[Ask The Tax Whiz] Clarifications on tax compliance for lease accounting 

The Philippine Tax Whiz discusses tips on the tax remedy of lease accounting by lessees underneath Philippine Monetary Reporting Customary 16 per Income Memorandum Round 11-2024

In submitting my Revenue Tax Return (ITR), is there a distinction between how I report lease bills in my monetary experiences and what I must pay in taxes?

Sure, there’s a distinction between the way you report your lease bills within the monetary report and the way it interprets to tax obligations. For lease, you usually report the full lease paid as an expense in your monetary statements, which may cut back your taxable earnings.

With a conditional sale, you’re not simply reporting an expense; you’re recording an asset and a legal responsibility, then acknowledge curiosity or depreciation. For detailed comparability, the particulars of the tax remedy for earnings tax are listed within the desk under:

Are there different tax implications concerning leases and conditional gross sales? If that’s the case, what are they? 

Except for earnings tax, leases and conditional gross sales are topic to value-added-tax (VAT), expanded withholding tax (EWT) and documentary stamp tax (DST). 

For VAT, leases are topic to enter tax on lease expense upon paying, whereas for conditional gross sales, it relies upon if the sale exceeds or is lower than 25% of product sales for that 12 months. Whether it is larger than 25%, your complete quantity is taxable for VAT within the 12 months it was bought, whereas whether it is lower than 25%, the VAT is acknowledged on the installment funds. 

In the meantime, EWT for leases is topic to five% EWT, whereas conditional sale of private property is taken into account as sale of products, which has 1% EWT with curiosity expense of 15%. Nevertheless, conditional sale for actual properties will probably be pursuant to Income Regulation (RR) 02-98.

I will probably be getting into a finance lease settlement and can acknowledge the right-of-use asset. With this, am I allowed to assert depreciation expense from the asset underneath lease as a deduction for earnings tax?

As per Income Memorandum Round (RMC) 11-2024, the depreciation expense pertaining to the right-of-use asset shall not be handled as deductible expense for earnings tax functions. Solely the precise quantity of lease paid or incurred, together with different funds made to the lessor based mostly on the lease settlement, shall be allowed as deductions within the computation of the online taxable earnings.

When getting into a lease contract, do I apply for a similar Documentary Stamp Tax (DST) for finance and working lease?

For finance lease, the DST charges on debt devices will apply. In the meantime, working leases will use the DST on lease agreements. – Rappler.com

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