RMC No. 5-2025: Amending certain provisions of RMC Nos. 11-2024. 12-2024, 13-2024 and 19-2024, provide clarifications/ transitory provisions and to align them with the provisions of R.A. No. 11976, (EOPT Act), its Implementing Rules and Regulations and other issuances

Key points

1. Lease costs and expenses. Initial direct costs, meaning payments directly related to negotiating and executing a lease, are claimed by the lessee as outright expenses in the year paid or incurred, subject to Section 34(A)(1)(b) substantiation. They are subject to withholding tax under Section 9 of the EOPT and Section 7 of RR No. 4-2024. Under RMC No. 60-2024, non-withholding is no longer a ground for disallowance for taxable year 2024 onwards.
2. Reportable amounts. For taxes other than Income Tax, foreign currency transactions are converted using the spot rate on the date of transaction. VAT uses gross sales supported by a VAT invoice, and OPT uses gross quarterly sales. Excise, DST and withholding taxes each have their own stated basis.
3. Interest deduction. Interest on indebtedness in business is deductible under Section 34(B)(2) when seven requisites are met, including that it is stipulated in writing, legally due, and not between related taxpayers. The interest is reduced by 20% of interest income subjected to final tax. The withholding requirement for deduction is repealed under Section 5 of the EOPT Act, though the payor’s duty to withhold remains.
4. Forex rates. For tax purposes, only the spot rate on the date of transaction is used, and the average rate is for financial reporting only, with a reconciliation kept for audit. Under Q&A No. 4 of RMC No. 12-2024, taxpayers may choose their forex source if the conditions are met. A notarized sworn statement electing rates other than BAP rates is due 30 days before the taxable year starts, and for 2024 was allowed without penalty on or before December 31, 2024. Netting of separate transactions is prohibited for tax purposes.
5. Systems and PFRS coverage. Taxpayers using registered CAS or CBA must reconfigure systems on or before December 31, 2024, with an extension of not more than six (6) months from the Regional Director or Assistant Commissioner-LTS. SMEs and Small Entities may avail of RMC No. 13-2024 on an optional basis.
6. Retirement plans and corrections. Employer contributions before filing an application for a tax qualified plan are not deductible, but pending BIR action they may be deducted subject to later issuance of the certificate. An employee covered by a retirement plan may not avail of the RA No. 7641 tax exemption, while one not covered by any plan may. The Circular also corrects accounting entries in Annex B of RMC No. 13-2024 and computations in Annex A of RMC No. 19-2024.

Who is affected

• Lessees and lessors
• Taxpayers with foreign currency transactions
• Taxpayers using registered CAS or CBA
• SMEs and Small Entities
• Employers and employees with retirement plans

Deadlines and effectivity

• Non-withholding no longer a ground for disallowance for taxable year 2024 onwards
• Forex sworn statement for 2024 due on or before December 31, 2024
• System reconfiguration on or before December 31, 2024, with extension of up to six (6) months