MWF 11: 45-1: 10
PHILIPPINE FRANCHISE RULES
By: Businessperson PHILIPPINES (2009)
I. The franchisee should certainly withhold a 20 percent last tax upon all payments made to the franchisor, such as the initial franchise fee. The franchise payment and the regular monthly royalty obligations paid by the franchisee for the franchisor will be subject to a 20 percent final tax, based upon section 24(B) of Republic Act Number 8424, or else known as the 1997 National Internal Revenue Code (NIRC). �
The imp?t of this 20% final taxes is certainly not limited to the monthly royalties on gross sales but is likewise imposed within the initial operation fee. The Bureau of Internal Earnings (BIR), through BIR Ruling No . 002 dated January 4, 1990, has identified " royalties” to indicate the following: (a) " repayment of all kinds received as a consideration when you use or the directly to use virtually any copyright of literary, artistic or scientific work, including cinematographic films or heurt used for a radio station or tv set broadcasting, virtually any patent, trademark, design or model, program, secret formula, or process or other just like right or property”; and (b) " gains derived from the sale, exchange, or different disposition of any such right or home which are contingent on the productivity, use, or perhaps disposition. ”� � �
Under Section 57 (A) of the NIRC, the franchisee is the " payor” and it is thus constituted as the withholding agent. As the withholding agent, the franchisee is responsible for withholding the equivalent of 20 percent from portions paid while franchise fees or royalties. Failure for the franchisee to keep back and remit this tax may subject the franchisee to legal and detrimental penalties under the NIRC beyond the payment of the tax.
2. The franchisee may choose from registering as a VAT taxpayer or being a percentage taxpayer. The standard rule is that any person who have, in the course of transact or organization, sells, barters, exchanges, leases goods or perhaps properties, makes services, or perhaps imports products shall be...