There’s no question when it comes to paying corporate income taxes. People and companies participate in various virtual activities, notably compliance processes. Regularly, as the world becomes more digital, these processes become more technical. For example, both large and small firms are required by law to file annual income tax filings. Before a business can establish its success, they need to become diligent taxpayers first.
If you’re an entrepreneur and you own a business, or you plan on starting one, it’s important to know the ropes about taxes. Understanding the process and different types of income taxes can help you get a headstart. One of the best practices for doing so is reading through the details of filing your taxes. Here’s a comprehensive guide on how you can file your corporate income tax.
Understanding Corporate Income Tax
Gross Income
Local businesses are taxed on all of their net earnings, regardless of source. This is expected unless the firm is a non-profit or otherwise specified. Income that was previously subject to final withholding taxes or is excluded from income tax is not included in total taxable income. Interest income generated on savings accounts, time deposits, depository substitutes, and investment placements are already subject to cumulative tax. It hence does not need to be included in total taxable income. For earnings that are subject to final income tax, the taxpayer must preserve the appropriate withholding tax certificate or BIR Form 2306.
Income Tax Return
An income tax return (ITR) is a tax on an individual or business income, according to the Bureau of Internal Revenue (BIR). It includes compensation, professional practice, property earnings, company or trade operations, and gross revenue from relevant expenditures. In this context, each tax-paying person or business must file an ITR yearly. However, a taxpayer’s or taxable income can be classified into the groups that follow…
Types of Taxable Income
Profession and Corporate Income
This sort of revenue is derived through industry or company income, fees from professionals, revenue from rentals, and profits on asset exchanges or sales. This group also includes earnings from freelance services.
Salary Income
Salary, incentives, taxable bonuses, fringe advantages, and honoraria are all examples of taxable income. As a result, it stems from a partnership between an employer and their employees.
Multi-Source or Passive Income
This is derived from the financial institution deposits (foreign and local currency), royalties, wins or awards, payouts, and other non-professional income. Capital gains from the selling of shares in stocks and a rental asset are also included.
Deductions from Gross Income
To calculate net taxable income, the taxpayer may claim deductions for business expenditures and other permitted deductions. Prior to collecting the deductions, the paying citizen must check that they meet the BIR’s standards. A company’s cost must be normal and required for the company, trade, or service. It must have been paid or incurred within the fiscal year. It additionally has to be closely related to the administration, procedure, and/or practice of the trade, company, or profession.
Who is Required to Pay Income Tax Returns?
Taxation applies to all nationals living in the Philippines who receive a salary either inside or outside the country. As a result, if you make money or have an occupation, you have to submit an income tax return. If you have a job, your employer will submit your ITRs for you, but if you are a company owner or freelancer, you need to submit them independently.
Corporate and Non-Individual Tax Payers Include:
- Employed by Both Public and Private Businesses
- Individuals Who Work for Themselves, Either as a Business or as Freelancers
- Individuals Who Generate Money from Unrelated Businesses or Professions
- Domestic Firms and Partnerships Having Income from Both Within and Outside the Country
- Estates and Trusts Active in Commerce and Trade
- Earning a Wage as well as Self-employment Revenue
- Non-resident Aliens or Non-Filipino Nationals Earning in the Philippines
- Non-residents, OFWs, or Persons Working Abroad
- Farmers, Fishermen, Sari-sari Businesses, Carenderia, and Others Generate Marginal Income.
Individual Tax Payers Include:
- Self-employed or professionals who have fixed or mixed-income from single or several sources
- Non-resident Citizens who earn from Philippine-based sources
- Foreign nationals and residents who receive income from the Philippines
Who is Exempted from Paying Income Tax Returns?
Certain persons and organizations are excluded from submitting tax returns under the revised Tax Reform Acceleration and Inclusion Act (TRAIN) from Section 232 of the Tax Code:
- Persons whose combined individual and extra income do not exceed their gross income
- A minimum-wage worker with a yearly income of less than P250,000
- Individuals who have paid the last withholding tax
- Substituted filing eligibility
- an overseas Filipino worker whose primary source of income is outside the Philippines
- Non-resident nationals who continue to live outside the country and leave before the end of the fiscal year work and earn income overseas
What is the Bureau of Internal Revenue?
The Bureau of Internal Revenue (BIR) is a Department of Finance-affiliated agency. It is responsible for assessing and collecting all national internal revenue taxes, fees, and charges, as well as enforcing any forfeitures, penalties, and fines associated with them.
Computation of Corporate Income Taxes
Local businesses must pay either a 20% or a 25% standard tax on net taxable income earned both inside and outside the Philippines. The 20% business income tax rate applies to businesses with less than P5,000,000 in net taxable income and less than P100,000,000 in overall assets, excluding property where the company’s workplace, land, and machinery are situated. Otherwise, the regular 25% fee will be imposed.
BIR Forms
The different BIR types are distinguished by their numbers. The exact BIR form number is determined by your income status or company type.
- BIR Form 1702-RT is used to record income that is subject to a regular or fixed tax rate.
- BIR Form 1702Q is used to record quarterly income.
- BIR Form 1702-MX is used to record mixed income that is subject to several tax rates. This form also reports profits that qualify for a lower tax rate.
How to File Your Corporate Income Tax Return?
When you’ve determined the paperwork for your ITR, you may file them in person or online. The BIR may, however, refuse your application if you are recognized as a fraudulent taxpayer, if you submitted data that did not match the BIR’s database, or if the Head of Office does not allow your application.
Online
If physical tax filing is too time-consuming or problematic for you, you may do it online. After you sign up and enroll in the electronic filing and payment system (eFPS), you can conduct transactions through the BIR portal. The eFPS is for big taxpayers who have been formally informed by the BIR, the top 20,000 private businesses, and the top 5,000 private taxpayers.
Manual
Manual tax filing necessitates a visit to the Revenue District Office (RDO) or Tax Filing Center with your completed BIR form and other required documentation for submitting your ITR. Then you must go to the appropriate RDO, which possesses your records.
In order to pay your taxes, you must settle them through an RDO-accredited bank. Following the BIR’s approval of the form, you will get a copy of the officially certified and stamped BIR form as confirmation that the income tax return was properly completed.
When are Tax Filings Due?
The cut-off date for completing your income tax return, either manually or electronically, is every April 15. Late filing incurs a penalty, pushing you to shell out a fee of an extra 25% of the sum outstanding, as well as an annual interest charge of 20% from the payment’s time of submission.
What is the BIR Documentary Stamp?
When obtaining fresh documents, genuine or Certified True Copies of tax returns, or company licensing paperwork, this fee is assessed. It is a tax imposed on paperwork, instruments, or credit agreements. It denotes the accepting, assigning, selling, or transferring of responsibilities, rights, or possessions.
Online and Traditional Businesses
Some of the things you can do to help your business operate better is to conduct your transactions online. One example of this is by setting up shop online. A reliable platform you can turn to is Shoppable Business; it’s an all-in-one platform that business owners like you can turn to. Here are some of the perks you can get…
Why Become a Seller in Shoppable Business
- Access to a large customer base – giving businesses the opportunity to expand their reach and increase sales
- Increased visibility and brand awareness – a platform for businesses to showcase their products/services and potentially attract new customers
- BNPL (Buy now, Pay later) – grow your ASP; buyers/companies can apply for a loan up to ₱150,000.00
Whether you’re a small or large business, it’s critical to stay in compliance by completing an income tax return. When running a business, several procedures and standards are required, and these include paying taxes to ensure that your business can run in tip-top shape. Alongside this is operating your business where it can function at its best. Depending on the type of business you are operating, it requires a specific type of customization for it to earn revenue consistently. Whether it be online or brick-and-mortar, as long as you are a registered business with earnings, taxes come along with your required tasks.
