Are you a business owner, providing services or receiving services in the Philippines? Then you must stay tax compliant by staying on top of your Official Receipts or OR. If you manage a service business or receive services in the country, you must understand your obligations when it comes to Official Receipts. Failure to do so means inability to comply with BIR requirements.
As a result, you could be slapped with stiff fines and penalties. Fortunately, you can rely on tax and audit services in the Philippines to help you manage everything. With the help of the best tax and accounting services in Pasig, you can meet all the essential requirements. Learn why issuing ORs is necessary for running a service business in the PH:
Compliance with the Tax Codes
Under Section 237 of the Philippine Tax Code, all taxpayers engaged in business or trade must issue an Official Receipt or Sales Invoice for each sale and transfer of goods or services to the one buying them at the time the transaction occurred. However, do note that there’s a difference between ORs and invoices, and these are:
- Sales Invoices are used for selling goods
- Official Receipts are utilized for selling services
This law mandates that you must provide an OR if you’re in the business of selling services for any sale that exceeds the value of P25. This encompasses different types of services such as:
- Freelancers providing copywriting or video graphic services
- Consultation fees of doctors, lawyers, architects, or other professionals
- Talent fees of artists like actors, singers, musicians, social media influencers, etc.
Crucial for Documentation and Validation
As a business owner, you cannot close your books without these documents. Even if you hire tax services in Manila, you will still be requested by your accountant to provide the ORs. After all, the Official Receipt serves as an official document, proving that a sale transaction has taken place.
Furnishing this to your client exhibits that you have rendered services and received the payment. At the same time, it shows that the client or payor for the service has paid for it, so you must fulfill your obligations. You can issue ORs from your business to an individual or a company. And you must keep a copy because these are crucial documents during audit season for validating transactions undertaken in the fiscal year.
Necessary for Tax Deductions
As a business owner or individual receiving the service, your expenses when purchasing the said service will not be considered as a tax-deductible expense if it is not supported by the Official Receipt. You must find the OR to support and serve as the evidence to lower your tax dues. Consult with tax and accounting services in the Philippines for guidance on allowable deductions for taxable income.
If you cannot provide the OR from a service provider, under the eyes of the BIR you have no evidence that says these expenses were correctly incurred. As a result, you are forced to pay a higher amount for your tax dues. Thus, you have to make sure your supplier or vendor can issue Official Receipts. Only a BIR registered company can have the authority to print ORs.
Crucial for Withholding Tax
For instance, if your business is required by law to deduct 2% withholding tax from a payment to a supplier, you must file and remit that said amount. You are also required to give your supplier BIR Form 2307 proof that withholding tax has been applied. These are taxes withheld from payment by a business to its supplier.
The supplier can then use the BIR form to apply for a tax credit. A business must rely on the Official Receipt to compute the correct amount of payable withholding tax. Without the OR, this is impossible to do. You will have no proof of transaction.
Affect VAT Computations
Finally, as the one providing the service, you are required to have the OR to properly calculate the level of VAT or Value Added Tax, which is an indirect tax levied on all applicable sales of products or services in the Philippines. VAT is set at 12% with collected sales called Output VAT and purchases called Input VAT.
To underscore how much VAT is payable for a service, you must take a look at your OR. For this reason, all service providers are required to issue Official Receipts, at the same time, all businesses or individuals paying for the service must also have a copy of the said receipt. Without them, VAT cannot be correctly documented, computed, and remitted to the BIR.
For the above reasons, the government takes the issuing of ORs seriously. If you don’t know how to monitor or track your Official Receipts, give our team at UNA a call for assistance.