In the Philippine jurisdiction, the taxation of manpower and janitorial service providers is governed primarily by the National Internal Revenue Code (NIRC) of 1997, as amended by the TRAIN Law (Republic Act No. 10963) and the CREATE Law (Republic Act No. 11534). These entities are classified as "sale of services," making them subject to specific Value-Added Tax (VAT) rules regarding their gross receipts, billing components, and withholding requirements.

1. The Imposition of VAT

Under Section 108 of the NIRC, a 12% VAT is imposed on the gross receipts derived from the sale or exchange of services. Manpower and janitorial agencies fall squarely under this provision as they provide labor or technical services for a fee.

The Tax Rate

The applicable rate is 12%, which is added to the total contract price or the "gross receipts" of the service provider.

The VAT Threshold

Service providers are required to register as VAT taxpayers if their total annual gross sales or receipts exceed ₱3,000,000.00. Entities falling below this threshold may opt to register as Non-VAT (subject to the 3% Percentage Tax under Section 116) or voluntarily register for VAT.

2. Determination of the Tax Base: Gross Receipts

The most critical aspect of VAT for manpower and janitorial services is the determination of the "Gross Receipts."

Definition of Gross Receipts

Under Revenue Regulations (RR) No. 16-2005, gross receipts refer to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental, or royalty, including the amount charged for materials supplied with the services and deposits applied as payments.

The "Agency Fee" vs. "Salaries and Wages"

A common point of contention is whether the 12% VAT should be applied to the entire contract price or only to the Agency Fee (the portion remaining after salaries, SSS, PhilHealth, and Pag-IBIG contributions are paid).

General Rule: For VAT purposes, the BIR generally treats the entire amount billed as part of the gross receipts. This includes the salaries of the deployed personnel and the mandatory employer contributions.
Rationale: The manpower agency is the employer of the personnel. Therefore, the salaries paid to the workers are considered costs of services and are not deductible from the gross receipts for VAT purposes.
Exception (The Reimbursable Cost Theory): While some specific BIR rulings in the past allowed the "pass-through" treatment (where VAT is only on the agency fee), the prevailing strict interpretation requires VAT on the total amount collected unless the contract is specifically structured as a "pure reimbursement" where the agency acts merely as an agent, which is rare in standard service contracting.

3. VAT Calculation

The VAT is calculated by multiplying the gross receipts by 12%.

$$\text{Output VAT} = \text{Gross Receipts} \times 0.12$$

If the price is "VAT-inclusive," the formula to extract the VAT is:

$$\text{VAT Amount} = \frac{\text{Total Amount Received}}{1.12} \times 0.12$$

4. Input VAT Credits

Service providers are allowed to offset their Output VAT (VAT they charge to clients) with Input VAT (VAT they paid to suppliers).

Common sources of Input VAT for janitorial and manpower agencies include:

Purchase of cleaning supplies and chemicals.
Purchase of equipment (vacuum cleaners, floor polishers).
Purchase of uniforms for employees.
VAT on office utilities (electricity, water, telecommunications).

5. Withholding Tax Requirements

Clients of manpower and janitorial agencies (the "withholding agents") are required to withhold taxes upon payment.

Creditable Withholding Tax (CWT)

Under RR No. 2-98, as amended by RR No. 14-2013, payments to manpower and janitorial agencies are subject to a 2% Creditable Withholding Tax.

Base: The 2% is applied to the gross amount (excluding the VAT itself).
Remittance: The client issues BIR Form No. 2307 to the agency, which the agency can then use as a tax credit against its quarterly and annual Income Tax Liability.

Final Withholding VAT (For Government Contracts)

If the client is a government entity, they are required to withhold a 5% Final VAT on their payments to the service provider pursuant to Section 114(C) of the Tax Code.

6. Compliance and Documentation

To validly charge VAT and allow clients to claim Input VAT, the service provider must strictly adhere to invoicing requirements:

VAT Official Receipt (OR): Since these are services, the timing of the VAT liability is upon collection (actual or constructive receipt), not upon billing.
Billing Statements: These are not valid proof of Input VAT for the client; only the Official Receipt serves this purpose.
Separate Lines: The VAT amount must be shown as a separate line item on the receipt.
Information Requirements: The receipt must contain the client's Name, Address, and Tax Identification Number (TIN).

7. Impact of the CREATE Law

The CREATE Law primarily adjusted corporate income tax rates but maintained the VAT structure for services. However, it is important for providers to note that any equipment imported or purchased for the service may be subject to different VAT refund or credit rules if the provider is registered within a Special Economic Zone (e.g., PEZA), where "Zero-Rating" might apply under the "Cross Border Doctrine," provided the services are rendered within the zone.