Friday, April 8, 2011

Income Tax Return Filing in the Philippines


Have you ever heard about the famous tax evaders in the country? Quite a handful of them right? I bet you don't want to be included in their ranks because you want to be a law-abiding citizen (but deep inside if taxing was a choice you would not choose to pay).  Today, the headline of a famous nationwide newspaper are the names of the individuals that the government are running after to collect taxes from. 

This article will not teach you how to minimize your tax nor how to exercise some form of evasion. I decided to research about this and share to everyone who needs to know the "how to's" of filing their respective income taxes this month. I've referenced the BIR website and the learnings I have had in college where I mastered Taxation 101 so to speak).

On April 15, 2011, every individual or entity (e.g., partnership or corporation), who are required to file their income tax return and or pay their corresponding income tax due and payable should already be done doing such obligations. To avoid being penalized and being imposed with additional charges, such as interest, surcharge and compromise due to non-filing and nonpayment on time, it is wise to file your income tax return as early as possible.

What is taxable income? Taxable income means the pertinent items of gross income specified in the Tax Code as amended, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws.

Who Are Required to File

A. Individuals

1. Resident citizens receiving income from sources within or outside the Philippines

a) Employees deriving purely compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year
b) Employees deriving purely compensation income regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return
c) Self-employed individuals receiving income from the conduct of trade or business and/or practice of profession
d) Individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession
e) Individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax
f) Individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing
g) Marginal income earners

2. Non-resident citizens receiving income from sources within the Philippines
3. Aliens, whether resident or not, receiving income from sources within the Philippines

B. Corporations no matter how created or organized including partnerships

1. Domestic corporations receiving income from sources within and outside the Philippines
2. Foreign corporations receiving income from sources within the Philippines
3. Taxable partnerships
C. Estates and trusts engaged in trade or business

BIR Forms To Be Used

The following are the BIR Forms to be used for filing annual income tax return for different types of taxpayers.

1. BIR Form 1700 – Annual Income Tax Return (For Individual Earning Purely Compensation Income Including Non-Business/Non-Profession Related Income)

Documentary Requirements:
a) Certificate of Income Tax Withheld on Compensation (BIR Form 2316)
b) Waiver of the Husband’s right to claim additional exemption, if applicable
c) Duly approved Tax Debit Memo, if applicable
d) Proof of Foreign Tax Credits, if applicable
e) Income Tax Return previously filed and proof of payment, if filing an amended return for the same taxable year

2. BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those With Both Business and Compensation Income)

Documentary Requirements:
a) Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable
b) Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
c) Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
d) Waiver of the Husband’s right to claim additional exemption, if applicable
e) Duly approved Tax Debit Memo, if applicable
f) Proof of Foreign Tax Credits, if applicable
g) Income Tax Return previously filed and proof of payment, if filing an amended return for the same year
h) Account Information Form (BIR Form 1701 AIF) or the Certificate of the independent CPA with Audited Financial Statements if the gross quarterly sales, earnings, receipts or output exceed P 150,000.00
i) Proof of prior year’s excess tax credits, if applicable

3. BIR Form 1702 – Annual Income Tax Return (For Corporations and Partnerships)

Documentary Requirements:
a) Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304), if applicable
b) Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
c) Duly approved Tax Debit Memo, if applicable
d) Proof of Foreign Tax Credits, if applicable
e) Income tax return previously filed and proof of payment, if amended return is filed for the same taxable year
f) Account Information Form (BIR Form 1702 AIF) and/or the Certificate of the independent CPA with Audited Financial Statements, if the gross quarterly sales, earnings, receipts or output exceed P150,000.00
g) Proof of prior year’s excess tax credits, if applicable


Note: Quarterly income tax returns (BIR Form 1701Q and BIR Form 1702Q) shall also be filed on or before their corresponding due dates. But for the purpose of simplifying this article, we only include income tax returns filed annually.

Deadlines

The following are the deadlines and due dates of filing income tax returns:

1. BIR Form 1700 – Annual Income Tax Return (For Individual Earning Purely Compensation Income Including Non-Business/Non-Profession Related Income)

Deadline: On or before the 15th day of April of each year covering taxable income for the preceding taxable year.

2. BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those With Both Business and Compensation Income)

Deadline: Final Adjustment Return or Annual Income Tax Return – On or before the 15th day of April of each year covering income for the preceding year.

3. BIR Form 1702 – Annual Income Tax Return (For Corporations and Partnerships)

Deadline: Final Adjustment Return or Annual Income Tax Return – On or before the 15th day of the fourth month following the close of the taxpayer’s taxable year.

Note: For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession, when the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to be paid at the time the return is filed and the second installment 15 of the same year at on or before July the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.

I am just so lucky that I don't feel stressed in doing all the filing for myself because my company does it for me. What a convenience! I pay my tax, do you? 


1 comment:

Michelle said...

Taxes are a pain but it's a must. But sometimes it hurts to think that all the taxes you're paying is just going to someone else's pocket. :(