The Sales Invoice in the Philippines is a critical document under the local tax and compliance framework!
For PH businesses, it is important to issue a Sales Invoice for each sales transaction, for a variety of reasons.
The requirement to issue a Sales Invoice becomes even more important when a PH company is in the business of selling goods. This is due to the statutory requirement under the local Philippine tax framework to issue a BIR Approved Sales Invoice with each transaction for the sales of products or goods.
By reading this article, you will gain a much better understanding of why the Sales Invoice is such an important documents in the Philippines – for both businesses and customers!
In particular, we explore the following:
- What actually is a Sales Invoice?
- Which businesses are required to issue a BIR approved Sales Invoice?
- How to obtain a Sales Invoice for your business?
- What is required for a fully compliant Sales Invoice in the Philippines?
- What are the best practices for Filipino businesses when preparing and issuing invoices?
- What are the penalties for businesses that don’t comply with their Sales Invoice requirements?
So, feel free to check out the article below for all you need to know about Sales Invoices in the Philippines!
- 1 What is a Sales Invoice? A General Overview
- 2 Sales Invoices – Commercial v Compliance
- 3 How Do I Get a BIR Sales Invoice for my PH Business?
- 4 What Transactions Require a Sales Invoice in the Philippines?
- 5 Details to be Included in a Sales Invoice
- 6 Value Added Tax – VAT
- 7 Requirements for Invoices to Overseas Companies
- 8 Manual and Electronic/E-invoicing
- 9 Penalties for Non-Compliance with Sales Invoice Requirements
- 10 Sales Invoices – The CloudCfo Process
What is a Sales Invoice? A General Overview
A sales invoice is a document used in many other countries to provide evidence that payment has become due for goods or services sold and also to prove that the sale of goods/services has occurred.
A Sales Invoice is an important document to a number of stakeholders. A company’s accountants and bookkeepers require a Sales Invoice to support transactions that they are recording in the books. A customer needs a Sales Invoice to understand what services were rendered or goods sold, what payment is due, when a payment is due and if a payment has already been made. A company needs to issue a Sales Invoice to ensure the customer is aware of the details of the sales transaction.
Think about it – how is a company going to get paid if they don’t issue a Sales Invoice to their customers? A customer must understand how much to pay for a product/goods and also, the date by which the payment must be made (i.e. the payment terms). This information is usually contained on the Sales Invoice. If your company is not issuing Sales Invoices (and then also, following up on those Sales Invoice!), it will be very difficult to get paid!
There does, however, exist a significant difference between what people might consider as a standard commercial invoice when compared to a BIR approved Sales Invoice in the Philippines.
Sales Invoices – Commercial v Compliance
What we have described in the section above is generally the more commercial elements relating to a Sales Invoice. However, the Sales Invoice, and in particular the specific format of the Sales Invoice, takes on greater importance as a key document under the Philippine tax and compliance framework.
For businesses in the Philippines, there are quite specific compliance requirements when it comes to the issuing of Sales Invoices. In short, the BIR Approved Sales Invoice is a crucial supporting document for sales transaction and it is something that the BIR and your company auditor will want to see when reviewing sales transactions of a company during an audit or an end of year review or a tax mapping.
The issuing of a BIR Approved Sales Invoice is therefore a legal requirement for many businesses, depending on the business model or business activity, under the Tax Code of the Philippines. Companies must be fully aware of the compliance framework that applies to the issuing of Sales Invoices for their business.
How Do I Get a BIR Sales Invoice for my PH Business?
The BIR requires that all companies or individuals, who are engaged in business in the Philippines and are subject to tax, must request and receive from the BIR a specific approval from the BIR to print and use a BIR Approved Sales Invoice before that company can start issuing Sales Invoices to customers.
The approval from the BIR comes in the form of a BIR certified document known as the Authority to Print.
Once the Authority to Print Certificate, also known as the ATP, has been received from the BIR, the company is then allowed to use and issue the BIR Approved Sales Invoices to its customers.
The application for the BIR approved Sales Invoices should be processed at the time of (or immediately after) the registration of the business entity.
The business must first submit an application to the BIR through BIR Form 1906. Sample copies of the proposed invoice format should also be attached to Form 1906. The company will then be able to receive a carbon booklet of BIR Approved Sales Invoices.
What Transactions Require a Sales Invoice in the Philippines?
Not all sales transactions in the Philippines require the production and issuance of a BIR certified Sales Invoice.
A BIR certified sales invoice is only required in the Philippines in the case of the sale of goods.
Under Section 237 of the National Internal Revenue Code of 1997, also known as the Tax Code, only those sales of goods to the value of P25 or more are required to have accompanying sales invoices.
If a sale is less than P25, can a company still issue an invoice? While not obligatory, the answer is yes! A seller could still issue a Sales Invoice for the sale of a good or product with the value of less than P25. One reason for doing so might be to ensure consistency of process across all sales activities.
By contrast, the key compliance document for companies or individuals that provide services via their business, from the perspective of sales transactions, is the Official Receipt. The Official Receipt is usually issued by the company after a customer has paid for a specific service that has been performed by the business.
Finally, for service companies, it would still be good practice to ensure a commercial invoice to customers in order to keep track of sales transactions and your accounts receivable as well as ensuring that there is a flow of supporting documentation for each sales transaction. Then, once payment is received, the service company can issue the BIR Approved Official Receipt.
Details to be Included in a Sales Invoice
Revenue Memorandum Order No. 12-2013 provides guidance on the specific details that PH companies must include on their Sales Invoice.
Under RMO 12-2013, Sales Invoices in the Philippines should include, at a minimum, the following details:
- Taxpayer’s (TP) Registered Name
- TP’s Business Name/style (if any)
- A statement that the taxpayer is VAT or Non-VAT registered followed by the Taxpayers Identification Number (TIN) and 4-digit Branch Code
- Business Address where the Sales Invoice will be used
- Date of transaction
- Serial Number of the sales invoice printed clearly
- A space for the Name, Address and TIN of the buyer
- Description of the items/goods
- Quantity of the items/goods
- Unit cost
- Total cost
- VAT amount (if the transaction is subject to VAT)
- If the VAT taxpayer is engaged in mixed transactions, the amounts involved shall be broken down to VATable Sales, VAT Amount, Zero-rated Sales and VAT Exempt Sales
- For Non-VAT Sales invoice, the phrase “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX” in bold letters, should be printed at the face of the Non-VAT sales invoice.
- If the transaction is VAT-exempt, the word “EXEMPT” shall be clearly indicated on the face of the invoice.
- If a transaction is mixed VAT-Exempt and Non-VAT, the breakdown of sales to VAT-Exempt and Non-VAT must be indicated.
- At the bottom of the invoice, the details of the accredited printer shall be indicated as enumerated in RMO 12-2013 Section 2 part K.
Examples of acceptable Sales Invoices could be seen in Annex C of RMO 12-2013.
In addition, under section 237 of the Tax Code, the original copies of the receipts must be kept and preserved in the business’s main location of operation for at least three years.
Value Added Tax – VAT
Value Added Tax (VAT) is a form of sales tax. It is a tax that is added to the sale of each product or service. In the Philippines, the VAT rate is 12%.
According to the TRAIN Law, all businesses whose gross annual sales exceed P3 million, should have a VAT Registration. As such, they would levy 12% VAT on all their sales. If the gross annual sales do not exceed P3 million, a Non-VAT Registration is allowed, which means they don’t have to add 12% on their sales prices. They can still however have VAT zero-rated or VAT exempt sales.
As such, an invoice could either be a VAT Sales Invoice or a Non-VAT Sales Invoice. This will depend on the original registration status of the business. You can check if your business is registered for VAT by checking your BIR2303 or BIR Certificate of Registration.
It is important that a company’s invoice indicates whether it is VAT or Non-VAT registered as the amount of any VAT payable will impact the total amount payable by a purchaser.
Requirements for Invoices to Overseas Companies
The requirements for issuing invoices to overseas companies are the same as the requirements for invoicing to local Philippines businesses.
However, a business engaged in exports should pay careful consideration to the VAT implications of invoicing overseas. The tax or VAT status of a business can vary across the various business models, industries, registration-type, etc, so make sure to consult your accountant or tax advisor to understand your tax obligations when providing overseas services.
To implement the VAT-related provisions of the TRAIN Law, the BIR released RR 13-2018. Based on this revenue regulation, export sales are VAT zero-rated.
VAT Zero-rated means that the business the rate of Value-Added Tax on the sales of products or services.
Following RMO 12-2013, export sales should be placed on the part of the invoice designated for Zero-rated sales.
RR 13-2018 classified the following transactions as export sales:
a. Sale of raw materials to local export-oriented enterprises;
b. Export Sales under the Omnibus Investments Code of 1987;
c. Sale of raw materials to a non-resident buyer for delivery to local export-oriented enterprises.
Manual and Electronic/E-invoicing
Both manual and electronic invoicing is now acceptable in the Philippines.
If the company is seeking to register for manual invoices, the invoice sample should come from a selected BIR-accredited printer.
What’s an e-invoice? Under Revenue Memorandum Circular 71-03 (RMC 71-03), an e-invoice is an invoice electronically created through the internet, using a system developed and maintained by the e-buyer and/or e-seller.
If your business is registering for e-invoicing, Revenue Memorandum Order or RMO 29-02 requires companies to apply for a full Computerized Accounting System (CAS). The RMO requires that the CAS must be capable of generating hard copies of invoices at any time.
Finally, it should also be noted that the recent TRAIN law in the Philippines introduced the requirement for mandatory e-invoicing for certain companies, with such e-invoicing procedures to be implemented by January 2023.
These companies include those considered Large Taxpayers by the BIR and those that are engaged in the export of goods and services.
This is a key area that the CloudCfo Team will be monitoring closely and writing about any advancements or changes in the e-invoicing framework over the coming months and years.
Penalties for Non-Compliance with Sales Invoice Requirements
An incorrectly issued invoice, or indeed, non-issuance of a Sales Invoice, can result in the imposition by the BIR of financial penalties on a non-compliant business.
The BIR is strict about implementing its rules on sales invoices. Why? Because the Sales Invoice is the official basis for the computation of taxable sales. A wide range of taxes might be applicable depending on the sales transaction including VAT and Withholding tax.
Here are some of the penalties a business in the Philippines might incur if it fails to create and issue a proper invoice:
- Failure to issue invoices – P10,000 for the first offense, and P20,000 for second offense
- For intentional refusal to issue invoices – P25,000 for the first offense and P50,000 for the second one
- Possession of unregistered invoices – P10,000 and P20,000 for the first and second offense, respectively
- Use of unregistered cash register machines in lieu of registered invoices – P25,000 for the first instance and P50,000 for the second one
- Duplicate copy is blank but the original copy is detached – P10,000 and P20,000 for the first and second offense, respectively
- Failure to separate VAT on the invoice – P1,000 penalty for each sale invoice, but not to exceed P50,000 (as per Revenue Regulation 18-2011)
- Issuing an incomplete invoice with certain details missing – P5,000 for the first offense and P10,000 for a second offense
Sales Invoices – The CloudCfo Process
CloudCfo are experts in the field of compliance and taxation in the Philippines.
By outsourcing your tax compliance services to CloudCfo, we can help ensure that your business has in place the most efficient and compliant processes and protocols for all Sales Invoice-related activities.
CloudCfo can also help support and improve your invoicing procedures and all other internal accounting, bookkeeping and finance processes.