BUSINESS INCOME

TAXATION
Certified Accounting Technician, Level 3, Module 2
July 7, 2012
LEARNING OBJECTIVES

 General Principles of Income Taxation.

 Income Tax Rules for business and practice of profession.
 Sources of Income, allowable business expenses and personal
exemptions.
 Minimum Corporate Income Tax, Improperly Accumulated
Earnings and Gross Income Tax for Corporations.
 Preparation of Quarterly Income Tax return (BIR Form 1702Q)
and Annual Income Tax return (BIR Form 1702)
 Compliance requirements such as keeping Books of Accounts
and its preservation.
 BIR registration requirements and issuance and printing of
receipts, sales or commercial invoice.
GENERAL PRINCIPLES OF
INCOME TAXATION
Individuals
 A citizen of the Philippines residing therein
is taxable on all income derived from
sources within and without the Philippines;
 A non-resident citizen is taxable only on
income derived from sources within the
Philippines;
 An individual citizen of the Philippines who
is working and deriving income from
abroad as an overseas contract worker is
taxable only on income from sources within
the Philippines; provided, that a seaman
rendered abroad as a member of the
complement of vessel engaged exclusively
in international trade shall be treated as an
overseas contract work.
 An alien individual, whether a resident or
not of the Philippines, is taxable only on
income derived from sources within the
Philippines.
INDIVIDUAL TAXPAYERS

Resident Citizens Nonresident Citizens

 Filipino citizen who  FC who stayed outside the
stayed permanently Philippines for 183 days
or more during the
in the Philippines or taxable year and who has
stayed outside the established to the BIR
Philippines for less Commissioner of his
than 183 days definite intention to reside
outside the Philippines on
during the taxable a permanent basis as an
year. (Sec.23A, immigrant or employee.
NIRC) (Sec 2, Rev. Reg. 9-99)
INDIVIDUAL TAXPAYERS

Resident Aliens Nonresident Aliens

 Not citizens of the  Foreign individuals
Philippines but are whose residence are
residing within the not within the
Philippines including Philippines. (Sec. 22G,
NIRC)
foreign individuals
who have stayed  Classified into :
for more than one  those engaged in
trade or business
year from date of within the Philippines
arrival.  those not engaged in
 (Sec.22F, NIRC) trade or business
within the Philippines
INDIVIDUAL TAXPAYERS
Special Taxpayers
 taxed with a 15% tax rate
 Applies to compensation income derived within by aliens or
Filipino citizens (NETBP) with special employment contracts with
 Regional or area headquarters of multi-national
corporations
 Petroleum service contractors and subcontractors

 Offshore banking units

CLASSIFICATION OF TAXPAYERS
AND SITUS OF INCOME
Taxpayer Situs of Income
Within Outside
Citizens:
Resident citizen  
Nonresident  
citizen
Aliens:
Resident alien,  
NRAETB and
NRANETB
Special taxpayers
Citizens  
Aliens  
SOURCES OF GROSS INCOME
 Compensation for services in whatever form paid including but not limited
to fees, salaries, wages, commissions and similar terms.
 Gross income derived from the conduct of trade or business or the exercise
of profession.
 Gains derived from dealings in property.
 Interest
 Rents
 Royalties
 Dividends
 Annuities
 Prizes and winnings
 Pensions; and
 Partner’s distributive share from the net income of the general professional
partnership.
 ALLOWABLE DEDUCTIONS &
BUSINESS EXPENSES
Business expenses (ordinary and necessary trade, business or professional expenses):

1. Salaries and Allowances 14. Communication, Light and Water

2. Fringe benefits 15. Supplies
3. SSS, GSIS. Medicare, HDMF and 16. Interest
Other Contributions 17. Taxes and Licenses
4. Commissions 18. Losses
5. Outside Services 19. Bad Debts
6. Advertising 20. Depreciation
7. Rental 21. Amortization of Intangibles
8. Insurance 22. Depletion
9. Royalties 23. Charitable Contribution
10. Repairs and Maintenance 24. Research and Development
11. Representation and Entertainment 25. Amortization of Pension Trust
12. Transportation and Travel Contribution
13. Fuels and Oil 26. Miscellaneous

Note: In lieu of 1 to 26 above, taxpayer may claim 40% OSD based on sales or gross receipts
AMOUNT OF PERSONAL &
ADDITIONAL EXEMPTIONS
Basic Personal Exemption Additional Exemption
 A deductible allowance whose  A deductible allowance in
amount allowed by law shall addition to the basic personal
depend upon the status of the exemption allowed for
individual taxpayer himself. qualified dependent children
(Sec. 35(A), NIRC) (not exceeding four) is
 The new R. A. 9504 provides P25,000.
that the basic personal
exemption for individual
taxpayer amounts to P50,000
whether he/she is married,
head of the family or single.
PREMIUM PAYMENTS FOR HEALTH
& HOSPITALIZATION INSURANCE
 The actual premium payments
for health and/or
hospitalization insurance taken
by an individual taxpayer
(single, head of the family or
married) for himself or for his
family are allowed as
deduction at an amount not
exceeding P2,400 per family
of P200 a month whichever is
lower during the year
provided that their family
gross income does not exceed
P250,000 for the calendar
year. (Sec. 34, NIRC; Rev.
Reg. No. 10-2008)
CLASSIFICATION OF TAXES OF
INDIVIDUALS

1.Normal (Tabular)
graduated tax
2.Passive Income
tax
3.Capital gains tax
NORMAL TABULAR TAX
 The tax rate to be used in
computing income tax due
of an individual taxpayer
as provided in the Section 24(A)
of the NIRC.
 Individual taxpayer’s taxable income subject to normal
(tabular) tax is income derived from compensation,
business and profession. It may also include capital
gains and passive income not subject to final taxes.
 NORMAL TABULAR TAX

Section 24 (A) of NIRC

Not over P10, 000 5%

Over P10, 000 but not over P30,000 P500 + 10% of excess over P10,000

Over 30,000 but not over 70,000 2,500 + 15% of excess over P30,000

Over 70,000 but not over 140,000 8,500 + 20% of excess over P70,000

Over 140,000 but not over 250,000 22,500 + 25% of excess over P140,000

Over 250,000 but not over 500,000 50,000 + 30% of excess over P250,000

Over 500,000 125,000 + 32% of excess over P500,000

PASSIVE INCOME
 An income earned from allowing
other to use one’s rights, or game
of chance or investment, which the
taxpayer merely waits for the
income to come in.
 Subjected to final tax and once subjected to final tax, it
can no longer be included in the taxable income subject
to normal (tabular) tax
 Deductions and exemptions do not apply to items
subject to final tax.
PASSIVE INCOME
Classifications of Passive
Income
 Interests
 Prizes
 Royalties
 Cash dividends
1st
 Property dividends
CAPITAL GAINS TAX

Taxes that are imposed

on sales or exchanges
of properties not used
in business.
SUMMARY OF TAX BASE AND TAX
RATES ON INDIVIDUAL TAXPAYERS
Resident Nonresident
Category of Income Citizen Alien Citizen NRAETB NRANETB
All Sources Within Within Within Within
Compensation, Business, Profession
GIW (25%)
Prizes of P10,000 or less Based on taxable Income
Schedular Normal Tax Rate: NIRC Sec. 24
Proprietary, Educational/ Hospital Not
applicable
Cinematographic Film & the like GIW (25%
*Interest, Royalty, Winning/Prizes of P10,000 & Gross income within 20% Final Withholding Tax
below (FWT)
Royalties – books, literary, music Gross income within 10% Final Withholding Tax Gross
(FWT) Income
*Interest (long term investment) –savings, common EXEMPT Within
or individual trust funds, deposit substitute Incase of pre-termination, remaining maturity of: (GIW 25%)
investment management account in denomination of 4 years to less than 5 years – 5%
P10,000 & below as prescribed by the BSP. 3 years to less than 4 years – 12%
Less than 3 years – 20%
SUMMARY OF TAX BASE AND TAX
RATES ON INDIVIDUAL TAXPAYERS
Resident Nonresident
Citizen Alien Citizen NRAETB NRANET
Category of Income
B
All Sources Within Within Within Within
Cash, Property dividends GIW 6%(1998); 8%(1999);
GIW 20% GIW 25%
10%(2000) FWT
*Interest (Foreign Currency GIW
Deposits System) EXEMPT
7.5%
Capital gains on sale of shares Net capital gains within:5% (Not over P100,000); 10% (in excess of
(not traded – stock exchange) P100,000)
Sales of shares (traded in stock
½ of 1% of the selling price, Business tax
exchange)
Capital gains on sale of real
Gross sales price or FMV, whichever is higher, 6%
property
Winnings on Philippine
EXEMPTED
sweepstakes/Lotto
TAXABLE INCOME
Taxable income means
the pertinent items of
gross income, less the
deductions and/or basic
personal and additional
exemptions, and special
deductions, if any,
authorized for such
types of income by the
NIRC or other special
laws. (Sec. 31, NIRC)
TAXABLE INCOME COMPUTATION
Gross Taxable Compensation Income P xxx
Less: Premium paid health and/or hospitalization
Insurance not to exceed P2,400 per year P xxx
Personal and additional exemptions xxx xxx
Taxable Compensation income/Excess of Deductions over
Taxable Compensation Income P xxx

Sales/Receipts/Revenues/Fees P xxx
Less: Cost of Sales/Services xxx
Gross Taxable Business/Professional Income P xxx
Add: Other Taxable Income xxx
Total P xxx
Less: Allowable Deductions xxx
Net Income P xxx
Less: Excess of Deductions over Taxable Compensation Income xxx
Taxable Business Income P xxx

Total Taxable Income (Taxable Compensation + Taxable Business Income) P xxx

That computation is based on the Annual Income Tax Return BIR Form No. 1701.
INDIVIDUAL TAX COMPUTATION
Example Problem 1:

Juan A. Carlos, married with two dependent

children, engaged in trading business provided
the following data for the tax period of 20PY.

Net sales P1, 500,000

Cost of sales 900,000
Business expenses 360,000
Other business income 50,000

Required:
Compute the taxable income of Juan Carlos
for the year 20PY.
Compute the income tax due of Juan Carlos.
INDIVIDUAL TAX COMPUTATION
Net sales P1,500,000
Cost of sales 900,000
Gross Taxable Income P 600,000
Add: Other Taxable Income 50,000
Total P 650,000
Less: Allowance Business expenses 360,000
Net Income P 290,000
Less: Personal exemption as married 50,000
Additional personal exemption (2 x P25, 000) 50,000 100,000
Taxable Income P 190,000
Computation of Income Tax:
Over 140,000 but not over 250,000 P 22,500
+ 25% of (P190T-P140T) = P50T 12,500
Income Tax P 35,000

Note: If quarterly income taxes have been paid, the total amount paid should be deducted from Income Tax of
P35,000 to arrive at Income Tax Payable.

If the problem includes capital gains or passive income or income subject to final tax as shown on the table of income
tax rules, they should not be included in the computation to determine taxable income.
INDIVIDUAL TAX COMPUTATION
Example Problem 2:

Juan A. Carlos, married with five dependent children, engaged in trading business
provided the following data for the period of 20PY. He is also employed.

Net sales P 1,200,000

Cost of sale 800,000
Business expenses 200,000
Other income 40,000
Gross compensation income 150,000
Premium paid on health insurance 3,000

Required:
Compute the taxable income of Juan Carlos for the year 20PY.
Compute the tax due of Juan Carlos.
Tax due if he has no trading business income
INDIVIDUAL TAX COMPUTATION

Problem 2 Requirements A & B :

Gross Compensation Income P 150,000

Gross business Income (P1,200T-P 800T) 400,000
Other Gross Income 40,000
Total P 590,000
Less : Business Expenses 200,000
Net Income Before P.E P 390,000
Less : Personal Exemption (P50 + 4 x P 25T) 150,000

Taxable net Income P 240,000 (A)

Income Tax due

{P 22,500 + 25/ of amt over P 140,000} P 47,500 {B}
INDIVIDUAL TAX COMPUTATION
Problem 2 Requirements C :
Gross Compensation Income P150,000
Other Income 40,000 P190,000

Less :Personal Exemptions P 150,000

Health Insurance paid 2,400 152,400
Taxable Income P 37,600

Income Tax due

{P 2,500 + 15/ of amt over P 30T} P 3,640
INDIVIDUAL TAX COMPUTATION
Example Problem 3:

Juan A. Carlos, a lawyer, married to Maria Mendoza with no dependent children, is engaged in trading and practice of
profession provided the following data for the tax period of 20PY.

Year 20PY Quarter

Trading sales P1, 400,000 P 350,000
Professional Receipts 600,000 100,000
Cost of sales 850,000 200,000
Cost of Professional Service 350,000 50,000
Trading Business Expenses 400,000 50,000
Professional business expenses 100,000 25,000
Income received from general professional partnership 60,000 15,000
Other business income 50,000 10,000
Premium paid on health insurance 5,000 1,250
Taxable income 1st and 2nd quarters 80,000

Required:
Compute the taxable income and tax due and paid for the final 3rd quarters.
Compute the taxable income, tax due and payable in the final annual income tax return for the year 20PY.
INDIVIDUAL TAX COMPUTATION
Computation of Quarterly Taxable Income and Tax Due :

Sales / Receipts P 450,000

Add : Amount received by a partner from Gen. Prof. Partnership 15,000
Total P 465,000
Less: Cost of sales / services 250,000
Gross Income from Operation P 215,000
Add: Other Income 10,000
Total P 225,000
Less: Taxable Deduction 75,000
Taxable Income This Quarter P 150,000
Add: Taxable Income Previous Quarter 80,000
Taxable Income to Date P 230,000

Computation of Income Tax :

Over 140,000 but not over 2500,000 P 22,500
+ 25% of (P 230,000 – P 140,000) 22,500
Income Tax Due P 45,000

***See Quarterly Income Tax Return BIR Form No. 1701Q

INDIVIDUAL TAX COMPUTATION
Computation of Annual Taxable Income, Tax Due and Payable :

Sales / Receipts P 2,000,000

Less : Cost of sales / services 1, 200,000
Gross Taxable Income P 800,000
Add : Other Taxable Income 110,000
Total P 910,000
Less : Allowance Business Expenses 500,000
Net Income P 410,000
Less : Personal Exemption 50,000
Taxable Income P 360,000

Computation of Income Tax :

Over 250,000 but not over 500,000 P 50,000
+ 30% of (P 110,000) 33,000
Income Tax Due P 83,000
Less : tax Payment for the First three Quarters 45,000
Income Tax Payable P 38,000

***See Quarterly Income Tax Return BIR Form No. 1701

ANNUAL DECLARATION &QUARTERLY
PAYMENTS OF INCOME TAX
The following dates are to be observed by an individual taxpayer in
his declaration and quarterly payments of income taxes:
1. On or before April 15 of the following year for the taxable
income of the previous year.
2. April 15 of the same taxable year for the estimated income of the
current year. (Sec74B, NIRC)
3. Filing and payments of individual’s estimated income tax is up to:
Quarters Specific Dates
First April 15 of the CY
Second August 15 of the CY
Third November 15 of the CY
Fourth April 15 of the succeeding year
(Sec. 74B; Sec 51B, NIRC)
INSTALLMENT PAYMENT OF
TAXES
Individual taxpayers are allowed installment
payment of their income taxes when tax due
exceeds P2,000. (Sec. 56A2, NIRC)
The taxpayer other than a corporation may elect
to pay the tax in two (2) equal installments in
which case the tax installment dates are as
follows:
1. April 15 – 1st installment payment on the
required date of filing and payment
2. July 15 – 2nd installment payment.
3. If any installment is not paid on or before the
date fixed for its payment, the whole amount
of the tax unpaid becomes due and payable
together with the penalty on delinquency.
TAXES ON CORPORATION
CONCEPT OF CORPORATION
The term “Corporation” shall include partnerships, no matter how created or
organized, joint stock companies, joint accounts, associations, or insurance
companies. It also includes mutual fund companies, regional operating
headquarters of multinational corporations, and joint accounts.

The term “Corporation” does not include the following:

A. A general professional partnership – a partnership formed by persons for

the sole purpose of exercising their common profession.
B. A joint venture or consortium formed for the purpose of undertaking
construction projects.
C. A joint or consortium for engaging in petroleum, coal, geothermal and
other energy operations pursuant to an operating
consortium agreement under a service contract
with the government.
GENERAL PRINCIPLES OF
INCOME TAXATION
Corporations
 A domestic corporation
is taxable on all income
derived from sources
within and without the
Philippines.
 A foreign corporation
engaged or not in
trade or business in the
Philippines, is taxable
only on income derived
from sources within the
Philippines.
CORPORATE TAXPAYERS
Domestic
Foreign Corporation
Corporation
 Organized  Organized and
and existing existing under the
under Philippine laws of foreign
laws. country
irrespective of the
nationality of its
stockholders.
FOREIGN CORPORATIONS
Resident Foreign Nonresident Foreign
Corporation Corporation
 Engaged in  Does not engaged
business or trade in business or
in the Philippines. trade in the
Philippines.
 Generally, it  Earnings are
establishes a derived from fixed
branch or an determinable
office for the income from
purpose of doing sources within the
business or trade. Philippines.
TAX EXEMPT CORPORATIONS
The following corporations are exempted from tax on corporations:

1. Labor, agricultural or horticultural organization not organized principally for profit;

2. Mutual savings bank not having a capital stock represented by share, and cooperative
bank without capital stock organized and operate for mutual purposes and without profit;
3. A beneficiary society, order or association operating for the exclusive benefit of the
members such as fraternal organization operating under the lodge system, or a mutual
and association or a nonstick corporation organized by employees providing for the
payment of life, sickness, accident, or other benefits exclusively to the members of such
society, order, or association, or nonstick corporation or their dependents;
4. Cemetery company owned and operated exclusively for the benefits of its members;
5. Non-stock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic or cultural purposes, or for the rehabilitation of veterans, no
part of its net income or asset shall belong to or inure to the benefit of any member
organizer, officer or any specific person;
TAX EXEMPT CORPORATIONS
Continuation…

6. Business league, chamber of commerce, or board of trade, not organized for

profit and no part of the net income of which inures to the benefit of any private
stockholder or individual;
7. Civic league or organization not organize for profit but operated exclusively for
the promotion of social welfare;
8. A non-stock and non-profit educational institution;
9. Government educational institution;
10. Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or
irrigation company, mutual or cooperative telephone company, or like
organization of a purely local character, the income of which consists solely of
assessments, dues, and fees collected from members for the sole purposes of
meeting its expenses; and
11. Farmers’, fruit growers’ or like association organized and operated as a sales
agent for the purpose of marketing the products of its members and turning back
to them the proceeds of sales, less the necessary selling expenses on the basis of
the quantity of products finished by them;
TAX EXEMPT CORPORATIONS

“Notwithstanding the provisions in the preceding

paragraphs, the income of whatever kind and
character of the foregoing organizations from any of
their properties, real or personal, or from any of their
activities conducted for profit regardless of the
disposition made of such income, shall be subject to
tax imposed under the Tax Code.”
SOURCES OF CORPORATE GROSS
INCOME
Most of the Gross Income applicable to individual businesses is the same for corporate
businesses. All income derived from whatever source, including (but not limited to) the
following items that are considered part of Gross Income.

 Compensation for services in whatever form paid including but not limited to fees,
salaries, wages, commissions and similar terms.
 Gross income derived from the conduct of trade or business or the exercise of
profession.
 Gains derived from dealings in property.
 Interest
 Rents
 Royalties
 Dividends
 Annuities
 Prizes and winnings; and
 Pensions
 ALLOWABLE CORPORATE
DEDUCTIONS & BUSINESS EXPENSE
Business expenses (ordinary and necessary trade, business or professional
expenses):
1.Salaries and Allowances 19.SSS, GSIS, Philhealth, HDMF and Other
2.Fringe Benefits Contributions
3.Rental 20.Insurance

4.Professional’s Fees 21. Representation and Entertainment

5.Director’s Fees 22.Transportation and Travel

6.Management and Consultancy Fee 23. Fuel and Oil

7.Security Services 24.Communication, Light and Water

8.Janitorial and Messengerial Services 25.Taxes and Licenses

9.Tolling Fees 26.Losses

10.Other Outside Services 27.Bad Debts

11.Advertising 28.Depreciation

12.Commissions 29.Amortization of Intangibles

13.Repairs and Maintenance – Labor 30.Depletion

14.Repairs and Maintenance – Materials/Supplies 31.Charitable Contribution

15.Research and Development 32.Amortization of Pension Trust Contribution

16.Office Supplies 33.Miscellaneous

17.Royalties 34.Or claim OSD 40% of gross income in lieu of 1 to

18.Interest 33
TAXES ON CORPORATE INCOME

Resident Nonresident
Domestic
Classifications Foreign Foreign
Corporations
Corporation Corporation
Sources of Taxable Within and Outside Within the Within the
Income the Philippines Philippines Philippines
Taxable Income
Taxable Income Gross Income
Normal Tax Rate
Normal Tax Rate Normal Tax Rate
Income in general
35% from July 1, 2005 to December 31, 2008
30% effective January 1, 2009
INCOME TAXES OF CORPORATION

1. Normal Corporate Income tax (NCIT) –starting

January 1, 2009 = 30% based on net taxable
income;
2. Minimum Corporate Income Tax (MCIT) – 2% of gross
income;
3. Gross Income Tax – optional effective January 1,
2000 if requirements are met;
4. Capital Gains Tax – on sale of property
or on sale of shares; and
5. Final tax on passive income.
NORMAL CORPORATE INCOME TAX

NCIT refers to the

use of regular
domestic income
tax rates on the
corporate taxable
income which is
30% starting
January 1, 2009.
NORMAL CORPORATE INCOME TAX

Quarterly Taxable Income Computation:

Sales/Receipts/Revenues/Fees P xxx
Less: Cost of Sales/Services xxx
Gross Income P xxx
Add: Other Income xxx
Total Gross Income P xxx
Less: Allowable Deductions xxx
Taxable Income this Quarter P xxx
Add: Taxable Income from Previous Quarter(s) xxx
Total Taxable Income to Date P xxx

***This computation is based on the Annual Income Tax Return BIR Form No. 1702Q.
NORMAL CORPORATE INCOME TAX

Annual Taxable Income Corporation:

Sales/Receipts/Revenues/Fees P xxx
Less: Cost of sales/services xxx
Gross Income from Operation P xxx
Add: Non-Operating and Other Income xxx
Total Gross Income P xxx
Less: Allowable Deductions xxx
Taxable Income P xxx

**This computation is based on the Annual Income Tax Return BIR Form No. 1702
NORMAL CORPORATE INCOME TAX

The Sales/Receipts/Revenues/Fees
Creditable Tax Taxable
Withheld Amount
Sale of Goods/Properties xxx xxx
Sale of Services xxx xxx
Lease of Properties xxx xxx
Total: xxx xxx
Less: Sales Returns/Discount xxx xxx
Net Sales/Receipts/Revenues/Fees xxx xxx
NORMAL CORPORATE INCOME TAX

The Cost of Sales

Merchandise/Finished Goods Inventory, Beginning xxx
Add: Purchases of Merchandise/Cost of Goods Manufactured xxx
Total Goods Available for Sale xxx
Less: Merchandise/Finished Goods Inventory, End xxx
Cost of Sales xxx
NORMAL CORPORATE INCOME TAX

The Cost of Services is supported on Section A by

Schedule 3 on page 2 for Service Business as follows:

Direct Charges - Salaries, wages and benefits xxx

Direct Charges – Materials, supplies and facilities xxx
Direct Charges – Depreciation xxx
Direct Charges – Rental xxx
Direct Charges – Outside services xxx
Direct Charges – Others xxx
Total Cost of Services xxx
NORMAL INCOME TAX
COMPUTATION

Normal Income Tax

= Taxable Income X 30%
MINIMUM CORPORATE INCOME
TAX (MCIT)
 The Minimum Corporate Income Tax (MCIT) of 2% is
imposed on the gross income of a corporation beginning the
4th taxable year following the taxable year in which such
corporation commenced its business.

 The corporation shall pay the MCIT whenever it is greater

than the normal corporate income tax but the excess of the
MCIT over the normal tax computed shall be carried
forward on an annual basis and credited against the normal
income tax for the three (3) immediately succeeding years.

 Domestic and Resident Foreign Corporations are covered

by MCIT.
NON-APPLICATION OF MCIT
MCIT is not applicable to the following corporations
1. Hospitals
2. Educational Institutions
3. Non resident corporations
4. International carriers
5. Offshore banking units
SUSPENSION OF MCIT
The Secretary of Finance is
authorized to suspend the
imposition of MCIT on a
corporation that suffers
losses on account of:
1.Prolonged labor disputes
2.Force majeure
3.Legitimate business

reverses
(Sec. 27 (E3), NIRC)
MINIMUM CORPORATE INCOME
TAX (MCIT)

MCIT
= Total Gross Income x 2%
Note: The Income Tax Due
is higher of the Normal
Income Tax or MCIT.
COMPUTATION OF CORPORATE
GROSS INCOME SUBJECT TO MCIT
For Trading & Manufacturing
Concern For Service Concern
Net Sales P xxx Gross Receipts or Revenues P xxx
Less: Cost of Sales xxx
Less: Cost of Service Sales xxx
Gross Income subject to MCIT P xxx
Gross Income subject to MCIT P xxx

Note: Passive Incomes, which have been subject to a Final

Tax at source, shall not form part of the gross income for
purposes of computing Minimum Corporate Income Tax
(MCIT) of 2% and Normal of 30% on Taxable income.
EXPANDED WITHHOLDING TAX
AS DEDUCTION FROM MCIT
A taxpayer who is liable
to MCIT and at the
same time has an
expanded withholding
tax (EWT) may deduct
the EWT from MCIT
and if there is still an
excess EWT, he may
request for tax credit
or tax refund.
BREAK TIME!!!
ILLUSTRATIONS OF CORPORATE
TAXES
Example Problem 5:
Max Corporation, a domestic trading corporation organized and operating for four years had the
following data on its operations for the current taxable year:

Gross Sales P 4,000,000 Purchase discounts 36,000

Sales returns 80,000 Other Non-operating Income 120,000
Sales discounts 40,000 Allowable Corporate Expenses 1,500,000
Purchases 2,400,000 Inventory, January 1 600,000
Purchase returns 48,000 Inventory, December 31 750,000

Required:
Compute the gross income subject to minimum corporate income tax of 2%.
Compute the taxable income subject to normal income tax of 30%.
Compute the tax due based on normal tax and MCIT.
What amount of tax is due and payable?
ILLUSTRATIONS OF CORPORATE
TAXES
Gross Sales P 4,000,000.00
Less: Sales returns P 80,000.00
Sales discounts 40,000.00 120,000.00
Net Sales P 3,880,000.00
Cost of Sales:
Inventory, January 1 P 600,000.00
Purchases 2,400,000.00
Total P3,000,000.00
Less: Purchase returns (48,000.00)
Purchase discounts (36,000.00)
Inventory, December 31 (750,000.00) 2,166,000.00
Gross Income from Sales P 1,714,000.00
Other Non-operating Income 120,000.00
a. Total Gross Income P 1,834,000.00
Less: Allowable Corporate expenses 1,500,000.00
b. Taxable Income P 334,000.00

c. Normal Income Tax Due (P334,000* 30%) P 100,200.00

c. MCIT (P1,834,000 * 2%) P 36,680.00

d. The Income Tax Due and payable P 100,200.00

ILLUSTRATIONS OF CORPORATE
TAXES
Example Problem 6:

Mayfair Corporation, a domestic manufacturing corporation organized and operating for four years had the
following data on its operations for the current taxable year:

Gross Sales P 5, 000,000 Other Non-operating Income 150,000

Sales returns 120,000 Allowable Corporate Expenses 1,750,000
Sales discounts 60,000 Manufacturing overhead 600,000
Raw materials purchases 1,800,000 W/P inventory, December 31 450,000
Raw materials inventory, Jan. 1 480,000 W/P inventory, January 1 400,00
Raw materials inventory, Dec 31 360,000 F.G. Inventory, January 1 600,000
Direct labor 800,000 F.G. Inventory, December 31 750,000

Required:
Compute the gross income subject to minimum corporate income tax of 2%
Compute the taxable income subject to normal income tax of 30%
Compute the tax due based on normal tax and MCIT.
What amount of tax is due and payable?
ILLUSTRATIONS OF CORPORATE
TAXES
Gross Sales P 5,000,000
Less: Sales returns P 120,000
Sales discounts 60,000 180,000
Net Sales P 4,820,000
Cost of Goods Sold:
Raw materials:
Raw materials inventory, Jan. 1 P 480,000
Raw materials purchases 1,800,000
Total P 2,280,000
Less: Raw materials inventory, Dec. 1 360,000
Raw Materials Used P 1,920,000
Direct labor 800,000
Manufacturing overhead 600,000
Total Manufacturing Costs P 3,320,000
Add: W/P inventory, January 1 400,000
Total Goods Placed into Process P 3,720,000
 ILLUSTRATIONS OF CORPORATE
TAXES
Total Goods Placed into Process P 3,720,000
Less: W/P inventory, December 31 450,000
Costs of Goods Manufactured: P 3,270,000
Costs of Goods Manufactured: P 3,270,000
Add: F.G Inventory, January 1 600,000
Total Goods Available for Sale P 3,870,000
F.G Inventory, December 31 750,000 3,120,000
Gross Income from Sales P 1,700,000
Other Non-operating Income 150,000
a. Total Gross Income P 1,850,000
Less: Allowable Corporate expenses 1,750,000
b. Taxable Income P 100,000

c. Normal Income Tax Due (P100,000 * 30%) P 30,000

d. MCIT (P1,850,000 * 2%) P 37,000

e. The Income Tax Due and payable P 37,000

***Note: Any excess of the minimum corporate income tax over the normal tax shall be
carried forward and credited against the normal tax for the three immediately succeeding
taxable years. In the year to which carried forward, the normal tax should be higher then the
minimum corporate income tax (MCIT).
ILLUSTRATIONS OF CORPORATE
TAXES
Example Problem 7:

Ring Corporation, a domestic service corporation organized and operating for four years had the following
data on its operations for the current taxable year:

Gross Revenues P 3,000,000 Advertising 120,000

Discounts and allowances 20,000 Commissions expense 130,000
Salaries and wages 900,000 Office Supplies 36,000
Materials and supplies 600,000 Insurance 45,000
Depreciation 100,000 SSS, GSIS, Medicare, HDMF 42,000
Rental 120,000 Taxes and Licenses 60,000
Outside Services 60,000 Director’s Fee 450,000
Other direct costs 75,000 Miscellaneous 58,000

Required:
Compute the gross income subject to minimum corporate income tax of 2%.
Compute the taxable income subject to normal income tax of 30%.
Compute the tax due based on normal tax and MCIT.
What amount of tax is due and payable?
 ILLUSTRATIONS OF CORPORATE
TAXES
Gross Revenues P 3,000,000 c. Normal Income Tax Due
Discounts and allowances 20,000 (184,000 * 30%) P 55,200
Net Revenues P 2,980,000
Cost of Services:
c. MCIT
Salaries and wages P 900,000
Materials and supplies 600,000 (1,125,000 * 2%) P 22,500
Depreciation 100,000
Rental 120,000 d. The Income Tax Due and payable
Outside services 60,000 P 55,200
Other direct costs 75,000 1,855,000
a. Total Gross Income P 1,125,000
Operating Expenses:
Advertising P 120,000
Commissions expense 130,000
Office Supplies 36,000
Insurance 45,000
SSS, GSIS. Medicare, HDMF 42,000
Taxes and Licenses 60,000
Director’s Fees 450,000
Miscellaneous 58,000 941,000
b. Taxable Income 184,000
ILLUSTRATIONS OF CORPORATE
TAXES
Example Problem 8:
Mega Corporation, a domestic corporation engaged in trading, manufacturing and service was organized and
operating for four years had the following data on its operations for the current taxable year:

Trading information:

Gross Sales P 4,640,000 Purchase discounts 40,000

Sales returns 90,000 Other Non-operating Income 50,000
Sales discounts 50,000 Allowable Corporate expenses 550,000
Purchases 3,500,000 Inventory, January 1 950,000
Purchase returns 50,000 Inventory, December 31 700,000

Service information:

Service Revenues P3,550,000 Rental 240,000

Discounts and allowances 50,000 Outside services 75,000
Salaries and wages 1,200,000 Other direct costs 80,000
Materials and supplies 750,000 Other Non-operating Income 25,000
Depreciation 150,000 Other Allowable expenses 695,000
 ILLUSTRATIONS OF CORPORATE
TAXES
Continuation…

Manufacturing information:

Gross Sales P7,240,000 Manufacturing overhead 800,000

Sales returns 150,000 Other Non-operating Income 75,000
Sales discounts 90,000 Allowable Corporate expenses 1,695,000
Raw materials purchases 2,000,000 W/P inventory, December 31 550,000
Raw materials inventory, Jan 1 600,000 W/P inventory, January 1 795,000
Raw materials inventory, Dec 31 400,000 F.G Inventory, January 1 800,000
Direct labor 1,250,000 F.G Inventory, December 31 650,000

Third Quarter information: Trading Manufacturing Service

Sales/Receipts/Revenues/Fees P1, 200,000 P1, 500,000 P900, 000
Cost of Sales/Services 1,050,000 900,000 570,000
Other Income 12,500 25,000 -
Allowable Deductions 150,000 415,000 191,000
Taxable Income from Previous Quarter(s) 155,000 235,500 168,000
Income Tax paid in the Previous Quarter(s) 46,500 70,650 50,400
ILLUSTRATIONS OF CORPORATE
TAXES
Required:

a.Compute the Taxable Income to Date in the Third Quarter, Income Tax Due and Tax
Paid in the Third Quarter.
b.Compute the Total Gross Income of Trading,
Service and Manufacturing operations.
a.Compute the total Gross Income subject to
minimum corporate income tax of 2%.
a.Compute the Total Taxable Income subject

to normal income tax of 30%.

a.Compute the Total Tax Due based on normal
tax and MCIT.]
a.What amount of Income Tax is due and payable

b.Prepare the Third Quarter Income Tax Return

(1702Q) and Annual
Income Tax Return (1702)
ILLUSTRATIONS OF CORPORATE
TAXES
Taxable Income to Date, Income Tax Due and Tax Paid in the Third Quarter.

Salaries/Receipts/Revenues/Fees P3,600,000.00
Less: Cost of Sales/Services 2,520,000.00
Gross Income 1,080,000.00
Add: Other Income 37,500.00
Total Gross Income P1,117,500.00
Less: Allowable Deductions 756,000.00
Taxable Income this Quarter P 361,500.00
Add: Taxable Income from Previous Qtr(s) 558,500.00
a. Total Taxable Income to Date P 920,000.00

a. Income Tax Due (920,000 x 30%) P276,000

Less: Income Tax paid in the Previous Qtr(s) 167,550
a. Income Tax Paid P108,450.00
 ILLUSTRATIONS OF CORPORATE
TAXES
Continuation…
b. Total Gross Income of Trading operation.
Gross Sales P4,640,000.00
Less: Sales returns P 90,000.00
Sales discounts 50,000.00 140,000.00
Net Sales P 4,500,000.00
Cost Sales:
Inventory, January 1 P950,000.00
Purchases 3,500,000.00
Total P4,450,000.00
Less: Purchase returns 50,000.00)
Purchase discounts (40,000.00)
Inventory, Dec. 31 (700,000.00) 3,660,000.00
Gross Income from Sales P 840,000.00
Other Non-operating Income 50,000.00
b. Total Gross Income P 890,000.00
ILLUSTRATIONS OF CORPORATE
TAXES
b. Total Gross Income of Service operations.
Gross Revenues P3,550,000.00
Discounts and allowances 50,000.00
Net Revenues P3,500,000.00
Cost of Services:
Salaries and wages P1,200,000.00
Materials and supplies 750,000.00
Depreciation 150,000.00
Rental 240,000.00
Outside services 75,000.00
Other direct costs 80,000.00 2,495,000.00
Gross Income from Operation P1,005,000.00
Other Non-operating Income 25,000.00
b. Total Gross Income P1,030,000.00
 ILLUSTRATIONS OF CORPORATE
TAXES
Continuation…
Total Gross Income of Manufacturing operations.
Gross Sales P 7,240,000.00
Less: Sales returns P 150,000.00
Sales discounts 90,000.00 240,000.00
Net Sales 7,000,000.00
Cost of Goods Sold:
Raw Materials:
Raw materials inventory, Jan 1 P 600,000.00
Raw materials purchases 2,000,000.00
Total P2,600,000.00
Less: Raw materials inventory, Dec 1 400,000.00
Raw materials Used P2,200,000.00
Direct labor 1,250,000.00
Manufacturing overhead 800,000.00
Total Manufacturing Costs P4,250,000.00
Add: W/P inventory, January 1 795,000.00
Total Goods Placed into Process P5,045,000.00
Less: W/P inventory, December 31 550,000.00
Cost of Goods Manufactured: P4,495,000.00
Add: F.G Inventory, January 1 800,000.00
Total Goods Available for Sales P5,295,000.00
F.G Inventory, December 31 650,000.00 4,645,000.00
Gross Income from Sales P2,355.000.00
Other Non-operating Income 75,000.00
Total Gross Income P2,430,000.00
ILLUSTRATIONS OF CORPORATE
TAXES
Total Gross Income and Total Taxable Income.
Net Sales – Trading P 4,500,000.00
Net Sales – Manufacturing 7,000,000.00
Net revenues – Service 3,500,000.00
Sales/Receipts/Revenues/Fees P15,000,000.00
Cost of Sales – Trading P 3,660,000.00
Cost of Sales – Manufacturing 4,645,000.00
Cost of Services 2,495,000.00
Total Cost of Sales/Services P10,800,000.00
Gross Income P 4,200,000.00
Add: Other Income (50,000+75,000+25,000) 150,000.00
Total Gross Income P4,350,000.00
ILLUSTRATIONS OF CORPORATE
TAXES
c. Total Gross Income P4,350,000.00
Allowable Deductions – Trading P 550,000.00
Allowable Deductions – Manufacturing 1,695,000.00
Allowable Deductions – Service 695,000.00
Total Allowable Deductions P 2,940,000.0
d. Total Taxable Income 1,410,000.00

e.. Normal Tax (1,410,000 x 30%) 423,000.00

e. MCIT (4,350,000.00 X 2%) 87,000.00

Normal Tax (1,410,000 x 30%) 423,000.00

Less: Tax Payments in Three Quarters 276,000.00
f. Income Tax Due and Payable 147,000.00
GROSS INCOME TAX
Domestic corporations have the option to be taxed
on Gross Income as follows:
A fifteen percent 15% tax on gross income.
Available only on corporations whose ratio of cost of sales to

gross sales or receipts from all sources does not exceed 55%.
Irrevocable for 3 consecutive years during the corporation is
qualified under the scheme.
GROSS INCOME TAX
The President, upon the recommendation of the Secretary
of Finance, may, effective January 1, 2001, allows
corporations the option to be taxed at 15% of gross
income as define therein, after the following conditions
have been satisfied.
a. A tax ratio of 20% of GNP;
b. A ratio of 40% of income tax collection to total
revenues;
c. A VAT tax effort of 4% of
GNP;
d. A 9% ratio of the Consolidated
Public Sector Financial Position
(CPSFP) to GNP.
GROSS INCOME TAX

Gross Income under the Gross Income

Tax (GIT) scheme means:
Trading and Manufacturing concerns:
Gross Income = Gross Income from Sales

Service concerns:
Gross Income = Gross Receipts less
Allowance and Discounts.
GROSS INCOME TAX
Example Problem 9:

GIT Corporation, a domestic trading corporation had the following data on its
operations for the current taxable year:

Gross Sales P 5,000,000 Cost of Sales 1,500,000

Sales Returns 100,000 Allowable Corporate Expenses 800,000
Sales Discounts 50,000 Interest under FCDS 50,000

Required:
a. Compute the ratio of cost of sales to gross sales.
b. Compute the taxable income for normal income tax.
c. Compute the normal income, MCIT and tax gross income tax.
GROSS INCOME TAX
a. Ratio of cost of sales to gross sales - (1,500,000/5,000,000) = 30%

b. Gross Sales P5,000,000

Less: Sales returns and discounts 150,000
Net sales P4,850,000
Cost of Sales 1,500,000
Gross Profit P3,350,000
Allowable Corporate Expenses 800,000
Taxable Income P2,550,000

c. Normal Income Tax = P2, 550,000 x 30% = P 765,000

MCIT = P3, 350,000 x 2% = P 67,000

Gross Income Tax = P3,350,000 x 15% = P 502,500

***Note: Once the GIT is opted it has to be applied for 3 consecutive years during which the firm is
qualified under the scheme. Interest under FCDS is subject to final tax of 7.5%.
CAPITAL GAINS TAX
Capital Gains Within Domestic Resident Nonresident
Foreign Foreign
Capital gains on the sale of stock not traded in
the local stock exchange. Net capital gains:
Not over P100,000
Excess of P100,000 5%
10%
Percentage tax on sale of shares of stock
traded in the local stock exchanged. Based on ½ of 1%*
selling price.
Capital gains on sale or exchange or 30% FT
6% of SP or FMV,
disposition of lands and/or buildings located in based on
whichever is higher
the Philippines. gain
Net capital gains on sales or exchange or
disposition of lands and/or buildings located 30% Nontaxable
outside the Philippines
PASSIVE INCOME TAX

Passive Income Within Domestic & Foreign Nonresident Foreign

Interest from depository bank under 7.5%
the expanded foreign currency Sec. 27 D (1); Sec. Tax Exempt
deposit system. 28 A 7(a) Sec. 27 D (3)

Royalties, yield, or monetary

substitutes from depository
substitutes, trust funds and similar 20% Normal Corporate
arrangements. Income Tax
Interest on currency bank deposit.
OTHER PASSIVE INCOME OF DOMESTIC
& RESIDENT FOREIGN CORPORATION
Final Tax on income of domestic banks under the
Expanded Foreign Currency Deposit System
Subject to final tax of 10%
 Income derived by a
depository bank from foreign
currency transactions with
local commercial banks
including branches of foreign
banks, other depository banks
and residents.
 Interest income from foreign
currency loans granted to
residents.
Inter-corporate dividends
From Domestic to:
Domestic = tax-exempt
RFC = tax – exempt
From Foreign Corporation to:
RFC = 30% of the portion
which is earned in the
Philippines which should be
50% or more of the total
income earnings for the past
3 years
OTHER PASSIVE INCOME OF
NONRESIDENT FOREIGN CORPORATION
1. Interest income on foreign loans contracted on or after
August 1, 1986 at 20% FWT.
2. Inter-corporate dividends received from a DC is subject to
15% FWT provided that foreign law allows taxpayer
clause; otherwise, it will be subject to the normal domestic
rate of 30%. (R. A. 9337)
The tax rate of 15% shall be
applicable if the foreign country
does not impose any income tax
on dividends received by the NFC
from a DC. The 15% tax rate shall
be deemed effective starting
January 1, 2009.
SPECIAL DOMESTIC CORPORATIONS
(SEC. 27(B), NIRC) Classifications Applicable
Tax
Proprietary educational
institutions (Except those
whose gross income from 10% of the
unrelated source exceeds taxable
50% of their total gross income
income)
Nonprofit hospitals
Government owned and Normal
controlled corporations corporate
income tax
Exempt government
organizations (GSIS, SSS, Tax exempt
PHIC, PCSO)
***MCIT may be applied if the private educational
institution qualified to be taxed under the NCIT. If it
remains under special tax of 10%, MCIT is not
applicable.
SPECIAL RESIDENT FOREIGN
CORPORATIONS
Classifications Applicable Tax
International Carrier 2 ½% of
Philippine gross
billing
Offshore banking
10% of GIW
units
Branch remittances 15% of
remittances
Regional area
Tax exempt
headquarters
Regional operating 10% of taxable
headquarters income
***RA 9294 exempts income from foreign currency
transactions of nonresidents with an OBUs and other local
commercial banks, including branches of foreign banks
from all taxes except the regular income tax accorded to
OBUs.
SPECIAL NONRESIDENT FOREIGN
CORPORATION
Classifications Applicable
Tax
Cinematographic film
owner, Lessor/ Distributor 25% of gross
(Sec 28B, NIRC) income

Lessor of machinery,
equipment, aircrafts and 7 ½% of
others (Sec 28C, NIRC) gross income

Lessor of vessels
chartered by Philippine 4 ½ % of
Nationals (Sec28D, NIRC) gross income
IMPROPERLY ACCUMULATED
EARNINGS TAX
 Under the National Revenue Code,
a tax equal to ten percent (10%)
of the improperly accumulated
taxable income of every
corporation formed or availed for
the purpose of avoiding the income
tax with respect to its shareholders
or the shareholders of any other
corporation, by permitting earnings
and profits to accumulated instead
of being divided or distributed.
 Under the Corporation Code of the
Philippines, a corporation can
retain earnings not exceeding one
hundred percent (100%) of its
paid-in-capital.
IMPROPERLY ACCUMULATED
EARNINGS TAX
Presumptions of Improper Accumulation of Earnings is
Accumulation of Earnings not prohibited for:
 When the corporation is  Additional working
a mere holding capital.
company.
 When the corporation is  Expansion,
an investment company. improvement and
 When the corporation repairs.
permits earnings to
accumulate beyond the  Debt retirement
reasonable needs of  Acquisition of a
the business. related business.
 Anticipated losses or
reverses in business.
EXEMPT FROM IMPROPER
ACCUMULATING OF TAX

 Publicly-owned
corporations.
 b. Banks and other
non-bank financial
intermediaries.
 c. Insurance companies.
FORMULA TO DETERMINE IMPROPERLY
ACCUMULATED EARNINGS
Taxable Income P xxx
Add: Income exempt from tax P xxx
Income excluded from gross income xxx
Income subject to final tax xxx
Net operating loss carry-over deducted (NOLCO) xxx xxx
Total P xxx
Less: Income tax paid/payable during CY P xxx
Dividend actually or constructively paid/issued
from the applicable year’s taxable income xxx
Amount reserved for the reasonable needs of the
business emanating from the covered year’s
taxable income xxx xxx
Improperly Accumulated Earnings P xxx
IMPROPERLY ACCUMULATED
EARNINGS TAX
Example Problem 10:
Game Corporation, a domestic corporation, had prior year retained that exceeded its paid-in
capital, which supports its reasonable business needs. For the current taxable year, the following
data were made available:

Dividends declared and paid P 500,000

Dividends received from domestic corporation 50,000
Interest income on local bank deposit 40,000
Final tax on interest on local bank deposit 8,000
Taxable income for the current taxable year 1,800,000
Capital gains on sale of land – Selling price P5,000,000 1,000,000
Capital gains tax on sale of land 300,000
Expansion needs for the next year 500,000
Net loss carry over applied in the prior year 300,000

Required:
Determine the Improperly Accumulated Earnings and Tax Due.
IMPROPERLY ACCUMULATED
EARNINGS TAX
Taxable Income, current taxable year P 1,800,000
Add: Dividends received from domestic corporation P 50,000
Capital gains on sale of land
(net of 6% tax on selling price of P5,000,000) 700,000
Interest income on local bank deposit
(net of final tax of 20% of P40,000) 32,000
Net loss carry over applied in the prior year 300,000 1,082,000
Total P2,882,000
Less: Income tax for the current taxable year
(P1,8000,000 x 30%) P 540,000
Dividends declared and paid 500,000
Expansion needs for the next year 500,000 P 1,540,000
Improperly Accumulated Earnings P 1,342,000

Improperly Accumulated Earnings Tax (P1,342,000 x 10%) P 134,200

OSD VS. ITEMIZED DEDUCTIONS
Example Problem 11:

XYZ Corporation Provided the following data :

Gross Sales P 10,000,000
Cost of Goods Sold 4,000,000
Sales returns and allowances 500,000
Operating Expenses 2,000,000

Requirements :
A. The Income Tax Due using Itemized deduction
B. The Income Tax due using OSD.
C. The Taxable Income using OSD if the taxpayer above is an
individual taxpayer.
OSD VS. ITEMIZED DEDUCTIONS

Computation of Income Tax

Due Using Itemized Deduction:

Gross sales P 10,000,000

Less: SRA 500,000
Net sales P 9,500,000
Less: CGS 4,000,000
Gross income P 5,500,000
Less: Operating Exp. 2,000,000
Taxable Income P 3,500,000
Tax Rate 30%
Income Tax Due P 1,050,000
OSD VS. ITEMIZED DEDUCTIONS

Computation of Income Tax

Due Using OSD:

Gross sales P 10,000,000

Less: SRA 500,000
Net sales P 9,500,000
Less: CGS 4,000,000
Gross income P 5,500,000
Less: OSD (40% X GI) 2,200,000
Taxable Income P 3,300,000
Tax Rate 30%
Income Tax Due P 990,000
OSD VS. ITEMIZED DEDUCTIONS

Computation Taxable Income Using

OSD of an Individual taxpayer:

Gross sales P 10,000,000

Less: SRA 500,000
Net sales P 9,500,000
Less: OSD (40% X NS) 3,800,000
Taxable Income P 5,700,000
Less: Personal Exemption 50,000
Taxable Income P 5,650,000
COMPLIANCE REQUIREMENTS
Keeping Of Books Of Accounts And
Records:

 All corporations, partnerships or persons

required by law to pay internal revenue
taxes shall keep a journal and a ledger or
their equivalents.
 Simplified set of bookkeeping records for
those whose quarterly sales do not exceed
P50,000.
 Journal and ledger or their equivalents for
those whose quarterly sales exceed
P50, 000.
 Annual audit examination by Certified
Public Accountants for those whose
quarterly sales exceed P150, 000.
COMPLIANCE REQUIREMENTS
Preservation of Books of Accounts
and Accounting Records:
 All the books of accounts,
including the subsidiary
books and other
accounting records shall
be preserved for a period
beginning from the last
entry in each book until
the last day prescribed
within the Commissioner is
authorized to make an
assessment (3 years).
REGISTRATION REQUIREMENTS:

Every person or entity subject to internal revenue

taxes shall register once with the appropriate Contents of Registration Form:
Revenue District Office:

1. Within ten (10) days from the date 1. Taxpayer’s name and form of
of employment, or business.
2. On or before the commencement 2. Place of residence and business ;
of the business, or and
3. Before the payment of any tax 3. Other information as required by
due, or the Commissioner.
4. Upon filing a return, statement of
declaration as required in the tax Any person or entity maintaining a head
code. office, branch or facility shall register
5. Payment of annual registration fee with the Revenue District Office having
of P500. jurisdiction over the head office, branch
or facility.
TAXPAYER’S IDENTIFICATION NUMBER
(TIN)
Any person or entity
required under the authority
of the Tax Code or other
documents shall be supplied
with or assigned a Taxpayer
Identification Number (TIN),
which shall be indicated in
such return, statement or
document filled with the BIR
for proper identification for
tax purposes.
ISSUANCE OF RECEIPTS OR SALES OR
COMMERCIAL INVOICES:
The following rules shall apply in the issuance of receipts or invoices:
1. The time for issuance of receipts or invoices shall be at the time when transaction
is effected.
2. All persons or entity subject to internal revenue taxes shall for each sale or
transfer of merchandise or for services rendered valued at P25.00 or more and
should be issued at least in duplicate
3. The name, from of business, address of customer or client shall be shown in the
receipt or invoice
a. Where the sales or services are valued at P100 or more.
b. When the receipt is issued to cover payment for rentals, commissions,
compensation or fees, regardless of amount.
c. When the sale or transfer is made by persons liable to pay the value-
added tax to another person also liable to value-added tax,
regardless of amount.
PRINTING OF RECEIPTS OR SALES OR
COMMERCIAL INVOICE
The following are the requirements before receipts or sales or
commercial invoices are printed:
1. BIR authority to print
All persons or entities who are engaged in business shall secure from the Bureau of Internal
Revenue an authority to print receipts or sales or commercial invoices before a printer can print
the same.

2. Other requirements:
No authority to print receipts/sales invoices shall be granted unless the receipts or invoices
are/shall:
a. Serially numbered.
b. Contain the name, business form, TIN and business address of the person or entity to use
such receipts or invoices.
c. Contain information that may be required by the rules and regulations to be promulgated
by the Secretary of Finance, upon recommendation of the BIR Commissioner.
Questions?
 THANK YOU!!!

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