Tax treatment of unincorporated joint ventures

What is a joint venture?

A joint venture is an association of persons or companies jointly undertaking some commercial enterprise; generally, all contribute assets and share risks which requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and a duty, which may be altered by agreement to share both in profit and losses. [Kilosbayan v. Guingona, 232 SCRA 110 (1994)]


Are unincorporated joint ventures required to be registered with the BIR?

Yes. Pursuant to Section 236(A) of the Tax Code, every person subject to any internal revenue tax shall register with the BIR and secure its own Tax Identification Number (TIN).

Although unincorporated, the joint venture shall also be considered as a government withholding agent Sec 2.57 of RR No. 2-98 as amended. Thus, it shall withhold the appropriate taxes on its income payments to suppliers and employees.

How are joint ventures taxed?

All joint ventures, incorporated or unincorporated, are treated for income tax purposes as corporations, except those formed for the purpose of undertaking construction projections pursuant to Section 22(B) of the Tax Code, as amended.

How will joint ventures formed for construction projects be exempt from tax?

Based on Section 3 of RR No. 10-2012, a joint venture or consortium formed for the purpose of undertaking construction projects which is not considered as corporation under Section 22 of the NIRC of 1997 as amended, should be:

(1) for the undertaking of a construction project;

(2) should involve joining or pooling of resources by licensed local contractors; that is, licensed as general contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI);

(3) the local contractors are engaged in construction business; and

(4) the Joint Venture itself must likewise be duly licensed as such by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI).

If the parties to the joint venture complied with all of the above requirements, the joint venture shall not be subject to the corporate income tax under Section 27(A) of the Tax Code, as amended. 

Being exempt from income tax, the income of the joint venture shall also be exempt from expanded withholding tax.


If one of the joint venture partners did not comply with the requirements, will the joint venture still be exempt?

No. The failure of any of the parties to the joint venture to comply with the requirements of RR No. 10-2012 shall subject the joint venture to income tax. Example of a taxable joint venture is where one of the co-venturers is a landowner who does not possess a PCAB license and a real estate developer with PCAB license.


Are tax-exempt joint ventures still required to file an income tax return?

No. According to BIR Ruling No. 176-2014, if the joint venture is not treated as taxable corporation, and therefore, exempt from income tax, it shall not be required to file quarterly and final adjustment returns i.e., income tax returns.


Are the income of the joint venture subject to value added tax (VAT)?

Unless otherwise exempted under existing tax laws and regulations, the income of a joint venture is subject to 12% VAT. Accordingly, the joint venture is required to register and issue official receipts and file its VAT returns. (See Section 237 of the Tax Code)

Are the tax-exempt joint ventures required to maintain a separate books of accounts?

There is no explicit BIR issuance exempting tax-exempt joint ventures from complying with rules on books of accounts. Under Section 232 of the Tax Code, as amended, all persons and corporations subject to internal revenue tax are required to maintain journal and ledgers. If the gross annual income exceeds Php 3 million, the books shall be audited by an independent CPA.

How will the joint venture report the profit sharing of the co-venturers?

The co-venturers shall report the profit share as their individual income subject to income tax. Prior to distribution of profit shares, the joint venture is required to withhold 2% EWT on contractors pursuant to RR No. 2-98 which may be used as tax credit by the JV partners against their tax due when filing their ITRs.

In case the joint venture is subject to income tax, the profit share of the distributions shall be treated as dividends. The dividends will be subject to final withholding tax if received by an individual person while exempt if received by a domestic/resident corporation pursuant to Sections 24 and 27 of the Tax Code.