Darius Immanuel D. Guerrero
February 28, 2012
A sole proprietorship is a business entity that is totally inseparable from its single owner. The law treats the business and the owner as the same. Because of this, all liabilities are taken for the owner. The owner does not pay income tax separately for the business, but reports the business income or losses on his/her individual income tax return.
In order to start a sole proprietorship, one must be at least eighteen years old. To start with, the minimum requirements need to be fulfilled. The person must visit the DTI Business Registration System (BNRS) to register the name of the business. If unavailable, must call the number 751-3330 to contact DTI Direct. The transaction reference number acknowledgement email will be sent to the applicant. With all the supporting documents, one must proceed to the DTI office.
The documents are plentiful. One must acquire a certificate of business name registration from the DTI. One must also have a certificate of registration from the local BIR Revenue District Office or RDO. A mayor’s permit from city hall and a barangay clearance from the local barangay hall is also needed. A SS number as an employer or as self-employed must be acquired from an SSS branch. A Philhealth is also needed. The other things needed are: original & photocopy of proof of citizenship (e.g. PRC ID, birth certificate, voters ID, passport); signed copy of undertaking from DTI BNRS; payment of P300 for application (+P15 for documentary stamps); 2 recent identical passport size picture (with signature of owner at the back). For franchise holders, a photocopy of franchise agreement, each page duly certified by the franchisor or franchisee and a photocopy of Business Name Certificate of franchisor is also needed. The DTI registration has to be renewed every year, with a renewal fee of three hundred pesos. If the renewal is made after ninety days from expiration, there is a surcharge of one hundred pesos. Unlike corporations, there is a limit to the amount and number of deductions allowed. The sole proprietor is similar with the regular tax payer. The main difference between them is that the sole proprietor must list the business's profit or loss information. There will be tax on all profits of the business, which is total income minus the expenses. Because the sole proprietor is self-employed, it is his job to withhold income taxes from the pay check. The tax rates for an individual and proprietor are the same. The rates are: Not over P10,000 = 5%
Over P10,000 but not over P30,000 = P500+10% of the excess over P10,000 Over P30,000 but not over P70,000 = P2,500+15% of the excess over P30,000 Over P70,000 but not over P140,000 = P8,500+20% of the excess over P70,000 Over P140,000 but not over P250,000 = P22,500+25% of the excess over P140,000 Over P250,000 but not over P500,000 = P50,000+30% of the excess over P250,000 Over P500,000 = P125,000+34% of the excess over P500,000
There are special exemptions for sole proprietor. He must indicate whether to choose optional deduction, which does not exceed 40% of the net sales, or itemized deduction which contains business expenses, taxes, losses, bad debts, depreciation, depletion, charitable contributions, research and pension trusts. In addition to these, the sole proprietor can avail of the regular personal exemptions that tax payers have. For single individuals, there is a Php 50,000 personal exemption. For married individual and head of the family, it is also Php 50,000 but each qualified dependent will allow that individual Php 25,000. There will only be exemptions for up to four individuals. There are also additional exemptions for husbands who are deemed head of the family, a spouse who is in custody of a child in cases of legally separated spouses, or...