BIR Requirements for Sole Proprietors - Making Your Business Legal

Contents below were written by:

Violita P. Dacula, CSE - Professional

NC III Bookkeeper

2nd Year - BSAIS Student

Edited by: Fel Ceazar C. Agsaulio, CPA

STEPS IN MAKING YOUR BUSINESS LEGAL

              Last September 4, 2019, the Bachelor of Science in Accounting Information System (BSAIS) in second year level and Bachelor of Science in Accounting Technology in third year level went to Bureau of Internal Revenue (BIR) Revenue District 115 located at Aurora 3^rd St. Digos City Davao del Sur to attend a free seminar for the newly registered businessman as per requirement by Sir Fel Ceazar Agsaulio for income taxation purposes. The discussion was facilitated by Ermelinda N. Diagbel. The objectives of the said seminar are the following:

• To know the forms that will be filled out by the newly registered businessman,
• To know what are the things to be considered in putting up new business,
• To know what are the penalties and surcharges in case of neglecting the responsibility towards paying taxes and 
• To know the list of BIR registration requirements for the newly registered businesses owned by sole proprietors.

              Business permits will be issued by the Securities and Exchange Commission (SEC), Cooperative Development Authority (CDA) and Department of Labor and Employment (DOLE). After issuance, the owner must register to BIR after 30 days. For example, if on August 20 business permit was issued, deadline for registration to BIR will be up to September 20. On this date the owner must go to BIR for if not, late registration will lead to the imposition of taxes and penalties.

Taxation Seminar - Bureau of Internal Revenue RDO 115
BSAIS & BSAT Students

              Surcharge amounts to P1,000.00 and if the BIR will conduct a tax mapping or inspection and found out that the business has no business permit and located in a city, penalty will be P20,000.00. Penalty rates for businesses not located in a city are as follows:   

• 1st Class Municipality - P20,000
• 2nd Class Municipality - P10,000
• 3rd Class Municipality - P5,000
• 4th Class Municipality - P2,000

              That’s why, there is a really need to register your business whether small or large to BIR to avoid penalties, interests and surcharges. Businessmen are the partners of BIR and the agency is tasked by government to collect taxes.

Under train law, 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. Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed Three Million Pesos (Php3,000,000.00) while Non-VAT is Php3,000,000.00 below. When the taxpayer is considered as VAT ENTITY, there will be an imposition of 12% tax while Non-VAT is 3% tax annually based on gross receipts. 

For example, Carcleo’s Sari-sari Store has a sales of Php 2,500,000 annually so he is considered as Non-VAT taxpayer then his tax due is (P2,500,000 x 3%) Php 75,000.00. While Philip’s Eatery has a sales of P6,000,000 per year so he considered as VAT taxpayer then his tax due is Php 6,000,000 x 12%  = Php 720,000.00. If there is a case that in January to June, you are considered as Non-VAT because your sales not exceeding to P3,000,000 but in July to December, it increases and exceeds to P3,000,000 so you should inform the BIR in that case so that the agency can update your registration from Non-VAT to VAT and if you didn’t inform them ahead of time and they found it out, you will be compelled to pay the VAT plus the penalties and surcharges.

Registering your business with the Bureau of Internal Revenue (BIR) is one of the things that a business owner must do to make his/her business legal and to avoid the risk of being tagged as a tax evader. Whether you are an individual (single proprietor, professional, consultant) or a company (partnership, corporation, cooperative or association) you must complete the whole registration process.

Application for Registration for Self-Employed and Mixed Income Individuals, Non-Resident Alien Engaged in Trade/Business, Estates/Trusts. The documentary requirements are BIR Form No. 1901, this form is to be accomplished by self-employed and mixed income individuals, estates/trusts doing/just starting a business, or opening a new branch for registration. To be filed with the RDO having jurisdiction over the head office or branch office. The filing date is on or before commencement of new business or before payment of any tax due or before filing a return.

1. Any identification issued by an authorized government body (e.g. Birth Certificate, passport, driver’s license, Community Tax Certificate) that shows the name, address and birth date of the applicant; 
2. Photocopy of Mayor’s Business Permit; or Duly received Application for Mayor’s Business Permit, if the former is still in process with the LGU; and/or Professional Tax Receipt/Occupational Tax Receipt issued by the LGU [For Professionals where PTR is not required (e.i. Consultants, Agents, Artist, Underwriters & the like)]; or DTI Certificate; 
3. Proof of Payment  which is P500.00 of Annual Registration Fee (ARF) (if with existing TIN or applicable after TIN issuance); BIR Form No. 1906; and Final & clear sample of Principal Receipts/ Invoices;. For the business certification, 
4. DTI Certification for Single Proprietor, Articles of Partnership SEC for Partnership, Certificate of Incorporation SEC for Corporation and 
5. Tax Identification Number TIN for Professional or Consultant.
6. For Contract of Lease or Land Title: Contract of Lease – if you rent the place while Land Title / Tax Declaration – if you own the place. 
7. Lastly, the Mayor’s Permit and Barangay Clearance.

If you have completed all of these BIR requirements, you are now ready to proceed with the registration with the BIR.

Form 1903 for Application for Registration For Corporations, Partnerships (Taxable/Non-Taxable), Including GAIs, LGUs, Cooperatives and Associations. This form is to be accomplished by Corporations, Government Owned or controlled corporations, Partnerships, Government Agencies and Instrumentalities, (GAI's) and Local Government Units (LGU's). To be filed with the RDO having jurisdiction over the principal place of business or branch/regional office. The Filing Date is on or before commencement of business or before payment of any tax due/ before filing a return. There will be no annual registration for partnership, corporation, cooperative and association. The speaker emphasized that we must paid our obligation as taxpayer on or before the deadline because extension is strictly prohibited, deadline is dealine! So as taxpayer, please do advance payments to avoid penalties and surcharges that will increase your expenses.

After the registration and the payment has been made, go back to your RDO. Get a queue number from the guard. Go to the registration section for the receiving of your application. In Digos City, counter 3 is the designated for this. Cater all new business registrants, once they received the payment, they issue the Certificate of Registration (COR) It includes your name, registered address, registered date, registered activities with TIN and the speaker stressed that TIN must be memorized because it is important in all filing and the TIN must not be used for valid ID but for income taxation purposes.  Apply for Authority to Print (ATP). Also, don’t forget to ask for an “Ask for Receipt” sign. Some RDOs will automatically give it to you together with the COR and some do not. So to be sure, just ask for it.  The speaker also discussed the BIR Form No. 1906 Application for Authority to Print Receipts and Invoices.  This form is to be accomplished by all taxpayers every time printing of receipts and invoices is needed. To be filed with the RDO having jurisdiction over Head Office or branch. The Filing Date is to be filed each time taxpayer needs to print receipts and invoices.

The speaker introduced the eRegistration System which is a web application of various taxpayer registration services including TIN Issuance, Payment of Registration Fee and Generation of Certificate of Registration (COR) and stressed that as taxpayers, we should be cautious when filling online reports for if you do not read the instructions carefully and follow the directions stated, you might be obligated to pay even if you don't have a tax liability. For example, if you click the form 1901 instead of form 1700 payment for registration fee is needed then you will be obligated to pay even though unconsciously you click the wrong form. Also, the speaker emphasized that taxpayer should be careful in placing his/her TIN in the form. For if you will place an incorrect TIN even if you have actually filed for your return and even pay in connection to your online filing, your actions will not be carried out as your payment for you have placed an incorrect TIN.

The speaker also introduced the Electronic Filing and Payment System which is the electronic processing and transmission of tax returns including the necessary attachments. Taxes due thereon to the government made over to the internet through the BIR website will be automatically computed. The Electronic Bureau of Internal Revenue Forms (eBIRForms) was developed primarily to provide taxpayers with an alternative mode of preparing and filing tax returns that is easier and more convenient.

Businessmen are obliged to purchase Books of Accounts. Normally for VAT (Value Added Tax) Taxpayers. There are six (6) Books of Accounts  for Vatable enterprises as compared to four (4) Books of Accounts for NON-VAT taxpayers. 

Books of Accounts for Taxable Persons:

1. General Journal, 
2. Ledger,
3. Cash Receipt,
4. Cash Disbursement,
5. Subsidiary Sales Journal, &
6. Subsidiary Purchase Journal

Books of Accounts for Non-VAT Entities:

1. General Journal, 
2. Ledger, 
3. Cash Receipt and 
4. Cash Disbursement 

The books of account must be registered to the Bureau of Internal Revenue first before using it. At the year end, if it is left unused, leave one page if it will be used in the next business year.

The speaker also discussed BIR Form 2551Q - Quarterly Percentage Tax Return. Percentage tax is a business tax imposed on persons, entities, or transactions specified under Sections 116 to 127 of the National Internal Revenue Code of 1997 (also known as Tax Code), as amended, and as required under special laws. Percentage tax is derived by multiplying the required % to its tax base. In the case of distributor of goods, percentage tax is only imposed to NonVAT taxpayers and it is a specific percentage of its gross sales (3% for merchandisers of goods).

The speaker discussed the Quarterly Income Tax Return For Self-Employed Individuals, Estates and Trusts (Including those with both Business and Compensation Income) is a tax return intended for professionals and self-employed individuals who are engaged in a sole proprietorship business. This is a required tax return and shall be filed every 1st, 2nd and 3rd quarters only. No more quarterly tax return shall be filed in every 4th quarter as the taxpayer will be compelled to file an annual tax return on or before April 15th of every year.

Goods are items that can be seen, can be touched or can be felt and are ready for sale to customers. Every sale is supported by an invoice.

There are different services offered by businesses be it an amenity, rental of facilities, offer of benefits and some is help provided by other people as professional fees. Once a service is rendered, service provider gives an official receipt to its clients.

Penalties and Sanctions

Official receipt printed by the entrepreneur will expire on or before 5 years from the date of ATP and there is a grace period of sixty (60) days for businesses to utilize its receipt. Non-issuance of official receipt will be penalized by law and its sanction is P20,000 per page. This amount is indicated in BIR Form No. 1906, Application for Authority to Print Receipts and Invoices. This form is necessary and is accomplished by all taxpayers every time receipts and invoices are printed.

All businessmen is obliged to issue an official receipt when the sales exceed P100.00. "ASK FOR RECEIPT" campaign of the BIR was recently changed to "AKO ISSUE RESIBO" to avoid confusion so that the owner of the business will be obliged to issue an official receipt/ official invoices to its customers.

A simple non-posting of this campaign ad by the BIR is sanctionable by P1,000. COR must also be posted in the wall of the business entity including the business' DTI certification, its business permit and the payments of the business owner to the BIR. Each document that will be noticed by the field inspector to have been kept, the owner will have to pay P1,000 per document.

Books of Accounts that will be noted by the field inspector as tampered will be penalized by P1,000.00. Books of Accounts must be updated continuously. If it will be noted that the books were not update, business owners will be sanctioned by P1,000. Each invoice or receipt that was altered or damaged when checked will be penalized by P20,000.

The speaker also discussed BIR Form No. 1905 or the Application for Registration Information Update/Correction/Cancellation. This form is to be accomplished by all taxpayers who intend to update and or change any data or information. The following are examples of instances wherein 1905 must be accomplished:

• transfer of business address within the same RDO, 
• change of registered activities, 
• cancellation of business registration due to closure of business
• transfer to other revenue district, &
• replacement of lost TIN Card/ Certificate of Registration.

Before a taxpayer can file for Form 1905, he/she will be required to have a (Case Management System) CMS wherein the BIR will analyze whether the tax payer has a current unresolved issue with the bureau. No changes will be made by the BIR officer if the CMS will result a positive match in the system. It has to be resolved first by the taxpayer before he/she can update his/her information.

Unused receipts will have to reported to the bureau. Its inventory will have to monitored.