VAT treatment of Japanese contractors of OECF-funded projects

VAT treatment of Japanese contractors of OECF-funded projects

This Tax Alert is issued to inform all concerned on the prescribed VAT treatment of government projects funded by the OECF.

Under the Exchange of Notes between the Philippines and Japan on Overseas Economic Cooperation Fund (OECF)-funded projects, all taxes associated with the project shall be assumed by the executing government agencies. This shall be implemented as follows:

1. Japanese contractors shall bill and pass on the 12% VAT to the the government agency.  Government agency pays the 12% VAT from its own funds, not from the project funds.
2. Suppliers and subcontractors of the Japanese contractors shall also pass on the 12% VAT to the Japanese contractors.  Japanese contractor recognizes input VAT.
3. Japanese contractor shall file VAT returns and pay the 12% VAT less the input VAT credits from purchases.

In RMC 45-2015 which was amended, the Japanese contractor does not charge 12% VAT on the government agency.  The gov​ernment agency​, on the other hand,​ remits to BIR, from its own funds, the 5% withholding VAT.