As the Asia-Pacific economic integration process accelerates, the Philippines is becoming an important destination for Chinese enterprises to go overseas due to its unique geographical location and steady economic growth. In 2024, the Philippine government will launch a new round of economic revitalization plan to further optimize the business environment. However, its unique three-tier taxation system and frequently updated tax policies also bring considerable challenges to foreign investors. According to data from the Philippine Board of Investment (BOI), Chinese companies’ investment in the Philippines will increase by 35% year-on-year in 2023, but more than 40% of companies encounter difficulties in tax compliance. This article will give you a comprehensive analysis of the latest tax system in the Philippines, and from a practical perspective, help enterprises develop steadily in this pearl on the “Pearl Island Chain”. Let us delve into all aspects of the Philippine tax system and provide you with clear tax guidance for your business decisions and operational management.

Overview of the Philippine tax system

The Philippine tax system is famous in Southeast Asia for its unique three-tier taxation system. At the national level, it is led by the Philippine Bureau of Internal Revenue (BIR), which is responsible for the collection and management of major taxes including corporate income tax, personal income tax, and value-added tax; at the local level, the local government tax departments are responsible for local taxes such as real estate tax and business license tax; Special taxes include preferential tax systems within special economic zones and special taxes for specific industries. According to the latest BIR data in 2024, national taxes account for 83.2% of total tax revenue, local taxes account for 12.5%, and special taxes account for 4.3%.

In terms of collection and administration model, the Philippines adopts a collection and administration system that focuses on independent declaration. Starting from 2024, BIR will fully implement the electronic tax management system (eFPS). All companies with an annual turnover of more than 3 million pesos must declare and pay taxes through this system. It is worth noting that registration needs to be completed 15 working days in advance to use the system, and companies should plan early to avoid delays in filing. According to BIR statistics, 92% of large taxpayers and 75% of small and medium-sized enterprises have implemented online declaration, an increase of 15 and 23 percentage points respectively from 2023.

In terms of the tax legislation system, the National Internal Revenue Code (NIRC), as a basic law, stipulates the basic collection principles and procedures for various types of taxes. The TRAIN (Tax Reform for Acceleration and Inclusion) Act implemented in 2018 made major reforms to the personal income tax system, increasing the tax exemption to 250,000 pesos and simplifying tax brackets. Even more groundbreaking is the CREATE (Corporate Recovery and Tax Incentives for Enterprises) bill, which was enacted in 2021 and continues to be improved. The bill will enter the full implementation stage in 2024 and reduce the general corporate income tax rate from 30% to 25%. For small and medium-sized enterprises with revenue not exceeding 5 million pesos, the tax rate is further reduced to 20%.

What deserves special attention from enterprises is that the CREATE Act also systematically reconstructs tax preferential policies. Starting from 2024, newly established PEZA zone enterprises can enjoy an income tax holiday for 4-7 years, and then pay special corporate income tax at a preferential rate of 5%, replacing the previous gross income tax system. However, companies must meet the promised employment and export targets within the first three years after receiving the preferential treatment, otherwise they will be subject to back taxes. According to data from the Philippine Investment Agency, more than 200 companies have been disqualified from preferential treatment in the fourth quarter of 2023 because they did not meet the standards.

In response to the new policy changes in 2024, companies need to focus on the following aspects: First, the electronic invoice system (EIS) will be mandatory in phases, and companies with an annual turnover of more than 100 million pesos must complete system integration by June 2024. ; Secondly, transfer pricing document requirements have become stricter, and companies with related-party transactions exceeding 15 million pesos need to prepare contemporaneous documents; finally, environmental tax policies have begun to tighten, and high-energy-consuming companies will face additional carbon taxes. It is recommended that companies prepare for this in advance. Prepare.

To ensure tax compliance, it is recommended that companies establish a dedicated tax management team or hire a local tax consultant to regularly track policy changes. Especially for enterprises entering the Philippine market for the first time, they should fully consider tax costs in the early stage of registration and rationally choose their business locations and business models to maximize the benefits of preferential policies. At the same time, properly preserve all types of original vouchers and contract documents, establish a standardized accounting system, and prepare for possible tax audits in the future.

Detailed explanation of main tax types

After many reforms in recent years, the tax system of the Philippines has formed a modern tax structure with corporate income tax, personal income tax, value-added tax as the mainstay, and multiple additional taxes in coordination. This system not only ensures the stability of national fiscal revenue, but also plays an important role in promoting economic development and social equity.

As the core of the tax system, corporate income tax adopts a dual-track tax rate structure. According to the latest provisions of the CREATE Act, the standard tax rate in 2024 is 25%, but small and medium-sized enterprises with annual operating income not exceeding 5 million pesos can enjoy a preferential tax rate of 20%. The scope of corporate taxable income includes operating income, investment income, royalties, etc., and is recognized and measured using the accrual basis. Starting from 2024, cross-border digital service income will be clearly included in the scope of taxation. This policy will make taxation regulations in the digital economy more complete. According to statistics, in 2023 alone, 2.8 billion pesos in new tax revenue will be generated through digital economy taxation. In terms of deductible expenses, all reasonable expenses incurred by the enterprise can be deducted, including employee salaries, office rent, asset depreciation, interest expenses that meet the debt-to-equity ratio of 3:1, etc. It is worth noting that qualified R&D expenses can enjoy a 200% super deduction, while advertising expenses are limited to 2% of sales revenue. Operating losses incurred by enterprises can be carried forward for three years, and this is especially extended to five years for enterprises affected by the epidemic. In terms of withholding income tax, interest paid to resident enterprises is withheld at 20%, and royalties paid to non-residents are withheld at 25%. Preferential tax rates can be enjoyed under applicable tax treaties.

Personal income tax adopts a more refined eight-level progressive tax rate system, ranging from 0% to 35%. Specifically, annual income below 250,000 pesos is exempt from tax, 20% is applicable to 250,000-400,000 pesos, 25% is applicable to 400,000-800,000 pesos, 30% is 800,000-2 million pesos, 32% is applicable to 2-8 million pesos, and more than 800 The top tax rate of 35% applies to the million pesos portion. The 183-day principle or permanent residence standard is used to determine resident status. New regulations in 2024 will include foreigners who work remotely in the Philippines for more than 6 months into the scope of resident taxpayers. Each type of income taxation rules has its own characteristics: monthly withholding and payment is adopted for wages and salaries, quarterly prepayment is required for business income, and 15% or 6% tax rates apply to capital gains according to different types. The special deduction policy will be significantly optimized in 2024. The deduction for basic living expenses will be increased to 300,000 pesos. Children’s education expenses can be deducted by 100,000 pesos per person. Medical insurance expenses will be fully deducted. Housing loan interest can be deducted up to 200,000 pesos. First-time homebuyers can deduct up to 200,000 pesos. You can also enjoy an additional one-time deduction of 500,000 pesos. In terms of the declaration process, individuals need to complete the annual settlement and settlement before April 15 of the following year. If the deadline is exceeded, a monthly late payment fee of 2% will be incurred.

Value-added tax, as a representative of turnover tax, adopts a standard tax rate of 12%. Enterprises with an annual turnover of more than 3 million pesos must register as value-added tax taxpayers. The taxable scope includes the sale of goods, provision of services and imports, but agricultural products, education and medical care, and specific financial services are exempted, and exports are subject to a zero tax rate. Input tax deduction must meet the conditions of purchasing taxable items, obtaining compliant invoices, and recording them in accounts in a timely manner. Large purchases exceeding 1 million pesos must be paid through a bank. The tax refund policy mainly targets the cases of excessive tax burdens and mistaken overpayments for procurement by diplomatic missions and export enterprises. The application period is 2 years, and the processing is generally completed within 3-6 months. The reform of the electronic invoice system is accelerating. From June 2024, large enterprises must fully use the electronic invoice system. Full coverage will be achieved in 2025, and invoice data must be transmitted to the tax department in real time.

Other taxes are smaller but cannot be ignored. The excise tax is levied on specific goods, such as tobacco, which is levied at 50 pesos per pack, and alcoholic beverages, which are levied on a graded basis. Stamp duty covers all types of commercial documents, including 0.75% for equity transfers, 1.5% for real estate sales, 0.1% for leases, and 0.5% for loans. Real estate tax is levied by local governments. The tax rate is between 1% and 3% of the assessed value. It is paid quarterly. If you pay in advance, you can enjoy a 10% discount throughout the year. In terms of transfer tax, real estate transfers are levied at 6%, equity transfers are levied at 15% of net income, and a 5% transfer tax on cryptocurrency will be added in 2024. The tariff rate is between 0-65%, and ASEAN member states enjoy preferential treatment. A new version of the commodity code and tax rate schedule will be implemented in 2024, and a priority customs clearance enterprise certification system will be launched to improve customs clearance efficiency.

Tax collection and administration are becoming increasingly strict. It is recommended that enterprises establish and improve tax management systems, strictly abide by the filing deadlines for various tax types, and seek the assistance of professional tax consultants when necessary. Especially in complex businesses such as cross-border transactions and transfer pricing, it is necessary to ensure both compliance and Achieve tax burden optimization. According to the latest statistics, the Philippine tax collection and administration efficiency will increase by 15% in 2023, and it is expected that the informatization and refinement level of tax collection and administration will be further strengthened in 2024.

Special tax policies

In order to attract foreign investment and regulate cross-border business activities, the Philippines has established a complete set of special tax policy systems. These policies include preferential measures for specific regions and industries, as well as regulations regulating cross-border transactions, forming a unique tax governance framework.

In terms of preferential policies for foreign investment, the PEZA Economic Zone plays a central role. PEZA area enterprises can enjoy a 4-7 year income tax tax holiday in 2024. After the expiration of the period, they can choose to levy a gross income tax at a special rate of 5%, replacing all national and local taxes. According to the latest data from PEZA, the economic zone will attract US$8.2 billion in foreign investment in 2023, of which manufacturing accounts for 62% and IT services account for 28%. In addition to tax incentives, PEZA zone enterprises also enjoy zero tariffs on imported capital equipment and VAT exemption on imported raw materials. It is worth noting that in 2024, PEZA will add a new type of digital economy industrial park to specifically serve cross-border e-commerce and digital service companies. The first batch will be established in Manila, Cebu and Davao.

The Board of Investment (BOI), as another important entity for implementing preferential policies, focuses on supporting priority industries. According to the revised Investment Priority Plan (IPP) in 2024, investment projects in new energy, smart manufacturing, digital infrastructure and other fields can enjoy income tax holidays for 4-6 years. Especially for large-scale projects with investment exceeding 1 billion pesos, the tax holiday can be extended to 8 years. BOI-registered companies can also enjoy discounts on imported equipment tariffs and extended loss carry-forward period to 5 years. Data shows that BOI approved 1,250 investment projects in 2023, with total investment exceeding 1.2 trillion pesos, a record high.

In terms of special industry policies, renewable energy projects can enjoy super-national treatment such as seven-year income tax exemption and zero tariff on equipment imports. Comprehensive agricultural development projects can receive a 6-year tax holiday and additional agricultural machinery subsidies. Under the tourism industry’s post-epidemic restart plan, newly built hotels can enjoy a 50% income tax reduction for five years. The new semiconductor industry revitalization plan in 2024 provides chip manufacturing companies with a tax holiday of up to 10 years and is expected to attract US$50 billion in investment.

In the field of cross-border taxation, the standards for identifying permanent establishments are becoming increasingly strict. In addition to traditional fixed business premises, the new regulations in 2024 will take “digital presence” into consideration. Specifically, overseas enterprises that continuously provide digital services in the Philippines for more than 183 days, or whose annual revenue exceeds 3 million pesos, will be recognized as permanent establishments. This change has caused many cross-border e-commerce platforms to reassess their tax obligations.

In terms of transfer pricing rules, the Philippines strictly follows OECD guidelines. Related party transactions require the preparation of contemporaneous documents, including local documents, master documents and country-by-country reports. Starting in 2024, companies with annual revenue of more than 150 million pesos must submit an application for an advance pricing arrangement. Tax authorities focus on the fairness of transactions such as royalty payments and management service fees. Transfer pricing investigations in 2023 resulted in a total of 5.2 billion pesos in back taxes, a year-on-year increase of 35%.

The anti-tax avoidance system continues to improve, and controlled foreign company (CFC) rules require that the profits of subsidiaries in low-tax regions that hold more than 50% of the shares are taxed at 25%. The thin capitalization system restricts indirect financing of enterprises, and the debt-to-equity ratio must not exceed 3:1. In 2024, a new “economic substance” requirement will be added, and overseas income must have actual business activities to enjoy tax benefits. At the same time, the general anti-avoidance provisions (GAAR) give tax authorities greater discretion.

The tax treaty network continues to expand, and as of 2024, the Philippines has signed tax treaties with 45 countries. Treaty preferential tax rates are generally lower than domestic laws, such as 10-15% for dividends, 10-15% for interest, and 10-20% for royalties. However, companies must meet conditions such as beneficial ownership and main purpose tests to be eligible for the preferential treatment. In 2024, measures to prevent agreement abuse will be particularly strengthened, requiring applicants to provide more detailed proof of commercial substance.

To sum up, the Philippines’ special tax policies not only provide strong support for foreign investment, but also establish a standardized cross-border tax management system. Enterprises should fully understand various policy requirements, conduct compliance management, and prevent tax risks while enjoying preferential treatment. The tax authorities expect to further strengthen cross-border tax supervision in 2024, and companies are advised to prepare in advance.

Tax collection and administration practices

The Philippine tax collection and administration system has undergone digital transformation and has formed a strict collection and administration framework. According to the 2023 annual report of the tax bureau, by optimizing the collection and administration process, tax compliance has increased to 88%, and the tax collection and administration cost rate has dropped to 1.2%, which is at the leading level in ASEAN.

In terms of tax returns, each tax category has clear filing deadline requirements. Corporate income tax adopts a quarterly prepayment and annual settlement system. The quarterly declaration must be completed before the 15th of the month following the end of the quarter, and the annual settlement deadline is April 15th of the following year. In terms of personal income tax, employment income is withheld and paid on a monthly basis, business income needs to be paid in advance quarterly, and the annual settlement is also completed before April 15 of the following year. Value-added tax returns are filed on a monthly basis, and the deadline is the 20th of the following month. Large enterprises with annual sales of more than 10 million pesos must complete it before the 15th of the following month. Starting from 2024, stamp tax will implement a monthly declaration system, and the original quarterly declaration will be changed to the previous month’s tax amount declared before the 5th of each month.

The declaration channel has been fully electronic. Enterprises can declare online through eFPS (electronic filing and payment system) or eBIRForms (electronic form system). The new version of the electronic tax system in 2024 supports mobile operation and introduces blockchain technology to ensure data security. According to statistics, the electronic filing rate will reach 95% in 2023, an increase of 10 percentage points from 2022. Common errors mainly include improper income classification, incorrect identification of deduction items, and incomplete invoice vouchers. The tax bureau releases error case analysis every quarter and recommends taxpayers to focus on the timing of income recognition, expense deduction standards, and applicable conditions for tax incentives.

Tax audit work is becoming increasingly standardized and refined. The audit process includes five stages: case source screening, notification issuance, on-site inspection, result notification, and dispute resolution. An “intelligent audit” system will be implemented from 2024, using big data analysis to identify abnormal declarations, focusing on cross-border payments, related transactions, cash-intensive industries and other fields. According to the latest data, tax audit revenue in 2023 reached 42.6 billion pesos, of which transfer pricing adjustments accounted for 35%, value-added tax violations accounted for 28%, and personal income tax violations accounted for 20%.

It is necessary to be fully prepared to deal with a tax audit. It is recommended that enterprises establish and improve internal tax control systems, maintain complete accounting records and original vouchers, and retain decision-making documents for major tax matters. After receiving an audit notice, a response team should be formed immediately and professional tax consultants should be hired to assist if necessary. In 2024, the tax bureau particularly emphasizes taxpayers’ cooperation obligations. Refusal to cooperate may result in being identified as a high-risk enterprise, which will affect subsequent tax ratings.

The illegal punishment system reflects the principle of strictness. According to the Tax Collection and Administration Law revised in 2024, late filings will be subject to a late payment penalty of 2% of the tax payable every month, with a maximum of 48%. In addition to paying back taxes, tax evasion will also be subject to fines ranging from 50% to 500%. Especially serious tax evasion may trigger criminal liability and be punished by 2-4 years in prison. The illegal act of falsely issuing invoices is subject to a fine of 1 million pesos per invoice and may face the penalty of revoking the business license.

Remedies for tax violations include voluntary disclosures and corrected returns. Those who voluntarily disclose and pay back taxes before the tax authorities discover it may be exempted from some penalties. The “Compliance Restart Plan” launched in 2024 allows companies to supplement the reporting of missing income in historical years within the specified period, and only pay basic tax and low late fees.

The ways to resolve tax disputes include administrative review and judicial litigation. If a taxpayer has objections to the tax treatment, he or she may apply to the higher tax authority for reconsideration within 30 days of receiving the decision. If you are dissatisfied with the reconsideration result, you may file a lawsuit with the Tax Court within 30 days. The newly established Tax Mediation Center in 2024 will provide alternative dispute resolution solutions to resolve tax disputes through mediation, with the average mediation cycle shortened to 45 days. About 65% of tax dispute cases in 2023 will be resolved through administrative review, 25% will enter judicial procedures, and 10% will be handled through mediation.

In order to adapt to the collection and administration requirements under the new situation, it is recommended that enterprises strengthen tax risk management, conduct regular tax self-examinations, make full use of electronic tax processing platforms, and build a good communication mechanism with tax authorities. At the same time, we pay close attention to policy changes and promptly adjust tax strategies to ensure legal and compliant operations. The tax authorities are expected to further strengthen tax collection and administration in 2024, especially in new areas such as cross-border transactions and the digital economy. Enterprises should take precautions and make corresponding preparations.

Corporate tax planning

In the increasingly perfect tax environment in the Philippines, companies need to carry out tax planning on the premise of legal compliance. According to statistics from the tax bureau, through reasonable tax planning in 2023, enterprises can reduce their actual tax burden by 15-20% on average. The following will discuss corporate tax planning strategies in detail from the two dimensions of legal tax-saving suggestions and risk prevention.

In terms of investment structure optimization, enterprises should fully consider the tax characteristics of various types of entities. Holding companies can take advantage of the dividend tax exemption policy to reduce the overall tax burden of the group. According to the new regulations in 2024, the dividend income from subsidiaries of holding companies established in the PEZA zone is completely tax-free. Considering that the Philippines still has restrictions on foreign ownership, joint ventures can be used to enter regulated industries, and at the same time, the tax treaty network can be used to reduce withholding tax costs through a suitable intermediate holding structure. Data shows that in 2023, about 45% of foreign-funded enterprises will make investment arrangements through holding companies in Singapore, Hong Kong and other places.

Expense deduction maximization strategies require careful planning. First of all, make full use of the new super deduction policies in 2024, such as 200% deduction for research and development expenses, 150% deduction for investment in energy-saving and environmental protection equipment, etc. Secondly, reasonably arrange the time when expenses are incurred to avoid exceeding the annual deduction limit. For example, the advertising expense limit is 2% of sales revenue, which can be controlled through annual budget so that it does not exceed the limit. Thirdly, accurately grasp the deduction standards for various expenses. For example, business entertainment expenses require compliant invoices and detailed business records, and travel expenses must comply with the principle of actual occurrence. According to data from the tax bureau, taxes adjusted due to improper deductions of expenses amounted to P8.6 billion in 2023.

Effective use of tax incentives requires comprehensive planning. For example, qualified manufacturing companies can apply for the preferential policies of BOI and PEZA at the same time and choose the optimal solution. Newly established digital service companies can apply for digital special economic zone benefits and enjoy a six-year tax holiday. Small and medium-sized enterprises can take advantage of the simplified taxation system and choose to be taxed at a 3% tax rate when their annual income does not exceed 3 million pesos. The new tax exemption policy for green bond interest income in 2024 provides new options for corporate financing. According to statistics, by 2023, enterprises will save an average of 23% of the tax payable by rationally using tax incentives.

In terms of risk prevention, we must first establish and improve a tax compliance management system. Establish a special tax management department and staff it with professionals with certified public accountant qualifications. Regularly conduct tax risk assessments and conduct tax impact analysis on major business decisions. Establish a tax management manual to clarify the operating specifications and approval procedures for each link. The “Tax Compliance Rating System” launched by the tax bureau in 2024 will link the level of corporate compliance management with tax collection and administration benefits, and it is recommended that companies make preparations in advance.

Invoice management has become a top priority for tax compliance. Starting from June 2024, companies with an annual turnover of more than 20 million pesos must use the electronic invoicing system and ensure that invoice issuance, transmission and storage comply with technical specifications. Establish an invoice verification mechanism to ensure that purchase invoices are authentic and valid. Special attention should be paid to the management of special VAT invoices, which must be transmitted to the tax bureau system within 24 hours after issuance. Statistics show that in 2023, 3,200 companies were punished for invoice violations, with a total fine of more than 1.5 billion pesos.

Records management practices are also critical. Tax-related files must be kept for 10 years, including account books, vouchers, contracts, board resolutions, etc. New requirements in 2024 are that electronic archives must be stored in a non-tamperable way and backed up regularly. Establish a file access registration system to ensure file security and traceability. In particular, files related to cross-border transactions need to comply with the requirements of both domestic and other countries. The tax bureau conducted file inspections on 1,500 companies in 2023, and 18% of them were punished for irregular file management.

Effective tax planning requires enterprises to invest sufficient resources, equip professionals, and use external consulting forces to regularly evaluate and update planning plans. At the same time, it is necessary to grasp the boundary between legal tax saving and radical tax avoidance to ensure that enterprises can optimize their tax burden under the premise of compliance. It is recommended that enterprises pay close attention to policy changes, adjust planning strategies in a timely manner, and seize opportunities in the changes in the tax environment in 2024.

Latest policy trends

The Philippine tax policy in 2024 will show the distinctive characteristics of digitalization, greenness and internationalization. The government actively responds to the challenges brought by the new economic form, promotes the modernization of the tax system, and promotes economic structural transformation and sustainable development while maintaining stable growth in fiscal revenue.

In terms of taxation of the digital economy, the Digital Services Tax Law implemented in 2024 is a landmark reform. The bill clearly includes cross-border digital services within the scope of taxation and imposes a 12% value-added tax on overseas digital service providers with annual income exceeding 3 million pesos. At the same time, the concept of “digital presence” is introduced, and overseas enterprises that continue to provide digital services in the Philippines for more than 183 days are recognized as permanent establishments. This is expected to bring about P15 billion in additional revenue to the state treasury annually. Data shows that the Philippines’ digital economy will reach US$250 billion in 2023, but related taxes will only account for 0.3% of GDP, which is far lower than the average level of 1.2% in neighboring countries.

Environmental tax reform is another important direction in 2024. The newly introduced carbon tax policy levies an environmental tax of 200 pesos per ton on companies that emit more than 25,000 tons of carbon dioxide annually, and is expected to cover about 500 large companies. To encourage the use of clean energy, a 200% super deduction is provided for renewable energy equipment such as solar energy and wind energy. The tax rate on plastic packaging will be increased to 10 pesos per kilogram, and the scope of taxation will be expanded to all disposable plastic products. Environmental tax revenue will be earmarked for ecological protection and clean energy development, and is expected to collect 28 billion pesos in 2024.

Major adjustments have also been made to preferential tax policies. The “Investment Priority Plan” revised in 2024 highlights strategic emerging industries, including artificial intelligence, biomedicine, new energy vehicles, etc. as key support areas, and provides tax holidays of up to 8 years. At the same time, existing preferential policies have been integrated and optimized, and preferential measures for some backward production capacities have been cancelled. Of particular note is the introduction of the “innovation points” system for the first time, whereby corporate R&D investments can be redeemed for tax credits, up to 30% of the tax payable.

There will be three major trends in Philippine tax reform in the future. First of all, the simplification of the tax system will continue to be promoted. It is planned to consolidate the current 15 types of taxes into 8 types by 2025 to reduce collection and administration costs and improve tax efficiency. Secondly, the proportion of direct taxes will be gradually increased, with the goal of increasing the proportion of personal income tax in tax revenue from the current 18% to 25%, and optimizing the tax structure. Third, consumption tax reform will be accelerated, with plans to introduce a unified goods and services tax system in 2025 to replace the existing value-added tax and consumption tax.

In terms of upgrading collection and management methods, the tax department plans to achieve comprehensive digital transformation by 2025. The “Smart Taxation” project will build a digital platform covering the entire process of declaration, collection, inspection and service. Blockchain technology will be widely used in invoice management, cross-border transaction supervision and other fields. The artificial intelligence system will assist in risk identification and case source screening to improve the accuracy of inspections. It is expected that by 2025, the electronic processing rate will reach 98%, and the tax collection and administration cost rate will drop to less than 1%.

In terms of international cooperation, the Philippines actively participates in the BEPS 2.0 framework and plans to implement a global minimum tax system in 2025. It has signed automatic exchange of tax information agreements with 20 countries and will complete the first information exchange before the end of 2024. At the same time, the establishment of the ASEAN tax coordination mechanism is being promoted and unified transfer pricing rules and anti-tax avoidance measures are being formulated. Under the “Belt and Road” tax cooperation mechanism, tax coordination will be strengthened with China and other major investment source countries to prevent and resolve cross-border tax disputes.

Industry data shows that the Philippines’ tax revenue will reach 2.8 trillion pesos in 2023, a year-on-year increase of 12%, and the tax revenue share of GDP will rise to 15.8%. With the implementation of various reform measures, tax revenue is expected to exceed 3 trillion pesos in 2024, providing solid financial support for economic development. It is recommended that enterprises pay close attention to policy changes, proactively adjust business strategies and tax planning, seize reform opportunities, and guard against policy risks.

Enterprises should pay special attention to the implementation of new taxation regulations for the digital economy and make compliance preparations in advance. At the same time, we can make full use of preferential policies in areas such as environmental protection and innovation to promote transformation and upgrading while reducing tax burdens. In the process of forming a new international tax order, multinational enterprises need to re-examine their global tax layout to ensure compliance with various new requirements. The tax authorities will also further strengthen informatization construction and international cooperation. Enterprises should improve their tax management levels and proactively adapt to the collection and management requirements under the new situation.

Practical Guide

Based on the latest tax policy environment in 2024 and combined with practical experience, this chapter will provide detailed tax operation guidance for enterprises. According to data from the tax bureau, there will be 85,000 new companies established in 2023, and about 30% of them will encounter tax compliance problems in the first year of operation, showing the importance of tax management guidance.

Tax planning for a new enterprise must first make preparations for registration. Choosing the right form of business organization has a significant impact on future tax burdens. Sole proprietorships adopt simplified taxation, which is suitable for small and micro enterprises with an annual turnover of less than 3 million pesos; corporate systems can fully enjoy various tax benefits, but need to bear more compliance obligations. The choice of registration place also needs to be comprehensively considered. If you choose a special economic zone, you can enjoy income tax benefits, but you must meet conditions such as export proportion. The new regulations in 2024 require that the actual controller information registration must be completed before registration and a business plan for the next three years must be provided.

Special attention should be paid to timeliness requirements in the identification and registration of tax types. Enterprises must complete tax registration within 30 days before starting business activities, including application for taxpayer identification number, identification of general VAT taxpayer (if the annual turnover is expected to exceed 3 million pesos), employer identity registration, etc. From 2024, a “one-stop” registration service will be implemented, and industrial and commercial and tax registration can be completed at the same time through the online platform. Special reminder: Certain industries such as alcohol sales and mineral development require additional application for franchise tax registration.

Initial compliance requirements include establishing a standardized accounting system, staffing full-time finance and taxation personnel, and opening electronic tax system accounts. The 2024 new policy requires that new enterprises with registered capital exceeding 5 million pesos must hire certified public accountants. Before filing your first tax return, you need to participate in the new business training organized by the tax bureau and pass the online assessment. According to statistics, the tax compliance of companies that have completed training in the first year is significantly higher than that of companies that have not received training.

The tax declaration process in daily operations has been fully electronic. Monthly declarations (such as value-added tax and withholding tax) must be completed before the 20th of the following month; quarterly declarations (such as income tax prepayment) must be completed before the 15th of the following month at the end of the quarter; and annual accounts must be completed before April 15th of the following year. The new version of the electronic declaration system in 2024 supports mobile operation and provides intelligent form filling functions. It is recommended that enterprises set up a declaration warning mechanism and start declaration preparations three days in advance.

The invoice management system is becoming increasingly strict. Starting from June 2024, companies with an annual turnover of more than 20 million pesos must use the electronic invoice system, which must be transmitted to the tax bureau within 24 hours of issuance. Invoice management must implement the “five specialties” requirements: dedicated personnel for safekeeping, dedicated accounts for storage, special purposes, special book registration, and dedicated personnel for collection. Invoice inventory needs to be carried out every month, and the reconciliation of invoice data and accounting records needs to be completed before the end of the quarter. Violations of invoice management regulations will result in penalties of up to 1 million pesos per invoice.

There are strict procedural requirements for tax refund operations. If the value-added tax credit exceeds 500,000 pesos, you can apply for a tax refund. You need to prepare input invoices, contracts, payment vouchers and other materials for the past 12 months. A new “fast tax refund channel” will be added in 2024, and companies with a credit rating of A can enjoy a 45-day fast review. The application for export tax refund must be submitted within 90 days after the export receipt, and export certification documents must be provided. The approval rate for tax refund applications in 2023 is 65%, and the average review period is 120 days.

A rapid response mechanism needs to be established to respond to tax audits. After receiving the inspection notice, a special team was immediately set up to collect and organize relevant information according to the scope of the inspection. Focus on verifying the authenticity of invoices, completeness of income, reasonableness of expenses and other matters. In 2024, the tax bureau will launch a “cooperative audit”, and companies that proactively disclose problems will be treated lightly. Statistics show that companies with high cooperation can reduce inspection time by 30% on average.

Policy changes and adjustments must be followed up in a timely manner. It is recommended to designate a dedicated person to track tax policy developments and regularly update internal operating guidelines. When making major policy adjustments, promptly assess the impact and formulate response plans. With the implementation of new policies such as environmental tax and digital service tax in 2024, companies need to adjust relevant business processes and accounting treatments in a timely manner. It is recommended to conduct a self-examination of tax policy compliance every six months.

The procedures for cancellation and liquidation must be strictly followed. First, conduct a tax settlement audit to confirm that all taxes have been paid. Apply to the tax bureau for a tax clearance certificate and complete the deregistration of various types of taxes. Special note that from 2024, relevant information must be kept for 10 years after the company is deregistered, and electronic files can be used. If difficulties are discovered during the liquidation process, it is recommended to consult a tax consultant in time to avoid affecting the cancellation progress.

In order to ensure that all tax work is carried out in an orderly manner, it is recommended that enterprises establish a complete tax management system, clarify job responsibilities, and standardize operating procedures. Consider introducing tax management software to improve work efficiency. At the same time, attention should be paid to personnel training, good communication with tax authorities and professional institutions should be maintained, and policy guidance should be obtained in a timely manner. Regular tax risk assessments are conducted during the business process, and problems are rectified in a timely manner to ensure that corporate tax management always meets the latest requirements.

According to statistics from the tax bureau, enterprises that adopt standardized tax management have significantly reduced tax risk incidence and can save about 15% of tax compliance costs on average every year. It is recommended that enterprises refer to the guidelines in this chapter, build a scientific and effective tax management system based on their own actual conditions, and optimize tax burdens while ensuring compliance.

Case analysis

This chapter provides practical reference for enterprises through detailed case studies and combined with the latest tax environment in 2024. According to data released by the tax bureau, tax dispute cases will increase by 25% year-on-year in 2023, of which cross-border tax issues account for 40%, showing the important guiding significance of case analysis for corporate tax management.

First, analyze a case of tax optimization for foreign-invested enterprises. A Japanese manufacturing company established a subsidiary in the Philippines in 2023. In the early stage, due to a lack of understanding of the local tax system, the tax rate was as high as 32%. Through refined tax planning, the company took the following measures: First, it used the new version of the “Investment Priority Plan” to position the production line as an “intelligent manufacturing” project and obtained income tax exemptions for six years; second, through supply chain restructuring, some high value-added The process is transferred to the special economic zone and enjoys a preferential tax rate of 15%; third, the super deduction policy for R&D expenses is rationally used, and R&D expenditures achieve 200% pre-tax deduction. After optimization, the actual tax burden will be reduced to 21% in 2024, and the annual tax saving will reach 30 million pesos.

In terms of tax treatment for cross-border operations, the case of a certain cross-border e-commerce platform is typical. The platform faces the challenge of the implementation of the new digital service tax policy in 2024, with an annual turnover of 2.5 billion pesos, involving merchants from multiple countries. Compliance operations are achieved through the following measures: first, setting up a local subsidiary as a tax payer to avoid being recognized as a permanent establishment; second, optimizing the transaction structure and accounting for platform service fees and product sales separately; third, establishing a real-time transaction monitoring system to ensure Accurately declare VAT. After adjustments, not only double taxation was avoided, but also an input tax deduction of 12 million pesos was obtained through perfect invoice management.

Tax dispute resolution cases deserve attention. A manufacturing company encountered a tax audit in 2023 and was questioned about the unreasonable transfer pricing of related-party transactions, requiring a tax repayment of up to 80 million pesos. The company adopts active response strategies: first, provide detailed contemporaneous information to prove that the transaction price complies with the arm’s length principle; second, proactively initiate advance pricing arrangement (APA) negotiations; third, apply for tax mediation procedures. In the end, by providing supplementary evidence and making adjustments on its own, the amount of back taxes was reduced to 20 million pesos and penalties were avoided. This case shows the importance of timely communication and adequate preparation.

From these cases, we can summarize several successful experiences. The first is that tax planning must be forward-looking and tax implications must be considered before major business decisions. Data shows that companies that conduct tax planning in advance can reduce tax costs by an average of 15-20%. Secondly, compliance and economics must be balanced, and compliance risks must not be taken in pursuit of short-term tax benefits. The third is to make good use of policy tools, such as advance pricing arrangements, tax treaties, etc., to improve tax certainty.

Also be careful to avoid common misunderstandings. First, excessive pursuit of tax benefits and neglect of business essence may lead to tax authorities identifying tax avoidance behavior. Second, the tax impact of cross-border business is underestimated and the risk of double taxation is not fully considered. Third, insufficient attention is paid to internal control and lack of professional talent, resulting in the accumulation of tax risks. According to statistics, 90% of major tax cases in 2023 will be related to lack of internal controls.

Based on case analysis, the following list of practical suggestions is provided:

• Establish a tax risk early warning mechanism and regularly assess tax risk points;
• Improve related-party transaction management and establish a transfer pricing document preparation system;
• Strengthen invoice management and implement an electronic management system;
• Conduct regular tax training to improve the team’s professional capabilities;
• Establish communication channels with tax authorities and maintain good interaction;
• Hire a professional tax consultant to provide decision-making support.

The tax environment will continue to deepen reform in 2024, and companies should pay special attention to the following new changes: First, the implementation of new tax regulations for the digital economy requires timely adjustment of business models; second, as the environmental tax reform advances, new costs such as carbon taxes must be considered; third, When new international tax rules such as BEPS 2.0 are implemented, multinational enterprises must plan ahead. Data from the tax bureau shows that companies that respond to policy changes in a timely manner can reduce compliance costs by an average of 25%.

The ultimate purpose of case analysis is to help enterprises establish a scientific tax management system. It is recommended that enterprises refer to successful cases and develop suitable tax strategies based on their own characteristics. At the same time, attention should be paid to risk prevention and control, and emergency plans should be established to ensure the sustainability of tax management. Through case studies, companies can avoid detours and achieve continuous optimization of tax management.

According to the latest statistics, companies that adopt standardized tax management and focus on case studies have significantly improved tax compliance and reduced the incidence of tax disputes by 40%. This fully proves the important guiding role of case analysis in corporate tax management. It is recommended that enterprises continue to pay attention to new case practices, summarize experiences and lessons in a timely manner, and continuously improve the tax management system.