Not all expenses are allowed as deduction by the Philippine tax authority. In estimating tax liabilities, you have to consider whether your expenses may be deductible or not from your income.
The Tax Code provides that only the following deductions shall be allowed from gross income:
- 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.
- Interest expense but shall be reduced by 33% of the interest income subject to final tax and no deduction from related party transactions.
- Net Operating Loss Carry-over.
- Bad debts and securities that are actually ascertained to be worthless and charged off within the taxable year.
- Depreciation except those of non-depreciable vehicles such as yachts, helicopters, airplanes or aircrafts that are not used in business operation of such vehicles.
- Depletion of oil and gas wells and mines.
- Exploration and development expenditures.
- Charitable and other contributions to government and Philippine Council for NGO Council (PCNC) duly accredited organization.
- Research and development.
- Pension that are actually transferred to the trust as approved by the BIR.
Further, the above expenses must be substantiated with sufficient evidence such as official receipts or adequate records showing the amount of the expense being deducted and the direct connection or relation of the expenses to the development, management, operation or conduct of business of the taxpayer. In addition, if the payments are subject to withholding tax, it will not be allowed as deduction unless the tax to be withheld is paid to the BIR.