Percentage TAX - Business taxation summary PDF

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PERCENTAGE TAX1 are the Scope of Percentage Tax?2 pays percentage tax3. What are the services Specifically subject to percentage tax? Answer: BICAPFLOW  B ank and non-bank financial intermediaries performing quasi-banking functions  I nternational carriers on their transport of cargoes, excess bag...

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PERCENTAGE TAX 1.What are the Scope of Percentage Tax? Coverage Services specifically subject to % tax Sales of good and services not exempted

Type of % tax Specific % tax General % tax

Tax rates Various tax rates 3% percentage tax

2.Who pays percentage tax Type of % tax Specific General

VAT taxpayers  x

Non-VAT taxpayers  

3. What are the services Specifically subject to percentage tax? Answer: BICAPFLOW  Bank and non-bank financial intermediaries performing quasi-banking functions  International carriers on their transport of cargoes, excess baggage and mails only  Common carriers on their transport of passengers by land and keepers of garage Certain amusement places   Sale of stock through Philippine Stock Exchange and corporations or shareholders on IPO  Certain Franchise Grantees  Life insurance companies and agents of foreign insurance  Telephone Companies on Overseas  Communication  Jai-alai and cockpit on winnings 4. What is bank? Answer: Refers to entities engaged in lending funds obtained in the form of deposits.

5. What is non-bank? Answer: refers to person or entities whose principal function include lending, investing or placement of funds or evidences of indebtedness or equity deposits. 6. What is Quasi-banking function? Answer: refers to the borrowing of funds from 20(twenty) or more personal corporate lenders at any one time, through issuance, endorsement or acceptance of debt instruments of any kind. Note: However, that commercial, industrial, and other non-financial companies, which borrows funds through any of these means limited purpose of financing their own needs or the needs if their agent or dealers, shall not be considered as performing quasi-banking functions. 7. Tax rates on banks and Quasi-banks Answer: Source of income or receipt 1. Interest income, commissions and discounts from lending activities (loans), and income from financial leasing, on the basis of remaining maturities of instruments from which the receipts were derived: A. Maturity of five years or less B. Maturity of five years of more 2.Dividend and equity shares in the net income of the subsidiaries 3. Royalties, rentals of property (real or personal) gross profit from exchange and all other items treated as gross income under section 32 of NIRC 4. Net trading gains within the taxable year on foreign currency, debt securities, derivatives, and other similar financial instrument

% tax rate

5% 1% 0% 7%

7%

Note: tax rate applies on interest income every month thereafter until maturity. 8. What is the meaning of “gross income”? Answer:  Those that are subject to regular income tax  Those that are Subject to final tax (gross of final income tax)

9. Explain the exemption from gross receipts tax. Answer: Gross receipts tax does not apply to the income or revenue realized by Bangko Sentral ng Pilipinas from its transaction undertaken in pursuit of its legally mandated functions. 10. Explain Net trading gains within the taxable year on foreign currency, debt securities, derivatives, and other similar financial instrument. a. Annual net gain from this category b. Cumulative total of net trading gain/loss since the start of the taxable year less figures already reflected in the previous month of the taxable year c. Net trading loss shall not be deductible to other categories of receipts. d. if the bank has cumulative net loss at the end of the year, it cannot be carried over as a deduction against net trading gain in the following year. Note:  Treatment of specific tax may result in the payment of monthly gross receipts tax even if there is an annual net trading loss at the end of the year.  Since the law taxes the annual net gain rather than the monthly net gain, it is understandable that any monthly gross receipt tax paid under such condition is recoverable by the tax payer. 11. Tax of Financial intermediaries without Quasibanking Function

Source of income

% tax rate

1. Interest income, commission and discount from lending activities, income from financial leasing, on the basis of remaining maturities of the instrument A. Maturity five years or less B. Maturity five years or more 2. From all other items treated as gross income under the NIRC

5% 1% 5%

12. What are some examples of non-bank intermediaries without quasi-banking function? a) Pawnshops b) Money changer 13. What are the common rules for banks, Quasibanks and other Financial institutions a) Accounting Rules b) Finance lease and operating lease c) Pre-termination of instrument 14. Explain the Accounting Rules Answer: The basis of calculations of Gross Receipts shall be GAAP prescribe by a) BSP - banks and quasi-banks b) SEC - for non-banks financial intermediaries 15. Explain Finance lease and operating lease Answer: Taxable Gross Receipts of: A. Finance lease - only interest excluding the collection of Principal  There is transfer of properties B. Operating lease - Gross rentals received (Principal plus interest)?  No transfer of properties 16. Explain the pre-termination of loans Answer: In case of pre-termination, the maturity period shall be reckoned to end as of the date of pre-termination for purpose of classifying the transaction, and

applying the correct rate. (Illustration at the book) 17. Explain withholding of percentage tax on banks. Answer: BSP shall withhold the percentage tax on banks and non-banks financial institutions on all its payment to specialmdeposit account and reserve liquidity account.

NOTE: Domestic sea or air carriers with international operation are vatable on their outgoing shipment of passenger, excess bagage, cargoes or mails. Subject to Zero-VAT rate.

18. Explain Specific percentage tax on INTERNATIONAL CARRIES Answer: International Carriers doing business in the Philippines shall pay a tax equivalent to 3% of their quarterly gross receipts derived from the transport of cargoes, baggage, or mails from the Philippines to another country. Note: Gross receipts includes:  Freight/cargoes fees  Mail fees  Deposit applied as a payment  Advance payment  Fees actually or constructively received(originating from the Phil. In a continous and uninterrupted flight)

21. Exception to the international carriers tax Answer: It does not apply to off-line international carriers having branch/office or sales agent in the Philippines which sells passage documents for a compensation or commission this entity is subject to VAT. 22.Tax rules on OUTGOING FLIGHTS

passengers Cargoes/baggages 23. Explain (DOMESTIC) GARAGE

19. What is the meaning of “International carriers”? Answer: Means Air or sea carriers owned by foreign corporations that operates in the Philippines and transport passengers or cargoes from the Philippines to overseas and Vice versa. 20. Explain taxation flights or voyages. Types of carriers

Domestic operation

1. Domestic 12% VAT 2. international A. Passenger N/a B. Goods, N/a mails or cargoes

of

gross

receipts

exempt 3% OPT

exempt exempt

Passengers

Land

3% percentage tax (due quarterly) Vatable

Water or Sea Air

Note:

the Percentage tax on COMMON CARRIERS AND KEEPERS OR

Mode of transport

on

International operations outgoing incoming 0% VAT Exempt

Sea or air carries owned by: domestic Foreign VAT Exempt VAT 3% opt

Vatable

Baggage/m ails/ cargoes Vatable

Vatable Vatale

Common carriers include car for rent, transportation contractors, persons who transport passenger for hire and other domestic land carriers on their transport of passenger, except owners of bancas and owners of animal-drawn twowheeled vehicles 24. Explain the Minimum presumptive gross receipts for common carriers and keepers of garage Note:  If the payer is non-Vat taxpayer consider the Vatable items, this shall be consider in computing percentage tax due  In computing percentage tax due, the amount subject must be the higher between the actual and minimum amount. 25. Exemption to common carriers tax Answer: owners of bancas and animaldrawn two-wheeled vehicles are exempt from the percentage tax. Law is silent about pedicabs but they are considered as “business for mere subsistence” hence also exempt. 26. Explain the Exemptions of common carriers from local tax Answer: Gross receipts from common carriers derived from their incoming and outgoing freight shall not be subject to local taxes. 27. Explain AMUSEMENT TAXES Answer: Proprietor, Lessee, operator of the following shall pay taxes on their Places of boxing exhibition Places of professional basketball games Cockpits, Cabarets, night or day club Jai-alai and race tracks

10 % 15 % 18 % 30

% Note:  operators of amusement places such as bowling alleys and golf courses are vatable.  Cinemas and theaters is not subject to national amusement taxes, but to local amusement tax  Shall include receipts including from income from television, radio and any motion picture right.  Operators of illegal “tupada” cockpits are also subject to quarterly Jeepney for hire: Manila and other P2,400 cities Provincial P1,600 Public utility bus: Not exceeding30 P3,600 passengers Exceeding 30 b 50 ut not P6,000 passengers Exceeding 50 P7,200 passengers Taxis: Manila and other P3.600 cities Provincial P2,400 Car for hire: With chauffeur P3,000 Without Chauffeur P1,800 18% specific percentage tax

monthly P800 P400 P1,200 P2,000 P2,400

P1,200 P800 P1,000 P600

28. Explain exempt receipts on professional boxing Answer: it is exempt if:  Gross Receipt of professional boxing are form world or Oriental Championship  If the contenders is a Filipino Citizen  Promoter is a Filipino Citizen or a  Corporation is owned y 60% Filipino Citizen

29. Tax due of Amusement taxes? Answer: Payable within 20 days after the end of each quarter. 30. Explain tax of SALE, BATER OF STOCK LISTED AND TRADED THROUGH P.S.E Answer: Also known as Stock Transaction Tax, the sale, barter, of stock listed and traded in PSE, other than dealers of securities is subject to tax of 60% of 1% based on gross selling price. Note:  Paid by the seller ans collected by stock broker who shall remit the tax to the BIR within 5 baking days from the date of collection.  Tax applied only on listed stocks (domestic or foreign).  Tax applied without regard to the type of stock sold (thus includes warrant and option)  Tax applies without regard to existence of any gains/loss on the transaction  Does not apply to the dealers of securities, because regardless of the sale (through P.S.E or directly) it is vatable. 31. Tax on the shares of stock sold or through an I.P.O Answer: Also known as I.P.O tax. Sale, barter exchange or other disposition of stock through I.P.O of shares in closely held corporation is subject to the following tax rates based on gross selling price: Portion of share sold, tax bartered, exchange rate Up to 25% 4% Over 25% but not over 33 2% 1/3% Over 33 1/3% 1% Note:  It must be noted that the IPO tax applies only to IPO of closely-held corporation.  Therefore IPO of corporations which is diversely owned or those whose 50% of capital stock is owned by more than 20 people is not subject to IPO stock

32. What is the meaning of closely closed corporation? Answer: means any corporations at least 50% in the value of outstanding capital stock or at least 50% classes of common stock is owned directly or indirectly by not more than 20 individuals. 33. How to determine the proportion of stock sold? Answer: the determination of proportion of stock sold depends upon the type of offering.  Primary offering - unissued shares of closely held corporation to be sold in IPO  Secondary offering - issued shares of existing shareholders who wishes to sell their shares on IPO 34. What is follow-through offering? Answer: it is a subsequent sale of a corporation after IPO. This is no longer subject to IPO tax.

35. Summary of Rules on Sales before During IPO Sale made by IPO Corporate No tax IPO as issuer primary offering Shareholder CGT IPO as secondary offering

of Stock After IPO No tax

Stock transaction Stock (60% of 1%) Note: Ignore documentary stamp tax on sale or issue of stock

36. Explain the TAX ON FRANCHISE General Rule: Franchises are Vatable Exemption: There are two Franchise that re subject to Specific Percentage tax

Franchise Grantees % tax Radio or television broadcasting 3% companies whose annual gross receipts do not exceed P10,000,000 Gas and water utilities 2% Note: Percentage tax on this franchise is refer as “franchise tax” 37. Explain the VAT registration of Franchise Grantees. Answer:  Franchise grantees of radio or television broadcasting companies - are mandatory to required to register as VAT taxpayer if they exceed to P10,000,000 annual threshold. Even if they are below threshold, they may opt to exercise to register and irrivocable perpetually,  Franchise grantees of gas and water utilities - they are still subject to specific percentage tax, even if they exceed VAT threshold “Note: Franchise tax does not apply to water refilling or purification stations selling bottled mineral water” 38. Enumerate the Vatable Franchises Answer:  Electricity - Electric generation or transmission and distribution by electric cooperatives are vatable  Telecommunication - Telecom companies are vatable, except on their receipts from outgoing messages since these are subject to 10% overseas communication  Transportation - Transport companies are vatable, except receipts of common carriers by land on their transport of passengers (subject to 3% common carriers tax)  Private franchise 39. Explain the taxation of LIFE INSURANCE PREMIUMS Answer: a person, company or corporation (except purely cooperative companies or association) doing life insurance business in the Philippines is subject to 2% on the

premiums collected, whether such premium is paid in money, notes, credits, or any substitute for money.     

Note: this life insurance includes soliciting group insurance, and health and accidents insurance policies. Premium on health and accident insurance underwritten by life insurance companies are subject to premium tax Premium on health and accident insurance underwritten by non-life insurance companies are vatable only in the case of life insurance that promissory note is included in gross receipts In non-life insurance promissory note is not included in gross receipts

40. Enumerate the item not included in gross receipts of an insurance company  Premiums refunded within 6 months  after payment on account of rejection of risk  Re-issuance premium  Premium from life insurance of nonresidents received from abroad by branches of domestic corporation  Excess of premiums on variable contracts in excess of the amounts necessary to insure lives of the variable contracts owners Note: Refunded premiums are not receipts therefore excluded in gross receipts 41. Enumerate type of insurance business  Direct insurance – underwrites insurance policy and negotiates them to policy holders through insurance agents  Re-insurers - insurers of insurers  Retrocessionaries - insurers of reinsurers Note:  Upon collection of the premium by direct insurers, the 2% premium tax applies for life insurance policy and VAT for non-life insurers policy.  When insurers cede part of these premiums to Re-insurers it should not be taxed again, otherwise double taxation applied.  The payment of retrocession premium to the foreign insurer is subject to withholding vat

42.



Insurance commissioner or re-insurance commission if vatable.



A credit to client account balances constitute client investment.

Enumerate the Insurance that are VATABLE a) Cooperative companies or associations are those conducted by members the money collected from among themselves and solely for their own protection and not for profit. b) Except for crop insurance, non-life insurance are vatable: i. Surety ii. Fidelity iii. Indemnity iv. Bonding companies v. Marine vi. Fire vii. Casualty

43. Taxation of other receipts in life insurance business a) Renewal or re-insurance, reinstatement fee and penalties - subject to 2% specific tax b) Management fees, rental income, or other income from unrelated services - Vatable c) Investment income: i. Realized from investment of premium – exempt ii. Realized from investment of funds obtain from others considered as income from quasibanking, thus taxable under quasi banking rates 44.

Summary of tax rules of Insurance

Re-insurers Foreign insurer

Agent

Domestic/resident life insurers

insured

Life insurance 2%premium tax exempt

Non-life insurance

Direct Vatable premiums RE-insurance exempt premium Insurance Vatable Vatable commission 45. Explain tax on agents of foreign insurance Answer: fire, marine, or miscellaneous insurance agent authorized to procure policies of insurance on risk located in the Phil. For companies not authorized to transact business is subject to 4% premium tax. 46. Explain direct insurance from abroad Answer: if owners obtain insurance directly from abroad without agent, subject to 5% of the premium paid. 47. Explain the tax on OVERSEAS DISPATCH, MESSAGE OR CONVERSATION ORIGINATING FROM THE PHILIPPINES Answer: if it is transmitted from the Philippines by Telephone, Telegraph, telewriter exchange, wireless and other communication equipment services is subject to 10% percentage tax or overseas communication tax. 48. Explain the summary of tax in overseas dispatch, message, or conversation originating from the Philippines.

Call origin Phil. abroad Phil.

Call destination Phil. Phil. Abroad

Business tax 12% VAT 0% VAT 10% overseas communication tax

48. What are the exemption under tax on overseas dispatch, message, or conversation originating from the Philippines a) Government - including any of its political subdivision, or instrumentalities b) Diplomatic Services - embassies and consular offices of foreign governments c) International organization - those who are enjoying, exemption and immunities under international agreements d) New services 49. Explain the taxation of WINNINGS FROM HORSE RACE OR JAI-ALAI Winnings in horse race or jai-alai, in general 10% Winnings from double, forecast/quinella and trifecta bets Owners of winning race horse 50.

4% 10%

Enumerate the types of Horse Racing a) Combination bet - subject to 4% on the net winnings i. Double - a bet to select winners in two specific races ii. Daily double - a bet to forecast the first winning horse on two consecutive races iii. Forecast - a bet to predict the first and second finisher of a particular race

iv. Exacta or perfecta - a bet to pick the first two finisher in exact order v. Quinella - a bet where at least the first two finishers must be pick in either in order vi. Trifacta - a bet to predict the first three finishers in a race in exact order. b) Straight wagers - subject to 10% i. Win - the selected horse must finish first ii. Place - the selected horse must come first or second iii. Show - the selected horse must come first, second or third Note:  Tax shall be deducted from the”dividend” corresponding to each wining ticket or “prize” of each winning race horse owner  It should be withheld by the operator or person incharge of the race before paying the dividends to the person entitled  “Shall be paid within 20 days from the date withheld”  These taxes on winnings are separate from 30% amusement tax - which is based on gross receipts  Percentage on tax winnings is an additional amusement tax, by the nature it is impose on...