Tax notes: VAT on back-office work services

Monday, February 13, 2012

BACK-office data entry work for payroll, accounting and tax rendered by a domestic corporation to its nonresident foreign clients may qualify for value-added tax (VAT) zero-rating pursuant to Section 108(B)(2) of the Tax Code, as implemented by Section 4.108-5(b)(2) of Revenue Regulations (RR) No. 16-2005.

Under section 4.108-5(b)(2) of RR 16-2005, services other than processing, manufacturing or repacking rendered by a VAT-registered person to a person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) are subject to zero percent VAT.

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Applying Section 108(B)(2) of the Tax Code, the Bureau of Internal Revenue (BIR) held in a recently issued ruling, BIR Ruling No. 455-2011 dated November 16,2011, that the back-office services rendered by a VAT-registered domestic company to its foreign principals qualify for VAT-zero rating provided the consideration is paid for in foreign currency and the same is remitted inwardly and accounted for in accordance with the rules and regulations of the BSP.

(Source:Punongbayan & Araullo)