Two reasons to make sure that your company produces and issues proper sales invoices:
- the business gets paid what it is due; and
- it ensures compliance with local laws in the Philippines.
So what is a sales invoice? What is required for a fully compliant invoice in the Philippines? What procedural and administrative steps should a company take? What are the best practices for Filipino businesses when preparing and issuing invoices? What are the penalties for businesses that don’t comply?
Find out below!
What is a sales invoice?
A sales invoice is a document used in the Philippines, and many other countries, to prove that the sale of goods has occurred and that payment has become due for those goods.
Once a purchaser accepts the information contained in a sales invoice, they will be required to settle or pay it within an agreed number of days.
Which sales transactions require an invoice?
Not all sales transactions in the Philippines require the production of a sales invoice.
A sales invoice is only required in the Philippines in the case of the sale of goods. Companies or individuals offering services, such as outsourced accounting and finance services, are required to issue Official Receipts as proof of sales.
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 invoices for sales of less than P25. One reason might be to ensure consistency of process across all sales.
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 (see further below).
Depending on the business’s BIR registration, an invoice could either be a VAT Sales Invoice or a Non-VAT Sales Invoice. It is important that a company’s invoice indicates whether it is VAT or Non-VAT registered as the amount of any VAT payable would impact the total amount payable by a purchaser.
Authority to Print
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 an Authority to Print a sales invoice before that company can start issuing invoices.
When registering a business, the BIR will first check the form of the invoice that the company proposes to issue.
A business must first submit an application through BIR Form 1906. Sample copies of the proposed invoice format should be attached to Form 1906.
A business might seek an Authority to Print for either manual invoices or e-invoices.
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.
Our recent article on Books of Accounts: What is the best fit for your business? provides more information on the various types of accounting books that can be used by companies in the Philippines.
TRAIN law introduced mandatory e-invoicing for certain companies, 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.
Companies that facilitate e-commerce transactions are also required to switch to e-invoicing. Check out our recent blog article which explains more about tax compliance for e-commerce transactions in the Philippines.
What details must be included in a Sales Invoice?
Based on RMO 12-2013, sales invoices should include 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.
Couple all of the above with the implementation of good bookkeeping practices and your company is going in the right direction!
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 be careful when dealing with VAT.
To implement the VAT-related provisions of the TRAIN Law, the BIR has released RR 13-2018. Based on this revenue regulation, export sales are VAT zero-rated. VAT Zero-rated means that the business does not add Value-Added Tax on its 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.
What are the penalties for non-compliance with invoicing requirements?
An incorrectly issued invoice could result in the BIR penalizing a business financially!
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 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
Don’t let your invoice processes create barriers to business growth
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 invoice-related activities. We do this through the use of online solutions, cloud accounting and smart technology.
We can also help your company to ensure it never misses a tax filing deadline again!
We advise corporations, partnerships and self-employed individuals in the Philippines on how to achieve compliance with their tax filing requirements and regulatory obligations.
We also have in-depth knowledge of the various SEC submissions, BIR Forms and taxation certificates required for corporations in the Philippines.
CloudCfo can help you improve your invoicing procedures and all other internal accounting, bookkeeping and finance processes. Visit us at cloudcfo.ph or contact us at firstname.lastname@example.org for your free initial consultation.