Franchise Laws in the Philippines - Important Things You Should Know
In order to run a franchise business in the Philippines and be successful, you need to be square with the laws involved.
1. Franchisees should withhold 20% of taxes from the total royalties and fees due to the franchisor.
This law is stated and made clear under the National Internal Revenue Code (NIRC). Take note that if you fail to withhold this amount and/or do not remit this tax to the government, then you can be subject to penalties from the NIRC. Plus, you’ll still have to pay the 20% tax due.
2. You can choose from registering your franchise business as a percentage taxpayer or as a VAT taxpayer.
No matter what franchise business you decide to open--be it a restaurant, pharmacy, or gasoline station--you need to pay taxes.
However, you can choose to register as a percentage taxpayer, which means you’re expecting your yearly gross sales to be 3 million pesos or less. If this is the case, then you have to pay taxes equivalent to 3% of the gross quarterly sales. Note that you need to submit this tax monthly, not quarterly. In case you go above 3 million gross sales within the taxable year, then you must change your registration to a VAT taxpayer.
Now, what about being a VAT taxpayer? Falling under this category means your business will incur 12% VAT (value-added tax). At least 70% of this tax should be shouldered by your business while the rest can be passed on to consumers upon your discretion.
3. Franchisees need not issue receipts for all transactions.
In the Philippines, the government agency in charge of tax collection is the Bureau of Internal Revenue. They have launched a campaign over the years to constantly remind consumers to ask for a receipt when transacting with commercial businesses.
But that needs to be clarified a bit. According to the law, businesses (including franchise ventures) should always issue receipts for services or products that cost more than PHP 25; fees for commercial space rent, employee salaries, and commissions; and payments for transacting with VAT-registered businesses.
Apart from that, businesses are not actually strictly required to issue receipts.
4. Withhold the income tax from your employees’ salaries and pay these to the BIR.
Employees are a huge part of any franchise business. It is your duty as an employer to handle the income tax and other fees any worker in the Philippines must pay to the government. Note though that the income tax only applies to staff who are earning above the minimum-wage of PHP 5,000.
For all of your employees, however, you need to withhold fees for SSS, Pag-Ibig, and Philhealth as required by the law.
These are the important laws you need to keep in mind when running a franchise business in the Philippines. By making sure that you adhere to these rules, you will be one step closer to running a successful venture.