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CHAPTER V

LEGAL AND TAXATION ASPECT

For a business to fully function it must consider first the legal and taxation

aspect. Certain documents must be complied to enable the business to operate

legally. Compliance to Government requirements in order for the business to be

legal. The business must comply with all the requirements set by the Government

to avoid any conflict and unnecessary charges in the future. This aspect would

determine if the business was able to comply the essential requirements for it to

be considered fairly legal.

LEGAL ASPECT

It is a mandatory for all the business entities to comply with all the

government requirements for them to be able to start their operation legally. Proper

compliance and the initiative of the business entities in keeping their government

documents updated are highly observed. All business organizations have a very

close relationship with different government agencies like Pag-IBIG, SSS and

PhilHeath because these agencies help protect the benefits of the employees of

the business organizations. This aspect will talk about the specifications of the

relationship between the business organizations and the different government

agencies. In return of the registration and contribution of a fixed amount made by

the business entities to all of the different government sectors or agencies the

business entity in whole will receive certain benefits from the government. The

benefits come in different form like money, protection, and loans, etc. This aspect
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of the study includes the registration of the business organization with their official

business name, registration to the different government agencies, securing of the

government permits and licenses, and all the essential matters that the business

will have to deal with for their business to be considered legal.

Registration of Business Name

A. The business entity must choose three possible business names in case

the chosen name is already taken. There are two options for the business

to obtain the application forms (duplicate forms) they can either:

 Personally register in the DTI office

 Online Registration

Three possible names in case chosen name is already taken:

 Hyper Jaguars

 Hype Ad

 Go Hype

The authorized person like the owner of the business or his/her

Attorney-in-Fact who is authorized to sign proper legal documents shall fill-

up the necessary forms.

Steps for over-the-counter registration

B. Meet the following requirements:

 For Single Proprietorship

1. Must be a Filipino citizen, at least 18 years old.

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2. Filipinos whose names are suggestive of alien nationality

must submit proof of citizenship such as birth certificate, PRC

ID, voter’s ID, passport.

3. If the has a foreign sounding name, acquired Filipino

citizenship by naturalization, election, or by other means

provided by law, he must submit proof of his Filipino

citizenship such as:

i. Naturalization Certificate and Oath of Allegiance;

ii. Affidavit of election or ID card issued by the Bureau of

Immigration and Deportation; or

iii. Valid ID card issued by the Integrated Bar of the

Philippines (IBP) or Professional Regulatory

Commission (PRC).

 For Foreign Business Owner: (All documents executed abroad must

be authenticated by the proper Philippine embassy or consulate.)

1. Photocopy of Alien Certificate of Registration (ACR) updated

the current year. Present original for comparison.

2. Accomplished DTI Form No. 17 under R.A 7042 which

includes:

i. ID pictures (Passport Size, 7 copies)

ii. ACR, Special Investor’s Resident Visa (SIRV), or

passport

iii. Notarized Appointment of Filipino Resident Agent

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iv. For Non-Resident Alien: Proof of Inward Remittance of

Foreign Currency with Peso Conversion

For Resident Alien: Bank Certificate of Deposit

v. Authority to verify Bank Accounts/ Bank Certificate of

Deposit

vi. Certification from Resident Alien not seeking

Remittance of Profits and Dividends Abroad

vii. If investment includes assets other than foreign

exchange, copy of valuation report from Central Bank.

Certain types of business may have other requirements such as

service and repair shops, real estate brokers, dental/medical/hospitals,

pawnshops, manpower services provided by professionals.

C. The business must submit the form to the DTI Processor. The DTI

Processor will check if the Business Name is still available, if yes, the

business entity will be asked to pay the application fee.

D. Pay the required registration and processing fee.

The Department of Trade and Industry (DTI) is now implementing the

following registration fees for business name registration (original and

renewal) depending on the territorial jurisdiction covered in the application:

i. Barangay : P200.00

ii. City/Municipality : P500.00

iii. Regional : P1,000.00

iv. National : P2,000.00

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v. Processing fee of P 150.00 + P15.00 Documentary Stamp.

E. After showing the receipts to the Processor, the Business Name

Certificate will be released.

F. Such Business Name Certificate is valid for five (5) years form date of

registration.

For Online Registration

A. The authorized person like the owner of the business or his/her Attorney-in-

Fact who is authorized to sign proper legal documents shall fill-up the

application form by typing the required information.

B. Submit it online and the business will then receive a transaction reference

number acknowledgment via e-mail.

C. Submit the necessary documents mentioned in the nearby DTI office. The

reserve business name is only up to 3 working business days.

D. Pay the application via GCash or DTI teller. Fees will differ because it will

depend on the territorial jurisdiction covered in the application.

Signatories

The signatories of application for registration are as follows:

 For individual applicants, the application himself; or by the person

holding power of attorney for him if the application is under a special

power of attorney.
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 If the application is signed by a person holding power of attorney for

the applicant, the applicant shall be accepted provided that the

original power of attorney is presented and a copy thereof submitted

as part of the supporting documents.

Securing Permits and Licenses

There are a lot of significance in obtaining and securing business permits

and licenses. Securing business permits and licenses the business entity can gain

funding and protection from the government, protect the owner’s privacy and this

will serve as a proof to the licensing authorities that the business is functioning and

it conforms to the laws promulgated. It is important to get the right permits and

licenses otherwise the business will operate without the right documents which is

punishable under the law.

These are the basic permits that the business must obtain:

 Lease Contract. If owned, submit a copy of the Transfer Certificate of Title

(TCT) or Tax Declaration.

 Business Name Registration with the Department of Trade and Industry (for

sole proprietorship/new applicants).

 Barangay Clearance

 Sketch of location

 Mayor’s Business Permit

 BIR Certificate of Registration

 SSS Employer’s Registration

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 PhilHealth Employer’s Registration

 Pag-IBIG Employer’s Registration

 Community Tax Certificate (Cedula) – you can get this at the City

Treasurer’s Office in the same city hall.

 Fire Permit

 Sanitary Permit

 Other Requirements depending on the type of business:

o National Grains Authority license for dealership of rice, corn,

and wheat.

o Bureau of Food and Drug Administration permit for drugstores

/ bakeries.

o Accreditation by the Department of Trade and Industry (DTI)

in cases of auto repair shops, electronics, radio and other

electrical equipment services.

o Real Estate Broker’s License issued by the DTI for real estate

brokerage firms.

o Pest Control License for Pest Control Services.

o PCSUCIA (National License) for Security Agencies.

o LTO Franchising and Regulatory Board permit for transport

services.

o Energy Regulatory Board (ERB) for LPG dealerships.

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Procedure for Registration

1. Go to Cebu City Hall’s Business Permits and Licensing Office

(BPLO) where the business is located.

2. Fill up the business application form and have it notarized and

submit all the completed registration with all the requirements.

3. Necessary taxes, fees and charges will then be assessed and

recommended by the licensing officer.

4. Submit all the completed registration application form and

assessment of fees to the receiving window of the BPLO and wait

for acknowledgement of receipt of application which will be given

after the documents are assessed.

5. Go to treasury office/cashier to pay the necessary fees.

6. After payment of the necessary fees, proceed to the fire

department with the receipt for the request and issuance of the

fire permit.

7. Repeat the same process to the health department.

8. The number of the processing days will depend on the advised of

the licensing officer, once due, return to the city hall where you

filed your application for the release of your Business/ Mayor’s

Permit and other required permits and/or licenses.

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Application for Social Security System (SSS) Membership

Pursuant under Republic Act. 8282 or the Social Security Law it is

mandatory for the employer as an implementer to register the employees with the

SSS to provide funds for security and other benefits.

The requirements for registration are as follows:

 Self-Employed Data Record

 Monthly Contribution

 Schedule of Contribution

 Quarterly Contribution

 Sickness Notification

Forms needed for memberships:

 Form R-1 (Employment Registration)

 Form R-A (Employment Record)

 Form E-1 (Personal Record)

 Form R-3 (Contribution Payment Return)

Application for Philippine Health Insurance Membership

Private sector employers and all government sector are required to register

with PhilHealth to enable them provide social insurance coverage to their

employees.
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Employer Registration in the private sector:

1. Submit the following at any PhilHealth Office:

a) Employer Data Record or ER1 Form (in duplicate). You may

download this form at PhilHealth Website.

b) Business permit/license to operate and/or any of the following

additional documents required for various types of business:

 Single Proprietorship – Department of Trade and Industry

(DTI) Registration.

 Backyard Industries/Ventures and Micro-Business

Enterprises – Barangay Certification and/or Mayor’s Permit

2. PhilHealth will issue the following after processing:

a) PhilHealth Employer Number (PEN) and the Certificate of

Registration

b) PhilHealth Identification Number (PIN) and Member Data Record

(MDR) of registered employees.

3. The final requirement is the display of the Certificate of Registration in a

conspicuous area of the office.

Application for the Membership to Pag-IBIG

Home Development Mutual Fund (HDMF) or more popularly known as the

Pag-IBIG Fund, provide short-term loans and access to housing programs which

became an answer to a lot of Filipino families’ problem in regards with affordable

shelter. And this is also a government-owned and controlled corporation under the

Housing and Urban Development Coordinating Council. Filipinos who are

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employed by local and foreign-based employers as well as voluntary and self-

employed members are required to register for them to be able to avail the Pag-

IBIG benefits.

The following are the necessary requirements for Pag-IBIG registration:

 Copies of member’s registration/remittance form (HDMF MI-1)

 Members Data Form (HDMF MI-2)

 Employer Commitment to deduct and remit contributions (HDMF M2-6)

 Notarized list of Employees with their corresponding salary

Basic requirement for an employer’s registration:

 Employer’s Data Form (EDF)

 Specimen Signature Form (SSF)

 Any Valid ID

 SSS Certification

 DTI Registration

Registration of the Business with the Bureau of Internal Revenue (BIR)

BIR is an agency of Department of Finance which was established with the

primary purpose of collecting the State’s taxes. All business employers are

mandated to register in the BIR District office for taxation purposes within ten (10)

days on or before the start of any business undertaking and after acquiring the

business permits.

The following are the requirements for BIR registration:

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 DTI Certification of registered company name

 Tax Identification Number (TIN)

 Contract of Lease

 Photocopy of Mayor’s Permit (or Application for Mayor’s Permit duly

received, if the former is still in the process with the LGU)

 BIR Form No. 1901 (Application for Registration) – 2 copies

 BIR Form No. 0605 (Payment Form) – 3 copies

 BIR Form No. 2000 (Documentary Stamp Payment for Lease Contract) – 3

copies

 BIR Form No. 2305 (Certificate of Update and Exemption and Employer’s

and Employees’ Information) – 2 copies

 Birth Certificate (original and photocopy)

 Marriage Contract, if married (original and photocopy)

 NSO Certified Birth Certificate of Dependents

 Registration fee of Php500.00

The following are the procedures that should be undertaken:

1) Accomplish BIR Form No. 1901; submit it along with the necessary

attachments to the Revenue District Office (RDO) which has a jurisdiction

over the place of business.

2) Payment of the Annual Registration Fee of Php 500,000 at the RDO’s

authorized banks.

3) Payment of Php15.00 for the Certification Fee and Php15.00 for the

Documentary Stamp Tax (attach to Form 2303).

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4) The respective RDO shall issue the Certificate Registration (Form 2303).

TAXATION ASPECT

The power of taxation is constitutionally granted power of the state

to impose or levy taxes for the purpose of raising revenue for the government’s

expenditure and for other purposes as well. This is a mandatory charge to a

taxpayer to help the government finance and provide better resources to the public.

Proper compliance of the different rulings of the Bureau of Internal Revenue (BIR)

and other government agency requirements is a must for the business to avoid

from incurring and paying any penalties and surcharges. All different taxes must

be paid and to the BIR on the specified date by law. For the proposed Hyper Deals

which is the first Advertisement Application, the taxpayer will have to pay a

registration fee of Php500.00 using the BIR Form 0605 (Payment Form) upon the

registration of the new business and another Php500.00 every year on/or before

January 31.

The following are the taxes applicable for the proposed application.

 Percentage Tax

Percentage Tax is a business tax imposed on persons,

transactions, or entities that sell goods and lease residential

units and are not VAT-registered, whose annual gross sales/

sales receipts do not exceed three (3) million pesos. It is also

payable within twenty-five (25) days after the end of each

taxable quarter. The proponents estimated gross

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sales/receipts from services rendered is ₱ 513,000 which will

be multiplied with the 3% percentage tax.

Quarterly Percentage Tax Due = Gross Receipts x 3%

₱ 513000 x 3% = ₱ 15,390.00

Hence, ₱ 15,390.00 is the total quarterly percentage tax payable.

 Final Withholding Tax

It is the full and final payment of income tax due from the recipient

of the income. The finality of the obligation to withhold the tax is

imposed by law primarily on the payor of the goods or service as a

withholding agent. The finality of the withholding tax is limited only

to the payee’s income tax liability on the particular income. It does

not extend to the payee’s other tax liability on said income, such as

when the said income is further subject to a percentage tax.

 Expanded Withholding Tax

This is a kind of withholding tax that is prescribed by law on

certain income payments and is creditable against the income tax

due of the payee for the taxable quarter/year in which the particular

income was earned.

 Documentary Stamp Tax

Documentary Stamp Tax is a charge on transactions

evidenced by stamps required to be attached to

corresponding documents, instruments and papers.

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 Income Tax

Income tax is imposed to individuals and businesses’ financial

income that they generate within their jurisdiction. It is a tax on yearly

profits arising from property, profession trade or business, or is a tax

on person’s income, emoluments, profits and the like. It is owned by

a single individual since the form of the business is a sole

proprietorship. He shall file and pay his income that is derived after

deducting the itemized allowable deductions, personal and additional

exemptions to the rate provided in the individual Income Tax Return.

It is payable for the first three-quarters and annually on or before April

15 of each taxable year. For the next five years the operating income

of the business does the not reach the ₱250,000 annual income limit

therefore the business is exempted from paying income tax.

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Table 35

TRAIN LAW INCOME TAX SCHEDULE (Effective January 1, 2018)

Annual Income Bracket Tax Rate Percent of Taxpayers

0 – 250,000 0% 83%

Over 250,000 – 400,000 20% of the excess over 8%

250,000

Over 400,000 – 800,000 30,000 + 25% of the excess 6%

over 400,000

Over 800,000 – 2,000,000 130,000 + 30% of the 2%

excess over 800,000

Over 2,000,000 – 5,000,000 490,000 + 32% of the 1%

excess over 2,000,000

Over 5,000,000 1,450,000 + 35% of the 0.1%

excess over 5,000,000