WELCOME PARTICIPANTS TO THE SEMINAR ON THE BASICS OF TAXATION For TV/Radio Talents/Media Practitioners/Other TPs BIR MULTI-PURPOSE HALL MAY 22,

2 Tax Update Seminar with Media Practitioners Revenue Region 19-Davao City May 21, 2014 Presented by: SUSAN D. TUSOY, CPA, MPS Asst. Chief, Assessment Division BUREAU OF INTERNAL REVENUE

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Topic Outline 4 1. Registration, Invoicing and Bookkeeping Regulations 2. Applicable Tax Type a. Registration Fee b. Income Tax c. Business Tax (VAT and Percentage) d. Withholding Tax

REGISTRATION FEES

When to register 6 On or before the commencement of business Before payment of any tax due Upon filing of a return, statement or declaration as required by the NIRC. Employee: within 10 days from date of employment

BIR Registration Procedures 7 PRIMARY REGISTRATION SECONDARY REGISTRATION Application & Issuance of TIN Registration of Business/Practice of Profession/Employment Registration of books, Issuance of ATP, CAS and Loose-leaf STAGE 1 STAGE 2

On Registration Pay Annual Registration Fee of P upon registration and every year thereafter on or before Jan. 31 for every separate or distinct establishment or place of business, including facility types where sales transactions occur

On Registration (RR ) Submit an affidavit indicating the rates, manner of billings and the factors considered in determining their service fees on or before Jan. 31 every year Transition deadline: May 31, 2014 (RMC )

INVOICING REQUIREMENTS 10

Invoicing Requirements Issue sequentially Official Receipt (OR) for fees received Each OR issued shall indicate the name and address of the client, date of transaction, nature of service rendered and the amount. 11

Invoicing Requirements The OR shall be accomplished at least in duplicate The duplicate retained & preserved in place of business for 10 years from close of taxable year (RR ). 12

13 Invoicing Requirements (RR ) In cases no professional fees are charged by the professional and paid by client, a BIR registered receipt, duly acknowledged by the later, shall be issued showing a discount of 100% as substantiation of the “pro-bono” service. 13

Sample of Commercial Invoice – A Non-VAT Official Receipt SAMPLE ONLY

15 Proper Invoicing and Receipting of Output Tax  Revenue Regulations Reiterates Sec. 237 of the Tax Code that VAT-registered taxpayers should separately bill the VAT. The amount shall be shown as a separate item in the invoice or receipt 15

16 Proper Invoicing and Receipting of Output Tax Ex: If the amount charged is P560.00, it shall be presented in the following manner: Professional Fee (P560.00/112%) P Add12% VAT (12% of P500.00) Total Amount charged P

17 Proper Invoicing and Receipting of Output Tax 17 SAMPLE ONLY

Principal Receipts/Invoices (RR ) A written account evidencing the sale of goods and/or services issued to customers in an ordinary course of business 18

VAT Sales Invoice  A written account evidencing the sale of goods and/or properties  issued whether cash sales or on account  Basis of the output tax liability of the seller and the input tax claim of the buyer  Includes Cash Sales Invoices & Charge Sales Invoices 19

VAT Official Receipt A proof of sale of service and/or leasing of properties Basis of the output tax liability of the seller and the input tax claim of the buyer 20

Non-VAT Receipts/Invoices Non-Vat Sales Invoices A written account evidencing the sale of goods and/or properties, whether cash sales or on account Basis of the Percentage Tax liability of the seller Non-Vat Official Receipts A proof of sale of service and/or leasing of properties Basis of the Percentage Tax liability of the seller 21

Supplementary Receipts/Invoices Also known as Commercial Invoices Documents evidencing delivery, agreement to sell or transfer of goods and services Example Delivery Receipt Collection Receipt 22

Salient Features The approved ATP shall be valid only upon full usage of the inclusive serial numbers of principal and supplementary receipts/invoices reflected in such ATP or five (5) years from issuance of the same, whichever comes first. 23

Salient Features ONLY BIR ACCREDITED PRINTERS shall have the exclusive authority to print principal and supplementary receipts/invoices. 24

Transitory Provision  Expiring Authority to Print (ATP) for invoices/receipts (principal and supplementary) shall apply for a new ATP not later than 60 days prior to actual expiry date 25

Expired Receipts/Invoices Those with ATP prior to Jan. 1, 2011 were valid only until Aug. 30, 2013 while those with ATP dated Jan. 1, 2011 to Jan. 17, 2013 were valid only until Oct. 31, Issuance of receipts/invoices after its validity constitute a violation of Sec. 264 of the NIRC of 1997 It is considered as if no receipt/invoice was issued

Expired Receipts/Invoices No deduction from gross income shall be allowed using these invoices/receipts as there are not valid proof of substantiation In case of VAT-registered persons, no input tax may be claimed using these receipts/invoices

On issuance of tax clearance (RMC ) To fully implement the requirements under RR , a certified true copy of the ATP shall be included as attachment No ATP shall be a ground for non-issuance of tax clearance for whatever purposes

29 The importance of Asking for Receipts To support input tax claims Will facilitate audit trail To ascertain that sales transactions are properly recorded Corresponding taxes are paid To support business purchases/expenses 29

BOOKKEEPING REQUIREMENTS 30

BOOKKEEPING REQUIREMENTS Required to register books of accounts Journal Ledger Subsidiary Ledger Preserved within the prescriptive period of 10 yrs Gross receipts exceeding P150,000 in any given quarter must be audited by a CPA 31

BOOKKEEPING REQUIREMENTS Transactions for the day must be entered in books on or before 12nn the following day. Balances transferred to Ledger day following end of month It’s not required to register new set of books every year; only before the pages of current book is almost used up. 32

For Medical/Dental Practitioners PATIENTS’ LOG BOOK (A subsidiary book) Daily list of clients w/ the corresponding fees including those free of charge, per branch Name and address Date Official receipt no. Amount charge Must be registered with the BIR 33

For Restaurants/Drugstores and the like Maintain subsidiary book For Senior Citizens Discount For Persons with Disability 34

For all professionals Official Appointment Books (RR ) Shall be registered with the BIR Transition: not later than May 31, 2014 (RR ) Shall contain Names of the client Date/time of the meeting 35

Original Certificate of Registration, Registration Fee and the Ask for Receipt Notice must be conspicuously displayed in the physician’s place of business and/or clinic 36 Tax Compliance Verification Drive (Tax mapping)

Income Tax

Sample Computation – Itemized Deduction Gross Receipts P2,000,000 Less: Allowable Deductions (itemized) Rent P 500,000 Fuel and Oil 50,000 Communication 20,000 Supplies 280,000 Professional Fees 100, ,000 Net Income P1,050,000 Less: Personal Exemption 50,000 Additional Exemption (2 dep.) 50, ,000 Net Taxable Income P 950,000 Tax Due P 269,000 Tax Withheld (1 st to 4 th Qtr) Form ,500 Quarterly Income Tax Payment 50, ,500 Payable P 6,500

INCOME TAX TABLE OVER BUT NOT OVER AMOUNT RATE OF EXCESS OVER Not over 10,0000 5% 10,000 30, % 10,000 30,000 70,000 2, % 30,000 70, ,000 8, % 70, , ,000 22, % 140, , ,000 50, % 250, ,000 over 125, % 500,000

Business Expenses: To be deductible, business expense must: constitute ordinary and necessary expense; to be paid or incurred during the taxable year in carrying on or directly attributable to operation and/or conduct of trade, business, or profession; be reasonable in amount; be sustained by adequate proof; not be against law or public policy

RR – Requirements for Deductibility Any income payment allowable as deduction shall only be allowed to be deducted if: The income tax required to be withheld has been paid to the BIR No deduction shall be allowed notwithstanding payments of WTAX at the time of investigation

Sample Computation – Optional Standard Deduction Gross Receipts P2,000,000 Less: Optional Standard Deduction(40%) 800,000 Net Income P 1,200,000 Less: Personal Exemption 50,000 Additional Exemption (2 dep.) 50, ,000 Net Taxable Income P 1,100,000 Tax Due P 317,000 Tax Withheld (1 st to 4 th Qtr) 212,500 Quarterly Income Tax Payment 50, ,500 Payable P 54,500

Advantages of using optional standard deduction (for individual taxpayers) shall not be required to submit with his tax return such financial statements otherwise required under the Code shall keep such records pertaining to his gross sales or gross receipts, 43

Income Tax Due Dates Income Tax PeriodDue Date Individual 1 st QuarterApril 15 2 nd QuarterAug rd QuarterNov. 15 Annual ReturnApril 15

Value Added Tax/ Percentage Tax

VAT vs. NON-VAT Value Added Tax (12%) Medical/dental services rendered by professionals whose gross receipts exceed the threshold of P1,919,500 Non-VAT If gross receipts do not exceed the threshold Subject to 3% percentage tax 46

VAT defined It is a tax on the value added to the purchase price or cost in the sale or lease of goods, properties, or services in the course of trade or business. Due Date 47

VAT Payable Output Tax ( P100,000 x 12%) - P12, Less Input Tax (60,000 x 12%) - 7, VAT payable - P 4,

49 HOW TO COMPUTE VAT-gov’t transaction Formula: Output Tax (12% of Gross receipts ) P xxx Less Standard Input Tax (7% of gross receipts) xxx VAT Payable P xxx Less 5% withholding tax xxx VAT Payable P xxx 49

Sources of Input Tax Purchase of goods/services for which the VAT was actually paid, like: Rentals on office Purchase of medical supplies Communication expenses Fuel Professional services etc 50

Submission of Summary List of Sales and Purchases  RR – Mandatory submission of Quarterly Summary List of Sales and Purchases by all VAT registered taxpayers effective Jan. 1, 2012  Due Date: On or before the 25 th day of the month following the close of the taxable quarter.

Submission of SLS / SLP  SLS/SLP shall be submitted in softcopy to the RDO having jurisdiction of the taxpayer on or before the 25 th day of the month following the close of the taxable quarter

Percentage Tax

 Rate - 3% of gross revenue  if gross revenue do not exceed P1.5M (now P1,919,500 pursuant to RR ) otherwise subject to VAT  Due Date – every 20 th day of the following month  Professional Fee – P 100,000 x 3% = P3,000.00

Withholding Tax

Professionals as Withholding Agents (as payor)  Required to deduct Expanded Withholding Tax Rentals – 5% Contractors – 2% Professional fees -10% or 15% etc. (see BIR Form 1601E) 56

Professionals as W/holding Agents (as payor)  Example: Dr. A is renting a clinic space at P10,000/mo.* Expanded Withholding Tax is P 10,000 x 5% = P Due date: Every 10 th day of the following month except for the month of Dec., which shall be due on Jan. 15 of the ff year *net of VAT 57

Professionals as Withholding Agents (As payor)  Consequence if not remitted on time: Computation: Basic Tax (P10,000 x 5%) P Add: 25% surcharge P % interest per annum* 8.21 comp. pen for late payment Total Payable P *assuming payment was delayed for 30 days (P500 x 20% x 30/365 days) 58

Professionals as Withholding Agents (as payor)  Withholding Tax on Wages  Salary of employees, if paying more than the Minimum Wage 59

60 Prof are Subject to Withholding Tax (as payee) on their Professional Fees  Expanded Withholding Tax (EWT)  creditable against Income Tax  15% if exceeding P720T, 10% for less than  Disclosure Requirement (RR 12-01) Using the Notarized Sworn Declaration (Annex A of RR 12-01)Notarized Sworn Declaration (Annex A of RR 12-01) Submit to the Collection Division Due on June 30 each year or within 15 days when the income reaches P720,000 whichever comes first

61  On Government Money Payments (Ex: Payments of PHIC to medical doctors)  5% of Gross Income if VAT Registered Taxpayer (creditable against VAT liability)  3% of Gross Receipts for Non-VAT Taxpayer (creditable against Percentage Tax liability) Prof are Subject to Withholding Tax (as payee) on their Professional Fees

duty and responsibility of the hospitals, clinics, HMOs (RR ) To withhold and remit taxes due on the professional fees of their respective accredited medical practitioners, paid by patients who were admitted and confined to such hospitals and clinics Must ensure that correct taxes due on the PF have been withheld and timely remitted to the BIR

duty and responsibility of the hospitals, clinics, HMOs Shall NOT allow their medical practitioners to receive payment of professional fees directly from patients who were admitted and confined Must include the PF in the total medical bill of the patient which shall be payable directly to the hospital/clinic

Exception The wtax shall not apply whenever there is no PF has in fact been charged There must be a sworn declaration jointly executed by the medical practitioner and the patient The hospital administrator shall inform the RDO having jurisdiction over such hospital or clinic if fails or refuses to execute within 10 days from date of occurrence. (The doctor must still issue an OR indicating 100% discount – RR )

Responsibility of Hosp./Clinics/HMOs Shall be responsible for the correct computation and timely remittance of Wtax include in the 1604E Issue 2307 every 20 th day ff the close of the quarter or upon request of the payee

Responsibility of Hosp./Clinics/HMOs Shall submit a sworn statement executed by the pres./managing partner as to the complete and updated list of medical practitioners accredited with them Where: Collection Div / LT-Coll Div / LTDO 2 copies for the BIR and 1 copy for the TP

Reports to be submitted by Hospitals/Clinics Submit the names and addresses of medical practitioners whose: PF was paid by the patients directly to the hospital/clinic Medical practitioners who did not charge any PF from their patients every 15 th day after the end of each calendar quarter to the Collection Div.

RMC / RMC  On the obligation of PHIC to withhold taxes from medical practitioners  10% or 15% Expanded Withholding Tax  5% Withholding Tax on VAT or 3% for Non-VAT practitioner

Illustration 1 – for payment of fees not covered by the CASE RATE PROGRAM Assume that PHIC paid P4,000 to a VAT registered doctor representing professional fees Income Tax Withholding (EWT) P4000* /112% = P3, x 15%** = P VAT Withholding P4000* /112% = P3, x 5% = P assumptions *Inclusive of VAT ** No sworn declaration of income was submitted

Illustration 2 – for payment of fees not covered by the CASE RATE PROGRAM Assume that PHIC paid P4,000 to a NON-VAT registered doctor representing professional fees Income Tax Withholding (EWT) P4000 x 15%* = P ` PercentageTax Withholding P4000 x 3% = P assumption * No sworn declaration of income was submitted

Illustration 2: covered by the CASE RATE PROGRAM The entire case rate shall be paid to the concerned facility provider PHIC to withhold 2% EWT on the entire amount The hospital will pay the professional fee Shall withhold 10% or 15% EWT No 5% VAT or 3% PT withholding for non-government hospital Government hospital is required to withhold 5% for VAT or 3% PT

72 The importance of Withholding Tax Certificates (Form 2306/2307) To support tax credit claims per return No certificate, no tax credit allowed Serve as proof of transaction Note: Be conscientious in gathering the withholding tax certificates on time 72

73  On Government Money Payments (Ex: Payments of PHIC to medical doctors)  5% of Gross Income if VAT Registered Taxpayer (creditable against VAT liability)  3% of Gross Receipts for Non-VAT Taxpayer (creditable against Percentage Tax liability) Practitioners are Subject to Withholding Tax Professional Fees

74 The importance of Withholding Tax Certificates (Form 2306/2307) To support tax credit claims per return No certificate, no tax credit allowed Serve as proof of transaction Note: Be conscientious in gathering the withholding tax certificates on time 74

Stop filer Cases Can be detected in our system Such stop-filer case shall remain open until the corresponding return is duly filed and paid including penalties. 75

WITHHOLDING OF VAT/PERCENTAGE TAX ON THE SALE OF GOODS AND SERVICES Under Revenue Regulations No dated March 26, 2003

Withholding on Percentage Tax Non-VAT taxpayer subject to Percentage under Sec. 116 of the Code; purchases of goods/services made in the course of business/exercise of profession whose sale do not exceed P1,919, who did not opt to register as VAT

Withholding on Percentage Tax Withholding tax rate is 3% Taxpayer-payee may opt to remit his percentage tax through withholding tax The option is manifested by filing the “Notice of Availment of the Option to Pay the Tax Through the Withholding Process”“Notice of Availment of the Option to Pay the Tax Through the Withholding Process”

Withholding on Percentage Tax Copy furnished the withholding agent-payor and the RDO of both the payor and payee; Form to be used: BIR Form 1600 serves as the w/tax return of the payor serves as the Substituted Percentage Tax Return of the payee

Withholding of Percentage Tax Form to be used: BIR Form 1600 serves as the w/tax return of the payor serves as the Substituted Percentage Tax Return of the payee provided he has only one payor Must file Notice of Availment of the Substituted Filing of Percentage Return

Notice of Availment of the Substituted Filing of Percentage Tax Return To be filed with the RDO where the income-recipient is registered Such notice of availment shall indicate that the income recipient is Non-VAT taxpayer did not opt to register as VAT the expected annual gross receipts do not exceed P1,919,500,000 receiving income from lone payor Copy of the Notice shall be furnished the lone payor

Notice of Availment of the Substituted Filing of Percentage Tax Return That BIR Form 2306 duly signed by both the payor and the payee shall be attached to BIR Form 1600; The duly filed Form 2306 shall serve the same purpose as the Percentage Tax Return (Form 2551M) of the payee; Taxpayer availing of this scheme shall update his registration data with the Home RDO

If the payee has more than one payor: The percentage tax withheld shall be treated as creditable tax when he files his Form 2551M The tax withheld shall be evidenced by Form 2307

Substituted Official Receipt For sellers of services whose gross receipts have been subjected to 3% percentage withholding tax shall be exempt from the obligation to issue OR. Substituted O.R. Cert. of Final Tax Withheld at Source (2306) Cert. of Creditable Tax W/held at Source (2307)

Notice of Cancellation of Availment of the Substituted Filing of Returns The option to file under Substituted filing of percentage tax shall continue to apply to subsequent years until the taxpayer-payee files the NOTICE OFCANCELLATION.

When to file the Notice of Cancellation?Notice of Cancellation not later than the 10th day of the month following the close of the taxable year which shall revert the status of the taxpayer to file under the regular filing procedure. If an additional client comes in, the taxpayer-payee shall immediately file the same.

Withholding on VAT VAT Registered taxpayer subject to VAT under Sec. 106 and 108 of the Code; purchases of goods/services made in the course of business/exercise of profession shall execute Waiver of the Privilege to Claim Input Tax CreditsWaiver of the Privilege to Claim Input Tax Credits

Withholding of VAT Withholding tax rate is 12% Taxpayer-payee opts of remit his VAT through withholding tax The option is manifested by filing the “Notice of Availment of the Option to Pay the Tax Through the Withholding Process copy furnished the RDOs of both the payor and payee

Withholding of VAT If the payee has more than one payor and has executed Waiver of the Privilege to Claim VAT Input Tax Credits and the Notice of Availment of the Option to Pay the Tax Through the Withholding Process the payor shall withhold 12% VAT remit using Form 1600 taxes withheld shall be creditable not final shall file Form 2550M & 2550Q

Shall file Form 2550M & 2550Q Payor shall issue BIR Form 2307 and not 2306 Form 2307 shall be accomplished in quadruplicate and to be distributed as follows: two copies for the payee 1 copy to be attached to Form copy file copy of the payor

Substituted VAT Return Sale of goods/services subjected to 12% withholding tax by the lone payor the payee shall no longer file VAT returns the BIR Form 1600 filed by the payor shall serve as substituted return provided: form 2306 is duly signed by the payor and payee form 2306 is attached to Form 1600

Regular VAT Return Payees with several payors are still required to file the regular VAT (2550Q) apply taxes withheld on VAT against VAT liability VAT returns should reflect the consolidated total of all taxable transactions for the taxable period

Regular VAT Return Payees whose all transactions are subjected to 12% VAT withholding, they are no longer required to file monthly VAT declaration (2550M), only quarterly (2550Q). In case the tax withheld is incorrect or have payors who are not engaged in business and therefore not obliged to withhold, the payee is required to file 2550M / 2550Q.

Substituted Official Receipt For sellers of services whose gross receipts have been subjected to 12% VAT exempt from issuing OR Form 2306 / 2307 shall be treated as substituted OR

Option to Remit under W/Tax and the Option to Avail of the SF Once chosen shall remain as the manner of remitting the tax unless cancelled by the payee; The option to file under SF is allowed payee with just one payor if additional client or customer comes in, the taxpayer shall immediately file the notice of cancellation

On Marginal Income Earners (RMC ) MIE – shall refer to those individual whose business do not realize gross sales or receipts exceeding P100,000 in any 12- month period Not deriving compensation Only self-employed with gross sales/receipts not exceeding P100,000 96

On Marginal Income Earners (RMC ) Shall include but not limited to: Agricultural growers/producers (farmers/fishermen) Selling directly to ultimate consumers Small sari-sari stores Small carinderias or turo-turos Drivers/operators of a single unit tricycle Shall not include licensed professionals, consultants, artists, sales agents, brokers and others similarly situated 97

On Marginal Income Earners (RMC ) Privileges/minimum requirements Registration Sworn Statement (Annex A) NSO certified /local civil registry birth certificate Exemption from ARF Registration of books (2 col journal or simplified books) Issuance of registered principal receipts/invoices Filing/payment of ITR Exemption from Percentage tax / VAT 98

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