the Except industrial Shareholders do not
sole owner partner, losses are suffer when a
distributed among the corporation incurs a
partners loss
Separate juridical Does not acquire its Has a juridical Has a juridical
personality own juridical personality separate personality from the
personality and distinct from the individual shareholder
partners which
composes it
Assets Assets of business are Assets of the Assets of the
assets of the sole partnership are corporation are
owner separate and distinct separate and distinct
from the personal from the personal
assets of the partner assets of each
stockholder
Liabilities Also the liabilities of Once the partnership Limited only to their
the sole owner assets have been capital contribution,
 exhausted, personal hence, their personal
assets of the partners assets cannot be used
may be held to satisfy corporate
responsible for the liabilities
settlement of
partnership liabilities,
except for a limited
partner whose liability
is limited to his capital
contribution

Tax Considerations

Sole Proprietorship Partnership Corporation

Income Tax Regular income tax 0 Regular corporate Regular corporate
to 35% of taxable net income tax 20% or 25% income tax 20% or 25%
income of taxable net income of taxable net income
Or Or Or
Optional tax regime 8% Minimum corproate Minimum corproate
of gross sales or gross income tax 1% of gross income tax 1% of gross
receipts income whichever is income whichever is
higher higher
Income Tax but VAT Regular income tax 0 Regular corporate Regular corporate
Registered or has to 35% of taxable net income tax 20% or 25% income tax 20% or 25%
Exceeded 3,000,000 income of taxable net income of taxable net income
threshold Or Or
Minimum corproate Minimum corproate
income tax 1% of gross income tax 1% of gross
income whichever is income whichever is
higher higher
Business Tax (does not 1% Percentage Tax or 1% percentage tax 1% percentage tax
exceed 3,000,000 and 8% self-employed under Sec. 116 under Sec. 116
non-vat registered) optional income tax
regime
Business Tax (exceed 12% or 0% value added 12% or 0% value added 12% or 0% value added
3,000,000 and vat tax tax tax
registered)
Interest on bank 20% final income tax 20% final income tax
deposits, yield on
deposit substitutes,
money market
placements, trust
funds
Interest on foreign 15% final income tax 15% Final income tax
currency deposits except NRC, NRAE, except NRFC
NRANE
Interest on long-term exempt Regular income tax
deposits with maturity
period of not less than
5 years
Interest on Pre-
terminated long term
deposits

4-5 years 5% FIT 20% FIT

3-4 years 12% FIT 20% FIT
Less than 3 years 20% FIT 20% FIT
Dividends from 10% final income tax DC- Exempt
domestic corporation NRAE- 20% FIT RFC- Exempt
NRANE- 25% FIT NRFC- 15% FIT
Dividends from foreign RIT RIT
corporation- sources
within the Philippines
Dividends from foreign RC- RIT DC- RIT
corporation- sources Not RC- Exempt Not DC- Exempt
without the Philippines
Stock dividends Exempt Exempt
Final tax presumed 6% FIT of the selling 6% FIT of the selling
gains on the sale of price or the fair market price or the FMV,
real properties value, whichever is whichever is higher
classified as capital higher
assets Limited to land and
building
Final tax on net capital 15% FIT of the net 15% FIT of the net
gains on the sale of capital gains capital gains
shares of stock in
domestic corporations
which are not listed or
traded in the local
stock exchange
Fringe benefits RIT N/A
received by rank and
file employees
Fringe benefits 35% FIT of the grossed N/A
received by managerial up monetary value of
or supervisory the fringe benefits
employees

Income Tax Schedule

Layers of Taxation
 Sole owner of the sole proprietorship
 Partners in a partnership
 Shareholders in a corporation
Preferential Taxation
1. Barangay Micro Business Enterprise
2. Special Economic Zones
3. Omnibus Investments cODES
4. Non-stock non profit Organization
5. Double taxation agreements