For how long should a company retain its accounting books and records? Where should the records be kept? Do they have to be in hard copy or can they be stored online?
The Bureau of Internal Revenue, or BIR, has rules and guidelines about the preservation of accounting records. Businesses in the Philippines must be aware of them!
In this article, we explain the key pieces of legislation relating to the storage of accounting books and records. We also outline the relevant penalties that a company might incur for non-compliance.
The two key Regulations regarding the preservation of accounting books and records by businesses in the Philippines are:
This Regulation sets out the primary guidelines for the retention of accounting books and records in the Philippines. It was issued in order to align with various sections of the National Internal Revenue Code of 1997. This Regulation was later amended in 2014.
- Revenue Regulations No. 5 – 2014 – Amending Revenue Regulations No.17-2013 dealing with the “Preservation of Books of Accounts and Other Accounting Records”.
These Regulations were introduced primarily to facilitate the modern approach taken by companies to process their accounting and finance services and store their accounting records electronically via online accounting solutions (e.g. Xero, Quickbooks Online) and cloud technology.
What type of accounting records need to be preserved?
As a basic rule, all accounting-related records relevant to each transaction performed by filipino businesses must be preserved. The BIR requires that records be maintained “intact, unaltered and unmutilated.”
Revenue Regulation 17-2013 specifically provides that the following documents must be retained by businesses:
a. Books of Accounts – these are the books where business transactions are recorded and maintained. General ledgers and general journals are primary records within the books of accounts. Check out our article on books of accounts in the Philippines for more information
b. Subsidiary books – these are books of accounts where similar transactions are recorded in chronological order. Examples of these are cash receipts journal, cash disbursement journal, sales journal and purchases journal
c. Other accounting records – “other accounting records” include invoices, receipts, vouchers, returns and other source documents that support entries into the books of accounts
d. Registers – these are accounting records that illustrate the transactions for each account together with the running balance
e. Vouchers – this is an accounting document used to prepare payments to creditors
For how long does a company have to store its accounting books and records?
Why did the BIR select a period of 10 years?
- Under Section 203 of the National Internal Revenue Code, the government can examine the records of a taxpayer for 3 years after the tax return (or a subsequent amended tax return) has been filed. The 3-year period can be extended in certain circumstances.
- However, for cases of false or fraudulent returns with an intent to evade tax or for failures to file a return, the BIR has the power to assess tax documents for a period of 10 years after the discovery of the falsity, fraud or omission.
For this reason, it makes sense for the BIR to set a retention period of 10 years as it covers both of the above situations.
What about companies that do their accounting and bookkeeping through online cloud accounting solutions?
Companies that use cloud accounting solutions or computerised accounting platforms can store their records electronically. However, there are certain rules they must follow.
Importantly, for the first 5 years, companies must also preserve hard copies. This is based on the amendment to RR 17-2013 made by Revenue Regulation 5-2014 which provides the following:
- For the first 5 years, the preservation of accounting records must be in hard copy. While holding electronic copies also is not prohibited, there must be corresponding hard copies during this period.
- For the 6th to 10th year, accounting records may be preserved in electronic form only. Hard copies are no longer required.
RR 05-2014 outlines additional requirements about the format in which electronic records must be stored. For electronically stored records, the following must be observed by companies:
- Any electronic images of hard copy accounting records must be clear, accurate and complete
- The electronic storage system must be able to index, store, preserve, retrieve and reproduce the electronic records.
RR 5-2014 also provides requirements around the safeguarding and maintenance of electronic records. The electronic storage system must:
a. Have effective and efficient controls to maintain integrity, accuracy and reliability
b. Prevent unauthorized access, alteration, deletion or deterioration of electronically stored data
c. Have personnel who will regularly inspect and monitor the storage system
d. Have a retrieval system that includes an indexing system
e. Have the ability to reproduce legible and readable hardcopies of the electronically stored documents
If your electronic storage does not adhere to these requirements, the company will be obliged to keep hard copies for the whole duration of the 10-year retention period or implement a more advanced storage system.
Remember, being able to store records electronically is just one of the benefits of using a cloud accounting system in the Philippines. Cloud accounting can save your business and time in several ways. Here are 8 more reasons why companies in the Philippines should embrace cloud accounting technology for their accounting, tax and finance services.
Where must accounting records stored?
All necessary accounting documents and records must be kept at all times in the place of business of the taxpayer during the retention period.
Examination and Inspection
Companies should be aware that a taxpayer must deliver books and records for examination or inspection upon the demand of any internal revenue officer.
The BIR requires this so they can inspect records in order to check compliance with tax legislation, tax exemptions and examine potential tax liabilities.
The BIR can request any accounting records during regular audits, extraordinary audits, by the power of BIR Commissioner under the NIRC.
Can the BIR take a company’s records and books away from a company’s premises? Yes. The BIR can take documents and conduct their inspection at the BIR offices.
Penalties for violations
Here are some potential penalties that can arise if a company fails to follow the BIR rules relating to the retention of accounting records:
- Section 266 of NIRC:
For failure to reproduce records required by the BIR, a penalty of not less than P5,000 but not more than P10,000, and possible imprisonment of not less than 1 year but not more than 2 years.
- Section 275 of the NIRC:
For a violation of any provision of the NIRC, a fine of not more than P1,000 or imprisonment of not more than 6 months, or both.
- Republic Act No. 10021 (Exchange of Information on Tax Matters Act of 2009):
Willful refusal to supply required documents shall be punished by a fine of not less than P50,000 but not more than P100,000, or imprisonment of not less than 2 years but not more than 5 years, or both.
Let us help you maintain and preserve your books
A company must consider a wide range of matters to achieve tax compliance in the Philippines. While the preservation of accounting records is just one element, it is an important one. Without records, it can be difficult for a company to demonstrate compliance and adherence to tax regulations.
So it is in the interests of a company to comply!
The CloudCfo team is always on top of their clients’ tax compliance requirements. We provide our clients with the latest updates and issuances from the BIR, SEC, DOLE and other government bodies. CloudCfo aims to help its clients grow their businesses while ensuring compliance at the same time.
We are a trusted and professional provider offering the highest level of accounting, bookkeeping, tax and compliance services to companies in the Philippines. Visit us at cloudcfo.ph or contact us at email@example.com for your free initial consultation.