The Barangay Micro Business Enterprise (BMBE) Law or Republic Act No. 9178 was enacted sometime in 2002 to encourage the growth and formation of barangay based micro-enterprises. This has long been effective, but based on our observations, only few enterprises registered and availed of the same. Under the Department Order No. 17-04 of the Department of Finance (DOF) providing guidelines, hereunder are the basic qualifications of the BMBE to qualify for income tax exemptions, exemption for minimum wage application, and other benefits:
a. Barangay based which means (a) majority of its employees are residents of the municipality of principal office location, (b) principal activity consist in the application of a skill peculiar to the locality, or business operations confined to the LGU of principal office location.
b. Micro-enterprise in nature and scope which requires that (a) its principal activity be primarily for livelihood, or determined by SMED or DTI as priority are for development or government assistance, (b) not a branch, subsidiary or division of a large-scale enterprise, and (c) its policies and business modus operandi are not determined by a large enterprise.
c. Its total assets (real or personal) not more than P3M, excluding the land of business location.
d. Engaged in manufacturing, trading, or services other than practice of profession.
e. Issued a Certificate of Authority (COA) by the LGU’s City Treasurer of principal office location within 15 days from filing complete application requirements/papers, and valid for 2 years and renewable for not more than 2 years in any instance. Details of the COA is annotated in the BIR Certificate of Registration and hereunder are the basic application requirements:
1. Entity registration papers – SEC/DTI/CDA;
2. BIR Certificate of Registration;
3. Business Permit
4. Sworn Affidavit of Owner or President on being brgy. based and micro-business;
5. Sworn statement of assets & liabilities in business or those to be used with acquisition details and support such as invoices, receipts or contracts;
6. Pictures of the place of business and its assets, except cash;
7. Copy of loan contracts and notarized certification of amortization payments, if any;
8. For existing business, BIR-filed income tax return, and
9. Duly filled out Application form with application fee of not more than P1,000.
Taxwise, BMBE is exempt from income tax with respect to its income from operations and as such, income payments to it is not subject to withholding taxes. It is however subject to business tax (3% percentage tax or 12% value added tax, whichever is applicable), and to other internal revenue taxes (e.g. documentary stamp tax, registration fees, etc.). While it is exempt from paying the minimum wage (e.g. P426/day in Metro Manila), employees salary should be reasonable enough. LGU of jurisdiction is likewise encouraged to provide reduced rates on local taxes.
Income tax exemption is quite a good factor to consider and we suggest to consider becoming a BMBE. For the purpose, we further suggest to closely coordinate with your LGU of business location.
Presently, the BMBE law is at stake for legislative amendments tending to improve and enhance its provisions, but the details of such is not yet clearly determinable. They are now conducting public hearing on strategic places for the purpose. We hope and pray for the success of the team proposing the amendments.
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.
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