Last Jan. 16, 2025, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) 5-2025, amending certain provisions of RMC 11-2024 (Leases), 12-2024 (Foreign Currency Transactions), 13-2024 (Retirement Benefit Expenses) and 19-2024 (Interest) to align with the provisions of Republic Act 11976, otherwise known as the Ease of Paying Taxes Act (EOPT Act), and its implementing rules and regulations. Below is a summary of the amendments to the foregoing circulars.
RMC 11-2024 on accounting for leases
Under RMC 60-2024, the non-withholding of tax will no longer be a ground for disallowance of the claimed deduction/expense for the taxable year covering Jan. 1, 2024, onwards, thus, lessees can now deduct Initial Direct Costs in the year it was paid or incurred, subject to substantiation requirements without the need of withholding. Moreover, expenses paid or incurred by the lessee that are properly for the account of the lessor is an allowed deduction subject to proper substantiation of invoices issued by the lessor. The new rule is to treat the same as part of the “Gross Sales” of the lessor and allowable deduction on the part of the lessee. Note that the Input VAT is creditable to the lessee for the amount of rentals paid/incurred, not at the time of payment, and should be evidenced by a VAT invoice instead of a VAT official receipt. Finally, as to withholding taxes for lease payments, the new rule is that the five percent withholding tax shall be based on the amount payable rather than on the actual rental paid or incurred.
RMC 12-2024 on the treatment of foreign currency transactions for financial reporting and tax purposes
RMC 5-2025 provides that the reportable amount for foreign currency transactions for taxes, other than income taxes, shall be the Philippine peso-converted amount using the prevailing spot rate at the date of transaction. For VAT purposes, all sales of goods, properties and services, the tax base should be the Gross Sales supported by VAT Invoice. For Other Percentage Taxes (OPT), it should be the Gross Quarterly Sales. Also, withholding of taxes should be made at the time it is payable or upon the issuance of the sales invoice, whichever comes first.
RMC 13-2024 on the treatment of retirement benefit expense for financial reporting and tax purposes
RMC 5-2025 clarified that SMEs/Small entities may avail of the provisions of RMC 13-2024 on an optional basis and must comply with the required disclosures under PFRS. Note that RMCs issued by BIR relating to retirement benefit expense under defined benefit plans only covered full PFRS standards because certain standards adopted in the full PFRS do not apply to PFRS for SMEs and small entities. The same RMC also clarified that a taxpayer cannot use the current service cost as a replacement for normal cost in the absence of actuarial valuation. The BIR stated that there is a difference in the calculation of service costs under PAS and the Tax Code. Service costs relate to the amount an employee earned for his service in the current reporting period while actuarial valuation is an estimate of an actuary.
RMC 19-2024 on the treatment of interest paid or incurred on indebtedness incurred as part of trade, business, and profession
RMC 5-2025 aligned the requirements for deductibility of interest paid or incurred as part of the taxpayer’s trade, business, or profession consistent with the provisions of the EOPT Act. Consequently, the last requisite, particularly, the withholding of tax, was repealed under RMC 60-2024.
RMC 5-2025 became effective on its date of issuance.
Please be guided accordingly.
Source:
P&A Grant Thornton
Certified Public Accountants