R.A.

9178 (Act of 2002)

BARANGGAY MICROBUSINESS ENTERPRISE

What is the law all about?

The BMBEs Act of 2002 encourages the formation and growth of barangay micro business
enterprises by granting them incentives and other benefits. The Act was signed into law by
President Gloria Macapagal-Arroyo on November 13, 2002. Its Implementing Rules and
Regulations (IRR) which was issued on February 7, 2003, as DTI Department Administrative
Order No. 1, Series of 2003, was published twice in the February 11 and 26, 2003 issues of the
Manila Bulletin.

A BMBE is defined as any business enterprise engaged in production, processing, or

manufacturing of products, including agro-processing, as well as trading and services, with total
assets of not more than P3 million. Such assets shall include those arising from loans but not
the land on which the plant and equipment are located. For the purpose of the Act, services
shall exclude those rendered by any one, who is duly licensed by the government after having
passed a government licensure examination, in connection with the exercise of ones profession
(e.g., Accountant, Lawyer, Doctor, etc.). The DOF Department Order No. 17-04 also provides
that, an enterprise can only qualify for registration if it is not a branch, subsidiary, division or
office of a large scale enterprise and its policies and business modus operandi are not
determined by a large scale enterprise or by persons who are not owners or employees of the
enterprise (i.e., franchises).

What is the objective of the law?

BMBEs are essential to the countrys economic development since they effectively serve as
seedbeds of Filipino entrepreneurial talent. Thus, the Act primarily aims to integrate micro
enterprises in the informal sector into the mainstream of the economy. Strengthening BMBEs
would mean more jobs and livelihood, and a better quality of life for Filipinos.

What are the incentives that BMBEs will be receiving?

Registered BMBEs can avail of the following incentives:

1) Income tax exemption from income arising from the operations of the
enterprise;
2) Exemption from the coverage of the Minimum Wage Law (BMBE
3) 2employees will still receive the same social security and health care
benefits as other employees); Priority to a special credit window set up specifically for the
financing requirements of BMBEs; and
4) Technology transfer, production and management training, and marketing assistance
programs for BMBE beneficiaries. The LGUs are also encouraged to either reduce the amount
of local taxes, fees, and charges imposed or exempt the BMBEs from local taxes, fees, and
charges.

What are the agencies mandated to provide assistance in the areas

of technology transfer, production and management training,
marketing assistance?

The agencies concerned are the following:

Department of Trade and Industry (DTI)
Department of Science and Technology (DOST)
University of the Philippines Institute for Small Scale
Industries (UP-ISSI)
Cooperative Development Authority (CDA)
Technical Education and Skills Development Authority (TESDA)
Technology and Livelihood Resource Center (TLRC)

What are the funding agencies designated to set up the special

credit window for registered BMBEs?

The following government financial institutions will provide a special credit

window for BMBEs:
Land Bank of the Philippines;
Development Bank of the Philippines;
Small Business Guarantee and Finance Corporation;
Peoples Credit and Finance Corporation;
Quedan and Rural Credit Guarantee Corporation;
Government Service Insurance System (for members only); and
Social Security System (for members only)
Who may avail of the special credit window for BMBEs?
Only registered BMBEs may take advantage of the credit facility and other benefits granted
under the law. This means that the enterprise must first have a Certificate of Authority which
authorizes it to operate as a BMBE.

How does one register as a BMBE?

Based on the guidelines issued by the DTI under DTI DAO No. 01-03 and DOF under the DOF
D.O. No. 17-04 (as amended by DO No. 31-05) any person, cooperative, or association owning
an enterprise that fits the description of a BMBE may register for the first time or renew its
registration with the Office of the Treasurer of the city or municipality where the business is
located.

Basic requirements for new applicants and for BMBEs applying for renewal of
registration:
b, Duly filled out application form (BMBE Form 01) in triplicate, signed
by the owner or manager of the entity applying for registration;and,
c. Three passport size ID pictures.

Additional requirements for new applicants:

a. For those with assets worth three hundred thousand pesos (P300,000) and less .

1. Registration as a business entity or enterprise from the appropriate government agency

[e.g., Securities and Exchange Commission (SEC) registration in the case of
corporation, partnership or association; Cooperative Development Authority (CDA)
registration in the case of cooperative; Department of Trade and Industry (DTI) business
name registration in the case of sole proprietorship]; and

2. Mayors Permit or City/ Municipal Business Permit.

b. For those with assets worth more than three hundred thousand pesos (P300, 000) up to three
million pesos (P3, 000,000.00)

1. Registration as a business entity as explained above in item no.7.2a.1

 2. Taxpayer Identification Number (TIN);
3. Certificate of Registration from the Bureau of Internal Revenue (BIR);
4. Mayors Permit or City/Municipal Business Permit;
5. Sworn affidavit executed by the sole proprietor or the President of the enterprise, as
the case may be, that the enterprise is barangay-based and micro-business in nature
and scope;
6. Sworn Statement of Assets and Liabilities supported by pertinent documents;
7. Pictures of the place of business and its assets, other than cash, receivables and
intangibles;
8. Copy of Loan Contract/s, if any, and duly-notarized Certification of Amortization
Payments on the Loan; and
9. Income Tax Return (ITR).

Additional requirements for the renewal of BMBE registration:

a. For those with assets worth three hundred thousand pesos (P300,000) and less

1. Documents previously listed in item 7.2a for new applicants with assets worth three
hundred thousand pesos and less
2. Annual Information Return (for the year immediately preceding the renewal of
registration) duly filed with the BIR, together with its attachments.

b. For those with assets worth more than three hundred thousand pesos (P300,000) up
to three million pesos (P3,000,000.00)

1. Documents previously mentioned in item 7.2b (1-8); and

2. Annual Information Return (for the year immediately preceding the renewal of
registration) duly filed with the BIR, together with its attachments.

Procedures:
a. Accomplish BMBE Form 01 in triplicate and submit to the Office of the Municipal or
City Treasurer.

b. The Municipal or City Treasurer evaluates the application. The application shall be
processed within 15 working days upon submission; otherwise, the BMBE shall be
 deemed registered wehh. A registered BMBE shall be issued a Certificate of
Authority as proof of registration, effective for a period of two years. The application
is renewable every two years.

How much will it cost to register?

Registration and issuance of the Certificate of Authority of the LGU is free of charge and shall
be done promptly. However, to defray the administrative costs of registering and monitoring the
BMBEs, the LGUs are allowed to charge a fee not exceeding P1, 000.00.

How can a BMBE avail of the exemption from the coverage of the minimum wage law?
Once a BMBE is registered and issued with a Certificate of Authority by the Municipal or City
Treasurer, it is automatically exempted from the minimum wage law.

What is the effect of the law on wages of existing/newly hired employees?

Existing employees shall continue to receive their wages, allowances, and other benefits. On
the other hand, wages of employees hired by BMBEs after the latters registration shall be
exempted from the coverage of the minimum wage law. BMBE workers shall continue to be
covered by applicable labor laws and regulations, including the non-diminution rule on existing
wages and benefits.

Is the exemption from the coverage of the minimum wage law prospective in nature?
Yes. The rule is that laws shall have prospective application only. Thus, an enterprises
exemption from the coverage of the minimum wage law can only be applied to employees hired
after its registration as a BMBE.

How much should a BMBE worker be paid for his services?

It depends between the employer and the worker. They shall mutually agree on the acceptable
wage rate.

What are the fiscal incentives and benefits received by BMBEs?

a. Exemption from taxes and fees

All BMBEs shall be exempted from income tax for income arising from the operation of
the enterprise. The Local Government Units (LGUs) are encouraged either to reduce the
 amount of local taxes, fees and charges imposed or to exempt the BMBE from local
taxes, fees and charges.

b. Exemption from the Coverage of the Minimum Wage Law

Existing employees shall continue to receive their wages, allowances, and other
benefits. On the other hand, wages of employees hired by BMBEs after the latters
registration shall be exempted from the coverage of the minimum wage law. BMBE
workers shall continue to be covered by applicable labor laws and regulations, including
the non-diminution rule on existing wages and benefits.

The Regional Tripartite Wages and Productivity Boards shall issue a Wage Advisory for
BMBEs. The range of wage levels proposed by the RTWPBs shall be advisory in nature,
and may be used by BMBE workers and employees in setting acceptable wage levels in
their enterprises. The wage rates to be proposed in the Wage Advisories shall be
advisory and not mandatory in nature. They are intended to exert a persuasive effect on
BMBE owners and provide a benchmark for workers.

c. Credit delivery
They shall set up a special credit window that will service the financing needs of BMBEs
registered under the Act consistent with the BSP policies, rules and regulations:

1. Land Bank of the Philippines (LBP)

2. Development Bank of the Philippines (DBP),

3. Small Business Guarantee and Finance Corporation (SBGFC),

4. People's Credit and Finance Corporation (PCFC)

5. The Government Service Insurance System (GSIS)*

6. Social Security System (SSS)*

*for their respective members who wish to establish a BMBE.

Note: All interests, commissions and discounts derived from the loans by the financing
institutions above granted under this Act shall be exempt from gross receipts tax (GRT).

All loans from whatever sources granted to BMBEs under the Act shall be considered as part of
alternative compliance to Presidential Decree No. 717, otherwise known as the Agri-Agra Law,
or to Republic Act No. 6977, otherwise known as the Magna Carta for Small and Medium
Enterprises, as amended. For purposes of compliance with Presidential Decree No. 717 and
Republic Act No. 6977, as amended, loans granted to BMBEs under the Act shall be computed
at twice the amount of the face value of the loans.

Agri-Agra Law (Presidential Decree No. 717)

All banking institutions, whether government or private, shall set aside at least twenty-five
percent (25%) of their total loanable funds for agriculture and fisheries credit in general, of which
at least ten percent (10%) of the loanable funds shall be made available for agrarian reform
beneficiaries.

Magna Carta for Small and Medium Enterprises (Republic Act No. 6977)

Allocate at least eight percent (8%) for micro and small enterprises (MSEs) and at least two
percent (2%) for medium enterprises (MEs) of their total loan portfolio based on their Balance
Sheet as of the end of previous quarter, and make it available for MSME credit.

Note: Provided, that the loans used as alternative compliance with PD 717 which were
computed at twice their outstanding balance shall no longer be eligible as compliance with R.A.
6977 during the same period and vice versa.

d. Technology Transfer, Production and Management Training, and Marketing

Assistance.
BMBEs can avail of technology transfer, production, management training programs and
marketing assistance of the DTI, DOST, UP-ISSI, CDA, TESDA, TLRC and other
concerned agencies.

e. BMBE Development Fund

A BMBE Development Fund shall be set up with an endowment of Three Hundred
Million Pesos (P300,000,000.00) from the PAGCOR and shall be administered by the
SMED Council.

The following government agencies may avail of the BMBE Development Funds so as to
execute projects related to technology transfer, production and management training, and
marketing assistance to BMBEs:

1. Department of Trade and Industry (DTI)

2. Department of Science and Technology (DOST)

3. University of the Philippines-Institute for Small Scale Industries (UP-ISSI)

4. Cooperative Development Authority (CDA)

5. Technical Education and Skills Development Authority (TESDA)

6. Technology and Livelihood Resource Center (TLRC)

Qualified Projects

1. Entrepreneurship Development

2. Skills Training

3. Business Advisory Services

4. Technology Intervention

5. Technology Incubation/Commercialization

6. Policy Advocacy (activities and studies)

7. Database Development

8. Business Matching Activities

9. Trade Fairs and Missions

10. Other related activities that will benefit BMBEs

f. Trade and Investment Promotion

The data gathered from business registration shall be made accessible to and shall be
utilized by private sector organizations and non-government organizations for purposes
of business matching, trade and investment promotion.

g. One-Stop Business Registration Center (negosyo centers)

LGUs are encouraged to establish a One-Stop Business Registration to handle the
efficient registration and processing of permits/licenses of BMBEs.

What are the steps in availing of the Income Tax Exemption?

The BMBE registers with the BIR Revenue District Office (RDO) where the principal office or
place of business is located and its submission of the necessary documents.

What are the documents to be submitted to the BIR to avail of Income

Tax Exemption?
a. Copy of the BMBEs Certificate of Authority
b. Sworn Statement of Assets of the BMBE and/or its affiliates, supported by pertinent
documents
c. Certified list of branches, sales outlets, places of production, warehouses and storage
facilities
d. Certified list of affiliates
e. Latest audited Financial Statement or Account Information Form or its equivalent

What document should be filed with BIR by an income tax exempt BMBE?
In lieu of an income tax return, an income tax exempt BMBE is required to submit an Annual
Information Return. This is filed on or before the 15th day of the 4th month after the close of the
taxable year with an Account Information Form, which contains data from its financial statement
and Sworn Statement of Assets Owned and/or Used.

Is the Income Tax Exemption privilege of a BMBE irrevocable?

No. The income tax exemption privilege of a BMBE may be revoked for any of the following
reasons:
a. Transfer of place of business;
b. Value of its total assets exceeds P3M;
c. Voluntary surrender of the Certificate of Authority;
d. Death of the registered individual owner of the BMBE; violation or noncompliance with the
provisions of R.A. 9178;
e. Merger or consolidation with an entity which is not eligible to be a BMBE;
f. Sale or transfer of the BMBE, if it is a sole proprietorship without prejudice to the transferee
applying for registration;
g. Submission of fake or falsified documents;
h. Retirement from business, or cessation/suspension of operations for one year; and
i. Making false or omitting required declarations or statements.

What is the scope of the availment of income tax exemption?

A duly registered BMBE shall be exempt from income tax on income arising purely from its
operations. However, this income tax exemption shall not apply to the
following:
 a. Interest, including those from any currency bank deposit and yield or any other monetary
benefit from deposit substitutes and from trust funds and similar
arrangements;
b. Royalties
c. Prizes and other winnings:
d. Cash and/or property dividends;
e. Capital gains from the sale of shares of stock not traded through the stock
exchange;
f. Capital gains from the sale or other disposition of real property;
g. The share of an individual in the net income after tax of an association, a joint
account, or a joint venture or consortium;
h. The share of an individual in the distributable net income after tax of a taxable
partnership of which he is a partner;
i. Income from the practice of profession received directly from the clients or from
the professional partnership of which the individual is a partner;
j. Compensation; and
k. All other forms of passive income and income from revenues not effectively connected
with or arising from operations of the BMBEs as such.

Guidelines in the availment of income tax exemption for Assets

Determination of the Value of Assets of the BMBE for Income Tax Exemption Purposes
not exceed P 3,000,000
Include all kinds of properties, both real and personal (except the land where the business
entitys office and PPE is located)
are owned and used/to be used, or even if not owned but used/to be used by the BMBE and/or
its affiliates

CONFLICTS BETWEEN NIRC AND BMBE