VALUE-ADDED TAX (VAT)

NATURE:

1. It is a business tax imposed and collected on every

a. sale, barter, or exchange of goods or properties (real or personal)
b. lease of goods or properties (real or personal) or
c. rendition of services, all in the course of trade or business*
d. importation of goods (whether or not in the course of trade or business). It
is an indirect tax, thus, it can be shifted or passed on to the buyer,
transferee or lessee of goods, properties or services (Sec. 105, NIRC).

*In the course of trade or business means the regular conduct or pursuit of a
commercial or economic activity, including transactions incidental thereto, by
any persons regardless of whether or not the person engaged therein is a non-
stock, non-profit private organization** (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests), or
government entity. (Sec.105, NIRC). Includes incidental transactions. This is also
referred to as the Rule of Regularity.

**Profit element not required for VAT to be imposed. As held in the case
of CIR v. COMASERCO, March 30, 2000, VAT is a tax on transactions
imposed at every stage of the distribution process on the sale, barter,
exchange of goods or property, and on the performance of services,
Nature and even in the absence of profit attributable thereto . The term “in the
characteristics course of trade or business” applies to all transactions. Even a nonstock,
non-profit corporation or government entity is liable to pay VAT for the
sale of goods and services.

Conditions in the “ordinary course of business” (CR)

 Commercial or economic activity which implies that a transaction is
conducted for profit; and
 Regularity or habituality in the action - Regularity involves more
than one isolated transaction and involves repetition and continuity of
action (Ingles, 2015).

Exceptions to Rule of Regularity:

a. Non-resident alien who perform services in the Philippines are deemed to
be making sales in the course of trade or business, even if the performance
of services is not regular (Sec. 4.105-3, RR 16-2005).

b. Importations are subject to VAT whether in the course of trade or business

or not.

c. Any business where the gross sales or receipts do not exceed P100,000
during the 12-month period shall be considered principally for subsistence
or livelihood and not in the course of trade or business.

2. 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. The seller is the one statutorily liable for the payment of the tax
but the amount of the tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services. This rule shall likewise apply to
 existing contracts of sale or lease of goods, properties or services at the time of
the effectivity of RA No. 9337. However, in the case of importation, the importer
is the one liable for the VAT (RR 16-05).

Sources
VAT is a tax on regular sale or consumption levied on the following: (BELIS2)
 Barter
 Exchange
 Lease
 Importation
 Sales
 Services

Advantage (PESH)
1. Promote savings
2. Economic growth
3. Simplified tax administration
4. Higher governmental revenues (Quicknotes on Taxation by J. De Vera)

CHARACTERISTICS:

a. Tax on value-added
- It is a tax on value added of a taxpayer arising from the sales of goods,
Nature and properties or services during the quarter. “Value added” is the difference
characteristics between the total sales of the taxpayer for the taxable quarter subject to
VAT and his total purchases for the same period subject also to value
added tax (Mamalateo, 2014).

b. Sales tax
- VAT is a tax on the taxable sale, barter or exchange of goods, properties or
services. A barter or exchange has the same tax consequence as a sale. A
sale may be an actual or deemed sale, or an export sale or local sale
(Mamalateo, 2014). The buyer is informed that the price includes VAT and
the computation is shown in the official receipt/sales invoice.

c. Tax on consumption
- It is broad-based tax on consumption because every sale of goods,
properties or services at the levels of manufacturers or producers and
distributors is subject to VAT. However, the tax burden rests on the final
consumers (Mamalateo, 2014).

d. Indirect tax: impact and incidence of tax

- Tax shifting is always presumed. It may be shifted or passed on to the
buyers, transferee, or lessee of the goods, properties or services as part of
the purchase price.
- The amount of VAT payable may be passed on by the seller, transferor, or
lessor to the buyer, transferee or lessee. When passed on, the amount of
VAT due forms part of the purchase price of goods or services. As a result, it
is the buyer who bears the burden of tax, although the one liable to pay it is
the seller.
 In the case of Contex v. CIR, GR No. 151135, July 2, 2004:
The VAT, thus, forms a substantial portion of consumer expenditures
as part of the cost of goods or services purchased. What is transferred in
such instances is not the liability for the tax, but the tax burden. In adding
or including the VAT due to the selling price, the seller remains the person
primarily and legally liable for the payment of the tax. What is shifted only
to the intermediate buyer and ultimately to the final purchaser is the
burden of the tax.

Impact (Liability) Incidence (Burden)

The one statutorily liable for the The one who bears the economic
payment of tax, thus, the one who burden (payment) of tax (VAT), the
can avail of a tax refund. place at which the tax comes to
rest.

The seller upon whom the tax has The tax is shifted to the final
been imposed. He collects the tax consumer or the buyer of the
and pays it to the government. goods, properties, or services as
part of the purchase price.

In the case of CIR v. Seagate Technology, G.R. No. 153866, February

11, 2005:
If a special law merely exempts a party as a seller from its direct
Nature and liability for payment of the VAT, but does not relieve the same party as a
characteristics purchaser from its indirect burden of the VAT shifted to it by its VAT-
registered suppliers, the purchase transaction is not exempt. It is because
VAT is a tax on consumption, the amount of which may be shifted or
passed on by the seller to the purchaser of the goods, properties or
services.

e. Tax credit method

- It is collected through the tax credit method or invoice method. The input
taxes shifted by the sellers to the buyer are credited against the buyer’s
output taxes when he in turn sells the taxable goods, properties or services
(Sec. 105 and 110 [A], NIRC). This is also called as Invoice Method.

In the case of CIR v. Seagate, G.R. No. 153866, Feb. 11, 2005:
The input tax shifted by the seller to the buyer is credited or
deducted against the buyer’s output taxes when he in turn sells the taxable
goods, properties or services. Under the VAT method of taxation, which is
invoice based, an entity can subtract from the VAT charged on its sales or
outputs the VAT it paid on its purchases, inputs and imports.

Formula:
Output tax xx
Less: Input tax xx
Net VAT Payable or Excess Input Tax xx

Net VAT Payable = Output tax > Input tax

Excess Input tax = Output tax < Input tax
 f. Destination principle and cross-border doctrine
- Goods and services are taxed only in the country where they are consumed.
Thus, exports are zero-rated, while imports are taxed.
- In connection with the said principle, the Cross Border Doctrine mandates
that NO VAT shall be imposed to form part of the cost of the goods
destined for consumption OUTSIDE the territorial border of the taxing
authority. Thus, exports are zero-rated, while imports are taxed.

In the case of Atlas Consolidated Mining and Development

Corporation v. CIR, G.R. No. 141104 & 148763, June 8, 2007:
Export processing zones are to be managed as a separate customs
territory from the rest of the Philippines and, thus, for tax purposes, are
effectively considered as foreign territory. For this reason, sales by persons
from the Philippine Customs Territory to those inside the export processing
zones are already taxed as exports.

Exception to Destination Principle

Zero percent VAT rate for services that are performed in the
Philippines, "paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP.

g. Ad valorem tax
- The amount is based on the gross selling price or gross value in money of
the goods or properties sold, bartered or exchanged or on the gross
receipts derived from the sale or exchange of services, including the use or
lease of properties.

h. National tax
i. Revenue or general tax

In general:
1. Any person who, in the course of trade or business:
a. sells, barters, exchanges or leases goods or properties, or
b. renders services; and
2. Any person who imports goods, whether or not made in the course of his trade
or business

NOTE: In importation, it shall be the importer who shall pay VAT upon release of
the goods from the customs territory. This is an exception to the general rule
requiring a sale before VAT shall be incurred.
Persons liable to VAT
3. Non-resident persons even if the performance of services is not regular.

Definition of terms:
 Person - refers to any individual, trust, estate, partnership, corporation, joint
venture, cooperative or association.
 Taxable person - refers to any person liable for the payment of VAT, whether
registered or registrable in accordance with Sec. 236 of the NIRC.
 VAT Registered person - refers to any person who is registered as a VAT
taxpayer under Sec. 236 of the NIRC. His status as a VAT-registered person shall
 continue until the cancellation of such registration (RR 16-05).

Special considerations to the following persons:

1. Husband and wife – for VAT purposes, shall be treated as separate taxpayers.
2. Joint ventures – although exempt from income tax, is liable to value added tax.
3. Government – subject to VAT if they sell goods, properties or services in the
course of trade or business or when they perform proprietary functions. In case
of transactions essential for governmental functions, such are exempt from VAT.
4. Non-stock, non-profit association – generally, receipts from association dues or
special assessments from members is not subject to VAT.

However, the moment the non-stock, non-profit association engages in any

taxable sale of goods or services, it is liable to VAT where the amount of its
gross sales and/or gross receipts exceeds P3,000,000, or subject to the 3%
percentage tax, if gross sales and/or gross receipts is P3,000,000 or less.

Persons NOT LIABLE to pay VAT:

1. A Non-VAT registered person whose annual gross sales or receipts do not
exceed P3,000,000 shall not be liable to VAT, instead, he shall be liable for 3%
percentage tax (Sec. 116, NIRC).
2. An individual who is a Marginal Income Earner (MIE) not deriving compensation
as employee under an Er-Ee relationship, self-employed and deriving gross sales
or receipts not exceeding P100,000 in any 12-month period, and where the
activities of such MIE is principally for subsistence or livelihood, he shall be
exempted from payment of VAT or any OPT (RMC No. 7- 2014).
Persons liable to VAT
3. In transactions subject to VAT but became not subject from VAT because his
annual gross sales do not exceed P3,000,000 (Sec. 109(1)(V), NIRC). Though not
subject from VAT, he shall pay percentage tax under Section 116.

He should register as a non-VAT taxpayer unless he opts to become VAT

registered under Section 109(2) of NIRC.

NOTE: A VAT-registered person, regardless whether his gross sales or gross

receipts exceeds P3,000,000 or not, shall be liable for VAT. Once VAT-registered,
he shall be liable for VAT on sale of goods or services, regardless of the amount.
If a person is VAT-registered, his gross sales or gross receipt shall always be
subject to VAT whether or not it exceeds the P3,000,000 threshold, unless he
cancels his registration.

Any person who is not required to register for VAT (those whose annual
VATable gross sales or gross receipts do not exceed P3,000,000) may elect to
register for VAT by registering with the Revenue District Office that has a
jurisdiction over the head office of that person. Any person who elects to
register based on the above provision shall not be entitled to cancel his
registration for the next three (3) years. (Sec. 236(H), NIRC)

4. In VAT-exempt transactions under Section 109(1) (A) to (V) of NIRC, regardless

of their annual gross sales.

Normal VAT transactions subject to 12%

Imposition of VAT Nature of transaction Tax base
Sale of goods or properties Gross Selling Price
 Importation of goods Total landed cost
Sale of services and use or lease Gross receipts
of properties

VAT ON SALE OF GOODS OR PROPERTIES (Sec.106(A), NIRC)

VAT is imposed and collected on

1. every sale, barter or exchange, or
2. transactions "deemed sale"

of taxable goods* or properties** at the rate of 12% of the gross selling price or
gross value in money of the goods or properties sold, bartered, or exchanged,
or deemed sold in the Philippines (R.R. 16-2005).

*Goods include all tangible and intangible objects which are capable
of pecuniary estimation.
**Properties include anything capable of appropriation, whether it is personal or
real.

NOTE: Transfer of property without valuable consideration (e.g. gift) is exempt

from VAT (Mamalateo, 2014).

TAX BASE: GROSS SELLING PRICE

Imposition of VAT The total amount of money or its equivalent which the purchaser pays or
is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding VAT. The excise tax, if
any, on such goods or properties shall form part of the gross selling price.

Simply stated, it is the total amount of money or its equivalent plus excise

tax. (Quicknotes on Taxation by J. De Vera)

In the case of sale, barter or exchange of real property subject to VAT,

gross selling price shall mean the consideration stated in the sales
document or the fair market value*, whichever is higher. If the VAT is not
billed separately in the document of sale, the selling price or the
consideration stated therein shall be deemed to be inclusive of VAT. (Sec.
4, RR 4-2007)

*Fair market value shall mean whichever is higher of:

a. The fair market value as determined by the Commissioner (zonal value),
or
b. The fair market value as shown in schedule of values of the Provincial
and City Assessors (real property tax declaration).

However, in the absence of zonal value, gross selling price refers to the
market value shown in the latest real property tax declaration or the
consideration, whichever is higher. If the gross selling price is based on
the zonal value or market value of the property, the zonal or market value
shall be deemed inclusive of VAT. If the VAT is not billed separately, the
selling price stated in the sales document shall be deemed to be inclusive
of VAT.
 Allowable deductions from gross selling price

In computing the taxable base during the month or quarter, the following shall be
allowed as deductions from gross selling price:

a. Discounts - determined and granted at the time of sale, - which are expressly
indicated in the invoice, - the amount thereof forming part of the gross sales
duly recorded in the books of accounts, - the grant of which is not dependent
upon the happening of a future event
b. Sales returns and allowances for which a proper credit or refund was made
during the month or quarter to the buyer for sales previously recorded as
taxable sales (R.R. 16- 2005).

NOTE: Senior citizens are entitled to a 20% discount under R.A. 9257 or the
Expanded Senior Citizens Act of 2003. The tax base thereof shall be the net sales
after the deducting the 20% discount without requiring the indication of buyer-
senior citzen’s TIN (RR No. 1-2007).

ELEMENTS
SALE OF GOODS AND PERSONAL SALE OR EXCHANGE OF REAL
Imposition of VAT PROPERTIES PROPERTY

1. There is an actual or deemed 1. the seller executes a deed of

sale, barter or exchange of
goods or personal properties
for valuable consideration;
2. Undertaken in the course of
trade or business;
3. For use or consumption in the
Philippines; and
4. Not exempt from VAT under
Section 109 of NIRC, special law
or international agreement
binding upon the government
of the Philippines
NOTE: Absence of any of the above
requisites exempts the transaction from
VAT. However, percentage taxes may
apply (Sec. 116, NIRC).
sale, including dacion en pago,
barter or exchange, assignment,
transfer, or conveyance, or
merely contracts to sell
involving real property;
2. The real property is located
within the Philippines;
3. The seller or transferor is
engaged in real estate business
either as a real estate dealer,
developer, or lessor;
4. The real property is an ordinary
asset held primarily for sale or
for lease in the ordinary course
of business;
5. The sale is not exempt from VAT
under Section 109 of NIRC,
special law, or international
agreement binding upon the
government of the Philippines;
6. The threshold amount set by
law should be met.

NOTE: Absence of any of the above

requisites exempts the transaction from
VAT. However, percentage taxes may
apply under Section 116 of NIRC.
 Goods or properties
It refers to all tangible and intangible objects which are capable of pecuniary
estimation and shall include, among others:
1. Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business;
2. The right or the privilege to use patent, copyright, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like
property or right;
3. The right or the privilege to use any industrial commercial or scientific
equipment;
4. The right or the privilege to use motion picture films, films, tapes and discs;
5. Radio, television, satellite transmission and cable television time.

Note:
 The list is NOT exclusive.
 The VAT accrues upon the consummation of sale of goods or
properties, regardless of the terms of payment between the
contracting parties (Sec. 106 in relation to Secs. 113 and 237 of
NIRC). Thus as soon as the seller issues a VAT invoice, whether the
sale is for cash or on credit, he becomes liable to VAT on such sale
Imposition of VAT
(Mamalateo, 2014).

Sale of Real Properties

Those held primarily for sale to customers or held for lease in the ordinary course of
trade or business of the seller shall be subject to VAT.

NOTE: It is only the sale of real properties primarily held for sale to customers or
held for lease in the ordinary course of trade or business of the seller which shall be
subject to VAT. As such, transactions involving real properties held as capital asset of
individuals are not subject to VAT. However, it may give rise to capital gains tax
liability.

Transaction Treatment
Real properties held primarily for sale to customers, in 12% VAT
general
Residential lot with gross selling price exceeding 12% VAT
P1,500,000 (seller is a real estate dealer or developer)
Residential lot with gross selling price not exceeding VAT-exempt, not subject
P1,500,000 (seller is a real estate dealer or developer) to percentage tax
Residential house and lot or other residential dwellings 12% VAT
exceeding P2,500,000 (seller is a real estate dealer or
developer)

NOTE: Threshold beginning January 1,2021 shall be

P2,000,000 (TRAIN Law)
Residential house and lot or other residential dwellings VAT-exempt, not subject
not exceeding P3,199,200 (seller is a real estate dealer or to percentage tax
developer)
 NOTE: Threshold beginning January 1,2021 shall be
P2,000,000 (TRAIN Law)
Residential house and/or lot by a seller not engaged in Not subject to VAT or
business OPT. May be subject to
CGT, except sale of
principal residence, which
may be exempt subject
to certain conditions
Commercial place or lot (seller uses property in business) 12% VAT
Real property used in business, taxpayer is not engaged 12% VAT (incidental
in dealing with real estate transaction)
(R.R. 16-2005, as amended by RR 16-2011 and RR 03-2012).
NOTE: The VAT threshold amount was previously P1,919,500. It was broadened to
P3,000,000 beginning January 1, 2018 by the TRAIN Law.

NOTE: The transactions involving residential lot, residential house and lot or other
residential dwellings include the transfer or disposal within a 12- month period of
two or more adjacent residential lots, house and lots or other residential dwellings in
favor of one buyer from the same seller, for the purpose of utilizing the lots, house
and lots or other residential dwellings as one residential area wherein the aggregate
value of the adjacent properties exceeds P1,919,500 (P1,500,000 under TRAIN Law),
for residential lots and P3,199,200 (P2,500,000 under TRAIN Law and beginning
Imposition of VAT January 1, 2021, it shall be P2,000,000) for residential house and lots or other
residential dwellings. Adjacent residential lots, house and lots or other residential
dwellings 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/s of Conveyance, shall be presumed as a sale of one residential lot, house and
lot or residential dwelling. This however, does not include the sale of parking lot
which may or may not be included in the sale of condominium units. The sale of
parking lots in a condominium is a separate and distinct transaction and is not
covered by the rules on threshold amount not being a residential lot, house & lot or
a residential dwelling, thus, should be subject to VAT regardless of amount of selling
price (RR 13-12)

The sale of real property subject to VAT shall either be in

1. Cash basis
2. Installment basis, or
3. Deferred payment basis.

Installment Basis Deferred Payment

Initial payments* do not exceed
25% of the gross selling price.
Seller shall be subject to output
VAT on the installment payments
received, including the interests
and penalties for late payment,
actually and/or constructively
received.
The buyer of the property can
claim the input tax in the same
period as the seller recognized
Initial payments* exceed
25% of the gross selling
price
Transaction shall be treated
as cash sale which makes
the entire selling price
taxable in the month of sale.
Output tax shall be
recognized by the seller and
input tax shall accrue to the
 the output tax. buyer at the time of the
execution of the instrument
of sale.
Payments that are subsequent to Payments that are
“initial payments” shall be subsequent to “initial
subject to output VAT. payments” shall no longer
be subject to output VAT

*Initial payment
- payment or payments which the seller receives before or upon execution of
the instrument of sale and payments which he expects or is scheduled to
receive in cash or property (other than evidence of indebtedness of the
purchaser) during the year when the sale or disposition of the real property
was made.

- Inclusion: down payment made and all payments actually or constructively

received during the year of sale, the aggregate of which determines the
limit set by law

- Exclusion:
a. amount of mortgage on the real property sold except when such
Imposition of VAT mortgage exceeds the cost or other basis of the property to the seller,
in which case, the excess shall be considered part of the initial
payments;
b. notes or other evidence of indebtedness issued by the purchaser to the
seller at the time of the sale

NOTE:
 Real estate dealer includes any person engaged in the business of buying,
developing, selling, exchanging real properties as principal and holding
himself out as a full or part-time dealer in real estate.
 Sale of scrap materials by a VAT-registered person such as empty drums,
plastic bags, cartons, and wood crates; obsolete inventories and fully
depreciated fixed assets sold at minimal prices or lower than purchase
price are subject to VAT.

TRANSACTIONS DEEMED SALE (Sec.106 (B), NIRC)

- no actual sale of goods took place but such transactions are subject to VAT
- The gross selling price is “unreasonably lower” than the fair market value,
the gross selling price being lower by more than 30% of the actual market
value
- Input VAT was already used by the seller as a credit against output VAT.
However, since there was no actual sale, no output VAT is actually charged
to customers. Consequently, the State will be deprived of its right to collect
the output VAT. To avoid the situation where a VAT registered taxpayer
avail of input VAT credit without being liable for corresponding output VAT,
certain transactions should be considered sales even in the absence of
actual sale (Tabag, 2015).

Consideration:
1. First determine whether the sale was in the ordinary course of trade or
 business or not; and
2. Even if the transaction was “deemed sale” if it was not done in the
ordinary course of trade or business or was not originally intended for
sale in the ordinary course of business, the transaction is not subject to
VAT (CIR v. Magsaysay Lines Inc., G.R. No. 146984, July 28, 2006).

Inclusions: (CORD)
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 (i.e., when a VAT-registered person withdraws goods from his
business for his personal use Sec. 4.106-7 (a)(1), RR 16-2005))

2. Distribution or transfer to:

a. Shareholders or investors as share in the profits of the VAT-

registered persons

NOTE: Property dividends which constitute stocks in trade or

properties primarily held for sale or lease declared out of retained
earnings on or after January 1, 1996 and distributed by the
company to its shareho2lders shall be subject to VAT based on the
zonal value or fair market value at the time of distribution,
whichever is applicable (Sec. 106.7, R.R. 16-2005).

b. Creditors in payment of debt

Imposition of VAT 3. Consignment of goods if actual sale is not made within sixty (60) days
following the date such goods were consigned.

NOTE: Consigned good 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 (Sec. 106 (B) NIRC).

It constitutes:
a. Change of ownership of the business. There is change in the
ownership of the business when a single proprietorship
incorporates; or the proprietor of a single proprietorship sells his
entire business.
b. Dissolution of a partnership and creation of a new partnership
which takes over the business (Sec. 4.106-7, R.R. 16-2005).

NOTE: On these deemed sale transactions, the BIR Commissioner, by

the rules and regulations prescribed by the Secretary of Finance, is
authorized to determine the base of the tax. (Sec.106(A), NIRC)

CHANGE OR CESSATION OF STATUS AS VALUE-ADDED TAX-REGISTERED

PERSON
 The following change in or cessation of status of a VAT registered person
are subject to VAT:

1. Change of business activity from VAT taxable status to VAT-exempt status.

2. Approval of a request for cancellation of registration due to reversion to exempt
status.
3. Approval of a request for cancellation of registration due to a desire to revert to
exempt status after the lapse of 3 consecutive years from the time of registration
by a person who voluntarily registered despite being exempt under Sec 109 (2)
of the NIRC.
4. Approval of a request for cancellation of registration of one who commenced
business with the expectation of gross sales or receipt exceeding P3,000,000 but
who failed to exceed this amount during the first 12 months of operations.

The following change in or cessation of status of a VAT registered person

are NOT subject to Output Tax:

1. Change of control in the corporation of as corporation by the acquisition of

controlling interest of the corporation by another stockholder or group of
stockholders.

NOTE: The goods or properties used in the business or those comprising the
stock-in-trade of the corporation will not be considered sold, bartered or
Imposition of VAT exchanged despite the change in the ownership interest. However, the exchange
of real estate properties held for sale or for lease, for shares of stocks, whether
resulting to corporate control or not, is subject to VAT, subject to exceptions
provided under Section 4.106-3 (Sale of real properties) hereof. On the other
hand, if the transferee of the transferred real property by a real estate dealer is
another real estate dealer, in an exchange where the transferor gains control of
the transferee corporation, no output VAT is imposable on the said transfer (Sec.
8, R.R. 4-2007).

2. Change in the trade or corporate name of the business.

NOTE: Transfer of property in pursuance of a plan of merger or consolidation is

now VAT-exempt under the TRAIN Law. Under the NIRC, the same is not subject
to output tax whereby the unused input tax of the dissolved corporation, as of
the date of merger or consolidation, shall be absorbed by the surviving or new
corporation.

VAT ON IMPORTATION OF GOODS (Sec.107, NIRC)

Importation is an act of bringing goods and merchandise into a country
(Philippines) from a foreign country.

VAT is imposed on goods brought into the Philippines, whether for use in
business or not, except those specifically exempted under Section 109(1) of
the NIRC.

Purpose: This is to protect our local or domestic goods or articles and to

regulate the entry or introduction of foreign articles to our local market
 TAX BASE:
 GENERAL RULE: TRANSACTION VALUE or the total value used by the
BOC in determining tariff and customs duties plus customs duties, excise
taxes, if any, and other charges to be paid by the importer prior to the
release of such goods from customs custody.

 EXCEPTION: LANDED COST* plus excise tax, if any, where the customs
duties are determined on the basis of the quantity or volume of the goods

*Landed cost consists of the invoice amount, customs duties, freight,

insurance and other charges. If the goods imported are subject to excise
tax, the excise tax shall form part of the tax base.

The same rule applies to technical importation of goods sold by a person

located in a Special Economic Zone to a customer located in a customs
territory (Sec. 4.107-1, R.R. 16-2005).

Person liable: Importer which refers to any person who brings goods into the
Philippines, whether or not made in the course of his trade or business. It
includes non-exempt persons or entities who acquire tax-free imported
goods from exempt persons, entities or agencies.

Time of payment: prior to the release of such goods from customs custody

NOTE:
 Importation begins when the carrying vessel or aircraft enters the Philippine
territory with the intention to unload therein.
 Importation is deemed terminated when the duties, taxes and other charges
Imposition of VAT
due upon the goods have been paid or secured to be paid at the port of
entry or in case the goods are deemed free of duties, taxes and other
charges, when the goods have legally left the jurisdiction of the Bureau
(Sec. 103, CMTA).
 When tax-free imports are subsequently sold to non-exempt persons , the
purchasers or possessors thereof shall be considered the importers thereof
who shall be liable for any internal revenue tax on such importation (Sec.
107[B], NIRC).

The tax due on such importation shall constitute a lien on the goods,
superior to all charges/or liens, irrespective of the possessor of said goods.

VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTIES (Sec.108, NIRC)

The sale or exchange of services, as well as the lease of properties, is subject to a

12% VAT based on the gross receipts (excluding VAT) (RR 16-2005).

 Sale or exchange of services means the performance of all kinds of

services in the Philippines for others for a fee, remuneration or
consideration, regardless of whether or not the performance thereof calls
for the exercise or use of the physical or mental faculties. (Sec. 108(A),
NIRC)
 TAX BASE: GROSS RECEIPTS
It pertains to the total amount of money or its equivalent representing
the contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and
deposits and advanced payments (1)actually or (2)constructively
received* during the taxable quarter for the services performed or to be
performed for another person, excluding VAT, except those amounts
earmarked for payment to unrelated third (3rd) party** or received as
reimbursement for advance payment on behalf of another*** which
do not redound to the benefit of the payor (service provider). (Sec.
4.108-4, RR 4-2007)

*Constructive receipt occurs when the money consideration or its

equivalent is placed at the control of the person who rendered the
service without restrictions by the payor.

Examples:
1. Deposit in banks which are made available to the seller without
restrictions.
2. Issuance by the debtor of a notice to offset any debt or obligation
and acceptance thereof by the seller as payment for services
rendered.
3. Transfer of the amounts retained by the payor to the account of the
contractor. (RR 16-2005)

**Payment to a third (3rd) party is one made to settle an obligation of

another person. Such obligation should be evidenced by the sales
Imposition of VAT invoice/ official receipt issued by the said third party to the
customer/client of the service provider.

For this purpose, “unrelated party” shall NOT include taxpayer’s

employees, partners, affiliates (parent, subsidiary and other related
companies), relatives by consanguinity or affinity within the fourth (4th)
civil degree, and trust fund where the taxpayer is the trustor, trustee or
beneficiary, even if covered by an agreement to the contrary (Sec. 11,
R.R. 04-2007).

*** Advance payment on behalf of another is one paid to a third (3rd)

party for a present or future obligation of said customer/client which
obligation is evidenced by a sales invoice/official receipt issued by the
creditor (3rd party) to the customer/client (the aforementioned another
party) for the sale of goods or services by the former to the latter.

Requisites for the taxability of sale or exchange of services or lease or use of

property (SaP-CoVaN)

1. There is a sale or exchange of service or lease or use of property enumerated in

the law or other similar services;
2. The service is performed or to be performed in the Philippines;
3. The service is in the course of trade of taxpayer’s trade or business or profession;
4. The service is for a valuable consideration actually or constructively received;
and
 5. The service is not exempt under the NIRC, special law or international
agreement.

NOTE: Absence of any of the requisites renders the transaction exempt from
VAT but may be subject to other percentage tax under Title V of the NIRC.

Inclusions on Sale of Services and Use or Lease of Properties (Sec.108, NIRC)

1. Construction and service contractors;

2. Stock, real estate, commercial, customs and immigration brokers;
3. Lessors of property, whether personal or real;

 If the property leased or used is located in the Philippines, lease of property

is subject to VAT regardless of the place where the contract of lease or
licensing agreement was executed.
 VAT on rental and/or royalties payable to nonresident foreign corporations
or owners* for the sale of services and use or lease of properties in the
Philippines shall be based on the contract price agreed upon by the licensor
and the licensee. The licensee shall be responsible for the payment of VAT
on such rentals and/or royalties in behalf of the non-resident foreign
Imposition of VAT corporation or owner.

*Non-resident foreign corporation lesser/owner refers to any person,

natural or juridical, an alien, or a citizen who establishes to the satisfaction
of the Commissioner of Internal Revenue the fact of his physical presence
abroad with a definite intention to reside therein, and who owns/leases
properties, real or personal, whether tangible or intangible, located in the
Philippines.

Rules on advance payments made by lessee

The advance payment by the lessee may be: (LOSP)

a. A loan to the lessor from the lessee, or
b. An option money for the property, or
c. A security deposit to insure the faithful performance of certain
obligations of the lessee to the lessor, or
d. Pre-paid rental.

NOTE:
 If it is (1), (2), or (3) of the above, such advance payment is not
subject to VAT. However, a security deposit that is applied to
rental shall be subject to VAT at the time of its application.
 If it is a pre-paid rental, then such payment is taxable to the
lessor in the month when received, irrespective of the
accounting method employed by the lessor.

4. Transmission of electricity by electric cooperatives (TRAIN Law)

5. Persons engaged in warehousing services;
6. Lessors or distributors of cinematographic films;
7. Persons engaged in milling, processing, manufacturing or repacking goods for
others;
8. Proprietors, operators, or keepers of hotels, motels, rest houses, pension houses,
 inns, resorts, theaters, and movie houses;
9. Proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers;
10. Dealers in securities;
11. Lending investors;
12. Transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common
carriers by land relative to their transport of goods or cargoes;

NOTE: Transport network companies, such as but not limited to the likes of
UBER, GRAB TAXI, their Partners/suppliers and similar arrangements, who are
not holders of a valid and current Certificate of Public Convenience are known as
land transportation service contractors subject to the 12% VAT. Otherwise, it is
classified as a common carrier subject to the 3% domestic carrier tax under Sec.
117. (RMC 70-2015)

13. 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;

NOTE: RA 9337 removed the VAT exemption of common carriers by air and sea
relative to their transport of passengers. (Guide to Philippine Tax)
Imposition of VAT
14. Sales of electricity by generation, transmission, and/or distribution companies;

NOTE:
 RA 9511 imposed a 3% franchise tax on all gross receipts derived by
the National Grid Corporation from its transmission operation, in effect,
amending the VAT by reverting the taxation of transmission companies
to the franchise tax.
 That sale of power or fuel generated through renewable sources of
energy such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels shall be subject to
0% VAT.

15. Franchise grantees of electric utilities, telephone and telegraph, radio and/or
television broadcasting and all other franchise grantees, except franchise
grantees of radio and/or television broadcasting whose annual gross receipts of
the preceding year do not exceed P10,000,000, and franchise grantees of gas
and water utilities;

NOTE: Franchise grantees of radio and/or television broadcasting whose annual

gross receipts of the preceding year do not exceed P10,000,000, shall have an
option to be registered as a VAT taxpayer and pay the tax due thereon. Once the
option is exercised, said option shall not be irrevocable. (Sec. 119, NIRC)

16. Non-life insurance companies (except their crop insurances), including surety,
fidelity, indemnity and bonding companies

17. Similar services regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties, which include as follows:

a. The lease or the use of or the right or privilege to use any copyright,

Imposition of VAT
patent, design or model plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;
b. The lease or the use of, or the right to use of any industrial, commercial or,
scientific equipment;
c. The supply of scientific, technical, industrial or commercial knowledge or
information;
d. The supply of any assistance that is ancillary and subsidiary to and is
furnished as a means of enabling the application or enjoyment of any such
property, or right as is mentioned in subparagraph (b) or any such
knowledge or information as is mentioned in subparagraph (c);
e. The supply of services by a non-resident person or his employee in
connection with the use of property or rights belonging to, or the
installation or operation of any brand, machinery or other apparatus
purchased from such nonresident person;
f. The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific,
industrial or commercial undertaking, venture, project or scheme;
g. The lease of motion picture films, films, tapes and discs; and
h. The lease or the use of or the right to use radio, television, satellite
transmission and cable television time. (RR 16-2005)
i. Real estate investment trust (REIT), on its disposal of real property and from
rental of such real property (Sec. 15, RA 9856; RR 13-2011)

NOTE: A REIT shall not be considered as a dealer in securities and shall not
be subject to VAT on its sale, exchange or transfer of securities forming part
of its real estate-related assets.

j. Tollway operators from all types of vehicles starting October 1, 2011 (RMC
39-2011)

k. Recreational clubs or clubs which are organized and operated exclusively

for pleasure, recreation, and other non-profit purposes including but not
limited to membership fees, assessment dues, rental income, and service
fees (RMC 35-2012)

NOTE:
 Association dues, membership fees, and other assessment fees
and charges collected by homeowners’ associations and
condominium corporations are now VAT-EXEMPT under the TRAIN
Law. This was previously considered VATable under NIRC.
 Sale of drugs and medicines in general is VATable. However, sale
of drugs and medicines prescribed for diabetes, high cholesterol,
and hypertension are VAT-EXEMPT under TRAIN Law beginning
January 1, 2019.

Zero-rated sale by a VAT-registered person

It is a taxable transaction for VAT purposes but the sale does not result in any output
tax. However, the input tax on the purchases of goods, properties or services related
to such zero-rated sale shall be available as tax credit or refund.
Zero-rated and
effectively zero-rated NOTE: The seller must be a VAT-registered person because if he is not VAT
 sales of goods or registered, the transactions entered into by him are exempt from the tax.
properties, and
services Purpose:
 To exempt the transaction completely from VAT previously collected since
input taxes passes to him may be recovered as refund or credits (Ingles,
2015).
 The zero-rated seller becomes internationally competitive by allowing the
refund or credit of input taxes that are attributable to export sales (CIR v.
Seagate Technology (Phil.), G.R. No. 153866, Feb. 11, 2005).

Rationale: It is because the Philippine VAT system adheres to the cross border
doctrine, according to which, no VAT shall be imposed to form part of the cost
of goods destined for consumption outside of the territorial border of the taxing
authority. (Quicknotes on Taxation by J. De Vera)

Inclusions:
1. Sale of Goods at 0%
a. Export sale
b. Effectively zero-rated sales or sale of person entities which is VAT
exempt under special laws or international agreements to which the
Philippines is a signatory;

2. Sale of Services at 0%
a. Processing, manufacturing or repacking of goods for other persons
doing business outside the Philippines, which goods are subsequently
exported, where the services are paid for an acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the BSP;

b. Services other than those mentioned in the preceding paragraph

rendered to a person engaged in business conducted outside the
Zero-rated and Philippines or to a nonresident person not engaged in business who is
effectively zero-rated outside the Philippines when the services are performed, the
sales of goods or consideration for which is paid for in acceptable foreign currency and
properties, and accounted for in accordance with the rules and regulations of the BSP
services i.e. recruitment; (Sec 108 (B)(2)

Requirements to qualify for zero-rating

i. The services other than “processing, manufacturing or repacking of
goods” must be performed in the Philippines;
ii. That the payment for such services be in acceptable foreign
currency accounted for in accordance with BSP rules, and that
iii. The recipient of such services is doing business outside of the
Philippines.

c. Services rendered to person covered by the special laws;

d. Services rendered to persons engaged in international shipping or air

transport operations; including leases of property for use thereof; shall
only be exclusively used for international shipping or air transport
operations
 e. Services performed by subcontractors or contractors in processing,
converting or manufacturing goods for an enterprise whose export
sales exceed 70% of the total annual production;

f. Transport of passengers and cargo by domestic air or sea carriers

from the Philippines to a foreign country;

g. Sale of power or fuel generated through renewable sources of energy

such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels (Sec. 108, NIRC as
amended by R.A. 9337).

NOTE: 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. (Sec. 4.108-5 (b)(7), RR 16-
2005)

h. Registered enterprises within a separate customs territory as provided

for by special laws

i. Registered enterprises within tourism enterprise zones as declared by

TIEZA

NOTE: Items (a) (b) and (e) above mentioned will be subject to 12%
VAT upon implementation of the enhanced VAT refund system
beginning January 1, 2020.

3. Effectively zero-rated sales

Basis Exempt Zero-rated

Zero-rated and Nature of Not taxable; removes Transaction is taxable
effectively zero-rated transaction VAT at the exempt stage for VAT purposes
sales of goods or although the tax levied
properties, and is 0%
services By whom made Need not be a VAT- Made by a VAT
registered person registered person
Input tax Not subject to output May claim input tax
tax, thus cannot claim credit although the
input tax credit. transaction resulted to
zero output tax.
Tax Credit/ Refund Cannot avail of tax Can claim or enjoy tax
credit or refund. Thus, credit/refund (Total
may result in increased Relief)
prices (Partial Relief)

EXPORT SALES

It constitutes: (Sec. 106(A)(2)(a), NIRC)

 1. The sale and actual shipment of goods from the Philippines to a Foreign
country:
a. irrespective of any shipping arrangement; and
b. paid for in acceptable foreign currency or its equivalent in goods or services
and accounted for in accordance with the rules and regulations of BSP.

2. Sale of raw materials or packaging materials by a VAT-registered entity to a

Non-resident buyer:
a. for delivery to a resident local export oriented enterprise;
b. used in the manufacturing, processing, packing, repacking in the Philippines
of the said buyer’s goods;
c. paid for in acceptable foreign currency and accounted in accordance with
the rules of BSP.

3. Sale of raw material or packaging materials to Export oriented enterprise whose

export sales exceed 70% of total annual production

4. Those considered as export sales under the Omnibus Investment Code of

1987(E.O. 226)

“Considered export sales under EO 226”

It shall mean the Philippine port F.O.B. value determined from invoices,
bills of lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported directly by a registered
export producer, or the net selling price of export products sold by a registered
export producer to another export producer, or to an export trader that
subsequently export the same; Provided, that sales of export products to
another producer or to an export trader shall only be deemed export sales
when actually exported by the latter, as evidenced by landing certificates or
similar commercial documents.

Constructive exports
Zero-rated and a. Sales to bonded manufacturing warehouses of export-oriented
effectively zero-rated manufacturers
sales of goods or b. Sales to export processing zones
properties, and c. Sales to enterprises duly registered and accredited with the Subic Bay
services Metropolitan Authority pursuant to R.A. 7227
d. Sales to registered export traders operating bonded trading warehouses
supplying raw materials in the manufacture of export products under
guidelines to be set by the Board in consultation with the BIR and the BOC.
e. Sales to diplomatic missions and other agencies and/or instrumentalities
granted tax immunities, of locally manufactured, assembled or repacked
products whether paid for in foreign currency or not (Sec. 4.106-5, RR 16-
2005).

5. Sale of goods, supplies, equipment and fuel to persons engaged in the

international air transport operations provided such goods, supplies and
equipment shall be exclusively used for international transport.

6. Registered enterprises within tourism enterprise zones as approved by TIEZA

NOTE:
 Items 2, 3 and 4 above mentioned will be subject to 12% VAT upon
 implementation of the enhanced VAT refund system beginning January
1, 2020.
 Sale of gold to BSP is now VAT-EXEMPT under the TRAIN Law. This was
treated as an export sale under NIRC.

Enhanced VAT Refund System

Sales of raw materials to nonresident buyer under the aforementioned, sale of
raw materials to export oriented enterprise whose export sales exceed 70% of
total annual production, and those under the Omnibus Investments Code shall
be under 12% VAT and no longer be considered as export sales subject to 0%
VAT rate upon the following:

a. Successful establishment of VAT refund system which grants refunds of

creditable input tax within ninety (90) days
b. Pending VAT refund claims as of December 31, 2017 shall be fully paid in
cash by December 31, 2019

Rules on Export Sales

By a Non-VAT registered VAT exempt
By a VAT registered VATable at 0% (zero rated)

EFFECTIVELY ZERO-RATED SALES

It shall refer to the local sale of goods and properties by a VAT-registered person to
a person or entity who was granted indirect tax exemption under special laws or
international agreement.
Zero-rated and a. Sale of Asian Development Bank (ADB)
effectively zero-rated b. Sale to International Rice Research Institute (IRRI)
sales of goods or c. Sale to duly registered and accredited enterprises with Subic Bay Metropolitan
properties, and Authority (SBMA)
services d. Sale to duly registered and accredited enterprises with Clark Development
Authority (CDA)
e. Sale to duly registered and accredited enterprises with the Philippine Economic
Zone Authority (PEZA)

Since the buyer is exempt from indirect tax, the seller cannot pass on the VAT and
therefore, the exemption enjoyed by the buyer shall extend to the seller, making the
sale effectively zero-rated (R.M.C. 50-2007).

NOTE: TRAIN Law (RA 10963) removes foreign currency denominated sales from VAT
zero-rating and subjects to the VAT indirect exporters and agents only upon the
establishment and implementation of an enhanced VAT refund system.

Basis Effectively zero-rated Automatic zero-rated

transaction transaction
Refers to sales to persons Refers to export sales
Nature or entities whose
exemption under special
laws or international
agreements to which the
Philippines is a signatory.
 An application for zero- No need to file an
rating must be filed and application form and to
Need to apply the BIR approval is secure BIR approval before
for zero-rating necessary before the the sale is considered
transaction may be zero-rated
considered effectively
zero-rated.

Intended to benefit the Primarily intended to be

purchaser who, not being
directly and legally liable
for the payment of the
For whose VAT, will ultimately bear
benefit is it the burden of the tax
intended
shifted by the suppliers.
enjoyed by the seller who
is directly and legally liable
for the VAT, making such
seller internationally
competitive by allowing
the refund or credit of
input taxes that are
attributable to export
sales.

Stamping of Required. The buyer, as Not required. The buyer,

“zero-rated” on shown by his address in as shown by his address in
VAT invoice or the sales invoice and the sales invoice and
receipt shipping documents, is shipping documents, is
located outside the located outside the
Philippines merely by Philippines.
fiction of law.

Results in no tax chargeable against the purchaser.

The seller can claim a refund or a tax credit certificate for

the VAT previously charged by suppliers.

Sec.109, NIRC

Concept:
It refer to the sale of goods or properties and/or services and the use or lease of
properties that is not subject to VAT (output tax) and the seller is not allowed any tax
credit of VAT (input tax) on purchases.

The person making the exempt sale of goods, properties or services shall not bill any
output tax to his customers because the said transaction is not
subject to VAT (Sec 4.109-1, R.R. No. 16-2005).

Exempt Party Exempt Transaction

A person or entity A person or entity granted
granted VAT exemption VAT exemption under the
VAT exempt under the NIRC, special NIRC, special law or
transactions law or international international agreement to
agreement to which RP is which RP is a signatory,
 a signatory, and by virtue and by virtue of which its
of which its taxable taxable transactions
transactions become become exempt from the
exempt from the VAT. VAT.

Such party is not subject Transaction is not subject

to the VAT, but may be to VAT, but the seller is
allowed a tax refund or not allowed any tax refund
credit of input tax paid, or credit for any input
depending on its taxes paid.
registration as a VAT or
non-VAT taxpayer.

The following are VAT-exempt transactions

1. Sale or importation of
a. agricultural and marine food products in their original state,
b. livestock and poultry of
i) a kind generally used as, or yielding or producing foods for
human consumption; and
ii) breeding stock and genetic materials therefor

Products 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 including those using advanced technological means of
packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack,
and other similar packaging methods.

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

For this purpose, notwithstanding the process/es involved in its production,

“raw sugar or raw cane sugar” means sugar whose content of sucrose by
weight, in the dry state, corresponds to a polarimeter reading of less than
99.5 degrees. (Sec. 109(A), NIRC). Bagasse is not included in the exemption.

Examples:
 For agricultural and marine food products in their original state:
Vegetables, sundried banana, fruit shake, boiled eggs, fresh fruits,
VAT exempt fresh sea foods, bamboo shoots, wheat, cacao, tea, smoked/dried
transactions fish
 For livestock and poultry: cows, bulls and calves, pigs, sheep, goats
and rabbits, fowls, ducks, geese and turkey

NOTE:
 Cooked rice, canned fish, cocoa and cheese are VATable
because they are processed.
 Orchids, bonsai, bamboo, cotton seeds, cotton, and
charcoal are VATable because they are non-food
products.
 Hence, to be exempt from VAT, it must be: (a) an
agricultural or marine food product; and (b) on its
 original state.

2. Sale or importation of
a. fertilizers;
b. seeds, seedlings and fingerlings;
c. fish, prawn, livestock and poultry feeds, including ingredients, whether
locally produced or imported, used in the manufacture of finished
feeds
i) except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally
considered as pets

For the sale or importation of certain feed ingredients (whey powder,

skimmed milk powder, lactose, buttermilk powder, whole milk powder, palm
olein) and such other feed ingredients and additives which may be
hereinafter be determined by competent authority to have possible
utilization for human consumption, there must be a showing that the same
is unfit for human consumption or that the ingredient cannot be used
for the production of food for human consumption as certified by the
Food and Drug Administration (FDA). (RMC 55-2014 as revised by RMC 66-
2014 and RMC 78-2014)

Specialty feeds are non-agricultural feeds.

Example:
 Chicken manure, hog feeds
NOTE: fighting cocks, race horses, zoo animals and other animals
generally considered as pets are VATable

3. Importation of personal and household effects belonging to

a. residents of the Philippines returning from abroad, and
b. 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

Requisites under Sec. 800 of Customs Modernization and Tariff Act of 2016
1. That the personal and household effects of returning residents shall
neither be in commercial quantities nor intended for barter, sale or hire
and that the total dutiable value of which shall not exceed:
VAT exempt
transactions
a. P350,000 – for those who have stayed in a foreign country for at
least 10 yrs, and has not availed of this privilege within 10 years
prior to arrival
b. P250,000 – for those who have stayed for at least 5 but not more
than 10 yrs and has not availed of this privilege within 5 years prior
to arrival
c. P150,000 – for those who have stayed for a period of less than 5
yrs and has not availed of this privilege within 6 months prior to
arrival;
d. P150,000 – in case of returning OFWs. This privilege is available
once in a given calendar year.
 NOTE:
 Prior to the amendment of the Tariff and Customs Code,
the ceiling amount is P10,000.
 Amount in excess of the above threshold shall be subject
to tax.
4. Importation of:
a. professional instruments and implements,
b. wearing apparel,
c. domestic animals, and
d. personal household effects (except any vehicle, vessel, aircraft,
machinery and other goods for use in the manufacture and
merchandise of any kind in commercial quantity)

belonging to persons coming to settle in the Philippines or their

families and descendants who are now residents or citizens of other
countries, such as OVERSEAS FILIPINO in quantities and of the class
suitable to the profession, rank, or position for their own use and not
for sale, barter or exchange, accompanying such persons, or arriving
within a reasonable time upon the production of evidence satisfactory
to the Commissioner of Internal Revenue, that such persons are
actually coming to settle in the Philippines and that the change of
residence is bonafide;

5. Services subject to percentage tax

(Refer to discussion on percentage tax)

6. Services by
a. agricultural contract growers*, and
b. milling for others of
i) palay into rice,
ii) corn into grits, and
iii) sugar cane into raw sugar

*Agricultural contract growers refer to those persons producing for others

poultry, livestock or other agricultural and marine food products in their
original state.

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

professionals.

Laboratory services are exempted. If the hospital or clinic operates a pharmacy

or drug store, the sale of drugs and medicine is subject to VAT.
VAT exempt
transactions 8. Educational services*
a. rendered by private educational institutions duly accredited by the
i) Department of Education (DepED),
ii) Commission on Higher Education (CHED), and
iii) Technical Education and Skills Development Authority
(TESDA)
b. and those rendered by government educational institutions;

*Educational services shall refer to academic, technical or vocational

education provided by private educational institutions duly accredited by
the DepED, the CHED and TESDA and those rendered by government
educational institutions and it does not include seminars, in-service
 training, review classes and other similar services rendered by persons who
are not accredited by the DepED, the CHED and/or the TESDA.

Example:
 UP, UST, San Beda Colleges, SLU, SLC

NOTE: Chan Robles Bar Review Center, CPA Review Center, and
bar/board review services of schools are VATable.

9. Services rendered by individuals pursuant to an employer-employee

relationship. This is subject to income tax of the employee.

10. 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. Banks, non-bank financial intermediaries performing quasi-banking

functions, and other non-bank financial intermediaries

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. [Sec. 4.109-1 (B)(w), RR 4-2007]

12. Transactions which are exempt under international agreements to which

the Philippines is a signatory or under special laws except those granted
under PD No. 529 which refers to Petroleum Exploration Concessionaires
under the Petroleum Act of 1949

13. Sales by agricultural cooperatives duly registered and in good standing

with the Cooperative Development Authority (CDA) 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
produce

14. Gross receipts from lending activities by credit or multi-purpose

cooperatives duly registered and in good standing with the Cooperative
Development Authority

15. Sales by non-agricultural, non-electric and non-credit cooperatives duly

VAT exempt registered with and in good standing with the CDA; Provided, That the
transactions 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.

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.
Summary Rules on Cooperatives
Sales/Gross Receipts by To/From To/From Non-
Members Members
Agricultural Cooperatives
a. Own produce (processed Exempt Exempt
 or at its original state)

b. Other that own produce

(i.e. from traders) Exempt VAT (Exempt if
referring to
agricultural or
marine food
products on
their original
state)
Credit or Multipurpose
Cooperatives
a. From lending activities Exempt Exempt

b. From non-lending VAT VAT

activities
Electric cooperatives VAT VAT
Non-agricultural, non-lending and
multipurpose, nonelectric
a. Contribution per member Exempt Exempt
< P15K

b.Contribution per member VAT VAT

> P15K
(Tabag, 2015)

16. Export sales off persons who are non-VAT registered

Rules on Export Sales
By a Non-VAT registered VAT exempt
By a VAT registered VATable at 0%

17. Sales of real properties, namely:

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

Low-cost housing refers to housing projects intended for homeless low-income

family beneficiaries, undertaken by the Government or private developers, which
may either be a subdivision or a condominium registered and licensed by the
Housing and Land Use Regulatory Board/Housing (HLURB) under BP Blg. 220,
PD No. 957 or any other similar law, wherein the unit selling price is within the
VAT exempt selling price ceiling per unit of P750,000.00 under RA No. 7279, otherwise known
transactions as the "Urban Development and Housing Act of 1992" and other laws, such as
RA No. 7835 and RA No. 8763.

c. Sale of real properties utilized for socialized housing as defined under

RA No. 7279, and other related laws, such as RA No. 7835 and RA No.
8763, wherein the price ceiling per unit is P225,000.00 or as may from
time to time be determined by the HUDCC and the NEDA and other
related laws.
 Socialized housing refers to housing programs and projects covering houses
and lots or home lots only undertaken by the Government or the private sector
for the underprivileged and homeless citizens which shall include sites and
services development, long-term financing, liberated terms on interest
payments, and such other benefits in accordance with the provisions of RA No.
7279, otherwise known as the "Urban Development and Housing Act of 1992"
and RA No. 7835 and RA No. 8763. "Socialized housing" shall also refer to
projects intended for the underprivileged and homeless wherein the housing
package selling price is within the lowest interest rates under the Unified Home
Lending Program (UHLP) or any equivalent housing program of the
Government, the private sector or non-government organizations.

d. Sale of residential lot valued of up to 2,000,000 pesos beginning

January 1, 2021 (TRAIN Law)

If two or more adjacent residential lots, house and lots or other residential
dwellings are sold or disposed in favor of one buyer from the same seller, for the
purpose of utilizing the lots, house and lots or other residential dwellings as one
residential area, the sale shall be exempt from VAT only if the aggregate value of
the said properties do not exceed P1,919,500 (P1,500,000 under TRAIN Law) for
residential lots, and P3,199,200 (P2,500,000 under TRAIN Law and beginning
January 1, 2021, it shall be P2,000,000) for residential house and lots or other
residential dwellings. Adjacent residential lots, house and lots or other
residential dwellings 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/s of Conveyance, shall be presumed as a sale
of one residential lot, house and lot or residential dwelling.

Summary Rules on Sale of Real Property

Sale not in the ordinary course of trade or Exempt
business in general
Sale of residential lot by a real estate dealer
a. Selling price ≤ P1,500,000* Exempt
b. Selling price ≥ P1,500,000 VATable
Sale of residential lot by a non-dealer
a. Use in business (incidental transaction) VATable
b. Not use in business (regardless of
amount) 6% Capital Gains Tax
Sale of residential house & lot and other
residential dwellings by a real estate dealer
a. Selling price ≤ P2,500,000** Exempt
b. Selling price ≥ P2,500,000 VATable
Sale of residential house & lot and other
VAT exempt
transactions residential dwellings by a non-dealer
a. Use in business (incidental transaction) VATable
b. Not use in business
(regardless of amount) 6% Capital Gains Tax

Sale of real property classified as low cost Exempt

housing
Sale of real property classified as socialized Exempt
 housing

* Apply rules on adjacent lots

** Apply rules on adjacent house and lots and other residential dwellings
(Tabag, 2015)

18. Lease of residential units with a monthly rental per unit not exceeding
fifteen thousand pesos (15,000), regardless of the amount of aggregate
rentals received by the lessor during the year.

NOTE:
 The TRAIN Law increase the previous threshold of P12,800 to P15,000.
Every 3 years thereafter, the amount shall be adjusted to its present
value using the Consumer Price Index, as published by the Philippine
Statistic Authority. Such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each year.

 Residential units shall refer to apartments and houses & lots used for
residential purposes, and buildings or parts or units thereof used solely
as dwelling places (e.g., dormitories, rooms and bed spaces) except
motels, motel rooms, hotels, hotel rooms, lodging houses, inns and
pension houses.
 Unit shall mean:
a. an apartment unit in the case of apartments,
b. house in the case of residential houses,
c. per person in the case of dormitories, boarding houses and bed
spaces; and - per room in case of rooms for rent (RR 16-11).

Summary Rules on Sale of Residential Units

Monthly rental P15,000 or VAT exempt and no
less regardless of annual percentage tax
gross sales

Monthly rental above VAT-exempt under Sec.

P15,000 but annual gross 109 (W) but shall pay 3%
sales do not exceed percentage tax under
P3,000,000 Section 116 of NIRC
VAT exempt
transactions
Monthly rental above VATable
P15,000 and annual gross
sales exceed P3,000,000

NOTE: Lease of commercial units, regardless of the amount of monthly rental is

subject to VAT unless the lessor is non-VAT registered and annual gross receipts
≤ P3,000,000

19. 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

A newspaper, magazine, review or bulletin must be:

 a. printed or published at regular intervals;
b. available for subscription and sale at fixed prices; and
c. are not principally devoted to the publication of paid advertisements

The terms "book", "newspaper", "magazine", "review" and "bulletin" as used

in the provision refer to printed materials in hard copies. They do not
include those in digital or electronic format or computerized versions,
including but not limited to: e-books, e-journals, electronic copies, online
library sources, CDs and software (RMC No. 57-2012)

20. Transport of passengers by international carriers (Sec. 2, RA 10378)

Summary Rules on Transport of Passengers and Cargoes

Voyage Land Air Sea
Domestic Passenger 3% OPT 12% VAT 12% VAT
Cargo 12% VAT 12% VAT 12% VAT
International Passenger by 0% VAT 0% VAT
Domestic air
and sea vessel
Cargo by 0% VAT 0% VAT
domestic air
and sea vessel
Passenger by Exempt Exempt
foreign vessel
Cargo by 3% OPT 3% OPT
foreign vessel
(Adopted from Quicknotes on Taxation by J.De Vera)

21. 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 limited to those of one hundred fifty
(150) tons and above, including engine and spare parts of said vessels;

Provided, further, that the vessels to be imported shall comply with the age limit
VAT exempt requirement, at the time of acquisition counted from the date of the vessel's
transactions original commissioning, as follows:
i) for passenger and/or cargo vessels, the age limit is fifteen (15) years
old,
ii) for tankers, the age limit is ten (10) years old, and
iii) For high-speed passenger crafts, the age limit is five (5) years old;
Provided, finally, that exemption shall be subject to the provisions of
Section 4 of Republic Act No. 9295, otherwise known as "The Domestic
Shipping Development Act of 2004";

22. 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 without stopping at any other port in the
 Philippines;

Provided, further, that if any portion of such fuel, goods or supplies is used for
purposes other than that mentioned in this paragraph, such portion of fuel,
goods and supplies shall be subject to 12% VAT

NOTE:
 If imported by persons engaged in international shipping or air
transport operations, it is VAT EXEMPT.
 If sold to persons engaged in international shipping or international air
transport operations without docking or stopping at any other port in
the Philippines, it is subject to 0% VAT.

23. Services of
a. Banks
b. non-bank financial intermediaries performing quasi-banking functions,
and
c. other non-bank financial intermediaries subject to percentage tax
under Secs. 121 and 122 of the NIRC, such as money changers and
pawnshop

NOTE: Pawnshops are subject to OPT.

24. Sale or lease of goods and services to senior citizens and persons with
disability

25. Transfer of property pursuant to Sec. 40(c) of R.A. 10963

26. Association dues, membership fees, and other assessments and charges
collected by homeowners associations and condominium corporations;
(TRAIN Law)

27. Sale of gold to the Bangko Sentral ng Pilipinas (TRAIN Law)

28. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension (TRAIN Law)

29. Sale or lease of goods or properties or services other than the transactions
mentioned above wherein the gross annual sales or receipts do not exceed
the VAT threshold of P3,000,000.

SUMMARY OF VAT EXEMPT TRANSACTIONS

SALE OF GOODS SALES OF SERVICES IMPORTATION
Agricultural and marine Those subject to OPT Agricultural and marine
food products food products
Fertilizer, ordinary feeds Agricultural growers and Fertilizer, ordinary seeds
VAT exempt and fingerlings millers and seedlings
transactions
Agricultural Cooperatives Health Services including Personal and household
veterinaries except those effects
rendered not in the
professionals
Non-Agri, Non-Electric School accredited by Professional instruments
and non-credit DEPED, CHED and TESDA and wearing apparel
cooperative registered
 with cooperative
registered with CDA
Residential Land valued at Employees Aircrafts and vessel by
≤P1,500,000 common carriers
Residential House and Lot Regional or Area Fuels and supplies for
≤P2,500,000 Headquarters by multi- international carriage
national corporation
(RQHQ)
Books and newspaper for Lending Cooperatives
general circulation
Aircrafts and vessels by Residential rent per month
common carriers ≤ P15,000
Fuels and supplies used Banks
for international carriage
Any goods for sale or International carriers
lease to senior citizens
and PWD
Gold to BSP Association dues and
condominium dues
Medicines for
hypertension, high
cholesterol and diabetes
Incorporation, Merger and
Consolidation
Any Gross Sales ≤ Any Gross Receipts ≤ Any Importation Landed
P3,000,000 P3,000,000 Cost ≤ P3,000,000
(Adopted from Quicknotes on Taxation by J. De Vera)

Input Tax Output Tax

It is the VAT due on or paid by a VAT- It is the VAT due on the sale or lease of
registered person on importation of taxable goods or properties or services
goods or local purchase of goods, by (1) any person registered or (2)
properties or services, including lease or required to register under Sec. 236 of the
use of properties, in the course of his NIRC (Sec. 110[A][3], NIRC).
trade or business. It shall also include the
transitional input tax and the
presumptive input tax determined in
accordance with Section 111 of the NIRC
(Sec. 110[A][3], NIRC)

It may come from: It may come from:

a. directly attributed to a. actual sale; or
transactions subject to the VAT, b. transactions deemed sale
plus
b. a ratable portion of any input
tax which cannot be directly
attributed to either the taxable
or exempt activity (R.R. 16-
2005)
 Determination of VAT Payable or Excess of Input Tax

Input and output tax Formula:

Output tax xx
Less: Input tax xx
Net VAT Payable or Excess Input Tax xx

Net VAT Payable = Output tax > Input tax

Excess Input tax = Output tax < Input tax

NOTE:
 In case of excess input tax, the resulting amount is treated as Tax Credit
(deferred asset). If it arises from a quarter return, it may be carried over to the
next month or quarter return. Meanwhile, if it arises from a monthly return, it
can only be carried over to the next month’s return.
 VAT exempt transactions cannot be credited for input tax. However, a
transaction which cannot be directly attributed in either the taxable or exempt
activity, a ratable portion of the input tax may be credited.
 Input tax not a property right under the due process clause, it is a mere
statutory privilege.

Sources of Creditable Input Tax

1. Purchases evidenced by VAT invoice from VAT registered supplier;
2. VAT paid in course of trade or business on the purchase or importation of
goods;
a. For sale;
b. For conversion into or intended to form part of finished goods;
c. For supplier;
d. For purchase of capital goods* for which deductions for depreciation is
allowed;

*Capital goods are those goods or properties

a. with an estimated useful life of more than one year;
b. which are treated as depreciable under the income tax law;
c. and used directly or indirectly in the production or sale of
taxable goods or services.

Rules on Input VAT for Capital Goods

If aggregate acquisition for
the month > P1M, exclusive
of VAT, and:
o Life ≥ 5 years Input tax shall be spread evenly
over such useful life but not to
exceed 60 months.

o Life < 5 years Input tax is spread over the life of

the property.

Aggregate acquisition for the Total input may be allowed as

month ≤ P1M, exclusive of credit at the time of acquisition.
Input and output tax VAT (regardless of useful
life):

NOTE:
 When an asset with unamortized input tax is retired from
business, the unamortized input tax will be closed against the
output taxes during the month or quarter when the
sale/disposal is made.
 The amortization of the input VAT shall only be allowed until
December 31, 2021 after which taxpayers with unutilized VAT
on capital goods purchased or imported shall be allowed to
apply the same as scheduled until fully utilized.
 All input VAT pertaining to capital goods will be outrightly
creditable beginning January 1, 2022. (TRAIN Law)

3. VAT paid on purchase of real property;

4. VAT paid on the purchase of services;
5. Transactions deemed sale/purchase;
6. Transitional Input VAT (see discussion of Transitional Input VAT);
7. Presumptive Input VAT (see discussion of Presumptive Input VAT;

KINDS OF INPUT TAX

Description/Scope Tax Rate and
Base

Generally, it applies to all persons who sell,

barter, exchange
or lease goods or properties, or render 12% of Gross
Regular VAT services in the course of trade or business Selling Price or
whose annual gross sales or receipts exceed Gross Receipts
P1,919,500 (in the old tax code) and P3M (in
the TRAIN Law) and those who import
goods, whether for business or otherwise.

Imposed on transactions which VAT charged 0% of Gross

Zero-rated on inputs relating to the goods can be Selling Price or
claimed as input tax. Gross Receipts

Imposable on any person or firm engaged

in the:

 processing of (SaMaMi) 4% of the gross

o sardines value in money
o mackerel, and of their
o milk purchases of
primary
Presumptive
 manufacturing of (ReCoPa) agricultural
Input tax
o refined sugar, products which
o cooking oil, and packed are used as
Input and output tax noodle-based instant inputs to their
meals production
(Sec. 111 [B],
shall be allowed a presumptive input tax NIRC)
creditable against the output tax, which
basis is the gross value in money of their
purchases of primary agricultural products
which are used as inputs to his production.

Higher
between:

2% of the value
Imposed on the beginning inventory of of the
goods, materials and supplies which basis is taxpayer’s
the value of such inventory or the actual beginning
Transitional
value-added tax paid on such goods, inventory of
Input Tax
materials and supplies, whichever is higher, goods,
which shall be creditable against the output materials and
tax. supplies; or

the actual
value-added
tax paid on
such goods
(Sec.111[A],
NIRC).

VAT for sales of goods or services to

government or any of its political
Standard Input subdivisions, instrumentalities or agencies 7% of gross
Tax including GOCC’s, in lieu of the actual input payments
VAT directly attributable or ratably
apportioned to such sales.

Amount deducted by the government or

any of its political subdivisions,
Final instrumentalities or agencies, including
Withholding government-owned or - controlled 5% of gross
Tax corporations (GOCCs) shall, before making payment
payment on account of each purchase of
goods and services which are subject to VAT
imposed in Sections 106 and 108 of the
NIRC.

Persons who can avail Input Tax Credit

The input tax credit on importation of goods or local purchases of goods, properties or
 services by a VAT registered person shall be creditable:

1. To the importer upon payment of the VAT prior to the release of the goods
from the customs custody;
Input and output tax 2. To the purchaser of the domestic goods or properties upon consummation of
the sale; or
3. To the purchaser of the services or the lessee or the licenses upon payment of
the compensation, rental, royalty or fee (R.R. 16- 2005).

NOTE: As long as the invoices from the suppliers are issued in the name of the
taxpayer and expenses were actually incurred by the taxpayer, then the input tax
pertaining to such expenses must be credited to the taxpayer. Where the money
came from to pay these expenses is another matter all together but it does not
change the fact that input tax has been incurred

Allocation of input tax on mixed transactions

A VAT-registered person who is also engaged in transactions not subject to

VAT shall be allowed to recognize input tax credit on transactions subject to
VAT as follows:
1. All the input taxes that can be directly attributed to transactions subject
to VAT may be recognized for input tax credit:

Provided, that input taxes which are directly attributable to VAT taxable
sales of goods and services from the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs shall not be
credited against output taxes arising from sales to nongovernment
entities, and

2. If any input tax cannot be directly attributed to either a VAT taxable or

VAT-exempt transaction, the input tax shall be pro-rated to the VAT
taxable and VAT-exempt transactions; only the ratable portion
pertaining to transactions subject to VAT may be recognized for input
tax credit.

NOTE:
 Input tax attributable to VAT-exempt sales shall not be allowed as
Input and output tax credit against the output tax but should be treated as part of cost of
goods sold.
 For persons engaged in both zero-rated sales and non-zero-rated sales,
the aggregate input taxes shall be allocated ratably between the zero-
rated and non-zero-rated sales (R.R. No. 16-2005).

Substantiation Requirements to prove VAT Transactions

Importation Import Entry

Domestic purchase or sale Invoice
Sale of Real Property Deed of Sale
 Sale of services Official receipts

Who may claim refund or tax credit of excess input tax?

The BIR recently issued Revenue Memorandum Circular (RMC) No. 47-2019 which
provides for the uniform guidelines and revised mandatory requirements for the
processing and grant of VAT refund application under Section 112 of the 1997 Tax
Code, as amended. There are two instances where a taxpayer may claim for
refund:

1. Sales of goods, properties or services which are zero-rated or effectively

zero-rated; and
2. Cancelled registration due to retirement from or cessation of business, or
due to changes in or cessation of status under Sec. 106 (C) of the Tax Code.

Refund or tax credit

of excess input tax; When to file?
procedure
It must be filed within two (2) years from the close of the taxable quarter when
the input taxes are incurred or from date of cancellation of registration.

NOTE: Under Revenue Regulations No. 13-2018 , the date of cancellation is the date of
issuance of tax clearance by the BIR, after full settlement of all tax liabilities relative to
cessation of business or change of status of the concerned taxpayer-claimant. Thus, it
is necessary that the application must be filed within the prescribed period. Otherwise,
the application may be considered filed out of time.

Where to file?

 Taxpayer-claimants who have zero-rated sales or canceled registration shall

submit their application to the Revenue District Office (RDO) or Large
Taxpayer (LT) Audit Division that has jurisdiction over the said taxpayer.
 For direct exporters, they shall file their application at the VAT Credit Audit
Division (VCAD) located at the BIR National Office. ( RMC No. 47-2019)

What is the timeframe of processing?

Within 90 days from submission of official receipts, invoices, and other supporting

documents up to the release of the payment for the approved amount of the refund.

NOTE: The BIR has already shortened the period for processing VAT refund
application but the taxpayer-claimant must comply fully with all the requirements
specified in the RMC if it expects to have a chance at a successful claim for refund.

What are the guidelines?

1. The taxpayer-claimant shall ensure that the person who shall sign and file
the application is duly authorized through a notarized Secretary Certificate or
Special Power of Attorney (SPA).
 NOTE: This requirement is essential for corporations or partnerships.

2. The authorized representative must present either the Secretary Certificate

Refund or tax credit or SPA to the BIR together with one (1) valid government-issued
of excess input tax; Identification Card (ID) upon filing of the application.
procedure 3. Taxpayer-claimant must have no outstanding tax liabilities upon filing of
the application.

NOTE: Outstanding tax liabilities refer to the amount of tax due from the
taxpayer who failed to pay the same within the prescribed time for payment.
Hence, the taxpayer-claimant shall settle first the outstanding tax liabilities, if
there are any. (Section II (1) of RMO No. 11-2014)

What are the documentary requirements?

1. The taxpayer-claimant shall ensure that the required schedules are in

Microsoft Excel file format and in hard and soft copies.

2. The soft copy of said schedules shall be saved either in a flash drive or
memory stick to be submitted to the BIR.

3. For certifications and affidavits, it shall only be the taxpayer-claimant’s

authorized representative that can sign these documents. Otherwise, the BIR
may request for the revision of the same.

NOTE: Only original copies of said documents shall be submitted.

4. The taxpayer may also be required to submit documents obtained from

government agencies; thus, it is necessary that the issuing agency certifies the
authenticity of the documents requested.

5. If the documents are obtained abroad, these documents must be

consularized.

NOTE: If the document obtained abroad is written in foreign language other

than English, the said document shall be translated to English.

6. The taxpayer-claimant or its authorized representative shall present the

original copies of invoices/receipts for sales and purchases with the
photocopies for validation by the assigned Revenue Officers (ROs).

NOTE: The original copy of said documents shall be returned to the taxpayer-
claimant after it has been stamped with “VAT Refund Claimed”. The validation
and stamping may be performed at the registered address of the taxpayer-
claimants in case the original copies of said invoices/receipts are voluminous.
However, the taxpayer may be required to file a written request before the
validation and stamping can be transferred at its business registered address .

7. The assigned revenue officers may request in writing for the presentation
of books of accounts and accounting records relevant to the refund
application.
 NOTE: Failure to present these documents shall also be a ground for the denial
of the application.

Refund or tax credit

of excess input tax; How will the BIR process the input VAT refund?
procedure
1. Verify the completeness of the documentary requirements;
2. Examine each sales invoice for goods or properties or official receipts for
services and determine compliance with invoicing requirements (name of
company, tax identification number, address, VAT;
3. Examine sales invoices or official receipts issued by applicant to determine
compliance with stamping or imprinting “zero-rated” under the rules;
4. Verification of the BIR System for validity of taxpayer registration and authority
to print of applicant and suppliers;
5. Conduct of tax assessment for the covered quarters or years applied for VAT
refund or tax credit certificates;

NOTE:
 Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within 120 days from the date
of submission of complete documents in support of the application.

 In case of full or partial denial of the claim for tax refund or tax credit,
or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the 120-day period,
appeal the decision or the unacted claim with the Court of Tax
Appeals.

REGISTRATION REQUIREMENT (Section 236, NIRC)

Compliance
requirements 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 for VAT with the appropriate Revenue District Officer (RDO) if:

1. Gross sales or gross receipts for the past 12 months have exceeded P3,000,000,
other than those that are exempt under Sec. 109 (A) to (V); or
2. There are reasonable grounds to believe that his gross receipts or gross sales in
the next 12 months shall exceed P3,000,000, other than those that are exempt
under Sec. 109 (A) to (V) (Sec. 236(G), NIRC).

Failure to register as VAT taxpayer

He shall be held liable to pay the tax as if he is a VAT registered person but he
cannot avail of the input tax credit for the period that he has not properly
registered (Sec. 236(G), NIRC).

Business Effect
Gross sales exceed P3,000,000 Mandatory VAT registration. Generally
liable to pay 12% VAT.
 Subject to optional VAT
 registration
Gross sales exceed P100,000, but do not  If VAT-registered: generally
exceed P3,000,000. liable to pay 12% VAT
 If non-VAT registered: generally
liable to pay 3% percentage tax
Gross sales do not exceed P100,000  Subject to optional VAT
Compliance
(marginal income earners) registration
requirements
 If VAT-registered: generally
liable to pay 12% VAT
 If non-VAT registered:
exempted from VAT and
percentage tax.

Optional Registration (Sec.236(H), NIRC)

The following VAT-exempt or zero-rated transactions may be registered under VAT not
later than 10 days before the beginning of a taxable quarter and shall pay the registration
fee prescribed above:

1. Any person who is VAT-exempt under Sec. 4.109-1(B)(1)(V) of RR 16-2005 not

required to register for VAT may, in relation to Section 4.109-2, elect to be VAT
registered by registering with the RDO that has jurisdiction over the head office
of that person, and pay annual registration fees of PhP500 for every separate
and distinct establishment.
2. Any person who is VAT-registered but enters into a transaction which is exempt
from VAT (mixed transactions) may opt that the VAT apply to his transaction
which would have been exempt under Section 109(l) of the NIRC.
3. Franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed PhP10 million derived from the
business covered by the law granting the franchise may opt for VAT registration.
This option, once exercised shall be irrevocable. (Section 119, Tax Code)

Any person who is not required to register but opts to register shall not be
allowed to cancel his/her registration for the next three (3) years.

INVOICING REQUIREMENTS (Sec.113 (A) and (B), NIRC)

All VAT-registered persons who sell, barter or exchange goods, properties or services
shall issue a VAT invoice or receipt indicating therein, among others, the following
information:

a. A statement that the seller is a VAT-registered person, followed by his taxpayer’s

identification number (TIN);
b. Total amount which the purchaser pays or is obligated to pay to the seller with
the indication that such amount includes the VAT: Provided, that:

i) The amount of the tax shall be shown as a separate item in the invoice
or receipt
 NOTE: Under R.R. 18-2011 (November 21, 2011), in case of failure to
indicate the VAT as a separate item in the sales invoice or official
receipt, a fine of not less than P1,000 but not more than P50,000 shall,
upon conviction, be collected for each act or omission in addition to
imprisonment of not less than 2 years but not more than 4 years.

Compliance ii) If the sale is exempt from VAT or zero-rated, the term VAT exempt or
requirements
zero-rated sale shall be written or printed prominently on the invoice
or receipt; and

NOTE: The failure to print the word “zero-rated” in the invoice/receipts

is fatal to a claim for credit/refund of input VAT on zero rated sales.

iii) If the sale involves goods, properties or services some of which are
subject to VAT and some of which are VAT zero-rated or VAT-exempt,
the invoice or receipt shall clearly indicate the breakdown of the total
amount of sale between its taxable, exempt and zero rated
components, and the calculation of the VAT on each portion of the
sale: Provided, That the seller may issue separate invoices or receipts
for the taxable, exempt and zero-rated components of the sale

c. The date of transaction, quantity, unit cost and description of the goods or
properties or nature of service; and
d. In the case of sales in the amount of PhP1,000 or more where the sale or
transfer is made to a VAT-registered person, the name, business style, if any,
address and the TIN of the purchaser, customer or client.

Invoicing Requirements for Transactions Deemed Sale

1. Transfer, use or consumption not in the ordinary course of business of

goods or properties originally intended for sale or for use in the ordinary
course of business: a memorandum entry in the subsidiary sales journal to
record withdrawal of goods for personal use is required. (Sec. 106, (B)(1), NIRC)
2. Distribution or transfer to shareholders or creditors and consignment of
goods if actual sale is made within 60 days after the date of such
consignment: an invoice shall be prepared at the time of the occurrence of the
transaction, which should include, all the information prescribed in Sec. 113-1.
The data appearing in the invoice shall be duly recorded in the subsidiary sales
journal. The total amount of “deemed sale” shall be included in the return to be
filed for the month or quarter. (Sec. 106 (B)(2), NIRC)
3. Retirement or cessation of business: an inventory shall be prepared and
submitted to the RDO who has jurisdiction over the taxpayer’s principal place of
business not later than 30 days after retirement or cessation from business. (Sec.
106(B)(4), NIRC)

Effect of using VAT Invoices over Non-VAT Sales

1. The sale will be subject to VAT (only output)
2. There will be no creditable Input VAT
3. The taxpayer is still subject to OPT
4. Business may be suspended
 FILING OF RETURNS AND PAYMENT

Persons required to file a VAT Return

1. Every person or entity who in the course of trade or business, sells or leases
goods, properties, and services subject to VAT, if the aggregate amount of
actual gross sales or receipts exceed P3,000,000 for any 12- month period
2. A person required to register as VAT taxpayer but failed to register
Compliance 3. Any person who imports goods
requirements
4. Professional practitioners whose gross fees exceed P3,000,000 for any 12-month
period.

Filing of Return

Every taxable person is required to account for and pay VAT by reference to each
accounting period consisting of three months, referred to as a taxable quarter.
a. A VAT declaration for the month (form 2550M) must be filed within 20 days
after the end of the month concerned
b. A VAT return covering the amount of his gross sales or receipts and purchases
for the prescribed taxable quarter (for 2550Q) must be filed by the taxable
person within 25 days following the close of the quarter to which it relates (Sec.
114, NIRC)

Only one consolidated return shall be filed by the taxpayer for his principal
place of business or head office and all branches (Sec. 114[A], NIRC).

Monthly 2550M VAT Declaration 20th

Quarterly 2550Q VAT Return 25th

Other Special Transactions

1. Cancellation of VAT registration
Any person, whose registration has been cancelled in accordance with Section
236, shall file and pay a return within 25 days from the date of cancellation of
registration;

NOTE: Under Section 236 of NIRC, a VAT – registered person may cancel his
registration for VAT if:
a. He makes written application and can demonstrate to the commissioner’s
satisfaction that his gross sales or receipts for the following twelve (12)
months, other than those that are exempt under Section 109(A) to (U), will
not exceed P3,000,000 or

b. He has ceased to carry on his trade or business, and does not expect to
recommence any trade or business within the next twelve (12) months

The cancellation of registration will be effective from the first day of the
following month (Sec. 236 (F), NIRC).

2. VAT on sale of refined sugar

Payable in advance by the owner/seller to the BIR through the sugar refinery.
The advance payment must be made prior to or upon the issuance of the
 refined sugar release order or similar instruments. However, the owner-seller
may withdraw his refined sugar from the sugar mill or refinery warehouse with
advance payment of the tax if it will not be locally sold but rather for use
exclusively as raw material in the manufacture of sugar-based food products
intended for zero-rated export (VAT Ruling No. 198-90, September 14, 1990).

3. VAT on sale of flour

The VAT on the sale of flour milled from imported wheat shall be paid in
Compliance
advance prior to the withdrawal of the imported wheat from customs custody
requirements
based on the formulate prescribed in the regulation (Rev. Regs. No. 29-2003,
October 30, 2003). Purchases by flour millers of imported wheat from traders
shall also be subjected to advance VAT and shall be paid by the flour miller prior
to delivery (Sec. 4.114-1 (B) (2), Rev. Regs. No. 16- 05).

Where to File the Return and Pay the Tax

General Rule: It shall be filed with and the tax paid to

1. An Authorized Agent Bank (AAB);
2. Revenue Collection Officer (RCO); or
3. Duly authorized city or municipal Treasurer, where such Treasurer is
a. Within the Philippines; and
b. Located within the revenue district where the taxpayer is registered or
required to register (Sec. 114[B]).

Exception: As the Commissioner otherwise permits

WITHHOLDING OF FINAL VALUE-ADDED TAX ON SALES TO GOVERNMENT

(Sec.114©, NIRC)

The government or any of its political subdivisions, instrumentalities or agencies,

including government-owned or - controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods and services which are
subject to VAT imposed in Sections 106 and 108 of the NIRC, deduct and withhold a
final VAT at the rate of 5% of the gross payment thereof.

Note: The 5% final VAT withholding rate shall represent the net VAT payable of the
seller. The remaining 7% effectively accounts for the standard input VAT for sales of
goods or services to government or any of its political subdivisions, instrumentalities
or agencies including GOCC’s, in lieu of the actual input VAT directly attributable or
ratably apportioned to such sales. Should actual input VAT attributable to sale to
government exceeds 7% of gross payments, the excess may form part of the sellers’
expense or cost. On the other hand, if actual input VAT attributable to sale to
government is less than 7% of gross payment, the difference must be closed to
expense or cost. (Sec. 4.114-2 (a), RR 4-2007)
Compliance
requirements
In addition, the government or any of its political subdivisions, instrumentalities or
agencies, including GOCCs, as well as private corporations, individuals, estates and
trusts, whether large or non-large taxpayers, shall withhold 12% VAT with respect to
the following:
 a. Lease or use of properties or property rights owned by non-residents;
b. Services rendered to local insurance companies, with respect to reinsurance
premiums payable to non-residents; and
c. Other services rendered in the Philippines by non-residents.

The payor or person in control of the payment shall be the withholding agent.
The tax so withheld shall be remitted within 10 days following the end of the
month the withholding was made.

ADMINISTRATIVE AND PENAL SANCTIONS

PERCENTAGE TAXES

It is a tax imposed on sale, barter, exchange or importation of goods, or sale of

services based upon gross sales, value in money of receipts derived by the manufacturer,
producer, importer or seller measured by certain percentage of the gross selling price or
receipts. If the transaction is subject to OPT, it is no longer subject to VAT. Nonetheless,
OPT as well as VAT may be imposed together with excise taxes

Business subject to Other Percentage Tax

a. Persons exempt from VAT
b. Domestic Carriers
c. International Carriers
Concept and Nature d. Franchise holders of water, gas, telephone and radio companies
e. Overseas Communication
f. Banks and Non-Bank Financial Intermediaries
g. Finance Companies
h. Amusement places
i. Winnings from racehorse
j. Sale of shares of stock traded thru the local stock exchange

Section Tax Base Tax Rate

(116) Tax on persons exempt from VAT Gross Quarterly Sales or 3%
because their annual gross sales/receipts Receipts
do not exceed P3,000,000 and are not
VAT registered enterprises
(117) Percentage tax on domestic carriers Gross Quarterly Receipts 3%
and keepers of garages, common carriers
by land
(118) International carriers Gross Quarterly Receipts 3%
(119) Tax on Franchises
 On gas, water utilities Gross Receipts 2%
 On radio, telephone, Gross Receipts 3%
broadcasting corp.
(120) Overseas dispatch messages or Receipts from such Gross 10%
conversation originating from the Quarterly services
Philippines
Exempted from Sec.120 are: (DING)
 Diplomatic services
 International organizations
  News services
 Government

(121) Banks and non-bank financial Gross receipts from the

intermediaries, money changers and Philippines
pawnshops
 Maturity period is 2 years or less 5%
Maturity period is more than 2 3%
years but less than 5 years
Concept and Nature Maturity period is more than 5 1%
years but less than 7 years
Maturity period is more than 7 0%
year
 On dividends and equity shares 0%
in income of subsidiaries
 On royalties, rentals of property, 5%
real or persona, profits from
exchange and all other items
treated as gross income under
Sec.32 of the NIRC
 On net trading gains on foreign 5%
currency, debt instruments, and
other similar financial
instruments, and other similar
financial instruments
(122) Finance companies
 From lending Gross receipts 5%, 3%, 1%
and 0%
 From other sources Gross income 5%
(123) Tax on life insurance Insurance premiums 5%
collected
(124) (a) agents of foreign insurance Insurance premiums 10%
companies (fire/marine or miscellaneous collected
insurance agent)
(b) owners of property who On premiums paid 5%
obtain insurance directly with
foreign companies
(125) Amusement taxes
 Cockpits Gross receipts 18%
 Cabarets, night/day clubs Gross receipts 18%
 Boxing exhibitions Gross receipts 10%
 Professional basketball games Gross receipts 15%
 Jai-alai & race tracks Gross receipts 30%
(126) Tax on winnings
 Owners of winning race horses Prizes 10%
 Winner of prizes in double Net of the ticket cost 4%
forecast/quinella & trifecta bet
 Persons winning not in double Net of the ticket cost 10%
forecast/quinella & trifecta bet
Concept and Nature (127-A) Sale or barter or exchange of Gross selling price or gross 6/10 of 1%
shares of stock listed and traded through value in money of the
 the local stock exchange other than sale shares of stock sold,
by a dealer in securities bartered, exchanged, or
otherwise disposed
(127-B) Tax on shares sold or exchanged
through initial public offering;

Proportion of shares sold, bartered, or

exchanged or disposed of the
outstanding shares of stock after the
listing in the LSE
 Up to 25% Gross selling price 4%
 Over 25% to 33 1/3% Gross selling price 2%
 Over 33 1/3% Gross selling price 1%
(Adopted from Quicknotes on Taxation by J. De Vera)

EXCISE TAX
Concept:
 It refers to taxes applicable to certain specified goods or articles manufactured
or produced in the Philippines for domestic sale or consumption or for any
other disposition and to things imported into the Philippines. Excise tax is
essentially a tax on property. (Sec. 129, NIRC; Chevron Philippines, Inc. v. CIR,
G.R No. 210836 September 1, 2015).
 It is “a tax upon the performance, carrying on, or exercise of some right,
privilege, activity, calling or occupation. This is derived from American
Jurisprudence. Examples are income tax, transfer tax, VAT, percentage tax and
documentary stamp tax. The meaning of “excise tax” has undergone a
Concept and Nature
transformation, morphing from the Am Jur definition to its current signification
in the NIRC which is a tax on certain specified goods or articles.

Nature:
1. Direct tax
The production, manufacture or importation of the goods belonging to any of
the categories enumerated in Title VI of the NIRC (i.e., alcohol products, tobacco
products, petroleum products, automobiles and non-essential goods, mineral
products) are not the sole determinants for the proper levy of the excise tax. It is
further required that the goods be manufactured, produced or imported for
domestic sale, consumption or any other disposition. The accrual of the tax
liability is, therefore, contingent on the production, manufacture or importation
of the taxable goods and the intention of the manufacturer, producer or
importer to have the goods locally sold or consumed or disposed in any other
manner. This is the reason why the accrual and liability for the payment of the
excise tax are imposed directly on the manufacturer or producer of the taxable
goods, and arise before the removal of the goods from the place of their
production (Separate opinion of J. Bersamin in CIR v. Pilipinas Shell Petroleum
Corp., G.R. No. 188497, 2014)

2. Computed based on Ad valorem or specific tax

a. Specific tax - imposed and based on weight or volume capacity or any
other physical unit of measurement
b. Ad valorem tax - imposed and based on the selling price or other specified
value of the goods
 Who are subject to Excise Tax?
A. Manufacturers or/and
B. Importers of
1. Alcohol Products (Sections 141-143)
a. Distilled Spirits (Section 141)
b. Wines (Section 142)
c. Fermented Liquors (Section 143)

2. Tobacco Products (Sections 144-146)

a. Tobacco Products (Section 144)
b. Cigars & Cigarettes (Section 145)
Concept and Nature c. Inspection Fee (Section 146)

3. Petroleum Products (Section 148)

4. Miscellaneous Articles (Section 149-150)
a. Automobiles (Section 149)
b. Non-essential Goods (Section 150)
5. Mineral Products (Sections 151)
(www.bir.gov.ph)

NOTE:
 Oil companies are exempt from the payment of excise tax on petroleum
products manufactured and sold by them to international carriers. Section 135
(a), in fulfillment of international agreement and practice to exempt aviation fuel
from excise tax and other impositions, prohibits the passing of the excise tax to
international carriers who buys petroleum products from local
manufacturers/sellers. (CIR v. Pilipinas Shell Petroleum Corporation, G.R. No.
188497. February 19, 2014)

 Pursuant to Section 135(c), petroleum products sold to entities that are by law
exempt from direct and indirect taxes are exempt from excise tax. The phrase
“which are by law exempt from direct and indirect taxes describes the entities to
whom the petroleum products must be sold in order to render the exemption
operative. Section 135(c) should thus be construed as an exemption in favor of
the petroleum products on which the excise tax was levied in the first place. The
exemption cannot be granted to the buyers — that is, the entities that are by
law exempt from direct and indirect taxes — because they are not under any
legal duty to pay the excise tax. (Chevron Philippines, Inc. vs. Commissioner of
Internal Revenue, G.R. No. 210836, September 1, 2015)

DOCUMENTARY STAM TAX

In General — the documentary stamp taxes under Title VII of NIRC is a tax on certain
transactions. It is imposed against "the person making, signing, issuing, accepting, or
transferring" the document or facility evidencing the aforesaid transactions. Thus, in
general, it may be imposed on the transaction itself or upon the document underlying
such act. Any of the parties thereto shall be liable for the full amount of the tax due:
Provided, however, that as between themselves, the said parties may agree on who shall
be liable or how they may share on the cost of the tax.

Exception — whenever one of the parties to the taxable transaction is exempt from the
 tax imposed under Title VII of the Code, the other party thereto that is not exempt shall
be the one directly liable for the tax (RR 09-00).
Applicability:
1. On deeds of sale and conveyance of real property.

All conveyances, deeds, instruments, or writing, other than grants, patents or

original certificates of adjudication issued by the Government, whereby any
land, tenement or other realty sold shall be granted, assigned, transferred or
otherwise conveyed to the purchases, or purchasers, or to any other persons
Concept and Nature
designated by such purchaser or purchasers, shall be collected a documentary
stamp tax, at the rates herein below prescribed based on the consideration
contracted to be paid for such realty or on its fair market value as determined
by the Commissioner or fair market value as shown in the schedule of values of
the Provincial and City Assessors, whichever is higher. Provided that when one
of the contracting parties is the Government, the tax herein shall be based on
the actual consideration.

a. When the consideration, or value received or contracted to be paid for such

realty, after making proper allowance of any encumbrance, does not exceed
P1,000, P15,000; and
b. For each additional P1,000, or fractional part consideration or value,
P15,000.

2. On sales, agreement to sell, memoranda of sales, deliveries or transfer of shares

or certificates of stock (not through the local stock exchange).

There shall be collected documentary stamp tax at the rate of P1.50 on each
P200 or fractional part thereof, of the par value of the share of stock. (Sale,
barter, or exchange of shares of stock listed and traded through local stock
exchange is now permanently exempt from the payment of DS, effective March
20, 2009, under RA 9648)