Zero-Rated VAT for Non-Resident Clients in the Philippines
Can a Non-Resident Client Be Considered a Zero-Rated VAT Client?
Yes, if your client is not based in the Philippines (i.e., a non-resident foreign client), you may qualify for zero-rated VAT on your services, provided specific conditions are met. The key legal basis is Section 108(B)(2) of the National Internal Revenue Code, as amended, which allows for zero-rating of services rendered to a non-resident client, subject to certain requirements
Key Criteria for Zero-Rating
The client must be a non-resident and engaged in business outside the Philippines (or a non-resident not engaged in business, but outside the Philippines when services are rendered).
The services must be performed in the Philippines.
The services must not involve processing, manufacturing, or repacking of goods.
Payment for services must be received in acceptable foreign currency and inwardly remitted in accordance with Bangko Sentral ng Pilipinas (BSP) rules.
Process and Requirements to Apply for Zero-Rated VAT with the BIR
1. Confirm Eligibility
Ensure your service qualifies (not processing/manufacturing/repacking).
Confirm the client is a non-resident and the service is performed in the Philippines.
Payment must be in foreign currency and properly documented
2. Documentation Requirements
Proof of Non-Residency:
SEC Certificate of Non-Registration (showing the client is not registered in the Philippines).
Proof of client’s registration/incorporation abroad (e.g., Articles of Incorporation).
Service Agreement/Contract:
Clearly stating the services are performed in the Philippines for a foreign client.
Proof of Payment:
Bank documents showing inward remittance of foreign currency.
BIR Registration Documents:
VAT Certificate of Registration.
Invoices and Official Receipts:
Must indicate "VAT Zero-Rated Sale" as required by BIR rules.
Other Supporting Documents:
Shipping/customs documents (for goods).
BSP compliance certificates (for foreign currency receipts)
3. Application Process
No Prior BIR Approval Needed:
As of recent regulations, prior BIR approval is generally no longer required for zero-rating services to non-residents. Instead, ensure you have all required documentation for post-audit by the BIR
Maintain Proper Records:
Keep all supporting documents for at least three years for BIR audit.
VAT Refund (if applicable):
If you wish to claim a refund of input VAT attributable to zero-rated sales, file a claim with the BIR within two years from the close of the taxable quarter when the sale was made
4. Issuance of VAT Zero-Rated Invoices/Receipts
All invoices and official receipts for zero-rated sales must clearly state "VAT Zero-Rated Sale" and comply with BIR invoicing requirements
Summary Table: Requirements for Zero-Rated VAT on Services to Non-Resident Clients
Important Notes
The process has been simplified; prior BIR approval is generally not required, but you must be ready for post-audit and maintain complete, accurate documentation
If you intend to claim a VAT refund, strict deadlines and documentary requirements apply
References:
: KPMG Philippines
: Grant Thornton Philippines
: Forvis Mazars
: Respicio Law
: BIR
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Disclaimer: This article or blog is only for general knowledge and guidance and is not a substitute for an expert opinion. For technical advice, please consult your tax / legal advisor for your specific business concerns. For comments, suggestions, and feedback, feel free to email us at [email protected].
