Posts Tagged ‘tax exemption’
Revenue Regulations No. 10-2012 dated June 1, 2012 (RR 10-12) entitled “Joint Venture or Consortium Formed For The Purpose of Undertaking Construction Projects and Mandatory Enrollment of Local Contractors in the Electronic Filing and Payment System (EFPS) was issued to define the tax exemptions of contractors for construction projects. This will be effective within 15 days after publication and all existing rules and regulations and other issuances or parts thereof which are inconsistent with the provisions of RR 10-12 are hereby modified, amended or revoked accordingly.
Under Section 22 (B) of the Tax Code, as amended, a taxable corporation is defined as follows:
“Corporation shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), association, or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government.”
From the above definition, a joint venture or consortium formed for the purpose of undertaking construction projects are not treated as a corporation, and as such NOT SUBJECT TO INCOME TAX. It was Presidential Decree No. 929 dated 4 May 1976 that introduced such exemption to assist local contractors in achieving competitiveness with foreign contractors by pooling their resources in undertaking big construction projects.
RR 10-12 sets the requirements for the implementation of tax exemptions on joint ventures undertaking construction projects as follows:
Local joint venture or construction should be:
- For the undertaking of a construction project;
- Should involve joining or pooling of resources by licensed local contractors, that is licensed as general contractor by the Philippine Contractor’s Accreditation Board (PCAB) of the Department of Trade and Industry (DTI);
- These local contractors are engaged in construction business; and
- the Joint venture itself must likewise be duly licensed by PCAB of the DTI.
Joint ventures involving foreign contractors, member foreign contractor should be:
- Covered by special license as contractor by PCAB of the DTI;
- Construction project is certified appropriate Tendering Agency (government agency) that the project is a foreign financed/ internationally-funded project and that international bidding is allowed under the Bilateral Agreement entered into by and between the Philippine Government and the foreign/ international financing institution in accordance with republic Act No. 4566 – Contractors’ License law.
Absent one (1) of the requirements would disqualify tax exemption. Joint venture or consortium shall not include mere suppliers of goods or services or capital of construction projects. Tax-exempt joint venture members shall be responsible in reporting and paying appropriate income taxes on their respective share to the joint ventures profit.
Another notable requirement of RR 10-2012 is the mandatory enrollment of local contractors to the BIR electronic filing and payment system (EFPS) before the Revenue District Office (RDO) where they are registered.
BIR Revenue Regulations No. 10-2012(Post viewed 1609 times)
The Barangay Micro Business Enterprise (BMBE) Law or Republic Act No. 9178 was enacted sometime in 2002 to encourage the growth and formation of barangay based micro-enterprises. This has long been effective, but based on our observations, only few enterprises registered and availed of the same. Under the Department Order No. 17-04 of the Department of Finance (DOF) providing guidelines, hereunder are the basic qualifications of the BMBE to qualify for income tax exemptions, exemption for minimum wage application, and other benefits:
a. Barangay based which means (a) majority of its employees are residents of the municipality of principal office location, (b) principal activity consist in the application of a skill peculiar to the locality, or business operations confined to the LGU of principal office location.
b. Micro-enterprise in nature and scope which requires that (a) its principal activity be primarily for livelihood, or determined by SMED or DTI as priority are for development or government assistance, (b) not a branch, subsidiary or division of a large-scale enterprise, and (c) its policies and business modus operandi are not determined by a large enterprise.
c. Its total assets (real or personal) not more than P3M, excluding the land of business location.
d. Engaged in manufacturing, trading, or services other than practice of profession.
e. Issued a Certificate of Authority (COA) by the LGU’s City Treasurer of principal office location within 15 days from filing complete application requirements/papers, and valid for 2 years and renewable for not more than 2 years in any instance. Details of the COA is annotated in the BIR Certificate of Registration and hereunder are the basic application requirements:
1. Entity registration papers – SEC/DTI/CDA;
2. BIR Certificate of Registration;
3. Business Permit
4. Sworn Affidavit of Owner or President on being brgy. based and micro-business;
5. Sworn statement of assets & liabilities in business or those to be used with acquisition details and support such as invoices, receipts or contracts;
6. Pictures of the place of business and its assets, except cash;
7. Copy of loan contracts and notarized certification of amortization payments, if any;
8. For existing business, BIR-filed income tax return, and
9. Duly filled out Application form with application fee of not more than P1,000.
Taxwise, BMBE is exempt from income tax with respect to its income from operations and as such, income payments to it is not subject to withholding taxes. It is however subject to business tax (3% percentage tax or 12% value added tax, whichever is applicable), and to other internal revenue taxes (e.g. documentary stamp tax, registration fees, etc.). While it is exempt from paying the minimum wage (e.g. P426/day in Metro Manila), employees salary should be reasonable enough. LGU of jurisdiction is likewise encouraged to provide reduced rates on local taxes.
Income tax exemption is quite a good factor to consider and we suggest to consider becoming a BMBE. For the purpose, we further suggest to closely coordinate with your LGU of business location.
Presently, the BMBE law is at stake for legislative amendments tending to improve and enhance its provisions, but the details of such is not yet clearly determinable. They are now conducting public hearing on strategic places for the purpose. We hope and pray for the success of the team proposing the amendments.(Post viewed 2998 times)