BIR

Frequently Asked Questions for Bookkeeping in the Philippines

Frequently Asked Questions for Bookkeeping in the Philippines

COVID-19 or not, bookkeeping is a taxing but necessary endeavor for any business. Regardless of scale, businesses need to know the current state of their finances. Company owners and management members should at least have a working knowledge of the most commonly-used accounting jargon. This way, they can make decisions and allocate resources with an eye on maintaining and building the company’s financial health.

The following is a short list of frequently asked questions (FAQs) on bookkeeping in the Philippines. It includes answers to general questions like “What is bookkeeping?” to more specific questions like “What is the difference between bookkeeper and accountant?”. We hope that this list can help you answer some of your most common questions when it comes to bookkeeping.

What is bookkeeping?

Q: What is bookkeeping?

Bookkeeping includes recording, storing, and retrieving financial transactions for an entity such as a business, nonprofit organization, individual, etc. It also requires knowledge of basic financial accounting concepts such as debits and credits, balance sheets, and income statements. It is part of the full business accounting process.

On the other hand, accounting refers to recording, organizing, and understanding your company’s financial records. Accounting can tell you which parts of the business actually makes you money and whether your business is making a profit or not.

Q: What’s the difference between bookkeeper and accountant?

What’s the difference between bookkeeper and accountant?

A bookkeeper is the one who keeps, records, and gathers financial data, while an accountant summarizes, interprets and communicates this data for financial decisions. The two roles are very similar, but still very different.

While an accountant can do bookkeeping tasks (but usually don’t), they are better suited to consulting work, such as preparing your financial reports and helping you understand the financial impact of your previous (and upcoming) decisions.

Q: What are some examples of bookkeeping tasks?

Typical bookkeeping tasks include:

  • Processing employee payroll and related governmental reports
  • Billing for goods sold/services provided to clients
  • Recording receipts from customers
  • Monitoring individual accounts receivable
  • Providing financial reports
  • Paying suppliers
  • Verifying and recording invoices received from suppliers
  • Recording depreciation and other adjusting entries

Q: What makes a good bookkeeper?

A good bookkeeper will help improve business cash flow, maximize tax exemptions, and free you up to focus on growing your business.

Q: Can I do the bookkeeping myself?

Yes, but you need to ask yourself if this is really the best use of your time. For many business owners, time is their most valuable asset. Consider if you have other business tasks that need attending to. A good rule of thumb is that if you can outsource or delegate it to someone else, then do so.

We can only do so much in a day, so your limited time is better spent on pursuing high-leverage tasks and ideas. In the long run, you may also find that it costs more money to do the bookkeeping yourself—especially if you don’t have the necessary experience or interest

Should I outsource my bookkeeping?

Q: Should I outsource my bookkeeping?

Yes, but it also depends on how much you’d like to micromanage.

If you like having a tight rein over your company’s finances, being your own bookkeeper might work for you. However, our general recommendation is to outsource as it saves your time, money, and energy. Hiring a professional bookkeeper or accountant is always the better choice, as it can save you from making mistakes that could eventually cost you a lot.

Q: Will I save time and money if I outsource accounting or bookkeeping?

Yes to both! Your time is better off spent on tasks that will grow your business the most, like strategizing and planning for business growth. Some benefits of outsourcing business bookkeeping and accounting include:

Will I save time and money if I outsource accounting or bookkeeping?
  • Reduced operational costs (e.g. payroll, office space, equipment)
  • Lesser risk of paying penalties and fines for non-compliance
  • Improved Cash Flow
  • More time spent on core business competencies
  • Better insights with which to boost your internal systems and processes
  • Allows you to easily scale up as needed

Q: Where can I find a bookkeeping firm in Makati?

DAYANAN Business Consultancy offers bookkeeping services and is located in the heart of the Philippines’ business district. You may contact us at telephone number +632 7576-8476 or visit us at LG1, Cityland III, V.A. Rufino corner Esteban Streets, Legaspi Village, Makati City.

Q: What are some examples of bookkeeping and/or accounting software?

While a spreadsheet program like MS Excel or Google Sheets may be useful for businesses with a tight budget, it’s still limited compared to specialized bookkeeping software such as Quickbooks.

The most popular bookkeeping software is Quickbooks, but Xero and Freshbooks are some well-known names as well. Explore your choices before making your purchase.

Q: What bookkeeping records must be maintained by businesses in the Philippines and what are they for?

What bookkeeping records must be maintained by businesses in the Philippines and what are they for?

According to the Philippines’ Bureau of Internal Revenue (BIR), there are six books that every business should keep and maintain regularly:

  • Journal
  • General Ledger
  • Cash Receipts Book
  • Cash Disbursements Book
  • Subsidiaries Sales Journal
  • Subsidiaries Purchases Journal

1. Journal – Accounting entries are recorded here in chronological order before the transactions are posted to the General Ledger.

2. General Ledger – It holds account information needed to prepare the company’s financial statements. Data in the general ledger is segregated by type into accounts for revenues, expenses, assets, liabilities, and equity.

3. Cash receipts book – It is a detailed record of all cash inflows to a business, such as cash sales and collections of accounts receivable.

4. Cash disbursements book – This is a record of all financial expenditures made by a company before they are posted to the general ledger. It includes disbursements for cash purchases and payments of payables.

5. Subsidiary Sales Journal – It is a record of the details of all sales transactions. The information stored in this journal is a summary of customer-issued invoices. This journal only stores receivables; this means that sales made in cash are not recorded in the sales journal.

6. Subsidiary Purchases Journal – This contains all cash and credit purchases of goods and services. A Subsidiary Purchases Journal contains information about purchasing transactions. All types of purchases made on credit are recorded here.

The BIR also mandates businesses to keep other accounting records such as registers, invoices, receipts, vouchers, returns, and other source documents that support entries in the books of accounts.

Q: For how long does a company have to store its accounting books and records?

For how long does a company have to store its accounting books and records?

10 years per RR 17-2013 and RR 05-2014 issued by BIR. This is because Section 203 of the National Revenue Code provides that in pending cases relating to tax evasion or failure to file returns, the BIR has the authority to examine tax documents for up to 10 years after the discovery of fraud or omission.

Q: What are the common mistakes or misconceptions about bookkeeping that people should be aware of?

There are two common misconceptions when it comes to bookkeeping and accounting. The first is regarding the start of operations and the second is about when to file tax returns.

  • Businesses should only start operating AFTER it obtains necessary permits and licenses from the relevant government offices, either the Securities and Exchange Commission (SEC) for corporations and partnerships or the Department of Trade and Industry (DTI) for sole proprietors. Aside from these, permits and licenses from local government units and the Bureau of Internal Revenue (BIR) must also be obtained.
  • Once the BIR has issued the Certificate of Registration, tax returns MUST be filed, EVEN IF there are no transactions to report. Not doing so will incur you some penalties.

Q: What are the BIR tax reports/requirements that we need to maintain? How often do we submit them to BIR?

The taxpayer needs to regularly file tax returns. What these returns are will depend on the tax types indicated in the BIR Certificate of Registration (COR). Generally speaking though, tax returns need to be filed monthly, quarterly, and yearly, as follows:

  • Withholding Taxes – filed monthly and annually
  • Value Added Tax – filed monthly and quarterly
  • Income Tax – filed quarterly and annually

Aside from tax returns, licenses and permits should be renewed annually, while annual reports should be filed and paid.

Q: Do I need to comply with BIR reports if I already have a registered entity in the Philippines but it’s not yet operational?

Once the BIR issues the Certificate of Registration, you must file, even if no transactions have taken place. Otherwise, you will be charged penalties for non-compliance.

Q: Are there any additional tax requirements for foreign businesses registered in the Philippines?

There are NO additional tax compliance requirements for foreign businesses, but there may be additional tax filings that are unique to foreign entities. An example is the branch profit remittance tax on profits remitted by a Philippine Branch to its Head Office.

Q: What happens if we don’t comply with the mandated accounting/bookkeeping requirements?

The SEC and BIR can impose penalties for failure to submit financial statements and tax returns on time. While the exact fines and penalties vary on a case to case basis, complying with basic accounting/bookkeeping requirements is always a good idea.

Thanks for reading this article on frequently asked questions for bookkeeping in the Philippines. If you want to grow your business, outsourcing is generally the way to go. If you need bookkeeping services in Makati or are searching for a bookkeeping firm in Makati, we at DAYANAN can help you! You may contact us here for any inquiries and our team of experts will gladly assist you.

What You Need to Know about Business Permits in the Philippines

Philippines Business RegistrationEvery business whether a corporation or partnership registered with the SEC or a sole proprietorship registered with the DTI is under the obligation to immediately obtain business permits in the municipalities where they operate.
Corporations whether PEZA registered or not operating without the necessary business permits will incur fines, penalties or closure from the BIR or City Hall.

Registration is required for every separate or distinct establishment or place of business including facility types where sales transactions occur and warehouse where inventory of goods for sale are kept, and must be obtained before commencement of business and payment of any tax due.

BIR FINES

Failure to Register

– Fine of not less than P5,000 but not more than P20,000 and imprisonment of not less than 6 months but not more than 2 years.

Compromise Fees

a. Cities 20,000
b. 1st class municipalities 10,000
c. 2nd class municipalities 5,000
d. 3rd class municipalities 2,000

Official Receipts

Failure to issue receipts/invoices 1st violation 10,000 – 2nd violation 20,000
Refusal to issue receipts/invoices 1st violation 25,000 – 2nd violation 50,000

The above are just a few of the penalties that the BIR may impose.

Mayor’s Permit

None registration with City Hall has its own penalties;

Makati City Penalty example:
SEC. 3A.11. Penalty – Any violation of the provisions of this Article shall be punished by a fine of not less than One Thousands Pesos (P 1,000.00) nor more than Five Thousands Pesos (P 5,000.00), or imprisonment of not less than one (1) month not more than five (5) months, or both, at the discretion of the Court.

The above does not includes a surcharge of 25% for late payments and a 2% monthly interest on the unpaid taxes, fees or charges including surcharges.

The documentation required varies according to the municipality, below are listed :

– Barangay Clearance/Permit for the new year
– Previous Year’s Business Permit
– Financial Statement/ Income Tax Return for the preceding year
– Latest Community Tax Certificate
– Contract of Lease/ Lessor’s Permit
– Comprehensive General Liability Insurance
– List of Company Employees with Medical Certificates

Documentary requirements may vary from year to year, we recommend that you check for changes before filing your business permit renewal with City Hall.

Annual Mayor’s Permit Fees (business tax) vary according to the nature of the company’s business, the company’s preceding years gross sales are used to calculate the amount of tax due which can be less than 1% to 3% or more, regardless of when the business started to operate .

In the case of a newly-started business the initial tax for the year shall be calculated on the capital investment or paid up capital, contract of lease and size of office.

All business permits should be prominently displayed in every location where business is transacted.

A Brief Overview of BIR Filing Rules for Philippine Corporations Businesses

Philippines Tax Filings BIRBureau of Internal Revenue Tax Filings

Upon registering your corporation, branch office or business with the Philippine Bureau of Internal Revenue (BIR), you will be required to attend a seminar that will orient you on your company’s basic tax obligations in the Philippines.

While most corporation owners would send their accountants to this seminar rather than attend it themselves, it is wise and prudent for you to be aware of the information given there as well. So here, in a nutshell, are the basic rules of Philippine tax filing that you, as a business owner, should know.

What to pay

1. Sales tax. There are two kinds of businesses in the Philippines: value added tax (VAT) payers and percentage tax payers, or non-VAT.

VAT payers are required to pay monthly and quarterly sales taxes equivalent to 12% of their gross sales, while non-VAT payers pay 3% monthly.

When to pay: on or before the 20th day of the following month (monthly) and the 25th day after the close of the quarter (when applicable)

Forms to use: 2551-M (monthly) for non-VAT; 2550-M (monthly) and 2550-Q (quarterly) for VAT

Who are Required to File VAT Returns

  • Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00).
  • A person required to register as VAT taxpayer but failed to register
  • Any person, whether or not made in the course of his trade or business, who imports goods

2. Income taxes withheld at source. Businesses are required to withhold taxes from their building lessors (5% of total monthly rent), hired freelancers (10–15% for professionals and 2% for subcontractors), and regular employees (rates depend on salary), and remit these taxes to the BIR every month. The BIR Form 2307 should be issued to these withholdees to serve as their proof of creditable income tax withheld at source.

When to remit: on or before the 10th day of the following month

Forms to use: 1601-C (compensation) for employees; 1601-E (expanded) for lessors and freelancers

3. Income tax. As a general rule, income tax rates for corporations in the Philippines are at 30% of net taxable income, while the optional standard deduction rate, which can be used in lieu of itemized deductions, is 40% of the company’s gross income.

However, several conditions, such as BOI or PEZA registrations, special tax treatises, etc., may significantly lower the amount of taxes due from a corporation. Our company can guide you on what steps to take to legally minimize your company’s tax duties in the Philippines.

When to pay: on or before May 30 (q1), August 29 (q2), November 29 (q3), and April 15 (annual)

Forms to use: 1702-Q (quarterly) and 1702-RT (annual)

4. Registration fee. This is a ₱500 fee that needs to be paid every year as a renewal of one’s BIR registration.

When to pay: on or before January 31

Form to use: 0605 (payment form)

If the deadlines for filing fall on a holiday or weekend, then your company may still file and pay without incurring penalties on the next working day.

Additional notes

The deadlines listed above are for manual payers only. Users of the eFiling and Payment System (eFPS) usually have their due dates set one to five days after the manual payers, depending on the industry that their business is engaged in. The companies that are required to use the eFPS include corporations with paid-up capital stocks of at least ₱10 million pesos, taxpayers with computerized accounting systems, PEZA members, and BOI-certified companies.

Payments should be made at authorized agent banks within the revenue district under which your business is registered. Payments made in banks outside your own revenue district will be subject to 25% penalty.

If you would like to learn more about the tax environment and exemptions for local- or foreign-owned corporations in the Philippines, we at Dayanan Consulting can help you. Call us today and let’s talk. We’d be happy to be of service.

 

Steps in Registering Your Corporation with the BIR

BIR RegistrationThe Bureau of Internal Revenue (BIR) is the Philippines’ primary taxation agency. It is authorized to assess and collect taxes from all income-generating entities in the country.

Before any business can commence operations, they are required to register with the BIR or be penalized in accordance with Philippine law.

Here are the steps to registering your corporation with the BIR:

1. Fill out the required application forms, specifically,

• BIR Form 1903, or the Application for Registration for Corporations/Partnerships;
• BIR Form 0605, i.e., the Payment Form, for tax type RF (i.e., registration fee); and
• BIR Form 2000, for documentary stamp tax.

2. Submit the required documents at the revenue district office (RDO) in charge of the area where your office is located. These documents include

• your filled-out BIR Form 1903;
• your SEC certificate;
• your business/mayor’s permit; and
• your contract of lease.

You may also be asked for a sketch of your head office location.

Note that in some RDOs, you will need to bring your original business permit plus a photocopy of the same, while in others, even just the official receipts (OR) of the payments you made for your business permit application will suffice.

You may also be asked for a sketch of your head office location.
Note that in some RDOs, you will need to bring your original business permit plus a photocopy of the same, while in others, even just the official receipts (OR) of the payments you made for your business permit application will suffice.

3. Pay the annual registration fee. This is a fixed cost of ₱500 every year.

You will also need to pay for documentary stamps; the BIR will advise you on the exact amount you will need to pay for that.

In some places, RDOs will accept these payments onsite; in others, you will be asked to make the payments at the nearest authorized agent bank (AAB).

Each RDO has a list of its own AABs – but not all AABs actually do accept BIR payments.

4. Attend the BIR seminar. Some days after you submit your application requirements, your Certificate of Registration (COR) will be ready for pickup. Before the RDO will release this certificate, you or your authorized representative will need to attend a 1–2 hour seminar about your tax duties, the different kinds of taxes you need to file and pay, and the various tax deadlines. CORs will be given out after the seminar.

5. Register your accounting system. With your COR on hand, you are practically done registering your business.

The next step is to register your accounting system using the BIR Form 1900 (Application for Authority to Use Computerized Accounting System or Components thereof/Loose-Leaf Books of Accounts).

Or if you will be using manual books of accounts fill out BIR Form 1905.

6. Get your receipts and invoices printed. This involves another application process, and it should be done promptly because you need to begin issuing ORs and sales invoices (SI) within 30 calendar days from the date of registration indicated in your COR.

To get BIR-authorized ORs and SIs, you need to apply for an Authority to Print receipts using the BIR Form 1906. Submit this to your RDO along with a clear sample of the receipts you intend to get printed.

ORs and SIs must be printed by BIR-authorized printers only. These receipts will be valid for a period  five years from the date of printing, after which any unused ones will need to be destroyed and you will need to obtain a new authority to print.

The BIR registration is the last step in legalizing your corporation’s business presence in the Philippines. Your next steps – registrations with the Department of Labor and Employment, etc. – will come when you are hiring your first employees.

 

Steps in Registering Your Corporation in the Philippines: A Brief Overview

Philippines Business RegistrationOnce you have decided that the Philippines is a good place for setting up business, it’s time to begin the process of registering your corporation.

Here are the steps to registering a corporation in the Philippines:

1. Register your company name with the Philippine Securities and Exchange Commission (SEC) . This is the government agency under whose jurisdiction falls all corporations, associations, and partnerships established in the country.

SEC registration involves at least 5 steps, which begin with the online verification and reservation of the company’s proposed name, and ends with your claiming your SEC license/certificate in person at the SEC office.

2. Get clearance from the barangay hall. A barangay is a Filipino local government unit usually composed of several villages. Several barangays make up a municipality.

To get barangay clearance, go to the barangay hall of the area where you intend to put up your main office. Submit your SEC certificate, site map of your company’s intended location, your approved articles of incorporation and bylaws, and your application form. Then, pay the application fee, and receive your signed barangay certificate that very same day or next day.

3. Secure your municipal permit. Municipal permit application can be complex for two reasons: (1) municipalities vary widely in their requirements, and (2) before you can get your municipal permit, you will need to get supporting certificates from other government agencies outside the municipal hall, like the Bureau of Fire Protection, the municipal health center, etc.

Once you have secured all of your required certificates, bring them back to the municipal hall, pay the fees stated in your application form, then wait a week or two (or more) for your certificates to be ready.

4. Register with the Bureau of Internal Revenue (BIR). The BIR is the last stop in your business registration process. Armed with all the papers and certificates you have so far secured from the SEC, barangay hall, and municipal hall, plus all the other requirements you submitted to be able to secure those permits, go to the BIR revenue district office (RDO) in charge of the area where your business is located.

You may or may not need all the paper you bring with you. Like the municipal halls, RDOs can vary slightly in their requirements for registration.

At the RDO, fill out BIR forms 1903 (Application for Registration for Corporations) and 0605 (payment form for the registration fee).

Submit your application form and all required supporting documents, pay the registration fee and documentary stamps, and you’re done for the day. The BIR will tell you when you should call back to confirm whether your certificate of registration (COR) is ready.

Once your COR has been issued, you have 30 days to have your official receipts and sales invoices printed.

6. Register with the Social Security System (SSS), Home Development Mutual Fund (HDMF), Philippine Health Insurance Company (Philhealth), and the Philippine Department of Labor and Employment (DOLE). Registration with the DOLE becomes mandatory when you have 5 or more employees in your payroll. On the other hand, companies with even just one employee are required to register as employer with the SSS, HDMF, and Philhealth, so that their employee/s may enjoy the benefits of these agencies.

At present, the Philippine government is revising SOPs and putting up infrastructure and to speed up and simplify the system of business registration in the country.

Frustration among registrants is usually caused by the lack of communication from the involved government offices. For instance, it is not uncommon for registrants to discover that the requirements for business permit that are published in a municipality’s website are not complete, and the registrant ends up having to go back and forth to complete the required documents. Many a registrant has also experienced falling in line at a certain window, following instructions indicated by a flowchart posted on the wall, only to find out half an hour later that the flowchart is inaccurate and they are in the wrong queue.

Dayanan Business Consultancy is well versed in the ins and outs of the Philippine business registration process. We’ll be happy to guide you in every step of your company registration in the Philippines. Call us now to learn more about our services.

Tax Identification Number for Foreign Investors

Tax Identification Number for Foreign InvestorsForeign corporations and individuals whether resident or non-resident, who have opened/invested in a domestic corporation, branch office, representative office or any other legal entity licensed to transact business in the Philippines are now required to obtain a Tax Identification Number (TIN) from the Bureau of Internal Revenue (BIR).

SEC Filings

All documents to be filed with the SEC by corporations and partnerships after their incorporation (i.e. General Information Sheets, application for amendments) will not be accepted by the SEC unless the TIN of all its foreign investors natural or judicial, resident or non resident are indicated therein no matter their percentage of foreign ownership.

Foreigners are not required to obtain a TIN for incorporation but must instead indicate their nationality, passport number and date of issue in the registration documents (i.e Articles of Incorporation, etc…).

These new rules are to be found in Memorandum Circular No. 1, Series of 2013, issued by the Securities and Exchange Commission (SEC) which requires the mandatory inclusion of the Tax Identification Number (TIN) of foreign investors in all forms, papers and documents filed with the SEC.

The above memo was issued to comply with Revenue Regulation 7-2012 dated April 2, 2012, known as the “Amended Consolidated Revenue Regulations on Primary Registration, Updates and Cancellation”, which provides –

“Section 4(I)(V)– Non-resident Aliens Not engaged in Trade or Business (NRANETB) or Non-Resident Foreign Corporations (NRFC) shall be issued TIN’s for purposes of whithholding Taxes on their income from sources in the Philippines. The withholding Agent shall apply for the TIN in behalf of the NRANETB or NRFC prior to or at the time of the filing of thier monthly withholding tax return”

and in relation to E.O. 98, Series of 1998 signed by President Joseph Ejercito Estrada directing all persons whether natural or juridical having dealings with any government agencies and instrumentalities, including Government owned and/or Controlled Corporations (GOCCS), and all Local Government Units (LGUs) to include their TIN in all forms, permits, licenses, clearances, official papers and documents which they secure from these government agencies, instrumentalities, including GOCCs and LGUs by corporations/partnerships with foreign investors.

This is part of the government campaign to enforce tax compliance of foreign investors in the Philippines.