RMC No. 16-2013: Clarifies the tax implications and recording of deposits/advances for expenses received by taxpayers not covered by RMC No. 89-2012

Summary

RMC No. 16-2013 clarifies the tax treatment and recording of deposits and advances for expenses received by taxpayers other than General Professional Partnerships (GPP) covered by RMC No. 89-2012.

Key points

1. Official Receipt and income. A corresponding Official Receipt is issued for cash deposits or advances from clients. The amount is booked as income, forms part of Gross Receipts, and is subject to VAT or Percentage Tax if applicable.
2. Deductibility. The amount is deductible as an expense by the client if duly substantiated by Official Receipts under Section 34 (A)(1) of the Tax Code. Receipts issued in the taxpayer’s own name are its own expenses, deductible if substantiated by Official Receipts or Invoices of third-party establishments.
3. Withholding. On payment of deposits or advances, the client withholds tax at the rate under RR No. 2-98, as amended. It is remitted on or before the 10th day of the following month using BIR Form No. 1601E, except for December, which is due January 15 of the following year.
4. VAT effect. An Official Receipt is issued for every deposit or advance under Section 113 of the Tax Code and covers the entire amount paid. For VAT taxpayers, the VAT Official Receipt is the taxpayer’s Output Tax and the client’s Input Tax.
5. Accounting entries. The Circular specifies pro-forma entries for both VAT and non-VAT taxpayers and their clients.

Who is affected

• Taxpayers other than GPPs that receive deposits or advances for expenses
• Clients or customers who pay such deposits

Deadlines and effectivity

• Remittance: on or before the 10th day of the following month
• December withholding: on or before January 15 of the following year

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.