Preparing a Non-VAT Service Invoice computation in the Philippines is not just about typing a service fee and a total amount due. Since the Ease of Paying Taxes Act changed the invoicing rules, service providers who are not VAT-registered must now understand when to issue a Non-VAT Invoice, how to compute the amount to bill, how withholding tax affects collection, and why “VAT” should not appear on the invoice unless the seller is actually VAT-registered. This guide explains the practical computation, the BIR rules behind it, and the common mistakes that cause payment delays, disallowed deductions, or tax exposure.

What Is a Non-VAT Service Invoice?

A Non-VAT Service Invoice is a BIR-registered invoice issued by a seller or service provider who is not registered as a VAT taxpayer. It documents the sale of services, the amount billed, and, when applicable, the amount the client will withhold as creditable withholding tax.

Under Revenue Regulations No. 7-2024, a Non-VAT Invoice is a written account evidencing the sale of goods, properties, services, or lease of properties not subject to VAT. It is the basis of the seller’s percentage tax liability, when applicable.

For services, this matters because the old practice was usually:

Service provider issues an Official Receipt when paid.

After the Ease of Paying Taxes Act, the invoice is now the primary evidence of the sale of goods or services. An Official Receipt, Payment Receipt, or Acknowledgment Receipt may still be used as a supplementary document to prove payment, but it is no longer the main document for recording the sale.

In everyday terms:

Situation	Correct document after EOPT
You rendered a service and are billing the client	Non-VAT Service Invoice
You rendered a service but payment will come later	Non-VAT Service Invoice
You already issued the invoice and later received payment	Payment Receipt, Collection Receipt, or Acknowledgment Receipt may be issued as supplementary proof
You are only acknowledging money received for a previously invoiced service	Supplementary receipt, not another invoice

Legal Basis for Non-VAT Service Invoices in the Philippines

The key laws and BIR issuances are:

Republic Act No. 11976, or the Ease of Paying Taxes Act, which amended the National Internal Revenue Code and harmonized invoicing rules for goods and services. The law requires invoices for sales of services and provides the VAT threshold and percentage tax rules. (Lawphil)
Section 237 of the Tax Code, as amended, which requires persons subject to internal revenue tax to issue duly registered invoices for services rendered worth ₱500 or more, and to issue an invoice regardless of amount if the buyer requests one.
Section 109(CC) of the Tax Code, as amended, which provides the VAT exemption threshold for sellers whose gross annual sales do not exceed ₱3,000,000, subject to future CPI adjustment every three years. (Lawphil)
Section 116 of the Tax Code, as amended, which imposes 3% percentage tax on persons exempt from VAT under Section 109(CC) and not VAT-registered, except cooperatives. (Lawphil)
Revenue Memorandum Circular No. 77-2024, which clarified that Non-VAT registered persons must issue a duly registered Non-VAT Invoice for services valued at ₱500 or more, or for any amount if the buyer requests an invoice.
RMC No. 77-2024 Annex A1-B6, which provides BIR sample formats for Non-VAT Invoices, including the required “Non-VAT Reg TIN,” total sales, withholding tax line, total amount due, and the phrase “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX.” (Bir CDN)

Who Should Use a Non-VAT Service Invoice?

A Non-VAT Service Invoice is generally used by a service provider who:

Is registered with the BIR as Non-VAT;
Has not voluntarily registered as a VAT taxpayer;
Does not exceed the VAT threshold, currently ₱3,000,000 gross annual sales under Section 109(CC);
Is engaged in services, freelancing, consulting, professional work, rentals, online services, or similar business activity; and
Has BIR-registered invoices printed under an Authority to Print, or uses an approved loose-leaf, computerized, POS, CAS, or electronic invoicing system, as applicable.

Common examples include:

Freelance graphic designers, virtual assistants, writers, and developers;
Small consulting firms;
Lawyers, accountants, engineers, architects, and other professionals who are Non-VAT;
Small agencies below the VAT threshold;
Non-VAT lessors of services or properties;
Local service providers billing corporate clients.

A foreigner doing business or practicing a profession in the Philippines may also need BIR registration and proper invoices if the activity is carried on in the Philippines. A foreign service provider located outside the Philippines is different: the Philippine client may instead deal with withholding tax on payments to nonresidents, possible tax treaty documents, and foreign tax residence certificates, rather than a local BIR Non-VAT Invoice.

The Basic Non-VAT Service Invoice Computation

The simplest formula is:

Service Fee
Less: Discount, if any
= Total Sales / Invoice Amount
Less: Creditable Withholding Tax, if applicable
= Total Amount Due / Net Cash to Collect

For a Non-VAT seller, do not add 12% VAT. The invoice should not show “VATable Sales,” “Output VAT,” or “Add VAT” unless the seller is VAT-registered.

Example 1: Simple Non-VAT Service Invoice With No Withholding Tax

A freelance designer charges ₱15,000 for a logo design. The client is an individual who is not a withholding agent.

Particulars	Amount
Logo design service	₱15,000.00
Total Sales	₱15,000.00
Less: Withholding Tax	₱0.00
Total Amount Due	₱15,000.00

The service provider collects ₱15,000.

For percentage tax purposes, the ₱15,000 forms part of the provider’s quarterly gross sales. If the provider is subject to 3% percentage tax, the tax impact is:

₱15,000 × 3% = ₱450 percentage tax

The 3% percentage tax is filed separately through the applicable percentage tax return. It is not VAT, and it should not be presented as “VAT” on the invoice.

Computation When the Client Withholds Tax

Many Philippine companies, government agencies, and BIR-designated withholding agents do not pay the full invoice amount. They deduct creditable withholding tax, often called EWT or CWT, and later issue BIR Form No. 2307 to the service provider.

Creditable withholding tax is not a discount. It is an advance income tax credit of the service provider.

Example 2: Non-VAT Service Invoice With 2% Withholding Tax

A Non-VAT IT service provider bills a corporate client ₱50,000. The client is a withholding agent and applies 2% CWT on the service fee.

Particulars	Amount
IT maintenance service	₱50,000.00
Total Sales	₱50,000.00
Less: 2% Creditable Withholding Tax	₱1,000.00
Total Amount Due / Net Collection	₱49,000.00

The provider records:

Item	Amount
Gross sales	₱50,000.00
Cash or receivable collected	₱49,000.00
Creditable withholding tax asset	₱1,000.00

For percentage tax:

₱50,000 × 3% = ₱1,500

The 3% percentage tax is computed on gross sales, not on the net cash received after withholding.

Why the Withholding Tax Should Not Reduce Gross Sales

A common mistake is recording only ₱49,000 as sales because that is the amount actually received. That is usually wrong.

The real sale is ₱50,000. The ₱1,000 withheld is still part of the income, but it was paid to the BIR through the client. The client should issue BIR Form No. 2307, which the provider can use as tax credit. BIR’s official forms page states that BIR Form No. 2307 should be issued to the payee on or before the 20th day of the month following the close of the taxable quarter. (Bureau of Internal Revenue)

Which Withholding Tax Rate Should You Use?

There is no single withholding tax rate for all Non-VAT service invoices. The rate depends on the nature of the income, the payee, and the payor.

Common examples include:

Type of payment	Common CWT treatment
Payments by top withholding agents to local resident suppliers of services	Often 2%
Professional fees to individual professionals whose gross income for the current year does not exceed ₱3,000,000	5%
Professional fees to individual professionals whose gross income exceeds ₱3,000,000 or who are VAT-registered	10%
Professional fees to non-individual payees, depending on gross income threshold	10% or 15%
Government payments to local suppliers of services	Often subject to government withholding rules

Revenue Regulations No. 14-2018 provides that gross professional, promotional, and talent fees paid to individual payees are generally subject to 5% if gross income for the current year does not exceed ₱3,000,000, and 10% if gross income is more than ₱3,000,000 or the payee is VAT-registered. For non-individual payees, the professional fee rates stated are 10% if gross income does not exceed ₱720,000 and 15% if it exceeds ₱720,000.

In practice, always check:

The service provider’s Certificate of Registration;
The nature of the payment;
Whether the client is a withholding agent;
The applicable ATC used by the client;
Whether a sworn declaration is needed for a lower rate;
Whether the client is a government office, private corporation, top withholding agent, PEZA/RBE, or ordinary individual.

Step-by-Step Guide to Preparing the Computation

1. Confirm that the seller is Non-VAT

Check the BIR Certificate of Registration. The invoice should show a Non-VAT Reg TIN followed by the TIN and branch code, as shown in the BIR sample format. (Bir CDN)

Do not rely only on annual sales. A taxpayer may be below the VAT threshold but voluntarily VAT-registered. Once a taxpayer opts for VAT registration, cancellation is restricted under the Tax Code rules. (Lawphil)

2. Identify the exact service being billed

The invoice should describe the nature of the service, not just “services rendered.”

Better descriptions include:

“Website maintenance services for June 2026”
“Legal consultation and contract review”
“Bookkeeping services for Q2 2026”
“Social media management services”
“Architectural design consultation”
“Virtual assistance services, 40 hours”

The BIR rules require the invoice to show the description or nature of the service, quantity, unit cost, and amount.

3. Determine the service fee or billing base

Start with the agreed professional fee, contract price, hourly fee, monthly retainer, milestone fee, or project fee.

Examples:

Billing method	Computation
Fixed monthly retainer	₱30,000 per month
Hourly service	20 hours × ₱1,000 = ₱20,000
Project-based work	₱75,000 per project milestone
Per deliverable	5 outputs × ₱3,000 = ₱15,000

4. Add billable reimbursable expenses, if applicable

If you are billing expenses to the client, be careful. In practice, reimbursements may be treated differently depending on documentation.

Type of reimbursement	Practical treatment
Expense advanced in the provider’s name and billed to the client	Usually included in invoice billing
Expense supported by receipts in the client’s name	May be treated as client’s own expense reimbursement, depending on arrangement
Out-of-pocket cost marked up by the provider	Usually part of gross billing
Travel, courier, filing, printing, or platform costs billed as part of service package	Usually part of invoice amount

For clean documentation, identify reimbursable costs separately in the invoice or attachment. If the client will withhold tax, clarify whether withholding applies only to the professional fee or to the full amount being paid. Many corporate payors withhold on the gross payment unless the reimbursement is properly supported and segregated.

5. Do not add VAT

A Non-VAT Service Invoice should not compute:

Service fee × 12% VAT

It should also not show:

VATable Sales;
Output VAT;
VAT-inclusive amount;
Add VAT;
VAT Reg TIN.

If a non-VAT person issues an invoice showing a VAT TIN or VAT information, the issuer may become liable for VAT without input tax credits and a 50% surcharge under the Tax Code and RR No. 7-2024.

6. Deduct withholding tax only if applicable

If the client is required to withhold, show the withholding tax below total sales.

Example:

Total Sales: ₱100,000.00
Less: 2% CWT: ₱2,000.00
Total Amount Due: ₱98,000.00

The invoice amount remains ₱100,000. The amount due for collection is ₱98,000.

7. Compute percentage tax separately

If the seller is subject to percentage tax under Section 116, compute:

Gross quarterly sales × 3%

This is not normally deducted on the invoice. It is the seller’s own business tax filing.

Example:

Invoice total	Percentage tax rate	Percentage tax
₱100,000	3%	₱3,000

If your client says, “Please add 3% percentage tax,” be careful. Percentage tax is not VAT. If you contractually pass the cost to the client as an added charge, that added charge may itself become part of gross sales.

A cleaner approach is to quote a service fee that already considers your business tax cost, instead of adding a separate line that may confuse the client into thinking it is VAT.

Sample Non-VAT Service Invoice Computations

Scenario A: Freelance consultant billing an individual client

Particulars	Amount
Business consultation, 2 sessions	₱8,000.00
Total Sales	₱8,000.00
Less: Withholding Tax	₱0.00
Total Amount Due	₱8,000.00

Client pays: ₱8,000

Percentage tax impact, if subject to 3%:

₱8,000 × 3% = ₱240

Scenario B: Non-VAT agency billing a corporate client with 2% CWT

Particulars	Amount
Social media management services	₱40,000.00
Total Sales	₱40,000.00
Less: 2% CWT	₱800.00
Total Amount Due	₱39,200.00

Client pays: ₱39,200

Client should issue BIR Form No. 2307 for ₱800.

Percentage tax impact:

₱40,000 × 3% = ₱1,200

Scenario C: Individual professional subject to 5% CWT

Particulars	Amount
Professional fee	₱60,000.00
Total Sales	₱60,000.00
Less: 5% CWT	₱3,000.00
Total Amount Due	₱57,000.00

Client pays: ₱57,000

The provider records gross income of ₱60,000, not ₱57,000.

Scenario D: Client wants the provider to receive a fixed net amount

Suppose the agreement says the service provider must receive ₱100,000 net of 2% withholding tax.

Use the gross-up formula:

Gross invoice amount = Desired net amount ÷ (1 - withholding tax rate)
Gross invoice amount = ₱100,000 ÷ 98%
Gross invoice amount = ₱102,040.82

Particulars	Amount
Service fee	₱102,040.82
Total Sales	₱102,040.82
Less: 2% CWT	₱2,040.82
Total Amount Due	₱100,000.00

This should be supported by a clear written agreement. Without a gross-up agreement, most clients will simply withhold from the stated invoice amount.

Required Information on a Non-VAT Service Invoice

A compliant Non-VAT Service Invoice should contain the following:

Required item	Practical note
Seller’s registered name	Must match BIR Certificate of Registration
Non-VAT Reg TIN and branch code	Do not use “VAT Reg TIN”
Registered business address	Use the BIR-registered address for the invoice
Word “Invoice”	“Service Invoice” is allowed if “Invoice” is prominent
Serial number	Must follow approved invoice series
Date of transaction	Use service date, billing date, or agreed transaction date consistently
Buyer information space	Especially important for corporate/government clients
Nature of service	Be specific
Quantity	Hours, months, units, milestones, or “1 lot,” as appropriate
Unit cost	Rate per hour, month, project, or unit
Amount	Line amount
Total Sales	Gross invoice amount
Less: Discount, if any	Only if applicable
Less: Withholding Tax	If applicable
Total Amount Due	Net collectible amount
ATP/OCN or permit details	Required for manual/loose-leaf or applicable invoicing system
“THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX”	Required phrase in Non-VAT invoice sample format

The BIR also allows descriptive invoice labels such as Cash Invoice, Charge Invoice, Credit Invoice, Billing Invoice, and Service Invoice, as long as the word “Invoice” is prominently printed.

When Should You Issue the Invoice?

For Non-VAT sellers, issue an invoice when:

The single transaction is more than ₱500;
The buyer requests or demands an invoice, regardless of amount; or
At the end of the day, aggregate small sales below ₱500 exceed the ₱500 threshold.

For recurring service providers, such as utilities or similar billers, RMC No. 77-2024 clarifies that a Billing Invoice should be issued upon billing instead of a billing statement or statement of account.

In practical service work, the invoice is usually issued:

Upon completion of the service;
Upon reaching a project milestone;
At the end of the billing period;
On the contract billing date;
When the client requires the invoice to process payment.

Common Mistakes to Avoid

Issuing an Official Receipt instead of an Invoice

After EOPT, an invoice is required for the sale of services. An Official Receipt may be used only as a supplementary proof of payment. If the client asks for an “OR,” clarify that the principal BIR document for the service sale is now the invoice.

Issuing another invoice when payment is received

Do not issue one invoice when you bill and another invoice when you collect. RMC No. 77-2024 gives an example showing that a separate invoice upon receipt of payment for a previously invoiced sale is incorrect. The proper approach is to issue a supplementary receipt upon collection.

Charging VAT even though you are Non-VAT

This is one of the riskiest errors. A Non-VAT taxpayer should not bill 12% VAT. If a client insists, verify your BIR registration. If your COR says Non-VAT, do not issue a VAT invoice.

Treating withholding tax as a discount

Withholding tax is not a discount. It is an advance tax credit. Your invoice still shows the gross billing, and your books should still record gross sales.

Computing percentage tax on net cash received

Percentage tax is computed on gross quarterly sales, not the amount collected after withholding.

Using an unregistered Excel or PDF invoice

A nice-looking invoice template is not enough. The invoice must be BIR-authorized, whether manual, loose-leaf, computerized, POS, CAS, or electronic, depending on the taxpayer’s approved setup.

Forgetting Form 2307

If a client withholds tax, the provider should monitor the BIR Form No. 2307. Without it, claiming the withheld amount as tax credit becomes difficult during income tax filing.

Confusing Non-VAT sales with VAT-exempt sales by VAT taxpayers

A Non-VAT registered seller under the VAT threshold is different from a VAT-registered seller issuing an invoice for a VAT-exempt transaction. Use the correct invoice format and wording.

Practical Checklist Before Sending the Invoice

Before giving the invoice to the client, review these items:

Does the invoice show Non-VAT Reg TIN, not VAT Reg TIN?
Is the word Invoice clearly printed?
Is the date correct?
Is the buyer name correct, especially for corporations and government offices?
Is the buyer TIN correct if required by the client?
Is the service description specific enough?
Are quantity, unit cost, and amount shown?
Is there no 12% VAT line?
Is withholding tax shown only if applicable?
Is the total amount due correct?
Does the invoice contain the required phrase “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX”?
Is the serial number within the approved series?
Are ATP, permit, or approved system details shown where required?
Is the invoice recorded in the books at the gross amount?

Frequently Asked Questions

Do I add 12% VAT to a Non-VAT Service Invoice?

No. A Non-VAT seller should not add 12% VAT. The invoice should show the service fee, discounts if any, withholding tax if applicable, and total amount due. Adding VAT when you are not VAT-registered can create serious tax exposure.

Is the 3% percentage tax shown on the invoice?

Usually, no. Percentage tax is the seller’s business tax obligation and is filed separately. It is not the same as VAT. If a contract allows the seller to pass it on as a separate charge, handle it carefully because the added charge may form part of gross sales.

Should withholding tax be deducted before or after VAT?

For a Non-VAT Service Invoice, there is no VAT. Withholding tax is usually computed on the gross income payment subject to withholding. For example, ₱50,000 × 2% = ₱1,000 withholding tax.

What if my client refuses to pay unless I issue an Official Receipt?

Under current EOPT rules, the invoice is the principal document for the sale of services. A supplementary receipt may be issued upon payment, but the sale itself should be covered by an invoice.

Can I use “Service Invoice” instead of “Sales Invoice”?

Yes. BIR guidance allows descriptive invoice names such as Service Invoice, Billing Invoice, Cash Invoice, Charge Invoice, or Credit Invoice, provided the word “Invoice” is prominently printed.

Do I need to issue an invoice for services below ₱500?

For Non-VAT sellers, an invoice is required if the transaction is more than ₱500, if the buyer requests one regardless of amount, or if aggregate small sales at the end of the day exceed the threshold.

Is BIR Form 2307 part of the invoice?

No. BIR Form No. 2307 is a separate certificate issued by the withholding agent to prove tax withheld. The invoice shows the billing and deduction; Form 2307 supports the tax credit.

What amount should I record as income: gross invoice or net collection?

Record the gross invoice amount as income. The withholding tax is recorded as creditable tax withheld or tax credit, not as a reduction of sales.

Can a foreign client require a Philippine Non-VAT Invoice?

If the service provider is BIR-registered in the Philippines, the provider should issue the proper BIR invoice for the service transaction. If the provider is outside the Philippines and not BIR-registered locally, the Philippine client may need to consider withholding tax, tax treaty rules, and foreign documentation instead of a local Non-VAT Invoice.

What happens if I exceed the ₱3,000,000 VAT threshold?

A taxpayer who exceeds the VAT threshold, or expects to exceed it based on the Tax Code rules, must register for VAT. Failure to register when required may result in VAT liability without the benefit of input tax credits for the period of non-registration. (Lawphil)

Key Takeaways

A Non-VAT Service Invoice is now the proper principal document for billing services by a Non-VAT taxpayer.
Do not add 12% VAT unless the seller is VAT-registered.
Show the gross service fee as Total Sales, then deduct withholding tax only if applicable.
Withholding tax is not a discount; it is an advance income tax credit supported by BIR Form No. 2307.
Percentage tax, commonly 3% for taxpayers under Section 116, is computed separately on gross quarterly sales.
A compliant Non-VAT Invoice should show the seller’s Non-VAT registration, invoice serial number, date, buyer details, nature of service, quantity, unit cost, total sales, withholding tax if any, total amount due, and the phrase “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX.”
Avoid using an Official Receipt as the main document for service sales; after EOPT, receipts are generally supplementary proof of payment.
If the client wants a fixed net payment after withholding, use a gross-up computation only when the agreement clearly supports it.