Taxation 2 BUSINESS TAXES

DefinitionsBusiness pertains to trade or commercial activity regularly engaged in as means of livelihood or with a viewpoint of obtaining profit.

In the Course of Trade and Business - a phrase to describe the regular conduct or pursuit of a commercial activity.Characteristics of a Business: It performs a systematic, continuous and regular income generating activity.It may be pursued by any person, regardless of whether or not the business is a non-stock and nonprofit private organization or government entity.Must be within the lawful commerce of men.Not contrary to law, morals, good customs, public order or public policy. (ex. Sale of human organs is unlawful because its not within the commerce of men)

Transactions Subject to Business TaxesCommercial activity- involves sales of goods and services related to trade, profession or business (not an exempt transaction)Example: Sale of goodsSale of ordinary asset used in businessServices rendered by a Nonresident foreign person (regardless of regularity)Example:Lee, a Singapore national, leased his vessel to a Filipino citizen. He is not regularly engaged in a leasing business. He is deemed to engage in a leasing business even if it is not regularly engaged in leasing in the Philippines.

Non-Business TransactionThe following are Non-business Transactions that are subject to Business Tax:Sale of shares of stock through the stock exchange subject to of 1% Other Percentage Tax (OPT)Oversees dispatch, communication originating from the Philippines subject to 10% OPTHorse racing winning subject to 10% OPT; Jai-Alai subject to 30% OPT

Casual SaleAn occasional sale of goods or services by a person who is not engaged in the business or sale of assets that are not used in businessExample:Sale of personal properties not used in the business.Employment servicesFor tax purposes, casual sales are not subject to business tax but subject to income tax.

Summary Application

Business TaxesTaxes imposed on ONEROUS transfer of property, service or rights in the ordinary course of business:Value-Added Tax (VAT) a general consumption tax with a 12% additional tax on the sales price of the goods or services by VAT-registered seller or by those required to be under the VAT-system.Other Percentage Tax (OPT) general consumption tax to Non-VAT- registeredWith several rates but the common is 3%Excise Tax (ET) taxes imposed on products that are harmful to health, non-essential and those that deplete natural resources

Business RegistrationFor regulation purposes, a business must be registered before it starts its economic activities so as not to render it business illegal.Initial Registration filed with the RDO to where the principal place of business is located before the start of business.Must submit certain documents containing basic information about the tax status (i.e. TIN Form, Sketch of business site, exemption certificate, Mayors permit, municipal license, DTI certificate of registration, Articles of Partnership/Incorporation, marriage contract, agency charter for government agenciesAnnual Registration every before the start of the business, it has to be registered. Annually, the registration has to be renewed before the end of January.Annual fee of P500 for every separate distinct establishment or place of business (head office, branch, facility or warehouse).

Business RegistrationExempt from Registration Fee of P500:Individuals earning purely compensation incomeOverseas workersSelf-employed individuals where the gross sales or receipts do not exceed P100,000 per yearCooperatives (but still have to register with BIR)

Summary Application

VAT or Non-VAT RegistrationVAT-Registered Business - subject to 12% business taxNon-VAT- Registered Business- generally subject to 3% OPTMandatory VAT-Registration - VAT-Registration becomes compulsory when:Expected annual gross sales or receipts exceed P1,919,500A taxpayer has realized gross sales or receipts of more than P1,919,500Optional VAT-Registration persons with taxable business transactions that do not exceed P1,919,500 per year has the option to register under VAT system.Non-VAT Registration a person registers to a Non-VAT system who is subject to Other Percentage Tax But if the business expects to generate sales of more than P1,919,500Still subject to 12%Cannot shift the burden to customersCannot claim creditable input VAT on its purchases

VAT vs Non-VAT Business

Cancellation of VAT RegistrationVAT-Registration is irrevocable for a period of 3 years from the quarter the registration was madeLiability to pay VAT is valid until revoked by the BIR

Illustration:In 2010, Dennys registered as VAT-registered business because its total average gross sales during the year amounts to P1,800,000.In 2012, the business applied for the revocation of its VAT-registration because its gross sales do not exceed the new VAT threshold amount of P1,919,500 gross sales per year.How much is the amount of business tax in 2013 and 2014 if the revocation was approved in 2014?20132014Annual Average Gross Sales P1,800,000 P1,800,000Multiplied by applicable rates 12% 3%Amount of business taxes P216,000 P54,000

Non-VAT Person Collecting VATIllustration:Cheetah, a non-VAT person, collected P112,000 from Tarzan for the sale of goods amounting to 100,000 plus 12,000 VAT. She was about to pay the 3% percentage tax but the BIR found out her violation. Cheetahs tax liability would be:

Other percentage tax (100,000 x 3%)3,000Add: VAT Collected 12,000Surcharge (12000 x 50%)6,00018,000Total Tax Liability21,000Other Percentage Taxes applicable to the transactionVAT due on the transaction without the benefit of any Input Tax Credit50% surcharge

Invoices and ReceiptsGeneral RequirementsApply for Authority to Print with the BIRInvoices and Receipts shall be registered with BIRCash register machines and sales book are to be registered with BIRContents of the cash register receiptsBusiness nameBusiness addressVAT or Non-VAT numberAmount and Date of the transactionAmount of Tax (for VAT invoice)Commercial Invoices are to be issued for sale of goods while Official Receipts are to be issued for the amount of cash received

Invoicing and Accounting for VAT-Registered PersonsA VAT-registered person shall issue:A VAT invoice for sale of goods or propertiesVAT Official Receipt for sale of services or lease of goods or properties

The following information shall appear in the VAT invoice or VAT Official receiptA statement that the seller is a VAT-registered person followed by the TIN.The amount of tax shown as a separate item.The word VAT-exempt Sale is written or printed prominently if sale is VAT-exempt.The word Zero-Rated Sale is written or printed prominently if sale in subject to zero percent.An option to issue combined or separate invoices receipts of sale on a combination of VAT-liable and VAT-exempt saleDate of transaction, quantity, unit cost, and description of the goods or properties or the nature of the service.For sale of VAT-registered persons amounting to P1,000 or more indicate the name, business style, address and TIN of the purchaser.

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