TAXATION VAT

VALUE-ADDED TAX

Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in the Philippines and on importation of goods into
the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee
of goods, properties or services.

Who are Required to File VAT Returns?

 Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases
goods or properties and renders services subject to VAT, if the aggregate amount of actual gross
sales or receipts exceed Three Million Pesos (Php3,000,000.00)
 A person required to register as VAT taxpayer but failed to register
 Any person, whether or not made in the course of his trade or business, who imports goods

Value-Added Tax Rates

 On sale of goods and properties

- twelve percent (12%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged
 On sale of services and use or lease of properties
- twelve percent (12%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties
 On importation of goods

- twelve percent (12%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and other
charges, such as tax to be paid by the importer prior to the release of such goods from
customs custody; provided, that where the customs duties are determined on the basis
of quantity or volume of the goods, the VAT shall be based on the landed cost plus excise
taxes, if any.

 On export sales and other zero-rated sales

- 0%

Who are liable to register as VAT taxpayers?

 Any person who, in the course of trade or business, sells, barters or exchanges goods or properties
or engages in the sale or exchange of services shall be liable to register if:
 His gross sales or receipts for the past twelve (12) months, other than those that are exempt under
Section 109 (A) to (U), have exceeded Three Million Pesos (P3,000,000.00): or
 There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12)
months, other than those that are exempt under Section 109 (A) to (U), will exceed Three Million
Pesos (P3,000,000.00).

What is the liability of a taxpayer becoming liable to VAT and did not register as such?

 Any person who becomes liable to VAT and fails to register as such shall be liable to pay the output
tax as if he is a VAT-registered person, but without the benefit of input tax credits for the period
in which he was not properly registered.

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Who may opt to register as VAT and what will be his liability?

 Any person who is VAT-exempt under Sec. 109 of the Tax Code, as amended, may, in relation to
Sec. 109 (2) of the same Code, elect to be VAT-registered by registering with the RDO that has
jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for
every separate and distinct establishment.
 Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed
transactions) may opt that the VAT apply to his transactions which would have been exempt under
Section 109 of the Tax Code, as amended.
 Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business
covered by the law granting the franchise may opt for VAT registration. This option, once
exercised, shall be irrevocable. (Sec. 119, Tax Code).
 Any person who elects to register under optional registration shall not be allowed to cancel his
registration for the next three (3) years.

What is the liability of a VAT-registered person in the issuance of a VAT invoice/ receipt for VAT-exempt
transactions?

 If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction
but fails to display prominently on the invoice or receipt the words "VAT-EXEMPT SALE", the
transaction shall become taxable and the issuer shall be liable to pay the VAT thereon. The
purchaser shall be entitled to claim an input tax credit on his purchase.

What is "output tax"?

 Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or
services by any person registered or required to register under Section 236 of the Tax Code.

What is "input tax"?

 Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local
purchase of goods, properties or services, including lease or use of property in the course of his
trade or business. It shall also include the transitional input tax determined in accordance with
Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.

What comprises "goods or properties"?

The term "goods or properties" shall mean all tangible and intangible objects, which are capable of
pecuniary estimation and shall include, among others:

 Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business;
 The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
 The right or privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
 The right or the privilege to use motion picture films, films, tapes and discs; and
 Radio, television, satellite transmission and cable television time.

What comprises "sale or exchange of services"?

 The term "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, whether in kind or in cash,
including those performed or rendered by the following:
o Construction and service contractors;
o Stock, real estate, commercial, customs and immigration brokers;
o Lessors of property, whether personal or real;
o Persons engaged in warehousing services;
o Lessors or distributors of cinematographic films;

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o Persons engaged in milling, processing, manufacturing or repacking goods for others;

o Proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns,
resorts, theatres, and movie houses;
o Proprietors or operators of restaurants, refreshment parlors, cafes, and other eating
places, including clubs and caterers;
o Dealers in securities;
o Lending investors;
o Transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative
to their transport of goods or cargoes;
o Common carriers by air and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines;
o Sale of electricity by generating, transmission by any entity including the National Grid
Corporation of the Philippines (NGCP), and distribution companies including electric
cooperatives shall be subject to twelve percent (12%) VAT on their gross receipts.;
o Franchise grantees of electric utilities, telephone and telegraph, radio and/or television
broadcasting and all other franchise grantees, except franchise grantees of radio and/or
television broadcasting whose annual gross receipts of the preceding year do not exceed
Ten Million Pesos (P10,000,000.00), and franchise grantees of gas and water utilities;
o Non-life insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and
o Similar services regardless of whether or not the performance thereof calls for the
exercise of use of the physical or mental faculties.

 The phrase "sale or exchange of services" shall likewise include:

o The lease of use of or the right or privilege to use any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark, trade brand or other like property
or right;
o The lease or the use of, or the right to use of any industrial, commercial or scientific
equipment;
o The supply of scientific, technical, industrial or commercial knowledge or information;
o The supply of any assistance that is ancillary and subsidiary to and is furnished as a means
of enabling the application or enjoyment of any such property, or right or any such
knowledge or information;
o The supply of services by a nonresident person or his employee in connection with the
use of property or rights belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such non-resident person;
o The supply of technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;
o The lease of motion picture films, films, tapes and discs; and
o The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.

What is a zero-rated sale?

 It is a sale, barter or exchange of goods, properties and/or services subject to 0% VAT pursuant to
Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable transaction for VAT purposes, but
shall not result in any output tax. However, the input tax on purchases of goods, properties or
services, related to such zero-rated sales, shall be available as tax credit or refund in accordance
with existing regulations.

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What transactions are considered as zero-rated sales?

The following services performed in the Philippines by VAT-registered person shall be subject to zero
percent (0%) rate:

a. 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);
b. Services other than processing, manufacturing or repacking rendered to a person engaged in
business conducted outside the Philippines or to a non-resident person 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);
c. Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services
to zero percent (0%) rate;
d. Services rendered to persons engaged in international shipping or air transport operations,
including leases of property for use thereof; Provided, that these services shall be exclusively for
international shipping or air transport operations. (Thus, the services referred to herein shall not
pertain to those made to common carriers by air and sea relative to their transport of passengers,
goods or cargoes from one place in the Philippines to another place in the Philippines, the same
being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code, as amended);
e. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of total
annual production;
f. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign
country. (Gross receipts of international air carriers and international sea carriers doing business
in the Philippines derived from transport of passengers and cargo from the Philippines to another
country shall be exempt from VAT; however they are still liable to a percentage tax of three
percent (3%) based on their gross receipts derived from transport of cargo from the Philippines
to another country as provided for in Sec. 118 of the Tax Code, as amended); and
g. Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other shipping
sources using technologies such as fuel cells and hydrogen fuels; Provided, however that zero-
rating shall apply strictly to the sale of power or fuel generated through renewable sources of
energy, and shall not extend to the sale of services related to the maintenance or operation of
plants generating said power.

The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

a. Export sales
1. The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence
or determine the transfer of ownership of the goods so exported, paid in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
2. The sale of raw materials or packaging materials to a non-resident buyer for delivery to
as a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods, paid for in acceptable
foreign currency, and accounted for in accordance with the rules and regulations of the
BSP;
3. The sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
4. Transactions considered export sales under Executive Order No. 226, otherwise known as
the Omnibus Investments Code of 1987, and other special laws; and
5. The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations; Provided, That the goods, supplies,

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equipment, and fuel shall be used exclusively for international shipping or air transport
operations; Provided, that the same is limited to goods, supplies, equipment and fuel that
shall be used in the transport of goods and passengers from a port in the Philippines
directly to a foreign port, or vice-versa without docking or stopping at any other port in
the Philippines unless the docking or stopping at any other Philippine port is for the
purpose of unloading passengers and/or cargoes that originated from abroad, or to load
passengers and/or cargoes bound for abroad;Provided, further, that if any portion of such
fuel, goods or supplies is used for purposes other than the mentioned in this paragraph,
such portion of fuel, goods and supplies shall be subject to twelve percent (12%) output
VAT.
b. Sales to Persons or Entities Deemed Tax-exempt under Special Law or International Agreement

Sale of goods or property to persons or entities who are tax-exempt under special laws or international
agreements to which the Philippines is a signatory, such as, Asian Development Bank (ADB), International
Rice Research Institute (IRRI), subject such sales to zero rate.

What are the transactions which are no longer subject to zero-percent (0%)?

1. Sale of gold to BSP

2. Foreign-currency denominated sales

Upon the successful establishment and implementation of an enhanced VAT refund system by the
Department of Finance (DOF), what are the transactions that will now be subject to twelve percent (12%)
and no longer be subject to zero percent (0%)?

1. The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident
local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods, paid for in acceptable foreign currency, and accounted
for in accordance with the rules and regulations of the BSP;
2. The sale of raw materials or packaging materials to an export-oriented enterprise whose export
sales exceed seventy percent (70%) of total annual production;
3. Transactions considered export sales under Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, and other special laws
4. 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); and
5. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of total
annual production.

What transactions are considered deemed sales? (VERY IMPORTANT)

The following transactions are considered as deemed sales:

Transfer, use or consumption, not in the course of business, of goods or properties originally intended for
sale or for use in the course of business. Transfer of goods or properties not in the course of business can
take place when VAT-registered person withdraws goods from his business for his personal use;

a. Distribution or transfer to:

o Shareholders or investors as share in the profits of the VAT-registered person; or
o Creditors in payment of debt or obligation
b. Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned. Consigned goods returned by the consignee within the 60-day period are
not deemed sold;
c. Retirement from or cessation of business, with respect to all goods on hand, whether capital
goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation,

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whether or not the business is continued by the new owner or successor. The following
circumstances shall, among others, give rise to transactions "deemed sale";
o Change of ownership of the business. There is a change in the ownership of the business
when a single proprietorship incorporated; or the proprietor of a single proprietorship
sells his entire business
o Dissolution of a partnership and creation of a new partnership which takes over the
business.

What is VAT-exempt sale?

It is a sale of goods, properties or service and the use or lease of properties which is not subject to output
tax and whereby the buyer is not allowed any tax credit or input tax related to such exempt sale.

What are the VAT-exempt transactions?

a. Sale or importation of agricultural and marine food products in their original state, livestock and
poultry of a kind generally used as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefore;
b. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds, including ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals and other animals considered as pets);
c. Importation of personal and household effects belonging to residents of the Philippines returning
from abroad and non-resident citizens coming to resettle in the Philippines; Provided, that such
goods are exempt from custom duties under the Tariff and Customs Code of the Philippines;
d. Importation of professional instruments and implements, tools of trade, occupation or
employment, wearing apparel, domestic animals, and personal and household effects ( except
vehicles, vessels, aircrafts machineries and other similar goods for use in manufacture which are
subject to duties, taxes and other charges) belonging to persons coming to settle in the Philippines
or Filipinos or their families and descendants who are now residents or citizens of other countries,
such parties hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to
the profession, rank or position of the persons importing said items, for their own use and not
barter or sale, accompanying such persons, or arriving within a reasonable time; Provided, That
the Bureau of Customs may, upon the production of satisfactorily evidence that such persons are
actually coming to settle in the Philippines and that the goods are brought from their place of
residence, exempt such goods from payment of duties and taxes.
e. Services subject to percentage tax under Title V of the Tax Code, as amended;
f. Services by agricultural contract growers and milling for others of palay into rice, corn into grits,
and sugar cane into raw sugar;
g. Medical, dental, hospital and veterinary services except those rendered by professionals;
h. Educational services rendered by private educational institutions duly accredited by the
Department of Education (DepED), the Commission on Higher Education (CHED) and the Technical
Education and Skills Development Authority (TESDA) and those rendered by the government
educational institutions;
i. Services rendered by individuals pursuant to an employer-employee relationship;
j. Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income
from the Philippines;
k. Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws except those granted under P.D. No. 529 - Petroleum Exploration
Concessionaires under the Petroleum Act of 1949;
l. Sales by agricultural cooperatives duly registered and in good standing with the Cooperative
Development Authority (CDA) to their members, as well as of their produce, whether in its original
state or processed form, to non-members, their importation of direct farm inputs, machineries
and equipment, including spare parts thereof, to be used directly and exclusively in the production
and/or processing of their produce;

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m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and
in good standing with the Cooperative Development Authority;
n. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in
good standing with CDA; Provided, that the share capital contribution of each member does not
exceed Fifteen Thousand Pesos (P15,000.00) and regardless of the aggregate capital and net
surplus ratably distributed among the members;
o. Export sales by persons who are not VAT-registered;
p. The following sales of real properties:
i. Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business.
ii. Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise
known as the "Urban Development and Housing Act of 1992" and other related laws, such
as RA No. 7835 and RA No. 8763;
iii. Sale of real properties utilized for specialized housing as defined under RA No. 7279, and
other related laws, such as RA No. 7835 and RA No. 8763, wherein price ceiling per unit is
Php 450,000.00 or as may from time to time be determined by the HUDCC and the NEDA
and other related laws;
iv. Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00)
and below, or house and lot and other residential dwellings valued at Two Million Five
Hundred Thousand Pesos (P2,500,000.00) and below, as adjusted using latest Consumer
Price Index values. (If two or more adjacent lots are sold or disposed in favor of one
buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be exempt
from VAT only if the aggregate value of the lots do not exceed One Million Five Hundred
Thousand Pesos (P1,500,000.00). Adjacent residential lots, although covered by separate
titles and/or separate tax declarations, when sold or disposed to one and the same buyer,
whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of
one residential lot.)
q. Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand Pesos
(P15,000.00), regardless of the amount of aggregate rentals received by the lessor during the
year; Provided, that not later than January 31, 2009 and every three (3) years thereafter, the
amount of P10,000.00 shall be adjusted to its present value using the Consumer Price Index, as
published by the Philippine Statistics Authority (Formerly known as NSO);
r. Sale, importation, printing or publication of books and any newspaper, magazine, review or
bulletin which appears at regular intervals with fixed prices for subscription and sale and which is
not devoted principally to the publication of paid advertisements;
s. Transport of passengers by international carriers;
t. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine equipment
and spare parts thereof for domestic or international transport perations; Provided, that the
exemption from VAT on the importation and local purchase of passenger and/or cargo vessels
shall be subject to the requirements on restriction on vessel importation and mandatory vessel
retirement program of Maritime Industry Authority (MARINA);
u. Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations; Provided, that the said fuel, goods and supplies shall be used exclusively or
shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to
a foreign port, or vice-versa, without docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine port is for the purpose of unloading
passengers and/or cargoes that originated form abroad, or to load passengers and/or cargoes
bound for abroad; Provided, further, that if any portion of such fuel, goods or supplies is used for
purposes other that the mentioned in the paragraph, such portion of fuel, goods and supplies
shall be subject to 12% VAT;
v. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and
other non-bank financial intermediaries, such as money changers and pawnshops, subject to
percentage tax under Sections 121 and 122, respectively of the Tax Code; and
w. Sale or lease of goods and services to senior citizens and persons with disabilities, as provided
under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding
the Benefits and Privileges of Persons with Disability), respectively;
x. Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the Tax Code, as
amended);

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y. Association dues, membership fees, and other assessments and charges collected on a purely
reimbursement basis by homeowners’ associations and condominium established under Republic
Act No. 9904 (Magna Carta for Homeowners and Homeowner’s Association) and Republic Act No.
4726 (The Condominium Act), respectively;
z. Sale of gold to the Banko Sentral ng Pilipinasn (BSP) (previously zero-rated transaction);
aa. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
(beginning on January 1, 2019 as determined by the Department of Health); and
bb. Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of Three Million Pesos (Php 3,000,000.00). Note: Self-employed individuals and
professionals availing of the 8% on gross sales and/or receipts and other non-operating income,
under Sections 24 (A)(2)(b) and 24 (A)(2)(c)(2) of the NIRC shall also be exempt from the payment
of twelve (12%) VAT.