The recently approved Republic Act (RA) No. 11976 Ease of Paying Taxes (EOPT) Act added a new section in the tax code as follows:
Section 110 (D) – Output VAT credit on uncollected receivables
A seller of goods or services may deduct the output VAT pertaining to uncollected receivables from its output VAT on the next quarter, after the lapse of the agreed upon period to pay: provided, that the seller has fully paid the VAT on the transaction: provided, further, that the VAT component of the uncollected receivables has not been claimed as allowable deduction under section 34(e) of this Code.
In case of recovery of uncollected receivables, the output VAT pertaining thereto shall be added to the output VAT of the taxpayer during the period of recovery.
Since this is a newly added section in the tax code, it is only normal that there are questions on how the BIR will implement it.
In response to all the questions regarding this newly added section, on June 14, 2024, the Bureau of Internal Revenue (BIR) published Revenue Memorandum Circular (RMC) No. 65-2024 to clarify and set implementation guidelines of Section 110 (D) Output VAT Credit on Uncollected Receivables. To read RMC 65-2024 in full click here.
21 Summarized Guidelines on Implementation of Output VAT Credit on Uncollected Receivables from RMC 65-2024
Below are the summarized guidelines on the implementation of the Output VAT Credit on Uncollected Receivables per RMC 65-2024. This is a long list but you can navigate and jump to each section by using the list below.
- Rationale of the Output VAT Credit on Uncollected Receivable
- Meaning of “after the lapse of the agreed upon period to pay”
- Who can claim output vat credit on uncollected receivable
- Conditions before a seller can claim output vat credit on uncollected receivables
- Existing rules on deductibility of bad debts expense for income tax purposes not affected
- Claiming output VAT credit on uncollected receivable not automatic
- Seller can claim output VAT credit in the next quarter after the lapse of the agreed period to pay
- Subsequent collection on sales on credit previously claimed as output VAT credit
- Input VAT of claimed output VAT credit
- Stamping of “Claimed Output VAT Credit” in the Invoice of Uncollected Receivable
- Seller must provide the customer a copy of the invoice with stamp “Claimed Output VAT Credit”
- Failure of the customer to deduct input vat
- Presentations of the output VAT credit in the old BIR Form 2550Q Quarterly VAT Return
- Presentation of sales on credit claimed as output VAT credit in the Schedule of Sales
- Taxpayers Disqualified in Claiming Output VAT Credit
- Sales return recording of uncollected receivable
- Sales return recording of uncollected receivable already claimed as Output VAT Credit
- Add back collection of claimed output VAT credit in the quarter of collection
- Seller shall stamp “Recovered” in the invoice
- Presentations of the “Recovered” output VAT credit in the old BIR Form 2550Q Quarterly VAT Return
- Uncollected receivable prior to the effective date of RR 3-2024 cannot claim for output VAT credit
Rationale of the Output VAT Credit on Uncollected Receivable
The EOPT Act and RR 3-2024 require an accrual method of recognizing and recording sales for both sellers of goods and services, including seller and leasing of properties.
This now gives rise to sales on credit and recording of receivable.
The purpose of the new EOPT Law in adding Output VAT Credit on Uncollected Receivable is to be just and fair to sellers who give credit terms to their customers on sold products or rendered services.
Credit terms mean the seller already delivered the product or provided the service to customer, but the customer can pay the seller at a future date.
For example, the seller gives the customer a 15-day credit term, if the sale happens on June 30 the buyer can pay the seller until July 15.
On June 30, the seller will issue the BIR registered invoice to the customer and record the invoice as follows:
| Account Title | Debit | Credit |
| Accounts Receivable | P xx.xx | |
| Sales | P xx.xx | |
| Output VAT | P xx.xx |
On the second quarter VAT Return, the seller shall report and remit the sale and output vat of this June 30 sales on credit even if not yet collected.
If on July 15, the customer pays the sales on credit or receivable, there will not be a problem and there is no need to make an adjustment.
However, if on July 15, the customer did not pay on the sales on credit or receivable, this is where the problem comes in.
Based on this newly added section 110 (D) of the tax code, the seller has an option to reverse the reported sales and the corresponding output vat paid or remitted to the BIR in advance by the seller after the lapse of the agreed upon period to pay of the customer.
Meaning of “after the lapse of the agreed upon period to pay”
Per RMC 65-2024, it means that if there is a written promise to pay at a certain period but such period has passed and yet the customer or buyer did not pay.
In short, like example above, if the sale happened in June 30 with 15-day credit term payable until July 15, if in July 16 the customer remains unpaid, then the sale on credit agreed upon period to pay has lapsed.
Who can claim output vat credit on uncollected receivable
Per RMC 65-2024, only the seller can claim output VAT credit on uncollected receivable on sales on credit that happened upon the effective date of RR 3-2024, estimated to be last April 27, 2024.
The seller can claim output vat credit on uncollected receivable in the next quarter after the lapse of the agreed upon period to pay.
For example, if the sale on credit happened with invoice dated June 30, 2024, and the credit term is 15 days, then the agreed upon payment of the customer is until July 15, 2024. If on July 16, 2024, and until the deadline of the next Quarter VAT return, and the customer did not pay the seller, in the next quarter, fourth quarter VAT filing, the output vat of the uncollected receivable and sale on credit dated June 30, 2024, can now be claim as deduction on output vat of the fourth quarter VAT return. Provided the seller has met all the conditions set in the next item 4.
Conditions before a seller can claim output vat credit on uncollected receivables
Per RMC 65-2024, below are the criteria before a seller can claim output vat credit on uncollected receivable:
- Sales on credit happened after the effective date of RR No. 3-2024, estimated to be last April 27, 2024
- Sales are on credit and recorded as Accounts Receivable, as explained in item 1.
- The invoice shows the credit term.
- The invoice shows the amount of output vat.
- The Summary of Sales shows specifically the details of the sales on credit and output vat. Not reported as “various sales.”
- The output vat of the sale on credit reported in the BIR Form 2550Q Quarterly VAT Return on the same period the sale happened.
- The credit term agreed upon with the customer has lapsed and the customer missed paying.
- Lastly, the uncollected receivable or sales on credit, not claimed as bad debts deduction on the income tax return.
Existing rules on deductibility of bad debts expense for income tax purposes not affected
The introduction of output VAT credit do not affect the rules on deductibility of bad debts expense for income tax purposes set by RR 25-2002.
The new section of the tax code only applies to claiming output VAT credit on uncollected receivables that has lapsed regardless of if with or without effort from the seller to collect. If it meets all the criteria mentioned in item 4.
Claiming output VAT credit on uncollected receivable not automatic
Availing the output VAT credit on uncollected receivable is only an option for the seller, it is not automatic. Especially if the likelihood of collecting from the customer is high. To avoid reversal of output VAT credit when customer subsequently pay.
Seller can claim output VAT credit in the next quarter after the lapse of the agreed period to pay
As an example, shown in RMC 65-2024, if the sale happened on June 30, 2024, and then customer have until September 28, 2024, credit term, the seller can claim the output vat credit by fourth quarter ending December 31, 2024, if the sale on credit remains uncollected.
Subsequent collection on sales on credit previously claimed as output VAT credit
If after the seller reported and claimed output vat credit on sale on credit, the customer subsequently pays the seller, the seller shall add and report the output VAT on the quarter of collection.
As an example, shown in RMC 65-2024, the sale that happened on June 30, 2024, with credit term until September 28, 2024, but remained uncollected and claimed as output vat credit in fourth quarter ending December 31, 2024. If in the first quarter of 2025, there is a subsequent collection, add and remit back to BIR the output VAT in the first quarter ending March 31, 2025.
Input VAT of claimed output VAT credit
As explained by RMC 65-2024, if the seller claims output VAT credit on uncollected receivable, the buyer can no longer use and claim the input VAT credit on its own quarterly VAT return filing.
If the buyer still claims the input VAT credit, it may pay deficiency tax and penalties.
Stamping of “Claimed Output VAT Credit” in the Invoice of Uncollected Receivable
If the seller claims output vat on uncollected receivable or sales on credit, it must put a stamp “Claimed Output VAT Credit” on the invoice it applies to.
If only a partial amount of the invoice was uncollected, it must also indicate the amount claimed as output vat credit.
In addition to stamping, it can also issue a credit memo as the seller sees fit.
Seller must provide the customer a copy of the invoice with stamp “Claimed Output VAT Credit”
The seller should provide the customer a copy of the invoice stamped with “Claimed Output VAT Credit” and Credit memo, if applicable.
But even if buyer or customer do not receive a copy from seller, it can voluntarily deduct the input vat on unpaid invoice.
Failure of the customer to deduct input vat
As mentioned in item 9, if the customer, despite not paying the seller, continues to claim the input vat on uncollected receivable or sales on credit, the customer may pay deficiency tax plus penalties once BIR discovers it.
Presentations of the output VAT credit in the old BIR Form 2550Q Quarterly VAT Return
I am mentioning the old BIR Form 2550Q since there is a new BIR Form 2550Q which I will discuss in the next article RMC 68-2024.
If you are going to use the old BIR Form 2550Q, per RMC 65-2024, the output VAT credit presented as follows:
| Filer Type | Version Used | Seller | Customer or Buyer |
| EBIRFORMS | January 2023 | Line 19 “Other Credits/Payments” Specify “Output VAT Credit on Uncollected Receivables” | Line 53 “Other Credits/Payments” Specify “Input VAT Credit on Unpaid Purchase on Account” |
| EFPS | February 2007 | Line 26G “Others” | Line 23E “Others” |
If you use the new BIR Form 2550Q, present it as a separate line item per RMC 68-2024 Annex A.
Presentation of sales on credit claimed as output VAT credit in the Schedule of Sales
As mentioned in item 4, include the sale details of the uncollected receivable in the schedule of sales at the quarter of the invoice date.
Indicate specifically the customer’s details, the amount of sale, and the amount of output vat and do not report it as “various sales.”
Failure to separately present the details of sales on credit in the schedule of sales at the quarter of the invoice date can result to disallowance in the claim of output vat credit.
Taxpayers Disqualified in Claiming Output VAT Credit
Below are taxpayers not allowed to claim output VAT credit:
- Those tagged as cannot be located (CBL) Taxpayers
- Those with filed cases in DOJ for tax evasion (RATE) and fake transactions (RAFT)
- Other taxpayers identified by BIR Commissioner
Sales return recording of uncollected receivable
For sales return prior to the lapse of the agreed period to pay, with unpaid and unremitted output vat, treat it as regular sales return, a deduction in gross sales, in the quarter it was return.
Sales return recording of uncollected receivable already claimed as Output VAT Credit
If the seller already claimed the output vat, and subsequently there is a sales return, for accounting purposes, treat it as sales return. But for tax purposes, there will be no deduction in the gross sales and output VAT.
Add back collection of claimed output VAT credit in the quarter of collection
If after claiming as output vat credit, the uncollected receivable is subsequently collected in full or partial, add back and remit back to BIR the output vat equivalent in the quarter of collection.
Seller shall stamp “Recovered” in the invoice
If there is a subsequent collection of uncollected receivables previously claimed as output VAT credit, the seller should again stamp the invoice, this time stamp it with “Recovered.” If partial collection, indicate also the amount recovered.
The seller may also issue debit memo as it sees fits.
It should also give the customer a copy of the invoice stamped with “recovered” and debit memo if any.
Presentations of the “Recovered” output VAT credit in the old BIR Form 2550Q Quarterly VAT Return
Again, I am mentioning the old BIR Form 2550Q since there is a new BIR Form 2550Q which I will discuss in the next article, RMC 68-2024.
If you are using the old BIR Form 2550Q, per RMC 65-2024, present the subsequently recovered output VAT credit as follows:
| Filer Type | Version Used | Seller | Customer or Buyer |
| EBIRFORMS | January 2023 | Line 53 “Others” Specify “Output VAT Recovered Previously Claimed Uncollected Receivables” | Line 40 “Others” Specify “Input VAT Paid Purchase on Account Previously Unsettled” |
| EFPS | February 2007 | Line 23E “Others” | Line 20E “Others” |
If you use the new BIR Form 2550Q, present it as a separate line item per RMC 68-2024 Annex A.
Uncollected receivable prior to the effective date of RR 3-2024 cannot claim for output VAT credit
As mentioned in item 4, only sales on credit that happened after the effectivity of RR 3-2024, can claim for output VAT credit.
I hope this article, although quite long, has been helpful for you in understanding how to comply with this new section of the tax code.
To read the full details of the RMC 65-2024 click here.
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