Archive for the ‘Philippine Taxation’ Category

What is Value-Added Tax?

According to “Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.”


Who are liable to VAT?

Individual, trust, estate, partnership, corporation, joint venture or cooperative or association who enters into transactions are subject to VAT.

A person/entity is liable to VAT when:

Its annual gross sales or receipt of MORE THAN 1,919,500.00 from taxable transactions for the next 12 months were realized.


Mr. V decided opening a business under the trade name VAT A. Co. with an expected annual sales of 1,919,500.01 . Vat A. Co. Based on the provided information, should register under the VAT system for the current year.


If a person or entity expected an annual gross sales/receipts of 1,919,500.00 or less from its transactions, the person/entity shall be classified as VAT-Exempt person which is subject to Other Percentage Tax (OPT).


Mr. X decided to start a business with an assumed annual gross sales of 1,919,499.99. on January 201A, he register his business as VAT exempt under 3% Percentage Tax.


If the actual total/annual gross sales/receipts from the transactions exceeds 1,919,500.00 Mr. X becomes liable to VAT,


On November 3, 201A, upon summarizing the sales report, January to September sales resulted to a total of 1,820,000. While preparing his October sales, he found out that he already exceeded the threshold of 1,919,500.00. Following the Regulation, Mr. X will be required to update his record from VAT exempt to 12% VAT, 10 days after the end of the last month when his gross resales/receipts exceeds. Therefore, for the month of October, Mr. X will be subjected to 12% VAT.


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If Mr. X did not update his registration to the Bureau, he will still pay for 12% VAT but cannot use or claim his credit for its input VAT.





Net operating loss means the excess of allowable deduction over gross income of the business in a taxable year.

Revenue Regulation 14-2001 implements a statute that the allowance to net operating loss-carry over will be a deduction from gross income.

Accordingly, the net operating loss of the business or enterprise for any taxable year immediately preceding the current taxable year which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss; Provided, however, that any net loss incurred in a taxable year during which the taxpayer was exempt from income tax shall not be allowed as a deduction under this Subsection: Provided, further, that a net operating loss carry-over shall be allowed only if there has been no substantial change in the ownership of the business or enterprise in that –

  1. Not less than seventy-five percent (75%) in nominal value of outstanding issued shares, if the business is in the name of a corporation, is held by or on behalf of the same persons; or
  2. Not less than seventy-five percent (75%) of the paid up capital of the corporation, if the business is in the name of a corporation, is held by or on behalf of the same persons.


The Company started its operation on January 2013

CORRECTION: SCENARIO 1 (error: amount is omitted)

2014     Deferred Tax Asset                                     7,813,680

                               Benefit from Deferred Income Tax              7,813,680
Net Operating Loss CarryOver (NOLCO)-page-001

-thanks kel.santos sa format :)-

The Bureau of Internal Revenue issued a regulation implementing limitation of interest expense, specifically provides that the limitation shall apply regardless of whether or not a tax arbitrage scheme was entered into by the taxpayer for as long as, during the taxable year, there is an interest expense incurred on one side and an interest income earned on the other side, which interest income had been subjected to final withholding tax.

First things first, we need to know the requisites and rules on the deductibility of interest expense.

In Accordance with the BIR Revenue Regulation 31-2009, the requisites and rules are the following:


  1. There must be an indebtedness;
  2. There should be an interest expense paid or incurred upon such indebtedness;
  3. The indebtedness must be that of the taxpayer’
  4. The indebtedness must be connected with the taxpayer’s trade, business or exercise of profession
  5. The interest expense must have been paid or incurred during the taxable year;
  6. The interest must have been stipulated in writing;
  7. The interest must be legally due;
  8. The interest payment arrangement must not be between related taxpayers as mandated in Sec. 34(B) (2) (b), in relation to Sec. 36(B), both of the Tax Code of 1997.
  9. The interest must not be incurred to finance petroleum operations; and
  10. In case of interest incurred to acquire property used in trade, business or exercise of profession, the same was not treated as a capital expenditure.


The general rule is that the amount of interest expense paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s trade, business or exercise of profession shall be allowed as deduction from the taxpayer’s gross income. (rr 31-09)

However, the amount of interest expense paid or incurred by a taxpayer in connection with his trade business or exercise of a profession from an existing indebtedness shall be reduced by an amount equal to the following percentage of the interest income earned which has been subjected to final withholding tax depending on the year when the interest income was earned. (rr 31-09)

Based on the regulation, the deductible interest expense is equal to 33% of interest income subjected to final tax, and the remaining portion of the said expense will be non-deductible in income tax computation.


Normal Corporate Income Tax Rate                      30%

Less: Final Tax Rate                                                  20%

(NCIT Rate less FT Rate divided by NCIT Rate) 10%/30% NCIT = 33.33%

Interest Expense – (Interest income (gross) x 33.33%) = Deductible Interest Expense


income tax calculator

For tax income tax purposes, educational institutions are classified as follows:

  • Proprietary educational institution;
  • Non-stock, non-profit educational institution; or,
  • Government educational institution.

In this Article, let us uncover how a proprietary educational institution is being subjected to income tax.


Under the Tax Code, proprietary educational institution‘ is any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations.

Income tax rates

As a rule, it is subject to a special income tax rate of ten percent (10%) on their taxable income except on certain passive income. Notably, this is much lower than the regular corporate income tax rate of 30% of taxable net income. However, they must dedicate their operations to providing educational services because if they does not, then, they will cease to enjoy the benefit of 10%. If the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived from all sources, they shall be taxed at 30% on the entire taxable income. ‘Unrelated trade, business or other activity‘ means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution of its primary purpose or function.

Allowable deductions

It is allowed to claim from its gross income, allowable deductions in like manner as an ordinary taxpayer engaged in trade or business. In addition to the expenses allowable as deductions, it may at its option elect either:

(a) to deduct expenditures otherwise considered as capital outlays of depreciable assets incurred during the taxable year for the expansion of school facilities, or

(b) to deduct allowance for depreciation thereof.

In other words, capital outlays which would have been normally considered as an asset subject to depreciation maybe claimed by proprietary educational institutions as an outright deduction from its gross income.

Passive income

Finally, passive income of proprietary educational institutions is taxed in the same manner as ordinary corporations. Examples of passive income are interest income from Philippine bank deposits and royalties.