CHAPTER V

LEGAL AND TAXATION ASPECT

One of the commanding parts of a business enterprise is the legal and taxation

aspect. These certify that the business is legally approved by law to operate as an

economic entity. It specifies various legal necessities that the planned development

should observe with and simplifies the different taxes that it will be subjected to.

Moreover, the business should be profound in determining how much and when to pay

its tax obligations. With the support of business operators especially taxpayers, the

government would adequately delegate the much needed services to its residents.

Thus, the effects of these aspects of a business should be carefully assessed and be

given an acceptable deliberation to make sure that the certainty of the business is in

accordance with the law. Moreover, the government has the right to legislate obligatory

involvements to any of its accomplishments that will affect the public. A business is

considered effective in the eyes of the act if it has been able to track certain

requirements in its presentation to work as a business organization. It is the concern of

the business owner to secure the essential documents and arrangements to apply

lawfully the entity. As a result, it protects the organization from obligations such a (as)

penalties.

LEGAL ASPECT

The law oversees the general procedures of the legality of a business

organization. The legitimacy of a business is required all throughout its existence. Legal
matters concerning its actuality should always be addressed for it to be continuous and

successful. Moreover, objectivity is a (an) element and a plus in contradiction of other

industries for this would contribute assurance to prospective customers of (a) well and

better products and services. Business is illegal and the prospective owner would be

penalized if there is a failure of compliance. Therefore, it must not be contrary to law,

morals, good custom, public policy and public order.

Registration of Business Name

A business entity is considered to be legal if it is registered and has fully

complied with the necessary requirements set forth by the duly authorized government

agencies. This would enable the business to freely operate under the limitations laid

down by (the) government.

The Enorka Company is a sole proprietorship and the Department of Trade and

Industry (DTI) is in authority for the registration of the business.

Business name registration is an obligatory requirement and must be

accomplished before the commencement of the business. The registration substantiate

that there is no other individual or business entity may legally use the same name of the

enterprise recorded anywhere in the Philippines

Registration to the DTI

Department of Trade and Industry (DTI) is the agency responsible for the

approval and registration of business name. This is important for the business to be

publicly known and to make sure that no other business establishments carry the same
name, that it is unique and distinct from any existing businesses. The requirements for

the registration of the business name are the following:

The following are the requirements for DTI business registration.

1. Obtain application forms (duplicate copy) and fill these up completely. Only the

owner of the business or his/her Attorney-in-Fact (who is authorized in a proper

legal instrument) is authorized to sign all the forms.

2. Meet the following requirements (For Single Proprietorship):

a. Must be a Filipino citizen, at least 18 years old. Filipinos with names

suggestive of alien nationality must submit any of the following proof of

citizenship: birth certificate, PRC ID, voter’s ID, or valid passport. If the applicant

has acquired Filipino citizenship by naturalization, election, or by other means

provided by law, he must submit any of the following proof of his Filipino

citizenship: naturalization certificate and oath of allegiance, card issued by the

Bureau of Immigration and Deportation and affidavit of election, or ID card

issued by the Bureau of Immigration and Deportation.

b. Certain types of business may have other requirements such as service and

repair shops, real estate brokers, dental/medical clinic/hospitals, pawnshops,

manpower services, engineering/architectural services and other services

provided by professionals.
 3. Submit (an) application form to the DTI Processor. The DTI Processor will check

if the Business Name is still available, if yes, you will be asked to pay the

application fee.

4. Pay the required registration and processing fee.

Securing Permits and Licenses

Permits must be availed first for a certain business to function legally its

operation. (The business) Business permit shall be acquired at the City Treasure’s

Office of Talisay City. The permit is renewable and must be filed annually. The following

are the requirements in obtaining business permits:

Mayor’s Permit

It certifies that the business is lawfully allowed to operate in the City of

Talisay having complied with all the necessary legal requirements. This permit is

obtained from the Mayor’s office in the city where the proposed business is

situated with a fee of P500.00, renewable every year. In applying for a Mayor’s

Permit, the following are the requirements:

1. Cedula or Residence Certificate

2. Barangay Clearance

3. DTI Registration

4. Sanitary Permit

Barangay Clearance
 Barangay clearance is obtained from the Barangay where the proposed

business will be established, in this case (case,) Barangay Biasong, Talisay City,

Cebu. The owner shall pay P50.00 as the cost of such document. It will certify

that the owner of the said business has no record of criminal irregularities and

has a good moral character.

Police Clearance

This clearance will certify that a person has no criminal record in the police

department of Talisay City Station and that the person is of good moral

character, this clearance will cost P100.00.

The following requirements are needed in applying for the clearance:

1. Barangay Clearance

2. Cedula or Residence Certificate of the applicant

3. Two 2”x2” picture of the owner

Sanitary Permit

This permit will serve as a proof that the proposed project depicts

wellness, proper disposal of wastes and sanitation. Moreover, it certifies that the

business has passed the inspection conducted by the health inspector. The

permit can be obtained at the Talisay City’s Sanitary Office for P60.00 which is

renewable every year.

Building Permit
 A building permit can be obtained from the Office of the Building (OBO).

Requirements for applying a building permit:

1. Certified true copy of Original Certificate of Title (OCT)/TCT on file with the

Registry of Deeds

2. Photocopy of tax declaration

3. Building permits application form

4. Five (5) sets of design plans, survey plans, specifications and other related

documents. (i.e., architectural documents, civil/structural reports, plumbing

documents, electronics records, geodetic documents, and clearance from the

CPDO)

5. Location clearance from the CPDO

Fire and Safety Clearance

The Fire and Safety Department is one who issues a certificate which

serves as a proof that the prospective building to be acquired has complied with

all the necessary safety requirements. The certificate will cost P20.00.

Business Permit Fee

The business permit fee will be based on the amount of the capital.

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Zoning Clearance
 The zoning clearance can be obtained after accomplishing all the

requirements such as the Barangay Clearance. The zoning clearance can be

obtained from the City Planning and Development Office.

Registration on Department of Labor and Employment

Department of Labor and Employment is mandated to process the application for

registration of workers’ association organized for the mutual aid and protection of its

members or for other legitimate purposes. Every employer is required to register his/her

business to the Regional Labor Office. Such organization complies with the

documentary requirements prescribed under Rule 3 and 4 of DOLE Department Order

No. 40-03, as amended.

To register with DOLE the company must submit the following requirements:

1. Registration form DOLE-BWC-IP-3 in three copies to the Regional Labor

Office or authorized representatives.

2. Duly accomplished and notarized Application Form

3. Minutes of Organizational Meeting and Attendance Sheet.

4. List of Members

5. Financial Report if in existence for at least (1) year.

6. If less than 1 year, and has not collected any amount, a certification to this

effect.

7. Constitution and by-laws accompanied by the names and signatures of

ratifying members.
 8. Attach layout plan of the place of work floor by floor, in a scale of 1:100

meters white or blueprint, showing all the physical features of the workplace

including storage, exits, aisles, machinery, clinic, emergency devices, and

location.

Bureau of Internal Revenue Registration

The Bureau of Internal Revenue (BIR) is a government-owned agency which is

authorized by law to assess and collect all national internal revenue taxes and to

enforce all forfeitures and penalties. Every business has to register with the BIR for

taxation purposes. The Bureau will furnish the business with its own tax identification

number (TIN) and the authority to print receipt, invoices, and others. Any person who

wants to engage in any form of business shall register with the Revenue District Office

(RDO) within ten (10) days from the formation of the business. The following

requirements are to be secured:

● Application for registration (BIR FORM NO. 1901)

● Payment Form (BIR FORM NO. 0605)

● Registration Fee of Php 500.00

● Documentary Requirements

✓ Mayor’s Permit

✓ Sketch of the business location

✓ Birth certificate or any valid identification, if single

✓ Marriage contract, if married

✓ DTI Business Name Certificate or Registration

✓ One journal book

Social Security System (SSS) Membership

In compliance with Republic Act 8282 or the Social Security Act, it is mandatory

for the prospective implementer to register his employees with the Social Security

System. This participation gets to its individual members funds for security and different

advantages.

The requirements for registration are the following:

● First Time Applicants

✓ SSS Registration Form E-1 (Personal Record)

✓ Birth Certificate/ Baptismal Certificate (Original or certified

true copy and photocopy)

In the absence of the above documents, any of the following documents:

✓ Passport

✓ Driver’s License

✓ PRC Card

✓ GSIS membership card

✓ Employment record

✓ Voter’s ID or School record

The original or certified true copies of the documents should be presented to

the SSS for authentication purposes.

● For Employers

✓ SSS Form R-1 (Employer Registration)

✓ SSS Form R-1A (Employment Record)

✓ SSS Form E-1 (Personal Record) together with the general

requirements stated above

Philippine Health Insurance Registration

Each business sector must be a part of the Phil Health Program as a requisite of

the law upon application with the Social Security System. This program responses

(would respond) not only for the health care (healthcare) services of the employers but

also of the employees. The following are the necessary requirements needed for

registration:

● Employer Data Record ER1 Form

● MIA Form (Member Data Record)

● For newly formed establishment who are not yet issued Phil Health

Employer Member, submit any of the following documents whichever is

applicable:

✓ Business license Permit for single proprietorship

✓ License to operate for all employees

✓ DTI Business Name Certificate or Registration

Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industria at Gobyerno Registration

In accordance with Republic Act 7742, the companies are required to register

their employees as members of PAG-IBIG (Pagtutulungan sa Kinabukasan: Ikaw,

Bangko, Industriya at Gobyerno). It is obligatory for all SSS and GSIS members earning
Php 4,000.00 and above of his monthly return to register with PAG-IBIG. The following

requirements are needed to comply with:

● Members Data Form (HDMF M1-2)

● Notarized list of employees with their corresponding salary

● Employer Commitment to Deduct and Remit Contributions (HDMF M2-6)

● DTI Registration

● Mayor’s Permit/ Business Permit

TAXATION ASPECT

In able for the Government to keep on running, Taxation is imposed. For every

government expenditure needs money to administrate and conduct civil operations in

running of the state. Taxation is the government’s way of generating revenue so that it

can improve and sustain its officials or personnel as well as to regulate the project and

operations it oversees.

The money is generally collected from the citizens in the name of the tax.

Taxation plays a vital role in the state. Through tax, the government raises revenues for

the benefit and welfare of the people of the state. It is very important that individuals and

business establishments should pay taxes in order for the government to operate.

Income tax

Under the Tax Code of 1997, income tax is a tax on person’s income, profits

arising from property, emoluments, practice of profession, conduct of trade or business

personal and additional exemptions, if any, authorized for such types of income, by the

Tax Code, as amended, or other special laws. Personal Income tax is often collected on

a pay-as-you-earn basis, with small corrections made soon after the end of the tax year.

These corrections as stated above are government payments, for taxpayers who did not

pay enough tax for the year; and tax refunds is given from the government who have

overpaid.

Value Added Tax

A business tax imposed on persons or entities who sell or lease goods,

properties or services in the course of business whose gross annual sales or receipts

exceed P1, 919,500 and are VAT-registered. The business is subject to value added tax

of 12% based on gross sales.

Documentary Stamp Tax

Documentary Stamp Tax is a tax on documents, instruments, loan, agreements,

and papers evidencing the acceptance, assignments, sale or transfer of an obligation,

right or property incident thereto. In the proposed business, since the company site to

be used will be leased, payment of documentary stamp tax is necessary in order to

obtain the lease contract. Stamp tax on Leases and Other Hiring Agreements there

shall be collected a documentary stamp tax of Three pesos (P3.00) for the first Two

thousand pesos (P2, 000), or fractional part thereof, and an additional One peso (P1.00)

for every One Thousand pesos (P1, 000) or fractional part thereof, in excess of the first

Two thousand pesos (P2, 000) for each year of the term of said contract or agreement.