LYCEUM OF THE PHILIPPINES UNIVERSITY CAVITE

CHAPTER 1

LEGAL AND TAXATION ASPECTS

1.1 Legal Aspects

Entrepreneurs should ensure that they adhere to all the legal requirements of

running a business before starting a new venture. Financial principles, tax obligations,

and employment laws are just some of the legal requirements for new firms and startups.

It is essential to register a business to avoid legal issues once commercial operations

begin. In terms of forming a company conveniently, the Philippine government has

made significant strides.

This chapter will outline the current registrations and requirements of

businesses imposed by various government bodies. Following that, the procedures of

specific registration will be covered in depth as well.

1.1.1 Security Exchange Commission (SEC)

The Securities and Exchange Commission is one of the government

agencies in charge of overseeing securities and financial assets in the

Philippines. It also has jurisdiction and oversight over all corporations,

partnerships, or associations that are grantees of primary franchises and/or a

government-issued license or permit. In a nutshell, the SEC is the registrar and

overseer.

In November 2017, the Securities and Exchange Commission extended

its public service by utilizing online business registration through the Company

Registration System (CRS).

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 The user
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1. Set up an account with a current email account and then use it to

log in and access the site.

2. Among the several application kinds, select "register a new

company" and an industry type.

3. Provide information about the company. (Data entered in the

form/s will be used to generate documents such as the Cover

Sheet, Articles of Incorporation, By-Laws, Treasurer's Affidavit,

and other business registration documents. Download, notarize,

and then upload documents for the following step)

4. Upload all the relevant documents, which are listed and shown

in the system.

5. Wait for an email from the Securities and Exchange

Commission confirming payment of filing costs or notification

of compliance findings. If any results are observed, make the

appropriate corrections, then submit and upload the document.

6. Pay the filing fees and save a copy of your receipt in CRS.

7. Submit physical copies of the registration to the SEC, present

the papers, and have them stamped as received.

8. Wait for the SEC to send you an email requesting the release of

your certificate of incorporation or contact the SEC for a precise

date.

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1.1.2 Bureau of Internal Revenue (BIR)

The Bureau of Internal Revenue is known as the taxing authority in the

Philippines. They supervise the finance, taxation and monetary policy as well

as collecting internal revenue taxes, fees, and charges. All forfeitures, penalties,

and fines to individuals or organizations that fail to file their taxes are also

imposed by them. Registering with BIR for tax collection purposes and

issuance of the BIR Certificate of Registration are considered as one of the

main requirements if a corporation plans to put a business in the Philippines.

Steps in Registering the Business with the BIR (Corporation):

1. Accomplish the Application for Registration for

Corporation/Partnership (Taxable/ Non-Taxable) or the BIR

Form 1903 and submit together with the required supporting

documents to the Revenue District Office (RDO) that has the

jurisdiction over the location of the business. The supporting

documents to be attached to Form 1903

2. Pay the Annual Registration Fee worth Php 500.00 at the

Authorized Agent Banks (AABs) of the concerned RDO.

3. Pay the Document Stamp Tax (DST) on Subscription and

Lease or the BIR Form 2000. The DST on Subscription

depends on the amount of the business’ capital, while the DST

on Lease depends on the business’ monthly rentals.

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LYCEUM OF THE PHILIPPINES UNIVERSITY CAVITE

4. After receiving these requirements, BIR official will notify the

business when their BIR Certificate of Registration or the BIR

Form 2303 is available for claiming.

Steps After Securing a BIR Certificate of Registration

1. Apply for Sales Invoices/Official Receipts through BIR Form

1906 or the Application for Authority to Print Receipts and

Invoices. The documentary requirements for obtaining such are

as follows:

• BIR Form 1906 or the Authority to Print

• BIR Form 2303 or the BIR Certificate of Registration

• Final and clear sample of Principal and Supplementary

Commercial Receipts and Invoices

• BIR Certificate of Registration of Accredited Printer

• BIR Form 0605 or the BIR Annual Registration Fee of

Accredited Printer

• Job order

• Quarterly Report of Accredited Printer

2. Register the books of accounts and have them stamped by the

RDO where the business is registered. Remember that the BIR

examiner will usually advise the types of books and taxes

applicable to the business upon the initial taxpayer’s briefing.

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The documentary requirements that the business must submit

upon registering the books of account are the following:

• BIR Form 2303 or the BIR Certificate of Registration

• New sets of books of accounts, such as but not limited to:

• General Journal

• General Ledger

• Cash Receipt

• Cash Disbursement

• Subsidiary Sales Journal

• Subsidiary Purchase Journal

1.1.3 Department of Trade and Industry (DTI)

The Department of Trade and Industry (DTI) is a powerful customer-

assistance organization. It is committed to defending consumers' rights and

concerns, as well as developing procedures and programs aimed at ensuring the

Philippine economy's continued expansion and development.

Here are the procedures that must be done to register a business at DTI:

1. Formulate business name

2. Validate the readiness of business name. Next to preparing

your business name ideas, search it on DTI’s website and

verify if it’s available for use.

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3. Proceed to DTI's Business Name Registration System to fill

out an online registration form (BNRS). Take note of the

refence code provided to access all transaction with BNRS.

4. Pay the registration fee.

5. Download the business certificate.

1.1.4 Municipal or City Government and Barangay

In the Philippines, businesses must get a Mayor's Permit or a Business

Permit from the Local Government Unit (LGU) where their business is

located. Cities and municipalities are examples of LGUs, and the procedures

for acquiring a permission may differ depending on the local statutes and

regulations that the city or municipality choose to enact. Every year, business

licenses are renewed. The first month of the calendar year is normally the

renewal period. Businesses who fail to renew their business permits on or

before the deadline are subject to penalties.

Requirements for obtaining Mayor’s Permit:

• Registration fee worth Php 500.00

• Photocopy of Securities and Exchange Commission or SEC

Certificate

• Photocopy of Articles of Cooperation/Incorporation

• Photocopy of By-laws

COLLEGE OF BUSINESS ADMINISTRATION

 • OF
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corporation.

• Documentary stamps worth Php 15.00

• Two (2) copies of 2x2 pictures of authorized signatory

(optional)

• Application forms fully filled-up and signed

The process of obtaining of Mayor’s Permit

• Fill out application form of Business Permit

• Prepare and submit the needed requirements

• Assessed the fees at the Business Processing and Licensing

Office (BPLO) and secure licenses and permits to Municipal

Health Office, Sanitary Office, Bureau of Fire Protection,

Municipal Planning and Development Coordinator, and Office

of the Municipal Engineer.

• Pay the fees and wait for the release of permit.

1.1.5 Social Security System

The Social Security System is a government-run social insurance

program that covers workers in the private, professional, and informal sectors.

The Social Security System (SSS) was founded by Republic Act No. 1161, also

known as the Social Security Act of 1954. In 1997, Republic Act No. 8282 was

passed, amending the law. The Social Security System mandates and obliges

businesses and employers to ensure that their hired employees or laborers are

COLLEGE OF BUSINESS ADMINISTRATION

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hazards of disability, sickness, maternity, old age, death, and other

contingencies resulting in loss of income.

Employer registration is accomplished by submitting the Employer

Registration Form (SS Form R-1), along with the Specimen Signature Card (SS

Form L-501) and the original and photocopy of the SEC-approved articles of

incorporation, duly signed by the authorized signatory.

Within thirty (30) days of hiring, the employer must submit the initial

Employment Report Form (SS Form R-1A) to report his or her employees. The

correct ER number, the total number of employees reported, and complete

employee details such as SS numbers, birth dates, employment start dates,

monthly compensation, and positions should all be included on the SS Form R-

1A.

1.1.6 Department of Labor and Employment

The Department of Labor and Employment is one of the executive

branches of the government's major policymaking, programming,

coordinating, and administrative organization in the field of labor and

employment. It is responsible for promoting gainful employment

opportunities and optimizing the development and utilization of the country's

manpower resources and advancing workers' welfare by providing just and

humane working conditions and terms of employment.

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 For new
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establishment's name, address, or ownership, or for reopening after a previous

closure, the employer must submit the following:

1. Complete form for Establishment Registration under Rule 1020.

2. Certificate of Registration from the Department of Trade and

Industry (DTI)

3. A valid business license or a mayor's permit

Here are the procedures that must be done to register a business at DTI:

1. Fill out the Registration Form, which can be obtained from the

Action Officer or downloaded from the DOLE Regional Office

website. Return the completed form to the Action Officer along

with all the required documentation.

2. Obtain the claim stub that shows the certificate's release date.

3. Claim Registration of Establishment under Rule 1020 by presenting

the claim stub to the Action Officer on the designated date.

1.1.7 Philippine Health Insurance Corporation (PhilHealth)

The Philippine Health Insurance Corporation is a government-owned

company that oversees the National Health Insurance Program. It offers health

insurance coverage to ensure that all Filipinos have access to reasonable and

affordable health care. Under Republic Act 7875, also known as the National

Health Insurance Act of 1995, as modified by Republic Act 9241, all

government and private sector companies must be registered with PhilHealth.

COLLEGE OF BUSINESS ADMINISTRATION

 The Philippine
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UNIVERSITY employers may
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register their business. It will no longer be necessary to submit papers after they

have enrolled in that system. If the employer fails to register through the PBR,

as a corporate entity, the company must submit Cooperative Development

Authority

(CDA) Registration. PhilHealth certificate or clearance might be one of the

prerequisites for filing for a Mayor’s Business Permit in the country. They are

also required to display the Certificate of Registration in a conspicuous area of

their offices.

1.1.8 Pag-IBIG (Home Development Mutual Fund)

The Home Development Mutual Fund, or Pag-IBIG, is a government-

owned and managed business under the Philippine Department of Human

Settlements and Urban Development responsible for administering the national

savings program and providing affordable housing financing to Filipinos. The

following requirements must be presented to the Pag-IBIG branch in charge of

keeping track of employers' membership:

1. Complete the Employer Data Form.

2. Complete the Signature Specimen Form.

3. Show your SSS card and proof of your company's existence, such as:

 Certificate from the DTI/SEC o Articles of Incorporation

COLLEGE OF BUSINESS ADMINISTRATION

 After
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withdraw their total savings (TAV) plus dividends from the HDMF, which also

serves as a savings plan.

1.2 Taxation Aspects

Taxes are obligatory contributions imposed by a government organization,

either local, regional, or national, on individuals or corporations. Tax revenues fund

government activities such as public works and services. Governments require long-

term funding opportunities for social programs and public expenditures to promote

economic growth and development. Health, education, infrastructure, and other services

programs are critical to achieving the common aim of a successful, functional, and

harmonious community.

1.2.1 Corporate Tax

A corporation tax is a government levy paid on a company's earnings.

The money collected through company taxes is used as a source of revenue for

a country. Operating earnings are computed by deducting expenses from the

cost of goods sold (COGS) and income depreciation. In the Philippines, all

enterprises, whether domestic and foreign, are required to pay corporate income

tax (CIT).

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1.2.2 Withholding
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A withholding tax is the amount that a company deducts from an

employee's pay and gives to the government directly. The amount withheld is

applied as a credit against the employee's taxable income for the year. It's also a

tax on nonresident aliens' income (interest and dividends) from securities, as

well as other income paid to nonresidents of a country.

1.2.3 Percentage Tax

As defined in Sections 116 to 127 of the National Internal Revenue

Code of 1997 (commonly known as the Tax Code), percentage tax is a type of

business tax levied on individuals, businesses, and transactions. The Percentage

Tax is calculated based on gross sales, revenues, or earnings inside the

Philippines (except for insurance companies, which are calculated based on the

total premium collected/paid).

1.2.4 Regular/Normal Tax

Income Tax is the tax on the annual profit earned from property,

profession, trades, or offices or as a tax on a person’s income, emoluments,

profits and the like. It is also the conduct of business or on the pertinent items

of gross income specified in the Tax Code of 1997 (Tax Code), as amended.

30% income tax rate are given for both domestic and resident foreign

corporations, based on their net taxable income. Governments rely on income

COLLEGE OF BUSINESS ADMINISTRATION

taxes to fund their
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support public services, and give commodities to citizens.

1.2.5 Minimum Corporate Income Tax

Under the Tax Code of the Philippines, a minimum corporate income

tax (MCIT) in the Philippines of two percent (2%) of the gross income is

imposed upon any domestic or resident foreign corporation beginning the

fourth (4th) taxable year immediately following the taxable year in which such

corporation commenced its business operations. The MCIT shall be imposed

whenever such

corporation has zero or negative taxable income or whenever the amount of

minimum-corporate income tax is greater than the normal income tax due from

such corporation. For better appreciation of MCIT in the Philippines, let us

share you some of its features as follows:

1.2.6 Value Added Tax

Value Added Tax, or VAT, is a tax imposed on the sale, exchange or

lease of goods, properties, and services in the Philippines. VAT is also applied

as a tax on the importation of goods into the Philippines and is considered an

indirect tax, as the statutory taxpayer for a transaction The VAT Rate in the

Philippines is 12%. Moreover, VAT is applied on the taxable gross selling

price of goods and properties and on the gross value of receipts from services

and lease of properties.

1.2.7 Community Tax

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 Under OF
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1991 Local Government
PHILIPPINES Code of the Philippines,
UNIVERSITY CAVITE Book II of

the Local Taxation and Fiscal Matters, Title 1 of the Local Government

Taxation, Chapter 2 Specific Provisions on the Taxing and other Revenue-

Raising Powers of Local Government Units, Article 6 Section 156– the cities or

municipalities may impose community tax in accordance with the provisions of

the said article. Moreover, under Section 158 or the Juridical Persons Liable to

Community Tax, tackles that every corporation that has a business in the

Philippines, whether domestic or resident foreign, shall pay an annual

community tax amounting

Php 500.00 and an annual additional tax, which, in no case, shall exceed to Php

10,000.00.

1.2.8 Capital Gains Tax

The capital gains tax is a tax levied on the profit made from an

investment when it is sold. Capital gains taxes are exclusively levied on capital

assets such as stocks, bonds, jewelry, coin collections, and real estate. When a

stock or other taxable assets are sold, the capital gains or earnings are referred

to as "realized." Because the tax does not apply to unsold assets or "unrealized

capital gains," stock shares will not be taxed until they are sold, regardless of

how long they are kept or how much their value increases.

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