VALUE ADDED TAX

If the Sale is Exempt from VAT, it may subject to OPT.; except those transactions exempt from
business taxes (made for subsistence or livelihood.

VAT EXEMPT SALES

A. Sale of Importation of: B. Sale or Importation of;
P - Poultry of a kind generally used as, or F - Fish, prawn, livestock and poultry feeds,
yielding or producing foods for human including ingredients, whether LOCALLY produced
consumption & breeding stock & genetic or imported, Used in the manufacture of finished
material therefore feeds
A - Agricultural and Marine food products in F - Fertilizers
their Original State S - Seed, seedlings and fingerlings
L - Livestock
SIDE NOTES:
SIDE NOTES:  Specialty Feeds are not subject to VAT
 Considered in their original state even if  Non-agricultural feeds or food for race
they have undergone the simple process of horses, fighting cocks, aquarium fish, zoo
preparation or preservation for the market, animal and other animals generally considered
such as freezing, drying, salting, broiling, as pets.
roasting, smoking or stripping including
those using advance technological means of C. Importation of Personal and Household Effects
packaging (shrink wrapping in plastics, belonging to:
vacuum packing, tetra-pack & other similar a) The resident of the Philippines returning
packaging methods_) from abroad; and
 It doe NOT include fighting cocks, race b) Non-resident citizens coming to settle in the
horses, zoo animals and other animals Philippines
generally considered as pets.
 Only RAW SUGAR is exempt from VAT SIDE NOTES:
 Raw can sugar only refers to  Provided, that such goods are Exempt from
muscovado sugar custom duties. Includes:
 Content of sucrose is less than  Returned personal and household
99.50 effects
 Refined Sugar has more than 99.50 sucrose  Personal & household effects
content and therefore not exempt purchased abroad
 Sale of marinated fist is NOT exempt from VAT  Personal & household effect brought from
abroad by a resident of the Philippines are
vat exempt
D. Importation of professional instruments & G. Medical, dental, hospital and veterinary
implements, tools of trade, occupation or services except those rendered by professionals
employment, wearing apparel, domestic animals and  Laboratory services are exempted
personal household effects  If the hospital/clinic operated a pharmacy or
a) Belonging to persons coming to settle in the drugstore, the sale of drugs & medicines are
Philippines; or subject to VAT
b) Filipinos or their families & descendants who  Sales made by the drugstore to the in-patients
are now resident or citizens of other which are included in the hospital bills are part
countries of medical bills which is EXEMPT from VAT
 Sales of the drugstore to the out-patients are
SIDE NOTES: taxable
 Only in quantities & of the class suitable  Professional fees of medical practitioners
for the profession rendered in in-patients should no longer be
 Only for personal use and not for barter or subject to vat because it is already part of
sale the hospital bills, which is tax exempt.
 Vehicles, vessels, aircrafts & machiniries
H. Educational services rendered by Private
and other similar goods for use in
Education Institutions, duly accredited by the
manufactures are subject to custom duties,
DepEd, CHED, TESDA and those rendered by
taxes and other charges.
government educational institute.
SIDE NOTES:
E. Services subject to Percentage Tax
 Does not include seminars, in-service
F. Services by training, review classes and other similar
A - Agricultural contract growers services not accredited by DepEd, CHED,
M - Milling for other of: and/or TESDA
 Palay into rice
I. Services rendered by individuals pursuant of
 Corn into grits
an employer-employee relationship
 Sugar cane into raw sugar
SIDE NOTES: J. Services rendered by regional or area
 Agricultural contract growers offer toll headquarter established in the Philippines by
processing/toll dressing/toll manufacturing Multinational Corporations.
 Includes weighing, killing,  Acts as supervisory, communications &
dressing, scalding, cut-ups & coordinating centers of their affiliates,
packaging subsidiaries or branches in the ASIA Pacific
 Toll processing services exempt from VAT Region
shall pertain only to services to clients  Do not earn or derive income from the
from which growing of animals were Philippines.
contracted.
TOLL PROCESSING/TOLL DRESSING/TOLL K. Transactions which are exempt under
MANUFACTURING International Agreements to which the Philippines
A. Performed as a packaged service VAT is a signatory of under special law.
of toll growing EXEMPT  EXCEPT: those under PD No. 529 “Petroleum,
B. Performed Independently 12% VAT Explorations Concessionaires under Petroleum
Act of 1949)
L. Sales by Agricultural Cooperatives duly N. Sales by Non-agricultural, non-electric and
 VALUE ADDED TAX
registered with the Cooperative Development non-credit cooperatives duly registered with the
Authority to their members CDA
a) As well as sale of their produce, whether in  Share capital contribution of each members
its original state pr processed form, to non- must not exceed P15,000 and regardless of the
members aggregate capital and net surplus ratably
b) Importations of direct farm inputs, distributed among the members.
machiniries & equipment, including spare  Importation of machiniries and equipment
parts, to be used directly & exclusively in including spare parts are subject to VAT
the production and/or processing of their To To Non-
produce. Members Members
To To Non- A. Contribution per member EXEMPT EXEMPT
Members Members ≤ P15,000
A. Sale of cooperative own EXEMPT EXEMPT B. From Non-lending VAT VAT
produced Activities > P15,000
B. Other then cooperative EXEMPT VAT
own produced O. Export Sales by persons who are NOT VAT
registered
M. Gross receipts from Lending Activities by EXPORT SALES:
credit or multipurpose cooperatives duly a) BY Non-VAT Registered -----> VAT EXEMPT
registered with the Cooperative Development b) By VAT Registered ------------> Zero-Rated
Authority Sales
 Exemption is not only limited to the gross
receipts on loans extended to its members but
also to other persons who are not members.
To To Non-
Members Members
A. From Lending Activities EXEMPT EXEMPT
B. From Non-lending VAT VAT
Activities
P. Sale of: Q. Lease of Residential Unit
a. Real property not primarily held for sale or  Monthly rental not exceeding P15,000
held for lease in the ordinary course of (previously P12,800) regardless of the amount
trade/business aggregated rentals received by the lessor
b. Real property utilized for low-cost housing during the year.
and socialized housing  If monthly rental exceeds P15,000 but the
c. Residential Lot valued at P1,500,000 aggregated rental received during the year
(previously P1,919,500) does not exceed P3M, shall likewise be exempt
House & Lot and other Residential Dwellings from VAT.
valued at P2,500,000 (previously P3,199,200)
LEASED OF RESIDENTIAL UNITS LEASE OF
SIDE NOTES: COMMERCIAL UNITS
 Sale of adjacent lots shall be presumed as Monthly rental Monthly rental >
sale of one residential lot if sold to one & ≤ P15,000 P15,000
Generally subject
the same buyer. EXEMPT from Annual Receipts of to VAT regardless
 Exempt from VAT if aggregate value do not exceed VAT the lessor > P3M of monthly
P1,500,000. rental.
 Beginning January 1, 2021, the selling price NO YES Subject to 3% OPT
of house and lot, and other residential 3% OPT VAT if Non-VAT
dwellings is not more than P2,000,000. Registered &
gross receipts
 Exemption from VAT does not include the sale does not exceed
of parking lot. P3M
 The sale of parking lot in a condominium is a
separate & distinct transaction. R. Sale, importation, printing or publication of
 Imposition of VAT on Foreclosure Sales of books and any newspaper, magazine, review or
Real Property bulletin which appears at regular intervals with
 If an ordinary asset, VAT shall be imposed fixed prices for subscriptions and sale and which
 VAT shall be based on is not principally devoted to the publication of
a) Consideration
paid advertisements.
b) FMV Whichever is Highest
c) Zonal Value  Does not apply to electronic format or
 It shall be paid on or before 20th or 25th day of versions (e.g. ebook,ejournal)
the month following the month when the right of  Corporations’ other transactions are subject
redemption prescribes to VAT
Sale NOT in the ordinary course of VAT
trade/business Exempt
Sale of Residential Lot: S. Transport of Passengers by international
 Selling Price ≤ P1,500,000 VAT Carriers during business in the Philippines
 Selling Price > P1,500,000 Exempt  The same shall not be subject to OPT
VAT  Transport of cargo by international carriers
Sale of Residential House & Lot and doing business in the Philippines is subject
other Residential Dwellings VAT to 3% CCT
 Selling Price ≤ P2,500,000 Exempt
(P2,000,000) VAT
 Selling Price > P2,500,000 T. Sales, importation or lease of passenger/cargo
(P2,000,000) vessels & aircrafts, including engine equipment
Sale of Property classified as Low VAT and spare parts for domestic or international
cost housing Exempt operations.
Sale of Property classified as VAT  The VAT exemption shall be subject to the
Socialized Housing Exempt requirements on restriction on vessel
importation and mandatory vessel retirement
program of marina.
 VALUE ADDED TAX
U. Importation of fuel, goods & supplies by Y. Association dues, membership fees & other
persons engaged in international shipping or air assessments and charges collected on a purely
transport operations reimbursement basis by home-owner’s associations
 Said fuel, goods & supplies shall be use and condominium corporation.
exclusively or shall pertain to the transport  A new provision
of goods and/or passengers from Philippines  Magna Carta of Homeowners’ &
directly to a foreign port. Homeowners Association

V. Services of banks, non-bank financial Z. Sale of gold to the BSP

intermediaries performing quasi-banking functions
and other non-bank financial intermediaries, such
as money changers and pawnshops. AA. Sale of drugs and medicines prescribed for
diabetes, high cholesterol and hypertension
W. Sale or lease of goods and service to senior
citizen and PWD
BB. Gross annual sales/receipts does not exceed
X. Transfer of Property. P3M.

OUTPUT VAT
SOURCES OF OUTPUT VAT ACTUAL SALE (CASH or ACCOUNT)
1. Actual sale  Basis of the 12% output VAT
2. Transaction deemed sales a. Sale of Goods - Gross selling Price
3. Zero-rated Sales b. Sale of Services - Gross Receipts
c. Sale by Dealer in Securities - Gross Income
d. Sale of Real Property
 Selling Price
 FMV whichever is HIGHEST
 Zonal Value
TRANSACTION DEEMED SALE
 Transactions which are NOT actually sales Transactions that are Considered as Deemed Sale
 Absence of actual exchange between the buyer 1. Transfer, use or consumption not in the
and the seller. ordinary course of business of
 No output vat was actually charged to goods/properties ordinarily intended for sale
customers. or use in the course of business.
 In TDS, the person is liable for  BASIS: FMV of the goods consumed
corresponding output vat even in the absence
of actual sale. 2. Distribution or Transfer to:
i. Shareholder or investors as share in the
VAT (TDS) SHALL NOT BE IMPOSED ON profit of a VAT registered person; and
GOODS/PROPERTIES EXISTING AS OF THE OCCURENCE OF ii. Distribution or transfer to creditors in
THE FF: payment of debt/obligation
a) Change of control of a corporation by the  BASIS: Fair Market Value
acquisition of the controlling interest of
such corporations by another stockholder or 3. Consignment of goods if actual sale is not
group of stockholders. made within 60 days following the date of
 The goods/properties used in business will such goods were consigned.
not be considered sold, bartered or exchanged  Goods returned w/in 60-day period are not
despite the change in the ownership interest deemed sold
b) Change in the trade/corporate name of the  BASIS: Fair Market Value
taxpayer
c) Mergers or consolidation of Corporations 4. Retirement from or cessation of status as VAT
 Unused input tax of dissolved corporations registered person with respect to all “goods
shall be absorbed by the new or surviving on hand”, whether or not the business is
corporations. continued by new owner or successor
 BASIS: Lower amount between Acquisition Cost
and FMV

5.Others:
i.Change of business activity from VAT to VAT
exempt status. CAPITAL GOODS are deemed sold
ii. Approval of a request for cancellation of
registration due to reversion to exempt
status
iii. Approval of a request for cancellation of
registration due to a desire to revert back
to exempt status after the lapse of 3
consecutive years.
ZERO RATED SALES
A taxable transaction for VAT purposes, but shall Refund of Input VAT on Zero Rated Sale
not result in any output tax.  Shall EXCLUDE the portion of the input vat
 The input tax on purchases of goods, that has been applied against the output vat.
properties or services, shall be available as  Application should be filed within 2years
tax credit or refund in accordance with after the close of the taxable quarter when
existing regulation such sales were made.
 The payments for the sales must have been
OUTPUT VAT (Gross Sales x 0%) P 0 made in acceptable foreign currency duly
Input VAT (xx) accounted for in accordance with BSP rules
VAT PAYABLE (REFUNDABLE) P(xx) and regulations.
 Claims for input vat refund of direct
 VALUE ADDED
PURPOSE: The zero rated seller becomes
internationally competitive by allowing the
refund or credit of input taxes that are 
attributable to export sales.
RATIONALE: The Philippine VAT system adheres to
the “Cross Border Doctrine” or “Destination
Principle”, according to which, NOT VAT shall be
imposed to form part of the cost of the goods
destined for consumption outside the territorial
border of the taxing authority.
The input VAT attributable to ZERO rated (0%)
Sale may be:
a) Refunded; or
b) Claimed as deduction/tax credit against
output vat on domestic sales; or
c) Claimed as tax credit (TCC) against any other
internal revenue taxes
EXPORT SALES
A. Actual Export and Deemed Export Sales
a) Sale and actual shipment of goods from
Philippines to a foreign country
 Irrespective of any shipping arrangement that
may be agreed upon
 Paid for in acceptable foreign currency
 DEEMED EXPORT SALES:
1. Sale of raw materials or packaging materials
to a non-resident buyer for a 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
currency.
2. Sales to Export-oriented enterprises which
the code considers as export sales at the
level of the supplier of raw materials.
 The sale is considered only zero rated is the sale
of raw materials or packaging is made to an
export-oriented enterprise whose export sales
exceed 79% of actual annual production.
3. Export sales under the EO No. 226, “Omnibus
Investment Cost of 1987 and other special
laws.
4. Sale of gold to BSP - VAT Exempt
5. Sale of goods, supplies, equipment and fuel
to persons engaged in international shipping
or international air transport operations -
0% VAT
TAX
exporters shall be exclusively filed with the
VAT Credit Audit Division (VCAD)
The commissioner of internal revenue shall
grant refund for creditable input vat within
90 days (previously 120 days) from the date
of submission of the official receipts or
invoices and other documents in support of
the application filed.
 The 90 day period to process and decide,
pending the establishment of the enhanced VAT
Refund System shall only be up to the date of
approval of the Recommendation Report on such
application.
 In case of full or partial denial of the
claim, the taxpayer may within 30 days from
receipt of the decision denying the claim,
appeal the decision of the Court of Tax
Appeals.
EXPORT SALE BY A NON-VAT REGISTERED ENTITY
 It’s a VAT exempt transaction
 The seller/supplier is NOT ALLOWED any tax
credit of VAT (input tax) on purchases
related to such exempt transaction.
B. Effectively Zero Rated Sales
 Sales to entities exempt under a special law
or under international agreements to which
the Philippines is a signatory effectively
subject such as sales to zero rate.
 Example:
 Sale of Goods to Asian Development Bank (ADB)
 International Rice Research Institute (IRRI)
 Local sale of goods & properties by a VAT
registered person or entity who was granted
indirect tax exemption under special laws or
international agreement.
STATUS QUO ON VAT ZERO-RATING OF SALES TO PEZA
ENTITIES
 Provides that special economic zones are to
be operated and managed as a separate customs
territory
 VAT zero rating incentive is enjoyed by PEZA
locators or entities.

NOTE:
Under Train law, the items i, ii and iii are now
subject to `2% VAT, but only upon the
satisfaction of the following conditions.
1) Successful establishment and implementation
of an enhance refund system
2) All pending vat refund claims as of Dec.
31,2017 shall be fully paid in cash by Dec,
31, 2019.

ZERO-RATED SALES OF SERVICES

1. Processing, manufacturing or repacking goods 1. Services rendered to a person engaged
for other persons doing business outside the in business conducted outside the
Philippines which goods are subsequently Philippines or to a non-resident
exported. person not engaged in business who is
 Services are paid for in outside the Philippines when the
acceptable foreign currently services are performed.
 Under Train Law, subject to 2. Services rendered to person or
12% VAT but only upon the entities whose exemption under
satisfaction of the following special laws or international
conditions. agreement to which the Philippines is
1. Successful a signatory effect subjects the
establishment and supply of such services to 0% rate.
implementation of an 3. Services rendered to persons engaged
enhance refund system in international shipping or
2. All pending vat international air transport
refund claims as of operations, including leases of
 VALUE ADDED TAX
Dec. 31,2017 shall be property for use thereof.
fully paid in cash by 4. Transport of passengers and cargo by
Dec, 31, 2019 domestic are or sea vessels from the
2. Services performed by subcontractors and/or Philippines to a foreign country
contractors in the processing, converting, or 5. Sale of power or fuel generated
manufacturing goods for an enterprise whose through renewable source of energy.
export sales exceed 70% of total annual product.
 Under Train Law, subject to
12% VAT but only upon the
satisfaction of the following
conditions.
1. Successful
establishment and
implementation of an
enhance refund system
2. All pending vat
refund claims as of
Dec. 31,2017 shall be
fully paid in cash by
Dec, 31, 2019