VAT Applicable to the Placement Fees to be Paid by an Applicant Worker

April 21, 1988 BIR RULING NO. 163-88 102 (a) 000-00 163-88 Gentlemen : This has reference to your letter dated February 19, 1988 stating that private employment agencies are allowed to charge from the applicant worker maximum placement and documentation fees of P5,000.00 which cover all costs of recruitment which include medical examination/psychological testing, trade and skill testing, passport fee, clearances e.g. NBI, PC, Police, inoculation charges, airport terminal fee, notarial fees and performance bond premiums while Construction and Service Contractors are allowed to charge a maximum fee of P1,500.00 covering documentation cost such as, passport fee, medical examination, airport terminal fee, notarial fees and performance bond premiums and construction and service contractors are allowed to charge a maximum fee of P5,000 and P1,500.00 respectively covering medical examination, clearances, airport terminal and other documentation fees. In view of this, your query is whether or not the VAT is applicable on the entire placement fees. cdtech Based on the foregoing, you request clarification on the following: "1. Is VAT applicable to the placement fees to be paid by the applicant worker? If yes, is it for the entire P5,000.00? "2. Can this transaction i.e. worker applicant and agency, be also not covered by VAT considering that it is eventually for the generation of foreign exchange and a continuation of the transaction between the local agency and foreign employer which is zero based because of its foreign exchange generating nature?" In reply, please be informed that a private employment agency is subject to the 10% VAT on the amount of placement fee which for purposes of this tax will not include reimbursement of expenses which shall be limited to fees for passport/visa, medical examination, clearances, inoculation, trade and skill testing, airport terminal, performance bond premiums and notary public, provided that the said expenses are supported by receipts issued by the supplying company, or government agency in the name of the applicant worker. All other income or receipt shall be subject to VAT. On the other hand, the agency is required to pay the 10% VAT on the entire placement fee if the abovementioned expenses are supported by receipts issued in the name of the agency. cd Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner