Legal basis and covered amendments
- The regulations are issued pursuant to Section 244 and Section 109 (bb) and (cc) of the National Internal Revenue Code of 1997.
- The regulations are issued in relation to Section 5 of Republic Act No. 8424, as last amended by Section 2 of Republic Act No. 9238.
- The regulations amend Revenue Regulations No. 1-2003, as last amended by Revenue Regulations No. 11-2003, specifically on VAT coverage of professional services.
- The regulations expressly amend Section 2 of RR No. 1-2003, as amended by RR No. 11-2003, to implement the VAT exclusion for services rendered by the covered professionals and their qualifying general professional partnerships.
VAT exclusion—what is removed from VAT
- Beginning January 1, 2004, medical services rendered by doctors of medicine duly registered with the Professional Regulatory Commission (PRC) and legal services rendered by lawyers duly registered with the Integrated Bar of the Philippines (IBP) are no longer subject to VAT.
- VAT exclusion for doctor of medicine services is limited to services rendered by:
- an individual who is duly licensed as a doctor of medicine by the PRC and in good standing with the PRC; or
- a general professional partnership whose partners are composed solely of individuals duly licensed as doctors of medicine by and in good standing with the PRC,
organized solely and exclusively for the practice of medical profession.
- The excluded doctor of medicine services are limited to those services which may be rendered, under existing law, only by a duly licensed doctor of medicine in good standing with the PRC.
- VAT exclusion for lawyer services is limited to services rendered by:
- an individual lawyer duly registered with and in good standing with the IBP; or
- a general professional partnership whose partners are solely composed of lawyers duly registered with the IBP and organized solely and exclusively for the practice of law.
- The excluded legal services are limited to those legal services which may be rendered, under existing law, only by a duly registered and in good standing lawyer with the IBP.
- The regulations treat VAT exclusion for the covered professionals and qualifying partnerships as applying in accordance with Section 2 of Republic Act No. 9238 for services rendered beginning January 1, 2004.
Amended VAT coverage rule for professionals
- Section 2 of RR No. 1-2003, as amended by RR No. 11-2003, is amended to govern how professional partnerships and professionals are treated for VAT purposes.
- Under the amended coverage framework, a professional partnership is treated as a separate and distinct taxable person from the individual partners composing the partnership.
- Gross receipts from sales of services rendered by the partners for and in the name of the partnership are entirely taxable against the partnership.
- Sales of services made by any partners in their personal and individual capacity are not attributed to the partnership and are taxable against the partner in the partner’s individual capacity.
- The amended rule provides that beginning January 1, 2004, services rendered by the following are excluded from VAT coverage in accordance with Section 2 of Republic Act No. 9238:
- services rendered by a doctor of medicine duly registered and in good standing with the PRC for services which may be rendered, under existing law, only by such a duly licensed doctor of medicine in good standing with the PRC;
- legal services rendered by a lawyer duly registered and in good standing with the IBP for services which may be rendered, under existing law, only by such a duly registered and in good standing lawyer with the IBP;
- medical services rendered by a general professional partnership whose partners are composed exclusively of doctors of medicine registered with the PRC, organized solely and exclusively for medical profession, for services which may be rendered, under existing law, only by a duly licensed doctor of medicine in good standing with the PRC; and
- legal services rendered by a general professional partnership whose partners are composed exclusively of lawyers duly registered with the IBP, organized solely and exclusively for legal profession, for services which may be rendered, under existing law, only by a duly registered and in good standing lawyer with the IBP.
Transition and implementation rules
During the transition to reflect the January 1, 2004 VAT exclusion, covered doctors of medicine, lawyers, and qualifying general professional partnerships must follow specific implementation steps.
Registration update (VAT to NON-VAT status)
- Doctors of medicine and lawyers and general professional partnerships referred to under the VAT exclusion rule, whether registered as VAT taxpayer or NON-VAT taxpayer, must update their corresponding registration records with the concerned Revenue District Office (RDO) on or before June 20, 2004.
- The update must be done by filing the necessary registration update forms: BIR Form No. 1905.
- The conversion is from that of a VAT status to NON-VAT or non-percentage tax taxpayer for those whose services were not subject to VAT but to percentage tax.
Unused receipts inventory and stamping
- Doctors of medicine and lawyers and general professional partnerships changing status from VAT to NON-VAT due to the effectivity of Republic Act No. 9238 must submit an inventory of unused receipts.
- The inventory must be submitted on or before the date they register as a NON-VAT taxpayer, which must in no case be later than June 30, 2004.
- The inventory must indicate the number of booklets and the corresponding serial numbers.
- Unused VAT receipts included in the inventory submitted to the BIR are allowed for use in transactions if the phrase “NON-VAT registered as of ___________” is stamped on all copies of the receipts.
- Receipts with the proper stamp are allowed for use until July 31, 2004.
VAT invoices already issued
- Any doctor/lawyer/general professional partnership referred to under the VAT exclusion rules that had issued VAT invoices for services rendered—whether or not they updated their registration—remains liable for VAT in accordance with the last paragraph of Section 109 (z).
- Such persons must pay and remit the VAT due and must file a monthly VAT return for the month where the VAT invoices were issued.
Repeal and effect on inconsistent issuances
- Any revenue issuance inconsistent with these regulations is amended, revoked, modified, or repealed accordingly.
- These regulations take effect immediately unless Republic Act No. 9238 provides otherwise.