3 Year-End Adjustment OBJECTIVES: Compute for the correct Annualized Withholding Tax (Year-End Adjustment) on CompensationUnderstand and explain the guidelines and procedures for substituted filing of Income Tax Return (BIR Form 1700) by employees receiving purely compensation incomeIdentify the different withholding tax returns to be accomplished; andState the manner and time of filing of said returns
4 Year-End Adjustment PURPOSE: Tax Due = Tax Withheld WHEN: On or before the end of the calendar year, prior to the payment of compensation for the last payroll periodIf terminated, on the day on which the last payment of compensation is made.
5 Year-End Adjustment - Formula Gross compensation Income (present+previous employer) PxxxLess: Non-taxable/Exempt Compensation Income1.) 13th month pay & other benefits xx2.) Other non-taxable benefits xx3.) SSS, GSIS, PHIC and Union Dues(Employees share only) xx xxxxxxLess: ExemptionsPersonal and Additional Exemptions xxHealth/Hospitalization premium payment (if applicable) xx xxxTaxable Compensation Income xxxTax Due xxxTax Withheld (Jan. – Dec.) or (Jan. – Termination) xxxCollectible: Tax Due > Tax Withheld Collect before payment of last wageRefund: Tax Due < Tax Withheld Refund on or before Jan. 15 of the ff. year/ last payment of wageBreak-even: Tax Due = Tax Withheld Do not withhold for December Salary
6 Annual Information Return (BIR Form 1604CF /1604-E) Including the Alphabetical List of Employees and Income RecipientManual Submission – 3 copies of 1604CF / 1604E + alphalist of employees and income payees.Diskette Submission – ten (10) or more number of employees or payees who are recipient of income payments subject to creditable and final withholding tax, are required to submit 3.5 inch floppy disk using any of the following options:Excel Format Provided under Revenue Regulations No with the technical specifications with validation module prescribed by BIR.Own extract program that shall meet the requirements specified in RR with validation module prescribed by the BIR.Data Entry Module using Visual Fox Pro.
7 Annual Information Return (BIR Form 1604CF / 1604E) Including the Alphabetical List of Employees and Income RecipientWhat to use 1604CF E+AlphalistWhen to submit On or before Jan. On or before March31 of the ff. year 1 of the ff. yearWhere to submit RDO RDOLTDO LTDOLTAD LTADRetention 3 years in a diskette 3 years in a diskette
8 Substituted Filing of Income Tax Returns (ITR) BIR Form 1700
9 Individuals qualified for substituted filing and must not file BIR Form No. 1700 Receiving purely compensation income regardless of amount;Working for only one employer in the Philippines for the calendar year year;Income tax has been withheld correctly by the employer (tax due equals tax withheld)The employee’s spouse also complies with all the three conditions stated above, andEmployer filed to BIR the Annual Information Returns on Income Taxes Withheld (BIR Form 1604-CF)Note: All of the above requisites must be present. The Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form 1604-CF) filed by their respective employers duly stamped “Received”, shall be tantamount to the substituted filing of Income Tax returns by said employees.
10 Individuals NOT qualified for substituted filing and must file BIR Form No. 1700 Individuals with two or more employees concurrently and successively at anytime during the taxable year.Employees whose income tax has not been withheld correctly resulting to collectible or refundable return.Employees whose monthly gross income does not exceed P5,000 or the statutory minimum wage, whichever is higher and opted for non-withholding of tax on said incomeIndividuals deriving other non-business, non-profession-related income in addition to compensation income not otherwise subject to a final tax.Individuals receiving purely compensation from a single employer whose income tax has been correctly withheld but whose spouse does not qualify for substituted filing.
11 Individuals NOT qualified for substituted filing and must file BIR Form No. 1700 Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income or compensation income and other non-business, non-professional related income.Note: In case of married individuals who are still required to file returns, only ONE RETURN FOR THE TAXABLE YEAR SHALL BE FILED by either of the spouses to cover income of both. It shall be SIGNED BY HUSBAND AND WIFE unless physically impossible to do so, in which case, signature of one of the spouse would suffice
12 Employees Withholding Statements What to issue: Certificate of Compensation Payment/Tax Withheld – Substituted FilingWho to issue: EmployerWhen to issue: a) On or before Jan. 31 of the ff. yearb) On the day of last payment of salaryif terminatedNumber of copies: Three copiesSigned by: Both employer and employee(under the penalty of perjury)Note: An extra copy shall be furnished by the employer duly certified by him to his NEW employer in cases of transfer of employment within the taxable year.
13 Certificate of Compensation Payment/Tax Withheld Uses of Certificate of Compensation Payment/Tax WithheldProof of financial capacity for the purpose of loan, credit card or other applicationsProof of payment of tax or for availing tax credit in the employee’s home country;Securing travel tax exemption, when necessary; andOther purposes with various government agencies
14 Application for Registration Information and Exemption Update (BIR Form 1905 and 2305) Pursuant to Section 236 of the National Internal Revenue Code, any registered taxpayer shall, whenever applicable, update his registration information with the Revenue District Office where he is registered, specifying therein any change in tax type and other taxpayer details (i.e. change in registered activities/line of industry, change in registered name/ trade name and change in accounting period).
15 Registration Information Update Closure of Business/Cancellation of TINChange in Registered AddressReplacement of Certificate of RegistrationReplacement/Cancellation of Authority to Print Receipts and InvoicesReplacement of Tax Clearance Certificate for Tax LiabilitiesReplacement of Lost/Damaged TIN CardChange in Registered ActivitiesChange in Registered Name/Trade NameChange in Tax Type DetailsChange in Accounting Period
16 Exemption Update Change in Status Change in the Number of Qualified DependentsClaim for Additional Exemptions and Premium deduction
17 RR 2-2005: Consolidated RevenueRegulations Implementing RA 7227 (BCDA Act of 1992)RA 7916 (SPEZ Act of 1995)RA 7903 (Zamboanga City SEZ Act of 1995)RA 7922 (Cagayan SEZ Act of 1995)
18 RR 2-2005: Consolidated Implementing Rules on ECOZONEs National Tax Exemption and Incentives to Zone-Registered Enterprisesa. Exempt from taxes on importations of raw materialsb. Exempt from Gross Receipts Tax, VAT, ad valorem, and excise taxes on their sales of goods and services except local salesc. Exempt from franchise, and common carrier or VAT and % on public and service utilities within the Zoned. Preferential tax treatment on income earned/derived from business operations within the Zonee. Purchases of raw materials from enterprises in the Customs Territory shall be considered effectively zero-rated or exempt from VATf. May generate income from sources within the Customs Territory but up to 30% of its total income from all sources only.g. Carriers shall be bonded in an amount to be determined by the Authorities which shall not be less than P50,000.h. Articles which are manufactured in the Zone and exported to a foreign country, upon subsequent importation into customs territory, be subject to the laws on importation applicable to like articles manufactured in a foreign country.
19 Tax and Fiscal Obligations RA 7727Subic-EcozoneRA 7916EconzoneRA 7903Zambo-EcozoneRA 7922Cagayan-Ecozone3% to the National Gov’t.1% to the LGU1% to the Special Dev’t. Fundfor the development of municipalities outside Olongapo and Subic3% to the National Gov”t:2% which shall be directly remitted by the business to the treausrer’s office where it is located2%to the National Govt2% to the City of Zamboanga1% development fund of the barangays within the City of Zamboanga2% to the NG1% to the Province of Cagayan½% to be shared by the affected municipalities1 ½% to the CEZA
20 Tax and Fiscal Obligations The equivalent amount to tax paid/payable to the National Government shall be considered for purposes of any claim for credit against taxes paid to foreign government.Articles received by Zone registered enterprises which cannot be accounted shall be presumed to have been transferred to the Customs Territory w/o permit and therefore subject to tax.All zone registered enterprises operating within the zone shall be constituted as withholding agents.Interest from any Philippine currency bank deposits and yield by a zone registered enterprise shall be subject to internal revenue
21 RR 2-2005: Consolidated Implementing Rules on ECOZONEs Removal or Withdrawal from Zone to Customs TerritoryShall be subject to the payment of customs duties and internal revenue taxes as ordinary importations. Articles removed shall be presumed to be foreign unless there is sufficient evidence that they are domestic articles
22 RR 2-2005: Consolidated Implementing Rules on ECOZONEs Service Establishments:All income derived by qualified ECOZONE Service Enterprises, whether registered or not, for services rendered within the ECOZONES shall be subject to all internal revenue taxes under the NIRCHowever, ECOZONE locators which export their services or are rendering their services abroad shall enjoy the 5% preferential tax rate.
23 RR 2-2005: Consolidated Implementing Rules on ECOZONEs Gross IncomeShall refer to the gross sales or gross revenue net of sales discount, sales returns and allowances minus cost of sales and direct costs but before any deductions for administrative, marketing, selling, operating expenses, or incidental losses during a given taxable yearIt shall include interest income, gains from sales and other income
24 For ECOZONES under RA 7916Export Enterprises, Free trade Enterprises and Domestic Market EnterprisesDirect salaries, wages or labor expensesProduction supervision salariesRaw materials used in prod.Decrease of Goods in Process AccountDecrease in Finish Goods AccountSupplies and Fuels used in prod.Depreciation of machinery and equipment used in productionRent and utility charges associated with building, equipment and warehouse used in prod.Financing Charges associated with fixed assets used in production which were not capitalizedDeveloper/Operator, Facilities, Utilities and Tourism EnterprisesDirect salaries, wages or labor expensesService supervision salariesDirect materials, supplies usedDepreciation of machinery and equipment used in registered activitiesFinancing Charges associated with fixed assets used in registered activites which were not capitalizedRent and utility charges associated with buildings and capital equipment used in undertaking registered activities.
25 Registration Information Update APPLICATION FOR CLOSURE OF BUSINESS/CANCELLATION OF TINDocumentary Requirements 1) Letter of request stating reason for termination of business 2) Original Certificate of Registration 3) Books of Accounts 4) Inventory List of Unused Receipts and Invoices 5) Unused Receipts and Invoices for cancellation 6) Board Resolution / Notice of Dissolution (if Corporation / Partnership)Additional Requirements in Case of Death of Individual Taxpayer:1) Death Certificate2) Payment of Estate Tax, if any
26 Registration Information Update APPLICATION FOR CHANGE IN REGISTERED ADDRESSDocumentary Requirements 1) Original Certificate of Registration 2) Inventory List of Unused Receipts and Invoices 3) Unused Receipts and Invoices for cancellation 4) Latest DTI Certificate (for individual) or SEC Registration (for Corporation / Partnership) 5) Proof of Application for Mayor’s Permit under new business address 6) Sketch of Place of Production (if excise taxpayer)
27 Registration Information Update APPLICATION FOR REPLACEMENT OF CERTIFICATE OF REGISTRATIONDocumentary Requirementsa) Old Certificate of Registration, for replacement;b) Affidavit of Loss, if lost; andc) Proof of Payment of Certification Fee and Documentary stamp- to be submitted before the issuance of the New Certificate of Registration
28 Registration Information Update APPLICATION FOR REPLACEMENT/CANCELLATION OF AUTHORITY TO PRINT RECEIPTS AND INVOICESDocumentary Requirementsa) Original Authority to Print Receipts and Invoices; andb) New Application Form 1906, if applicable
29 Registration Information Update APPLICATION FOR REPLACEMENT OF TAX CLEARANCE CERTIFICATE FOR TAX LIABILITIESDocumentary Requirementsa) Affidavit of Loss, if applicable; andb) Proof of payment of Certification Fee and Documentary Stamp Tax – to be submitted before the issuance of the New Tax Clearance Certificate
30 Registration Information Update APPLICATION FOR REPLACEMENT OF LOST/DAMAGED TIN CARDDocumentary Requirementsa) Affidavit of Loss, if lost; andb) Old TIN Card (if replacement is due to damaged card
31 Registration Information Update APPLICATION FOR CHANGE IN REGISTERED ACTIVITIESDocumentary RequirementsOriginal Certificate of Registration
32 Registration Information Update APPLICATION FOR CHANGE IN REGISTERED NAME/TRADE NAMEDocumentary Requirementsa) Amended SEC Registration/DTI Certificate; andb) Original Certificate of Registration
33 Registration Information Update APPLICATION FOR CHANGE IN TAX TYPE DETAILSDocumentary RequirementsOriginal Certificate of Registration
34 Registration Information Update APPLICATION FOR CHANGE IN ACCOUNTING PERIODDocumentary Requirementsa) BIR written approval of the changeb) Photocopy of short period return