Philippine Tax Blog – Deductibility of Expenses

Not all expenses are allowed as deductions by the Philippine tax authority. When estimating tax liabilities, it is essential to evaluate the deductibility of expenses in PH tax to determine whether certain costs can be deducted from your taxable income. The Bureau of Internal Revenue (BIR) sets specific guidelines on what qualifies as deductible, and failing to comply with these rules can lead to miscalculations and potential penalties. Understanding which expenses are allowable can help businesses and individuals optimize their tax obligations while ensuring compliance with Philippine tax laws.

The Tax Code provides that only the following deductions shall be allowed from gross income:

1. Ordinary and necessary business expenses that are directly attributable to the conduct of business such as reasonable allowance for salaries, travel expenses, rentals, entertainment, amusement and recreation expenses.
2. Interest expense but shall be reduced by 33% of the interest income subject to final tax and no deduction from related party transactions.
3. Net Operating Loss Carry-over.
4. Bad debts and securities that are actually ascertained to be worthless and charged off within the taxable year.
5. Depreciation except those of non-depreciable vehicles such as yachts, helicopters, airplanes or aircrafts that are not used in business operation of such vehicles.
6. Depletion of oil and gas wells and mines.
7. Exploration and development expenditures.
8. Charitable and other contributions to government and Philippine Council for NGO Council (PCNC) duly accredited organization.
9. Research and development.
10. Pension that are actually transferred to the trust as approved by the BIR.

Further, the above expenses must meet the deductibility of expenses in PH tax requirements by being substantiated with sufficient evidence, such as official receipts or adequate records showing the amount being deducted and its direct connection to the development, management, operation, or conduct of business. Additionally, if the payments are subject to withholding tax, they will not be allowed as deductions unless the corresponding tax is properly withheld and remitted to the BIR.

If you need tax advice or review of your tax matters or accounting outsourcing to ensure that you are claiming the proper expenses on your income, contact Triple i Consulting.