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Let's Talk Tax

New Year reminders

Tata Panlilio

The holidays are upon us! Homes, offices, shopping centers, and places of worship are adorned with sparkling decorations. Gifts for family, friends, and colleagues are being wrapped in red and green. The traditional nine-day dawn mass or Simbang Gabi to usher in the birth of Christ is about to start in eleven days. Preparations are being made for Noche Buena (Christmas Eve dinner) and Christmas Day get-togethers. After Christmas, it is straight on to the New Year celebrations that will be filled with much eating, drinking, gift-giving, partying, and setting off fireworks.

As the smoke from the fireworks clears and our hangovers settle when we wake up on Jan. 2, let us be reminded of the filing deadlines and renewals that have to be complied with during the first half of the new year.

Renewal of mayor’s permit and payment of local business tax (LBT) and real property tax (RPT) with the Local Government Unit (LGU):
All corporate entities — whether single proprietorships, partnerships, corporations, branches, representative offices, or non-stock, non-profits (NSNPs) — are required to renew their business or mayor’s permit with the LGU where they operate on or before Jan. 20 each year. Regional operating headquarters (ROHQs), as well as enterprises registered with the Philippine Economic Zone Authority (PEZA), are generally exempt from a mayor’s permit, but some LGUs require them to secure a business/mayor’s permit and pay certain regulatory fees that are based on the size of the office premises. Enterprises registered with the Board of Investments (BoI), on the other hand, are not exempt from securing a business/mayor’s permit and paying regulatory fees.

Income-generating corporate entities are also required to pay LBT, which may be paid annually or quarterly on or before the 20th day of the first month of the quarter. The LBT will depend on the LGU’s local tax code/ordinance, but most local tax codes prescribe the annual LBT as a fixed amount up to a certain level of gross sales or receipts for the preceding calendar year, plus a percentage of the excess sales or receipts. If there were new or additional activities undertaken in 2017, there is a need to confirm what LBT rate will be applicable, as different rates apply to different activities (i.e., sale of goods vs. sale of services; exports vs. domestic sales; sale of essential vs. non-essential goods, etc.)

The LBT for 2018 will be based on the gross sales or receipts for 2017. In this case, the taxpayer will be required to execute a certification of its estimated gross sales or receipts for 2017, since its audited financial statements (AFS) are still being prepared.

While some LGUs require an ROHQ and PEZA-registered enterprise to secure a mayor’s permit, they are exempt from paying LBT. During its income tax holiday (ITH), a BoI-registered enterprise is exempt from paying LBT. However, if the PEZA or BoI-registered enterprise has income from unregistered activities, it is required to pay LBT on the said income.

Real property owners, whether individual or corporate, are also liable to pay RPT on real property  such as land, buildings, machinery deemed real property, and other improvements. If there were newly acquired real properties, machinery, or additional improvements, there is a need to file a sworn declaration on the value within 60 days from the acquisition, installation, or completion for RPT purposes.

RPT starts to accrue on Jan. 1 of each year and may be paid annually on or before March 31, or in quarterly installments on or before the last of day of each quarter. The LBT will be fixed by the particular local tax code/ordinance, but the rate will not exceed 1% of the assessed value in the case of provinces and 2% of the assessed value for cities or municipalities in Metro Manila. Depending on the use/classification (i.e., residential, commercial, industrial, and agricultural) of the property, as well as its fair market value (FMV), there are prescribed assessment levels which are multiplied to the FMV to arrive at the assessed value. The RPT rates are then multiplied by the assessed value to arrive at the RPT due. If the LGU concerned revised the assessment levels and/or the FMVs, the RPT payments for 2018 will be based on these revised figures.

In addition to the basic RPT on land, there will be levied a Special Education Fund of 1% of the assessed value.

A BoI-registered enterprise is not exempt from RPT. A PEZA-registered enterprise under ITH is not exempt from RPT on land and/or buildings but is exempt from RPT on machinery (considered real property) for three years from acquisition. A PEZA-registered enterprise opting for the 5% gross income tax (GIT), in lieu of all national and local taxes, is exempt from RPT on land, buildings, or machinery deemed real property, except for RPT on land owned by an ecozone developer.

Filing of the annual General Information Sheet (GIS) with the Securities and Exchange Commission (SEC):
In addition to submitting its AFS, stock, as well as non-stock corporations, are required to submit a GIS containing, among others, certain company information as well as information about its officers, directors, and stockholders within 30 calendar days from the date of its annual stockholders’ meeting (ASM). If no meeting is held, the corporation shall submit the GIS not later than Jan. 30 of the year following. Should an ASM be held thereafter, a new GIS shall be filed.

Foreign corporations with an SEC license to do business — such as branches, representative offices, ROHQs or RHQs — also required to submit their GIS within 30 calendar days from the issuance of their license and, thereafter, within 30 calendar days from the anniversary date of the issuance of the said SEC license.

Non- or late filing of the GIS (as well as AFS) will subject the entity to monetary penalties. Corporate entities need to ensure that they file accurate reports in a timely manner because updated compliance is a prerequisite for the SEC to even accept any applications filed with it. Filing timely reports is also a condition precedent before the SEC can issue a Certificate of Good Standing. This certificate, in turn, is one of the requirements in applying for an Importer’s Accreditation with the Bureau of Internal Revenue and the Bureau of Customs.

Submission of branch securities deposit to the SEC:
Within 60 days from issuance of its SEC license to do business, a branch of a foreign corporation is required to deposit with the SEC securities with an actual market value of at least P100,000, for the benefit of its creditors. Moreover, within six months from the close of the accounting period (fiscal or calendar) of the Philippine branch, it will be required to deposit additional securities equivalent to 2% of the amount by which the branch’s gross income for the said year exceeds P5 million.

The most common securities deposited with the SEC are in the form of government-issued treasury bills (T-bills), which can be purchased from banks. The bank will purchase T-bills and issue a Confirmation of Sale to the Philippine Branch. The bank will also write to the Bureau of Treasury (BoT) to request that the T-bills be earmarked in favor of the SEC for the account of the Philippine branch. The Confirmation of Sale of T-Bills and letter of earmarking will then be submitted to the SEC in compliance with the branch securities requirement.

As with the GIS and AFS filing, there are monetary penalties for non-compliance with branch securities deposit. Updated compliance is, likewise, a condition for the SEC to accept any application that the Philippine branch may file, as well as for the issuance of a Certificate of Good Standing.

Submission of PEZA Reports: 
The timely and complete submission of PEZA reports is required for PEZA to process and issue certificates of VAT zero-rating, available incentives, and entitlement to 5% GIT. The Certificate of VAT Zero-rating is particularly required by most suppliers of goods and services in order not to pass on input VAT to the PEZA-registered enterprise.

These year-end PEZA reports include:
a.    Economic Zone Monthly Performance Report (EZMPR) for December — on or before Jan. 20 of the following year

b.    Annual ITR and AFS with attachments — 30 days after filing with the BIR

c.    Annual Report — 90 days after the end of the accounting period

d.    Income-Based Tax Incentives under TIMTA — 30 days from the filing of final ITR

e.    VAT, Excise Tax and Duty-Based Incentives under TIMTA — on or before March 15 of the following year

f.    Other Data for Cost-Benefit Analysis — 90 days from filing of final ITR

BoI Certificate of Entitlement and submission of annual reports:

In the case of BoI-registered enterprises, there is a need to secure a Certificate of ITH Entitlement (CoE) prior to filing the ITR. In addition, with one month from the filing of the final ITR, an application to validate income tax exemption should be filed. BoI-registered 100% exporters of goods are also required to secure their annual VAT zero-rating certification to present to suppliers.

In a 2017 issuance, the BoI recently streamlined the submission of reports by doing away with the semestral report. Instead, only the annual report (BoI Form S-1) will be submitted starting 2016 reporting and onwards, together with the AFS and ITR (saved on CD) on or before April 30, for enterprises with a calendar year, and four months after the close, for those on the fiscal year.

As we get into the full swing of holiday celebrations, let us keep a watchful eye on the renewals and filings that need to be complied with as we start the New Year with hope and good tidings.

Tata Panlilio-Ong is a director of the Tax Advisory and Compliance of P&A Grant Thornton.


As published in BusinessWorld, dated 05 December 2017