VALUE-ADDED TAX to as overseas Filipinos, in quantities and of the class
suitable to the profession, rank or position of the persons
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
I. Transactions exempt from VAT
1. 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 therefor;
(Products classified under this paragraph shall be
considered in their original state even if they have
undergone the simple processes of preparation or
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping. Polished
and/or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt and copra shall be considered in
their original state,)
2. 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);
3. 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;
4. 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
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. Provided, further, That the vehicles, vessels,
aircrafts, machineries and other similar goods for use in
manufacture, shall not fall within this classification and
shall therefore be subject to duties, taxes and other
charges;
5. Services subject to percentage tax under Title V of the Tax
Code, as amended;
6. Services by agricultural contract growers and milling for
others of palay into rice, corn into grits, and sugar cane
into raw sugar;
7. Medical, dental, hospital and veterinary services except
those rendered by professionals;
8. 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;
9. Services rendered by individuals pursuant to an employer-
employee relationship;
10. 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;
11. 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;
12. 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;
13. Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered and in good standing
with the Cooperative Development Authority;
14. 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;
15. Export sales by persons who are not VAT-registered;
16. The following sales of real properties:
a) Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of
trade or business.
b) 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;
c) 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;
d) 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.)
17. 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);
18. 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;
19. Transport of passengers by international carriers;
20. 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);
21. 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;
22. 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
23. 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;
24. Transfer of property in merger or consolidation (pursuant
to Section 40(C)(2) of the Tax Code, as amended);
25. 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;
26. Sale of gold to the Banko Sentral ng Pilipinas (BSP)
(previously zero-rated transaction);
27. 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
28. 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.
II. Transactions deemed sale
1. 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;
2. Distribution or transfer to:
 Shareholders or investors as share in the profits of the
VAT-registered person; or
 Creditors in payment of debt or obligation
3. 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;
4. 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, 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";
 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
 Dissolution of a partnership and creation of a new
partnership which takes over the business.
III. Zero-rated sales of good/services
The following services performed in the Philippines by VAT-
registered person shall be subject to zero percent (0%) rate:
1. 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);
2. 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);
3. 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;
4. 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);
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;
6. 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
7. 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.
8. VETOED BY THE PRESIDENT
9. Services rendered to offshore gaming licensees subject to
gaming tax under Section 125-A of this Code by service
providers, including accredited service providers as
defined in Section 27 (G) of this Code.
The following sales by VAT-registered persons shall be subject
to zero percent (0%) rate:
1. Export sales
a) 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);
materials and supplies equivalent to two percent (2%) of the
value of such inventory or the actual value-added tax paid on
such goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax.

b) 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;
c) The sale of raw materials or packaging materials to an
export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production;
V. Presumptive input VAT
Presumptive Input Tax Credits. - Persons or firms engaged in
the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil, shall be allowed
a presumptive input tax, creditable against the output tax,
equivalent to four percent (4%) of the gross value in money of
their purchases of primary agricultural products which are used
as inputs to their production.

d) Transactions considered export sales under Executive As used in this Subsection, the term 'processing' shall mean
Order No. 226, otherwise known as the Omnibus pasteurization, canning and activities which through physical
Investments Code of 1987, and other special laws; or chemical process alter the exterior texture or form or inner
and substance of a product in such manner as to prepare it for
special use to which it could not have been put in its original
e) The sale of goods, supplies, equipment and fuel to form or condition.
persons engaged in international shipping or
international air transport operations; Provided, That
the goods, supplies, 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.

2. 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.

IV. Transitional input VAT

Transitional Input Tax Credits - A person who becomes liable

to value-added tax or any person who elects to be a VAT-
registered person shall, subject to the filing of an inventory
according to rules and regulations prescribed by the Secretary
of finance, upon recommendation of the Commissioner, be
allowed input tax on his beginning inventory of goods,