I am registered as a VAT Registered Individual. I didn’t start as a VAT registered self-employed professional. I moved from being Non-VAT to VAT. This was required when I finally earned more than 3 Million gross earnings or gross revenue in a year.
One of our concerns as VAT registered individual taxpayers is how to write an OR for VAT Individuals. By the way, OR is short for official receipts. We’re not used to writing VAT official receipts, since we’ve been so used to writing Non-VAT official receipts (haha! I may just be speaking for myself). So I took some time out of my day actually to write this blog post so that I will have my own guide and so that you may have a guide, too.
I’ll be sharing two scenarios to teach you how to write an OR for VAT Individuals
Scenario one:
You charged your client Php 20,000 and you said that this is net of taxes. They asked you if you are withholding and how much percentage will that be.
Answer: The first thing that you always need to do (and this is for both scenarios that I indicate in this blog) is to send them the following together with your proposal: (1) your Certificate of Registration; (2) mention that you are a VAT entity just in case they don’t check the COR; and, (3) send a sample official receipt or invoice (a blank one).
Next, the Php 20,000 that you mentioned above also becomes your VATABLE amount. My PRO TIP is that it’s best to quote “net of taxes” because it’s easier for you and for the finance department of your client to compute. So what’s the computation?
| VATable Amount | ₱ 20,000.00 |
| + VAT (12% of VATable Amount) | ₱ 2,400.00 |
| Total Payable | ₱ 22,400.00 |
On withholding taxes
Since they are withholding, withholding taxes for VAT individuals are usually at 10%. I usually find it weird when big local companies (their finance) ask me what ATC do I want. The company that withholds should be the one to choose how they want to declare the person based on the COR and service to be rendered by the individual is.
Let’s pause for a while though and define an ATC or Alphanumeric Tax Code. This is the code that tells the BIR what type of tax are you paying for. There are ATCs in different tax forms, but let’s focus on Withholding Taxes. You can find the complete guide of Alphanumeric Tax Codes in the BIR’s website. It’s alphanumeric because the format is like this… WI080.
The Client that you have is called a withholding tax agent. In their COR or Certificate of Registration, they probably have to pay “Withheld Taxes – Expanded” or Expanded Withholding Taxes. That means, for each expense that they have, they have to withhold a certain percentage. So since they are paying you, they need to withhold a certain percentage and declare this to the government. This filing of theirs (to put it simply) has a list of all the people and companies that they have paid and this list is called a QAP or Quarterly Alphalist of Payees. So if you still don’t know how BIR knew you were paid even if you didn’t declare, this is it.
This is the reason why they need to give you the form 2307 or Certificate of Creditable Tax Withheld. It is proof that they really remitted the taxes they said they will withhold and pay for. This is important because you can deduct the taxes they withheld from the income taxes you’re supposed to pay. For paying of income tax and how to “attach or deduct” the amount from form 2307, just use Taxumo. They have an onboarding session where you will learn how to use Taxumo to pay for taxes without really needing to know how to compute the nitty gritty details. Use my code mommyg for a 10% from your chosen subscription plans: https://taxumo.com (if you are VAT, the plan for that is the SMB plan).
So going back to the computation, the withholding taxes are withheld from the VATable amount. So let’s say your ATC is for 10% withheld taxes:
| VATable Amount | ₱ 20,000.00 |
| + VAT (12% of VATable Amount) | ₱ 2,400.00 |
| Total Payable | ₱ 22,400.00 |
| LESS: Withholding Tax (10% of VATable Amount) | ₱ 2,000.00 |
| Net Payable | ₱ 20,400.00 |
So what do you write on your official receipt? With all the numbers above, do you want to guess? 🙂
What you will write on the right side of the OR (where you write the amount in words) is the ₱ 20,400. You will then write the breakdown on the portion where you can write the breakdown, usually on the left side for the OR.
When you get paid, you will receive (1) ₱20,400 as payment in cash and (2) ₱2,000 as payment in the form of a Form 2307 Certificate of Tax Withheld. Make sure you get both!
Scenario two:
What if I failed to tell my client I was a VAT entity and I’m fine with Php 20,000 inclusive of VAT. What is the computation? The client will also withhold.
In this case, you’ll have to compute back from the total amount / VAT Inclusive Price to the VATable + VAT amounts. Don’t worry, doing so is very easy:
| VAT Inclusive Price | ₱ 20,000.00 |
| VATable Amount (VAT Inclusive ÷ 1.12) | ₱ 17,857.14 |
| VAT (12% of VATable Amount) | ₱ 2,142.86 |
| Total Payable | ₱ 20,000.00 |
| LESS: Withholding Tax (10% of VATable Amount) | ₱ 1,785.71 |
| Net Payable | ₱ 18,214.28 |
So there you have it. These are the two scenarios that I’d like to share with you. If your scenario is more complicated than what I shared above (it’s possible), you can consult with a CPA via Taxumo Consult. A 45 minute consultation with them is just at ₱1000.
Hope this helps you understand how to write an OR for VAT Individuals. Please share this if you find this useful.
P.S. For Non-VAT individuals, you can check this out: A Freelancers and Consultants Guide to Using Taxumo
