Meaning of “accounted for in accordance with the rules and regulations of the BSP” in sales of services to non-residents subject to 0% VAT

[Originally posted on 07Dec2012]

[Last updated on 13Nov2023]

Under Section 108(B)(1) and (2) of the Tax Code, as implemented by RR No. 16-2005 as amended, the following services performed in the Philippines by VAT- registered persons shall be subject to zero percent (0%) VAT rate:

(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

(2) Services other than those mentioned in the preceding paragraph, rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). 

So what exactly is “accounted for in accordance with the rules and regulations of the BSP” in relation to the VAT zero-rating on certain sales of services to non-residents? 

Tax treatment of unincorporated joint ventures

What is a joint venture?

A joint venture is an association of persons or companies jointly undertaking some commercial enterprise; generally, all contribute assets and share risks which requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and a duty, which may be altered by agreement to share both in profit and losses. [Kilosbayan v. Guingona, 232 SCRA 110 (1994)]


Are unincorporated joint ventures required to be registered with the BIR?

Yes. Pursuant to Section 236(A) of the Tax Code, every person subject to any internal revenue tax shall register with the BIR and secure its own Tax Identification Number (TIN).

Although unincorporated, the joint venture shall also be considered as a government withholding agent Sec 2.57 of RR No. 2-98 as amended. Thus, it shall withhold the appropriate taxes on its income payments to suppliers and employees.

Deductibility of accrued expenses

[Updated on February 14, 2018]

To be deductible, accrued expenses should meet all of the following requirements:

a.     All-events test

b.    Withholding tax

c.     Substantiation

Otherwise, accrued expenses which fail to meet the above requirements may not be deductible for income tax purposes.

RR No. 02-40 INCOME TAX REGULATIONS (Full Text)