Professional Tax in Real Estate Service

This article is actually a continuation of my blog entitled How to Start Up a Broker's Office. This tax guide is very useful to all professionals in the Philippines including us in the Real Estate Service such as Salespersons, Brokers, Appraisers, and Consultants. Last May 2009, I personally went to the Taxpayer Information and Education Division of the Bureau of Internal Revenue to research this information. They gave me a printed material called Quick and Easy Primer on Paying your Taxes which was printed under the assistance of Economic Policy Reform and Advocacy (EPRA), US AID, Ateneo de Manila, and Transparency and Accountability Network.
Who are the Professionals according to the BIR?

Professional, classified as self-employed, refers to an individual or a group, practicing his or their profession or calling, with or without license under a regulatory board or body.
What are the Registration Requirement?

Documentary Requirements for Individuals

1. Birth Certificate or any documents showing name, address, and birth date;
2. Mayor's Permit;
3. Certificate of Business Name to be submitted prior to issuance of the Certificate of Registration or BIR Form No 2303;
4. Professional Regulation Commission ID;
5. Payment of Professional Tax Receipt (PTR) from the local government.

Documentary Requirements for Corporations

1. Certificate of Registration with the Securities and Exchange Commission;
2. Mayor's Permit; and
3. Partnership Agreement.

Procedures

Step 1. Accomplish Application for Registration --- BIR Form 1901 (for individuals) or 1903 (for corporations or partnerships) with the applicable attachments, and submit to the revenue District Officer (RDO) having jurisdiction over the principal place of business (for newly registered Professionals).

Step 2. Pay the registration fee using BIR Form 0605 (Payment Form) to any Authorized Agent Bank (AAB) located within the RDO. The professional should also register and pay the corresponding registration fee for each separate or distinct establishment.

Step 3. Attend the required taxpayer's briefing at the RDO before the release of the BIR Certificate of Registration (COR) or BIR Form No. 2303, which reflects the returns that must be filed and the taxes to be paid. Note: The COR must be conspicuously displayed in the pProfessional's place of business.

Step 4. Apply for Invoices/Receipts using BIR Form No 1906 - Authority to Print. Note: An "Ask for a Receipt" Notice (ARN) must be posted conspicuously in the Professional's business establishment.

Step 5. Register books of acconts (Journal/Ledger/Subsidiary Professional Income Book and Subsidiary Purchases/ Expense Book) and have them stamped bythe RDO where the Professional is registered.

Step 6. Update registration information, if needed, using BIR Form No. 1905 (change of registered address, personal exemptions, additional tax types, etc.). Submit this at the RDO having jurisdiction over the plave of business. Reminder: the BIR conducts a Tax COmpliance Verification Drive (TCVD) or tax mapping operations to monitor if the taxpayer is complying with his registration requirements particularly on COR, ARN, and books of accounts.

What are the Bookeping Requirements?

Professionals are required to maintain books of accounts using any acceptable method of accounting (accrual or cash basis) in a consistent manner. The same shall be preserved within the prescriptive period (3 years from the close of taxable year) for post audit examination.

For professionals whose quarterly revenues exceed on hundred fifty thousand pesos (P150,000), they shall bahe their books of accounts audited and examined by an independent Certified Public Accountant (CPA) in order to give an independent pinion regarding its financial condition. In addition, their annual returns shall be accompanied with certified balance sheets, profit and loss statements and other relevant documents.

What are the Invoicing Requirements?

1. Receipts or sales or commercial invoices shall be serially numbered.
2. Among other things, the name, business style, the TIN and business address of the Professional shall be shown.
3. Receipts or invoices shall be issued by the Professional for every payment received.
4. The original of each receipt or invoice shall be issued to the client at the time the transaction is affected and the duplicate shall be preserved in the place of business for a period of three years from the close of the taxable year.

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Example:

Receipt # 08676
Juan de la Cruz, Real Estate Broker
Room 1, Listing Agents Building, 21 Starboy Street, Quezon City
TIN: 111-111-111-000 VAT
Customer Name: Jane Doe
Address: 34 Adamson Street, Sin City
Date of Transaction: 05/07/09
Professional Fee: P750.00
VATable Transaction: P750.00
Total:P750.00
12% VAT: P90.00
Total Account Payable: P840.00
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What are the BIR Requirements?

1. Registration Fee
An annual Registration Fee of P500.00 shall be paid on or before the last day of January every year after the initial registration.

2. Computation of Taxes Due
2.1. Income Tax
2.1.1. Tax Rate for Individuals - 5-32%
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Example:
How to Compute the Individual Income Tax (Example)

Gross Receipt: P1,000,000
Less Allowable Deductions*: (600,000)
-Personal Exemptions: (32,000)
-Additional Exemptions, 4 children x P8,000:(32,000)
Taxable Income: 336,000
Tax Due (based on tax table in BIR Form 1701): 75,800
Less: Creditable Withholding Tax (P400,000 x 15%): (60,000)
Income Tax Payable: P15,800
*A taxpayer engaged in business or in the practice of profession shall choose either optional or itemized deduction.
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Method of Allowable Deductions

1. Optional Standard Deduction
There shall be allowed as deduction a maximum of 40% of the gross income. A taxpayer who opts of this deduction need not submit the Account Information Form (AIF)/Financial Statements. The 40% is based on the Republic Act 9504 effective July 6, 2008 (it used to be 10% in the previous regulation).

2. Itemized Deduction
There shall be allowable as deduction from the gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are attributable to the development, management, operation, and/or conduct of the trade, business or exercise of profession including a reasonable allowance for salaries, travel, rental, and entertainment expenses.

The following are the itemized deductions:

1. Salaries, Wages and other employee's benefits.
2. Fringe benefits.
3. SSS, GSIS, Medicare, HDMF and other contributions.
4. Commission.
5. Outside Services.
6. Advertising.
7. Rental.
8. Insurance.
9. Royalties.
10. Repairs and Maintenance.
11. Representation and Entertainment - limitation is 1/2% of seller goods (based on net sales), or 1% if seller of service (based on net revenue).
12. Transportation and Travel - here and abroad.
13. Fuel and Oil.
14. Communication, Light and Water.
15. Supplies
16. Interest - paid or incurred during the taxable year of indebtedness. Provided: Interest Expense shall be reduced by an amount equal to the following percentages of interest income subject to final tax: 42% - July 1, 2005 to December 31, 2008.
17. Tax and Licenses
18. Losses -- actually sustained during the taxable year and not compensated for by insurance or other forms of indemnity shall be allowed if incurred in trade or business.
19. Bad Debts -- actually ascertained to be worthless and changed off within the taxable year.
20. Depreciation.
21. Amortization and Intangibles.
22. Delpetion.
23. Charitable Contributions. Individual - 10% of Net Income before Charitable Contributions.
24. Research and Development.
25. Amortization of Pension Trust Contribution.
26. Miscellaneous.
27. Professional Fees.
28. Insurance Expenses.
29. Light and Power, Telephone and Telegraph.
30. Miscellaneous Expenses.

Sufficient Evidence of Itemized Deduction (Expenses)

• Official Receipts (OR)
• Cash/Sales Invoice
• Payroll
• Vouchers
• Bank Statements
• Debit/Credit Memo

2.1.2. Tax Rate for Corporations / Partnerships - 35%

2.2. Expanded Withholding Tax (EWT) rate to be used by Withholding Agents of Professionals:

15% if totalprofessional fees exceed P720,000.00 for the current year; or
10% if the total professional fees total P720,000.00 and below the current year.
To determine the applicable tax rate to be applied/withheld, every Professional shall periodically disclose his gross income for the current year to the BIR Regional Office by submitting a Notarized Sworn Declaration in three (3) copies. Note: The Expanded Withholding Tax being deducted by the withholding agent is merely an advance payment and NOT THE FULL PAYMENT of income tax due, if any, from the Professional.

2.3. Business Taxes
Business Tax rates may either be:

2.3.1. Value Added Tax (VAT) - which is 12% if the gross professional fees exceed P1,500,000.00 for a 12 month period; or

2.3.2. Percentage Tax (PT) or NON-VAT -- which is 3% if gross professional fees total P1,500,000.00 and below for a 12-month period.

VAT Receipt from Producer
The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; provided that:

1. The amount of tax shall be shown as a separate item in the invoice or receipts.
2. Excess Input Tax is subject to 70% of the Output.

How to Compute the VAT?

Formula:
Total Output Tax or Total Sales x 12%
Total Input Tax or Total Purchase x 12%

Equals VAT Payable


Eample:
Total Receipts (inclusive of VAT): P112,000
Less: 112,000/1.12 x 12%: P12,000


VAT Payable: P100,000
How to Compute the Percentage Tax?

Net Amount Received: PhP xxx
Add: 10% Expanded Withholding Tax: P xxx
Total Professional Fee: P xxx
Multiply by 3% percentage tax: P xxx
Percentage Tax Due: P xxx


Where can a Professional File and Pay the Tax Due?


The return shall be manually filed and paid with any Authorized Agent Bank (AAB) within the Revenue District Office (RDO) where the professional is registered or required to register. In the absence of an AAB, with a Revenue Collection Officer (RCO) or duly Authorized City or Municipal Treasurer who shall issue a Revenue Official Receipt (BIR Form No. 2524).


In case there is no payment to be made, the return shall be filed with the RDO where the professional is registered.


E-Filing and E-Payment can also be made with the BIR's Electronic Filing and Payment System (eFPS) in accordance with the provisions or existing applicable revenue issuances and Globe G-Cash (with threshold amounts).
REMINDER: The Professional needs to file a return even when there is no payment to be made.
NOTE: Third Party Information. The BIR links up with government and other organizations to use their database.
REMINDER: Under the Run After Tax Evaders (RATE) program, the BIR and DOF investigate and prosecute individuals and/or entities engaged in tax evasion.
REMINDER: The BIR's Integrated Tax System (ITS) detects non-filing or non-payment of tax returns by a taxpayer.
What are the Tax Forms and Due Dates?

1. Payment Form (individuals/corporations/partnerships)
Form 0605 On or before the last day of January every year after the initial registration.

2. Income Tax for Individuals
1701Q - 1Q - Jan-Mar - April 15
1701Q - 2Q - Apr-June - August 15
1701Q - 3Q - Jul-Sep - Nov 15
1701 - Final - Jan-Dec - April 15 Following Year

3. Income Tax for Corporations or Partnerships
1702Q - 60 Days end of quarter
1702 - Caloendar - April 15 Following Year
Fiscal - 15th day of the 4th Month following the end of the taxable year.

4. Value Added Tax (VAT)
2550M - 20th day of succeeding month.
2550Q* - 25th day of the month following the end of a particular quarter
*Note: together with the Summary List of Sales and Purchases where total sales exceed PhP 2.5M or total purchases exceed PhP 1M.

5. Percentage Tax
2551M - 20th day after the end of each month

BIR Contact Center: Tel 981-888
Website: http://www.bir.gov.ph/

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If there is anything else important that I forgot to include in this article, or if you experienced a real estate transaction that is anomalous, scam, fraudulent scheme that you want me to document and expose for others to be warned, or if you want to donate to the war chest of real estate consumer rights advocacy, please feel free to email me at JohnPetalcorin@Gmail.Com. If you want to comment about this article, there is a provision for this purpose that you can find below.
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