INTRODUCTION TO TAX MANAGEMENT

Tax management is the process deployed by taxpayers to comply with tax laws. All the tax-related
aspects, such as penalties, appeals, prosecutions, and tax case settlements, are parts of tax
management.

Under a tax management strategy, a taxpayer's past, present, and future tax-related activities are
analysed to ensure compliance and avoid the imposition of penalties and interest. Unlike tax planning,
tax management is mandatory for every assessee. Therefore, every taxpayer must comply with all the tax
laws or face interest penalties.
What is Tax Planning?
So, what is tax planning? Tax planning can be defined as the process of minimizing your tax
liabilities by taking advantage of the deductions, exemptions, allowances, rebates, and
concessions available under tax laws. In other words, it is a legal method used by taxpayers
to reduce their income tax liabilities.

For efficient tax planning, the income and financial activities of the taxpayer are closely
analyzed to look for various tax provisions under which the tax burden could be minimized
legally. However, tax planning is not mandatory for every assessee. It is up to the taxpayers
whether they'd like to take advantage of the tax-saving provisions.
Tax Planning VS Tax Management
Here are the key differences between tax planning vs. tax management-

Parameter Tax Planning Tax Management

Systematic planning of financial affairs to

Measures are taken to comply with tax laws and
Meaning take maximum advantage of the available
avoid penalties or other severe consequences
tax-saving provisions

Objective Legally minimize tax liability Adhere to the tax provisions

Income and investment planning to benefit Maintaining financial records, filing tax returns,
Involves from the various tax-saving provisions account audits, and paying taxes before the due
available under the tax laws date

Obligation Not mandatory Mandatory for every taxpayer

SOLE PROPRIETORSHIP BUSINESS

At its core, a sole proprietorship is the purest form of business ownership. In this setup, the individual owner
is solely responsible for the business, including its debts and liabilities. This straightforward structure appeals
to many entrepreneurs due to its simplicity and minimal regulatory requirements, making it an ideal choice
for small businesses and startups.

ADVANTAGES OF SOLE PROPRIETORSHIP

1. Simplicity and Affordability:
Registering a sole proprietorship in the Philippines is a hassle-free and cost-effective process, making it
accessible to budding entrepreneurs with limited resources.

2. Full Control:
As the sole decision-maker, you have complete autonomy over your business operations, enabling swift and
agile decision-making.

3. Profit Retention:
Unlike other business structures, where profits are shared among shareholders, in a sole proprietorship, every
peso earned belongs to you, providing a direct and immediate financial reward for your hard work.
DISADVANTAGES OF SOLE PROPRIETORSHIP

1. Personal Liability:
One of the significant drawbacks is that the owner’s personal assets are at risk. If the business incurs debts,
the owner is personally liable, potentially endangering personal finances.

2. Limited Capital:
Unlike corporations, sole proprietors cannot sell shares to raise capital. This limitation can hinder the
expansion and growth of the business.

3. Finite Existence:
A sole proprietorship ceases to exist upon the owner’s demise or incapacitation. This lack of continuity
poses a challenge for long-term planning and sustainability.
REGISTERING SOLE PROPRIETORSHIP:
Step 1: Business Name Registration
Choose a unique and meaningful name for your business. Ensure it complies with the guidelines set by the
Department of Trade and Industry (DTI). Register your business name online or at the nearest DTI office.

Step 2: Barangay Clearance/Barangay Business Permit

Obtain a Barangay Clearance from the local barangay hall where your business is located. This document certifies
that your business complies with the regulations of the barangay.

Step 3: Mayor’s Permit

Secure a Mayor’s Permit or Business Permit from the city or municipality where your business operates. This permit
is issued by the local government and signifies your compliance with local regulations.

Step 4: BIR Registration

Register your business with the Bureau of Internal Revenue (BIR) for taxation purposes. You will be issued a
Certificate of Registration (COR) and a Tax Identification Number (TIN) that are essential for legal operations.

Step 5: Social Security System (SSS) and PhilHealth Registration

Enroll yourself and your employees (if applicable) in the Social Security System (SSS) and PhilHealth to ensure
access to social security and healthcare benefits.
Obtain a Barangay Business Permit:

Obtaining a barangay business permit is a crucial step for entrepreneurs and business owners in the
Philippines in 2023. It establishes your business as a legal entity, ensures compliance with local regulations,
and provides peace of mind. Remember to start the application process early, gather the required
documents, and follow the step-by-step guide provided in this comprehensive guide. By understanding the
process and requirements, you can smoothly navigate the barangay business permit application and focus
on building and growing your business.

Each barangay may have specific requirements and procedures, so it is advisable to contact the barangay
office beforehand to ensure you have all the necessary documents and information.
Registering With DTI

Under Republic Act (RA) 3883, it is illegal to use a business name without registering first with DTI.
Ensuring to register your business name will guarantee you the legal right to use it for five years and must
be renewed to continue its legal validity. Failing to do so will result in an additional 50% of the
registration fee as a penalty.

Additionally, It is important to note that securing a business name is not a license to operate, but is just
one of the documentary requirements when you register a business in the Philippines.

Business Name
A business name (BN) is a name that identifies your enterprise. This will appear on your receipts,
business transactions, or any signs that will advertise your company. You must include the following
when registering your business with DTI.

Dominant Name. This will be the name of your business once registered with DTI. Other business
applicants will not be able to use your business name in the barangay, city, region, or country,
depending on the scope of the coverage of your location.

Business Name Descriptor. This will be the descriptive factor of your business, this is essential as this
gives potential customers the opportunity to grasp the idea of what your business offers.
Basic Documents for BN Application :
 Present any of the following government-issued valid ID:
Passport, Driver’s license, UMID, PRC ID, NBI Clearance, Police Clearance (in ID form),
Postal ID, Voter’s ID, OWWA ID, Seaman’s Book, IBP ID, Senior citizen ID, PWD ID, Government office ID
Validated state college/university ID

 Requirements for Foreign Nationals:

Certified copy of Alien Certificate of Registration
Certificate of Registration for Sole Proprietorship/Certificate of Authority to engage in business in the Philippines

Those who prefer to register in person must go through the following process:
Proceed to any DTI office or Negosyo centers near you
 Submit all the documentary prerequisites. Have multiple business name options in case the one you picked is
already unavailable
 Pay for the registration fee
 Once your business name is approved wait for the Certificate of Business Name Registration issued by DTI

An authorized representative can also register your business on your behalf as long as they provide the required
documents such as the BN application form, valid ID, and an authorization letter signed by the business proprietor.

On line registration is available thru Business Name Registration System (BNRS) of DTI
BARANGAY BUSINESS PERMIT

1. Before heading to the barangay office, make sure you have the following documents ready:

 Valid identification cards (Government-issued IDs, such as passports or driver’s licenses)

 Proof of business ownership (Certificate of Business Name Registration or DTI registration)
 Barangay Clearance (obtained from the local barangay)
 Location sketch or map of your business establishment
 Fire Safety Inspection Certificate (FSIC)
 Other relevant permits and clearances (depending on your business type)
• may require additional documents such as a Certificate of Occupancy, proof of compliance with zoning
regulations, and a sanitation permit.
• If the business involves serving food or beverages, you may need to obtain clearances from the local
health department or secure a Food Safety Certificate
2. Fill up the application form, Submit the Application and Required Documents

3. Pay the fees promptly and obtain an official receipt as proof of payment.

4. Once your application is approved, you will be issued a barangay business permit.
Make sure to keep this permit in a safe place and display it prominently at your
business establishment as required by law.
MAYOR’S PERMIT
Before you can start operating your business in the Philippines, you need to secure a Mayor’s Permit or
Business Permit from the Local Government Unit (LGU) where your company office is located. LGUs can be
cities or municipalities, and the procedures for obtaining a permit may vary depending on the local regulations
and ordinances the city or municipality seeks to implement.

Business permits are renewed every year. Renewal period is usually on the first month of the calendar year.
Penalties are imposed on businesses that fail to renew their business permits on or before the prescribed
period.

List of Requirements for Obtaining a Mayor’s Permit in the Philippines

 Application Form
 Certificate of Registration from Department of Trade and Industry (DTI) for Sole Proprietorships
 Barangay Business Clearance*
 Community Tax Certificate (CTC or Cedula)
 Contract of Lease (if leased)/Transfer Certificate of Title (if owned)
 Sketch/Pictures of the business location (3 copies)
 Public Liability Insurance (for Restaurants, Cinemas, Malls, etc./exempted: Sari-sari Stores, Carinderias)
 Locational/Zoning Clearance*
 Certificate of Occupancy (Building and Unit)*
 Building Permit and Electrical Inspection Certificate*
 Sanitary Permit*
 Fire Safety Inspection Permit*
 BIR REGISTRATION

All types of Philippine businesses need to be registered with the BIR — whether they are set up by a sole
proprietor, a partnership (professional, general, or limited), or a corporation (stock or non-stock).

Registration with the Bureau of Internal Revenue (BIR) is one of the most crucial tasks new businesses
need to accomplish.

New companies won’t be able to operate without a tax identification number (TIN), which you can only
get through BIR registration. The BIR assigns this nine-digit number to individual and corporate
taxpayers to identify and track registrants and their records. At the end of the registration process, you
will also be given a Certificate of Registration, Books of Account, and Authority to Print; these are all
crucial to securing business and financial services, or servicing paying clients.
General BIR Registration Requirements for Sole Proprietors

 BIR Registration Form 1901

 Any government-issued ID
 BIR Printed Receipt/Invoice or sample of own receipts
 BIR Registration fees: P500.00 Annual Registration Fee, P30.00 Loose Stamp/s to be affixed on the COR (2303)

BIR Form 1901, Application for Registration For Self-Employed (Single Proprietor/Professional), Mixed
Income Individuals, Non-Resident Alien Engaged in Trade/Business, Estate and Trust

This form is to be accomplished by self-employed and mixed income individuals, estates/trusts doing/just
starting a business, or opening a new branch for registration.

To be filed with the RDO having jurisdiction over the head office or branch office.

Filing Date
On or before commencement of new business or before payment of any tax due or before filing a return.
BIR Form 1906 Application for Authority to Print Receipts and Invoices

This form is to be accomplished by all taxpayers everytime printing of receipts and invoices is needed.
To be filed with the RDO having jurisdiction over Head Office or branch.

Filing Date
To be filed each time taxpayer needs to print receipts and invoices.

BIR Form 1907 Application for Permit to Use Cash Register Machine/Point-of-Sale Machine

This form is to be accomplished by all taxpayers who intend to use Cash Register Machines in lieu of
Official Receipts/ Invoices, or Cash Register Machine used as cash depository; or Point-of-Sale Machine in
lieu of Official/ Invoices.

To be filed with the RDO having jurisdiction over the Head Office or branch.

Filing Date
To be filed each time taxpayer will use a new cash register machine unit or point-of-sale machine unit.
Payment from 605
This form is to be accomplished every time a taxpayer pays taxes and fees which do not require the use of
a tax return such as second installment payment for income tax, deficiency tax, delinquency tax,
registration fees, penalties, advance payments, deposits, installment payments, etc.

Filing Date
This form shall be accomplished:
1 Every time a tax payment or penalty is due or an advance payment is made;
2. Upon receipt of a demand letter / assessment notice and/or collection letter from the BIR; and
3. Upon payment of annual registration fee for a new business and for renewals on or before January 31
of every year.

FORM 2303 Certificate of Registration

The Certificate of Registration (COR) is also known as the BIR Form 2303. It is a document that serves as
proof that your business has the legal right to operate in the Philippines.
Revenue Memorandum Order (RMO) 37-2019
The initial registration for newly hired employees with no TIN shall be the responsibility of the employer. The
registration shall be completed through the BIR’s eRegistration system, unless when a BIR advisory is issued
on the unavailability of the system, or when the employee cannot be registered in the system for having no
middle name or for having similar records in the database.

If an employee with an existing TIN has a new employer or must be transferred to another branch or to the
head office of their current employer, it would be the employee’s responsibility to transfer their registration to
the RDO having jurisdiction over the place of the employee’s residence rather than the RDO of the
new/current employer.

BIR Form 1902

Application for Registration For Individuals Earning Purely Compensation Income (Local and Alien Employee)

This form is to be accomplished by an old or new employee whether resident citizen or non-resident citizens
earning purely compensation income.

To be filed with the RDO having jurisdiction over the taxpayer's residence or place of employment.

Filing Date
Filed within ten (10) days from the date of employment, or before the payment of any tax due or before filing
of a return, or declaration is required.
BIR Form 1905
This form is to be accomplished by all taxpayers who intend to update/change any data or
information, e.g. transfer of business within the same RDO, change in registered activities,
cancellation of business registration due to closure of business or transfer to other district, or
replacement of lost TIN Card/ Certificate of Registration.

To be filed with the RDO having jurisdiction over the taxpayer, whether Head Office or branch.

Filing Date
Filed each time taxpayer needs to register the change in registration such as but not limited to
change in registered activities, change in tax type details etc.; replacement of lost TIN Card / lost
Certificate of Registration or cancellation or registration and/or TIN
REGISTRATION OF MANUAL BOOKS OF ACCOUNTS (NEW OR SUBSEQUENT)
a) New sets of permanently bound books of accounts for registration/stamping or the bound journals and/or ledgers;

REGISTRATION OF MANUAL LOOSE-LEAF BOOKS OF ACCOUNTS

a) Permit to Use Loose Leaf Books of Accounts;
b) Permanently bound Loose Leaf Books of Accounts;
c) Affidavit attesting the completeness, accuracy and correctness of entries in Books of Accounts and the number
of Loose Lead used for the period.
If transacting through representative
a) For Individual
- Special Power of Attorney (SPA)
- Any government-issued ID of the authorized representative

Procedures
a) Submit duly accomplished BIR Form 1905 at the RDO or concerned office under the Large Taxpayer Service having
jurisdiction over the place where the head office and branch is located, respectively; and
b) Present the manual/loose-leaf books of accounts for Stamping and registration purposes.

Deadline
Newly registered taxpayers shall present the manual books of accounts to the RDO or concerned office under the Large
Taxpayer Service where the place of business is located for approval and registration before the deadline for filing of the
first quarterly income tax return or the annual income tax return whichever comes earlier.
Subsequent Registration of Books/Renewal (In General)
Procedures
a) Accomplish BIR Form 1905 at the RDO or concerned office under the Large Taxpayer Service having
jurisdiction over the place where the head office and branch is located, respectively;

b) Present the manual/loose-leaf books of accounts at the RDO or concerned office under the Large
Taxpayer Service where the place of business is located for Stamping and registration purposes.

Deadline
The registration of a new set of manual books of accounts shall only be at the time when the pages of
the previously registered books have all been already exhausted, provided, that the portions
pertaining to a particular year should be properly labeled or marked by taxpayer. This means that it is
not necessary for a taxpayer to register/stamp a new set of manual books of accounts each and every
year.
https://thecompany.ph/sole-proprietorship-in-the-philippines/
Republic Act No. (RA) 11976 EASE OF PAYING TAX

Making the tax system more taxpayer-friendly through simplified tax filings and protecting taxpayers’
rights.

The Ease of Paying Taxes Act streamlines processes to encourage more taxpayers to comply with
the tax system, effectively increasing the country’s revenue collection

Filing of returns and payment of internal revenue taxes will also be made easier through electronic
or manual means such as banks or software providers.

Among the law’s salient features include

 classification of taxpayers into micro, small, medium, and large;
 electronic or manual filing of returns and payment taxes either to the BIR, through any
authorized agent bank or authorized tax software provider;
 elimination of the distinction between documentation and basis of sales of goods and services;
and
 classification of value-added tax (VAT) refund claims into low, medium, and high-risk.
Revenue Memorandum Circular (RMC) No. 153-2022
ORUS (Online Registration and Update System)
Online Registration and Update System (ORUS) is a web-based system that provides an end-to-end
process for registration of taxpayers and updating of their registration information.

The Service provides you with the following services:

• Apply for TIN
• Register Business
• View Taxpayer Registration Information
• Update Registration Information
• Digital TIN ID Generation
 MODULE 2 TAX PREFERENCES AVAILABLE FOR SOLE PROPRIETORSHIP BUSINESS

A) Sole Proprietorship business accredited as Barangay Micro Business Enterprise;

The Benefits of a BMBE are as follows:

1. Exemption from income tax arising from the operations of the enterprise.
2. Exemption from the coverage of the Minimum Wage Law, provided, that all
employees covered under this Act shall be entitled to the same benefits given
to any regular employee such as social security and healthcare benefits.
3. Access to financial assistance by designated financial institutions.
4. Access to training and technology transfer assistance by the government
R.A. 9178, OTHERWISE KNOWN AS THE “BARANGAY MICRO BUSINESS ENTERPRISES (BMBEs) ACT OF 2002”
A micro business or enterprise is defined as any business activity or enterprise engaged in industry, agribusiness and or services,
whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive of those arising from
loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value of
not more than 3 million Pesos (Sec. 3. of R.A. 9501 otherwise known as the Magna Carta for Micro, Small and Medium Enterprises
(MSMEs).

QUALIFICATIONS:
Entity is “micro-business in nature and scope” if:
(i) its principal activity is primarily for livelihood, or determined by the SMED Council or DTI as a priority area for
development or government assistance;
(ii) the enterprise is not a branch, subsidiary, division or office of a large scale enterprise

Considered “barangay-based” if
(i) the majority of its employees are residents of the municipality where its principal place of business is located; or

(ii) its principal activity consists in the application/use of a particular skill peculiar to the locality
ACCREDITATION, as BMBE

In order to secure a BMBE Certification, the following must be submitted:

1. Duly filled up and signed BMBE Application Form and
2. DTI registration for sole proprietorship; SEC registration for corporations, partnerships or
association; CDA registration for cooperatives

Pertinently, the registration and issuance of a Certificate of Authority as a BMBE is free of charge.

FILING for Accreditation

These documents must be filed with the Department of Trade & Industry (DTI), through the
Negosyo Center. The DTI Negosyo Center should issue the Certificate of Authority within fifteen
(15) working days upon submission of complete documents.

The Certificate of Authority shall be effective for a period of two (2) years, renewable for a period
of two (2) years for every renewal.
Exemption from Income Tax – All Accredited Farmers and Fisherfolk Enterprises may be exempt
from income tax on income derived from the enterprise provided they are registered as Barangay
Micro-Business Enterprises (BMBEs). The income tax exemption shall apply only if, and during the
period when, the accredited farmers and fisherfolk enterprises are registered as BMBEs issued with
Certificate of Authority by the Department of Trade and Industry, through the Negosyo Center in the
city or municipality where the business is located.
 A Registered Small-Scale Miners/Accredited Gold Traders(Rev Reg 4-20)

B) Registered Small-Scale Miners (SSMs) - refer to Filipino citizens who have organized themselves as an
individual miner or cooperative duly licensed by the Mines and Geosciences Bureau (MGB) to engage in the extraction of
minerals or ore-bearing materials from the ground under the terms of a (mall-scale mining contract, as defined under DENR DAO
No. 2015-03, or any subsequent administrative issuance/s of the relevant government agency governing the registration of SSMs.

C) Accredited Traders - persons and/or entities engaged in the business of buying and selling gold that have complied
with the BSP's gold trader accreditation procedures.

SECTION{ 3.)
TAX EXEMPTIONS. - Transactions as provided hereunder shall be exempt from tax as follows:
A) Income tax exemption - Income derived from the following sale of gold are excluded in the gross income and shall
be exempt from income tax, and consequently from withholding taxes:
1) The sale of gold to the BSP by registered SSMs and accredited traders; and
2) The sale of gold by registered SSMs to accredited traders for eventual sale to the BSP.

B) Excise tax shall not be levied, assessed and collected on the following ;
(EXCISE TAX =Four percent (4%) based on the actual market value of the gross output thereof at the time of removal) :
l) The sale of gold to the BSP by registered SSMs and accredited traders; and
2) The sale of gold by registered SSMs to accredited traders for eventual sale to the BSP.
Exemption from Business Tax

EXEMPT from VAT and not among those listed under Title V, (OPT)

Sale of agricultural and marine food products in their original state

Educational services rendered by private educational institutions, duly accredited by the Department of Education

The contract growing and toll processing/toll dressing/toll manufacturing services by agricultural contract growers

“Agricultural contract growers” refers to those persons producing for other poultry, livestock or
other agricultural and marine food products in their original state. Its services involve growing
of poultry, livestock or other agricultural and marine food products into marketable poultry,
livestock or other agricultural and marine food products. There are agricultural contract
growers which offer toll processing/toll dressing/toll manufacturing as a packaged service to its
contract growing. Toll processing/toll dressing/toll manufacturing involves procedures such as
weighing, killing, dressing, scalding, cut-ups and packaging.
(Revenue Regulations 13-2018)

The lease of residential units with a monthly rental fee per unit not exceeding PHP 15,000 is
VAT exempt and the exemption will continue beyond 1 January 2021.

Where a lessor has several leases at rentals both below and above the PHP 15,000 threshold,
the tax liability will be calculated as follows:
The aggregate gross receipts from rentals not exceeding PHP 15,000 per month per unit
will be exempt from both VAT and the 3% percentage tax that would otherwise be
payable by a non-VAT registered taxpayer on such income.
Aggregate gross receipts from rentals exceeding PHP 15,000 per month per unit will be
subject to VAT only if they exceed PHP 3 million. Otherwise, the gross receipts will be
subject to the 3% percentage tax.
 MODULE 4

OPTIONAL 8% TAX RATE FOR SELF EMPLOYED

NORMAL (REGULAR ) Income Tax Rates on the individual’s taxable income.

Effective on January 1, 2023 and onwards:

Summary of the Provisions of Revenue Regulation 8-2018

QUALIFIED TO OPT for 8%:

Self employed/Professionals/Sole proprietor whose sales or gross receipts does not exceed
P3,000,000/year,

and
- Not Registered under VAT system
- Not among those subject to specific OPT rates Title V, Section 117 to 127 of NIRC
(common carriers, amusement places operator, franchise holder)

and
- Signified in the 1st Quarter ITR the intention to elect the 8% Income Tax Rate
 TITLE V
OTHER PERCENTAGE TAXES
Section 117. Percentage Tax on Domestic Carriers and Keepers of Garages
Section 118. Percentage Tax on International Carriers. -
Section 119. Tax on Franchises. franchises on radio and/or television broadcasting companies
on electric, gas and water utilities,
Section 120. Tax on Overseas Dispatch, Message or Conversation Originating from the Philippines. -
Section 121. Tax on Banks and Non-bank Financial Intermediaries.
Section 122. Tax on Finance Companies.
Section 123. Tax on Life Insurance Premiums.
Section 124. Tax on Agents of Foreign Insurance Companies.
Section 125. Amusement Taxes. – on the proprietor, lessee or operator of cockpits, cabarets, night or day clubs,
boxing exhibitions, professional basketball games, Jai-Alai and racetracks
Section 126. Tax on Winnings.
Section 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange
In computation of income tax liability using the optional 8%, the following rules should
be observed:

a. If the taxable income is purely business income,

(Sales / Gross receipts– P250,000 ) x 8%

b. If the taxable income of the taxpayer is combination of compensation and

business income,

• Taxable compensation income x graduated tax rates

• Sales/Gross Receipts x 8% (WITHOUT DEDUCTION OF FIRST 250,000)

OPTIONAL TAX RATE OF 8% in lieu of the graduated tax rate and business tax

REVENUE REGULATION 8-2018

Self-Employed Individuals Earning Income Purely from Self-Employment or Practice of Profession. –
Individuals earning income purely from self-employment and/or practice of profession whose gross
sales/receipts and other non-operating income does not exceed the value-added tax (VAT) threshold,(3,000,000) as
provided under Section 109 (BB) of the Tax Code, as amended, shall have the option to avail of:
1. The graduated rates under Section 24A(2a) of the Tax Code, as amended; OR
2. An eight percent (8%) tax on gross sales or receipts and other nonoperating income in excess of two hundred
fifty thousand pesos (P250,000.00) in lieu of the graduated income tax rates under Section 24(A) and the
percentage tax under Section 1 16 all under the Tax Code, as amended.

Unless the taxpayer signifies the intention to elect the 8% of income tax rate in the first Quarter Percentage and or
lncome Tax Return, or on the initial quarter return of the taxable year after the commencement of a new business
practice of profession, the taxpayer shall be considered as having availed of the graduated rates under Section24A(2a)
of the Tax Code, as amended. Such election shall be irrevocable and no amendment of option shall be made for the said
taxable year.
The option to be taxed at 8% income tax rate is not available to
 a VAT-registered taxpayer, regardless of the amount of gross sales/receipts, and
 to a taxpayer who is subject to Other Percentage Taxes under Title V of the Tax Code, as amended, except
those subject under Section 116 of the same Title.
 Likewise, partners of a General Professional Partnership (GPP) by virtue of their distributive share
from GPP which is already net of cost and expenses cannot avail of the 8% income tax rate option’

A taxpayer who signifies the intention to avail of the 8% income tax rate option, and is conclusively qualified for
said option at the end of the taxable year annual gross sales/receipts and other non-operating income did not

exceed the VAT threshold of 3,000,000.00) shall compute the final annual income tax due based on the actual
annual gross sales/receipts and other non-operating income. The said income tax due shall be in lieu of the
graduated rates of income tax and the percentage tax under Sec. 116 of the Tax Code, as amended.

The Financial Statements (FS) is not required to be attached in filing the final income tax return.
PARTNERSHIP FORM OF BUSINESS
Article 1767 of the Civil Code defines a partnership. Thus: “Article 1767.
By the contract of partnership two or more persons bind themselves to contribute money or
industry to a common fund, with the intention of dividing the profit among themselves.”

A partnership exists where two or more individuals’ combine their capital, property, skill or labor, or
all of these, for the transaction of a lawful business for gain, upon an understanding that profits or
losses shall be shared or borne by them in certain proportions.

It bears noting that corporations are not allowed by law to become partners in a partnership.
A partnership is one of the most preferred businesses here in the Philippines. This is because you have
someone to work with (a partner), rather than managing everything just by yourself. It includes two or
more partners which give a lot of room for capital and growth

Advantages
Advantages of Setting Up a Partnership Business in the Philippines Partnership company is easy to
establish and the start-up cost is comparatively low Due to two or more partners, there is a possibility
of high capital contribution A partnership company can change its legal structure if circumstances
change Sharing of losses

An equal right in the management of the business

 Disadvantages of a Partnership in the Philippines

• Due to the unlimited liability of partners in a General Partnership setup, the

company may put their personal property and assets at risk. However, in a
Limited Partnership setup, some partners are held liable only up to the amount of
their capital contribution.

• As a contract between partners, a partnership may easily be dissolved upon

incapacity, withdrawal, and death of a partner or for any other causes.
The Civil Code of the Philippines treats a partnership as a juridical person, which means
its legal personality is separate from that of its business owners.
There are two kinds of partnership:
 general
and
 limited.

General Partnership
Partners are held liable indefinitely for the debts and duties of the partnership.

Limited Partnership
Some partners are held liable indefinitely for the debts and duties of the partnership,
while some are held responsible only up to the extent of their capital contributions.

Note: For a limited partnership, the word “Limited” or “Ltd” should form part of the
partnership name.
REGISTRATION REQUIREMENTS for PARTNERSHIP

1. Register your business in the Securities and Exchange Commission (SEC)

The first thing you need to do is register your business in the SEC. They are responsible for
regulating partnerships and corporations in the Philippines. Here, you’ll need to submit the
following:

(a) Name Verification Slip

(If proposed name is allowed by the system, the reservation and
confirmation notice is printed and given to the applicant)
(b) Articles of Partnership (The Articles of Partnership is the name given to an instrument in writing by which the
parties enter into a contract or agreement of partnership. The principal parts of Articles of partnership are as
follows:
I. Partnership name under which the company shall transact business
II. Names, nationalities and residences of the partners. If it is a limited partnership, the kind of partner,
whether general or limited
III. Principal office of the partnership
IV. Purpose or purposes of the partnership
V. Duration or term of existence of the partnership
VI. Capital of the partnership
VII. Transfer clause
VIII. Undertaking to change partnership name
IX. Other provisions, conditions, terms and stipulations
X. Signatures of the partners
XI. Notarial Page
( c ) Joint Affidavit (Not required if already stated in Articles of Partnership)

Optional:
Endorsement of Clearance (From other government agencies)
FIA Form 105 (If you have a foreigner partner)
2. Get a Barangay Clearance
This is required as you will be setting up a business in the barangay’s area. Thus, your business should
conform to the standards of the barangay. Fees and other requirements might be needed depending on your
barangay.

3. Obtain a Business Permit or Mayor’s Permit

After obtaining the certificate of registration from SEC, you can now apply for a Business Permit or Mayor’s
Permit. This is required since your business location is under the LGU’s area of governance. Just like in
barangay, your business should conform to the LGU’s standards.
Here’s our in-depth guide on how to get a business or mayor’s permit in the Philippines.
(4) Register your business and employees in Social Security System (SSS)
Registering your employees (whether temporary or permanent) in the SSS is mandated
by law. This ensures that you are lawfully remitting your employee’s monthly
contributions so they can reap the rewards later. You will need the following:
• SS Forms R-1 and R-1A
• Photocopy of Articles of Partnership
• Business location sketch or map
• Validated Miscellaneous Payment Return also known as SS Form R-6 or SS Form R-6
with Special Bank Receipt (proof of payment for the Employer Registration Plate)
5. Register your business in BIR
Now that you have a mayor’s permit, you can now register your business in BIR. Registering with the
Bureau of Internal Revenue will give you permission to issue official receipts, register books of accounts,
and (for partnerships and corporations) to obtain a separate Tax Identification Number.

DECIDE;

VAT System

Or

None VAT
TYPES of PARTNERSHIPS under the TAX CODE

A general professional partnership is defined in Section 22 (B) of the 1997 Tax Code, as amended, as
follows:
‘General professional partnerships’ are partnerships formed by persons for the sole purpose of exercising
their common profession, not part of the income of which is derived from engaging in any trade or
business.

The term ‘corporation’ shall include partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not
include general professional partnerships and a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal and other energy
operations pursuant to an operating or consortium agreement under a service contract with the
Government.
Under Section 26 of the National Internal Revenue Code (NIRC) of 1997, as amended, a general
professional partnership as such shall not be subject to income tax. However, persons engaging in
business as partners in a general professional partnership shall be liable for income tax only in their
separate and individual capacities, thus:

“SEC. 26. Tax Liability of Members of General Professional Partnerships. – A general professional
partnership as such shall not be subject to the income tax imposed under this Chapter. Persons
engaging in business as partners in a general professional partnership shall be liable for income tax only
in their separate and individual capacities.

Relative thereto, income payments made to a General Professional Partnership in consideration for its
professional services are not subject to income tax and consequently to withholding tax prescribed in
Revenue Regulations No. 2-98, as amended.
For purposes of computing the distributive share of the partners, the net income of the partnership
shall be computed in the same manner as a corporation.

Each partner shall report as gross income his distributive share, actually or constructively received, in
the net income of the partnership.”

Section 2.57.5 of Revenue Regulations No. 2-98, as amended, provides that:

The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income
payments made to General Professional Partnerships

Income payments made periodically or at the end of the taxable year by a general professional
partnership to the partners, such as drawings, advances, sharings, allowances, stipends and the like, are
subject to the Fifteen percent (15%) if the payments to the partner for the current year exceeds
P720,000.00; and Ten percent (10%) creditable withholding tax
"For local taxation purposes, partners of general professional partnerships are subject to taxes in their
individual capacities. And provided that the partners are paying the annual professional taxes, they are not
subject to local taxes."

SECTION 133. Common Limitations on the Taxing Powers of Local Government Units . - Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and Barangays shall not extend to the levy of the following:

(32) Income tax, except when levied on banks and other financial institutions; (33) Documentary stamp tax; (34) Taxes on estates,
inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein; (35) Customs duties, registration fees vessels and
wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local
government unit concerned; (36) Taxes, fee and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local
government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or
merchandise; (37) Taxes, fees, or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (38) Taxes on business enterprises certified to

by the Board of Investments as pioneer or non-pioneer for a period of six (6) and (4) four years, respectively from the date of registration; (39) Excise taxes on
articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; (40) Percentage or value
added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein; (41) Taxes on the gross receipts of
transaction contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this
Code; (42) Taxes on premium paid by way or reinsurance or retrocession; (43) Taxes, fees or charges for the registration of motor vehicle and for the issuance of all kinds
of licenses or permits for the driving thereof, except tricycles; (44) Taxes, fees or charges on Philippine products actually exported, except as otherwise provided herein;
(45) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered
Sixtynine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperatives Code of the Philippines" respectively; and (46) Taxes, fees or charges, of any kind on
the National Government, its agencies and instrumentalities, and local government units
 Morfe, Ceneta & Co., CPAs

SkinCare Physicians Partnership

SIGUION-REYNA, MONTECILLO & ONGSIAKO LAW OFFICES

APPLIED PROFESSIONAL TECHNIQUE GENERAL SERVICES –(Janitorial Services)