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Value Added Tax

VAT
A tax on the value added by every seller to the purchase price
or cost in the

• sale or lease of goods, property in the ordinary course of

trade or business; or

• sale of services in the ordinary course of trade or business;

as well as on

• importation of goods into the Philippines whether for

personal or business use.

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VAT in an Illustration

VALUE-ADDED

SALES/
RECEIPTS
COST/
PURCHASE PRICE

VAT EXEMPT SALES

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 therefor.

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VAT EXEMPT SALES

In original state:
• Unprocessed state; and
• Even if they have undergone SIMPLE processes of preparation or
preservation for the market;
• Freezing
• Drying
• Salting
• Broiling
• Roasting
• Smoking
• Stripping

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VAT EXEMPT SALES

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).

VAT EXEMPT SALES

C. Importation of personal and household
effects belonging to:
• the residents of the Philippines returning
from abroad
• non-resident citizens coming to resettle
in the Philippines
(Provided that such goods are exempt from customs duties under the
Tariff and Customs code of the Philippines)

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VAT EXEMPT SALES

D. Importation of professional instruments and implements,
tools of trade, occupation or employment, wearing apparel,
domestic animals, and personal and household effects
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 herein
referred to as overseas Filipinos, in quantities and of the class
suitable to the profession, rank or position of thepersons
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 satisfactory evidence that such persons are
actually coming to settle in the Philippines and that the
goods are brought from their former place of
abode, exempt such goods from payment of duties
and taxes: Provided, further, vehicles, vessels, aircrafts,
machineries and other similar goods for use in manufacture
shall not fall within this classififcation and shall therefore be
subject to duties, taxes and other charges.

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VAT EXEMPT SALES

E. Services subject to Percentage Tax under Title V of the Tax
Code (Sections 116-127 of the Tax Code). BICAPFLOW

F. Services by
a) “Agricultural contract growers” and
b) Milling for others of:
• Palay into rice
• Corn into grits; and
• Sugar cane into raw sugar

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VAT EXEMPT SALES

G. Medical, dental, hospital and veterinary services except those
rendered by professionals.

H. Educational services rendered by private educational

institutions, duly accredited by Department of Education
(DepEd), the Commission on Higher Education (CHED), the
Technical and Skills Development Authority (TESDA) and those
rendered by government educational institutions.

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VAT EXEMPT SALES

I. Services rendered by individuals pursuant to an employee-
employer relationship.

J. Services rendered by Regional or Area Headquarters (RHQs)

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.

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VAT EXEMPT SALES

K. Transactions which are exempt under the international
agreements to which the Philippines is a signatory or under the
special laws, except those under Presidential Decree No. 529
(Petroleum Exploration Concessionaries under the Petroleum
Act of 1949)
• Examples (Special Laws):
§ PD 1869 - PAGCOR Charter
§ RA 9367 - Biofuels Act
§ RA 10072 - Philippine Red Corss
§ RA 9994 - Expanded Senior Citizens Act of 2010
§ RA 10754 - Magna Carta for PWDs
§ RA 11861 - Solo Parent Law

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VAT EXEMPT SALES

L. Sale by agricultural cooperatives duly registered with the
Cooperative Development Authority to their members as well as
sale 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 product.

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VAT EXEMPT SALES

SALE BY AGRICULTURAL COOPERATIVES TO MEMBERS TO NON-
MEMBERS
Sale of cooperative’s own produce Exempt Exempt
(processed or at its original state)

Other than the cooperative’s own produce Exempt VAT*

(i.e. from “traders”)

*Exempt if referring to agricultural products at its original state.

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VAT EXEMPT SALES

M. Gross receipts from “lending activities” by credit or multi-
purpose cooperatives duly registered with the Cooperative
Development Authority”. Exemption is not only limited to the
gross receipts on loans extended to its members but also to
other persons who are not members.

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VAT EXEMPT SALES

N. Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative Development
Authority (CDA), provided that the share capital contribution of
each member does not exceed fifteen thousand pesos (P
15,000) and regardless of the aggregate capital and net surplus
ratably distributed among the members. (OTHER
COOPERATIVES)

Importation by non-agricultural, non-electric, and non-credit

cooperatives of machineries and equipment including spare
parts thereof, to be used by them are subject to VAT.

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VAT EXEMPT SALES

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VAT EXEMPT SALES

O. “Export sales” by persons who are not VAT registered.

Export sales may be exempt or subject to VAT as shown in the

figure below:

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VAT EXEMPT SALES

P. The TRAIN Law provides that the vat exemption on sale of real
property beginning January 1, 2021 shall only apply to the
following :

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 property utilized for “socialized housing” as
defined under Republic Act No. 7279, as amended;
c. Sale of House and Lot and other Residential dwellings with
selling price not more than P3,199,200.

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VAT EXEMPT SALES

Q. Lease of Residential Unit
• Lease of a residential unit with a monthly rental per unit not
exceeding fifteen thousand pesos (P15,000) regardless of the
amount of aggregated rentals received by the lessor during the
year (RR 16-2011; RR 13-2018).
• Lease of residential units where the monthly rental per unit
exceeds P 15,000 but the aggregate such rentals of the lessor
during the year do not exceed P 3,000,000 shall likewise be
exempt from VAT, however, the same shall be subject to
percentage tax under Section 116 of the Tax Code as amended
(RR-16-2011: RR 13-2018)

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VAT EXEMPT SALES

Q. Lease of Residential Unit

• In cases where a lessor has several residential units for lease, some
are leased out for a monthly rental per unit of not exceeding P 15,000
(as amended) while others are leased out for more than P 15,000 per
unit, his taxability will be:

a) The gross receipts from rentals not exceeding P 15,000 per month
per unit shall be exempt from VAT regardless of the aggregate
annual gross receipts.

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VAT EXEMPT SALES

Q. Lease of Residential Unit

b) The gross receipts from rentals exceeding P 15,000 per month per
unit shall be subject to VAT if the annual gross receipts exceed
P3,000,000 as amended, from said units only – not including the
gross receipts from units leased out for not more than P 15,000.
Otherwise, the gross receipts shall be subject to percentage tax
under Section 116 of the tax Code ( RR 16-2011; RR 13-2018).

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VAT EXEMPT SALES

R. (As amended under CREATE Law): Sale, importation, printing or
publication of books and any newspaper, magazine, journal,
review bulletin, or any such Educational reading material
covered by the United Nations Educational, Scientifc and
cultural Organization (UNESCO) Agreement on the importation
of educational, scientific ad cultural materials, including digital or
elecronic format thereof.

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VAT EXEMPT SALES

S. Transport of passengers by international carriers doing business in
the Philippines.

T. Sale, importation or lease of passengers or cargo vessels and

aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations, 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 MARINA (RR 15-2015; RR 13-2018)

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VAT EXEMPT SALES

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 banks, non-banks financial intermediaries performing

quasi-banking functions and other non-bank financial
intermediaries such as money changers and pawnshops, subject
to percentage tax under Section 121 and 122, respectively of the
Tax Code.

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VAT EXEMPT SALES

W. Sale or lease of goods and services to senior citizens and persons
with disabilities, a provided under RA No. 9994 (Expanded Senior
Citizens Act of 2010) and RA No. 10754 (An Act Expanding the
Benefits and Privileges of Persons with Disability (PWD),
respectively.

X. Transfer of property pursuant to Section 40 (C)(2) of the Tax Code,

as amended (Upon effectivity of RA10963-TRAIN Law only, new
provision).

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VAT EXEMPT SALES

Y. Association dues, membership fees and other assessments and
charges collected on purely reimbursement basis by homeowners
associations and condominium corporations established under RA
No. 9904 (Magna Carta for Homeowners’ and Homeowners
Association) and RA No. 4726 (Condominium Act), respectively.
This provision shall take effect only beginning January 1, 2018 or
upon the effectivity of RA No. 10963- TRAIN Law (New provision).

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VAT EXEMPT SALES

Z. Sale of Gold to Bangko Sentral ng Pilipinas (Beginning January 1,
2018 or upon the effectivity of RA10963-TRAIN LAw. It is subject to
0% vat prior to 2018.

AA. Sale or importation of prescription drugs and medicines

prescribed for diabetes, high cholesterol and hypertension
beginning January 1, 2020 and cancer, mental illness, tuberculosis
and kidney diseases beginning January 1, 2021 (CREATE Law;
RR 4-2021).

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VAT EXEMPT SALES

BB. Sale or importation of the following beginning January 1, 2021 to
December 31, 2021:

i. Capital Equipment, its spare parts and raw materials,

necessary for the production of personal protective equipment
(PPE) components such as coveralls, gown, surgical cap,
surgical mask, n-95 mask, scrub suits, goggles and face shield,
double or surgical gloves, dedicated shoes, and shoe covers,
for COVID-19 prevention.

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VAT EXEMPT SALES

BB. Sale or importation of the following beginning January 1, 2021 to
December 31, 2021:

ii. All drugs, vaccines and medical devices specifically prescribed

and directly used for the treatment of COVID-19

iii. Drugs for the treatment of COVID-19 approved by the Food and
Drug administration (FDA) for use in clinical trials, incluing raw
materials directly necessary for the production of such drugs.

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VAT EXEMPT SALES

CC. 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 gross receipts do not
exceed the amount of P 3,000,000.

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Value Added
Tax
COMPUTATION OF VAT PAYABLE

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COMPUTATION OF VAT PAYABLE

The corresponding liabilty on value added tax is generally

computed as follows:

Output Vat (Gross Sales or Gross Receipts x 12% or 0% ) Pxx

Less: Input VAt (Gross Purchases or Payments x 12%) (xx)
Vat Payable (Excess over input vat) Pxx

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

• Actual Sale (Domestic sales)

• Transaction deemed sales
• Zero (0%) rated sales (Export sales)

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

• Actual Sale (Domestic sales)

Ø Sales where there are actual exchanges between
buyers and a seller in the ordinary course of trade or
business including transactions incidental thereto, by
any person, shall be subject to 12% vat, unless exempt
under the law.

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

1. Actual Sale (Domestic sales)

• Basis of 12% OUTPUT VAT
Ø Sale of goods - Gross selling price
Ø Sale of services - Gross receipts
Ø Sale of securities - Gross income
Ø Sale of real properties - Gross selling price or fair
value whichever is higher.

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

2. Transaction deemed sales

Ø Under section 106(B) of the Tax code, certain
transactions which are not actually sales because of the
absence of actual exchange between the buyer and the
seller, are considered or included in the term sale” for
value added tax purposes.

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

2. Transaction deemed sales

Ø the input VAT was already used by the seller as a credit
against the output VAT
Ø since there was no actual sale, no output VAT is actually
charged to customers

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

2. Transaction deemed sales

Output Vat (Vat on Sales of Goods, services, lease of properties, etc. ) Pxx
Less: Input VAt (Vat on Purchase of Goods, services, lease of properties, etc. ) (xx)
Vat Payable Pxx

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

• Transactions considered as deemed sale:
a) Transfer, use or consumption not in the ordinary course of
business of goods or properties ordinarily intended for sale or
use in the course of business.
b) Distribution or transfer to:
• shareholder or investors as share in the profits of a VAT
registered person
• Distribution or transfer to creditors in payment of debt of
obligation
• BASIS: Market Value
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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

• Transactions considered as deemed sale:
c) Consignment of goods if actual sale is not made within sixty
(60) days followingthe date such goods were consigned.
Goods returned within the 60 day period are not deemed sold.

d) Retirement from or cessation of status as VAT registered

person with respect to all "goods on hand" whether or not the
business is continued by the new owner or successor.

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

• VAT (transaction deemed sale) shall not be imposed
on goods or properties existing as of the occurence of
the ff:
a) Change of control of a corporation by the acquisition of
the controlling interest of such corporation by another
stockholder or group of stockholders
b) Change in the trade or corporate name of the taxpaper
c) Merger or consolidation of corporations

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

3. Zero Rated Sales (0% VAT)
v Export Sale by a VAT registered entity
Ø A "zero rated sale" of goods, properties and/or
services by a vat registered person is a taxable
transaction for VAT purposes, but shall not result in
any output tax.However, the input tax on purchases
of goods, properties and/or services related to such
zero-rated sale, shall be available as tax credit or
refund in accordance with existing reguations.
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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

3. Zero Rated Sales (0% VAT)
v Purpose of Zero-Rating
Ø The zero rated seller becomes internationally
competitive by allowing the fund or credit of input
taxes that are attributable to export sales.

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

3. Zero Rated Sales (0% VAT)
v Rationale for Zero Rating of Export Sales:
Ø The Philippine vat system adheres to the “Cross
Border Doctrine” (Also known as destination
principle), according to which, no VAT shall be
imposed to form part of the cost of the goods
destined for consumption outside of the territorial
border of the taxing authority.

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

3. Zero Rated Sales (0% VAT)

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

3. Zero Rated Sales (0% VAT)
v *** Refund of input vat on zero rated (0%) sale
• A vat registered person whose sales of goods,
properties or services are zero rated or effectively
zero rated may apply for the issuance of a tax
refund of input vat attributableon such sales.
• Filed within two (2) years after the close of the
taxable quarter when such sales were made.

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

3. Zero Rated Sales (0% VAT)
v Export Sale by a NON-VAT registered entity
Ø vat exempt transaction
q refers to sale of goods, properties or services or
the use or lease of properties that is not subject
to VAT (output tax) and the seller/supplier is not
allowed any tax credit of VAT (input tax) on
purchases related to such exempt transaction.

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COMPUTATION OF VAT PAYABLE

SOURCES OF OUTPUT VAT:

3. Zero Rated Sales (0% VAT)
v Export Sale by a NON-VAT registered entity

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Value Added Tax

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