Business Taxes for Small Business Owners in the Philippines

December 3, 2014 | Sharon Cheong

According to Section 123 of the Corporation Code of the Philippines, a foreign corporation refers to a business that owes its foundation from the laws of another state. It has no legal existence in another state. It should exist, be formed, and be organized under laws except the Philippine law.

The Philippine government is encouraging foreign investments in Philippine-based businesses because these provide a base for the economy's overall development. In addition they also increase production, provide employment and fill in capital gaps within the country.

Types of Taxes for Businesses in the Philippines

There are various taxes that are applicable to businesses operating in the Philippines. You should familiarize yourself with the country's tax laws or consult a CPA or tax lawyer in order to avoid costly legal battles.

VAT

The value-added tax rate in the Philippines is currently 12%. It is imposed on all types of sales, leases, and services, and is collected by the Bureau of Internal Revenue (BIR) either on a monthly or quarterly basis.

VAT is collected for all businesses, whether big and small, local or foreign-owned. Every receipt and sales invoice should reflect the tax. If you wish to learn more information about Philippine VAT, visit the BIR website.

Wage and Salary Tax

Businesses should withhold and remit their employees' income tax, as well as contributions to Medicare, Pag-IBIG Fund, and SSS. Medicare is a Philippine health insurance provider, Pag-IBIG Fund is a housing loan provider, and the SSS stands for the Philippine Social Security System. Businesses are in charge of preparing the documents related to their employees' taxes and contributions, as well as submitting them to the corresponding government agencies.

With regards to the SSS, businesses must submit not only their employees' contributions but their own share of contribution per employee to the agency.

Amusement Tax

There's an amusement or entertainment tax charged for businesses such as casinos, night and day clubs, cabarets, movie houses, carnivals, horse races, basketball games, boxing tournaments, and cockpits.

The Philippine government also requires taxes on concerts and other related entertainment events. If your business is part of the entertainment industry or engages in activities similar to those listed above, you are required to pay taxes based on your admission prices and the like.

Corporate Income Tax

If you're one of the stock owners of a corporation, you should pay additional taxes on dividends if they're distributed to you and declared. When you file for your ITR, you should include such dividends in your personal income tax.

Majority foreign-owned enterprises (more than 40% of equity) with at least 70% production or service that's for export and locally owned enterprises with at least 50% of production or service that's for export can get tax incentives or breaks.

These are just some of the taxes that you should pay as a foreign-owned business in the Philippines. However, there are actually tax incentives and breaks to foreign corporations that are investing in the Philippines. To avail of these benefits, your business must have a Board of Investments registration and should be recognized by the Philippines Investment Priority Plan as a preferred area of business.

If you want to set up a business in the Philippines, you'll need corporate registration services and virtual office solutions. Servcorp offers these and more.