If you are involved in business in any way in the Philippines, you should be familiar with the Official Receipt or OR.
“Where is the OR from that supplier?”
“Can you please send us the OR before the end of this week?”
“We can’t close our books this month until we find those ORs!”
So what’s all the fuss about and why are people always talking about Official Receipts?
Whether your business sells or buys services, you need to understand your rights and responsibilities when it comes to Official Receipts in the Philippines.
That’s why we have provided a helpful explainer below. So let’s get started!
What is an Official Receipt?
An Official Receipt or OR, is a document that provides evidence of a sale of a service by or to a business. Official Receipts should be issued by the business performing the service immediately upon receipt of payment from a customer for that service.
Official Receipts v Sales Invoices
In the Philippines, Official Receipts are only required for the sale of a service.
A sales invoice is a different document and is required in the case of a sale of goods. A sales invoice provides evidence that the sale of goods has occurred and that payment has now become due for those goods. Once payment is received, a collection receipt, which is different than an Official Receipt, is then issued to confirm the payment for and sale of the goods.
For more information on issuing sales invoices in the Philippines and relevant compliance issues in this area, check out our recent article on sales invoices in the Philippines and what a business must do to ensure compliance.
What’s the law on Official Receipts?
Section 237 of the National Internal Revenue Code of 1997, otherwise known as The Tax Code, provides that “All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service”.
So, if you are a business selling services, you must issue an Official Receipt for any sale of a service that exceeds 25 pesos. In the case of services, this is quite likely to cover all services. While goods and products are regularly sold for less than 25 pesos and will technically not require a invoice.
Since Section 237 was introduced, there have been various amendments, updates, Regulations, Orders and Circulars issued by the Government and the BIR on the specific information that must be included in Official Receipts. See the section below entitled “Requirements for Official Receipts”.
Authority to Print
The Bureau of Internal Revenue or BIR is concerned with ensuring that receipts are properly issued by taxpaying businesses across the Philippines.
So all taxpayer businesses are required to apply to the BIR for an Authority to Print their Official Receipts. This authority can be applied for at the same time as the company applies for its tax registration when submitting via BIR Form 1903. Or subsequently for separate authority to print applications, through BIR Form 1906.
A business does have to ensure that Official Receipts are printed by a BIR accredited printer. When applying for authority to print, the following information must be provided: Printer’s name, Printer’s TIN, Printer’s Accreditation Number and Printer’s business address.
Requirements for Official Receipts
The mandatory requirements for what information must be contained on an Official Receipt has been subject to various issuances, updates and clarifications by the BIR over recent years. Many of these relate to the differences in information between the issuing of manual Receipts and receipts generated by a CRM (cash register machine), POS (point of sales system) or Computerized Software.
There has been a long line of Orders, Regulations and Circulars on this subject area. For example:
- Revenue Memorandum Order (RMO) 12-2013 – this was the key source of information required to be indicated on Official Receipts. However, this information only applied to the issue of manual Official Receipts and excluded taxpayers issuing receipts through cash-register machines, POS machines and the computerized accounting system (CAS). The information list includes the following:
- 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 ORs will be used
- Date of transaction
- Serial number of the OR printed prominently;
- A space provided for the Name, Address and TIN of the buyer
- Description of the nature of service
- Unit cost
- Total cost
- VAT amount (if transaction is subject to 12% 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 ORs/SIs, and other CIs (VAT or Non-VAT) such as delivery receipts, order slips, purchase orders, provisional receipts, acknowledgment receipts, collection 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, the phrase “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX” in bold letters, shall be conspicuously printed at the face of the Non VAT ORs/SIs and other CIs
- Taxpayers whose transactions are not subject to VAT or Percentage Tax shall issue non-VAT principal receipts indicating prominently at the face of such receipts the word “EXEMPT”
- The following information must also be printed at the bottom portion of the OR:
- Name, address and TIN of the accredited printer
- Accreditation number and the date of accreditation of the accredited printer;
- ATP number, OCN, date issued and valid until
- BIR Permit Number (if loose leaf OR)
- Approved inclusive serial numbers of OR
- Security/special markings/features of the accredited printer
- The phrase “THIS INVOICE/RECEIPT SHALL BE VALID FOR FIVE (5) YEARS FROM THE DATE OF THE ATP.”
- Revenue Regulation 10-2015 – This RR outlined the detailed information that should appear on Official Receipts generated through CRM/POS and other invoice/receipt-generating machine/software. The list was subsequently amended by Revenue Regulation 16-2018 (see list below).
- Revenue Memorandum Circular 64-2015 – This RMC was issued to reiterate the information requirements that must be shown on receipts, invoices and other commercial invoices generated from CRM/POS/receipt generating software pursuant to Revenue Regulations (RR) No. 10-2015 and other regulations regarding VAT receipts and invoices. It provides that the following information of the purchaser, customer or client must be indicated on VAT receipts and invoices, in the case of sales amounting to one thousand pesos (P1,000.00) or more and where the sale is made to a VAT registered person:
- Name of purchaser, customer or client,
- Taxpayer identification Number (TlN); and
- Business style (if any)
- Revenue Regulation 16-2018 – this amended the original list of information requirements contained within Revenue Regulation 10-2015 (see above). This RR provided that all taxpayers using CRM, POS machines or other invoice/receipt generating machine/software shall show the information required (under Section 5 of RR 10-2015, as amended), namely:
- 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 (TlN) and 4-digit branch code
- Machine identification Number (MlN);
- Serial number of the CRM/POS machine;
- Detailed business address where such Official Receipts shall be used/located;
- Date of transaction;
- Serial Number of the OR printed prominently;
- A space provided for the Name, Address and TIN of the buyer;
- Description of the nature of service;
- Unit cost
- Total cost;
- VAT amount (if transaction is subject to 12% VAT);
- lf 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 ORs, Sales Invoices and Commercial Invoices (VAT or NON-VAT) such as delivery receipts, order slips, purchase orders, provisional receipts, acknowledgment receipts, collection receipts, credit/debit memo, job orders and other similar documents that form part of the accounting records of the taxpayer and/or issued to the customers, the phrase “THIS DOCUMENT lS NOT VALID FOR CLAIM OF INPUT TAX” in bold letters, shall be conspicuously printed at the bottom of the Non VAT ORs/SIs/CIs;
- Taxpayers whose transactions are not subject to VAT or Percentage Tax shall issue Non-VAT principal receipts/invoices indicating prominently at the face of such receipts/invoices the word ‘EXEMPT’;
- The following shall be printed at the bottom portion of the OR:
- address and TIN of the accredited supplier of CRM/POS/Other similar machines/software;
- Accreditation number and the date of accreditation (issued and value until) of the accredited supplier;
- BIR Final Permit To Use (PTU) Number;
- The phrase “THIS INVOICE/RECEIPT SHALL BE VALID FOR FIVE (5) YEARS FROM THE DATE OF THE PERMIT TO USE.”
- Revenue Memorandum Circular 55-2019 – this clarified the definition of “Business Style”, a category of information required to be indicated on Official Receipts. “Business Style” has now been clarified to mean the business name registered with a regulatory body (e.g. SEC) and used by the taxpayer other than its official registered name or company name.
Official Receipts are necessary to reduce taxable income
Expenses relating to the purchase of a service will not be considered as an allowable deduction to taxable income if it is not supported by an Official Receipt. The BIR requires that all such expenses be substantiated.
Taxable income forms the basis for the amount of income tax that must be remitted to the government. The lower the taxable income, the lower the amount of tax that a business has to pay.
“Allowable deductions” are deductions that a business is legally allowed to deduct from the gross (total) income payable in order to arrive at the final taxable income amount.
Without the proper Official Receipts for expenses incurred in relation to the services purchased, there is no evidence that in fact these expenses were incurred. In these circumstances, these expenses should not be deducted from income.
The result? A higher level of taxable income and a higher tax liability.
An additional point! Service businesses might sometimes issue billing statements which indicate the full amount payable for a service. Remember – billing statements are not considered by the BIR as valid proof of a sales transaction!
Official Receipts as the basis for calculating VAT
For a service company, Official Receipts are the basis for calculating the level of Value Added Tax to be submitted to the BIR.
VAT is an indirect tax applied to all applicable sales of goods or services in the Philippines. VAT is currently set at 12% in the Philippines. The VAT collected on the sale of goods and services is called Output VAT. VAT paid on the purchase of goods and services is called Input VAT.
In order to understand how much VAT is actually payable on a service, a business will have to rely on their Official Receipts. An Official Receipt should be issued or received for every service transaction entered into by a business in the Philippines. VAT cannot be properly or correctly evidenced, computed or remitted to the government without Official Receipts!
Official Receipts are the basis for calculating Withholding Tax
Withholding taxes are taxes that have to be withheld from a payment by a business to its supplier. If, for example, you are required by law to deduct 2% withholding tax from a payment to your supplier, you are legally obligated to file and remit that 2% withholding tax, and at the same time, you must provide the supplier with BIR Form 2307 as proof that withholding tax has been applied.
BIR Form 2307 will then be used by the supplier when applying for a tax credit. The amount withheld will be deducted from the supplier’s tax payable because effectively, she has already remitted the tax in advance through the service payment.
Just as with VAT (see above), a business should rely on their Official Receipts when computing the level of Withholding Tax payable. An Official Receipt should be issued or received for every service transaction entered into by a business in the Philippines. Again, just like VAT, Withholding Tax cannot be properly or correctly evidenced, computed or remitted to the government without Official Receipts.
For more information on your company’s Withholding Tax obligations, check out our recent article on Withholding Tax in the Philippines.
Official Receipts for Audit Season
Audit season comes around every year for companies in the Philippines. Your business should be in a position to validate all transactions and activities undertaken throughout the year. As part of the audit, business are required to prepare and submit various finance and tax related documents to a number of regulatory bodies, including the BIR and the SEC. The audit enables the Government to ensure that companies are adhering to their corporate and financial obligations.
A company appointed auditor will need all relevant financial documents to perform the audit. The company must therefore, in conjunction with its accountant, retrieve and provide all requested information to the auditor. Included in this will be the collection and provision of all relevant Official Receipts, both issued and received.
For more information on audits, check out our article on audit season in the Philippines. Stay tuned for an updated version of this article for 2020 coming soon!
Penalties for Non-Compliance
The Government of the Philippines takes the issuing and collection of Official Receipts seriously. The monitoring of Official Receipts is an important tool the Government has at its disposal to ensure that companies are correctly reporting all service transactions and paying the correct level of taxes. If there are no receipts, it will be difficult to evidence that a sales transaction has occurred. It will also be difficult to claim tax deductible expenses.
As such, here are just some of the BIR penalties related to incorrect/failure to issue receipts:
- For failure to issue receipts – P10,000 for the first offense and P20,000 for the second offense
- For refusal to issue receipts – P25,000 for the first offense and P50,000 for the second offense
- For issuance of receipts that do not truly reflect and/or contain all the information required to be shown therein – P1,000 for the first offense and P2,500 for the second offense
- For possession or use of unregistered receipts or invoices – P10,000 for the first offense and P20,000 for the second offense
Businesses that do not issue receipts can be reported to the BIR through their online facility eComplaint NO OR. Complaints received within the eComplaint service will be reviewed and categorized by the BIR. The complaint will then be referred to the relevant investigating office or the Regional Investigation Division for further action.
Need help understanding your compliance obligations around the collection and issuing of Official Receipts?
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