Wrapping up the year: Tax compliance checklist

By: Gemma Lleva

AS 2024 draws to a close, staying informed about tax compliance requirements is essential. This year has seen the enactment of various tax reforms, introducing significant changes to tax reporting and compliance. Thus, it is crucial to remain updated on these new laws and understand their implications to mitigate potential tax exposures and penalties. Below are some important tips and reminders:

Payroll taxes

Review the tax treatment of employee compensation to determine whether it is subject to withholding tax on compensation, fringe benefit tax, or tax exemption. Ensure that tax annualization is finalized before the filing deadline for the December 2024 monthly withholding tax on compensation to determine any remaining withholding tax due or refund. This helps avoid the risk of deficiency taxes due to incorrect tax annualization.

After completing the annualization, employers must file the annual information return of income taxes withheld on compensation, or the Bureau of Internal Revenue (BIR) Form 1604-C, with an alpha list of employees, and distribute the certificate of compensation payment/tax withheld (BIR Form 2316) to employees no later than Jan. 31, 2025. The BIR Form 2316 must be signed by both the employer and the employee. For employees qualified under substituted filing, their BIR Form 2316 must be submitted to the BIR by Feb. 28, 2025.

Withholding tax

Taxpayers who withheld final taxes must file the BIR Form 1604-F (annual final withholding), with the alpha list of payees, on or before Jan. 31, 2025. On the other hand, taxpayers who withheld expanded withholding taxes are required to file the BIR Form 1604-E, with the alpha list of payees, on or before Mar. 1, 2025.

Books of Accounts

BIR Revenue Memorandum Circular (RMC) 91-2024 was issued to clarify the registration procedures under Revenue Regulation (RR) 7-2024, as amended by RR 11-2024, in relation to Republic Act (RA) 11976, also known as the Ease of Paying Taxes (EOPT) Act. According to the said RMC, books of accounts must be registered through the Online Registration and Update System (ORUS).

For new business registrants, manual books of accounts shall be registered before the deadline for filing of the initial quarterly income tax return (ITR) or annual ITR, whichever comes first. Before the pages of the manual books are fully consumed, taxpayers must register a new set of manual books with the BIR. For taxpayers registered under loose-leaf and Computerized Books of Accounts (CBAs), books must be registered within 15 days and 30 days, respectively, after the end of each taxable year, unless an extension is granted by the BIR upon the taxpayer's request before the lapse of said period.

Beyond ensuring that books are duly registered and tax returns are submitted on time, the year-end is also an ideal time to review and reconcile discrepancies between accounting books, tax returns and balances per annual alpha list of employees/payees, summary alpha list of withholding taxes (SAWT), summary of sales, purchases and importations (SLSPI) and inventory list. This provides an opportunity to adjust and correct the books or amend the tax returns, as applicable, before the completion of the statutory audit.

Additionally, taxpayers are advised to verify if the supporting documents are compliant with the Ease of Paying Taxes Act, ensure that BIR Form 2307 is collected from customers, and confirm that all expenses meet the criteria for deductibility for income tax purposes.

Other compliance requirements

• Inventory list. Under RMC 57-2015, taxpayers with inventory lists and other tangible asset-rich balance sheets — often those with at least half of their total assets in working capital assets (e.g., accounts receivable and inventory) — are required to submit this document to the BIR, in DVD-R format, properly labeled, and accompanied by a notarized certification signed by an authorized representative. This must be submitted within 30 days following the close of the taxable year.
• Renewal of business permit with the local government unit (LGU). All establishments are required to annually renew their registration with the LGU and pay the local business tax (LBT) no later than Jan. 20 in the locality where the business is registered and operates.
• Sworn statement on the use of foreign exchange (forex) rates other than the Bankers Association of the Philippines' (BAP) published rates. In compliance with RMC 12-2024, companies who elect to use forex rates other than the published rates of the BAP shall submit a notarized sworn statement to the BIR. This statement, to be submitted within 30 days prior to the start of the taxable year, must include the source of forex rates and an acknowledgment allowing the BIR access to the day-to-day forex rates used during the BIR audit.

By approaching year-end compliance with careful planning, organization and a proactive mindset, businesses can minimize errors, avoid penalties, and ensure a seamless and efficient tax filing season.

As published in The Manila Times on 23 December 2024. The author is a Director at the Tax & Legal practice of Deloitte Philippines.