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The fundamentals of Form 2303 for tax purposes

As a business owner, it’s important to understand the Bureau of Internal Revenue’s (BIR) Form 2303 and how necessary it is for your business’ operations.

 

First things first, what is Form 2303? Also known as the Certificate of Registration (COR), Form 2303 is one of the documents that legitimizes your business. It serves as the legal basis for your business to operate and pay taxes.

 

Here’s everything you need to know about BIR Form 2303 and all the relevant taxes that your business may be required to pay.

 

Tax type

 

Aside from your TIN, Registration Name, Registration Date, and Registered Address, your COR will also indicate your tax type. There are several tax types that appear in your business’ Certificate of Registration.

 

  • Income Tax

 

Individuals and non-individuals, including corporations and partnerships, are required to pay income tax. This kind of tax is imposed on an individual’s income earned through their job, business, or property. The income tax rate depends on the individual or the business’ taxable income. For example, individuals who earn less than PhP250,000 per year are exempt from paying income tax.

 

  • Value Added Tax (VAT)

 

A business tax imposed on those engaged in business, trade, or practice of profession, VAT involves the supply of goods and services in the Philippines. This amount is collected by the BIR from persons or establishments that have gross annual sales or receipts that exceed Php3 million.

 

  • Withholding Tax

 

Withholding tax is, as its name implies, the tax withheld on income. The business (whether an individual or a corporation) is obligated to withhold a certain portion of the employee’s income and remit such to the government.  Taxes are also withheld on payments made to a supplier for services or goods.

 

There are three different types of withholding tax–expanded, compensation, and final. Expanded withholding tax is imposed on professionals or individuals operating a business, non-individuals, and government agencies and instrumentalities.

 

Withholding tax on compensation, on the other hand, is the portion of the employee compensation that, per the law, is held back by the employer on the government’s behalf. Final withholding tax refers to the full and final income tax payment.

 

  • Corporate Income Tax

 

Domestic and foreign corporations are required to pay corporate income tax, which is set at 30% of net taxable income. Dividends received from domestic corporations, interest on Philippine currency bank deposits, and yields from trust funds are not included.

 

The recent TRAIN 2 program has already started to reduce the corporate income tax rate. The reduction is to be effected in increments of 1% every year until it reaches 20%.

 

  • Percentage Tax

 

Applicable to non-VAT registered businesses with an annual revenue of less than Php3 million, percentage tax is based on a percentage of sales.  This rate ranges from 2% to 18%, depending on the line of business.

 

Tax payment

 

Your Certificate of Registration also has a guide on when to pay certain taxes. Single proprietors, for example, must pay quarterly income tax every 15th of May, August, and November. Income tax return (BIR Form 1701) must be filed on or before April 15.

 

Partnerships and corporations, on the other hand, must pay their quarterly income tax on the 30th of May, the 29th of August, and the 29th of November. Similar to single proprietors, income tax returns for partnerships and corporations must be filed on or before April 15.

 

As for the types of withholding tax, expanded withholding tax is to be paid on or before the end of the month following the close of the quarter while withholding tax on compensation and final withholding tax must be paid on the 10th day of the following month.

 

The form for percentage tax is 2551Q. It must be filed on or before the 25th day after the taxable quarter.

 

Tax schedule for income tax

 

Implemented in 2018, the Tax Reform for Acceleration and Inclusion (TRAIN) Law has introduced several changes to the tax schedule. In the previous tax schedule, compensation income earners, professionals, and self-employed individuals earning between Php10,000 to Php30,000 used to be taxed Php500. With the new tax schedule, those only those with an annual income bracket of Php250,000 and above are taxed.

 

VAT-exempt threshold

 

With the TRAIN Law, the VAT-exempt threshold has increased from Php1,919,500 to Php3,000,000. Once your annual gross sales or receipts hit Php3 million, you automatically become a VAT taxpayer.

 

Understanding the tax system of the Philippines can be easier if you have the proper guidance. Learn more on how to set up a business in the Philippines with FilePino. Feel free to reach us by calling +63.917.892.2337   or contact us here.