Let's Talk Tax

Renewing business registration by Ed Warren L. Balauag

It is day 12 of 2016. Corporations, partnerships, professionals and sole proprietorships should already be working on the renewal of their respective business registration/permits with the local government units (LGUs). I’m sharing in this article some issues that business establishments may encounter in the renewal of their business registration.

Under the Local Government Code (LGC), all establishments are required to annually renew their registration with the LGUs. The annual renewal of business registration consists of, but is not limited to, payment of local business tax (LBT), mayor’s permit fee, sanitary inspection fee, garbage fee, building inspection fee, electrical inspection fee, mechanical inspection fee, plumbing inspection fee, fire inspection fee, personnel fee, business plate registration fee and other charges imposed by the various LGUs.

The LBT is based on gross sales/receipts while the applicable LBT rate varies by the establishment’s activities. Situs rules apply if a specific company maintains a branch, factory, warehouse, or plantation in various localities. Mayor’s permit and other fees and charges, are usually charged as a fixed amount by LGUs.

Businesses should be aware that the basis of the LBT is gross sales/receipts of the preceding year. Some LGUs refuse to consider a lower LBT than that paid in the previous year, even if gross sales/receipts register a decline. In such cases, businesses must also be keen in protecting their rights to ensure that LBT is correctly computed.

Renewal and payment of LBT must be made on or before the 20th of January of each year. Payment of LBT may be done annually, semi-annually (July 20) or quarterly (April 20, July 20 and October 20) depending on the schedule of payment chosen by the business.

The deadline applies to all cities and municipalities. The LGC, however, allows LGUsto extend the time of payment but only for a justifiable cause. In the last two years, Makati City and Quezon City extended the payment date until the end of January. It best to confirm with your particular LGU. Remember, too, that the extension is only on the time of payment and not on the submission of documents necessary for the renewal of the business permits.

Late payment of LBT will attract a 25% surcharge on the unpaid taxes, fees or charges, plus an additional 2% interest per month which is computed not only the unpaid amount but also on the surcharge.

On the other hand, businesses that fail to renew their business permit are, technically, not allowed to operate within the territory of the LGU.

Every separate or distinct establishment or place of business, including facilities where sales transactions occur, is also required to be registered with the BIR and pay the annual Registration Fee of P500 on or before Jan. 31 with an authorized agent bank of the Revenue District Office that has jurisdiction over the business establishment. Many companies have been penalized for failure to register an additional floor that has been leased to house additional staff, or a warehouse or depot because of absence of business or sales activities therein. Under Section 258 of the Tax Code, failure to register shall be punished by a fine of not less than P5,000 but not more than P20,000. There is also a provision for imprisonment of not less than six months but not more than two years.

Philippine Economic Zone Authority (PEZA)-registered entities should be forewarned on certain policies of some LGUs when it comes to the assessment and collection of LBT.

According to PEZA law, PEZA-registered entities are exempt from paying LBT regardless of whether they are enjoying income tax holidays or are under the 5% gross income tax regime. Thus, if the Company is a PEZA-registered entity, it is exempt from payment of LBT on its registered activities. However, some LGUs have a memorandum of agreement with PEZA allowing them to impose mayor’s permit fees and other regulatory fees.

In case the company generates income from activities deemed outside of the registered activity or has local sales exceeding the 30% threshold, both of which will be subject to the regular corporate income tax, the LGUs may assess the and collect LBT on such revenues of the company.

No matter how diverse procedures are for LGUs in terms of business registration and LBT payment, the key is to be organized and pro-active. Avoid mistakes and late payment penalties by filing on time. Know the rules and ensure that you will be paying only the taxes and fees that are due.

Let’s start 2016 on a high note.

Ed Warren L. Balauag is a senior associate of the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.