Legal Requirement: It is a legal obligation for individuals and businesses to file their annual income tax returns as mandated by the Philippine tax laws.
2. Compliance: Filing income tax returns ensures compliance with tax regulations set by the Bureau of Internal Revenue (BIR), the government agency responsible for collecting taxes in the Philippines.
3. Avoid Penalties: Failure to file income tax returns or late filing may result in penalties, fines, or legal consequences imposed by the BIR.
4. Documentation: Filing income tax returns provides documented proof of income earned and taxes paid, which may be required for various purposes such as applying for loans, securing visas, or other legal matters.
5. Access to Government Services: Filing income tax returns is often a prerequisite for accessing government services, benefits, or entitlements.
6. Contribution to Nation-Building: Taxes collected from income tax returns contribute to funding government programs and services, including infrastructure, education, healthcare, and social welfare initiatives, which benefit society as a whole.
What is an Income Tax Return?
According to the Bureau of Internal Revenue, an income tax is a tax on your salary or income, profits from property, emoluments, professional practice or business, and other gross income sources that correspond to an income tax rate. Meanwhile, a tax return is a cashback of the extra taxes you paid during a specific tax year.
Whether you’re a working individual or a business, you must file an income tax return (ITR) annually for earning revenue during the year.
As a Filipino citizen, you must pay taxes on your income, regardless of its source. As for aliens or foreigners, only income derived from sources inside the Philippines is taxed. The following types of income are tax deductible:
compensation from any employer-employee relationship, including commissions, fringe benefits, and taxable bonuses;
revenue from professional practice, trade, sale of assets, rental activities, and business; and
passive income from these sources: interest from Philippine or foreign currency bank accounts, royalties, prizes (like the lottery), dividends, sales of rental property, shares of stocks and an informer’s reward.
Who Is Required to File an ITR
Citizens or foreigners residing in the Philippines and receiving income inside or outside the country must file an ITR. Companies usually file their employees’ ITRs, while freelancers and business owners do it themselves. In 2021, there were about 26.8 million individual 26.8 million individual taxpayers.
The list below shows individuals and non-individuals who are required to file their ITRs.
Individuals
Resident citizens who receive money from domestic or international sources –this includes those who have single or several employers within the tax period, are self-employed and professionals with mixed-income and are earning from non-business and non-professional income;
Non-resident citizens who earn money from Philippine-based sources; and
Resident or non-resident foreign nationals who receive income from the Philippines.
Non-individuals
Corporations and partnerships, regardless of their structure or formation;
Domestic businesses that receive money from both domestic and international sources;
Foreign companies that earn income in the Philippines; and
Estates and trusts that are in business or trade.
Who Is Exempted from Filing an Income Tax Return?
Although most earning individuals must observe income tax filing in the Philippines, exemptions apply to the following:
a person earning minimum wage;
a person whose gross income is not greater than the exemptions for personal and other items;
a person whose annual income from a single employer is below ₱ 60,000 from which the income tax has been correctly withheld;
a person who had final withholding tax applied to their income;
a person eligible for substituted filing;
an overseas Filipino worker (OFW);
a non-resident Filipino citizen who is not staying in the Philippines but disclosed to the BIR that they would remain abroad;
a non-resident Filipino citizen who leaves the Philippines during the tax year to live overseas for permanent employment or as an immigrant;
a non-resident Filipino citizen who works and is paid abroad; and
a Filipino citizen who was previously a non-resident citizen.
Which BIR Form Do I Use for My Income Tax Preparation?
You can identify the different BIR forms by their number. The correct BIR form number depends on your earning status or business type.
Individuals
BIR Form 1700 is for reporting earnings solely from compensation, non-business income or professional income.
BIR Form 1701A is for reporting income from your business or profession. This form also applies if you avail of the 8% fixed income tax rate.
BIR Form 1701 is for reporting earnings as self-employed.
BIR Form 1701Q is for reporting quarterly income.
Non-individuals
BIR Form 1702-EX is for corporations, partnerships, and other non-individuals exempted under the Tax Code and other special laws and have no other taxable income.
BIR Form 1702Q is for reporting quarterly income.
BIR Form 1702-MX is for reporting mixed-income, which is subject to varying tax rates. This form also reports earnings that are eligible for a special rate.
BIR Form 1702-RT is for reporting income subject to a regular or fixed tax rate.
When is Your Income Tax Due?
Whether you are manually filing or doing it online, the deadline for submitting your income tax return is every April 15. Late filing counts as a penalty, requiring you to pay a fine of an additional 25% of the balance owed and a 20% interest charged yearly from the payment’s due date.
Get Your Taxes in Order
Many processes and practices are necessary when you’re running a business. Whether a small or big entity, it’s crucial to stay compliant by filing an income tax return.
If you want your tax filing to be stress-free or need any assistance with tax accounting, online bookkeeping, and accounting firm services, check out our services at HKCASI. We assist startups and SMEs through various services. To learn more, contact us today!
Call us at: +639088771218
Email us at: info@hkcasi.com
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