Summary
RR No. 20-2003 amends certain provisions of RR No. 18-99, as amended by RR No. 12-2003, on VAT on the services of banks, non-bank financial intermediaries and finance companies.
Key points
- Output tax and recognizable income. If the lender/investor primarily liable for VAT does not pass on part or all of the output VAT to a government-borrower, its recognizable income is net of the output VAT it assumes, which it remits to the BIR. Output VAT passed on to the government-borrower is remitted directly by the borrower to the BIR as withholding tax creditable against the lender/investor’s VAT liability.
- Assumed VAT in general. If the financial institution assumes all or part of the output VAT on its income, its recognizable income is always net of the amount assumed and not passed on to customers/clients.
- Input tax of payors. A VAT-registered payor may claim as input tax credit the output tax paid and passed on by the financial institution. If the payor is not VAT-registered, the VAT passed on forms part of its cost. The payee issues a VAT receipt/invoice showing the passed on VAT separately, which is the evidence for the input tax claim.
- Invoice and receipt contents. Invoices and receipts of financial institutions must also show the business style, if any, a description of the nature of the transaction, the invoice value or consideration with VAT shown separately, the total amount billed or received, and other information required in Sections 237 and 113 of the Tax Code.
- Financial lease. Financial lease is treated similarly to gross receipts of banks on financial intermediation services.
Who is affected
- Banks
- Non-bank financial intermediaries
- Finance companies
- VAT-registered and non-VAT-registered payors of fees to financial institutions
Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.
Copies of BIR issuances are hosted here for reference. For the official version, check bir.gov.ph. Summaries by Tax Resources PH are not a substitute for the full text or professional advice.