Revenue Memorandum Circular No. 116-2024

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Clarifying the Provisions of Republic Act No. 11976, Otherwise Known as the “Ease of Paying Taxes Act”, Applicable to the Power Industry

This Revenue Memorandum Circular is issued in order to publish and clarify certain provisions of Revenue Regulations (RR) Nos. 3-2024 and 7-2024, implementing the National Revenue Code of 1997 (Tax Code), as amended by Republic Act (RA) No. 11976 or otherwise known as the “Ease of Paying Taxes (EOPT) Act”, affecting generation, transmission, and distribution companies, as well as electric cooperatives and retail electricity suppliers.

• What is the tax treatment of the Generation and Transmission charges including the VAT thereon which are pass through charges of the Distributions Utility (DUs) Companies and Electric Cooperatives (ECs)?
  • For Sale of services, including the sale of power, gross sales of DUs and ECs shall exclude the valued-added tax and those amounts earmarked for payment to third (3rd) party as received as reimbursement for payment on behalf of another which do not redound to the benefit of the seller as provided under relevant laws, rules or regulations.
    
    The DUs and ECs shall issue an invoice to the customers, shall include the sale and transmission of electricity and ancillary services, including the VAT thereon of the Generation Companies (GenCos) and Transmission Companies (e.g. National Grid Corporation of the Philippines). However, the DUs and ECs shall not claim any input tax from these. The proper claimant of input tax shall be the customers engaged in business based on the invoice to be issued by DUs/ECs.
    
    The amount invoiced by the GenCos and Transmission Companies, which was included in the invoice issued by the DUs and ECs to the customers, including the VAT charges thereon, shall be the basis of income tax and VAT liabilities of the GenCos and Transmission Companies.
    
• What are the pass-through charges for the Retail Electricity Supplier (RES) and how are they treated?
  • The pass-through charges of the RES for the sale of power are the transmission and distribution charges.
    
    The RES shall not claim any input tax on the pass-through charges invoiced to the customers.
    
• Are the government mandated charges subject to Output Tax and consequently on Creditable Withholding on VAT and Income?
  • The following mandated government shall not be subject to Output Tax and Creditable Withholding Tax on VAT and Income:
    • Energy Tax under Batas Pambansa Blg.36;
    • Universal Charges (UC) under Sec. 34 of R.A. No. 9136 (EPIRA);
    • Benefits to Host Communities under Sec. 66 of R.A. 9136 (EPIRA) and DOE Energy Regulations No. 1-94;
    • Feed-in Tariff Allowance (FIT-ALL) under ERC Res. 24, Series of 2013;
    • National and Local Franchise Taxes under Section 9 of RA No. 9511 and Art. III of ERC Res. No. 02, Series of 2021, respectively; and
    • Real Property Tax (RPT) under Art. II of ERC Res. No. 02, Series of 2021.
      
• What is the treatment of the 5% creditable VAT withheld by the government customers?
  • The amount of 5% creditable VAT withheld by the government customers which was computed baswd as creditable VAT as evidenced by BIR Form No. 2307 in the VAT Returns of the DUs and ECs who issued the invoice on the sale of electricity.
    
• What is the treatment of the 2% income tax withheld by the customers engaged in business?
  • The amount of 2% tax withheld by customers engaged in business which was computed based on the total invoiced amount, including pass through charges, shall be claimed as creditable withholding tax as evidenced by BIR Form No. 2307 in the Income Tax Return of the DUs, ECs and RES who issued the invoice on the sale of electricity.
    
• How will the GenCos and Transmission Companies declare the VAT on its generation and transmission fees, respectively, considering the various types of customers/end-users (i.e. vatable, zero-rated, exempt)?
  • Initially, the GenCos and Transmission Companies will issue an invoice to the DUs, ECs, and RES for the whole amount of the generation fees and transmission fees respectively, including the VAT thereon for the billing period.
    
    The DUs, ECs and RES shall provide the certification of zero-rated/exempt transactions to the GenCos and Transmission Companies on or before the 5th day of the month following the invoice period.
    
    The GenCos and Transmission Companies will then issue the applicable adjustment documents (i.e. Debit Memo/Note; Credit Memo/Note; Journal Voucher; or Negative Invoice) which may be generated from their Computerized Accounting System or prepared manually to adjust the output tax liability charged on the zero rated and exempt transactions considering that the Output VAT on such was already included in the invoice issued by the GenCos and Transmission Companies.
    
• What is a Negative VAT Invoice?
  • For purposes of Question above, a negative VAT invoice issued by GenCos and Transmission Companies reflects the negative adjustment on the output tax initially charged. Said negative VAT invoice or other adjustment documents issued should indicate the original invoice/transactions being adjusted.
    
• What is the treatment of the payments made by DUs, ECs and RES to GenCos and Transmission Companies representing generation, transmission and other power related charges?
  • All Payments by DUs, ECs, and RES to the GenCos and Transmission Companies pertaining to generation, transmission and other VATable charges shall be subject to VAT, hence payment shall include the VAT thereon.
    
• Will GenCos and Transmission Companies be liable to the remittance of all outstanding deferred VAT from DUs and ECs prior to April 27, 2024 or the effectivity of the RR Nos. 3-2024 and 7-2024?
  • No. GenCos and Transmission Companies shall not be liable to the remittance of all outstanding deferred VAT form the effectivity of the RR No. 3-2024 on April 27, 2024.
    
    However, as a transitory procedure, the BIR shall require the following:
    • GenCos and TransCo shall submit (hard copy and soft copy), to the concerned Revenue District Offices (RDOs)/ Large Taxpayers (LT) Offices, on or before September 30, 2024, an inventory of the outstanding deferred VAT prior to April 27, 2024 from DUs/ECs and others.
    • DUs and ECs shall remit the deferred VAT, as collected, on behalf of each GenCos and Transmission Companies, using BIR Form No. 0605. The TIN of the GenCos and TransCo shall be clearly indicated on the BIR Form No. 0605. Mark “X” the box for ” Others (Specify)” and indicate that the payment is for “Deferred VAT – RMC No.___ “.
    • DUs and ECS shall submit (hard copy and Soft Copy) to the concerned RDOs/LT Offices, on or before the 10th day from the date of remittance of the BIR Form No. 0605, a Summary of the Remittance of Deferred VAT, clearly indicating the name of Supplier, Address, TIN RDO No., amount of VAT remitted, billing period, name of bank and date of remittance.
    • DUs/ECs shall provide the GenCos and Transmission Companies with copies of the duly filed BIR Form No. 0605, together with the proof of payment within three (3) days from the basis of the Generation and Transmission Companies for the issuance of the invoice in accordance with the transitory provision of RR No. 7-2024 and to record the payment of deferred VAT. The unremitted portion of the deferred VAT prior to April 27, 2024, if any, shall remain outstanding until fully collected or closure of the BIR audit of the power industry players.

By: Garry Pagaspas, CPA

With the advent of advanced technology, sales of goods and services has been automated online worldwide through digitalization without much interaction among buyers and sellers. For buyers, this gave much advantage for being able to acquire goods and services from outside the country, while local suppliers are challenged for competition within and outside Philippines. On the other side, it made the government realized the seemingly inequality on taxation between local suppliers paying taxes on sales while giving undue advantage for non-resident suppliers deriving income through digital platform from Philippine buyers without paying taxes on them in Philippines. These inequalities paved way to the legislation of Republic Act No, 12023 – Value Added Tax (VAT) on Digital Services Law in Philippines (RA 12023 -VAT on Digital Services Philippines) that is aimed to level the playing field among digital service providers – local and foreign. By this present, let us share the basic features of Republic Act No, 12023 – Value Added Tax (VAT) on Digital Services Law in Philippines as follows:

1. Classified and defined digital services and digital services providers

RA 12023 -VAT on Digital Services Philippines now classified digital services as among those services subject to 12% value added tax in Philippines. By definition, “digital services” shall refer to any service supplied over the internet or other electronic network with the use of information technology and where the supply of the service is essentially automated. Digital services shall include online search engines; online marketplace or e-marketplace; cloud services; online media and advertising; online platforms; or digital goods. For the purpose and by implication, digital service providers would refer to those who supply digital services subject to 12% value added tax in Philippines and is further classified as resident or non-resident – those that has no physical presence in Philippines.

In a Press Release of the Department of Finance dated September 28, 2024, it cited among digital service providers some popular streaming services such as Netflix, Disney+, and online shopping sites such as Shein, Temu and Amazon who will now have to pay for VAT on their digital services that are consumed in Philippines.

2. Imposed 12% VAT on non-resident digital services providers consumed in Philippines

Under RA 12023 – VAT on Digital Services Philippines, digital service providers are liable for 12% value added tax on their supply of digital services – whether residents on non-residents. This seems plain and simple for resident digital service providers who have a registered local entity in Philippines while for non-residents, this seems totally new, if not challenging. Accordingly, non-resident digital services providers are now subject to 12% VAT under RA 12023 – VAT on Digital Services Philippines and the following special rules apply:

• if Ph buyer is non-VAT registered, remit 12% VAT to the BIR;
• If Ph buyer is VAT registered, impose 12% VAT and buyer will withhold and remit 12% VAT to BIR;
• If classified as online marketplace or e-marketplace, they will also be liable to remit 12% VAT on transactions on non-resident sellers that go through the platform.

RA 12023 -VAT on Digital Services Philippines specifically provides that non-resident digital service providers are not allowed to claim creditable input VAT.

Notably, prior to RA 12023 -VAT on Digital Services Philippines, 12% VAT on services of non-residents normally apply to those services being rendered in the Philippines, regardless of whether they are regularly rendered in Philippines. Under RA 12023 -VAT on Digital Services Philippines, digital services of non-residents through their digital platforms are considered services performed in Philippines if such services are consumed in the Philippines.

3. Imposed further tax compliance obligations on non-resident digital services providers

RA 12023 -VAT on Digital Services Philippines requires the following tax compliance obligations upon non-resident digital services providers:

• Registration as VAT taxpayer in Philippines and for the purpose, BIR is to establish simplified automatic registration system for non-resident digital service providers. On comment, I would suppose this should be based on VAT threshold (e.g. PhP3M) under the rules.
• Registering and maintaining books of accounts relative to its registration, but not required subsidiary sales and purchases journal that is usually required for VAT registered taxpayers in Philippines.
• Registering and issuance of Sales Invoice for digital services to Philippine buyers with the following specified details that should indicates on the sales invoice in lieu of the requirements under Section 113(b) paragraphs 1 to 4: Date of the transaction; transaction reference number; Identification of the customer; brief description of the transaction, and the total amount with the indication that such amount includes the VAT.

Notably, penalties would be imposed for non-compliance of the above by the digital service providers in Philippines.

4. VAT exemption on digital services in Philippines

While RA 12023 -VAT on Digital Services Philippines imposes 12% VAT on digital services consumed in Philippines, it nevertheless imposed the following exemptions:

• digital services with respect to sale of online subscription-based services to DepEd, CHED and TESDA and to Ph educational institutions duly accredited by such agencies; and,
• services of banks, non-bank financial intermediaries and other non -bank financial intermediaries rendered through digital platforms.

5. Ph local buyers’ obligation to withhold VAT on payments to digital service providers

Considering the peculiarity of non-residents who do not have physical presence, RA 12023 -VAT on Digital Services Philippines imposed the following withholding tax obligations to local buyers in the Philippines:

• Withhold of 12% VAT on non-registered non-resident digital service providers for payments by government or any of its political subdivisions, instrumentalities or agencies including government owned and controlled corporations (GOCCs); and,
• Withholding of 12% VAT of VAT registered buyers in the Philippines.

Notably, the above are added withholding tax obligations imposed under RA 12023 -VAT on Digital Services Philippines while the rest of the withholding VAT rules would seem to remain in place such as 5% creditable VAT on government money payments to local VAT suppliers.

6. Funding for the development of creative industry in Philippines

Under RA 12023 -VAT on Digital Services Philippines 5% of incremental VAT revenues on digital services for the first five (5) years from effectivity of the law will be allocated and exclusive used for the development of creative industries in the Philippines.

7. Eyed to generate PhP80B to PhP145 B of revenues for 2025 to 2028.

As Sec of Finance puts it during its Press Release dated Sept. 28, 2024, RA 12023 – VAT on Digital Services Law in Philippine projects around PhP80B to PhP145B of VAT revenues for the period 2025 to 2028, depending on the compliance of digital services providers and related taxpayers.  

8. Power to block digital services of non-residents in coordination with DICT through NTC

RA 12023 -VAT on Digital Services Philippines provides that the power of the Commissioner of Internal Revenue to suspend operations shall include the blocking of digital services performed or rendered in the Philippines by a digital service provider which shall be implemented by the Department of Information and Communications Technology (DICT) through the National Telecommunications Commission (NTC).

Disclaimer.

The above features are lifted from the author’s understanding and personal take of the provisions of RA 12023 -VAT on Digital Services Philippines summarized for better appreciation of its provisions. The author suggests reading through the provisions of RA 12023 -VAT on Digital Services Philippines and watch-out for the implementing rules to be issued soon for further details.

Author’s Profile:

Garry Pagaspas, CPA is a currently the Managing and Tax Partner of G. Pagaspas Partners & Co. CPAs (independent member firm of Allinial Global, 2^nd largest accounting association worldwide based on International Accounting Bulletin’s 2023 released survey) based in Makati City with Global Outsourcing offices in Kalibo, Aklan. He is likewise the President at Tax and Accounting Center, Inc., the training and consulting company he founded in relation to his passion for teaching and helping out Ph entrepreneurs and foreign investors to Philippines.

Views in this article is personal to the author, not equivalent to a professional opinion and does not represent that of the organizations he is connected with. For your feedback or related concerns on staff leasing or employer of record in Philippines, you may send mail at info(@)taxactgcenter.ph (please exclude open and close parenthesis on the @ sign.

H. No. 4122

S. No. 2528

Republic of the Philippines

Congress of the Philippines

Metro Manila

Nineteenth Congress

Third Regular Session

Begun and held in Metro Manila, on Monday, the twenty-second day of July, two thousand twenty-four.

[Republic Act No. 12023]

AN ACT AMENDING SECTIONS 105, 108, 109, 110, 113, 114, 115, 128, 236, AND 288 AND               ADDING NEW SECTIONS 108-A AND 108-B OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled;

SEC 1. Section 105 of the National Internal Revenue Code of 1997, as amended, is hereby amended to read as follows:

Sec. 105. Persons Liable. – Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, including digital services, and any person who imports goods shall be subject to the value-added tax imposed in Sections 106 to 108 of this Code.

“The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.

“The phrase ‘in the course of trade or business’ means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto,  by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.

“The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business: Provided, That digital services delivered by nonresident digital service providers shall be considered performed or rendered in the Philippines if the digital services are consumed in the Philippines.”

SEC 2. Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:

“Sec. 108. Value-added Tax on the Sale of Services, Including Digital Services, and the Use or Lease of Properties. –

“(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of the gross sales derived from the sale or exchange of services, including digital services, and the use or lease of properties.           

“The phrase ‘sale or exchange of services’ means the performance of all kinds of services in the Philippines for others for a fee, remuneration, or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing, or repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; sales of electricity by generation companies, transmission by any entity, and distribution companies, including electric cooperatives; services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code, and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; digital service providers,; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase ‘sale or exchange of services’ shall likewise include:

“(1) x x x;

“(2) x x x;

“(3) x x x;

“(4) x x x;

“(5) x x x;

“(6) x x x;

“(7) The supply of digital services;

“(8) The lease of motion picture films, films, tapes, and discs; and

“(9) The lease or the use of or right to use radio, television, satellite transmission, and cable television time.

“Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines. “x x x.”

SEC. 3. A new section designated as Section 108-A under Chapter I, Title IV, of the National Internal Revenue Code of 1997, as amended, is hereby inserted to read as follows:

“Sec. 108-A. Liability of Persons Providing Digital Services. – The digital service provider, whether resident or nonresident, shall be liable for assessing, collecting, and remitting the value-added tax on the digital services consumed in the Philippines, subject to the provision on withholding of value-added tax on digital services under Section 114(D).

“When used in this title:

“(a) The term ‘digital service’ shall refer to any service that is supplied over the internet or other electronic network with the use of information technology and where the supply of the service is essentially automated. Digital service shall include:

“(1) Online search engine;

“(2) Online marketplace or e-marketplace;

“(3) Cloud service;

“(4) Online media and advertising;

“(5) Online platform; or

“(6) Digital goods.

“(B) The term ‘digital service provider’ refers to a resident or nonresident supplier of digital services to a consumer who uses digital services subject to value-added tax in the Philippines. “(C) The term ‘nonresidential digital service provider’ means a digital service provider that has no physical presence in the Philippines.”

SEC. 4. A new section designated as Section 108-B under Chapter I, Title IV, of the National Internal Revenue Code of 1997, as amended, is hereby inserted to read as follows:

“Sec. 108-B. Liability of a Nonresident Digital Service Provider to Withhold and Remit Value-Added Tax. – A nonresident digital service provider required to be registered for value-added tax (VAT) under Section 236 (F) of this Code shall be liable for the remittance of value-added tax on the digital services that are consumed in the Philippines if the consumers are non-VAT registered: Provided, That if the consumers are VAT-registered, the provision of Section 114(D) shall apply.

Ïf a VAT-registered nonresident digital service provider is classified as an online marketplace or e-marketplace, it shall also be liable to remit the value-added tax on the transactions of nonresident sellers that go through its platform: Provided, That it controls key aspects of the supply and performs any of the following:

“(a) It sets, either directly or indirectly, any of the terms and conditions under which the supply of goods is made; or

“(b) It is involved in the ordering or delivery of goods, whether directly or indirectly.

SEC. 5. Section 109 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:

“Sec. 109. Except Transaction. –

“The following transactions shall be exempt from the value-added tax:

“(A) x x x

“(B) x x x

“(C) x x x

“(D) x x x

“(E) x x x

“(F) x x x

“(G) x x x

“(H) Educational services, including online courses, online seminars, and online trainings, rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA), and those rendered by government educational institutions; and sale of online subscription-based services to DepEd, CHED, TESDA, and educational institutions recognized by said government agencies;

“(I) x x x

“(J) x x x

“(K) x x x

“(L) x x x

“(M) x x x

“(N) x x x

“(O) x x x

“(P) x x x

“(Q) x x x

“(R) x x x

“(S) x x x

“(T) x x x

“(U) x x x

“(V) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, including those rendered through different digital platforms;

“(W) x x x

“(X) x x x

“(Y) x x x

“(Z) x x x

“(AA) x x x

“(BB) x x x

“(CC) x x x.”

SEC. 6. Section 110 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:

Sec. 110. Tax Credits. –

“(A) Creditable Input Tax. –

“(1) x x x

“(2) The input tax on domestic purchase or importation of goods or properties by a VAT-registered person shall be creditable:

“(a) To the purchaser upon consummation of sale and on importation of goods or properties; and

“(b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs.

“Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code shall be spread evenly over the month of acquisition and the fifty-nine(59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000): Provided, however, That if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, further, That the amortization of the input VAT shall be allowed until December 31, 2021 after which taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as scheduled until fully utilized: Provided, finally, That in the case of purchase of services, lease r use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.

“Notwithstanding the foregoing, nonresident digital service providers shall not be allowed to claim creditable input tax.

“x x x.”

SEC. 7. Section 113 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:

“Sec. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. –

“(A) Invoicing Requirement. – A VAT-registered person shall issue a VAT invoice for every sale, barter, exchange, or lease of goods or properties, and for every sale, barter, or exchange of services: Provided, That a digital sales or commercial invoice shall be issued for every sale, barter, or exchange of digital services made by a VAT-registered nonresident digital service provider.

“(B) Information Contained in the VAT Invoice. –  x x x

“(1) x x x

“(2) x x x

“(3) x x x

“(4) x x x

“(5) The digital sales or commercial invoice issued by a VAT-registered nonresident digital service provider shall indicate the following information in lieu of the requirements under Section 113, Subsection (b), paragraph 1 to 4:

“(a) Date of the transaction;

“(b) Transaction reference number;

“(c) Identification of the customer

“(d) Brief description of the transaction; and

“(e) The total amount with the indication that such amount includes the value-added tax:

“Provided, That if the sale of digital services includes some services which are subject to VAT, and some that are VAT zero-rated, or VAT-exempt, the invoice shall clearly indicate the breakdown of the sale price by its taxable, VAT-exempt, and VAT zero-rated components: Provided, further, That the calculation of the value-added tax on each portion of the sale shall be shown on the invoice.

“(C) Accounting Requirements – Notwithstanding the provisions of Section 233, all persons subject to the value-added tax under Section 106 and 108 shall, in addition to the regular accounting records required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The subsidiary journals shall contain such information as may be required by the Secretary of Finance: Provided, That this subsection shall not apply to VAT-registered nonresident digital service providers.

“(D) x x x

“(E) x x x

SEC. 8. Section 114 of the National Internal Revenue Code of the 1997, as amended, is hereby further amended to read as follows:

“Sec. 114. Return and Payment of Value-Added Tax. –

“(A) In General. – x x x

“(B) Where to Fil the Return and Pay the Tax. – x x x

“(C) Withholding of Value-Added Tax. – The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or –controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That beginning January 1, 2021, the VAT withholding system under this subsection shall shift from final to a creditable system: Provided, further, That the payment for lease or use of properties or property rights to nonresident owners and payments for services to nonresident suppliers who are not registered under Section 236 shall be subject to twelve percent (12%) withholding tax at the time of payment: Provided, finally, That payments for purchases of goods and services arising from projects funded by Official Development Assistance (ODA) as defined under Republic Act No. 8182, otherwise known as the ‘Official Development Assistance Act of 1996” as amended, shall not be subject to the final withholding tax system as imposed in this subsection. For purposes of this section, the payor or person in control of the payment shall be considered as the withholding agent.

“(D) Reverse Charge Mechanism in Digital Services. – A VAT-registered taxpayer shall be liable to withhold and remit the value-added tax due on its purchase of digital services consumed in the Philippines from nonresident digital service providers to the Bureau of Internal Revenue, within (10) days following the end of the month the withholding was made.”

SEC. 9. Section 115 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:

“Sec. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. – x x x

“(a) x x x –

“(1) x x x

“(2) x x x

“(3) x x x

“(b) Failure of any Person to Register as Required under Section 236.

“The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order,

“The power of the Commissioner to suspend shall include the blocking of digital services performed or rendered in the Philippines by a digital service provider. This shall be implemented by the Department of Information and Communications Technology (DICT), through the National Telecommunications Commission (NTC).”

SEC. 10. Section 128 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:

“Sec. 128. Returns and Payment of Percentage Taxes. –

“(A) Returns of Gross Sales or Earnings and Payment of Tax. –

“(1) Persons Liable to Pay Percentage Taxes. – Every person subject to the percentage taxes imposed under this Title shall file, either electronically or manually, a quarterly return of the amount of the person’s gross sales or earnings and pay, either electronically or manually, to any authorized agent bank, Revenue District Office through Revenue Collection Officer or authorized tax software provider, the tax due thereon within twenty-five (25) days after the end of each taxable quarter: Provided, That the Secretary of Finance may, upon the recommendation of the Commissioner, require the withholding of percentage taxes imposed under this Title: Provided, further, That in the case of a person whose VAT registration is cancelled and who becomes liable to the tax imposed in Section 116 of this Code, the tax shall accrue from the date of cancellation and shall be paid in accordance with the provisions of this section.

“(2) Person Retiring from Business. – Any person retiring from a business subject to percentage tax shall notify the nearest internal revenue officer, file, either electronically or manually, the person’s return and pay, either electronically or manually the tax due thereon within twenty (20) days after closing the business.

“(3) Determination of Correct Sales. – When it is found that a person has failed to issue invoices, or when no return is filed, or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code, the Commissioner, after taking into account the sales or other taxable base of other persons engaged in similar businesses under similar situations or circumstances, or after considering other relevant information, may prescribe a minimum amount of such gross sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person.

“(B) Where to File. – x x x”

SEC. 11. Section 236 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:

Sec. 236. Registration Requirements. –

“(A) x x x

“(B) x x x

“(C) x x x

“(D) x x x

“(E) x x x

“(F) Persons Required to Register for Value-Added Tax. –

“(1) Any person who, in the course of trade or business, sells, barters, exchanges, or leases goods or properties, including those digital in nature, any person who renders services, including digital services, or engages in the sale or exchange of services, shall be liable to register, either electronically or manually, for value-added tax if:

“(a) The person’s gross sales for the past twelve (12) months, other than those that are exempt under Section 109 (A) to (CC), have exceeded the threshold as provided in Section 109 (CC); or

“(b) There are reasonable grounds to believe that the gross sales for the next twelve (12) months, other than those that are exempt under Section 109 (A) to (CC), will exceed the threshold as provided in Section 109 (CC):

“Provided, That the BIR shall establish a simplified automated registration system for nonresident digital service providers, which shall be prescribed by the Secretary of Finance, upon the recommendation of the Commissioner.

“x x x.”

SEC. 12. Section 288 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:

“Sec. 288. Disposition of Incremental Revenues. – x x x

“(H) Incremental Revenues from the Value-added Tax on Digital Service Providers. – Five percent (5%) of the incremental revenue from the value-added tax on digital service providers under Section 108 shall be allocated to and used exclusively for the development of creative industries, as defined under Republic Act No. 11904, otherwise known as the “Philippine Creative Industries Development Act,” for five (5) years from the effectivity of this Act

“Upon the lapse of the five (5) year period, all such incremental revenues shall accrue to the General Fund.”

SEC. 13. Mode of Correspondence. – Any communication, notice, or summons to a nonresident digital service provider can be made via electronic mail messaging.

SEC. 14. Transitory Clause. – Nonresident digital service providers shall immediately be subject to value-added tax under this Act after one hundred twenty (120) days from the effectivity of the implementing rules and regulations.

SEC. 15. Implementing Rules and Regulations. – The Department of Finance (DOF), upon the recommendation of the BIR, and in coordination with the DICT and the NTC, and upon consultation with the stakeholders, shall issue rules and regulation for the effective implementation of this Act not later than ninety (90) days from the effectivity of this Act.

SEC. 16. Separability Clause. – Should any provision of this Act or any part thereof be declared invalid, the other provisions, so far as they are separable from the invalid ones, shall remain in force and effect.

SEC. 17. Repealing Clause. – All laws, decrees, orders, and issuances, or portions thereof, which are inconsistent with the provisions of this Act, are hereby repealed, amended, or modified accordingly.

Approved,

FRANCIS “CHIZ” G. ESCUDERO                                  FERDINAND MARTIN G. ROMUALDEZ

     President of the Senate                                               Speaker of the House of  Representatives 

This Act, which is a consolidation of House Bill No. 4122 and Senate Bill No.  2528, was passed by the House of Representatives and the Senate of the Philippines on July 30, 2024, and July 29, 2024, respectively.

RENATO N. BANTUC JR.                                                 REGINALD S. VELASCO

Secretary of the Senate                                          Secretary General, House of Representatives  

 Approved: October 02, 2024

Prescribing the Mandatory Requirements for Claims for Tax Credit or Refund of Excess/Unutilized Creditable Withholding Taxes on Income Pursuant to Section 76(C), in Relation to Section 204(C) and 229 of the National Internal Revenue Code of 1997, as Amended (Tax Code) Except Those Under the Authority and Jurisdiction of the Legal Group

This Circular is issued to provide guidelines and prescribe the mandatory documentary requirements in the processing and grant of claims for issuance of tax credit certificates (TCC) or cash refund (TCC/refund) of excess/unutilized creditable withholding taxes (CWT) on income under Section 76(C), in relation to Sections 204(C) and 229 of the Tax Code, in line with the recently introduced reforms on tax refunds under Republic Act (R.A.) No. 11976, also known as the Ease of Paying Taxes (EOPT) Act of 2023. This does not cover actions on request for tax credit/refund based on writ of execution issued by the Court of Tax Appeals (CTA) and the Supreme Court under the authority and jurisdiction of the Legal Group.

• General Policies
  • The taxpayer-claimant shall submit the Application for Tax Credits/Refunds (BIR Form No. 1914) for claims under Section 76(C), in relation to Section 204(C) and 229 of the Tax Code, to the processing office that have jurisdiction over the taxpayer-claimant as follows:
    • The Revenue District Office (RDO); or
    • The respective Large Taxpayers Audit Division (LTAD) or Large Taxpayers District Office (LTDO) under the Large Taxpayers Service (LTS).
  • Under Section 76(C) of the Tax Code, the processing office/s shall decide on the application and refund the excess taxes within two (2) years from the date of the dissolution or cessation of business, which is an exception to the 180-day processing of TCC/refund under Section 204(C) of the Tax Code. For Purposes of this Circular. The 2-year period to process the tax refund shall commence from the submission of the Application for Registration Information Update/Correction/Cancellation (BIR Form No. 1905) together with the complete documentary requirements set by the BIR for the closure of business and the refund of excess income taxes due to cessation or dissolution of business under Section 76(C) of the Tax Code.
  • Only application with complete documentary requirements enumerated in the attached Checklist of Mandatory Requirements (Annex “A.1” for taxpayers of “going concern” status or Annex “A.2” for taxpayers undergoing dissolution or cessation of business) shall be received and processed by the authorized processing office.
• Documents to be Submitted by the Taxpayer-Claimant upon Filing of the Application for CWT Credit/Refund
  • The application/s must be accompanied with complete supporting documents enumerated in the Checklist of Mandatory Requirements (Annex “A.1” for taxpayers of “going concern” status or Annex “A.2” for taxpayers undergoing dissolution or cessation of business)
  • The taxpayer-claimant shall accomplish and provide comparative matrix of tax withheld in accordance with the format provided in Annex “A.3”.
  • The taxpayer-claimant shall attach a notarized Taxpayer Attestation (Annex “A.4”) certifying to the completeness of the documents submitted. Accordingly, the claims shall be processed based on the documents submitted. The books of accounts and accounting records shall be presented by the taxpayer-claimant upon written request of the assigned Revenue Officers (ROs). Failure to present the books of accounts and accounting records relevant to the claims may be a ground for denial of the application for TCC/refund.
  • The taxpayer-claimant shall fully cooperate with the assigned ROs and shall ensure availability of all documents that may be requested during the verification in case there are issues or findings that need further clarification so as not to cause undue delay on the 180-day processing of the CWT credit/refund. Failure to cooperate or submit the request documents for clarification as further requested by the assigned ROs may result in the full or partial denial of the claims.
  • The tax returns filed by the taxpayer-claimant, particularly the Quarterly and Annual Income Tax Returns to the date of application of the CWT credit/refund or the issuance of the electronic Letter of Authority, whichever comes first, shall be considered in the processing of the claims.

By: Garry Pagaspas, CPA

In an effort to streamline and facilitate tax compliance, Philippine government has been initiating numerous tax reforms. With the end view to ease the burden and make it more comfortable for taxpayers to file and pay their taxes along with related reports, Republic Act No. 11976 otherwise known as Ease of Paying Taxes” in the Philippines has been signed into law last January 5, 2024 and made effective last January 22, 2024 or within 15 days from publication last January 7, 2024.

 Under Republic Act No. 11976 otherwise known as “Ease of Paying Taxes” in the Philippines or “RA 11976 EOPT Ph”, the following are new Philippines Value Added Tax (VAT) rules being implemented by the Bureau of Internal Revenue (BIR) that taxpayers should be aware of:

1. Eased VAT registration and updates under RA 11976 EOPT Ph

Prior to RA 11976 EOPT Ph, taxpayers are required to file and pay PhP500.00 Annual Registration Fee (ARF) every year not later than January of each calendar year. Under RA 11976 EOPT Ph, such PhP500.00 Annual Registration Fee has been discontinued effective January 22, 2024 and so, taxpayers who have not yet paid for 2024 as of January 22, 2024 and for subsequent years are no longer required to file and pay PhP500.00 Annual Registration Fee. Further, under RA 11976 EOPT Ph, filing of registration update could be made either manually or online so it would become easier to effect changes on taxpayers’ registration, but this will not preclude BIR from conducting an audit to determine tax liability. VAT threshold of PhP3,000,000 is likewise bound to be adjusted every three (3) years based on Consumer Price Index of Philippine Statistics Authority so taxpayers could just watch out for such changes and determine impact for them accordingly.

2. Eased filing and payment of VAT under RA 11976 EOPT Ph

Prior to RA 11976 EOPT Ph, taxpayers are required to pay taxes strictly at the BIR Revenue District Office of registration and if registered under electronic filing and payment system (EFPS), the same should be filed and paid electronically. Should the taxpayer fail to do so, a surcharge of 25% of the basic tax shall be imposed as “wrong venue” filing and payment.

Under RA 11976 EOPT Philippines, filing and payment of taxes has been made easier. First, it provides that taxes in Philippines could be filed and paid either manually or electronically with the authorized agent bank (AAB), revenue collection officer (RCO) of the BIR office, or through a tax software provider. Secondly, it provided a “filing and payment anywhere”, not just within the coverage of BIR Revenue District Office of registration, but in any BIR Revenue District Office coverage. Thirdly, the 25% surcharge on the wrong venue has been abolished.

3. Eased VAT Invoicing under RA 11976 EOPT Ph

Prior to RA 11976 EOPT Philippines, sellers of goods are required to issue an Invoice while sellers of service are quired to issue an Official Receipts as basis for 12% VAT, and this becomes confusing at times resulting to disallowances of claims for tax credits on input VAT. To simplify VAT invoicing in Philippines, RA 11976 EOPT Ph came up with a uniform invoicing for both sellers of goods and sellers of services through issuance of a “VAT Invoice” as basis in Philippines for 12% Output VAT of the seller and Input VAT credit of the buyer effective April 27, 2024 upon the effectivity of RR 3-2024. Supplementary documents (e.g. delivery receipt, official receipt, acknowledgment receipt, billing statement, etc.) could also be used to document the transaction but will not become a valid proof of support for 12% Input VAT claim.

On transition, unused manual and loose leaf VAT Official Receipts in Philippines of sellers of services could still be used for 12% VAT transactions until December 31, 2024 but they have to strike “Official Receipts” and stamp as VAT Invoice (see Section 8(2), RR 7-2024), and submit an Inventory of such unused receipts within 30 days from effectivity of RR 7-2024 or until May 27, 2024. Alternatively, they could use such unused manual and loose leaf Official Receipts in Philippines until fully consumed as supplementary document with the phrase stamped on its face – “This document is not valid for claim of Input VAT’.

Certain information shall be contained in the VAT Invoice in Philippines under RA 11976 EOPT Ph and should the seller fail to indicate specific information, the seller could be held liable for such failure while the buyer could still claim the Input VAT from such VAT Invoice, despite being incomplete in details. For transactions of PhP1,000.00 or more, the rules previously require indicating “business style” and this rule has also been removed by RA 11976 EOPT Ph.

4. Simplified 12% VAT base and new input VAT on receivables under RA 11976 EOPT Ph

With the adoption of uniform VAT invoice for VATable sales in Philippines, RA 11976 EOPT Ph effectively adopted accrual basis of accounting for sellers of service making them liable for 12% based on billings for services rendered, instead of previously being liable for 12% VAT based on collections from services. Simply stated, sellers of services will now be liable for 12% VAT based on VAT Invoice in Philippines for services rendered, regardless of whether or not the customer or client pays them during the quarter. Should the customer or client fail to pay the VAT Invoice during the quarter, 12% VAT on such receivable/s from transactions that transpired upon the effectivity of the implementing rules (RR No. 3-2024) or starting April 27, 2024 could be allowed as VAT credit, provided such receivables has not yet been actually written off as worthless accounts for income tax purposes. In the event of recovery of such receivables, VAT portion will be added to the VAT liability on the quarter of recovery.

5. Enhanced VAT refund rules under RA 11976 EOPT Ph

Refund of excess Input VAT from zero-rated transactions will be acted upon by the BIR based on risk-level assessment: low risk requiring no further verification of duly submitted documents; medium risk requiring verification of at least 50% of its purchases and sales documents; and high-risk that would require 100% verification of duly submitted documents. Under RA 11976 EOPT Ph, if post-audit by the Commission on Audit (COA) resulted to disallowances, taxpayer should be made to account for such funds received based on COA rules for disallowances.

Previously, VAT refund process for excess Input VAT from zero-rated transactions should be completed by the BIR Philippines within 120 days from filing the application with complete documents and should the BIR fail to act (approve or deny) within such period, the taxpayer could file an appeal with the Court of Tax Appeals (CTA). This 120-day period was made 90 days in the previous amendment of the Tax Code but the 30-day appeal for inaction was removed. This appeal to CTA for BIR inaction is now restored under RA 11976 EOPT Ph.

For refund of VAT that was erroneously or illegally collected, the previous attempt to impose a processing period for BIR has been vetoed. Under RA 11976 EOPT Ph, it provides that the same should now be processed by the BIR within 180 days from submission of complete documents and inaction of the BIR is appealable to CTA within 30 days from lapse of the 180 days. Should BIR personnel/officer deliberately failed to act on such application, they could be held liable upon conviction under Section 269(J) of the Tax Code, as amended, for a penalty of PhP50,000 to PhP100,000 and/or an imprisonment of 5 to 10 years, among other penalties.

6. Reduces penalties for micro and small taxpayers under RA 11976 EOPT Ph

Under RA 11976 EOPT Philippines, certain concessions were made to micro (up to P3M gross sales) and small taxpayers (up to PhP 20M gross sales) such as the following:

• surcharge of 10% of basic tax instead of 25% surcharge on failure to file and pay in full, unless for willful neglect or filing a false or fraudulent tax returns intent to evade taxes where 50% surcharge applies;
• 6% interest instead of 12% interest on unpaid taxes;
• compromise penalty of PhP 500 for every failure to file and pay information returns, statements, or list, or keep any record, or supply any information as may be required but not to exceed PhP12,500 for all such failure during a calendar year.

While this seems a good thing, the author suggest micro and small taxpayers to focus on ensuring compliance instead of relying on these reduced penalties.

7. Enhanced period for keeping books of accounts

Prior to RA 11976 EOPT Ph, books of accounts and other accounting records are required to be kept within a period of ten (10) years and subsequent BIR issuance allowed keeping hard copies for first five (5) years and online copies for the next five (5) years.

Under RA 11976 EOPT Ph, books of accounts and other accounting records will only be required to be kept for a period of five (5) years reckoned from the day following the deadline in filing a return or from the date of late filing for the taxable year when the last entry was made in the Books of Accounts.  Under the implementing rules (see Section 4, RR 7-2024), they should be kept in hard copies for those under manual books of accounts and manual bound loose leaf books of accounts while those under computerized books of accounts, they could be kept in electronic copies.        

Profile:

Garry Pagaspas, CPA is a currently the Managing and Tax Partner of G. Pagaspas Partners & Co. CPAs (independent member firm of Allinial Global, 2^nd largest accounting association worldwide based on International Accounting Bulletin’s 2023 released survey) based in Makati City with Global Outsourcing offices in Kalibo, Aklan. Views in this article is personal to the author, not equivalent to a professional opinion and does not represent that of the organizations he is connected with.

Registered companies in the Philippines are required to register and submit their employees to 3 government agencies, namely, the Social Security System (SSS), Home Development Mutual Funds (HDMF), and the Philippines Health Insurance Corporation (PHIC). These government agencies handle the status of private company’s employees’ contributions and their benefits. These benefits are administered by the respective government agencies through their monthly salary basis to avoid penalties due to delay of monthly contributions.

Social Security System (SSS)

All private companies must apply to SSS to ensure the protection of the employees and their families as well.

Companies in the Philippines must register first in order to register their employees to SSS

What are the documentary requirements?

• SSS R1 Form (Employer Registration Form) – This form includes the company data such as Company name, office address, start of operation, contact details (telephone number and email address), and original signed by the Authorized signatories.
• SSS R1A Form (Employment Report Form)- This form contains the list of hired employees alongside their registered SSS number, date of hiring, and their monthly compensation.
• SSS L-501 Form (Specimen Signature Card)- This form needs to be signed by the appointed signatories and approved by the Authorized Signatories.
• SSS Web Registration for Employer – This form is provided after the registration of the company in SSS containing the details like company name, address, and name of the signatories with the original sign of the Authorized Signatories.
• Other Documents are as follows:
  • SEC registration documents, such as but not limited to SEC Certificate of Incorporation, Articles of Incorporation and By-Laws, etc.
  • Secretary’s Certificate or any equivalent document authorizing a third party to process the registration, if applicable
  • Original and Photocopy of valid IDs of Authorized Signatory/ies
  • Original and Photocopy of valid IDs of Authorized Representative.

Home Development Mutual Fund (HDMF)

The Government Agencies are responsible for collecting contributions used for funding salary loans, housing loans, and other benefits to ensure the protection of employees and their families as well.

What are the documentary requirements?

• Employer’s Data Form – This form is needed in order to register in Home Development Mutual Funds also known as Pag-IBIG funds, In this form, you need to fill out the important details referring to the company such as Company name, Address, Tax Identification Number (TIN), Company SSS number and Date of Operation, Originally signed by the Authorized.
• Specimen Signature Form – This form needs to be signed by three (3) appointed signatories and approved and authorized by the Authorized Signatories (President, Chairman, Corporate Secretary).
• eSRS Employer Enrollment Form: This form is needed in order to access the online status and updates of the company contributions and loans, Fill out the form with these details: Company name and address, authorized signatories contact and email address, and signature of the authorized signatories.

Note: The Home Development Mutual Fund (HDMF) must be registered second to the Social Security System (SSS) after registration.

Philippine Health Insurance Corporation (PHIC)

Philippine Health Insurance Corporation also known as PhilHealth with the assistance of the Department of Health (DOH) is a government corporation that provides health insurance assistance and affordable health care to the beneficiaries that may occur during their employment.

The Company is required to register with the PHIC, register their employee, and remit the monthly contribution based on their monthly salary.

What are the documentary requirements?

• PHIC ER1 Employer Data Record- Fill up this form with complete details: Company Name, Office Address, contact number/Email Address, Number of employees, and Signed by the Authorized Signatories.
• PHIC Er2 Report of Employee-Members – In this form, the company must declare the list of employees alongside the SSS/PhilHealth number, monthly salary, and date of employment in the company, signed by the authorized signatories
• PhilHealth Online Access Form (POAF) – This form is processed in order to access the online status of contributions and update, Fill out this form with the company name and contact details of the authorized signatories with its original sign.

Remember:

• All the documents must be printed at least (3) three copies and originally signed by the Authorized Signatories.
• Contact details and Email Addresses must be active and updated for receiving emails from these government agencies.

List of Valid Identification Card (ID)

PRIMARY IDs	SECONDARY IDs
1. Passport	PhilHealth ID
2. UMID IDs (SSS)	BIR ID
3. Driver’s Licensed	Pag-IBIG ID
4. Voter’s ID	Company ID

As we live in a modern world, where everything you see is digital. Everyone needs to be up to date and must conform to the new rules and regulations of the world. And as everything now can be seen online, be it pictures, videos, music, anything, all can be looked up on the internet. That is why the rights of individuals over their personal data and enforcing the responsibilities of entities who process them are being acknowledged in the Data Privacy Act of 2012.

From then an independent body was created under RA No. 10173 or the Data Privacy Act of 2012 which is the National Privacy Commission or NPC. It is mandated to monitor and ensure compliance of the country with international standards set for data protection. The Commission safeguards the fundamental human right of every individual to privacy, particularly information privacy while ensuring the free flow of information for innovation, growth, and national development. One of its functions is to develop, promulgate, review, or amend rules and regulations for the effective implementation of the DPA (Data Privacy Act).

The Registration Process is where a PIC or PIP shall create an account by signing up on the NPC’s official registration platform (NPCRS) where it shall provide details about the entity.

Step 1. Account Creation

a. Access the National Privacy Commission Registration System (NPCRS) at https://npcregistration.privacy.gov.ph

b. Upon signing up, the PIC or PIP shall input the name and contact details of the Data Protection Officers (DPO) together with a unique and dedicated *email address, specific to the position of DPO.

The DPO email address should be unique per PIC/PIP. The email address and Philippine Cellphone Number provided will be treated as the official contact channels.

Step 2. Registration Proper

a. Login using credentials.

b. Select the Type of DPO/DPS Registration

– During registration proper, the PIC or PIP shall:

1) Encode the organizational details; name and contact details of the Head of the Organization or Head of the Agency.

2) Encode Data Processing System(s) details; all Data Processing Systems of the PIC or PIP at the time of initial registration.

3) Encode the details of Compliance Officer(s) for Privacy if applicable.

4) Upload the prescribed supporting documents as provided under Section 11, NPC Circular No. 22-04.

5) Click “Save Registration”

c. For Notarization

1) Export DPO Form (PDF Format) automatically created during DPS Registration.

2) Print and sign the downloaded form (both DPO and Head of the Organization or Agency).

3) Have the completely filled out form notarized.

4) Scan, upload, and submit notarized DPO Form.

NOTE: The submission of the PIC or PIP shall undergo review and validation by the Commission. In case of any deficiency, the PIC or PIP shall be informed of the same and shall be given five (5) days to submit the necessary requirements.

Step 3. Download the Certificate of Registration and NPC Seal of Registration

– Once the submissions have been validated and considered complete, the PIC or PIP shall be informed that the Certificate of Registration together with the NPC Seal of Registration is available for download.

An application for registration filed by a PIC or PIP must be duly notarized and be accompanied by the following documents:

A. For government agencies:

Special or Office Order, or any similar document, designating or appointing the DPO of the PIC or PIP;

B. For domestic private entities:

1. For Corporations:

a) A duly notarized Secretary’s Certificate authorizing the appointment or designation of DPO, or any other document demonstrating the validity of the appointment or designation of the DPO signed by the Head of the Organization with an accompanying valid document conferring authority to the Head of Organization to designate or appoint persons to positions in the organization.

b) Securities and Exchange Commission (SEC) Certificate of Registration.

c) Certified true copy of the latest General Information Sheet.

d) Valid business permit.

2. For One Person Corporation (OPC)

a) A duly notarized Secretary’s Certificate authorizing the appointment or designation of DPO, or any other document that demonstrates the validity of the

appointment or designation of DPO signed by the sole director of the One Person Corporation.

b) SEC Certificate of Registration

c) Valid business permit.

3. For Partnerships

a) A duly notarized Partnership Resolution or Special Power of Attorney authorizing the appointment or designation of DPO, or any other document that demonstrates the validity of the appointment or designation

b) SEC Certificate of Registration.

c) Valid business permit.

4. Sole Proprietorships:

a) A duly notarized document appointing the DPO and signed by the sole proprietor, in case the same should elect to appoint or designate another person as DPO.

b) DTI Certificate of Registration.

c) Valid business permit.

C. For foreign private entities:

1. Authenticated copy or Apostille of Secretary’s Certificate authorizing the appointment or designation of DPO, or any other document that demonstrates the appointment or designation, with an English translation thereof if in a language other than English.

2. Authenticated copy or Apostille of the following documents, with an English translation thereof if in a language other than English, where applicable:

a) Latest General Information Sheet or any similar document.

b) Registration Certificate (Corporation, Partnership, Sole Proprietorship) or any similar document.

c) Valid business permit or any similar document.

Expanding a business internationally can be a lucrative venture, and the Philippines has emerged as a promising destination for foreign investors due to its strategic location, growing economy, and large English-speaking workforce. If you’re considering establishing a presence in the Philippines, registering a foreign branch or representative office is one of the viable options to explore. In this article, we’ll guide you through the process of registering a foreign branch/representative office in the Philippines.

Understanding the Difference between a Foreign Branch and a Representative Office:

Before proceeding with the registration, it’s crucial to understand the distinction between a foreign branch and a representative office, as each has its purpose and limitations:

1. Foreign Branch: A foreign branch is an extension of the parent company and carries out commercial activities similar to those of the parent company. It can engage in profit-generating activities, enter into contracts, and conduct business operations on behalf of the parent company. However, a foreign branch is subject to regular corporate income tax.
2. Representative Office: On the other hand, a representative office is limited to non-revenue-generating activities, mainly acting as a liaison or coordinating office. It serves to promote the interests of the parent company, conduct market research, and facilitate communication with clients and affiliates in the Philippines. A representative office cannot enter into contracts, make sales, or generate revenue. As a result, it is generally subject to a lower tax burden.

Step-by-Step Guide to Registering a Foreign Branch/Representative Office:

1. Pre-Registration Requirements:

• Reserved Name: Choose a unique name for your branch or representative office and reserve it with the Securities and Exchange Commission (SEC).
• Local Representative: Appoint a resident agent or representative in the Philippines who will act as the liaison between your office and local authorities.
• Bank: A treasurer-in-trust (TITF) account with the required paid-up capitalization shall be maintained with the bank as proof of such capitalization evidenced by a bank certificate and inward remittance, if applicable. TITF account is for deposit only and restricted for withdrawal except upon approval of the Securities and Exchange Commission (SEC) of the registration papers.

2. SEC Registration:

• Draft application to the Securities and Exchange Commission (SEC) online platform.
• Submit the necessary documents to the SEC, which may include:
  • i. Authenticated copy of the parent company’s board resolution approving the establishment of the branch/representative office in the Philippines.
  • ii. Authenticated copy of the Articles of Incorporation/Partnership with an English translation thereof if in a foreign language other than English
  • iii. Authenticated Audited Financial Statement or if unaudited, with a certification signed under oath by an officer of a responsible regulatory institution or by the applicant’s legal counsel that the applicant is not required to prepare and submit an audited financial statement with citation of the law or regulation on which it is based.
  • iv. Notarized proof of inward remittance such as bank certificate of inward remittance or credit advances
  • v. Endorsement or clearance from regulatory agencies, if applicable (e.g., Bangko Sentral ng Pilipinas for financial institutions).
• Pay the required registration fees and obtain the SEC Certificate of License to do Business here in the Philippines.

3. Other Registrations:

• Tax Identification Number (TIN): Register with the Bureau of Internal Revenue (BIR) to obtain a TIN for tax purposes.
• Local Business Permits: Obtain necessary business permits from the local government unit (LGU) where your branch/representative office will operate.
• Employer Registration: Register with the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), and Home Development Mutual Fund (Pag-IBIG) if you plan to hire employees.

4. Bank Account Opening:

• Open a local bank account in the Philippines to facilitate financial transactions.

5. Post-Registration Compliance:

• Books of Accounts: Comply with accounting and bookkeeping requirements and maintain books of accounts in accordance with Philippine accounting standards.
• Annual Reporting: Submit annual reports to the SEC and other government agencies, as required.
• Renewal of Permits: Ensure timely renewal of business permits and registrations to operate legally in the country.

Non-stock corporations or foundations in the Philippines may be formed for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, such as trade, industry, agricultural, and like chambers, or any combination thereof. 

Certain accredited non-stock, non-profit corporations in the Philippines are exempt from income tax on donations, grants, and gifts provided they are: 

1. Organized “exclusively” for one or more of the following purposes: religious, charitable, scientific, athletic, social welfare, cultural purposes, or for the rehabilitation of veterans and; 

2. No part of their net income or asset belongs to or inures to the benefit of any member, organizer, officer, or any specific person. 

To set up a non-stock non-profit corporation in the Philippines, you must first be registered with different government agencies. This article might be a help to your generous and big heart, having in mind the welfare of the less fortunate, or just want to start a non-stock non-profit corporation. 

Incorporators 

Incorporators shall be not less than five (5) in number but not more than fifteen (15) and the majority of whom are residents of the Philippines. Resident or non-resident aliens (foreigners) can be incorporators of a non-stock corporation, provided that the majority of the incorporators are residents of the Philippines. 

Basic requirements for registration with the Securities and Exchange Commission (SEC) 

The documentary requirements of the Securities and Exchange Commission (SEC) in the Philippines are as follows: 

1. Name Verification Slip 

2. Articles of Incorporation and By-laws; 

3. Joint affidavit of two incorporators to change the corporate name; 

4. List of members certified by the corporate secretary, unless already stated in the Articles of Incorporation; and 

5. List of the names of contributors or donors and the amounts contributed or donated certified by the treasurer 

There is no fixed amount of contribution required but only such reasonable amount as the incorporators and trustees may deem sufficient to enable the corporation to start operation, except in the case of foundations which must have a minimum contribution of at least One Million Pesos (P1,000,000.00). 

Additional requirements: 

1. Endorsement/clearance from other government agencies, if applicable; 

2. For Foundations: Notarized certificate of bank deposit of the contribution which shall not be less than P1,000,000.00 and statement of willingness to allow the Commission to conduct an audit; 

3. For Religious corporations: Refer to Sections 109-116 of the Code, and an affidavit of affirmation or verification by the chief priest, rabbi, minister, or presiding elder; 

4. For Federations: Certified list of member associations by the corporate secretary or president; 

5. For Condominium corporations/associations: Master Deed with the primary entry of the Register of Deeds and Certification that there is no other existing similar condominium association within the condominium project. 

Once an application was submitted, the SEC evaluator will review the initial drafts for seven (7) working days and will email that the application is preapproved. After signing and uploading the generated forms, SEC will send another email if the application was approved and qualified for payment and you will receive a payment assessment form that should be paid within 45 days. Once paid, the digital COI will be received, and the original documents together with proof of payment will be submitted to the SEC office within 60 days from the date of incorporation in order to claim the original Certificate of Incorporation. 

Registration with the BIR 

The non-stock non-profit corporation must be registered with the BIR within 30 days from the date of Incorporation and obtain a Tax Identification Number (TIN), registration of book of accounts, and official receipts or invoices. Certain registration fees and taxes will be paid.  

If you wish to be tax-exempt, non-stock non-profit corporations in the Philippines are required to secure a BIR Tax Exemption Ruling.  

Business Permits and Licenses 

Non-stock non-profit corporations must also be registered in the Local Government unit (LGU) where the principal office address of the company is located and secure the business permit, barangay clearance, sanitary permit, fire safety inspection certificate, and other clearances in order to go operational. Certain registration fees will be paid. 

Employer Registration 

Employers for non-stock non-profits are required to be registered with Social Security System, Philippine Health Insurance Corporation, and Home Development Mutual Fund for the benefit of their employees. 

A Corporation is a legal entity that is separate and distinct from its owner or incorporators. It has legal rights and obligations similar to an individual. It can enter into contracts, loans, hire employees, pay taxes, etc. The ownership of a corporation is divided into shares of stock.

A Corporation issues the stock to individuals or other businesses, who then become owners or stockholders, of the corporation.

Advantages of a Corporation

• The risk and liability is limited only to the corporation. Owners are not personally liable.
• It is easy to increase capital through the issuance of stocks to investors
• It can be passed on to different owners
• It can exist indefinitely
• It has the capacity to act independently similar to individual
• The management or decision-making is shared by the board of directors, not the sole individual.

Disadvantages of a Corporation

• More costly to set up than a sole proprietor
• It is mandated by more government reportorial requirements and laws
• Higher capital requirements and operating cost
• Higher tax rates

Where to Register a Corporation?

Here are the government agencies where the corporation are required to register in the Philippines:

• Securities and Exchange Commission (SEC)
• Local Government Units (LGU) where your business is located:
  • Barangay
  • Mayor’s Office
• Bureau of Internal Revenue (BIR)
• If you have employees, you need to register with the following:
  • Social Security System (SSS)
  • Philippine Health Insurance Corporation(PHIC)
  • Home Development Mutual Fund(HDMF)
  • Department of Labor and Employment(DOLE)

Who may form a Corporation?

Any person, partnership, association, or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose or purposes. Provided, that natural persons who are licensed to practice a profession, and partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to organize as a corporation unless otherwise provided under special laws. Incorporators who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock.

How much is the Capitalization?

Stock corporations shall not be required to have a minimum capital stock, except as otherwise specifically provided by special law. However, some highly regulated companies or corporations are required to have a minimum capitalization based on the industry or equity of that certain entity.

Some domestic corporations with more than 40% foreign equity are required to have at least U$200,000.00 minimum paid-up capital if the registering corporation intends to operate as a Domestic Market Enterprise

Basic Documentary Requirements

• Name Verification Slip (may be secured online or at SEC Name Verification Unit)
• Articles of Incorporation (AI) and By-laws (BL)
• Treasurer’s Affidavit
• Joint affidavit of two incorporators to change the corporate name (not required if already stated in AI)

Additional Requirements

• Endorsement/clearance from other government agencies, if applicable
• Clearance from other Department of the Commission*
• For Corporations with more than 40% foreign equity: Application Form for registration under the Foreign Investments Act of 1991 (R.A. 7042, as amended)
• Endorsement/clearance from (a) Philippine Economic Zone Authority (PEZA) for the applicant under R.A. 7916, (b) Subic Bay Metropolitan Authority (SBMA) or Clark Development Corporation (CDC) for the applicant under R.A. 7227 and (c) Cagayan Economic Zone Authority (CEZA) for the applicant under R.A. 7922

References:
Republic Act 11232 or Act of Providing for the Revised Corporation Code
Republic Act No. 7042, as amended, also known as the Foreign Investment Act of 1991 (FIA)