The Barangay Micro Business Enterprise (BMBE)

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Published — June 22, 2017

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

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The State recognizes that thriving businesses are indispensable to a healthy economy. As businesses succeed in their respective domains, more job opportunities are created, and more investors are attracted. This leads to a more robust ground for fiscal growth, which makes life more prosperous for both the country and its citizens. Therefore, in order to encourage those who have entrepreneurial inclinations who only have relatively small available resources to start an enterprise of their own, R.A. No. 9178, also known as the Barangay Micro Business Enterprise (“BMBE”) Act of 2002, was passed.

Many of our country’s micro businesses are in the informal sector, and the BMBE Law seeks to integrate them into the mainstream of economy. Under the said law, a Barangay Micro Business is defined as “any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, whose total assets including those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, shall not be more than Three Million Pesos (P3,000,000.00).”

Most entrepreneurs in the informal sector who operate micro enterprises would not bother to go out of their way just to formalize their businesses through registration. However, the problem lies in the fact that even if an entrepreneur becomes very successful, if his business is not registered, then his enterprise does not exist in the eyes of the law. For being legally “inexistent”, the business cannot enjoy certain legal rights and protections such the right to own a trademark, among others. Many financial institutions also deal only with registered businesses, making it easier for those who are registered to avail of loans and other financial assistance that may prove valuable in running an enterprise, especially for start-up businesses.

In encouraging micro enterprises to formalize their businesses under the BMBE Law, certain benefits are granted by law to BMBEs, such as:

(1) Exemption from taxes on income arising from the operations of the enterprise. The local government units are likewise encouraged to either reduce the amount of local taxes, fees and charges, or to exempt BMBEs from such;

(2) Exemption from the coverage of the Minimum Wage Law. BMBEs, however, should still provide social security and health care benefits to their employees;

(3) Priority to a special credit window set up specifically for the financing requirements of BMBEs by certain financial institutions such as the Land Bank of the Philippines, Development Bank of the Philippines, Small Business Guarantee and Finance Corporation, People’s Credit and Finance Corporation and the Quedan and Rural Credit Guaranty Corporation. Even the Government Service Insurance System (“GSIS”) and the Social Security System (“SSS”) are likewise required by law to set up such special credit window to serve the financing needs of its respective members who wish to set up BMBEs.

(4) Technology transfer, production and management training, and marketing assistance programs for BMBE beneficiaries.

All the benefits mentioned may be availed of only by business enterprises that have been issued a Certificate of Authority, authorizing them to operate as BMBE. This, therefore, brings us to the question: How do we register our enterprise as BMBE?

Based on the guidelines issued by the Department of Trade and Industry (DAO No. 01-03) and the Department of Finance (D.O. No. 17-04), any person, cooperative or association owning an enterprise that fits the definition 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. The Local Government Unit where the application was filed shall issue the Certificate of Authority, which shall be valid for 2 years (and may be renewed, which shall be valid for another 2 years for every renewal).

The law requires that applications shall be processed within 15 working days upon submission of complete documents. In the event that the application was not acted upon after the lapse of said 15-day processing period, the business shall be deemed registered.

Though BMBEs are exempt from the Minimum Wage Law, such exemption shall be applied only with respect to new employees hired after the business is registered as a BMBE. Existing employees at the time the Certificate of Authority was issued shall continue to receive their wages, allowances and other benefits, pursuant to the provisions of the Labor Code on non-diminution of benefits.

Exemption from the coverage of the Minimum Wage Law is automatic for BMBEs. However, exemption from income tax may be availed of only upon registration as BMBE with the Bureau of Internal Revenue (“BIR”), Revenue District Office having jurisdiction over the territory where the principal place of business is located. For purposes of BIR registration, the following documents shall be submitted:

(1) Copy of the BMBE’s Certificate of Authority;

(2) Sworn Statement of Assets of the BMBE, and/or its affiliates, supported by pertinent documents;

(3) Certified list of branches, sales outlets, places of production, warehouses and storage facilities;

(4) Certified list of affiliates;

(5) Latest audited Financial Statement or Account Information Form, or its equivalent.

Once registered with the BIR, exemption from income tax shall be granted. Tax-exempt BMBEs, however, should still submit an Annual Information Return in lieu of an Income Tax Return.

Tax-exempt BMBEs must also be aware that their exemption from income tax may be revoked on any of the following grounds:

(1) Transfer of place of business;

(2) Value of total assets exceeds P3,000,000.00;

(3) Voluntary surrender of the Certificate of Authority;

(4) Death of the registered individual owner of the BMBE; violation or non-compliance with the provisions of the BMBE Law;

(5) Merger or consolidation with an entity not eligible to be a BMBE;

(6) Sale or transfer of the BMBE (if it is a sole proprietorship) without prejudice to the transferee applying for registration;

(7) Submission of fake or falsified documents;

(8) Retirement from business, or cessation/suspension of operations for one year; and

(9) Making false, or omitting required declarations or statements.

Since it is the policy of the State to hasten the country’s economic development, the BMBE Law had been passed to encourage the formation and growth of BMBEs, and integrate those in the informal sector with the mainstream economy by rationalizing bureaucratic restrictions. Through the active intervention of the government, especially in the local level, and through the granting of incentives and benefits to generate much-needed employment, the proliferation of BMBEs may hopefully help in the alleviation of poverty.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding the legal aspects of establishing micro businesses, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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