Guidelines to Implement the Registration of BMBE and the Availment of Tax Incentives under RA 9178

April 20, 2004

DOF ORDER NO. 17-04

GUIDELINES TO IMPLEMENT THE REGISTRATION OF BARANGAY MICRO BUSINESS ENTERPRISES AND THE AVAILMENT OF TAX INCENTIVES UNDER R.A. 9178, OTHERWISE KNOWN AS THE "BARANGAY MICRO BUSINESS ENTERPRISES (BMBEs) ACT OF 2002"

RULE 1

Preliminary Provisions

SECTION 1. Declaration of Policy. — As stated in Section 2 of R.A. 9178 (the "Act"), it is the policy of the State to hasten the country's economic development by encouraging the formation and growth of barangay micro business enterprises which effectively serve as seedbeds of Filipino entrepreneurial talents, and integrating those in the informal sector with the mainstream economy, through the rationalization of bureaucratic restrictions, the active intervention of the government specially in the local level, and the granting of incentives and benefits to generate much-needed employment and alleviate poverty. CEaDAc

SECTION 2. Supplementary Rules and Regulations. — Pursuant to Section 15 of the Act, the Secretary of Trade and Industry issued Department Administrative Order No. 01, Series of 2003, prescribing the Rules and Regulations implementing the Act (the "Implementing Rules"). Among others, the Implementing Rules provide:

"Sec. 3. Place of Registration. — The Office of the Treasurer of each City or Municipality shall register BMBEs and issue a Certificate of Authority (CA) to enable the BMBE to avail of incentives under the Act; Provided that only one Certificate of Authority shall be issued for each BMBE and only by the Office of the Treasurer of the City or Municipality that has jurisdiction over the principal place of business of the BMBE.

xxx xxx xxx

"Sec. 9. Exemption From Taxes and Fees. — All BMBEs shall be exempted from income tax for income arising from the operation of the enterprise."

Interest, commissions and discounts derived from the loans by the Land Bank of the Philippines (LBP), Development Bank of the Philippines (DBP), People's Credit and Finance Corporation (PCFC) and Small Business Guarantee and Finance Corporation (SBGFC) granted to BMBEs as well as loans extended by the Government Service Insurance System (GSIS) and Social Security System (SSS) to their respective member-employees under the Act shall also be exempt from gross receipts tax ("GRT").

SECTION 3. Objective. — The Office of the Treasurer and the Bureau of Internal Revenue are under the supervisory authority of the Department of Finance. Accordingly, this Department Order is hereby issued to provide guidelines and procedures in:

(a) the registration of barangay micro business enterprises (BMBEs) by the Office of the Treasurer of each city or municipality and the issuance of a Certificate of Authority;

(b) the periodic evaluation of the BMBEs' financial status for monitoring and reporting purposes;

(c) the exemption from income tax of BMBEs for income arising from the operations of the enterprise; and

(d) the exemption from gross receipts tax (GRT) of interests, commissions and discounts derived from the loans by the LBP, DBP, PCFC and SBGFC granted to BMBEs as well as loans extended by the GSIS and SSS to their respective member-employees who wish to establish BMBEs.

RULE 2

Registration of BMBEs

SECTION 1. Who Can Register as a BMBE. — One can register as a BMBE if it is a business entity or enterprise, whether operated as a sole proprietorship or a corporation, partnership, cooperative or association, organized/incorporated and existing under Philippine laws:

(a) Engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, and which activities are barangay-based and micro-business in nature and scope: Provided, That "services" shall exclude those rendered by (i) natural persons who are duly licensed by the government after having passed a government licensure examination in connection with the exercise of one's profession, and (ii) juridical persons such as partnerships or corporations engaged in consultancy, advisory and similar services where the performance of such services are essentially carried, out through licensed professionals; and

(b) Whose total assets, real or personal, inclusive those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated, shall not be more than Three Million Pesos (P3,000,000.00) or as may be adjusted by the Small and Medium Enterprises Development (SMED) Council as mandated under R.A. 6977 as amended by R.A. 8289: Provided, That for the purpose of registering as a BMBE, the assets must be owned and used for the conduct of its business as such BMBE.

A business enterprise shall be considered "barangay-based" if (i) the majority of its employees are residents of the municipality where its principal place of business is located; or (ii) its principal activity consists in the application/use of a particular skill peculiar to the locality or of raw materials predominantly sourced from the area; or (iii) its business operations are confined within the territorial jurisdiction of the municipality or LGU in which its principal place of business is located: Provided, however, That the enterprise may establish warehouses, buying stations, sales outlets, and booking or administrative offices anywhere in the Philippines, subject to pertinent rules and registration requirements of the concerned, LGUs and other government agencies where such warehouses, outlets, stations or offices are established.

It shall be considered "micro-business in nature and scope" if: (i) its principal activity is primarily for livelihood, or determined by the SMED Council or DTI as a priority area for development or government assistance; (ii) the enterprise is not a branch, subsidiary, division or office of a large scale enterprise; and (iii) its policies and business modus operandi are not determined by a large scale enterprise or by persons who are not owners or employees of the enterprise. BenchStat

SECTION 2. Valuation of Assets. — Cash consisting of Philippine currency shall be valued at actual currency value; if in foreign currency, it shall be valued at the official exchange rate as prescribed by the Bangko Sentral ng Pilipinas. Other assets shall be generally valued at acquisition or historical cost, net of a reasonable amount for depreciation as determined under GAAP if the asset is depreciable, or book value, whichever is higher. Real property shall be valued at acquisition cost, net of depreciation; however, if no sufficient proof is submitted as to its acquisition cost, the same shall be valued at current zonal value as established by the BIR.

SECTION 3. Documents to be Submitted by the Applicant-Business Entity or Enterprise. — To determine the value of the assets of the business entity or enterprise applying for registration as a BMBE, the Office of the City or Municipal Treasurer shall require the submission of the following documents, together with the duly-accomplished Application for Registration or BMBE Form 01:

(a) For a new applicant:

1) Registration as a business entity or enterprise from the appropriate government agency (e.g., Securities and Exchange Commission (SEC) registration in the case of corporation, partnership or association; Cooperatives Development Authority (CDA) registration in the case of cooperative; Department of Trade and Industry, (DTI) business name registration in the case of sole proprietorship);

2) Taxpayer Identification Number (TIN);

3) Certificate of Registration from the Bureau of Internal Revenue (BIR);

4) Mayor's Permit or City/Municipal Business Permit;

5) Sworn affidavit executed by the sole proprietor or the President of the enterprise, as the case may be, that the enterprise is barangay-based and micro-business in nature and scope, in substantially the form attached as Annex "A"; CIHTac

6) Sworn Statement of Assets and Liabilities showing the values of assets owned and to be used in the conduct of business, which shall be supported by pertinent information such as the date of acquisition, acquisition cost and depreciated value. In case of asset acquired during the year of registration, it shall be supported by any of the following:

i) invoice

ii) official receipt

iii) contract document or deed

7) Pictures of the place of business and its assets, other than cash, receivables and intangibles;

8) Copy of Loan Contract/s, if any, and Duly-Notarized Certification of Amortization Payments on the Loan; and

9) Income Tax Return (ITR) with proof that it has been duly filed with the BIR, including attachments, if any, (for an existing business only).

(b) For renewal of registration:

1) Documents listed in Section 3(a)(1) to (8), inclusive; and

2) Annual Information Return (for the year immediately preceding the renewal of registration) duly filed with the BIR, together with its attachments.

The application for registration shall not be processed by the Office of the Treasurer until all documentary requirements as above set forth have been submitted.

SECTION 4. Verification of Qualifications. — The City or Municipal Treasurer must conduct a verification of the physical existence of the business and the true amount of its assets. A sworn certification that such a verification has been conducted shall be executed by the Treasurer and shall form part of the records of each application for registration.

SECTION 5. Issuance of Certificate of Authority. — After determining the eligibility of the business entity or enterprise, the Office of the City or Municipal Treasurer shall register the business entity or enterprise as a BMBE and issue a Certificate of Authority using BMBE Form 02. The CA shall be effective for a period of two (2) years, subject, however, to Sec. 8 of this Rule, and renewable for a period of two (2) years for every renewal. The Treasurer shall indicate in the CA the date when the registration of the BMBE commences.

The Office of the Treasurer shall issue the CA promptly and free of charge, unless a fee therefore, not exceeding One Thousand Pesos (P1,000.00), is imposed by the LGU concerned through a properly enacted ordinance.

SECTION 6. List of Registered BMBEs to be Furnished to the BIR. — The Office of the City or Municipal Treasurer shall furnish the Revenue District Officer/s of the Bureau of Internal Revenue (BIR) in the locality concerned, on a quarterly basis, using a form prescribed by the Bureau, a list of all registered BMBEs of good standing. The List of Registered BMBEs shall be one of the bases of the BIR in granting income tax exemption to a BMBE.

SECTION 7. Periodic Evaluation. — The Office of the City or Municipal Treasurer shall conduct an evaluation and verification of the BMBE's financial status, including the actual amount and condition of its assets, for monitoring and reporting purposes within 30 days from the close of the year after a BMBE's initial registration, and within 30 days from the close of each ensuing year. The evaluation and verification of the BMBE's financial condition shall include, but not be limited to, the conduct of ocular inspection of the place of business including its assets.

The respective officials of the City or Municipal Treasurer conducting the verification must have written authority from the City or Municipal Treasurer. The written authority should include, among others, the name of the official/s who will conduct the verification, the address of the place of business to be verified, and the duration of the written authority, which should not exceed a period of one week from the date of its issuance.

SECTION 8. Cancellation of Registration. — The Office of the City or Municipal Treasurer shall cancel the registration of a BMBE for cause, such as:

(a) When the BMBE transfers its place of business to another locality;

(b) When the value of its total assets as determined pursuant to this Order exceeds Three Million Pesos (P3,000,000.00);

(c) When the BMBE voluntarily surrenders its Certificate of Authority to the Office of the City or Municipal Treasurer;

(d) In case of death of the registered individual owner of the BMBE, if it is a sole proprietorship;

(e) In case of violation or non-compliance with the provisions of R.A. 9178, the Implementing Rules and this Order;

(f) In case of merger or consolidation with an entity which is not eligible to be a BMBE;

(g) In case of sale or transfer of the BMBE, if it is a sole proprietorship, without prejudice to the transferee applying for registration should it be qualified under the terms of this Order;

(h) Submission of fake or false or falsified documents;

(i) In case of retirement from business, or cessation/suspension of operations for one year; and

(j) Making false or omitting required declarations or statements.

In cases of (a) violation or non-compliance with the provisions of RA 9178, (b) submission of fake or falsified documents, and/or (c) making false or omitting required declarations or statements, the City or Municipal Treasurer should initiate the filing of appropriate criminal complaints before the Office of the Public Prosecutor.

In a cancellation of registration, the BMBE shall surrender its Certificate of Authority to the Treasurer.

The Treasurer shall immediately notify the BIR of any cancellation of registration of BMBE.

SECTION 9. Special Window. — The Office of the City or Municipal Treasurer is hereby directed to provide and clearly identify a special window or desk where applications for registration as BMBEs should be filed.

RULE 3

Guidelines in the Availment of Income Tax Exemption

SECTION 1. Exemption from Income Tax. — A duly registered BMBE shall be exempt from income tax on income arising purely from its operations as such BMBE: Provided, That this income tax exemption shall not apply to the following:

(a) Interest, including those from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements;

(b) Royalties;

(c) Prizes and other winnings;

(d) Cash and/or property dividends;

(e) Capital gains from the sale of shares of stock not traded through the stock exchange;

(f) Capital gains from the sale or other disposition of real property;

(g) The share of an individual in the net income after tax of an association, a joint account, or a joint venture or consortium; ITaCEc

(h) The share of an individual in the distributable net income after tax of a taxable partnership of which he is a partner;

(i) Income from the practice of profession received directly from the clients or from the professional partnership of which the individual is a partner;

(j) Compensation; and

(k) All other forms of passive income and income from revenues not effectively connected with or arising from operations of the BMBEs as such.

SECTION 2. Determination of the Value of Assets of the BMBE for Income Tax Exemption Purposes. — For the purpose of exemption from income tax, the total assets of the BMBE, which shall not exceed Three Million Pesos (P3,000,000.00), shall include all kinds of properties, both personal properties and real properties (but excluding land on which the particular business entity's office, plant and equipment are situated) that are owned and used/to be used, or even if not owned but used/to be used, by the BMBE and/or its affiliates for the conduct of its/their business/es: Provided, That the term "affiliate" shall refer to any person or business enterprise/entity that, directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the BMBE concerned. The rules provided in Sec. 36 (B) of the National Internal Revenue Code shall be used in determining whether such affiliation exists, and the rules prescribed in Sec. 127 (B) of the same Code for stock attribution shall be used in determining beneficial ownership of an incorporated enterprise: Provided, further, That the value of the assets of the BMBE for the purpose of this Section shall be determined in accordance with the valuation rules set forth in Rule 2, Sec. 2 hereof.

SECTION 3. Availment of Tax Incentives. — For purposes of availing of the tax incentives, the BMBE shall register as such BMBE with the BIR RDO where the principal office or place of business of the BMBE is located. Its application for registration shall be supported by the following documents:

(a) Copy of the BMBE's Certificate of Authority duly authenticated by the Office of the City or Municipal Treasurer;

(b) Sworn Statement of the values of assets owned and/or used/to be used by the BMBE and/or its affiliates reflecting the current values thereof. The Sworn Statement shall be supported by pertinent information and documents such as:

1) Acquisition cost, date of acquisition and depreciated value for existing assets

2) Invoices and/or official receipts for newly-acquired assets not yet depreciated;

3) Duly-notarized copy of Contract of Lease for assets used in the conduct of business covered by lease agreement; and

4) Copy of Loan Contracts, if any, and Duly-Notarized Certification of Amortization Payments on the Loan

(c) Certified list of branches, sales outlets, places of production, warehouse and storage places, or such other facility owned and/or operated by the BMBE indicating their respective addresses, whether located in the same municipality or city where the principal place of business is located, or elsewhere.

(d) Certified list of affiliates, indicating addresses, line, of business and responsible officers thereof;

(e) Latest Audited Financial Statement, or Account Information Form or its equivalent containing data lifted from audited financial statements.

If the BMBE is currently registered with the BIR under or pursuant to existing registration rules and regulations, its registration as a BMBE shall be duly recorded by the BIR in the pertinent registration file of the BMBE, and its registration certificate be accordingly amended to reflect its registration likewise as a BMBE. If the BMBE has not been registered under or pursuant to existing registration, the BMBE shall register for each type of internal revenue tax, except income tax, but including withholding taxes for which it is liable.

For purposes of exemption from the creditable withholding tax on income payments, the BMBE shall furnish its customers with a certified true copy of its amended BIR registration certificate.

If a BMBE is also entitled to exemption from income tax under any law other than the Act, it shall so state this fact in its registration form and indicate whether it shall avail itself thereof or the privilege under the Act. The choice so made shall bind the BMBE for the entire period of validity of its registration with the BIR. No BMBE shall be allowed double or multiple availment of income tax exemption privileges.

An annual registration fee in the amount of Five Hundred Pesos (P500.00) shall be paid by a BMBE upon its registration as such, and every year thereafter on or before the last day of January: Provided, however, That a BMBE which is in the form of a cooperative or a marginal income earner as defined in Revenue Regulations No. 11-2000 shall be exempt from payment of this registration fee.

The registration fee shall be paid to an authorized agent bank (AAB) located within the revenue district or, in places where there are no AABs, to the Revenue Collection Officer (RCO), or duly authorized Treasurer of the City or Municipality where the principal place of business is registered.

SECTION 4. Filing of Annual Information Return. —

(a) Requirements. — Every BMBE entitled to full income tax exemption is required to file an Annual Information Return, together with an Account Information Form, or its equivalent, containing data lifted from audited financial statements and a sworn statement of assets owned and/or used in business.

(b) Where to File. — Except in cases where the Commissioner otherwise permits, the return shall be filed with the Revenue District Officer or the Revenue Collection Officer or the duly authorized Treasurer of the city or municipality in which the BMBE has its principal place of business.

(c) When to File. — The Return specified above shall be filed on or before the fifteenth (15th) day of the fourth month following the close of the taxable year.

SECTION 5. Revocation of Income Tax Exemption Privilege. — The BIR shall revoke the income tax exemption privilege of a BMBE for any of the causes set forth in Rule 2, Sec. 8 hereof. The BIR shall notify the BMBE in writing of its findings and require it to pay the corresponding income tax, without prejudice to the filing of administrative or criminal complaints if warranted.

The BIR shall notify the Office of the City or Municipal Treasurer concerned of its action, whereupon the City or Municipal Treasurer shall make a determination within fifteen days from receipt of the BIR's notice, whether the BMBE's Certificate of Registration issued by the Treasurer must likewise be cancelled.

SECTION 6. Applicability of Other Internal Revenue Taxes and Compliance Requirements. — A BMBE shall be subject to all other taxes and compliance requirements prescribed under the National Internal Revenue Code (NIRC) of 1997, as amended, and its implementing rules and regulations. It shall also update its registration information/status with the BIR in case it or any of its affiliates transfers its principal place of business, any other offices, or branches. EHITaS

RULE 4

Guidelines on the Availment of Exemption from Gross Receipts Tax

SECTION 1. Exemption from Gross Receipts Tax. — Interests, commissions and discounts derived from the loans granted by the LBP, DBP, PCFC and SBGFC to duly-registered BMBEs, as well as loans extended by the GSIS and SSS to their respective member-employees for the purpose of establishing BMBEs, shall be exempt from gross receipts tax (GRT).

SECTION 2. Disqualification from GRT Exemption. — In case the amount of loan extended by the above-mentioned credit institution/s to a BMBE borrower resulted to the BMBE's total assets exceeding the P3 million asset threshold, the said credit institution/s is/are disqualified to enjoy exemption from GRT.

SECTION 3. Reportorial and Documentary Requirements. — To avail of the exemption, certified copy of the BMBE's registration with the BIR as such BMBE shall be submitted to the lending institution concerned. The BIR shall also devise a reporting scheme to be followed by all concerned credit institutions on all loan transactions with BMBEs for purposes of availing the GRT exemption within thirty (30) days from the effectivity of this Order.

RULE 5

Public Information Campaign

SECTION 1. Conduct of Public Information Campaign. — The Bureau of Internal Revenue and all its Revenue Region and District Officers, the Bureau of Local Government Finance and all its Regional Directors, all District Treasurers of Metropolitan Manila, and all City and Municipal Treasurers are hereby instructed to hold public information campaigns to inform the BMBEs in their respective jurisdictions about the specific provisions of this Order immediately after the signing of this Order and until the time for the filing of the 2003 income tax return in April 2004.

Thereafter, said officials are encouraged to hold public information drives as deemed necessary in order to promote the objectives of the Act and this Order.

The implementing agencies are instructed to provide public information desks to address queries regarding the BMBE Act of 2002.

In addition, the agencies should coordinate with one another in coming up with a standard leaflet or brochure containing, among other information, the basic features of the BMBE Act of 2002, frequently asked questions and answers on the implementation thereof, and the flow of processing of documents including the list of requirements for registration as a BMBE.

RULE 6

Final Provisions

SECTION 1. Repealing Clause. — All existing rules and regulations or parts thereof which are inconsistent with the provisions of this Order are hereby repealed, modified or amended accordingly.

SECTION 2. Reports. — The Treasurers and the BIR shall strictly enforce the provisions of this Order. They shall render an annual report to the Secretary of Finance, copy furnished the Secretary of Trade and Industry, on their implementation of the Act, conformably with this Order. Such report shall contain, among others, the following:

(a) The names and addresses of BMBEs so accredited or registered for the period; their line of business; their owners or stockholders, and key officers; and their asset base;

(b) The amount of income for which exemption from income tax was availed of;

(c) The amount of interest, commissions and discounts from which exemption from the GRT was availed of; and

(d) The annual gross income derived by the BMBEs.

SECTION 3. Effectivity. — This Order shall take effect after the 15th day following its publication in a newspaper of general circulation.

Signed on this 20th day of April, 2004, Manila, Philippines.

 

(SGD.) ANITA D. AMATONGSecretary of Finance