Your Guide to Tax Exemption as a Barangay Micro Business Enterprise (BMBE)

Every small business owner dreams of paying fewer taxes or not having to pay any taxes at all, and it’s not as hard as you to think to be one. 

We have been handling businesses with this privilege and our experience with them and with the BIR summarized the requirements for qualification below.    Actually, the Guideline for BMBE is 97 pages long.  If you want any verification of what’s included here, you may consult R.A 9178. 

2016 Guide to RA 9178 BMBEs Act 2002

Edit: DTI – BMBE Flyer

Here is your guide to getting income tax exemption based on experience

You must be or have all of the following:

1. Your business must be organic 

The term ‘organic’ is nowhere to be found in the guidelines but this is how I put it.  Organic business means it was you who put it up, the idea, and the system are yours.  You are not a branch or a subsidiary of a big-scale enterprise as in the case of a franchise.   

The BMBE guideline stated that a business to be qualified as a Barangay Micro Business Enterprise (BMBE), must be engaged in the production, processing, or manufacturing of products, including agro-processing, as well as trading and services. In addition, the business must be ‘barangay-based’ and the primary purpose is a livelihood. 

But take note of this – for services, however, it excludes entities rendering services in connection with the exercise of one’s profession by a person duly licensed by the government after having passed a government licensure examination, and are disqualified from applying for the BMBE Certificate of Authority. (e.g. CPAs, Doctors, Lawyers, and the like)

2. Your business must have an asset size of not more than P3M 

Your asset size which should not be more than P3M includes cash, building structure, inventory or stocks, furniture, fixture, and equipment.  It could be owned or not owned but must be in use for business purposes.  The cost of land is not included in the computation of total assets. 

3. Your business must be registered 

Your business could be of any type organized in the Philippines and registered with DTI, SEC, or CDA. It can be a sole proprietorship, corporation, partnership, or cooperative.  

BIR registration can be VAT or non-VAT and must have a Mayor’s or Business Permit issued by the Local government Unit.

4. You must have the Certificate of Authority as BMBE (Barangay Micro Business Enterprise)

Your business must get a Certificate of Authority, the proof that you are BMBE registered. The registration is to be done at DTI by using BMBE Form 1. Here are the requirements (bring the original and photocopy): 

• DTI registration
• Mayor’s Permit
• Authorization letter – if you are registering on behalf of the business owner.   
• Copy of valid IDs – photocopy only with three signatures 
• Sworn statement of assets and liabilities –  this was mentioned in the guidelines but not included in the actual application.  The BMBE Form 01 already has an undertaking of the asset amount on the lower portion and that could have explained that. 

The DTI will issue one (1) original and one extra copy of the Certificate of Authority (as BMBE) and the latter must be submitted to the BIR.  Make sure that the issued BIR Certificate of Registration has a notation that your business is BMBE registered. 

5. You must file or have been filing and paying sales taxes (percentage or VAT)

It doesn’t matter what type of sales taxes you are paying VAT or non-VAT.  For non-VAT, you must pay 3% of gross sales of percentage tax (1% under CREATE Law until 2023) quarterly. VAT-registered businesses must file monthly and quarterly returns and remit everything that was collected from the purchasing public.  The forms are the following: 

• BIR 2551Q -percentage tax
• BIR 2550M – monthly VAT return
• BIR 2550Q-quarterly VAT return

6. You must file or have been filing Income Tax Returns 

What?  I thought I’m exempted.

You are exempted from paying but not from filing. 

Note that the guidelines said to file the Annual Information Return together with an Account Information form  (Rule 3 Sec. 4).  These forms are nowhere to be found on the BIR website. It must have been phased out a long time ago.  Its equivalent is BIR Form 1701 series,  Annual Income Tax Return, and just checking the box   “exempted” when filing will do the job. Fill out everything including Annexes. 

Moreover,  certain Revenue District Offices require all businesses with BMBE registration to file quarterly Income Tax Returns or BIR Form 1701Q. (Although, I can not find any mention of these in the BMBE guidelines).  It is best to comply or suffer a penalty, otherwise. 

7. You must submit or have been submitting/filing the Annual Financial Report.

 The guidelines said to submit a Statement of Assets and liabilities (SAL). However, you would not know what will happen in the future, so it is best to submit a complete set of Financial Statements (i.e.  Balance Sheet, Income Statement, and Cash Flow) to the BIR.  You are allowed to submit via eAFS (electronic filing).  

The government wants to make sure that you have good accounting since you‘re not paying taxes.  They want to be assured that your deductions are fully substantiated. 

8. You must have a complete and updated book of accounts 

It follows that if you have to submit financial reports your books of accounts must be complete and updated since these are the sources of the financial data for the Financial Report.  It also follows that every entry in your books of accounts must have valid attachments and be substantiated.  Logic also dictates to be compliant than be sorry in the end. 

Now, are you ready to avail of a tax exemption? This is a very good opportunity especially if you are just starting.

“A TAX IS A FINE FOR DOING WELL.  A FINE IS A TAX FOR DOING WRONG.”

Mark Twain

Author:

Socorro L. Abadier is the founder of SGL Accounting and Business Solutions. Before establishing her practice, she worked as an Internal Auditor and Branch Manager at one of the major banks in the Philippines and as an External Auditor of one of the top 4 Accounting firms in the Philippines.