VALUE-ADDED

TAX
Business Tax

by: Jeser P. Javier

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.
 generally, services rendered in the Philippines by a non-resident foreign person shall be
considered as being rendered in the course of trade or business even if the performance of
service is not regular
 Any business or business pursued by an individual where the aggregate gross sale or
receipts do not exceed P100,000 during any 12-month period shall be considered
principally for subsistence or livelihood and not in the course of business.

by: Jeser P. Javier

Scope of VAT

■ Sale, barter or exchange of goods and properties in the course of trade or business
■ Sale of services or similar transactions in the course of trade or business
■ Lease of goods and properties, or similar transactions, in the course of trade or business
■ Importation of goods, whether in the course of trade or business or not

by: Jeser P. Javier

 Value-added Tax Rates

■ On sale of goods
and properties, on
sale of services
and use or lease of
properties and on
importation of
goods : 12%
■ On export sales
and other zero-
rated sales
■ VAT Exempt

by: Jeser P. Javier

Computation of VAT Payable

■ VAT Payable = Output VAT – Input VAT

– Output VAT
■ VAT on Actual Sales
■ VAT on Transaction deemed sales
■ VAT on sale of real property on deferred payment

– Input VAT
■ VAT on actual Purchases
■ Transitional Input
■ Presumptive Input

by: Jeser P. Javier

Transactions 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.
■ 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
■ Consignment of goods if actual sale is not made within sixty (60) days [however, if returned, it is
no to be considered} following the date such goods were consigned. Consigned goods returned by
the consignee within the 60-day period are not deemed sold;
■ 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

by: Jeser P. Javier

VAT Zero-rated
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 goods, supplies, equipment and fuel to 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

by: Jeser P. Javier

VAT Zero-rated
3. 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);
4. 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;
 Asian Development Bank (ADB)
 International Rice Research Institute (IRRI)
 United Nation (i.e. UNICEF/WHO)
 US Agency for International Development (USAID) and its personnel and contractors
 Embassies, employees and dependents (subject to reciprocity)
 Red Cross
 PAGCOR

by: Jeser P. Javier

VAT Zero-rated
■ Export services of a VAT registered person
5. 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);
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

by: Jeser P. Javier

VAT Zero-rated
■ Export services of a VAT registered person
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. Sale to PEZA registered entities *** Status Quo, but was repealed under TRAIN law***

by: Jeser P. Javier

VAT Exempt Transactions
■ 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;
– ORIGINAL STATE - unprocessed; Even if they have undergone the simple process of
preparation or preservation for the market including technological means of packaging.
However, BIR considered that marinating or the process of mixing with ingredients or
flavorings as state of flavorings.

■ 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);

by: Jeser P. Javier

VAT Exempt Transactions
■ 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;
■ 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.
by: Jeser P. Javier
VAT Exempt Transactions

■ Services subject to percentage tax under Title V of the Tax Code, as amended;
■ Services by agricultural contract growers and milling for others of palay into rice, corn
into grits, and sugar cane into raw sugar;
■ Medical, dental, hospital and veterinary services except those rendered by professionals;
■ 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;

by: Jeser P. Javier

VAT Exempt Transactions

■ Services rendered by individuals pursuant to an employer-employee relationship;

■ 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;
– Regional or Area HQ (RHQ) vs. Regional OPERATING HQ (ROHQ) : RHQ is an
integral part of the multinational corporation and does not derive income on its own, while
ROHQ is a business entity allowed to derive income
■ 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;

by: Jeser P. Javier

VAT Exempt Transactions

■ 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;
■ Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered and in good standing with the Cooperative Development Authority;
■ 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;

by: Jeser P. Javier

VAT Exempt Transactions
■ Export sales by persons who are not VAT-registered;
■ The following sales of real properties:
– Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of
trade or business.
– 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;
– 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;
– 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.)

by: Jeser P. Javier

VAT Exempt Transactions

■ 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);
■ 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;
■ Transport of passengers by international carriers;

by: Jeser P. Javier

VAT Exempt Transactions

■ Sale, importation or lease of passenger 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
Maritime Industry Authority (MARINA);
■ 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;

by: Jeser P. Javier

VAT Exempt Transactions

■ 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
■ 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;
■ Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the
Tax Code, as amended);

by: Jeser P. Javier

VAT Exempt Transactions

■ 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;
■ Sale of gold to the Banko Sentral ng Pilipinas (BSP) (previously zero-rated
transaction);
■ 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

by: Jeser P. Javier

VAT Exempt Transactions

■ 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.

by: Jeser P. Javier

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)
■ 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)

by: Jeser P. Javier

Who are required to file VAT Return?

■ 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

by: Jeser P. Javier