Your Guide to Franchise Taxes in the Philippines
Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law of the current administration, the tax laws in the Philippines have been amended to be more favorable for micro, small, and medium enterprises. This includes franchise businesses.
As such, if you are planning to run a franchise, then knowing the taxes involved is crucial for operational success.
20% of Taxes Must Be Withheld from Royalty Payment to the Franchisor
Whatever is due to the franchisor at the end of the year, you need to withhold 20% worth of taxes and remit that to the Bureau of Internal Revenue (BIR). Failure to comply will mean you’ll be subject to penalties on top of the 20% tax.
You Need to Handle Your Employees’ Income Tax
The income tax for staff can range from 20-35%. You need to deduct this amount from the salary you’ll be paying your employees. And as the business owner, you are responsible for remitting this tax to the BIR.
Withhold Taxes for Rent and Professional Fees
If you are leasing a commercial space or paying other professionals to help you run your business, then you need to take care of withholding taxes for those as well. Rent entails 3% monthly withholding tax while professional fees withholding tax range from 5-10%.
Here is a table from Entrepreneur.com.ph detailing the franchising taxes involved.
Register Your Franchise As a Percentage Taxpayer or VAT Taxpayer
You have this choice to make depending on your yearly gross income. If it is below PHP 3 million, then your franchise business can be a percentage taxpayer and pay 3% taxes. If you go beyond 3 million pesos, then your business should be registered as a VAT Taxpayer, which means you’ll have to file 12% VAT monthly. Refer to the above table for more details.
Managing Your Franchise Business Taxes
Taxes are part of a franchise business’ operating costs and must be managed carefully. This is really important to avoid incurring penalties from the BIR. It is also advisable to keep yourself updated with any updates to the franchising laws.
The Philippines is proclaiming itself as the franchise hub of Asia and the government continues to propose changes to the taxation laws to make this goal happen. By keeping yourself updated with the changes, you’ll be able to leverage them quickly for the good of your business.