This report dives into one of the key incentives offered by the Philippine government to Barangay Micro

Business Enterprises (BMBEs):

The report will explore the specific details of this exemption, including:
●​ Who qualifies as a BMBE
●​ What income is exempt from taxation
●​ The procedures for claiming the exemption
●​ Limitations and conditions of the exemption

What are the incentives granted to BMBEs?

Registered BMBEs can avail of the following incentives:
●​ Income tax exemption for income arising from the operation of the enterprise;
●​ Exemption from the coverage of the Minimum Wage Law (BMBE employees shall be entitled
to the same social security and health care benefits as other employees);
●​ Priority to a special credit window set up specifically for the financing requirements of BMBEs;
and
●​ Technology transfer, production and management training, marketing assistance
programs for BMBE beneficiaries;

The LGUs are also encouraged either to reduce the amount of local taxes, fees and charges
imposed or to exempt the BMBEs from local taxes, fees and charges

Income Tax: The BMBE is exempt from income tax on its income derived from operations.

BMBEs are not required to pay income tax on any profits generated from their core business activities.
This significantly reduces their tax burden and allows them to reinvest more of their earnings back into the
business for growth.

Example:
You have a registered BMBE na bakery named “Sweet treats”. With a profit of 100,000 and then less
expenses na 70,000. So net profit mo 30,000

Income Tax Exemption: Because you're a registered BMBE, this P30,000 profit is exempt from income
tax.
Without the BMBE exemption, you might have to pay a percentage of that P30,000 profit to the
government in income tax. But as a BMBE, you get to keep the entire P30,000.

This exemption allows you to:

●​ Reinvest Profits: Use the full P30,000 for your bakery's growth. You could buy new equipment,
expand your menu, or hire more staff.
●​ Increase Savings: The extra income can be saved for future needs or emergencies.
●​ Lower Overall Tax Burden: BMBEs may still have other taxes to pay,
but the income tax exemption significantly reduces your overall tax obligations.
Remember: While BMBEs are exempt from income tax on business operations, they might still be subject
to other taxes depending on their location and business activities.
Ex: Local Business Taxes and Fees.
Permits and Licenses
○​ Barangay Fees: Barangays (the smallest local government unit in the Philippines) might
impose fees on businesses operating within their boundaries.
○​ Withholding Taxes: SSS, Pag-ibig and Philhealth

Availment of the Tax Incentive: 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.

Claiming the exemption:

●​ To qualify for this exemption, a business must register as a BMBE with the BIR RDO.
●​ And submit the required requirements

Upon its application for registration shall be supported by the following documents:

a. Copy of the BMBE's Certificate of Authority Office of the City or Municipal Treasurer; duly
authenticated by the Statement of the values of assets owned and/or used/to be used.

This means the Certificate of Authority is accompanied by a statement outlining the value of the
BMBE's assets.

This document, issued by the Office of the City or Municipal Treasurer, proves the BMBE has already
been registered and holds a valid Certificate of Authority.

b. Sworn the BMBE and/or its affiliates reflecting the current values thereof. The Sworn Statement
shall be supported by pertinent information and documents such as:

This is a sworn document signed by the BMBE owner(s) or authorized representative detailing the current
value of the business's assets.

The statement requires supporting information and documents to verify the accuracy of the declared
asset values. These include:
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 facilities 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.
registration process for BMBEs with the Bureau of Internal Revenue (BIR):

●​ Already registered BMBEs:

○​ The BIR will simply update their existing registration to reflect their BMBE status.
○​ Their registration certificate will be amended to show their BMBE status.
●​ New BMBEs:
○​ They need to register for all applicable internal revenue taxes, except income tax.
○​ This includes withholding taxes they are liable for (e.g., taxes on employee salaries).

Not Covered: This exemption, however, does not cover the following:

1. Final Tax/Income tax due on the following income:

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;
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. (Sec. 1, Rule 3, DOF DO No. 17-04)

2. Business Taxes - while the BMBEs are exempt from income tax, they are, however, still subject to the
applicable business taxes, i.e., percentage tax/VAT/excise tax.

While BMBEs are exempt from income tax on their profits, they are still subject to other applicable
business taxes:
●​ Percentage tax: This tax applies to BMBEs with annual sales or receipts not exceeding PhP
550,000. It's a flat rate tax calculated on their gross sales or receipts.
●​ Value Added Tax (VAT): This is a tax imposed on the sale of goods and services. BMBEs that
exceed the annual sales threshold for VAT registration (currently PhP 3 million) are required to
register for VAT and collect it from customers on taxable sales.
●​ Excise tax: This tax is levied on specific goods or services, such as cigarettes, alcoholic
beverages, and petroleum products. BMBEs that sell or deal in excise tax-exempted goods or
services are not liable for this tax.
Therefore, even though BMBEs enjoy income tax exemption, they still need to comply with other relevant
business tax requirements based on their specific business activities and annual sales figures.

*3. Annual Registration Fee - 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.

BMBEs are required to pay a yearly registration fee of 500 Philippine Pesos (PhP). This fee needs to be
paid:
●​ Upon initial registration as a BMBE
●​ Every year thereafter, on or before January 31st

However, there are two exemptions:

●​ Cooperatives
●​ BMBEs classified as "marginal income earners" under Revenue Regulations No. 11-2000
(typically businesses with annual sales not exceeding PhP 100,000)
●​ Cooperatives and BMBEs with annual sales below PhP 100,000 are exempt from the annual
BMBE registration fee of PhP 500.
●​ For other BMBEs, the fee must be paid upon initial registration and every year thereafter by
January 31st.
4. Withholding Tax - while income of the BMBEs is exempt from income tax and consequently the
withholding tax, they are still considered withholding tax agents for their income payments and are liable
to withhold and remit the applicable withholding taxes on the same.

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.

BMBEs are exempt from paying income tax on their own income. However, they still have responsibilities
as withholding tax agents when making certain payments.

What it means:
If a BMBE makes income payments to individuals or entities (e.g., employees, freelancers, suppliers),
they are required to withhold a specific portion of these payments as tax.
This withheld tax then needs to be submitted to the BIR (Bureau of Internal Revenue) on behalf of the
recipient.

Claiming exemption:
When a BMBE makes such payments, they can claim an exemption from the "creditable withholding tax"
by providing the recipient with a certified copy of their amended BIR registration certificate.

creditable withholding tax- advance payment of the payee's income tax liability.
This certificate proves their BMBE status and allows the recipient to claim a tax credit for the withheld
amount.

While BMBEs benefit from income tax exemption, they still act as tax collectors for certain income
payments, withholding and remitting taxes to the BIR. The provided certificate helps recipients claim their
tax credit.