If you are running a business or are looking to start one, it is important to have a solid grasp of some of the documents you need in order to substantiate your business transactions and records. One such document that you need to be cognizant of and understand wholly is the Official Receipt (OR). This is just one of many Bureau of Internal Revenue (BIR) mandated things that you will have to comply with.
What are Official Receipts?
Official Receipts are proofs of transactions that are officially acknowledged by the Bureau of Internal Revenue. They serve to validate all business transactions and are a key component in the tax compliance framework in the Philippines. Bear in mind, Official Receipts include those issued by you and your company as the merchant, as well as those that you receive from suppliers as buyers.
You need to keep file copies of these receipts as part of your accounting and bookkeeping process. Later on, you can audit these receipts to review your yearly transactions and use them for any tax deductibles. Non-compliance equates to penalties.
Philippine laws pertaining to Official Receipts:
In the National Internal Revenue Code of 1997, Section 237, commonly referred to as the Tax Code, requires Philippine taxpayers to issue Official Receipts upon the sale of a service that costs more the Php 25. If you sell a service, you are required, by law to issue an Official Receipt.
How different are Official Receipts from Sales Invoices?
While Official Receipts are a requirement for the sale of service, Sales Invoices are issued and required in the sale of goods. Sales invoices serve to substantiate and provide proof for the occurrence of transactions made on goods, in the same token that ORs serve as evidence that services were rendered.
What is the importance of Official Receipts?
There are many reasons why issuing Official Receipts, if you are a service-providing company, is beneficial. Here are some.
- Protect your firm from abusive customers
Since service companies do not sell tangible goods, customers can easily make claims, some harmful and alleged, on the kind of service they received. There have many instances where abusive customers have complained about not receiving services despite having received them already. This is where Official Receipts come in, as they can be used as proof of a completed transaction should an abusive client try to milk you.
- Save you from legal trouble
Issuing Official Receipts can keep you out of legal trouble, not only because it can provide proof that transactions did occur, but simply because it is also required by law. If you are a legit business operating without issuing Official Receipts, the BIR can come after you for evading your tax obligations. Official Receipts are the basis for your accounting and bookkeeping. You need them to create financial records and statements. Withholding this information can affect your books; thus, leading to erroneous tax preparations.
- Claim allowable tax deductions
You need to stay on top of collating all Official Receipts because you need them to claim any allowable tax deductibles from your expenses. Your ORs from vendors serve as evidence that your expenses are correct. If you don’t have them on hand, you forfeit these deductions and pay higher tax dues.
- Paying the correct taxes
Businesses in the Philippines need the Official Receipt to compute the correct amount of payable withholding tax for a payment to a supplier. In the same token, as a seller, you are required to have an OR to correctly calculate the level of VAT or Value Added Tax for both Output and Input VAT. To underscore how much VAT is payable for a service, you need to check your OR. Without these receipts, taxes cannot be properly documented, computed, and remitted to the BIR.
How to issue an OR?
You cannot print these yourself. As its name entails, “official” receipts must be officially printed and authorized by the BIR or any BIR partnered firm. To do so, you must registered and secure a license to operate. Seek help with Business Registration Services to apply for an authority to print to the BIR. This will require the following information:
- Stating the name of the BIR accredited printer
- Tax Identification Number of the printer
- The Printer’s accreditation number, and the printer’s business address.
It is also important to note what kind of Official Receipts you wish to use, whether it be manual or the POS thermal printed receipts. It is important to discuss these options with your printer, as there are different formats and regulations surrounding the different types of Official Receipts. As you can see, the government takes the issuing of ORs seriously. If you need assistance, give our team a call for a free 30-minute consult.