Comprehensive Report on Revenue Regulation No. 7-2024

The Bureau of Internal Revenue (BIR) in the Philippines issued Revenue Regulation No. 7-2024, which outlines the new registration procedures and invoicing requirements mandated by the Ease of Paying Taxes Act (EOPT Act). This regulation introduces significant changes to sales transactions, primarily by replacing Official Receipts (ORs) with Invoices.

Revenue Regulation No. 7-2024 was introduced to streamline tax processes and enhance compliance with the EOPT Act. This regulation affects how businesses issue invoices and manage their tax documentation.

Key Points

Invoicing Requirements:

VAT Invoices:

A Value-Added Tax (VAT) invoice must be issued as evidence of the sale of goods, properties, services, or the leasing of properties in the ordinary course of trade or business.

This invoice is crucial for determining the output tax liability of the seller and the input tax claim of the buyer.

The issuance of VAT invoices is mandatory for all transactions covered under this regulation.

Registration Procedures:

Implementation:

RR No. 7-2024 implements specific sections of the Tax Code of 1997, as amended by Republic Act No. 11976 (EOPT Act).

It includes guidelines for the registration of taxpayers and the issuance of VAT invoices.

The regulation aims to simplify the registration process and improve transparency in tax compliance.

Impact on Businesses

Transition to VAT Invoices: Businesses must transition from using Official Receipts (ORs) to VAT invoices for all relevant transactions.

Documentation and Compliance: Proper documentation and adherence to the new requirements are essential to avoid penalties. Businesses need to familiarize themselves with the new invoicing procedures to ensure compliance.

Relevant Dates

Date of Issue: April 11, 2024

Date Posted: April 12, 2024

Revenue Regulation No. 7-2024 marks a significant modernization step in the tax administration of the Philippines. Businesses are advised to understand and implement the new invoicing procedures to maintain compliance and avoid any penalties. For more details, the full text of RR No. 7-2024 can be accessed on the BIR website.

If you have any additional questions or require further clarification, feel free to ask!

Handling Existing Official Receipts under Revenue Regulation No. 7-2024

Under Revenue Regulation No. 7-2024, taxpayers have two options for handling their existing Official Receipts (ORs):

Option 1: Use Existing Official Receipts as Supplementary Documents

Supplementary Document Use:

Existing ORs can be used as supplementary documents issued to customers upon the collection of the sale of services.

Taxpayers must stamp the words “THIS DOCUMENT IS NOT VALID FOR CLAIMING OF INPUT TAX” on the face of the OR.

This indicates that these receipts cannot be used as the primary supporting document for claiming input VAT on service purchases.

Option 2: Convert Official Receipts to Invoices

Conversion Process:

Taxpayers can convert their remaining ORs to invoices by striking through the word “Official Receipt” on the face of the printed receipt.

Stamp the appropriate designation such as “Invoice,” “Cash invoice,” “Charge invoice,” “Credit invoice,” “Billing invoice,” “Service invoice,” or any name describing the transaction, ensuring the word “Invoice” is included.

Validity for Input VAT Claims:

Converted ORs can be used for claiming input VAT until December 31, 2024.

Starting January 1, 2025, these documents may only be used as supplementary documents.

Submission Requirements:

Conversion of ORs to invoices does not require BIR approval.

Taxpayers must submit an inventory of unused ORs, detailing the number of booklets and corresponding serial numbers, within thirty (30) days from the effectivity of RR No. 7-2024 (by May 27, 2024).

By following these guidelines, taxpayers can ensure compliance with the new invoicing requirements while effectively managing their existing official receipts.

Validity of Manual and Loose-Leaf Official Receipts under Revenue Regulation No. 7-2024

Effective Date and Compliance Requirements:

Upon the effectivity of Revenue Regulation No. 7-2024, taxpayers, especially service providers, must adhere to the following guidelines regarding manual and loose-leaf official receipts (ORs):

Discontinuation of Manual and Loose-Leaf ORs:

From April 27, 2024, onwards, taxpayers can no longer issue manual or loose-leaf official receipts to support their sales of services.

The issuance of official receipts for the sale of services will not be considered valid evidence of sales transactions.

Penalties for Non-Compliance:

Taxpayers who continue to issue manual or loose-leaf ORs as the primary supporting document for sales of services will be subject to penalties.

Such issuance will be treated as a failure to issue invoices, which can result in significant penalties under the new regulation.

Actions for Taxpayers:

Transition to VAT Invoices:

Service providers must transition to issuing VAT invoices for all sales transactions as mandated by RR No. 7-2024.

This transition is crucial to ensure that sales are properly documented and compliant with the new regulation.

Update Invoicing Systems:

Businesses should update their invoicing systems to align with the new requirements.

Proper training and system upgrades may be necessary to ensure seamless compliance with the new invoicing procedures.

Communication and Training:

It is important to communicate these changes to all relevant staff and provide training to ensure proper implementation.

Businesses should also inform their clients about the new invoicing process to avoid confusion.

To avoid penalties and ensure compliance with Revenue Regulation No. 7-2024, taxpayers must stop using manual and loose-leaf official receipts for sales of services starting April 27, 2024. Instead, they must issue VAT invoices, which will serve as the valid evidence of sales transactions. Adhering to these guidelines is essential for maintaining compliance and avoiding the severe penalties associated with non-compliance.

Tax Notes: Implementation of Republic Act No. 11976 (Ease of Paying Taxes Act) through Revenue Regulations No. 3-2024 and 7-2024

The Bureau of Internal Revenue (BIR) has released a series of Revenue Regulations (RR) to implement the provisions of Republic Act No. 11976, also known as the Ease of Paying Taxes Act. This edition of Tax Notes highlights the significant changes in the rules for value-added tax (VAT) and percentage taxes (PT) as outlined in RRs No. 3-2024 and 7-2024, which were posted by the BIR on April 12, 2024.

Key Changes under Revenue Regulations No. 3-2024 and 7-2024

Revenue Regulation No. 3-2024:

Streamlining VAT Compliance:

Filing and Payment Simplifications: The regulation introduces measures to simplify the filing and payment processes for VAT, aiming to reduce the administrative burden on taxpayers.

E-Invoicing Requirements: Mandatory use of e-invoicing systems for certain businesses to enhance transparency and accuracy in VAT reporting.

Adjustments in VAT Thresholds:

Threshold Increases: The VAT registration threshold has been adjusted to reflect current economic conditions, allowing small businesses to be exempt from VAT registration if their gross sales or receipts do not exceed the new threshold.

VAT Refunds and Credits:

Expedited Refund Process: Implementation of a more efficient process for VAT refunds and credits, reducing the waiting time for taxpayers to receive their refunds.

Revenue Regulation No. 7-2024:

Invoicing Requirements:

Replacement of Official Receipts: Official Receipts (ORs) are replaced with VAT invoices for all transactions involving the sale of goods, properties, services, or the leasing of properties.

Mandatory VAT Invoices: VAT invoices are required as the primary evidence for sales transactions, serving as the basis for output tax liability of the seller and input tax claim of the buyer.

Handling Existing Official Receipts:

Supplementary Use: Existing ORs can be used as supplementary documents if stamped with “THIS DOCUMENT IS NOT VALID FOR CLAIMING OF INPUT TAX.”

Conversion to Invoices: Taxpayers can convert ORs to invoices by striking through “Official Receipt” and stamping appropriate invoice designations. Converted ORs are valid for input VAT claims until December 31, 2024.

Prohibition on Manual and Loose-Leaf ORs:

Discontinuation: From April 27, 2024, taxpayers can no longer issue manual or loose-leaf ORs for services. Such documents will not be valid evidence of sales and will be penalized.

Impact on Businesses

Compliance Adjustments: Businesses must adjust their invoicing practices to comply with the new VAT and PT regulations, ensuring they use VAT invoices instead of ORs.

System Upgrades: Implementation of e-invoicing and updating invoicing systems will be necessary for compliance.

Training and Awareness: Businesses need to train their staff and inform their clients about the changes to avoid any disruption in transactions.

The issuance of RRs No. 3-2024 and 7-2024 marks a significant step toward modernizing tax administration in the Philippines. These regulations are designed to streamline tax processes, enhance compliance, and support the objectives of the Ease of Paying Taxes Act. Businesses should take proactive steps to understand and implement these changes to ensure smooth compliance and avoid penalties.

For further details, the full texts of RRs No. 3-2024 and 7-2024 can be accessed on the BIR website. If you have any questions or need further clarification, feel free to ask!

Amendments in the Definition of Tax Terminologies under RR No. 16-05 and its Subsequent Amendments

The following amendments in the definition of tax terminologies have been introduced to align with the provisions of the Ease of Paying Taxes Act (EOPT Act):

1. Gross Sales

Unified Term:

New Definition: The term "Gross Sales" now uniformly applies to both the sale of goods and services, adopting the accrual basis for recognizing sales.

Previous Terminology: Previously, terms such as "gross selling price," "gross value in money," and "gross receipts" were used separately for goods and services.

VAT Recognition: Earlier, VAT on the sale of goods was recognized upon the substantial transfer of risks and rewards of ownership, while VAT on services was recognized upon the collection of billings.

2. Invoice

Unified Document:

New Definition: The term "Invoice" now encompasses all references to Sales/Commercial Invoices or Official Receipts, representing a single document for both sales of goods and services.

Previous Terminology: Separate terms were used for Sales/Commercial Invoices and Official Receipts.

3. Billings for Sale of Service on Account

Billing Terminology:

New Definition: All references to receipts or payments that were previously the basis for the recognition of sales or services under VAT and PT will now be referred to as "Billing" or "Billed," as applicable.

Previous Practice: The recognition of sales or services under VAT and PT was previously based on receipts or payments.

4. VAT-Exempt Threshold

Threshold Adjustment:

New Definition: The VAT-exempt threshold, previously set at P3 million, will now be adjusted to its present value every three (3) years using the Consumer Price Index (CPI), as published by the Philippine Statistics Authority.

Previous Threshold: The threshold was fixed at P3 million without periodic adjustments.

Implications for Taxpayers

Uniformity in Terminology:

The adoption of unified terms simplifies the understanding and application of tax regulations across different types of transactions.

Accrual Basis for Gross Sales:

Taxpayers need to recognize sales for VAT purposes on an accrual basis, regardless of whether the sale is of goods or services.

Single Invoice Document:

Transition to using a single "Invoice" for documenting both goods and services transactions ensures consistency and reduces the complexity of maintaining different types of documents.

Billing Terminology:

Standardizing references to "Billing" or "Billed" helps in the clear identification and reporting of sales and services transactions under VAT and PT.

VAT-Exempt Threshold Adjustments:

Regular adjustments to the VAT-exempt threshold based on the CPI ensure that the threshold remains relevant to current economic conditions, potentially impacting small businesses' VAT registration status.

 

These amendments streamline the tax terminologies and processes, reflecting the objectives of the Ease of Paying Taxes Act to simplify and modernize the tax administration system. Businesses should update their accounting and reporting practices to comply with these new definitions and ensure accurate tax compliance. For more detailed information, taxpayers can refer to the full texts of the relevant Revenue Regulations available on the BIR website. If you have further questions or need additional clarification, feel free to ask!

Amendments in Recognition of VAT and Tax Credits on Uncollected Receivables

Under the Ease of Paying Taxes Act (EOPT Act), several significant amendments have been made to the recognition of VAT and the treatment of tax credits on uncollected receivables. These changes are detailed as follows:

Recognition of VAT on Gross Sales

Basis for VAT Calculation:

New Basis: The computation of VAT on the sale of services and the use or lease of properties is now based on "gross sales."

Definition of Gross Sales: Gross sales refer to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental, or royalty, which the purchaser pays or is obliged to pay to the seller for services rendered or properties leased.

Deductions from Gross Sales:

Allowed Deductions: Only valid sales refunds for which allowances were granted by the seller and sales discounts appearing on the invoice at the time of sale (and not contingent on a future event) are allowed as deductions from gross sales for output VAT purposes.

VAT Credit on Uncollected Receivables

The EOPT Act introduces a provision for VAT credit on uncollected receivables, allowing sellers to manage their VAT obligations more effectively in cases where receivables are not collected.

Conditions for VAT Credit:

Timing of Sale: The sale or exchange must have occurred after the effectivity of the new regulations.

Nature of Sale: The sale must be on credit or on account.

Written Agreement: There must be a written agreement specifying the credit terms, including the period to pay the receivable.

VAT on Invoice: The VAT must be separately shown on the invoice.

Reporting in Summary List: The sale must be reported specifically in the Summary List of Sales for the period when the sale was made and not under “various sales.”

Declaration in Tax Return: The seller must have declared the corresponding output VAT in the tax return within the prescribed period.

Elapse of Credit Period: The agreed-upon credit period must have elapsed, whether extended or not.

Non-Deduction for Income Tax: The VAT component of the uncollected receivable must not be claimed as a deduction from gross income.

Process of Claiming VAT Credit:

Deduction in Next Quarter: The seller may deduct the output VAT pertaining to uncollected receivables from its output VAT in the next quarter after the lapse of the agreed period to pay, provided the VAT on the transaction has already been remitted.

Non-claim for Income Tax: The VAT component of the uncollected receivables should not be claimed as allowable deductions for income tax purposes.

Recovery of Uncollected Receivables:

Output VAT Addition: In the event of recovery of uncollected receivables, the output VAT related to these receivables must be added to the taxpayer's output VAT for the period during which the recovery occurs.

Implications for Taxpayers

Adherence to New VAT Basis:

Businesses must recognize VAT based on gross sales, aligning their accounting practices with the new regulations.

Accurate Reporting and Documentation:

Ensuring accurate reporting in the Summary List of Sales and proper documentation of written agreements on credit terms is crucial for claiming VAT credits on uncollected receivables.

Non-Deduction of VAT for Income Tax:

Taxpayers must be careful not to claim the VAT component of uncollected receivables as deductions for income tax purposes to comply with the new regulations.

These amendments aim to streamline VAT recognition and provide a mechanism for managing VAT on uncollected receivables, reflecting the broader objectives of the EOPT Act to simplify tax processes and improve compliance. Businesses should update their practices and systems to ensure they meet the new requirements and take advantage of the provisions for VAT credits on uncollected receivables. For more detailed information, taxpayers can refer to the full text of the relevant Revenue Regulations available on the BIR website. If you have further questions or need additional clarification, feel free to ask!

Transitory Provisions on Billed but Uncollected Sale of Services under the EOPT Act

The following provisions address the handling of billed but uncollected sales of services during the transition to the new rules under the Ease of Paying Taxes Act (EOPT Act):

Accrual Method for Gross Sales

1. Effective Date Application:

• The recognition of gross sales based on the accrual method applies to sales of services that occur upon the effectivity of the EOPT regulations.

2. Outstanding Receivables Before Effectivity:

• For services rendered before the EOPT regulations became effective, the output VAT on these outstanding receivables shall be declared in the quarterly VAT return only when the collection has been made.

Invoicing Requirements During Transition

1. Supporting Collections with Invoices:

• Collections of outstanding receivables must be supported with an Invoice.
• The Invoice must comply with the transitory provisions contained in RR No. 7-2024 or with the new BIR-approved set of Invoices, whichever is applicable.

Information Required on the VAT Invoice

The VAT Invoice must include the following details:

1. Seller's VAT Registration Statement:

• A statement indicating that the seller is VAT registered, followed by the Tax Identification Number (TIN) and Branch Code.

2. Payment Details:

• The total amount the purchaser pays or is obligated to pay, with a breakdown showing:
• The VAT amount separately.
• The classification of the sale, indicating whether it is a VAT-exempt sale or a zero-rated sale.

3. Transaction Details:

• The date of the transaction.
• Quantity, unit cost, and description of the goods, properties, or nature of the service provided.

4. Purchaser Information:

• The registered name, address, and TIN of the purchaser, customer, or client.

These transitory provisions ensure a smooth transition to the new VAT recognition and invoicing requirements under the EOPT Act. By adhering to these guidelines, taxpayers can ensure compliance while managing their billed but uncollected receivables effectively.

Compliance Steps for Businesses

1. Transition to Accrual Method:

• Ensure that all sales of services occurring after the effectivity of the EOPT regulations are recognized on an accrual basis for VAT purposes.

2. Handling Pre-Effectivity Receivables:

• Continue to declare output VAT on receivables from services rendered before the new regulations only upon collection.

3. Invoice Compliance:

• Use Invoices that comply with RR No. 7-2024 or the new BIR-approved set of Invoices for all collections, ensuring they include all required information.

4. Training and System Updates:

• Update accounting and invoicing systems to reflect these changes and provide training to relevant staff to ensure proper implementation.

By following these steps, businesses can align with the new regulatory framework and maintain compliance with the BIR's updated requirements under the EOPT Act. For further details, businesses should consult the full text of the relevant Revenue Regulations available on the BIR website. If there are any questions or additional clarifications needed, feel free to ask!

Transitory Provisions on Uncollected Receivables from Sale of Goods under RR No. 3-2024

The Bureau of Internal Revenue (BIR) has set forth specific transitory provisions concerning uncollected receivables from the sale of goods, as part of the implementation of the Ease of Paying Taxes Act (EOPT Act). These provisions are detailed under Section 4 of Revenue Regulation No. 3-2024.

Output VAT Credit for Uncollected Receivables

Application to New Transactions:

Effective Date Limitation: The provision for claiming output VAT credit on uncollected receivables applies solely to transactions that occur upon the effectivity of RR No. 3-2024.

No Retroactive Application: No output VAT credit will be allowed for receivables from the sale of goods on account that were outstanding prior to the effectivity of these regulations.

Key Points of the Transitory Provisions

Scope of Output VAT Credit:

New Transactions Only: The ability to claim an output VAT credit is limited to sales of goods that transpire following the implementation of RR No. 3-2024. This ensures that only new transactions are considered under the updated framework.

Exclusion of Pre-Effectivity Receivables:

Pre-Effectivity Receivables: Any receivables from the sale of goods that remain outstanding and were generated before the new regulations took effect will not qualify for an output VAT credit.

Implications for Taxpayers

Preparation for Compliance:

Review of Receivables: Businesses must review their accounts receivable to identify which transactions are eligible for output VAT credits under the new regulations.

Documentation and Reporting: Proper documentation and reporting of sales and receivables in accordance with the new rules will be essential for compliance and for claiming VAT credits where applicable.

System Updates and Training:

Accounting Systems: Update accounting systems to differentiate between transactions that occurred before and after the effectivity of RR No. 3-2024.

Staff Training: Ensure that staff are trained on the new requirements to accurately apply VAT credits to eligible transactions.

The transitory provisions under RR No. 3-2024 clarify that output VAT credits on uncollected receivables are applicable only to transactions occurring after the regulations take effect. This ensures a clear cut-off for eligibility and aids in the smooth implementation of the new tax provisions. Businesses should take the necessary steps to align their practices with these regulations and ensure proper compliance.

For further details, taxpayers are advised to consult the full text of RR No. 3-2024 and related regulations available on the BIR website. If additional questions or clarifications are needed, feel free to ask!

Transitory Provisions on Issuance of VAT Invoices under RR No. 7-2024

The Bureau of Internal Revenue (BIR) has outlined specific transitory provisions under Section 8 of RR No. 7-2024 for taxpayers transitioning from using Official Receipts (ORs) to the new VAT Invoices. 

Here are the key points:

Options for Taxpayers with Unused Official Receipts

1. Using Official Receipts as Supplementary Documents:

Continued Use: Taxpayers can continue using their remaining Official Receipts as supplementary documents until they are fully consumed.

Required Stamp: These ORs must have the phrase “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX” stamped on them.

Purpose: The OR, along with other equivalent documents like Collection Receipts, Acknowledgement Receipts, and Payment Receipts, will serve as proof of payment indicating cash has been received.

2. Converting Official Receipts to Invoices:

Conversion Process: Taxpayers may convert their remaining Official Receipts to Invoices by striking through the word “Official Receipt” and stamping it with “Invoice”, “Cash Invoice”, “Charge Invoice”, “Billing Invoice”, “Service Invoice”, or any other appropriate term.

Validity Period: These converted documents can be issued as primary invoices valid for claiming input tax by the buyer for transactions from January 22 to December 31, 2024.

No Approval Needed: Taxpayers do not need approval from any Revenue District Office (RDO), Large Taxpayer Office (LTO), or Large Taxpayer Division (LTD) for this conversion.

Inventory Submission: An inventory of unused ORs, including the number of booklets and serial numbers, must be submitted within 30 days of the regulations' effectivity to the relevant RDO, LTO, or LTD.

Specific Provisions for Different Taxpayer Categories

1. CRM/POS/E-receipting Users:

Renaming Receipts: Taxpayers using CRM/POS/E-receipting can change “Official Receipt” to “Invoice”, “Cash Invoice”, “Charge Invoice”, “Billing Invoice”, “Service Invoice”, or another appropriate term without notifying their RDO.

Serial Number Continuity: The serial number of the renamed invoice should continue from the last series of the previously approved OR. A notice indicating the starting serial number of the converted invoices must be submitted to the RDO where the machines are registered.

2. Computerized Accounting System (CAS) or Computerized Books of Accounts (CBA) Users:

System Reconfiguration: Taxpayers using CAS or CBA must reconfigure their systems to comply with the EOPT Act provisions.

Major Enhancement: This reconfiguration is considered a major enhancement requiring taxpayers to update their system registration per existing policies and procedures.

Deadline: The reconfiguration must be completed by June 30, 2024. ORs issued by CAS- or CBA-registered taxpayers for services after this date will be considered a failure to issue or non-issuance of an invoice.

Extension Requests: Extensions beyond June 30, 2024, require approval from the Regional Director or Assistant Commissioner of the Large Taxpayer Service and must not exceed six months from the regulations' effectivity.

Effectivity

These regulations become effective 15 days after publication in the Official Gazette or on the BIR official website, whichever is applicable. Since the BIR website posted these regulations on April 12, 2024, the regulations took effect 15 days later.

Compliance Steps for Businesses

Evaluate Options for Existing ORs:

Decide whether to use remaining ORs as supplementary documents or convert them to Invoices.

Ensure Proper Stamping and Conversion:

Stamp ORs correctly if using as supplementary documents.

Convert ORs to Invoices as needed and ensure proper marking.

Submit Required Inventories and Notices:

Submit an inventory of unused ORs within the specified timeframe.

Notify the RDO about the starting serial number of renamed invoices if using CRM/POS/E-receipting systems.

Reconfigure CAS or CBA Systems:

Complete necessary system reconfigurations by the deadline.

Apply for extensions if needed and ensure compliance with new application procedures.

By following these steps, businesses can ensure a smooth transition to the new VAT invoicing requirements and maintain compliance with the BIR’s updated regulations. For further details or questions, businesses should refer to the full text of the relevant Revenue Regulations available on the BIR website.