Revenue Regulations No. 7-2024

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Implementing Sections 113,235,236,268,242,243 of the National Internal Revenue Code of 1997, as Amended by Republic Act No 11976, otherwise known as the “Ease of Paying Taxes Act”, on the Registration Procedures and Invoicing Requirements

Section 1. Scope. – Pursuant to the provisions of Sections 244 and 245 of the National Internal Revenue Code of 1997, as amended (Tax Code), in relation to Section 47 of Republic Act (RA) No. 11976, otherwise known as the “Ease of Paying Taxes (EOPT) Act”, these Regulations are hereby promulgated to Implement the amendments on Registration Procedures and Invoicing Requirements Tax provisions.

Section 2. Definition of Terms, –

1. Invoice – it is a written account evidencing the sale of goods and/or services issued to customers in the ordinary course of trade or business. This includes Sales Invoice, Commercial Invoice, Cash Invoice, Charge/Credit Invoice, Service Invoice, or Miscellaneous Invoice. It is also referred to as a “principal invoice” and is categorized as follows:
   • VAT Invoice – It is a written account evidencing the sale of goods, properties, services and/or leasing of properties subject to VAT issued to customers or buyers in the ordinary course of trade or business, whether cash sales or on account (credit) or charge sales. It shall be the basis of output tax liability of the seller and the input tax claim of the buyer or purchaser,
   • Non-VAT Invoice – it is a written account evidencing the sale of goods, properties, services and/or leasing of properties not subject to VAT issued to customers or buyers in the ordinary course of trade or business, whether cash sales or on account (credit) or charge sales. It shall be the basis of the Percentage Tax Liability of the seller, if applicable.

Invoice may also be serve as a written admission or acknowledgement of the fact that money has been paid and received for the payment of goods or services.

2. Supplementary Document – is a written document, other than sales or commercial invoice, which serves as source of accounting entries in the books of accounts.

This includes but not limited to official receipt, delivery receipt, order slip, debit and/or credit memo, purchase order, acknowledgement or cash receipt, collection receipt, bill of lading, billing statement, statement of account and any other documents, by whatever name it is known or called, whether prepared manually (hand written information) or pre-printed/numbered loose leaf (information typed using spreadsheet program or typewriter) or computerized as long as they are used in the ordinary course of business and being issued to customers or otherwise.

For purposes of VAT, supplementary Documents are not valid proof to support the claim of input taxes by the buyers/puchasers of goods and/or services.

Section 3. Invoicing and Accounting Requirements for Value-Added Tax (VAT) Registered Persons under Section 113 of the Tax Code. –

All VAT-registered persons and those required to register for VAT shall comply with the following:

A. Invoicing Requirements

1. A VAT-registered person shall issue a duly registered VAT Invoice, for every sale barter, exchange or lease of goods or properties, and for every sale, barter or exchange of services regardless of the amount of the transaction.
2. A VAT Invoice shall be issued as evidence of sale of goods and/or properties and sale of services and/or leasing of properties issued to customers in the ordinary course of trade or business, whether cash sales or on account (credit), which shall be the basis of the output tax liability of the seller and the input tax claim of the buyer.

B. Information Contained in a VAT Invoice – The following information shall be indicated in the VAT Invoice:

1. A Statement that the seller is a VAT-registered person followed by the seller’s Taxpayer Identification Number (TIN) and Branch Code (e.g., VAT Reg TIN 12-456-789-00000);
2. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; provided that;
   • The VAT amount is shown as a separate item;
   • The term “VAT-Exempt Sale” is written or printed, if the sale is exempt from VAT;
   • The term “Zero-Rated Sale” is written or printed, if the sale is subject to zero percent (0%) VAT;
   • If the sale involves goods, properties or services some of which are subject to and some of which are VAT Zero-Rated or VAT-Exempt, the invoice shall clearly indicate the breakdown of the sale price between taxable, exempt and zero-rated components and the calculation of the VAT on each portion of the sale shall be shown on the invoice: Provided, that the seller may issue separate invoices for the taxable, exempt and zero-rated components of the sale.
3. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service;
4. In the case of sales in the amount of One thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the registered name or name, address and TIN of the purchaser, customer or client; and
5. Other Information required under Section 6(B) of these Regulations.

C. Accounting Requirements – All persons subject to VAT under Sections 106 and 108 of the Tax Code shall maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded, in addition to the regular accounting records required.

D. Consequences of Issuing Erroneous VAT Invoice

1. All persons who are not VAT-registered and issued a VAT Invoice showing the person’s TIN followed by the word ‘VAT’ or showing the information under Section 3(B)(1) of these Regulations, shall, in addition to other percentage taxes, be liable to (i) VAT imposed under Section 106 or 108 Tax Code, without the benefit of any input tax credit and (ii) a fifty percent (50%) surcharge under Section 248(B) of the Tax Code.
   
   The VAT shall be recognized as an input tax credit under Section 110 of the Tax Code, to the purchaser, buyer or receiver or erroneous VAT Invoice if all the required information under Section 3(B)(1) of these Regulations are shown on the invoice.
   
2. A VAT Registered person or seller issuing a VAT Invoice for a VAT-Exempt transaction, but fails to display the term ‘VAT-Exempt Sale’ or clearly provide a breakdown of the VAT-Exempt Sale on the invoice as provided for under Section 3(B)(2.4) of these Regulations, shall be liable for the VAT in Section 106 and 108 as if Section 109 of the Tax Code did not apply.
   
3. Lack of information required under Section 3(B) of these Regulations – If a VAT-registered person or seller issues a duly registered VAT Invoice to another VAT-registered person or buyer/purchaser with lacking information required Section 3(B) of these Regulation, the seller or issuer shall be liable for non-compliance with the invoicing requirements. However, the VAT amount shall still be allowed to be used as an input tax credit under Section 110 of the Tax Code, on the part of the purchaser or buyer, except if the lacking information pertains to any of the following:
   • Amount of sales;
   • VAT amount;
   • Registered name and TIN as shown on the Bureau of Internal Revenue (BIR) Certificate of both purchaser or buyer and issuer or seller;
   • Description of goods or nature of services; and
   • Date of transaction.

Section 4. Preservation of Books of Accounts and Other Accounting Records under Section 235 of the Tax Code. –

A. Preservation

1. All Books of Accounts, including the subsidiary books and other accounting records of corporations, partnerships, or persons, shall be preserved by the taxpayer for a period of five (5) years reckoned from the day following the deadline on filing a return, or if filed after the deadline, from the date of the filing of the return, for the taxable year when the last entry was made in the Books of Accounts.

Type	5 years
Manual Books of Accounts and other accounting records	In hard copies
Manual Bound Loose Leaf Books of Accounts and other accounting records	In hard copies
Computerized Books of Accounts and other accounting records	In electronic copies

2. The term “other accounting records” includes the corresponding invoices, receipts, vouchers and returns, and other source documents supporting the entries in the Books of Accounts.

3. The term “last entry” refers to a particular business transaction or an item thereof that is entered or posted last or the latest in the Books of Accounts when the same was closed.

4. The foregoing notwithstanding, if the taxpayer has any pending protest or claim for tax credit/refund of taxes, and the books and records concerned are material to the case, the taxpayer is required to preserve the Books of Accounts and other accounting records until the case is finally resolved in support of their defenses and aid, even beyond the prescribed 5-year retention period.

5. Unless a longer period of retention is required under the Tax Code of other relevant laws, the independent Certified public Accountant (CPA) who audited the records and certified the financial statements of the taxpayer, has the responsibility – similar to that the taxpayer – to maintain and preserve electronic copies of the audited and certified financial statements including the audit working papers for a period of five (5) years form the due date of filing the annual income tax return or the actual date of filing thereof, whichever comes later.

6. Books of Accounts and Other Accounting Records shall be subject to examination and inspection by internal revenue officers; Provided, that for income tax purposes, such examination and inspection shall be made only once in a taxable year, except for the following cases:

• Fraud, irregularity or mistakes, as determined by the Commissioner;
• The taxpayer requests reinvestigation;
• Verification of compliance with withholding tax laws and regulations;
• Verification of capital gains tax liabilities; and
• In the exercise of the Commissioner’s power under Section 5(B) of the Tax Code, to obtain information from other persons, another or separate examination and inspection may be made. Examination and inspection of Books of Accounts and other accounting records shall be done in the taxpayer’s office or place of business or in the office of the BIR. All corporations, partnerships or persons that retire from business shall, within ten (10) days from the date of retirement or within such period of time as may be allowed by the Commissioner in special cases, submit their Books of Accounts, including the subsidiary books and other accounting records, to the Commissioner or any of his deputies for examination, after which they shall be returned. Corporations and partnerships contemplating dissolution must notify the Commissioner and shall not be dissolved until cleared of any tax liability.

7. Any provision of existing general or special law to the contrary notwithstanding, the Books of Accounts and other pertinent records of Tax-exempt, organizations or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liability, if any.

B. Examination and Inspection

1. In general, all books, registers, records, vouchers and other supporting papers and documents prescribed by the BIR and other records kept by the taxpayers shall be preserved intact, unaltered and unmutilated and shall be kept at all times in the place of business of the taxpayer, subject to inspection by any internal revenue officer, and upon demand, the same must be immediately produced and submitted for inspection.
2. The books of accounts and other accounting records may be examined and inspected for purposes of audit, request for exchange of information by a foreign tax authority under Section 6 and 71 of the Tax Code, and in the exercise of the Commissioner’s power to obtain information under Section 5 of the Tax Code, among others.
3. Examination and inspection of Books of Accounts and other accounting records shall be done in the taxpayer’s office or place of business or in the office of the BIR.

Section 5. Registration Requirements under Section 236 of the Tax Code.-

A. Manner and Time of Registration – Every person subject to any internal revenue tax shall register, either electronically or manually, with the Revenue District Office (RDO) as follows:

1. On or before the commencement of business for Self-employed individuals, estates and trusts, corporations, and their branches, if any.
   
   Commencement of business shall be reckoned from the day when the first sale transaction occurred or upon the lapse of thirty (30) calendar days from the issuance of the Mayor’s Permit/Professional Tax Receipt (PTR)/Occupational Tax Receipt (OTR) by Local Government Unit (LGU), or the Certificate of Business Name Registration(CBRN) issued by the Department of Trade and Industry (DTI), or the Certificate of Registration (COR) issued by the Securities and Exchange Commission (SEC), whichever comes first.
   
   A person shall be considered to have violated by this provision when such person failed to register with the BIR within thirty (30) calendar days from the issuance of the Mayor’s Permit/PTR by the concerned LGU, or COR/CBNR issued by the SEC/DTI or the date of its sales transaction prior to its registration with the BIR.
2. Before payment of any tax due for Corporations (Taxable or Non-taxable)/One Time Transaction (ONETT).
   
   Parties to ONETT transactions who, at the time of their transaction, have not yet been issued a TIN shall apply for issuance thereof at the time of payment of the tax due. Such TIN issued to the party involved shall be permanent and may be updated for future transactions of such persons with the BIR, e.g., subsequent employment, establishing a business, etc.
3. Before or upon filing of any applicable tax return, statement or declaration as required by the Tax Code for Corporations, Partnerships, Associations, Cooperatives, Government Agencies and Instrumentalities (GAIs).
4. Within ten (10) days from date of employment for Employees.
   Newly hired employees with no existing TIN are required to register through their employer via BIR’s online registration system.
5. Application under Executive Order (EO) No. 98, series of 1999.
   Individuals required to secure TIN for their transactions with government agencies shall apply for their TIN online via BIR’s online registration system or from BIR Revenue District Office having over the place of their residence, at any time before they complete their transaction with such government agency. TINs issued under EO No. 98, series of 1999, shall be permanent and may be updated for future transactions of such persons with the BIR (e.g., subsequent employment, establishing a business, etc.).
   In any case, the Commissioner of Internal Revenue of his duly authorized representative may, for meritorious reasons, deny or revoke any application for registration.

B. Place of Registration – the following taxpayers shall be registered either electronically or manually, with the appropriate RDO.

Type	Manner and place of Registration
Self-employed individuals – Single Proprietors – Professional in practice of profession	Online or manual registration at the RDO having jurisdiction over the place of business address In case of professionals do not have a physical place of business, registration shall either be online or manual means at the RDO having jurisdiction over the place of residence.
Corporations, Partnerships, Associations, Cooperatives, Government Agencies and Instrumentalities (GAIs), Non-individuals	Online or manual registration at the RDO having jurisdiction over the place of business address.
Non-resident Filipino Citizens, Non-resident Aliens, Non-resident Foreign Corporations Overseas Filipino Workers (OFW)/ Filipino Overseas Contract Workers (OCW) (not engaged in business)	Online registration or manual registration at RDO No. 39 – South Quezon City     Online or manual registration at the RDO having jurisdiction over the place of residence of the OFW/OCW.
Hired Employees Local Employees Resident Alien Employees Non-resident Alien Employees (NRAE)	Online registration through employer or manual registration at the RDO having jurisdiction over the place of residence.   In case of NRAE, registration shall be online or manual at RDO No. 39 – South Quezon City.
Executive Order (EO) No. 98	Online or manual registration at the RDO having jurisdiction over the place of residence of the applicant.
Non-registered Parties to a One-Time Transaction (ONETT) Donation Estate Sale of real property Sale of shares of stocks	Online or manual registration at the RDO having jurisdiction over the place of residence of the parties or where the corresponding tax return will be filed.
Estate Engaged in business Non engaged in business	RDO having jurisdiction of the place of the Head Office of the business of the decedent. Where the estate tax return will be filed.
Trust	RDO having jurisdiction over the registered address of the Trustee. Provided, however, that in case such Trustee is not registered, registration of the trust shall be made with the RDO having jurisdiction over the business address of the Trustee.
Branch and Facility	RDO having jurisdiction over the place of business address or location of the facility. In case of taxpayers under the jurisdiction of the Large Taxpayers Service, its branches and facilities shall be registered at the concerned Large Taxpayers (LT) Office/Division where the Head Office is registered.

In case of system downtime or technical issues or errors, manual application for registration shall be processed at the concerned BIR Offices. In any case, the Commissioner of Internal Revenue may issue and change the manner of registration through revenue issuances or circulars for tax administration purposes.

The requirement of payment of Annual Registration Fee of Five Hundred Pesos (P500.00) for every separate or distinct establishment or place of business is repealed and shall no longer be applicable effective January 22, 2024.

The place of residence may refer to the taxpayer’s legal residence, principal residence, current residence or permanent residence.

C. Registration of Business Taxpayers – All persons engaged in business or practice of profession, self-employed and professionals not under employer-employee relationships, juridical entities, online sellers/merchants including those engaged in providing digital goods and services, unless otherwise exempted, shall:

1. Register and secure a BIR Certificate of Registration (COR) by the prescribed deadline under Section 5(A) hereof;
2. Comply with the invoicing requirement:
   • For manual issuance of invoice- secure an Authority to Print (ATP) or avail or BIR Printed Invoice;
   • For computer-aided issuance – secure Permit to use loose leaf invoice and ATP;
   • For Computerized Accounting System (CAS) and/or components thereof – secure Acknowledgement Certificate (AC).
3. Comply with the bookkeeping requirements:
   • For manual – register books of accounts;
   • For Loose-leaf and CAS – register books of accounts within the prescribed period.
4. Secure “Notice to Issue Invoices”; and
5. Attend the taxpayer’s initial briefing to be conducted by the respective RDOs to inform newly registered businesses of their rights and obligations.

The concerned RDO shall include the newly registered business taxpayers who registered electronically or manually in their monthly conduct of Tax Compliance Verification Drive (TCVD) after thirty (30) days from the date of business registration to validate declarations in their application and verify their existence.

All online sellers/merchants shall register with the BIR on or before the commencement of business in an e-marketplace platform in accordance with the Section 236 of the Tax Code. Consequently, and in furtherance to the government’s thrust to protect and uphold the interests of the buyers/consumers from trade malpractices, e-marketplace operators shall require from their respective sellers/merchants the submission of their Certificate of Registration (COR) or BIR Form No. 2303, and include the same as part of e-marketplace operators’ minimum seller/merchant accreditation requirements.

D. Registration of Business Name – Each Business Name used, including the “store name” used in any online store or e-commerce platform, shall be registered with the BIR and shall be reflected in the BIR Certificate of Registration, provided, that each Business Name or “store name” is also registered with the Securities and Exchange Commission (SEC) or Department of Trade and Industry (DTI) as evidenced by a valid DTI Certificate of Business Name Registration or SEC Certificate of Registration or Articles of Incorporation or Partnership.

E. BIR Business Registration Date – The BIR Business Registration shall be reckoned form the date when the taxpayer registered its business and/or Business Name as reflected in the BIR Certificate of Registration.

F. Issuance of Certificate of Registration of Head Office, Branch and Facility – Subject to the provisions of Section 5(C) hereof, each Head Office, Branch and Facility shall be issued a Certificate of Registration or Electronic Certificate of Registration within the period/time prescribed in the BIR Citizen’s Charter, upon submission of complete documentary requirements.
Employees, ONETT taxpayers, individuals who have secured a TIN under EO No. 98 and/or non-business taxpayers, non-business Estate and Trust shall not be issued a Certificate of Registration.

A Thirty pesos (P30.00) Documentary Stamp Tax (loose DST) shall be paid upon issuance of BIR Certificate of Registration or Electronic Certificate of Registration.

G. Posting of Certificate of Registration – All persons subject to the provisions of Section 5(C) and (D) hereof shall post or exhibit their original COR/Electronic Certificate of Registration (eCOR) at the place where the business is conducted and at each branch and/or facility in a way that is clearly and easily visible to the public. In case of a peddler or other persons not having a fixed place of business, the COR/eCOR shall be kept in the possession of the holder thereof or at the place of residence or at the Head Office’s address, if applicable, subject to production upon demand of any internal revenue officer.

H. Posting of Proof of Registration on Online Websites, E-Commerce or E-Marketplace Seller/Merchant’s Page and other Platforms – All online businesses, sellers or merchants and service providers operating a business through a website, social media or any digital or electronic means, shall display conspicuously the electronic copy of the BIR Certificate of Registration on their website, seller/merchant’s account or profile pages of the e-commerce platform or mobile application. The displayed proof of registration shall be easily accessible and visible to buyers or customers visiting the seller’s merchant page or online/e-commerce shop.

I. Registration of Each Type of Internal Revenue Tax – Every person who is required to register with the BIR under Section 5(A) hereof, shall register each type of internal revenue tax for which such person is obligated; file a return and pay the tax due thereon either electronically or manually; and updated such registration of any changes thereof.

J. Cancellation of Registration – The registration of any person shall be cancelled upon mere filing, either electronically or manually, of an application for registration information update in a form prescribed therefor with the RDO where such person is registered. However, this shall not preclude the Commissioner of Internal Revenue or his authorized representative from conducting an audit to determine any tax liability.

K. Transfer Registration – In case a registered person decides to transfer the place of business or head office or branch/es, it shall be the person’s duty to update the registration status by merely filing, either electronically or manually, an application for registration information update in the audit investigation, the RDO which initiated the audit investigation shall continue the same.

1. Transfer of Registration of Non-business Taxpayers – Taxpayers not engaged in business may submit their application for transfer of registration, either manually or via BIR online registration system, at the new RDO having jurisdiction over the place of residence if the taxpayer. In case of individuals who are registered as non-business taxpayers and subsequently applies for registration of business, the application for business registration shall be directly submitted to the new RDO having jurisdiction over the business address.
2. Transfer of Registration of Business Taxpayers – Taxpayers engaged in business may submit their application for transfer of registration, either manually or via BIR online registration system at the current RDO where the taxpayer is registered. All open-cases/stop-filer cases shall be settled at the new RDO, except for those who are subject to audit investigations in which case any audit findings including open-cases/stop-filer cases who are not subject to audit investigations shall be transferred to the new RDO within the prescribed period together with its open-cases/stop-filer cases.
   
   The concerned taxpayer shall secure a new BIR Certificate of Registration from its new RDO. The new RDO. The new RDO shall include all newly transferred business taxpayers in its monthly TCVD after thirty (30) days from the issuance of new BIR Certificate of Registration.

L. Unlawful Pursuit of Business – Any person who carries on or engages in any business and is not duly registered with the BIR shall, upon conviction for each act of omission, be punished in accordance with the penalty provided in Sec. 258 of the Tax Code.

SECTION 6. Issuance of Invoices under Section 237 of the Tax Code.

A. Issuance –

1. All persons subject to an internal revenue task shall, at the point of each sale and transfer of merchandise or for services rendered valued at Five hundred pesos (P500.00) or more, issue duly registered invoices, showing the name Taxpayer Identification Number (TIN), date of transaction, quantity, unit cost and description of merchandise or nature of service.
   
   The P500.00 amount shall be adjusted to its present values every three (3) years using the consumer price index, as published by the Philippine Statistics Authority (PSA).
   
2. The seller shall issue Invoice when the buyer so requires regardless of the amount of transaction. Provided, however, that if the sales amount per transaction is below the threshold but the aggregate sales amount at the end of the day is at least five hundred pesos (P500.00), the seller will issue one (1) invoice for the aggregate sales amount for such sales at the end of the day: Provided, finally, that VAT-registered persons shall issue duly registered invoice regardless of the amount of the sale and transfer of merchandise or for service rendered.
   
3. The word ” Invoice” shall be printed on the face of the invoice to be issued to buyers or customers. The term Cash Sales or Charge Sales, at the seller’s option, can be indicated in the Invoice as checkboxes to reflect the type of transactions. However, should the taxpayer opt to have a separate set of invoices for cash sales or change sales, the word “Invoice” maybe printed indicating the transactions that will be issued such invoices. E.g. Cash Invoice, Charge Invoice/Credit Invoice, Billing Invoice, Service Invoice, etc. Provided, that the word “Invoice” is prominently printed or larger than the word describing the transaction.
4. Considering that the Ease of Paying Taxes Act no longer requires the issuance of Official Receipts, it operates to establish the Invoice as the primary evidence for both sales of goods and services. The taxpayer, however, may issue Official Receipt, Collection Receipt or Payment receipt as supplementary document showing proof of payment. To promote ease of doing business, the remaining unused Official Receipts can still be used at the option the taxpayer, pursuant to Section 8(2) of these Regulations.

B. Information Contained in the Invoice – The Invoice shall contain the following information:

1. Taxpayer (Seller) Registered name as shown in BIR BIR Certificate of Registration;
   
   At the option of the taxpayer, in addition to its BIR-registered name, the taxpayer may choose to add its DTI Registered Business Name or Trade Name in SEC Articles of Incorporation/Partnership/Certificate Of Incorporation of the taxpayer (seller).
2. A Statement that the seller is a VAT or Non-VAT registered person followed by the seller’s Taxpayer Identification Number (TIN) and Branch Code (e.g., VAT Reg TIN 123-456-789-0000, Non-VAT Reg TIN 987-654-321-0000);
3. Registered business address where the invoice shall be used;
4. The term Invoice is printed or included (e.g. Sales Invoice, Commercial Invoice Cash Invoice, Charge Invoice, Credit Invoice, Service Invoice or any similar description followed by the word “Invoice”);
5. Date of transaction;
6. Space provided for the registered name, registered business address and TIN of the buyer. If the sale of goods or services are directly between a business and consumers [Business-to-Consumer (B2C)] who are the end-users of its products or services, the business address and TIN of the buyer are not required to be included;
7. Serial number printed prominently;
8. Quantitiy;
9. Unit cost;
10. Description of the goods or properties or nature of the service;
11. Total amount of sale. If the VAT-registered, VAT is included in the total amount;
12. The VAT amount shall be shown as a separate item;
13. If the VAT taxpayer is engaged in mixed transactions, the sales involved shall be broken down into: VATable Sales, VAT Amount, Zero Rated Sales, and VAT Exempt Sales.
14. If the VAT taxpayer opts to issue separate invoice for the VATable sale, exempt and zero-rated components of the sale, the term ‘VAT-Exempt Sale’ is written or printed if the sale is exempt from VAT; or term ‘Zero-rated Sale’ is written or printed if the sale is subject to zero percent (0%) VAT.
15. For supplementary documents such official receipts, delivery receipts, order slips, purchase orders, acknowledgement receipts, collection or cash receipts, credit/debit memo, job orders and other similar documents that form part of the accounting records of the taxpayer and/or issued to their customers, it is required, in addition to the above-enumerated applicable information, that the phrase “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX.” in bold letters, be conspicuously printed at the face of such supplementary documents.
16. Taxpayers whose transactions are not subject to VAT or “percentage tax shall issue Non-VAT Invoice indicating at the face of such invoice the word “EXEMPT”.
17. If the taxpayer is not VAT-registered and is subject to percentage tax under Title V of the Tax Code, but sells goods/services under Section 109 (A) to (CC) except (E) of the same Section, then the Non-VAT Invoice shall indicate the breakdown of Sales Subject to Percentage Tax (SSPT) and Exempt Sales.
18. For taxpayers transacting with (1) Senior Citizen/s (SC/s) and/or Person/s with Disability (PWD) pursuant to RA No. 1432, as amended and RA No. 7277, as amended, respectively; (2) National Athletes and Coaches (NAAC) pursuant to RA No. 106699; (3) Solo Parent pursuant to RA No. 8972, as amended; and (4) Medal of Valor (MOV) Awardee or his/her dependents pursuant to RA No. 9049, it is required that – in addition to the information enumerated above, a space for the following be provided:
    • SC ID No. or any other government issued OD showing the name, picture, date of birth and nationality/PWD ID No. /Philippine National Sports Team (PNSTM) ID No./Solo Parent ID No./MOV ID or MOV Dependent ID No.;
    • Amount of discount showing detailed breakdown of the 5% or 20% discount and 12% VAT Exemption, whichever is applicable;
    • Signature of the Senior Citizen/PWD/NAAC/Solo Parent/MOV Awardee or his/her qualified dependent: Provided, that for qualified purchases made by Senior Citizens/PWDs online or through mobile application, their physical signatures in the Invoice are not required.
19. The following information shall be printed at the bottom portion of the manual Invoices:
    • ATP Number/Outbound Correspondence Number (OCN), date issued;
    • BIR Permit Number (if loose leaf Invoice);
    • Approved inclusive serial numbers of Invoice;
20. The following information shall be printed at the top or bottom portion of the Invoices generated from Cash Register Machine (CRM)/Point of Sale Machine(POS)/Other Similar Machines or Software:
    Top Portion
    • Machine Identification Number (MIN);
    • Serial Number of the CRM/POS machine (if branded machine) and/or the Serial Number of the Hard Disk Drive and/or Software License Number (if cloned machine);
    • For reprinting of invoice, the word “REPRINT” should be prominently indicated;
      
      Bottom Portion
    • BIR Final Permit to Use (PTU) Number.
21. The following information shall be printed at the top of or bottom portion of the Invoices of the system-generated from Computerized Accounting System (CAS), Computerized Books of Accounts (CBA) with Accounting Record and/or its Components and Other Similar System:
    
    Top portion
    • For reprinting invoice, the word “REPRINT” should be prominently indicated;
      
      Bottom portion:
    • BIR Permit to Use (PTU) Number or Acknowledgement Certificate Control Number (ACCN);
    • Series range to be used; and
    • Date Issued (mm/dd/yyyy).

C. Tickets and other Similar Forms as Invoice – Tickets, such as transportation tickets, event tickets, amusement tickets, movie tickets, parking tickets, raffle tickets, gaming/gambling tickets, electronic tickets, and other similar tickets, regardless of form or name, including those issued by ticketing machines, shall serve as both an invoice and proof of payment, if the word “Invoice” is printed therein and it contains all the required information outlined in Section 6(B) hereof. Otherwise, the same shall be considered as supplementary document and as separate invoice shall still be issued therefor.

SECTION 7. Printing if Invoices under Section 238 of the Tax Code.

1. All persons, whether private or government, who are engaged in business and will use manual invoices shall secure/apply from the BIR an Authority to Print (ATP) principal and supplementary documents free of charge, before an Accredited Printer of Invoices can print the same.
   
   National Government Agencies (NDAs), Government Owned and Controlled Corporation (GOCCs) and Local Government Units (LGUs) engages in proprietary functions shall apply for ATP in the printing of their principal and supplementary documents.
   
2. No authority to print invoices shall be granted unless the invoices to be printed are serially numbered and shall show, among other things, the name, TIN and business address of the person or entity to use the same, and such other information set forth under there Regulations.
   
3. All persons or Accredited Printers who print invoices shall maintain a logbook/register of taxpayers who availed of their printing services. The logbook/register shall contain the followng information:
   • Names, TIN of the persons or entities for whom invoices were printed; and
   • Number of booklets, number of sets per booklet, number of copies per set and the serial numbers of the invoices in each booklet.

SECTION 8. Transitory Provisions. –

1. Certificate of Registration (COR) reflecting the Registration Fee – Business taxpayers are not required to replace its existing BIR Certificate of Registration that includes Registration Fee. The COR shall retain its validity although the Registration Fee is shown therein, and taxpayers are no longer required to pay the Annual Registration Fee. Updating the COR is only necessary if there are changes to the registration information, excluding the Registration Fee, reflected on the COR.
2. Unused Official Receipts –
   • Taxpayer to continue the use of remaining Official Receipts as supplementary document. – All unused or unissued Official Receipts may still be used supplementary document until fully consumed, provided that the phrase “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX.” is stamped on the face of the document upon effectivity date of these Regulations. The Official Receipt, along with other equivalent documents such as Collection Receipt, Acknowledgement Receipt and Payment Receipt are all the same, serve as proof of payment that cash has been received or that payment has been collected/made for goods and/or services
   • Taxpayer to convert and use the remaining Official Receipts as Invoice. – For ease of doing business, taxpayers shall be allowed to strikethrough the word “Official Receipt” [e.g. Official Receipt] on the face of the manual and loose leaf printed receipt and stamp “Invoice”, “Cash Invoice”, “Credit Invoice” “Billing Invoice”, “Service Invoice”, or any name describing the transaction, and to be issued as primary invoice to its buyer/purchaser until December 31, 2024. These documents shall be valid for claim of input tax by the buyer/purchaser for the period issued form January 22 to December 31, 2024, provided that the invoice to be issued bears the stamped “Invoice” and contains information required under Section 6(B) of these Regulations. The converted Invoice as defined in Section 2 hereof can serve as proof of sales transaction and proof of payment at the same time. Any Official Receipts, whether stamped with “Invoice” or unstamped, issued after December 31,2024, will be considered supplementary documents as provided in Section 8(2.1) of hereof and ineligible for input tax claims.
     
     the stamping of official receipts as invoices by taxpayers does not require approval form any Revenue District Offices/LT Offices/LT Divisions but must comply with Section 8(2.3) hereof. Taxpayers should obtain newly printed invoices with an Authority to Print (ATP) before fully using or consuming the converted Official Receipts or before December 31, 2024, whichever comes first.
     
   • Reportorial Requirement of Unused Official Receipts to be Used as Invoice Upon Effectivity of these of these Regulations – All unused manual and loose leaf Official Receipts to be converted as Invoice shall be reported by submitting an inventory of unused official receipts, indicating the number of booklets and corresponding serial numbers within thirty (30) days upon effectivity of these Regulations, to the RDO/LT Office/LT Division where the Head Office or Branch Office is registered, in duplicate original copies. The receiving Branch RDO shall transmit the Original copy to the Head Office RDO and retain the duplicate copy.
     
3. Cash Register Machines (CRM) and Point-of-Sales (POS) Machines and E-receipting or Electronic Invoicing Software – Taxpayers using CRM/POS/E-receipting/E-invoicing may change the word “Official Receipt (OR)” to “Invoice”, “Cash Invoice”, “Charge Invoice”, “Credit Invoice”, “Billing Invoice”, “Service Invoice”, or any name describing the transaction, without the need to notify the Revenue District Office(s) having jurisdiction over the place of business of such sales machines, since the reconfiguration shall be considered as minor system enhancement which shall not require the reaccreditation of sales software/system on the part of the taxpayer-user. Provided further, that the serial number of the converted Invoice to the RDO/LT Office/LT Division where the machines are registered, in duplicate original copies. the receiving Branch RDO shall transmit the duplicate copy of the Head Office RDO.
   
   Taxpayers that are using duly registered Computerized Accounting System (CAS) or Computerized Books of Accounts (CBA) with Accounting Records need to revisit their system to comply with the provisions of the EOPT Act. Since the system reconfiguration will have direct effect on the financial aspect, it shall be considered as major enhancement which will require taxpayer to update their system registration following the existing policies and procedures of filing a new application. The previously issued Acknowledgement Certificate (AC) or Permit to Use shall be surrendered to the RDO where the concerned taxpayer is registered, and a new AC shall be issued to the Head Office/Branch(es). The required Annex of the AC shall indicate all the branches (if applicable) that are using the said system/software and sets of series of accountable forms (Invoice) to be used by each of the branches, if applicable.
   
   In order to provide ample time in reconfiguring machines and systems, adjustments shall be undertaken on or before June 30, 2024. Any extension due to enhancements of system shall seek approval from the concerned Regional Director or Assistant Commissioner of the Large Taxpayers Service which shall not be longer than six (6) months form the effectivity of these Regulations.
   
   Documents issued by CRM/POS, e-receipting or electronic invoicing software containing the word “Official Receipt” beginning the effectivity of these Regulations shall not be considered as valid for claim of input tax by the buyer/purchaser.
   
   Issuance of “Official Receipt” for the sale of goods or services after June 30, 2024 will not be considered as evidence of sales of goods or services and shall be tantamount to failure to issue or non-issuance of Invoice required under Section 6(A) hereof subject to penalty of not less than One Thousand Pesos (Php 1,000.00) but not more than Fifty Thousand Pesos (Php 50,000.00) and suffer imprisonment of not less than two (2) years but not more than four (4) years pursuant to Section 264(a) of the Tax Code.

SECTION 9. Separability Clause. – If any of the provisions of these Regulations is subsequently declared invalid or unconstitutional, the validity of the remaining provisions hereof shall remain in full force and effect.

SECTION 10. Repealing Clause. – All other issuances and rules and regulations or parts thereof which are contrary to and inconsistent with any provisions of these Regulations are hereby repealed, amended, or modified accordingly.

SECTION 11. Effectivity. – These Regulations shall take effect fifteen (15) days following its publication in the Official Gazette or the BIR Official Website whichever comes first.

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.

By: Tax and Accounting Center Philippines

 As we have been aware, certain tax exemptions have been provided by law on some agricultural food products for basic commodities. On top of this exemption on primary agricultural products, Section 109(1)(B) of the National Internal Revenue Code, as amended, states that livestock and poultry feeds in the Philippines are exempted from value added tax (VAT) and hereunder:

“Section 109 – Exempt transaction

(1)(B) – Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets)” (Emphasis supplied only)

In Revenue Regulations No. 16-2005 – Consolidated Value Added Tax (VAT) regulations, as amended, “specialty feeds” is defined as follows:

“Specialty feeds” refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals, and other animals generally considered as pets”

In a recent clarification of the Bureau of Internal Revenue (BIR) under Revenue Memorandum Circular No. 55-2014 (RMC 55-2014), it noted that sale or importation of livestock and poultry feeds or ingredients used in the manufacture of finished products are exempted from VAT in the Philippines. Notably, some  ingredients of finished products could also be used for the production of food for human consumption.

Following such logical presentation, RMC 55-2014 provided for the requirements in order for livestock and poultry feeds to be exempted from VAT as follows:

To give effect to the legislative intent that only livestock and poultry feeds or ingredients used in the manufacture of finished feeds are exempted from VAT, it is hereby clarified that the sale or importation of ingredients which may also be used for the production of food for human consumption shall be subject to VAT. Thus, for the sale or importation of livestock and poultry feeds or ingredients used in the manufacture of finished  feeds to be exempted from VAT, there must be a showing that the same is unfit for human consumption or that the ingredient cannot be used for the production of food for human consumption as certified by the Food and Drugs Administration (FDA) Philippines.

In short, RMC 55-2014 clarified that livestock and poultry feeds would not be covered by the VAT exemption in the Philippines if the same is used for the production of food for human consumption, or the same is fit for human consumption. For the purpose, it may be a good option to secure certification from FDA and a BIR ruling for clarification on the application of VAT-exemption in the Philippines. Meantime, it could be worth to make a review of the internal classifications of your livestock and poultry feeds as to whether or not it falls within the clarification of the BIR.

Reference:

• Revenue Memorandum Circular No. 55-2014

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Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at info(@)taxacctgcenter.org)

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By: Tax and Accounting Center Philippines

As a rule, any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax. Being an indirect tax that sellers may pass-on, prices would tend to escalate with the application of value added tax in the Philippines with respect to prime commodities, basic needs, and other preferred goods and services.

For this reason, the value added tax rules in the Philippines provide for exemptions from value added tax applications. Under Section 109 of the tax Code, as amended, the following transactions shall be exempt from the value added tax:

(A)   Sale or importation of agricultural and marine food products in their original state, livestock and poultry of or king generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.  Original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be considered in their original state;

(B)   Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets);

(C)   Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines;

(D)   Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days before or after their arrival, upon the production of evidence satisfactory to the Commissioner, that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide;

(E)  Services subject to percentage tax under Title V;

(F)  Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar;

(G)  Medical, dental, hospital and veterinary services except those rendered by professionals;

(H)  Educational services 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;

(I)  Services rendered by individuals pursuant to an employee-employer relationship;

(J)  Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines;

(K)  Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529;

(L)  Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce;

(M)  Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority;

(N)  Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the Cooperative Development Authority: Provided, That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the members;

(O)  Export sales by persons who are not VAT-registered;

(P)  Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low-cost and socialized housing as defined by R.A. No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued at one million nine hundred nineteen thousand five hundred pesos P1,919,500 and below, house and lot, and other residential dwelling valued at three million one hundred ninety nine thousand two hundred pesos (P3,199,200) and below:;

(Q)  Lease of a residential unit with a monthly rental not exceeding twelve thousand eight hundred pesos (P12,800);

(R)  Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;

(S)  Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operation;

(T)  Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations;

(U)  Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries; and

(V)  Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of one million nine hundred nineteen thousand five hundred pesos P1,919,500

A VAT- registered person may elect that the above exemptions not apply to its sale of goods or properties or services and such shall be irrevocable for a period of three (3) years from the quarter the election was made.

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Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@************er.org.

In this article, let us share sample accounting journal entries related to final value added tax on sales to government in the Philippines. Let us use the sample data on sales to government and let us make some modifications as we go along to illustrate other rules. We disregarded the application of withholding tax on income payments to simplify illustrations and journal entries.

For the month of September 2012, A Corp. sold P1,000,000 worth of goods plus 12% VAT or P120,000 to Government Agency (GA). It likewise sold P2,000,000 plus 12% VAT or P240,000 to private buyers. Total purchases of goods and services of  A Corp. from VAT-registered sellers totaled P1,500,000 plus 12% VAT or P180,000. Of such purchases, P500,000 plus 12% VAT or P60,000.00 is used in sales to government, P500,000 plus 12% VAT or P60,000.00 is used for sales to private buyers, and the other P500,000 plus 12% VAT or P60,000.00 is a common purchase.

Journal entry on the purchase with VAT

• Debit: Purchases                                              P1,500,000.00
• Debit: Input VAT                                              P   180,000.00
• Credit: Accounts Payable or Cash              P1,680,000.00

Journal entry on sales to government

• Debit: Accounts Receivable – GA              P1,120,000.00
• Credit: Output VAT – GA                                    120,000.00
• Credit: Sales                                                          1,000,000.00

Journal entry on sales to private buyers

• Debit: Accounts Receivable – private      P2,240,000.00
• Credit: Output VAT – private                             240,000.00
• Credit: Sales                                                          2,000,000.00

Journal entry on collection from GA

• Debit: Cash                                                         P1,070,000.00
• Debit: Final VAT (5% of P1M)                             50,000.00
• Credit: Accounts Receivable – GA             P1,120,000.00

Journal entry on collection from private buyers

• Debit: Cash                                                         P2,240,000.00
• Credit: Accounts Receivable – private  P2,240,000.00

Apportionment of input VAT

Input VAT of P60,000 for sales to private buyers is creditable against output VAT on sales to private, while P60,000 input VAT on common purchases should be allocated between sales to private buyers – P40,000.00 (P2M/P3M multiply by P60,000) and sales to government – P20,000.00 (P1M/P3M multiply by P60,000). Total input VAT on sales to government of P80,000 (P60,000 identified plus P20,000 apportioned) is closed to standard input VAT with the corresponding treatment of the difference.  If no common purchase, no need to apportion.

• Debit: Input VAT – GA                                   P80,000.00
• Debit: Input VAT – private                           P100,000.00
• Credit: Input VAT                                             P180,000.00

Accounting entry on VAT payable

• Debit:  Output VAT-private                          P240,000.00
• Credit: Input VAT-private                             P100,000.00
• Credit: VAT Due and Payable                      P140,000.00

Closing accounting entries on sales to government in the Philippines

• Debit:    Output VAT – GA                             P120,000
• Debit:    Input VAT Expense – GA              P10,000
• Credit: Final VAT (5%)                                    P50,000
• Credit: Input VAT – GA                                  P80,000

The total input VAT on sales to government of P80,000 exceeded the standard input VAT of P70,000 (P120,000 output VAT less P50,000 final withholding VAT) by P10,000.00 and is treated as input VAT expense or charged to cost. If in the sample computations of final VAT on sales to government above the total input VAT on sales to government is only P60,000, and not P80,000, then, here is the sample entry.

• Debit:    Output VAT – GA                             P120,000
• Credit:  Other income                                    P10,000
• Credit: Final VAT (5%)                                    P50,000
• Credit: Input VAT – GA                                  P60,000

Under Section 4.114-2 of Revenue Regulations No. 16-2005, as amended by Revenue Regulations No. 4-2007, if the actual input VAT attributable to sale to government is less than 7% (standard input VAT) of gross payment,  the difference must be closed to expense or cost. This would mean a reduction of expense or cost, or in simple application, other income.

Finally, we intended not to include the application for withholding tax on the above in order to simplify and concentrate on final value added tax on sales to government in the Philippines. Should you wish to learn more about withholding tax implications, please read more on…Features of Withholding Taxes in the Philippines, and Accounting for Withholding Taxes in the Philippines.

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Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@************er.org.)

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Government, any of its political subdivision, instrumentality  or agencies, including government-owned or controlled corporations (GOCCs) is also subject to value added tax in the Philippines, unless otherwise exempted. Sales to government of goods, properties, or services are subject to 12% value added tax.  However, there are some special rules that one must be aware of in dealing with the government sales – final withholding VAT on sales to government in the Philippines, accounting and fill-out of value added tax returns in the Philippines.

Final withholding VAT on sales to government

As a rule, government or any of its political subdivision, instrumentalities, or agencies, including government-owned or controlled corporations are mandated to withhold 5% (out of the 12% VAT) on VATable sales upon payment to value added tax sellers of goods or services. Such 5% withholding tax shall represent the net VAT payable by the seller to government.  This would mean that the seller will not be made to pay more than 5% out of the 12% value added tax on government sales in the Philippines. In the VAT returns however, the 12% value added tax on sale to government has to be declared for transparency purposes.

Sample computation on final VAT on sales to government:

A Corp. sold P1,000,000 worth of goods plus 12% VAT or P120,000 to Government Agency (GA). Upon payment of GA to A Corp., GA will withhold the 5% or P50,000 (P1,000,000 multiplied by 5%), so it will only pay P1,070,000.00 (P1,120,000 less P50,000) to A Corp. A Corp. will no longer pay or remit the Bureau of Internal Revenue (BIR) the P70,000 (P120,000 less P50,000) because the P50,000 withheld by GA constitute final VAT on sales to government in the Philippines.

Standard input VAT on sales to government

Since the seller will effectively pay the 5% out of the 12% value added tax on sales to government, the 7% (12% less 5%) effectively accounts for the standard input VAT in lieu of actual input VAT. The question now is – How about the actual input tax on purchases of the seller for goods or services used in sales to government? Such actual input tax attributable or ratable (for those with mixed transactions) to sales to government will no longer be deducted against the output VAT on other regular sales because the standard input VAT will take their place. Said actual input VAT attributable or ratable to government sales shall not also be carried over to succeeding months or quarters, not an outright input VAT expense, and not allowed to be claimed for refund and tax credit certificates. Instead, such actual input VAT are closed to the standard input VAT in the books of account of the VAT-registered taxpayer in the Philippines and any difference treated as follows:

• If actual input VAT  exceeds standard input VAT, input VAT expenses; or
• If actual input VAT is less than the standard input VAT, closed to expense or cost as contra account (other income).

Sample computation on sales to government

A Corp. sold P1,000,000 worth of goods plus 12% VAT or P120,000 to Government Agency (GA). In making such sales to government, A Corporation’s purchases totaled P625,000 plus 12% VAT of P75,000.00.

As a sale to government, A Corp. will not compute VAT due and payable at P45,000 (P120,000 less P75,000). With the 5% or P50,000.00 final VAT withheld  by GA, the P75,000.00 input VAT will not be deducted from the P120,000 output VAT on sales to GA or on other VATable sales of A Corp. Instead, it will be closed in the books of accounts of A Corp. as input VAT expense of P5,000 (P75,000 actual less P70,000 standard). On the other hand, assuming the actual input VAT is only P60,000, then closing the actual input VAT in the books will result to a reduction of expense or cost, or simply other income of P10,000 (P60,000 actual less P70,000 standard).

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Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@************er.org.)

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Under the tax credit mechanism of the value added tax (VAT) system in the Philippines, the value added tax passed on by VAT registered suppliers to VAT registered buyers are deducted from the output VAT on the later sales of the buyers.  In short, input VAT (VAT from purchases) are deducted from output VAT (VAT on sales) in arriving at the VAT due and payable. This however is a general rule and is subject to exemptions because there are instances where input VAT in the Philippines are not deductible from output VAT. In the following instances, an input VAT is treated as a deductible expense for income tax purposes:

1. Input VAT from local purchases of non-VAT registered

For a value added tax registered taxpayer in the Philippines, input VAT is an asset and is accounted for separately. As such, it is deductible against output VAT as stated above. For a non-VAT registered taxpayer, the input VAT is an expense if it related to an expense, or part of the cost of the asset (e.g. equipment) if the same relates to the purchase of an asset. In other words, there is no separate accounting for input VAT in the Philippines for a non-VAT registered taxpayer.

2. Input VAT on exempt transactions

In an exempt transaction, the seller does not impose VAT on the sale of good or services. However, the seller is still being passed on value added tax on its purchases. Such input VAT attributable to exempt transaction are not allowed to be credited against output VAT. Instead, the regulations provide that it shall be treated as an expense for the taxpayer to be allowed to recover the same.

3. Excess of actual input over standard input on sales to government

In government sales, the government buyer withholds the 5% of the 12% value added tax imposed by the seller. The remaining 7% of the 12% value added tax in the Philippines is treated as a standard input VAT. To close the balance of the  input VAT in the books of accounts of the VAT registered seller, the same is compared with the actual input VAT attributable to such government sales. If the actual input is higher than the standard input VAT, the excess of actual input VAT over standard input VAT is treated as an expense deductible for income tax purposes.

4. VAT paid on importation of non-VAT registered importers

VAT paid on importation is also a creditable input VAT for a VAT registered taxpayer. Again, this rule does not apply to non-VAT registered taxpayers. For non-VAT registered, VAT paid on importation is a non-creditable input VAT as against input VAT. Instead, it is treated as an expense or part of cost.

5. Input VAT on zero-rated transactions not refunded 

Under the rules, input VAT attributable to zero-rated sales are either claimed as creditable input VAT, or applied for VAT refund/tax credit certificate within two (2) years from the year of sale. In one exceptional instance, it was ruled that input VAT from zero-rated sales that did not qualify for VAT refund or tax credit certificate could be claimed as an expense deductible for income tax purposes. This is not a normal rule so we suggest that a BIR ruling be secured prior to availment.

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Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@************er.org.)

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Related Seminar/Workshop:

• Value Added Tax, In and Out – One Day Program
• Basic Business Accounting and BIR Compliance for VAT Taxpayers – 2 day seminar workshop

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