Resumption and Governing Regulations of VAT on Broker Services
- VAT on the specified broker services resumed on January 1, 2003.
- Implemented through Revenue Regulations No. 1-2003, as amended by RR No. 3-2003.
- Also governed by Revenue Regulations No. 7-95, "The Consolidated VAT Regulations."
Possible Exemption from VAT
- Broker services could be exempted from VAT if future laws defer its application beyond January 1, 2003.
Taxable Base for VAT on Service Sales
- VAT is computed on the gross receipts from such broker services.
Definition of Gross Receipts
- Total money or equivalent received, including contract price, compensation, service fees, rentals, royalties.
- Includes charges for materials supplied, deposits, and advances received during the taxable period.
- Excludes VAT amount itself.
Treatment of Advances or Deposits
- Deposits and advance payments are included as part of gross receipts during the period received.
- Advances for broker's facilitation expenses are included; expenses paid by the broker on behalf of client and invoiced directly to client are excluded if no reimbursement is on broker's VAT invoice.
VAT Computation Method
- VAT is 10% of taxable gross receipts or equivalently 1/11 of total invoice amount (gross receipts plus VAT).
Computation and Treatment of Input VAT and VAT Payable
- VAT payable = Output tax minus allowable input tax for the period.
- Allowable input tax includes carry-overs, advance VAT payments, and VAT withheld by authorized withholding agents.
- Excess input VAT is carried over to the next taxable period.
Registration Requirements for Brokers as VAT Taxpayers
- Brokers with gross receipts over Php 550,000 in the previous year or expected over this threshold must register as VAT taxpayers.
- Obliged to file monthly VAT Declarations and quarterly VAT Returns.
- Failure to register results in VAT payment liability with penalties and inability to claim input VAT.
Registration as Non-VAT (Percentage Tax) Taxpayers
- Brokers with gross receipts exceeding Php 100,000 but not exceeding Php 550,000 must register as non-VAT taxpayers.
- Subject to 3% percentage tax on gross receipts.
- Required to file monthly Percentage Tax Return.
- Non-registration leads to payment of 3% tax plus penalties.
Exemptions from VAT and Percentage Tax
- Brokers with gross receipts not exceeding Php 100,000 are exempt from VAT and percentage tax but must still register.
Annual Registration Fee and Jurisdiction of Registration
- All brokers must pay an annual registration fee of Php 500 per business establishment.
- Registration and fee payment required with the Revenue District Office or Large Taxpayers District Office having jurisdiction over each establishment where sales are generated.
Deadlines for Registration and Fee Payment
- Newly covered taxpayers must register and pay the Php 500 fee on or before January 31, 2003.
- For new establishments, payment before start of operations.
- Deadline for VAT registration extended to March 19, 2003 by RR No. 11-2003.
Compliance Activities for VAT-Registered Brokers
- Pay annual registration fee per establishment.
- Register books of accounts before use.
- Register VAT sales invoices and official receipts.
- File monthly VAT Declaration (Form 2550M) and quarterly VAT Return (Form 2550Q) on prescribed deadlines.
- Submit soft copies of schedules of sales, purchases, and importations if thresholds are exceeded.
Compliance Activities for Non-VAT (Percentage) Registered Brokers
- Pay annual registration fee per establishment.
- Register books of accounts.
- Register non-VAT sales invoices and official receipts.
- File monthly Percentage Tax Return (Form 2551M) on or before the 20th day following the taxable month.
Allowable Input Tax Credits
- VAT paid on purchases directly connected with VAT taxable activity and reasonable in amount.
- Apportioning input tax on common goods/services used for both VAT and non-VAT activities.
- Example provided illustrating the allocation and calculation of allowable input VAT credits.
VAT Basis on Brokers' Sale of Services
- VAT levied at 10% of the gross receipts excluding VAT.
- Gross receipts include contract price, service fees, rentals, royalties, advances, excluding VAT.
- VAT computed by multiplying gross receipts by 10% or using 1/11 factor on VAT-inclusive amount.
VAT Exemption for Employer-Employee Services
- Compensation income received under employer-employee relationships is exempt from VAT.
- Non-employee rendered services are subject to VAT if threshold exceeded.
Treatment of Services Rendered Before 2003 but Collected After
- Not subject to VAT if specific conditions are met:
- Filing of information return by March 19, 2003.
- Billing before December 31, 2002, with attached copy.
- Recording in books of accounts in 2002.
- Issuance of non-VAT invoice or receipt.
- Filing percentage tax returns for payments received post-2002.
- Non-compliance leads to VAT liability.
Basis for Computing Percentage Tax on Sale of Services
- 3% percentage tax based on gross receipts for the month.
Transition Period Compliance Requirements for VAT Taxpayers
- Registration as VAT taxpayers by March 19, 2003 without penalty.
- Submission of inventory of unused receipts by March 19, 2003.
- Special treatment of billed but uncollected sales rendered before end 2002 under strict conditions.
Transition Period Compliance for Percentage Taxpayers
- Update registration by January 31, 2003 without penalty.
- Conditions for exemption on billed but uncollected services rendered before December 31, 2002 similar to VAT transition rules.
Transitional Input Tax Credit Allowance
- Brokers subject to VAT prior to suspension cannot claim the 8% transitional input tax on inventory as of December 31, 2002.
- Those covered by VAT for the first time may claim presumptive input tax of 8% on eligible inventory or actual VAT paid.
- Inventory listing must be filed by March 19, 2003.
Required BIR Forms for Brokers
- Registration forms: 1901 (individuals), 1903 (entities), 1905 (change in registration).
- Payment form: 0605 for annual registration fee.
- Returns: 2550M (monthly VAT), 2550Q (quarterly VAT), 2551M (monthly percentage tax).
Enforcement and Publicity
- All BIR personnel are enjoined to ensure wide dissemination of this circular.