How to Make Sure You’re Complying With Tax Requirements

Ignorance Is Never an Excuse

There was once a man who bought a house without first doing any research. While he initially believed it to be paid in full, he later discovered that the previous owner had taken out a loan against the property. And in order to officially own the property, he must pay off the entire debt. Sadly, the bank seized the house because he was unprepared and did not have the needed funds to keep it.

Ignorance of the law excuses no one. This well-known adage perfectly applies to this situation because if the new owner had taken the time to research the property before purchasing it, he would have been aware of any outstanding debt and would have been able to take the necessary steps to ensure that he could pay off the loan and legally own the house.

The same is true for your company. No matter how small or large your business is, it is important to be aware of any legal requirements or obligations that are involved in running it. Ignorance of the law is not an acceptable excuse and could result in serious financial and legal consequences. For instance, non-compliance with taxation laws could not only lead to hefty fines but also to your business being shut down.

We certainly don’t want that to happen.

We’re here to help you get on top of tax compliance so you can keep moving toward your business goals unhindered.

Importance of Tax Compliance

It’s very important not only to comply but also to understand your tax obligations, as the consequences of non-compliance can be severe. If you meet your tax obligations, you can avoid the following repercussions:

• Interest and penalties on missed tax payments, which can cost you up to hundreds of millions
• Imprisonment due to the unlawful business pursuit
• Criminal prosecution for failure to issue receipts and invoices
• Penalties for failing to submit reports and disclose taxable revenue and transactions
• Business closure due to non-compliance with taxation laws

By staying tax compliant, you can enjoy the following benefits:

• Have peace of mind knowing that you’re doing the right thing and that your business is compliant with all applicable regulations
• Maintain a good credit score and secure future business loans
• Save money by reducing the risk of fines or other legal costs associated with non-compliance
• Ensure that your business is running ethically and staying within the bounds of the law
• Build a good reputation as an ethical and socially responsible company, which will help you attract and retain customers
• Build better relationships with your suppliers and other partners, as they are likely to have similar ethical and compliance policies
• Take advantage of government incentives for implementing ethical policies, such as tax breaks or grant access
• Take on new business opportunities, such as bidding for public sector contracts that require high ethical standards

Taxes to Settle

All businesses are required to pay the correct taxes and file their tax returns on time.

Tax obligations and requirements are different for various types of businesses. So, it's important to know about the taxes that affect your business.

Here are some of the most common taxes that businesses in the Philippines have to pay to the Bureau of Internal Revenue (BIR). The list below is not complete, so you will need to consult your accountant or look at your BIR registration documents (i.e. Certificate of Registration) to find out which taxes your business in the Philippines needs to file and settle.

• Income Tax

BIR Form 1700 income tax filings are based on a business's revenue. This is usually calculated using the year's current income categories and tax rates.

• Value-Added Tax (VAT)

VAT is a tax on the sales of goods and services. The 12% VAT rate is usually based on the item or service's gross selling price.

• Percentage Tax Another type of sales tax is the percentage tax. The gross sales, receipts, or earnings are used to calculate the percentage tax. This is accomplished on BIR Form 2551Q and includes all profits from clients.
• Capital Gains Tax (CGT)

This tax applies to a business's capital gains from selling commodities like stocks, bonds, or properties. Capital gains tax is filed using BIR Form 1707 in triplicate within 30 days of a sale.

• Withholding Tax on Compensation

This is the amount a company must deduct from an employee's gross wage and remit to the BIR. This is directly paid to the government and used as a credit against annual income taxes.

• Excise Tax

This is the tax that is put on the production, sale, or use of commodities in the country. There is an excise tax on fuel, airline tickets, and other things that can be purchased for business purposes.

Make Sure You’re Complying With Tax Requirements

As you can see, even for small businesses, there are a lot of taxes that apply. Each one has its own rules and due date. Business owners like you can easily get confused and forget to meet one or more requirements. Below is a systematic approach that will help you make sure you meet all compliance requirements.

• Write down all the tax laws that apply to you.
• Make a list of all the forms and tax returns you need to file for each tax law.
• Mark the dates that tax payments and tax returns are due for each tax law.
• List down all the documents you need for each type of return.
• Keep your books and any other documentation that goes with them in order.
• Keep an eye on how tax laws change, especially those that affect your business.

Don’t Be Surprised by Spot Inspections

Are you one of the many business owners who have no idea what Tax Mapping is?

What is Tax Mapping?

The Bureau of Internal Revenue started Tax Mapping in 2003. It is also known as TVCD or the Tax Compliance Verification Drive program, and most people call it "Oplan Kandado" because one of its effects could be that a business has to close.

How Does It Work?

The BIR will send out several notices to companies to give them time to prepare the documents they need for tax mapping. After the notice has been sent, the BIR will do random spot checks without telling anyone ahead of time. This is to make sure you remain compliant even when no one is watching.

Be Prepared for Tax Mapping

You can confidently welcome BIR examiners during your tax mapping process if you know what requirements to prepare.

1. Make sure your business is legal and has a BIR registration certificate.

3. Pay the annual registration fee every year on or before January 31.
4. Register your Cash Registered Machine (CRM) or Point of Sales (POS) Machine with the BIR.
5. Attach the original authorization sticker on any business device.
6. Use BIR's prescribed manuals or invoices.
7. Make sure that every transaction has a receipt or an invoice.
8. Keep a registered book of accounts and record all your business transactions.
9. Pay all applicable taxes to your business, whether they are monthly, quarterly, or yearly, and make sure to include taxes withheld from your employees' pay.

You’ve asked, We’ve answered How do I confirm my tax compliance? If you are based in the Philippines, you can request your Tax Compliance Verification Certificate from BIR through this link. If you’re a US taxpayer, you can read the article on the IRS website explaining how they ensure compliance with tax laws.

We know all the above tax requirements seem like a lot for small business owners. Tax compliance can really be challenging. It does not only require a thorough knowledge of various tax laws but also a lot of time and work to follow. On top of that, deadlines have to be met with accuracy.

That's why one of our main goals here at the ABBA is to make your life easier by providing tax compliance services. So, as a business owner, you don't have to worry about tax compliance and can focus more on running the business.