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PREFERENTIAL TAXATION

SENIOR CITIZENS LAW

EXEMPTION FROM INCOME TAX

General Rule: Qualified SCs deriving income during the taxable year, whether from compensation or otherwise, are
required to file income tax returns.

Exceptions:

(1) If the income of SC is compensation and he is a minimum wage earner (MWE), SC is exempt from income tax
subject to existing rules on MWE

(2) If the aggregate amount of gross income during the taxable year does not exceed his/her personal exemptions
(basic and additional), SC is exempt from tax and NOT required to file annual ITR

TAX INCENTIVES TO QUALIFIED ESTABLISHMENTS

Kinds of discounts on qualified goods and services:

Promotional discount
20% discount
5% discount on water and electric consumption by SCs
50% discount on electricity, water and telephone consumption by the Senior Citizen Center

TREATMENT OF DISCOUNTS:

ordinary and necessary expenses


deductible from the gross income of the seller falling under the category of itemized deductions
can be only claimed if the seller does not opt for optional standard deduction during the taxable year.

CONDITIONS FOR DEDUCTION

1. Only that portion of the gross sales exclusively used, consumed or enjoyed by the SC shall be eligible for
the deductible sales discount;
2. The gross selling price and the sales discount must be separately indicated in the official receipt or the sales
invoice issued by the establishment
3. Only the actual amount of the discount granted or a sales discount not less than the statutory rate (20%, 5%
and 50% when applicable), whichever is higher, based on the gross selling price can be deducted from the
gross income, if applicable, for income tax purposes, and from the gross sales or gross receipts of the
business enterprise concerned, for VAT or OPT purposes
4. The seller must record its sales inclusive of the discount granted
5. The discount can only be allowed as a deduction from gross income for the same taxable year the discount
is granted
6. The business establishment giving sales discount to qualified SCs is required to keep a separate and
accurate record of sales, which shall include the name of the SC, the SC ID, gross sales/gross receipts,
dates of transactions and invoice numbers for every sale to SCs
7. Only business establishments selling any of the qualified goods and services to SCs where an actual
discount was granted may claim the deduction
8. The seller must not opt for OSD
ADDITIONAL DEDUCTION DUE TO COMPENSATION PAID TO SENIOR CITIZENS

Private establishments employing SCs shall be entitled to additional deduction from their gross income equivalent to
15% of the total amount paid as salaries and wages to SCs subject to the provisions of Section 34 of the Tax Code
and its implementing rules and regulations

CONDITIONS FOR ADDITIONAL DEDUCTION

1. The employment shall have to continue for a period of at least six months
2. The annual taxable income of the SC does not exceed the poverty level as may be determined by the NEDA
thru the NSCB. For this purpose, the SC shall submit to his employer a sworn certification that his annual
taxable income does not exceed the poverty level.

MAGNA CARTA FOR DISABLED PERSONS

PERSONS WITH DISABILITY (PWD)

those suffering from restriction of different abilities, as a result of a mental, physical or sensory impairment, to
perform an activity in the manner or within the range considered normal for a human being.

includes those who have long term physical, mental, intellectual or sensory impairments which in interaction with
various barriers may hinder their full and effective participation in society in equal basis with others

QUALIFIED PWD - refers to an individual with disability who, with reasonable accommodations, can perform the
essential functions of the employment position that such individual holds or desires. However, consideration shall be
given to the employers requirement as to what functions of a job are essential, and if an employer has prepared a
written description before advertising or interviewing an applicant for the job, this description shall be considered
evidence of the essential functions of the job.

INCENTIVES FOR EMPLOYERS

Additional deduction from their gross income equivalent to twenty-five percent (25%) of the total amount paid as
salaries and wages to disabled persons.

Requirements:

1. Entities must present proof as certified by the Department of Labor and Employment that disabled persons
are under their employ
2. That the disabled employee is accredited with the Department of Labor and Employment and the
Department of Health as to his disability, skills and qualifications.

Private entities that improve or modify their physical facilities in order to provide reasonable accommodation for
disabled persons shall also be entitled to an additional deduction from their net taxable income, equivalent to fifty
percent (50%) of the direct costs of the improvements or modifications.

Note: Not applicable to improvements or modifications of facilities required under BP 344 (An Act to Enhance the
Mobility of Disabled Persons by Requiring Certain Buildings, Institutions, Establishments and Public Utilities to
install Facilities and Other Devices).
SPECIAL ECONOMIC ZONE ACT

Coverage:

1. Policy and the Philippine Economic Zone Authority


2. Registration of investments
3. Fiscal incentives to PEZA-registered economic zone enterprises References: R.A. Nos. 7916; 9593 (Tourism
Act), IRR of RA7916, Revenue Regulations Nos. 2-2005; 11-2005, 13-2005; 7-2016 (TIEZA)

DECLARATION OF POLICY

It is the declared policy of the government to translate into practical realities the following State policies and
mandates in the 1987 Constitution, namely:

a) The State recognizes the indispensable role of the private sector, encourages private enterprise, and
provides incentives to needed investments. (Sec. 20, Art II)
b) The State shall promote the preferential use of Filipino labor, domestic materials and locally produced
goods and adopt measures that help make them competitive. (Sec. 12, Art XII)

REGISTRATION OF INVESTMENTS

Registration of Business Enterprises. - Business enterprises within a designated ECOZONE shall register with the
PEZA to avail of all incentives and benefits provided for in the PEZA law.

Developer / Operator, Domestic Market, Utilities, Facilities, Tourism or Service Enterprises Qualifications:

Applications shall comply with the applicable nationality, control and / or ownership requirements of the working
capital thereof in accordance with the pertinent provisions of the Philippine Constitution, Foreign Investments Act
of 1991 and other existing laws and regulations.

Domestic Enterprise Qualifications:

Applicants shall be limited to new or expanding business entities subject to the guidelines that shall be promulgated
by the Board in addition to the nationality requirements under existing laws and regulations.

INCENTIVES TO ECOZONE ENTERPRISES

New or expanding ECOZONE Developers / Operators, Export, Free Trade, Domestic Market, Utilities, Facilities
and Tourism Enterprises, except ECOZONE Service Enterprises shall be entitled to the fiscal incentives provided in
Sections 24 (5% Gross Income Taxation) and 42 (Incentive Scheme of of the value of training expenses incurred
in developing skilled or unskilled labor or for managerial or other management development programs incurred by
enterprises deductible from the national government's share of three percent (3%) of the Act.

Additional Incentives to new or expanding ECOZONE Export and Free Trade Enterprises 1. Exemption from Duties
and Taxes on Merchandise 2. Exemption from National and Local Taxes and Licenses 3. Tax Credit for Import
Substitution 4. Exemption from Wharfage Dues, Export Tax, Impost or Fee 5. Additional Deduction for Training
Expenses 6. Incentives Under Presidential Decree 66

INCENTIVES TO ECOZONE DEVELOPERS/OPERATORS

a) Exemption from National and Local Taxes and Licenses including but not limited to gross receipts tax,
Value Added Tax, ad valorem and excise taxes, franchise, common carrier or value added taxes and other
percentage taxes on public and service utilities and enterprises. In lieu thereof, the ECOZONE Developer /
Operator Enterprise shall pay a five percent (5%) final tax on gross income.
b) Additional Deduction of 1/2 of the value of training expenses incurred in developing skilled or unskilled
labor or for managerial or other management development programs incurred by an ECOZONE Developer
/ Operator which may be deducted from the 5% final tax due from the ECOZONE Developer / Operator but
not to exceed the national governments share of three percent (3%)

OTHER INCENTIVES UNDER THE CODE

1. Income Tax Holiday


2. Tax Credit on Domestic Capital Equipment
3. Importation of Breeding Stocks and Genetic Materials
4. Tax Credit on Domestic Breeding Stock and Genetic Materials
5. Additional Deduction for Labor Expense
6. Unrestricted Use of Consigned Equipment

INCENTIVES TO DOMESTIC MARKET ENTERPRISE

1. Exemption from national and local taxes in lieu thereof, payment of a special tax rate of five
percent (5%) on gross income
2. Additional Deduction for Training Expenses
3. Other incentives available under the Code, as may be determined and subject to the conditions that
may be prescribed by the Board

INCENTIVES TO FACILITIES, UTILITIES AND TOURISM ENTERPRISE

1. Exemption from national and local taxes and lieu thereof payment of a special tax rate of five
percent (5%) on gross income
2. Additional Deduction for Training Expenses
3. Incentives provided under R.A. 6957 as amended by R.A. 7718, otherwise known as the Build
Operate and Transfer Law
4. Other incentives available under the Code, as may be determined by the Board

NON-FISCAL INCENTIVE

Immigration. Any investor within the ECOZONE whose initial investment shall not be less than One Hundred
Fifty Thousand Dollars ($150,000.00), his/her spouse and dependent children under twenty-one (21) years of age
shall be granted permanent resident status within the ECOZONE. They shall have freedom of ingress and egress to
and from the ECOZONE without any need of special authorization from the Bureau of Immigration.

ECOZONE Enterprises may employ Foreign Nationals in executive, supervisory, technical and advisory positions.
Executive positions shall pertain only to the president, vice-president, treasurer and general manager, or their
equivalents

Percentage of Foreign Nationals in supervisory, technical or advisory positions shall not at any time exceed five
percent (5%) of its workforce unless expressly authorized by the Secretary of Labor and Employment: Provided,
That foreign nationals may be employed in supervisory, technical or advisory positions only if it is certified by the
Department of Labor and Employment that no Filipino within the ECOZONE possesses the technical skills required
therefor.
Customs Territory shall mean the national territory of the Philippines outside of the proclaimed boundaries of
the ECOZONES except those areas specifically declared by other laws and/or presidential proclamations to have the
status of special economic zones and / or free ports.

Negative List shall refer to the list of industries drawn up and regularly updated by the PEZA under which
ECOZONE Enterprises engaged in any industry listed therein shall not be allowed to sell their products or any
portion thereof in the custom territory

Certificate of Registration shall mean the certificate issued by the PEZA to an ECOZONE Enterprise upon its
registration.

Registration Agreement shall refer to the final agreement executed by the PEZA and the ECOZONE Enterprise
setting forth the terms and conditions for the latter's operation of business or engaged of economic activity within
the ECOZONE.

Date of Registration shall refer to the date appearing in the certificate of registration.

Start of Commercial Operations for purposes of the income tax holiday, SCO shall be the date specified in the
Registration Agreement or the date when the particular ECOZONE export enterprise actually begins production of
the registered product for commercial purposes, whichever comes first, irrespective of phases or modules or
schedule of development.

Gross Income refers to gross sales or gross revenues derived from business activity within the ECOZONE, net of
sales discounts, sales return and allowances and minus costs of sales or direct costs but before any deduction is made
for administrative expenses or incidental losses during a given taxable period. The allowable deductions from gross
income are specifically enumerated under Section 2, Rule XX of these Rules.

FISCAL INCENTIVES OUTSIDE TEZs

Accommodation establishments

1. Income Tax Holiday non-extendible 6 years for substantial expansion


2. Exemption from Taxes on Importation of Capital Investment and Equipment
3. Net Loss Carry Over same with those inside

TEZ AVAILMENT OF TAX INCENTIVES

Enterprises availing of incentives under RA No. 9593 are required to obtain from TIEZA, on an annual basis, a
Certificate of Entitlement (CE) as proof of their entitlement to such incentives. In availing of incentives, the CE and
the TIEZA Certificate of Registration shall be attached to the Income Tax Returns (ITRs) and/or the applicable tax
return upon filing of the returns. In the absence of the CE and the TIEZA Certificate of Registration, the BIR shall
disallow any claim of incentive.

OTHER IMPORTANT CONSIDERATIONS

1. Withholding agents
2. TEZs not treated as separate customs territories
3. Maintenance of Separate Books of Account for each TIEZAregistered Activity
4. Compliance with RA No. 10708 (TIMTA)
5. No Double Availment of Incentives Schemes
6. Incentive scheme is effective for a period of 10 years from effectivity of RA 9593 Tourism Act of 2009
(Note: RR 7- 2016 was issued on November 15, 2016)
PAYMENT OF BACK TAXES

If the TIEZA registration is down-graded, suspended, revoked, the TIEZA shall order it to pay back taxes in an
amount equivalent to the difference between the taxes that it should have paid had it not availed of incentives under
RA 9593. The back taxes shall be computed up to three years directly preceding the date of promulgation of the
decision or order finding that the enterprise violated the terms of its accreditation. The back taxes shall be distributed
in the same manner.

BARANGAY MICRO BUSINESS ENTERPRISES ACT

Coverage:

1. Registration of BMBEs
2. Fiscal Incentives to BMBEs

WHO CAN REGISTER?

1. Sole proprietorship
2. Corporation
3. Partnership
4. Cooperative Association

OPERATIONS

Engaged in the production, processing or manufacturing of products or commodities, including agro-processing,


trading and services, and which activities are barangay-based and micro-business in nature and scope

Services shall exclude those rendered by:

1. PRC Licensed professionals


2. Juridical persons such as partnerships or corporations engaged in consultancy, advisory and similar
services where the performance of such services are essentially carried out through licensed professionals

BARANGAY-BASED

A business enterprise shall be considered barangay-based if:

the majority of its employees are residents of the municipality where its principal place of business is
located; or
its principal activity consists in the application/use of a particular skill peculiar to the locality or of raw
materials predominantly sourced from the area; or
its business operations are confined within the territorial jurisdiction of the municipality or LGU in which
its principal place of business is located

The enterprise may establish subject to pertinent rules anywhere in the Philippines:

1. Warehouses
2. Buying stations
3. Sales outlets
4. Booking offices
5. Administrative offices
MICRO-BUSINESS IN NATURE AND SCOPE

It shall be considered micro-business in nature and scope if:

its principal activity is primarily for livelihood, or determined by the SMED Council or DTI as a priority area
for development or government assistance;
the enterprise is not a branch, subsidiary, division or office of a large scale enterprise; and
its policies and business modus operandi are not determined by a large scale enterprise or by persons who are
not owners or employees of the enterprise.

CERTIFICATE OF AUTHORITY

(CA) Issuer : Office of the City or Municipal Treasurer

Effectivity: Period of two (2) years, and renewable for a period of two (2) years for every renewal.

Required Form: BMBE Form 02

The Treasurer shall indicate in the CA the date when the registration of the BMBE commences.

(CA) Cost of Registration:

1. Free of charge; or
2. Fee not exceeding One Thousand Pesos (P1,000.00) is imposed by the LGU concerned through a properly
enacted ordinance.

Requirement: Total assets, real or personal, inclusive of those arising from loans but exclusive of the land on
which the particular business entitys office, plant and equipment are situated, shall not be more than Three Million
Pesos (P3,000,000.00)

CANCELLATION OF REGISTRATION

a. When the BMBE transfers its place of business to another locality;


b. When the value of its total assets as determined pursuant to this Order exceeds Three Million
Pesos (P3, 000,000.00);
c. When the BMBE voluntarily surrenders its Certificate of Authority to the Office of the City or
Municipal Treasurer;
d. In case of death of the registered individual owner of the BMBE, if it is a sole proprietorship;
e. In case of violation or non-compliance with the provisions of R.A. 9178, the Implementing Rules
and this Order;
f. In case of merger or consolidation with an entity which is not eligible to be a BMBE;
g. In case of sale or transfer of the BMBE, if it is a sole proprietorship, without prejudice to the
transferee applying for registration should it be qualified under the terms of this Order;
h. Submission of fake or false or falsified documents;
i. In case of retirement from business, or cessation/suspension of operations for one year; and
j. Making false or omitting required declarations or statements.

The BMBE shall surrender its Certificate of Authority to the Treasurer. The Treasurer shall immediately notify the
BIR of any cancellation of registration of BMBE.
FILING OF CRIMINAL COMPLAINT

In cases of:

a. violation or non-compliance with the provisions of RA 9178,


b. submission of fake or falsified documents, and/or
c. making false or omitting required declarations or statements the City or Municipal
Treasurer should initiate the filing of appropriate criminal complaints before the Office
of the Public Prosecutor.

FISCAL INCENTIVES

Exemption from Income Tax - A duly registered BMBE shall be exempt from income tax on income arising purely
from its operations as BMBE

NOT COVERED BY EXEMPTION

a. Interest, including those from any currency bank deposit and yield or any other monetary benefit
from deposit substitutes and from trust funds and similar arrangements;
b. Royalties;
c. Prizes and other winnings:
d. Cash and/or property dividends;
e. Capital gains from the sale of shares of stock not traded through the stock exchange;
f. Capital gains from the sale or other disposition of real property;
g. The share of an individual in the net income after tax of an association, a joint account, or a joint
venture or consortium;
h. The share of an individual in the distributable net income after tax of a taxable partnership of
which he is a partner;
i. Income from the practice of profession received directly from the clients or from the professional
partnership of which the individual is a partner;
j. Compensation; and k. All other forms of passive income and income from revenues not
effectively connected with or arising from operations of the BMBEs as such.

DETERMINATION OF ASSET VALUATION

Not to exceed Php 3 Million


Include all kinds of properties, both personal properties and real properties
Exclude land on which the particular business entitys office, plant and equipment are situated
Owned and used/to be used, or even if not owned but used/to be used, by the BMBE and/or its affiliates for
the conduct of its/their business/es

AVAILMENT OF TAX INCENTIVES

The BMBE shall register with the BIR RDO where the principal office or place of business of the BMBE is located.
Its application for registration shall be supported by the following documents:

1. Copy of the BMBEs Certificate of Authority duly authenticated by the Office of the City or Municipal
Treasurer;

2. Latest Audited Financial Statement, or Account Information Form or its equivalent containing data lifted from
audited financial statements.
3. Sworn Statement of the values of assets owned and/or used/to be used by the BMBE and/or its affiliates
reflecting the current values thereof. The Sworn Statement shall be supported by pertinent information and
documents such as: a. Acquisition cost, date of acquisition and depreciated value for existing assets b. Invoices
and/or official receipts for newly-acquired assets not yet depreciated; c. Duly-notarized copy of Contract of Lease
for assets used in the conduct of business covered by lease agreement; and d. Copy of Loan Contract/s, if any, and
Duly-Notarized Certification of Amortization Payments on the Loan

4. Certified list of branches, sales outlets, places of production, warehouse and storage places, or such other facility
owned and/or operated by the BMBE indicating their respective addresses, whether located in the same
municipality or city where the principal place of business is located, or elsewhere.

5. Certified list of affiliates, indicating addresses, line of business and responsible officers thereof;

OTHER IMPORTANT CONSIDERATIONS

For purposes of exemption from the creditable withholding tax on income payments, the BMBE shall furnish its
customers with a certified true copy of its amended BIR registration certificate.

If a BMBE is also entitled to exemption from income tax under other law, it shall so state this fact in its
registration form and indicate whether it shall avail itself thereof or the privilege under the BMBE.
The choice so made shall bind the BMBE for the entire period of validity of its registration with the BIR.
No BMBE shall be allowed double or multiple availment of income tax exemption privileges.
An annual registration fee in the amount of Five Hundred Pesos (P500.00) shall be paid by a BMBE upon
its registration as such, and every year thereafter on or before the last day of January:
BMBE which is in the form of a cooperative or a marginal income earner shall be exempt from payment of
registration fee.

Exemption from Gross Receipts Tax - Interests, commissions and discounts derived from the loans granted by the
LBP, DBP, PCFC and SBGFC to dulyregistered BMBEs, as well as loans extended by the GSIS and SSS to their
respective member-employees for the purpose of establishing BMBEs, shall be exempt from gross receipts tax
(GRT).

Disqualification from GRT Exemption. In case the amount of loan extended by the abovementioned credit
institution/s to a BMBE borrower resulted to the BMBEs total assets exceeding the P3 million asset threshold, the
said credit institution/s is/are disqualified to enjoy exemption from GRT.