What is VAT?
Value Added Tax or simply VAT is a business tax at 12% imposed by the government to every sale, exchange, or use of goods or properties, services, and importation by a VAT-registered company. It is a passed on cost by the seller to the buyer of goods or services. A company will be registered as subject to VAT if its previous year sales/ receipts exceed P3 million or sees that its sales/receipts will exceed P3 million within the year, if it is an importer of goods, or is required to register as VAT registered tax payer but failed to register.
In this article, we will cover how to write a sales invoice or official receipt by a seller of goods and services which is VAT registered.
When does a sale become subject to VAT?
A sale becomes subject to VAT depends upon the type of sale. If it is a sale of goods, it will be subject to VAT as soon as the title of the goods passes to the buyer. A sales invoice will be issued showing the amount of VAT computed based on the amount sold. If it is a sale of services, the vat will be computed upon collection by means of an official receipt.
How to write an invoice or receipt?
The compliance requirements for a VAT registered tax payer is stricter when it comes to sales invoice and official receipts. That is why you should write properly the amount, name, TIN, and address to the receipt and sales invoice. Here is a sample format on how to write on a sales invoice and official receipt.
Seller of goods. The VAT is computed upon sales with or without collection yet. As the amount billed to customer is inclusive of VAT, you have to show the net of vat portion and the vat. To get the VAT, you have to multiply the gross amount by .12/1.12. In the example below, the VAT is computed by multiplying the gross amount of P60 by .12/1.12 or 6.43. The Net of VAT is computed by subtracting the VAT of P6.43 from the Gross amount of P60. It can also be computed by dividing the gross amount of P60 by 1.12.
Seller of Services. The VAT is computed upon collection as shown in the official receipt. As the sale is VAT inclusive, you have to get the VAT portion as computed by multiplying the Gross amount by .12/1.12. After deducting the VAT, you will arrive at the Net of VAT portion which will be the basis of computation for withholding tax which will be discussed in the next article. In the example below, the gross amount of P168,000 is multiplied to .12/1.12 to get the VAT of P18,000. The VAT is then subtracted to the gross amount of P168,000 to get the amount net of VAT.
Seller of goods and Services – For seller with mixed transactions as in the case of IT companies which sells both hardware and services, it will be more practical to separate the invoice for goods and services because the goods are already subject to VAT in the sales invoice while the service is subject to VAT upon collection. Upon collection or issuance of official receipt, the withholding tax rate will also differ for goods and services which is 1% and 2% respectively if the seller belongs to top withholding agents.
If the seller also sells transactions which are exempt from VAT or subject to zero rating, it should be separately shown in the invoice.