UH OH

I don’t think you can truly say you’re in business until you’ve received one of these dreaded letters from the BIR. It’s almost like a rite of passage—one that comes with a mix of panic, confusion, and the immediate urge to call your accountant.

Welcome to the real horror story of doing business in the Philippines.

I’ve received two of these since becoming a real estate broker 10 years ago. And if there’s one thing I’ve learned, it’s that ignorance is not bliss when it comes to taxes. Here are some hard-earned lessons I’ve picked up along the way:

1.⁠ ⁠Know your taxes—what applies to you and how they’re computed.

Most of us rely entirely on our accountants, often without understanding our own tax obligations. For instance, I’ve found that 90% of the people I’ve spoken to don’t actually know how Withholding Tax is computed. Take the time to sit down with your accountant or a tax expert. Honestly, this should be taught in schools.

2.⁠ ⁠Once you register with the BIR, reports are required—monthly and quarterly.

Even if your business isn’t operational, you still need to file “No Income” reports. Skipping these filings could mean accumulating penalties without you even realizing it.

3.⁠ ⁠Non-VAT entities are less scrutinized than VAT entities.

If you’re unsure whether to register as VAT or Non-VAT (especially if your revenue projections aren’t clear yet), always start as Non-VAT. It’s easier to upgrade to VAT later than to downgrade.

4.⁠ ⁠Set aside at least 10% of your top line for unexpected tax penalties.

Even with the most meticulous bookkeeping, the BIR might still find something to penalize you for. Having a buffer can save you from a financial shock down the line.

But you know what’s even scarier?

If you’ve been in business for years and haven’t received a single letter from the BIR. That might not mean you’re in the clear—it could mean you’ve been unknowingly racking up penalties (which grow at a whopping 20% per year).

One way to check? Request an Open Case Report from the BIR. But fair warning—once you do, your file goes straight to the top of their list.