EoPT invoicing, clarified

Whenever you buy coffee from your favorite coffee shop, or buy a new dress from a well-known clothing brand, do you always keep the receipt, or do you tend to skip it?

In every establishment, there is usually a notice posted, reminding customers to “Ask for Receipt,” though many may not even notice.

But how important are receipts?

For ordinary individuals, receipts help us track our expenses and ensure we stay within our budget. On the other hand, businesses (both large corporations and small establishments), must keep receipts to ensure that their business expenses are supported. These receipts are not just for internal tracking, but they also serve as crucial documentation to ensure compliance with the requirements under the tax rules.

When the Ease of Paying Taxes (EoPT) Act was signed into law, one of the key reforms introduced was the change in the invoicing and accounting requirements for VAT-registered persons, particularly sellers of services. In a landmark move, the EoPT removed the official receipt (OR) as the primary document for sales of services, and replaced it with the invoice, with the goal of streamlining the required documentation and aligning it with sales of goods.

The transition is welcome but not without its challenges. Earlier this year, the BIR issued several Revenue Regulations (RR) to implement the revised invoicing requirements of the EoPT: RRs 3-2024, 7-2024 and 11-2024. While the requirements took effect on April 27, 2024, questions still come to mind when reviewing these RRs. Fortunately, the BIR released Revenue Memorandum Circular (RMC) 77-2024 as clarification.

Over the past few months, many of my clients have asked me about the new invoicing rules laid out in the EoPT. Let me summarize the most common concerns taxpayers may encounter during this transition:

1. The invoice must contain the relevant information of the seller and buyer, and shall also indicate the transaction details (including the quantity, unit cost and description or nature of service, and applicable VAT rate/amount or exemption) as outlined under Section 6(B) of RR 7-2024. The information is generally similar to the previous requirements, except for the removal of business style which was formally removed from the Tax Code by the EoPT.
2. Sellers have the option to either continue issuing their unused ORs as supplementary documents, or convert them to invoices until fully consumed. If they opt to convert these to invoices, the term “Official Receipt” (or Billing Statement/Statement of Account) on the face of the manual and loose leaf printed receipt must be stricken out, and be stamped with the word “invoice.” It’s important that the converted invoices contain the required information and details above, although missing information may also be stamped on the document upon conversion.
3. Sellers engaged in the sale of goods (on charge or credit) and services, who have issued an invoice at the time of sale, may issue an OR or acknowledgement receipt upon collection/receipt of payment from customers, instead of another invoice.
4. Taxpayers may use more than one type of invoice, as long as the correct type of invoice is issued for the transaction (e.g., cash invoice for cash sales; credit/charge invoice for sales on credit). However, to be practical, taxpayers may also consider maintaining just one set of invoices for all its sales transactions.

Prior approval is generally not needed for taxpayers transitioning to the new requirements, although taxpayers should take note of certain notifications and subsequent approvals, depending on the type of invoices issued by sellers.

Taxpayers using manual and loose leaf ORs may proceed to stamp the word “Invoice” on the remaining unused OR booklets, subject to the submission of an Inventory Report of the unused ORs to the BIR (due on July 31, 2024). Once the report is submitted, they are required to obtain newly printed invoices with an Authority to Print (ATP) prior to their full consumption of the converted ORs.

Taxpayers using Cash Register Machines (CRMs), Point-of-sale (POS) machines, and e-receipting or electronic invoicing software do not need to reset the series number when they convert their ORs to invoices. The converted invoice shall start by continuing the series from the last issued OR. Note that taxpayers must still submit a Notice on the Renaming of ORs to Invoice to the appropriate BIR office, or through the Taxpayer Registration Related Application (TRRA) Portal via e-mail within 30 days from the completion of the machine/system reconfiguration/enhancement, or on Dec. 31, 2024, whichever comes first.

Finally, those using a Computerized Accounting System (CAS) or Computerized Books of Account with Accounting Records are required to update their system registration to complete the adjustments required under the EoPT. These major enhancements must be carried out by Dec. 31, 2024, although this deadline may be extended no later than June 30, 2025, subject to BIR approval.

Ensuring compliance with the above requirements, along with the other rules provided for in the regulations, is crucial. Failure to do so may result in penalties or much worse consequences. For instance, the issuance of ORs as primary documents after April 27, 2024 will be considered tantamount to failure to issue an invoice, which is subject to penalty of P1,000 to P50,000. Criminal penalties may also apply.

If a VAT-registered taxpayer issues an invoice with incomplete information, the seller will be liable for non-compliance with the invoicing requirements, which may be subject to fines of up to P50,000, and criminal penalties. Nevertheless, the buyer is given some protection as it shall still be allowed to claim the corresponding input VAT as long as the key information is in the invoice, specifically, the sales amount, VAT amount, registered name and TIN of the buyer and seller, description of goods/ nature of services, and transaction date.

While the EoPT was passed with the primary objective of providing relief to taxpayers, the transition period has been challenging. Taxpayers’ compliance with these new requirements will soon be tested, as the BIR has begun issuing Notices/Letters of Authority for VAT investigation/assessment for the first half of 2024.

Hopefully, during the tax investigations, the BIR will exercise leniency, recognizing these challenges and difficult adjustments taxpayers have had to comply with under the EoPT.