What are VAT Exempt Transactions in the Philippines?

By Jude Feliciano

After reading this article, you will know if your transaction is VAT Exempt.

The following are VAT exempt transactions under Section 109 of Tax Code
A. Sale or importation of agricultural, livestock, poultry, and marine food products
in their “original state”, Provided, that the food is generally used for human
consumption.

Livestock or poultry does not include fighting cocks, racehorses, zoo animals and
other animals generally considered as pets.

Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary
salt and copra shall be considered as agricultural products in their original state.

Bagasse is not included in the exemption provided for under this section.

B. Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn,

livestock and poultry feeds, including ingredients, used in the manufacture of
finished feeds except specialty feeds.

Specialty feeds refers to food for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally 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.

D. Importation of professional instruments and implements, wearing apparel,

domestic animals, and personal household effects except machinery and other
goods  use in the manufacture and merchandise of any kind in commercial
quantity belonging to persons coming to settle in the Philippines.

E. Services subject to Percentage Tax under Title V of the Tax Code.

F. Services by agricultural contract growers and milling for others of palay into
corn rice, corn into grits and sugar cane into raw sugar.

G. Medical, Dental, Hospital and Veterinary Services except those rendered by

professional;

H. Educational services rendered by private educational institutions, duly

accredited by the Department of Education (DepEd), the Commissions on Higher
Education (CHED) 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 exempt under international agreements to which the

Philippines is a signatory under special laws,

Except those under Presidential Decree No. 529 that grant Petroleum Exploration

Concessionaires exemption from Custom Duty and Tax of Importation Machinery
required for their Exploration Operation.

L. Importation by agricultural cooperatives 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.

M. Gross Receipts from lending activities by credit or multi-purpose cooperatives.

N. Sales by non-agricultural, non-electric and non-credit cooperatives.

Provided, that the share capital contribution of each member does not exceed
Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net
surplus ratably distributed among the members.
O. Export sales by person who are not VAT-registered;

P. Sale of real properties not primarily held for sale to customers or held for lease
in the ordinary course of trade or business or sale residential lot valued at One
million five hundred thousand pesos (P1,500,000) and below or sale of house and
lot, and other residential dwellings valued at Two Million Five Hundred Thousand
Pesos (P2,500,000) and below;

Provided, That beginning January 1, 2021, the VAT exemption shall only apply to
sale of real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business or sale of house and lot, and other
residential dwellings with selling price of not more than Two Million Pesos
(P2,000,000).

Q. Lease of residential unit with a monthly rental not exceeding Fifteen Thousand
pesos (P15,000).

R. Sale, importation, printing or publication of books and any newspaper,

magazine, review or bulletin which appears at regular intervals with fixed prices
or 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 carriers.

U. Importation of fuel, goods and supplies by persons engaged in international

shipping or air transport operations.

Provided, that the fuel, goods, and supplies shall be used for international
shipping or air transport operations.

V. Services of bank, non-bank financial intermediaries performing quasi-banking

functions, and other non-bank financial intermediaries.
W. Sale or lease of goods and services to senior citizens and persons with
disability, as provided under Expanded Senior Citizen Act of 2010 and An Act
Expanding the Benefits and Privileges of Persons with Disability, respectively.

X. Tax-Free Exchanges of Properties pursuant to Section 40 (C) (2) of the NIRC of

1997.

This can be:

1. Transfer to a controlled corporation;

2. Merger or consolidation.

No gain or loss shall be recognized if a property is transferred to a corporation by

a person or corporation in exchange for stock.

Y. Association Dues, Membership fees, and other assessments and charges

collected by homeowners associations and condominium corporations

Z. Sale of gold to the Bangko Sentral ng Pilipinas (BSP)

AA. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension beginning January 1, 2019.

BB. Sale or lease of goods 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 (P3,000,000).

References:
Tax Reform for Acceleration and Inclusion (TRAIN Law)

Regulation Implementing the Value Added Tax Provision under TRAIN Law (RR 13-
2018)

Consolidated Value Added Tax Regulations of 2005 (RR 16-2005)

 Percentage Tax Description

      Percentage tax is a business tax imposed on persons, entities, or transactions

specified under Sections 116 to 127 of the National Internal Revenue Code of
1997 (also known as Tax Code), as amended, and as required under special laws.

Quarterly Percentage Tax under Sections 116 to 126 of the Tax Code, as

amended

BIR Form 2551Q - Quarterly Percentage Tax Return 

Who are required to file?

Persons refer to individuals and non-individuals, which include, but are not
limited to, estates, trusts, partnerships, and corporations.

1. Persons, who are not VAT-registered, who sell goods, properties or

services, whose annual gross sales and/or receipts do not exceed three
million pesos (Php3,000,000.00) and are exempt from value-added tax
(VAT) under Section 109 (BB) of the National Internal Revenue Code, as
amended by Republic Act (RA) No. 10963.
2. Persons who lease residential units where the monthly rental per unit
exceeds fifteen thousand pesos (Php15,000.00) but the aggregate of such
rentals of the lessor during the year does not exceed three million pesos
(Php3,000,000.00)
3. Persons engaged in the following industries/transactions:
a. Cars for rent or hire driven by the lessee, transportation contractors,
including persons who transport passengers for hire, and other
domestic carriers by land for the transport of passengers (except
owners of bancas and owners of animal-drawn two-wheeled vehicle)
and keepers of garages
b. International air/shipping carriers doing business in the Philippines
on their gross receipts derived from transport of cargo from the
Philippines to another country
c. Franchise grantees of – 
 i. radio and/or television broadcasting companies whose annual
gross receipts for the preceding year do not exceed Php
10,000,000.00 and did not opt to register as VAT taxpayers,
and
ii. gas and water utilities.
d. Overseas dispatch, message or conversation transmitted from the
Philippines by telephone, telegraph, tele-writer exchange, wireless
and other communication equipment services, except those
transmitted by:

i. The Philippine Government or any of its political subdivisions

or instrumentalities;
ii. Diplomatic services;
iii. Public international organizations or any of their agencies
based in the Philippines enjoying privileges, exemptions and
immunities which the Philippine Government is committed to
recognize pursuant to international agreement; and
iv. News services for messages which deal exclusively with the
collection of news items for, or the dissemination of news item
through, public press, radio or television broadcasting or a
newsticker service furnishing a general news service similar to
that of the public press.
e. Banks, non-bank financial intermediaries performing quasi-banking
functions
f. Other non-bank financial intermediaries (including pawnshops as
clarified under Revenue Regulations [RR] No. 10 – 2004)
g. Person, company or corporation (except purely cooperative
companies or associations) doing life insurance business in the
Philippines
h. Fire, marine or miscellaneous agents of foreign insurance companies
i. Proprietor, lessee or operator of cockpits, cabarets, night or day
clubs, boxing exhibitions, professional basketball games, Jai-Alai and
racetracks, including videoke bars, karaoke bars, karaoke televisions,
karaoke boxes and music lounges as clarified under Revenue
Memorandum Circular (RMC) No. 18 – 2010
j. Winnings or 'dividends' in horse races
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