Who Are Required To File ITR In The Philippines?

Who Are Required To File ITR In The Philippines?

According to Benjamin Franklin, there are only two things that are certain in life: Death and Taxes.

It is the dreaded Tax Season once again! Arghhhh!  I know exactly how you feel. Hugz! Cheer up, most of the BIR personnel are kind and nice. Don't  be afraid because they won't bite.

Who Are Required To File ITR In The Philippines?

The Essential Facts

Are you making PHP60,000.00 and over in a year's time? If your answer is a resounding "Yes", then that means you are required to file an ITR (Income Tax Return)

Blessed are those corporate employees because they need not worry about this because most human resource (HR) departments take care of filing their ITR's on their behalf. 

Unfortunately, freelancers and entrepreneurs will have to take care of filing their own ITR themselves.

What you need to file: Form 1701. (Download it here.)

What you need to do:

For Personal/ Individual Income Tax

Freelance: Taxing as it may sound ( No pun intended, lol), you have to ask for a Form 2307 from every company that has withheld tax on their payments to you. Using the data, you have to fill out BIR Form 1701.

Business Owner: Are you making money from a business venture with another person? Are you an employee of your own company? Or are you receiving dividends or share on the total profit of a business?  Please make sure to include the income you received from your different sources of income. BIR Form 1701 provides you with the specifics. With the BIR, be as specific as you can be!

For Mixed Income

If you have a day job, but also do freelance work or own a small business be it online or physical store, you will need to file an ITR declaring mixed income. That means you are telling the BIR that you have several income sources. Similarly, if you run several businesses, you need to itemize them all.

Freelancing on the side: You have to ask for a Form 2307 from every company that has withheld tax on their payments to you, including one from your day job.

Business Owner: You have to ask your day job for a Form 2307, and then consolidate the income you made from your business/es into one form 1701.

Filling out the form

Filling out the Form 1701 can be a little tricky.  You may need to consult with an accountant the first few times you do it or every time you find that you have a new source of income. 

The 1st section of Form 1701 only requires personal data. That means, it is very simple. But that is not the case with the other sections, such as your tax code and the computations, which can get confusing. So it is best to consult your friendly accountant to help you with this.

The BIR provides a lot of information on their website. You can access the information on filing income tax returns online. Please use the BIR’s Electronic Filing and Payment System (eFPS).


Things to keep in mind

You must understand the changes that the BIR made year after year, as well as the requirements you need to remember.

1. The BIR will now pre-audit Tax Returns filed. This means that BIR agents and officials will pre-audit or check the forms and their attachments prior to the acceptance of the forms. expect long lines.

2. There are new Income Tax Forms. Minor changes were made to the ITR forms. You can download the latest versions on this official BIR page. The proper form will depend on how you are registered as a taxpayer.

3. There are new limitations and/or allowable expenses. There are limitations on entertainment and representation expenses, donations to charitable contributions, on interest expenses, and on depreciation expenses for transportation and maintenance expenses.

4. Make sure you attach all requirements to your ITR. Attachments such as a summary of taxes, duties and licenses need to be included. Make attachments using Form 1702. (Download both page 1 and page 2.)

5. Be aware of penalties. Surcharges ranges from 25% to 50% for failure to file returns, late payments, and problems with attachments, etc. Avoid the extra charges by fixing your papers early and filing on time.

For your reference, you can refer to these documents that were recently released to Certified Public Accountants (CPAs). 

If you happen to know a CPA, it is best to consult these professionals so you'll get the specifics clear according to your own unique situation.

Once again, let's review who are required to file an ITR. Game? Okay, here it goes.

You are required to file an ITR if:

1. You are a Filipino citizen living in the Philippines, receiving income from sources within or outside the Philippines, and if:

• You are employed by two or more employers, any time during the taxable year
• You are self-employed, either through conduct of trade or professional practice
• You are deriving mixed income. This means you have been an employee and a self-employed individual during the taxable year
• You derive other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax
• You are married, employed by a single employer, and your income has been correctly withheld – the tax due is equal to the tax withheld – but your spouse is not entitled to substituted filing
• You are a marginal income earner
• Your income tax during the past calendar year was not withheld correctly – if the tax due is not equal to the tax withheld

2. You are a non-resident citizen – if you are a Filipino who works or resides abroad and receiving income from sources within the Philippines. Note, however, that you are taxable only for the income you earn from the Philippines.

3. You are not a Filipino citizen but you receive income from sources within the Philippines, regardless of your residency. You are taxable only for the income you earn from the Philippines.

4. Domestic corporations (including partnerships) receiving income from sources within and outside the Philippines.

5. Foreign corporations (including partnerships) receiving income from sources within the Philippines.

6. Estates and trusts engaged in trade or business.

File ITR using eFPS if you are:

1. Large taxpayers duly notified by the BIR
2. Top 20,000 private corporations duly notified by the BIR
3. Top 5,000 individual taxpayers duly notified by the BIR
4. Taxpayers who wish to enter into contracts with government offices
5. Corporations with paid-up capital stock of P10 million ($224,517.32)
6. PEZA-registered entities and those located within Special Economic Zones
7. Government offices, in so far as remittance of withheld Value Added Tax (VAT) and business tax is concerned
8. Per Revenue Regulations 10-2014, Taxpayer Account Management Program (TAMP). Taxpayers, whether individual or juridical entities, who have been identified by the Revenue District Office (RDO) based on selection criteria pursuant to existing revenue issuances

Non-eFPS filers covered by RR 5-2015 are mandated to use the eBIR to file their ITR. These are:

1. Accredited tax agents/practitioners and all its client-taxpayers
2. Accredited printers of principal and supplementary receipts/ invoices
3. One-Time Transaction (ONETT) taxpayers
4. Those who shall file a “no payment” return
5. Government-owned or controlled corporations (GOCCs)
6. Local Government Units (LGUs), except barangays
7. Cooperatives registered with National Electrification Administration (NEA) and Local Water Utilities Administration (LWUA)

The following taxpayers may file manually “no payment returns” to the RDO where registered using officially printed forms/photocopies or electronic/computer-generated returns:

1. Senior Citizen (SC) or Persons with Disabilities (PWD) filing for their own ITR
2. Employees deriving purely compensation income and the income tax of which has been withheld correctly showing tax due is equal to tax withheld whether single or multiple employers (with two or more employers concurrently and successively at any time during the taxable year)
3. Employees qualified for substituted filing under RR 2-98 Sec. 2.83.4, as amended, but opted to file for an ITR and are filing for purposes of promotion (Philippine National Police /Armed Forces of the Philippines), loans, scholarship, foreign travel requirements, etc.

Exemptions

You are not required to file an ITR if:

• You are a minimum wage earner.
• Your gross income (total earned for the past year) does not exceed your total personal and additional exemptions.
• Your income derived from a single employer does not exceed Php60,000 and the income tax on which has been correctly withheld.
• Your income has been subjected to final withholding tax.
• You are qualified for substituted filing.

1. You are a non-resident citizen who is:

• A Filipino citizen not residing in the Philippines, but who has established with the BIR that you wish to remain living outside the country.
• A Filipino citizen who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for permanent employment.
• A Filipino citizen who works and earns income abroad.
• A Filipino citizen previously considered a non-resident citizen.

2. You are an overseas Filipino worker whose income is derived solely from sources outside the Philippines.

3. If you are a Filipino citizen working as an overseas seaman, your vessel must be engaged exclusively in international trade.

The deadline for filing your Income Tax Return (ITR) for the Taxable Year 2014 will be on Wednesday, April 15, 2015.

Please do note that every individual or entity required to file his/its income tax return and pay his/its corresponding income tax due is expected to beat the deadline to avoid being penalized and imposed with additional charges of about 25% to 50% surcharge, 20% interest per annum and the Php1,000 compromise penalty for non-filing and/or non-payment of taxes. 

I know, many of us find the new BIR tax filing system burdensome and full of loopholes. Still, I'd like to encourage all taxpayers to be vigilant and to call BIR offices for assistance.

NOTE: Please do not deal with fixers or entrust the filing of your ITR to anybody.

Please remember, filing of ITR and paying the right taxes is our civic duty as Filipino citizen.

This is not a sponsored post. I did not receive any compensation for this post. I just like to remind you my dear readers about the deadline of filing of ITR.