In the Philippines, employers have several tax responsibilities. These include withholding income tax, making Social Security System (SSS) contributions, PhilHealth (Philippine Health Insurance Corporation) contributions, and Home Development Mutual Fund (HDMF/Pag-IBIG) contributions.

Withholding Income Tax

The Philippines operates a graduated income tax system. Employers are required to withhold income tax on a monthly or semi-monthly basis, depending on the company's payroll schedule. Taxes withheld should be remitted to the Bureau of Internal Revenue (BIR) using BIR Form 1601-C within ten days of the following month if the amount exceeds ₱1,000, and within fifteen days of the following month if the amount falls below ₱1,000.

Social Security System (SSS) Contributions

Employers are required to make SSS contributions, which are shared between the employer and employee based on the employee's monthly salary credit. These contributions should be paid monthly. The deadline for remittance depends on the type of contribution and can be made either through banks or SSS payment collection partners.

PhilHealth (Philippine Health Insurance Corporation) Contributions

Employers are also required to make PhilHealth contributions. These contributions are shared between the employer and employee based on the employee's monthly basic salary. Like SSS contributions, PhilHealth contributions should be paid monthly. The deadlines for these payments vary based on the payment channels.

Home Development Mutual Fund (HDMF/Pag-IBIG) Contributions

Finally, employers are required to make contributions to the Home Development Mutual Fund (HDMF/Pag-IBIG). Both employers and employees contribute a fixed percentage of the employee's monthly basic salary, up to a maximum of ₱5,000. These contributions should be paid monthly. Payments can be made online or through authorized partners.

Employees are required to contribute a percentage of their monthly salary credit as their share of Social Security System (SSS) premiums. A percentage of the employee's monthly basic salary is also deducted as their share of PhilHealth (Philippine Health Insurance Corporation) contributions.

Mandatory Deductions

• Social Security System (SSS): Employees contribute a percentage of their monthly salary credit as their share of SSS premiums.
• PhilHealth (Philippine Health Insurance Corporation): A percentage of the employee's monthly basic salary is deducted as their share of PhilHealth contributions.
• Home Development Mutual Fund (HDMF/Pag-IBIG): A mandatory contribution based on the employee's monthly basic salary (up to ₱5,000) is deducted and remitted to the fund.
• Withholding Income Tax: Employers are required to withhold income tax from employees' salaries based on a graduated tax system.

Optional Deductions

• Optional Standard Deduction (OSD): Instead of claiming itemized deductions, taxpayers earning primarily from business income or professional practice can claim a 40% OSD.

The standard VAT rate in the Philippines is 12%. This rate applies to most services, including professional services, rentals, transportation, and other taxable services outlined in Section 108 of the National Internal Revenue Code (NIRC) of 1997, as amended.

VAT Exemptions

There are certain services that are exempt from VAT. These key exemptions include:

• Educational Services: Services rendered by educational institutions.
• Medical and Dental Services: Professional services provided by physicians and dentists.
• Lease of Residential Units: Lease of residential units with a monthly rental not exceeding ₱15,000 in 2023. This threshold is adjusted periodically by the BIR.
• Specific Services: Other services outlined under section 109(1) of the NIRC of 1997, as amended.

Filing and Payment of VAT

Businesses with gross annual sales exceeding ₱3,000,000 must register for VAT. VAT-registered businesses file their VAT Returns through BIR Form 2550M (for monthly filing) or BIR Form 2550Q (for quarterly filing). VAT is due on or before the 20th day following the end of each taxable month, or the 25th day of the month following the end of each taxable quarter. Payments can be made online, through authorized banks, or at accredited BIR revenue collection officers.

Tax incentives can be a significant advantage for businesses, providing opportunities to reduce tax liabilities and increase profitability. Here are some of the key tax incentives available:

Income Tax Incentives

Income Tax Holiday (ITH)

The ITH allows businesses to be exempt from paying corporate income tax for a specific period. It's available to registered business entities under the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Law). The specific criteria depend on the type of business activity, registration location, and registration with investment promotion agencies (IPAs) like PEZA. To apply, businesses need to register with the Board of Investments (BOI) or other relevant IPAs and comply with their specific application procedures.

Special Corporate Income Tax (SCIT)

The SCIT offers a lower corporate income tax rate compared to the standard rate. Businesses engaged in preferred activities listed under the CREATE Law may qualify for the SCIT. These activities typically involve promoting economic development, job creation, or export-oriented industries. Similar to the ITH, registration with the BOI or other IPAs is usually required.

Duty and VAT Incentives

Duty Exemptions on Imports

Businesses can import capital equipment, spare parts, and raw materials duty-free under specific conditions. The type of business activity, the source of the imports, and registration with IPAs can determine eligibility. Registration with the BOI or other IPAs is often required, along with submitting necessary documents for import clearances.

VAT Exemption and Zero-Rating

Registered exporters and businesses engaged in specific activities may be exempt from paying Value Added Tax (VAT) on their sales or purchases. The Bureau of Internal Revenue (BIR) determines eligibility based on the nature of the business and its registration status with relevant agencies. Businesses may need to register with the BIR and obtain specific certifications to avail of VAT exemptions or zero-rating.

Enhanced Deductions (ED)

The ED incentive allows businesses to deduct a higher percentage of certain expenses from their taxable income, reducing their tax liability. The CREATE Law outlines qualifying expenses for enhanced deductions, such as research and development, training, and domestic input costs. While formal registration might not be required, maintaining proper records for qualifying expenses is crucial for claiming these deductions during tax filing.