VAT
Nature
1) A business tax. In effect, a sales tax.
2) Indirect tax – burden can be shifted by the seller to the buyer.
3) Imposed:
(a) On the gross selling price if sale, barter, or exchange of goods or properties
or
(b) On the gross receipts if sale of services, or in the lease or use of properties
in the course of trade or business;1
(c) On the total value or landed cost, if importation of goods, whether or not in
the course of business.
4) How Computed? Tax Credit Method: Output Tax less Input Tax
Summary of Tax Consequences of VAT-Taxable and VAT-Exempt
Transactions
Kind of Transaction
Tax Consequences
A. VAT-Taxable transactions:
1.
B.
Sales or leases taxed at
12%
(a)
(b)
(c)
(d)
Seller is subject to VAT at 12%;
Seller is entitled to input tax credit;
Seller pays excess of output tax over input tax to the BIR;
Seller can carry-over excess input taxes to succeeding
quarter(s).
2. Sales or leases taxed at 0%
(zero-rated)
(a) Seller is subject to VAT at 0%;
(b) Seller is entitled to input tax credit;
(c) Seller can claim refund or tax credit for input taxes;
Exempt transactions
(a)
(b)
(c)
(d)
Seller is exempt from VAT;
Seller cannot separately bill output tax to his customers;
Seller is not entitled to input tax credit;
Seller shall be liable to VAT if he issues VAT invoice or
receipt, but without the benefit of input tax credit.
1
Likewise, transactions that are made incidental to the pursuit of a commercial or economic activity are
considered in the course of trade or business. Incidental means something else as primary. It is something
necessary, appertaining to, or depending upon another which is termed the principal. Hence, an isolated
transaction is not necessarily disqualified from being made incidentally in the course of trade or business.
Thus, a sale in the course or furtherance of business includes: (1) the disposition of the assets and liabilities
of a business; (2) the disposition of a business as a going concern; and (3) anything done in connection with
the termination or intended termination of a business (CS Garments, Inc. vs. CIR, CTA EB Case No. 287,
January 14, 2008; RMC No. 15-2011).
1
REGISTRATION FOR VAT
Mandatory Registration
Optional Registration
1) Sellers whose gross sales/receipts on ALL 1) Any person who is not subject to mandatory
lines of non-exempt businesses2 for the
registration because his actual or expected
past 12 months exceed ₱3,000,000.
gross sales/receipts from non-exempt
businesses for the past 12 months do not
exceed ₱3,000,000.
2) Sellers whose expected sales/receipts for 2) Any VAT-registered person who has other
the next 12 months from ALL lines of nonlines of business which are VAT-exempt.
exempt businesses exceed ₱3,000,000.
The VAT-exempt business must not be the
main line of business.
Note: In (1) and (2), the registration shall be
irrevocable for the next 3 years.
3) Franchise grantees of radio and/or TV 3) Franchise grantees of radio and/or TV
broadcasting whose annual sales for the
broadcasting whose annual sales ≤ ₱10 M.
last taxable year exceed ₱10,000,000.
Note: Registration is irrevocable.
Benefit: The VAT-registered person is entitled Benefit: The customers or clients of the
taxpayer will be able to reduce their
to input tax credits.
VAT payables by using the input tax
credits from their purchases from the
taxpayer.
Notes:
1) Registration is required for every separate or distinct establishment or place of business
where sales transactions occur except a warehouse without sales transactions.
2) Each VAT-registered person shall be assigned one (1) TIN. The branch shall use the 9digit TIN of the head office + a 3-digit branch code.
3) For those who are not registered, but become liable to VAT:3
A non-VAT taxpayer who initially presumed that his gross sales/receipts plus other nonoperating income for the taxable year will not exceed the ₱3,000,000 VAT threshold but
has actually exceeded the same during the taxable year, shall immediately update his
registration to reflect the change in tax profile from non-VAT to VAT taxpayer.
He is required to update his registration immediately within the month following the month
he exceeded the VAT threshold. And he shall be liable to VAT prospectively starting on
the first day of the month following the month when the threshold is breached.
4) Annual registration fee: ₱500 for every separate or distinct place of business where sales
transactions occur.
Cooperatives are exempted from the registration fee.
5) VAT Registration Certificate and Registration Fee Return must be posted in a conspicuous
place in the place of business.
2
3
VATable businesses (i.e. those subject to 12% VAT, 0% VAT, and 5% VAT on sales to the government).
RR 8-2018.
2
Effect of Failure to Register by Persons Required to VAT-Register
1) Liable to VAT on their sales;
2) Cannot separately bill output VAT to customer. In other words, the taxpayer cannot
shift the VAT burden to his customers;
3) No input tax credits on their purchases;
4) Fines and sanctions (ex. OPLAN KANDADO: suspension of operations or closure of
business ≥ 5 days).
Cancellation of Registration
A VAT-registered person may cancel his VAT-registration if:
1) He makes a written application showing that his gross sales or receipts (excluding
exempt sales) in the next 12 months shall not exceed ₱3,000,000; or
2) He ceases business;
3) There is a change in ownership in the case of a single proprietorship;
4) Dissolution of the partnership or corporation;
5) Merger or consolidation with respect to the dissolved corporation;
6) Failure to actually start business;
7) Business becomes exempt;
8) A person who voluntarily registers and then applies for cancellation after the lapse of
3 years;
9) A VAT-registered person whose gross sales or receipts for 3 consecutive years did not
exceed ₱3,000,000 beginning January 1, 2018.
Summary: Persons Subject to VAT
1) Those engaged in the selling or leasing of goods, properties, or services subject to
VAT and registered regardless of the level of sales;
2) Those engaged in the selling or leasing of goods, properties or services subject to
VAT, whose gross sales or receipts during the year or in any 12-month period
>₱3,000,000, whether or not registered;
Note: For purposes of the threshold of ₱3,000,000, husband and wife shall be
considered separate taxpayers.
3) Those who are VAT-registered and who have VAT-exempt businesses which they
choose to register under the VAT-system, regardless of level of sales;4
4) Franchise grantees of radio and/or TV broadcasting whose gross annual receipts do not
exceed ₱10 Million, but are registered;
5) Importers of goods, whether or not in the course of trade or business, regardless of the
amount of purchase.
Note: Unless specifically exempted by law, even a non-stock, non-profit organization or
government entity is liable to pay VAT on the sale of goods or services. As long
as the entity provides goods or services for a fee, remuneration or consideration,
then such sale is subject to VAT.
4
The exempt business(es) must be minor line(s) of business of a VAT-registered person.
3
ZERO-RATED TRANSACTIONS
- Does not result in output VAT, but the taxpayer is entitled to input VAT which shall be
available either as a tax credit or as a refund, IF taxpayer is registered.
-
IF not registered, the sales of the taxpayer will be considered VAT-exempt sales.
(I) Zero-Rated Sales of Goods
(a) Export sales of goods
1) Sale of goods to a foreign country and paid for in acceptable foreign currency;
2) Sale of raw materials or packaging materials to a non-resident buyer for delivery to
a resident export-oriented enterprise, and paid for in acceptable foreign currency;
3) Sale of raw materials or packaging materials to export-oriented enterprises whose
export sales exceed 70% of total annual production;
4) Considered export sales under E.O. No. 226 (the Omnibus Investment Code), and
other special laws:
(a) Sales to bonded manufacturing warehouses of export-oriented manufacturers;
(b) Sales to registered export traders operating bonded trading warehouses
supplying raw materials in the manufacture of export products;
(c) Sales to a BOI-registered producer whose products are 100% exported.
5) Sale of goods, supplies, equipment, and fuel to persons engaged in international
shipping or international air transport operations. Provided, that the sale of such
goods and fuel shall pertain to the transport of goods and passengers from a
Philippine port directly to a foreign port, or vice-versa, without docking or
stopping at any other port in the Philippines.
Note: The transactions under items (2), (3), and (4) above shall be subject to the 12%
VAT, and shall no longer be considered export sales subject to 0% VAT, upon the
satisfaction of the following conditions:
(1) The successful establishment and implementation of an enhanced VAT refund
system that grants refunds of creditable input taxes within ninety (90) days
from the filing of the VAT refund application with the BIR; and
(2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in
cash by December 31, 2019.5
(b) Effectively zero-rated sales
Local sales by VAT-registered persons to persons or entities deemed tax-exempt (i.e.,
granted exemption from indirect taxes) under a special law or international agreement,
such as:
(1) Enterprises registered with the SBMA, CDA, PEZA, and other export processing
zones;
(2) ADB; IRRI.
(3) Sales to diplomatic missions and other agencies or instrumentalities granted tax
immunities;
(4) Regional or area headquarters of (RHQs) of multinational corporations enjoying
VAT 0-rating on its purchases at the time of effectivity of the TRAIN; and
(5) Other persons/entities who are entitled to 0% VAT on purchases6.
5
6
Sec. 106(A)(2), NIRC; Sec. 4.106-5, Rev. Reg. No. 16-2005 as amended by Rev. Reg. No. 13-2018.
0% VAT on purchases is another way of saying that the purchaser is exempt from the input VAT that is
normally charged by the seller.
4
II) Zero-Rated Sales of Services
The following services performed locally in the Philippines by VAT-registered persons
shall be subject to a 0% rate:
(1) Processing, manufacturing, or repacking goods for other persons which goods are
subsequently exported, and which are paid for in acceptable foreign currency;
(2) Services other than those in (1), rendered to a person engaged in business conducted
outside the Philippines, or to a non-resident person not engaged in business and who
is outside the Philippines, and which are paid for in acceptable foreign currency;
(3) Services rendered to persons/entities whose exemption under special laws or
international agreements effectively subjects the supply of such services to a 0%
rate7;
(4) Services rendered to persons engaged in international shipping or international air
transport operations, including leases of property for use thereof; Provided, that the
sale of services shall pertain to the transport of goods and passengers from a
Philippine port directly to a foreign port, or vice-versa
(5) Services performed by subcontractors or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed 70% of total annual
production;
(6) Transport of passengers and cargo by domestic air or sea carriers from the
Philippines to a foreign country.
Note: Transport of passengers and cargo by domestic air or sea carriers from a
foreign country to the Philippines is EXEMPT from business taxes
including the VAT for lack of jurisdiction.
(7) Sale of power or fuel generated through renewable sources of energy such as solar,
wind, biomass, geothermal, and ocean energy.
Note: Zero-rating does not extend to the sale of services related to maintenance or
operating of plants generating said energy.
Note: The transactions under items (1) and (5) above shall be subject to the 12% VAT,
and shall no longer subject to 0% VAT rate, upon the satisfaction of the following
conditions:
(1) The successful establishment and implementation of an enhanced VAT
refund system that grants refunds of creditable input taxes within ninety (90)
days from the filing of the VAT refund application with the Bureau; and
(2) All pending VAT refund claims as of December 31, 2017 shall be fully paid
in cash by December 31, 2019.8
7
8
Effectively 0-rated sales of services.
Sec. 108(B), NIRC; Sec. 4.108-5, Rev. Reg. No. 16-2005 as amended by Rev. Reg. No. 13-2018.
5
VAT-EXEMPT TRANSACTIONS
-
The sale shall not be subject to output VAT, but the seller is not allowed any ITC9.
Seller cannot bill any output VAT to his customers.
If the seller issues a VAT invoice or receipt without being VAT-registered, he shall be
liable to the output VAT without the benefit of any ITC.
(A) VAT exemption under Section 109 of the Tax Code:
(1) Sale or importation of (a) agricultural and marine food products in their original state, (b)
livestock or poultry of a kind generally used as, or yielding or producing foods for human
consumption; and (c) breeding stock and genetic materials therefor;
“Original state” - Meat, fruit, fish, vegetables, and other agricultural and marine food
products classified under this paragraph shall be considered in their
original state even if they have undergone the simple processes of
preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking, or stripping, 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,
ordinary salt, and copra shall be considered in their original state.
“Livestock or Poultry”
- Does not include fighting cocks, race horses, zoo animals, and other
animals generally considered as pets.
Notes: a) Sale of bagasse is not exempt from VAT.
b) Fresh water is not an agricultural product, but is considered a mineral. The sale
thereof is not exempt from VAT.
(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 (except specialty feeds for race horses, fighting
cocks, aquarium fish, zoo animals and other animals generally considered as pets);
(3) Importation of personal and household effects belonging to the residents of the
Philippines returning from abroad, and non-resident citizens coming to the Philippines:
Provided, that such goods are exempt from Philippine customs duties;
(4) Importation of (a) professional instruments and implements; (b) tools of trade, occupation
or employment; (c) wearing apparel; (d) domestic animals; and (e) personal household
effects (except any vehicle, aircraft, machinery, and other goods for use in the manufacture
and merchandise of any kind in commercial quantities), belonging to overseas Filipinos10,
in quantities and of the class suitable to the profession, rank, or position of the persons
importing said items, for their own use and not for sale, barter, or exchange, accompanying
such persons, or arriving within a reasonable time;
(5) Services subject to percentage tax under Title V of the Tax Code (Secs. 116-127, Tax
Code);
9
Input Tax Credit.
Overseas Filipinos shall refer to persons coming to settle in the Philippines, or Filipinos or their families
and descendants who are now residents or citizens of other countries.
10
6
(6) Services by agricultural contract growers11, and milling for others of palay into rice, corn
into grits, and sugar cane into raw sugar;
(7) Medical, dental, hospital, and veterinary services except those rendered by
professionals;
Note: Lab services are exempt.
Sale of drugs and medicines are VATable, generally. Therefore, if the hospital or
clinic operates a drug store, the sale of drugs and medicine shall be subject to VAT.
However, the sale of the same to in-patients are considered part of hospital services,
and shall therefore be VAT-exempt.
(8) Educational services rendered by private educational institutions, duly accredited by the
Department of Education (“DepEd”), the Commission on Higher Education (“CHED”),
the Technical Education and Skills Development Authority (“TESDA”), and those
rendered by government educational institutions;
(9) Services rendered by individuals pursuant to an employer-employee relationship;
(10) Services rendered by regional or area headquarters (“RHQs”) established in the Philippines
by multinational corporations which act as supervisory, communications, and coordinating
centers for their affiliates, subsidiaries, or branches in the Asia-Pacific Region, and do not
earn or derive income from the Philippines;
(11) Transactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws, except those under PD 52912;
(12) Sales by agricultural cooperatives duly registered with 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,13 to non-members; and their
importation of direct farm inputs, machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the production and/or processing of their
produce;
(13) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with and in good standing with the Cooperative Development Authority;
(14) Sales by non-agricultural, non-electric, and non-credit cooperatives duly registered
with and in good standing with the Cooperative Development Authority: Provided, that
the share capital contribution of each member does not exceed Fifteen Thousand Pesos
(₱15,000).
Notes:
(a) 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.
11
12
13
Agricultural contract grower refers to a person/entity producing for others poultry, livestock, or other
agricultural and marine food products in their original state.
Petroleum Exploration Concessionaires under the Petroleum Act of 1949.
Sale by an agricultural cooperative of refined sugar is exempt from VAT and from the advance VAT
(CIR vs. Negros Consolidated Farmers Multi-Purpose Cooperative, S.C. (First Division), G.R. No.
212735, December 5, 2018).
7
(b) All electric cooperatives registered with the National Electrification Administration
(“NEA”) shall be subject to VAT on sales relative to the generation and distribution
of electricity as well as their importation of machineries and equipment, including spare
parts. Provided, however, 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) Export sales by persons who are not VAT-registered;
(16) The following sales of real properties are VAT-exempt:
(a) Sale of real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business;
Note: However, even if the real property is not primarily held for sale to customers
or held for lease in the ordinary course of trade or business, but the same is
used in the trade or business of the seller, the sale thereof shall be subject to
VAT being a transaction incidental to the taxpayer’s main business.14
(b) Sale of real properties utilized for low-cost housing and socialized housing as defined
by R.A. No. 7279, and other related laws;
(c) House and lot, and other residential dwellings with a selling price of not more than
₱3,199,200. Every three (3) years thereafter, the amount stated herein shall be adjusted
to its present value using the Consumer Price Index, as published by the Philippine
Statistics Authority (“PSA”).15, 16
New
(17) Lease of a residential unit17 with a monthly rental not exceeding Fifteen Thousand Pesos
(₱15,000), regardless of the amount of aggregate rentals received by the lessor during the
year;
Note: IF monthly rental of the residential units exceeds ₱15,000, they are placed in the
same category with commercial or industrial rental properties. If the aggregate
gross receipts during the taxable year from such category exceed ₱3,000,000, then
the receipts shall be subject to VAT. Otherwise, they will be subject to the 3%
OPT.
14
15
16
Sec. 4.109-1(B)(p), Rev. Reg. No. 16-2005, as amended by Rev. Reg. No. 4-2007.
Sec. 109(1)(P), NIRC; Sec. 4.109-1(B)(p), Rev. Reg. No. 16-2005, as amended by Rev. Reg. No. 8-2021.
Prior to January 1, 2021, the sale of the following residential real properties were VAT-exempt:
(1) Sale of residential lot valued at One Million, Five Hundred Thousand Pesos (₱1,500,000) and below;
(2) Sale of house and lot and other residential dwellings valued at Two Million, Five Hundred Thousand
Pesos (₱2,500,000) and below.
Note: For purposes of (1) above, if two (2) or more adjacent residential lots are sold or disposed in
favour of one buyer from the same seller, for the purpose of utilizing the same as one residential
lot, the sale shall be exempt from VAT only if the aggregate value of the properties do not exceed
₱1,500,000.
17
The term “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.
The term “unit” shall mean an apartment unit in the case of apartments, house in the case of residential
houses; per person in the case of dormitories, boarding houses and bed spaces; and per room in case of
rooms for rent.
8
(18) Sale, importation, printing, or publication of books and any newspaper, magazine, journal,
review bulletin, or any such educational reading material covered by the UNESCO
Agreement on the Importation of Educational, Scientific, and Cultural Materials, including
the digital or electronic format thereof. Provided, the materials enumerated herein are not
devoted principally to the publication of paid advertisements;18
Note: Sale of books, newspapers, magazines, etc. in electronic format are also VATexempt.
(19) Transport of passengers by international carriers;
Note: Transport of cargo by international carriers is also exempt from VAT because
they are subject to the OPT under Section 118 of the Tax Code.
(20) 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, the importation or purchase meets the requirements of the Maritime Industry
Authority (MARINA).
(21) Importation of fuel, goods, and supplies by persons engaged in international shipping or
air transport operations;
Provided, that the said fuel, goods, and supplies shall be used exclusively or shall pertain
to the transport of goods and/or passengers from a port in the Philippines directly to a
foreign port or vice-versa without docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine port is for the purpose of unloading
passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes
bound for abroad.
(22) Services of banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries, such as money changers and
pawnshops subject to percentage tax under Sections 121 and 122, respectively, of the Tax
Code;
(23) Sales or lease of goods and services to Senior Citizens and PWDs19, as provided under
R.A. Nos. 9994 and 10754;
(24) Transfer of property pursuant to Section 40(C)(2) of the Tax Code;
(25) Association dues, membership fees, and other assessments and charges collected by
homeowners’ associations, condominium corporations, and recreational clubs;
Note: The collection thereof is for the benefit of the unit owners or members. Moreover,
they do not arise from transactions involving the sale, barter, or exchange of goods
or property, or are generated by the performance of services.20
18
Sec. 109(1)(R), NIRC as amended by R.A. No. 11534.
19
The sale of items listed in RR 5-2017 as basic necessities and prime commodities to PWDs shall not be
exempt from the VAT (Sec. 7, Rev. Reg. No. 5-2017 as amended by Rev. Reg. No. 9-2019).
20
Association of Non-Profit Clubs, Inc. (“ANPC”) vs. CIR, Supreme Court (2nd Division), G.R. No.
228539, June 26, 2019; CIR vs. First E-Bank Tower Condominium Corporation, Supreme Court (1st
Division), G.R. No. 215801, January 15, 2020.
9
(26) Sale of gold to the BSP21;
(27) (a) Sale22 or importation of prescription drugs and medicines for:23
(i) Diabetes, high cholesterol, and hypertension beginning January 1, 2020;24 and
(ii) Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2021;
(iii) Drugs, vaccines, and medical devices prescribed and directly used for COVID-19
treatment beginning January 1, 2021 until December 31, 2023;25
NEW
(28) Sale or importation of capital equipment, its spare parts and raw materials, necessary
for the production of personal protective equipment components such as coveralls,
gowns, surgical caps, surgical masks, N-95 masks, scrub suits, goggles and face
shields, double or surgical gloves, dedicated shoes, and shoe covers, for COVID-19
prevention beginning January 1, 2021 to December 31, 2023.26
NEW
(29) Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Three Million Pesos (₱3,000,000).
For purposes of the threshold of ₱3,000,000, the husband and wife shall be considered
separate taxpayers.
21
Sale of gold and other metallic minerals to persons and entities, except sale of gold to the BSP, are
subject to 12% VAT if the gross selling price exceeds the threshold of ₱3,000,000.
22
The VAT exemption shall apply to the sale by manufacturers, distributors or wholesalers, and retailers
of drugs and medicines referred to in Section 109(1)(AA) of the Tax Code.
Manufacturer refers to any establishment engaged in any and all operations involved in the production
of drugs, including preparation, processing, compounding, formulating, filling, packaging, repackaging,
altering, ornamenting, finishing, and labelling with the end view of its storage for sale or distribution.
Provided, the term shall not apply to the compounding and filling of prescriptions in drugstores and
hospital pharmacies.
Distributor or Wholesaler means any establishment that purchases drugs in its final form, for wholesale
distribution to other establishments or outlets.
Retailer refers to any establishment that procures drugs prescribed in its final form, and licensed by the
FDA to carry on the retail business of sale of drugs directly to the general public (Joint Administrative
Order No. 2-2018 of the BIR, DOF, and DOH).
23
Sec. 109(1)(AA), NIRC as amended by R.A. No. 11467.
24
From January 1, 2019 to December 31, 2019, only the sale of drugs and medicines for diabetes, high
cholesterol and hypertension was exempt from the VAT. Importation of the same remained to be subject
to VAT (Rev. Reg. No. 25-2018).
25
Includes drugs for the treatment of COVID-19 approved by the Food and Drug Administration (“FDA”)
for use in clinical trials, including raw materials directly necessary for the production of such drugs (Sec.
109(1)(BB), NIRC as inserted by R.A. No. 11534).
26
The VAT-exemption in the importation of such equipment, supplies, inputs, and raw materials actually
began in March 25, 2020 under R.A. No. 11469.
10
(B) VAT exemption under Section 295 in Title XIII of the Tax Code:
NEW
(1) VAT exemption on importation, and VAT zero-rating on local purchases shall only apply
to goods and services directly and exclusively used in the registered project or activity by
a registered business enterprise.27
(2) The importation of COVID-19 vaccines shall be exempt from import duties, taxes, and
other fees, subject to the approval or licenses issued by the DOH or FDA. Provided, such
vaccines must not be intended for resale or other commercial use, and shall be distributed
without any consideration from persons to be vaccinated.28
(3) Crude oil that is intended to be refined at a local refinery, including the volumes that are
lost and not converted to petroleum products when the crude oil actually undergoes the
refining process, shall be exempt from the payment of applicable taxes and duties upon
importation.29
Provided, the applicable duties and taxes on petroleum products shall be payable only
upon lifting of the petroleum products produced from the imported crude oil.30
(C) VAT exemption under Special Laws/Regulations/Rulings
(1) Fees, per diems, allowances, and other income received by corporate directors from
corporations of which they are not employees;
(2) Sales by PEZA and other ecozone registered enterprises;
(3) Sales of services by professionals and other suppliers of services hired under a contract
for service or job order with the departments and agencies of the government, its
instrumentalities, local government units, state colleges and universities, including
GOCCs and government financial institutions (“GFIs”) shall be exempt from VAT.
Provided, (1) they derive gross receipts of not more than ₱250,000 in any 12-month
period, (2) such incomes are received from a LONE PAYOR, and (3) such professionals
have no other source of income.31
(4) Amounts of money received in trust which do not belong to the recipient and which
do not redound to the benefit of the recipient are not subject to VAT.32
(5) Services rendered within intra-company divisions are not services performed for
another person. Such intra-company divisions are considered one and the same entity for
financial reporting and income tax purposes. Though management fees are charged by
the division rendering the services, the same are not subject to VAT.33
(6) Importation of personal computers, laptops, tablets, or similar equipment
appropriate for use in schools, which are donated for distribution to public schools
NEW
27
Sec. 295(D), NIRC.
Sec. 295(E), NIRC.
29
Sec. 295(G), NIRC.
30
Ibid.
31
RMC No. 69-2017, as amended by RMC No. 51-2018.
32
BIR Ruling No. 242-2018, February 21, 2018; CIR vs. Tours Specialists, Inc., GR. No. 66416, March
21, 1990.
33
Mercury Group of Companies, Inc. vs. CIR, CTA Case No. 9531, September 6, 2019.
28
11
regardless of level, including state universities and colleges and vocational institutions
under TESDA, shall be exempt from import duties and taxes.34
Note: In case of foreign donations, the importation of personal computers, laptops,
tablets, or similar equipment, made from September 15, 2020 to December 19,
2020, by the Department of Education (“DEPED”), Commission on Higher
Education (“CHED”), or TESDA, shall be exempt from VAT. Provided, if the
importer/consignee is other than the aforementioned agencies, the importer
should present a Deed of Donation duly accepted by such agencies.35
34
35
Sec. 4(zzz), R.A. No. 11494.
Sec. 4(c), Rev. Reg. No. 26-2020.
12
VAT-TAXABLE SALE OF GOODS/PROPERTIES
1) VATatable sales – the sale must be (a) an actual sale (b) in the course of trade or business, of
goods or properties within the commerce of man.
2) Transactions deemed sale – transactions which lack one or both of the elements that makes a
sale VATable. Transactions (a) to (d) below are deemed sales so as to prevent the taxpayer
from evading payment of the output VAT.
Transaction (e), on the other hand, is treated as an actual sale to enable the recipients of the
goods or properties to avail of the input VAT credits on such transactions “deemed sale.”36
(a) 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.37
Transfer of goods or properties not in the course of business can take place when the VATregistered person withdraws goods from his business for his personal use.
(b) Distribution or transfer of goods or properties to:
(1) Shareholders or investors as property dividends; or
(2) Creditors in payment of debt or obligation.
(c) Consignment of goods if actual sale is not made within sixty (60) days following the date
such goods were consigned.
Note: Consigned goods returned by the consignee within the 60-day period are not
deemed sold;
(d) Transmission of property to a trustee IF:
(1) the property transferred is one for sale, lease, or use in the ordinary course of trade or
business, and
(2) the transfer constitutes a completed gift.38
36
From the point of view of the new owner of such goods/properties, it is a “deemed purchase”.
37
The following are not considered transactions deemed sale:
(a) Donations of (a) critical or needed healthcare equipment or supplies and (b) relief goods
such as, but not limited to, food packs (rice, canned goods, noodles, etc.) and water, given
to the entities enumerated in Rev. Reg. No. 9-2020, for the sole purpose of combatting the
COVID-19 virus during the period of the state of national emergency under R.A. No.
11469, shall not be treated as transactions deemed sale subject to VAT.
(b) In case of local donations of personal computers, laptops, tablets, or similar equipment (i.e.
mobile phones, printers), made from September 15, 2020 to December 19, 2020, for use in
teaching and learning in public schools,37 but where such goods were originally intended
for sale or for use in the course of business by the donor, the same shall not be treated as
transactions deemed sale subject to VAT. Furthermore, any input VAT attributable to the
purchase of such donated goods not previously claimed as input tax credit shall be
creditable against any output VAT.
38
The transfer is a completed gift if the transferor divests himself absolutely of control over the property,
i.e., an irrevocable transfer of the corpus and/or an irrevocable designation of the beneficiary.
13
(e) Retirement from or cessation of business with respect to inventories of taxable goods
(capital goods, stock-in-trade, supplies, materials) existing as of such retirement or
cessation, whether or not the business is continued by the new owner.
Examples of transactions deemed sale, and therefore VAT-taxable:
a) “Change of ownership of the business”. There is a 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.
c) Liquidating dividends where the assets of the corporation are distributed to the shareholders.
Examples of transactions not subject to VAT:
1) Change in the control of a corporation;
2) Merger or consolidation of corporations;
3) Change in the trade or corporate name.
OUTPUT VAT
-
12% of the gross selling price (“GSP”), exclusive or net of VAT, of the goods sold,
bartered, exchanged, or deemed sold in the Philippines, OR
12
/112 of the total invoice price (inclusive or gross of VAT).39
-
For 0-rated sales, the output VAT is 0% of the GSP.
Tax Base: GSP, net of Sales Discounts , Sales Returns, and Allowances
A) GSP = the total amount of money or its equivalent which the purchaser must pay40 the
seller in consideration of the sale, barter, or exchange.41
Note: Any excise tax shall form part of the GSP.
B) For transactions deemed sale:
1) Tax Base = Market value of the goods at the time of transaction
39
(3/28) or (12/112) of Invoice Amount, if
a) VAT is not separately billed; or
b) VAT is erroneously billed
40
That is, the entire GSP whether paid in cash, credit, or installment.
41
When the GSP is unreasonably lower than the actual market value, the CIR shall, by rules and
regulations prescribed by the Secretary of Finance, determine the appropriate tax base. However, when
one of the parties is the government, the output VAT shall be based on the actual selling price.
“Unreasonably lower” = lower by more than 30% of the actual market value.
14
In
a)
b)
c)
d)
Transfer, use, or consumption not in the course of trade or business;
Distributions to shareholders or creditors;
Consignment sales;
Transmission of property to trustee.
2) Tax Base = Lower of acquisition cost or current market price of the goods
In retirement from or cessation of business.
C) When there is a cessation of status as a VAT-registered person
The output tax on goods or properties originally intended for sale or for use in business,
including capital goods existing at the time of the change in or cessation of status of a
taxpayer as a VAT-registered person, shall be based on the acquisition cost or the current
market price of the goods, whichever is lower.
Computation of Input VAT (“ITC”)
- The same rules above are applied, but to purchases.
VAT on Sale of Real Properties
Sale of real properties (a) held primarily for sale to customers, or (b) held for lease in the
ordinary course of trade or business of the seller, or (c) used in trade or business, shall be
subject to VAT:
(1) Regardless of the amount of the gross selling price, if the real property is not residential
(i.e., commercial, industrial, etc.)
(2) If real property is residential, it shall be subject to VAT if the GSP exceeds:
(a) ₱1,500,000 for residential lots, or
(b) ₱2,500,000 for residential house and lots or other residential dwellings.
Notes:
(a) In the sale, barter, or exchange of real properties subject to VAT:
1) the GSP shall be the highest of:
a) Selling price in the sales document; or
b) Zonal value; or
c) Assessors’ value
2) If VAT is not billed separately in the sales document, the selling price is deemed
inclusive of VAT.
15
3) If the GSP is based on the zonal or assessor’s value, the same is deemed exclusive of
VAT.
(b) If cash sale:
VAT = 12% of highest of (Selling price, zonal value, or assessor’s value)
If deferred-payment basis not on the installment plan
VAT = 12% of highest of (Selling price, zonal value, or assessor’s value)
If on installment plan
(1) VAT payments = 12% of installment payments
BUT
(2) Where GSP = Zonal or Assessor’s value
Actual collection of the consideration
(exclusive of VAT)
Agreed consideration appearing in the
contract (exclusive of VAT)
Tax Base
x
12%
=
x
Higher of
Zonal Value
or Assessor’s
Value
=
Tax Base
VAT
(c) If two (2) or more adjacent residential lots are sold or disposed in favour of one buyer
from the same seller, for the purpose of utilizing the same as one residential lot, the sales
shall be VAT-taxable if the aggregate value of the properties exceed ₱1,500,000.
(d) The sale of parking lots is subject to VAT regardless of the amount of the selling price
since parking lots are not residential lots.
(e) VAT may likewise be imposed in foreclosure sales. When the mortgagor fails to redeem
the real property which was an ordinary asset in his hands, the VAT must be paid by the
mortgagor on or before the 20th day or 25th day of the month following the month when the
right of redemption prescribes.
(f) Beginning January 1, 2021, the VAT exemption shall only apply to the following sales of
real properties:
(a) Real property not primarily held for sale to customers or held for lease in the ordinary
course of trade or business;
(b) Real property utilized for socialized housing as defined by R.A. No. 7279; and
(c) House and lot, and other residential dwellings with a selling price of not more than
Two Million Pesos (₱3,199,200).42
42
R.A. No. 10963 (TRAIN).
16
VAT-TAXABLE SALE OF SERVICES
-
Sale of services or lease or use of properties (real, tangible personal, intangible), or supply
of knowledge, information, or assistance.
Requisites of a VAT-Taxable Sale of Services
1) The sale must be conducted in the ordinary course of trade or business;
2) For leases, the property must be leased or used in the Philippines;
3) The seller or lessor is VAT-registered, or if not, the gross receipts of the seller or lessor
during the year or in any 12-month period exceed the minimum of gross receipts of
₱3,000,000; and
4) In the case of lease of a residential unit, the monthly rental exceeds ₱15,000, and the
aggregate annual gross receipts of the lessor (from all residential units with monthly
rentals exceeding ₱15,000) exceed ₱3,000,000.
Taxable Services
-
All kinds of services in the Philippines for a consideration, as long as it is not exempted
by law.
-
Includes:
1) Sales of 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;
2) Sales of domestic 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;
Notes:
a) Common carriers by land with respect to their gross receipts from the
transport of passengers, shall not be liable to VAT, but to the percentage tax
under Section 117.
b) Additional charge for excess baggage is subject to VAT.
3) Sales of electricity by generation, transmission, and/or distribution companies;
The VAT shall be based on gross receipts charged by generation, transmission by
any entity including the National Grid Corporation of the Philippines, and
distribution companies including electric cooperatives.
Exceptions:
a) The universal charge passed on and collected by distribution companies and
electric cooperatives shall be excluded from the computation of the gross
receipts.
b) Sale of power or fuel generated thru renewable sources of energy shall be
subject to 0% VAT.
17
4) Sales of franchise grantees of electric utilities, telephone and telegraph, radio and/or
television broadcasting and all other franchise grantees.
Exceptions:
a) franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed Ten Million Pesos (₱10,000,000),
b) franchise grantees of gas and water utilities;
subject to OPT (franchise tax) under Sec. 119
c) amounts received for overseas dispatch, message, or conversation originating
from the Philippines are subject to the 10% OPT under Section 120 of the Tax
Code.
Note: PAGCOR is not subject to VAT on the sale of its services.43
5) Non-life insurance companies including surety, fidelity, indemnity, and bonding
companies. VAT shall be based on gross receipts defined as follows:
Gross receipts = premiums collected whether paid in money, notes, credits, or
any substitute for money, but does not include:
a) Premiums from crop insurance
b) Reinsurance premiums
c) Returned premiums (premiums refunded within 6
months after payment on account of rejection)
d) DST and local taxes passed on by the insurance company
to the insured.
Note: Insurance and reinsurance commissions, whether life or non-life, are
subject to VAT.
6) Lease of properties
a) Regardless of place where contract is executed as long as property leased is
located in the Philippines.
b) Any advance payment shall be subject to VAT if the same constitutes prepaid
rental. If the same constitutes a loan, option money, or security deposit, it shall
not be subject to VAT.
c) The VAT on the rentals or royalties payable to a non-resident owner or nonresident lessor shall be withheld by the lessee or licensee in behalf of the nonresident lessor and remitted to the BIR.
43
PAGCOR vs. Commissioner, G.R. No. 172087, March 15, 2011.
18
7) Dealers in securities – shall pay VAT based on gross receipts which is defined as:
Gross receipts = Gross selling price less cost of the securities sold.
8) Pre-need companies – shall pay VAT based on gross receipts defined as:
Gross receipts = premiums or payments received from the plan holders
9) HMOs – shall pay VAT based on gross receipts or service fees defined as:
Gross receipts or service fees = enrollment fees + other charges received from
their members
Computation of Output VAT:
12% of gross receipts, net of VAT, OR
12
/112 of the total invoice amount, gross of VAT
“Gross receipts” refers to the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty, including
(a) the amount charged for materials supplied with the services,
(b) deposits applied as payments for services rendered, and
(c) advance payments
actually or constructively received during the taxable period for the services performed
or to be performed for another person.
Notes:
(1) “Constructive receipt” occurs when the money consideration or its equivalent is
placed at the control of the person who rendered the services without restrictions by
the payor.
(2) Under the definition of “gross receipts,” any amount forming part of the contract
price, not actually or constructively received, is not subject to VAT. Thus,
receivables under the contract shall be taxed in the month or quarter when payment
is received, actually or constructively.
“Gross Receipts” do not include amounts earmarked for payment to unrelated third
parties or received as reimbursement for advance payment on behalf of another
which do not redound to the benefit of the payee.
19
Consequences of Issuing Erroneous VAT Invoice or VAT Official Receipt
(a) If a person who is not VAT-registered issues an invoice or receipt showing his TIN,
followed by the word “VAT”, the erroneous issuance shall result to the following:
(1) The non-VAT person shall be liable to:
(i) the other applicable percentage taxes;
(ii) the VAT due on the transaction without the benefit of input tax credit; and
(iii) a 50% surcharge under Sec. 248(B) of the Tax Code.
(2) The VAT shall be recognized as an input tax credit to the purchaser, provided the
requisite information is shown on the invoice or receipt.
(b) If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt
transaction, and fails to display prominently on the invoice or receipt the words “VATexempt sale”, the transaction shall become taxable and the issuer shall be liable to pay VAT
thereon. The purchaser shall be entitled to claim an input tax credit on his purchase.
20
VAT ON IMPORTATION
-
VAT paid by the importer before the goods are released by the Bureau of
Customs.
Importer is 1) Any person who brings goods into the Philippines, whether or not in the course of
trade or business; or
2) A non-exempt person who acquires tax-free imported goods from VAT-exempt
persons. Such non-exempt person shall be considered the importer thereof and
shall be liable for the VAT thereon.
Tax Base
1) The total value used by the Bureau of Customs in determining the tariff and customs duties
+ the customs duties + excise taxes, if any, + other charges, such as postage, commission
and similar charges, prior to the release of the goods from customs custody.
2) In case the valuation used by the Bureau of Customs in computing the duties is based on
volume or quantity of the imported goods, the landed cost shall be the basis for computing
the VAT. 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;
3) 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 (i.e., Philippine
territory where customs laws are imposed).
Payment of VAT on Importation.
The VAT on importation shall be paid by the importer prior to the release of the goods from
customs custody.
21
INPUT TAX CREDIT
1) Also called input VAT
2) VAT due or paid on the importation of goods or
VAT paid by a purchaser (to the seller) on the local purchases of goods, properties, or
services in the course of trade or business.
Can be availed by a VAT-registered importer, or a VAT-registered purchaser of goods
or services.
3) Includes transitional input tax and the presumptive input tax.
Sources/Classification of Input Tax Credits
1) VAT paid (to the supplier or vendor) by a VAT-registered person on his local purchases,
and VAT paid (to the BIR) on importation of goods;
2) ITC from transactions “deemed purchase” – The “deemed sale” transaction will also
result in a “deemed purchase” transaction which gives rise to input tax.
3) Transitional input tax –
Persons allowed the transitional input tax: Those persons
a) becoming VAT-registered for the first time upon exceeding the minimum gross sales
of ₱3,000,000 in any 12-month period or
b) who voluntarily register under the VAT system.
Transitional input VAT = Higher of (2% of the value of the beginning inventory, or the
actual input VAT paid on such goods, materials, and supplies)
Provided: Inventory shall exclude goods exempt from VAT.
4) Presumptive input tax
a) Available to persons or firms engaged in the processing of sardines, mackerel, and
milk, and in the manufacturing of refined sugar, cooking oil, and packed noodlebased instant meals.
b) The presumptive input tax shall be equivalent to 4% of the gross value in money of
their purchases of primary agricultural products44 which are exempt from VAT,
and which are used as inputs in production.
44
Agricultural product does not include fish and marine resources.
22
5) Input tax on depreciable goods (deferred input tax credits)
The purchase or importation of depreciable capital goods totaling > ₱1,000,000
(exclusive of VAT) in a calendar month, regardless of the acquisition cost of each capital
good, and regardless of the terms of payment, shall give rise to input tax credits as follows:
1) If the estimated useful life of a capital good ≥ 5 years, the input tax credit shall be
spread over a period of 60 months, and the monthly input tax credit (“ITC”) shall
commence in the month the capital good was acquired.
2) If the estimated useful life of a capital good < 5 years, the input tax shall be spread
evenly by dividing the input tax by the actual number of months comprising the
estimated useful life. The claim for ITC shall commence in the month that the
capital good was acquired.
3) If the depreciable capital good is sold/transferred within a period of five (5) years
or prior to the exhaustion of the amortizable input tax thereon, the entire
unamortized input tax on the capital goods sold/transferred can be claimed as input
tax credit during the month/quarter when the sale or transfer is made.
Note: The amortization of the input VAT provided under Section 110(A)(2) of the Tax
Code shall only be allowed until December 31, 2021. After such date, taxpayers
with unutilized input VAT on capital goods purchased or imported shall be allowed
to apply the same as scheduled until fully utilized.
EXCEPTION: Input taxes on the purchase of the following non-depreciable vehicles and
all input taxes on the maintenance expenses thereon shall not be allowed as input tax
credits against the output VAT:
(1) Purchases of vehicles for which no substantiation exists;
(2) Purchases of (a) yachts, (b) helicopters, (c) airplanes, or aircrafts, and (d) land vehicles
for the use of an official or employee of the taxpayer exceeding ₱2,400,000, unless the
taxpayer’s main line of business is in transport operations or in leasing transportation
equipment, and the vehicles are used in said operations.
6) Input tax on Construction in Progress (CIP)
CIP –cost of construction work which is not yet completed. It will not be depreciated until
the asset is placed in service.
Input tax credit can be recognized in the month payment is made. However, once the asset
is completed and reclassified as a capital asset, no additional ITC can be claimed.
7) Ratable portion of any input tax which cannot be directly attributed to either taxable
or exempt activity
8) Issuance of a VAT invoice by a non-VAT person – provided the requisite information
is shown on the invoice or receipt.
9) Issuance of a VAT invoice on an exempt transaction by a VAT-registered person –
provided the requisite information is shown on the invoice or receipt.
23
How is an ITC used?
1) Used as a credit against the output tax to compute the VAT payable;
2) Any excess ITC shall be carried over to the succeeding period;
3) Input tax attributed to 0-rated sales by a VAT-registered taxpayer may, at his option,
a) Be applied against the output VAT from sales of a VATable line of business, or carried
over to the succeeding period; or
b) The taxpayer can apply for a refund or tax credit certificate (“TCC”)45.46
4) Input tax attributable to VAT-exempt sales are expensed.
Determination of ITC in a Taxable Month/Quarter
Formula:
All input taxes arising during the month/quarter
+ Input tax carried over from previous period
+ Deferred ITC
Less: Claim for VAT refund or tax credit
Less: Input tax attributable to exempt sales
Less: Input tax attributable to final withholding tax
Input tax credit for the month/quarter
ITCs for VAT-Registered Persons Who Are Also Engaged in Non-VAT Lines of
Business
Such taxpayers shall be entitled to the following ITCs:
1) Input VAT directly attributable to transactions or sales subject to VAT;
2) For input VAT that cannot be directly attributed to either VAT-taxable, VAT-exempt, 0rated, or Government transactions, only the ratable portion pertaining to the VAT-taxable
and 0-rated transactions may be recognized for ITCs.
Total sales/receipts on VAT-taxable sales
Total sales/receipts
Total sales/receipts on Exempt sales
Total sales/receipts
Total sales/receipts on 0-rated sales
Total sales/receipts
Total sales/receipts on
government sales
Total sales/receipts
45
46
x
Unattributed
input taxes
=
Input tax to be allocated to
VAT-taxable transactions
x
Unattributed
input taxes
=
Input tax to be allocated to
Exempt transactions
x
x
Unattributed
input taxes
Unattributed
input taxes
=
=
Input tax to be allocated to
0-rated transactions
Input tax to be allocated to
government transactions
A TCC can be used in the payment of other internal revenue taxes.
If claim for refund or TCC is denied by the BIR, the amount of the claim is available as a deductible loss for the
purpose of computing a taxpayer’s taxable income (CIR vs. Maersk Global Services, CTA EB Case No. 1786,
June 13, 2019).
24
Notes:
1) Input taxes (a) directly attributable to VAT-exempt sales and (b) ratably allocated to VATexempt sales – not allowed as ITCs, but shall be treated as part of costs or expenses.
2) Input taxes (a) directly attributable to sales to the government and (b) ratably allocated to
sales to the government – not allowed as ITCs, BUT excess over the implied 7%
standard input VAT will be expensed.47
3) Input taxes (a) directly attributable to 0-rated sales and (b) ratably allocated to 0-rated
sales – shall be allowed as ITCs and any excess can be carried forward, or refunded, or
applied for a tax credit certificate (TCC).
REFUND or TAX CREDIT OF INPUT TAX
-
Only VAT- registered persons may apply for issuance of a TCC or refund on the following
basis:
1) Input taxes paid corresponding to 0-rated or effectively 0-rated sales;
2) Unused input taxes as of the date of the retirement from or cessation of business;
3) Unused input taxes due to cessation of status of a VAT-registered person;
Limitations
1)
2)
3)
4)
The input taxes must not have been applied against output taxes.
The claim for refund or tax credit shall not include the transitional input tax.
In the case of export sales, the payments must be made in acceptable foreign currency.
Where the taxpayer is engaged in VATable (12%48), 0-rated, or exempt sales, and the
amount of creditable input tax cannot be directly or entirely attributed to any one of the
transactions, only the proportionate share of input taxes allocated to 0-rated sales can be
claimed for refund or issuance of a TCC:
Time for Filing Claim for Refund or Tax Credit49
a) For input taxes on zero-rated sales or lease of goods, properties, or services:
The application should be filed within two (2) years after the close of the taxable quarter
when such sales were made.
b) For unused input taxes upon retirement, change, or cessation of status as a VAT-registered
person.
The application should be filed within two (2) years from the date of cancellation50 of
his VAT registration.
47
48
49
50
If the implied ITC (7%) is more than the actual ITCs, the excess shall decrease expenses or be recognized
as other income for income tax purposes.
Includes sales to the government which are subject to the 5% Final VAT.
Sec. 112, NIRC.
The date of cancellation is the date of issuance of the tax clearance(s) by the BIR after full settlement of
all tax liabilities relative to the cessation of business or change in status of the taxpayer.
25
Place of Filing Application or Claim
Claims for refunds/tax credit certificates shall be filed with the appropriate BIR office (Large
Taxpayers’ Service (“LTS”) or Revenue District Office (“RDO”)) having jurisdiction over the
principal place of business of the taxpayer.
However, direct exporters shall file their claim for refund/tax credit certificate with VAT
Credit Audit Division (“VCAD”).
The filing of the claim with one office shall preclude the filing of the same claim with another
office.
Period Within Which Refund or Tax Credit of Input Taxes Shall Be Acted
Upon
Within 25 days (or within 25 days
from the end of the month when
registration was cancelled)
Close of the Taxable Quarter
(or Date of Cancellation of
Registration)
Within 2 years
Date of filing the Quarterly
VAT Return (or Final VAT
Return)
Date of Filing Application for
Refund
or
TCC
with
Submission of Complete
Documents in Support of the
Application
Within 90 days
Within 2 years
Application is fully or partially
denied
Application is granted
Within 30 days
Appeal to the Court of
Tax Appeals
26
Notes:
(a) The application for refund/TCC must be supported by complete documents. Failure to
submit the relevant documents in support of the claim upon filing of the application shall
result in the non-acceptance thereof.
(b) Prior to the effectivity of TRAIN (January 1, 2018), in case the Commissioner failed to
act on the application within the prescriptive period51, such inaction was deemed a denial
of the application which gave the applicant the right to appeal to the CTA.52
At present, Section 112 (C) of the Tax Code, as amended by R.A. No. 10963, does not
give the same avenue of appeal to the taxpayer-applicant in cases where the Commissioner
fails to act on the application. However, such inaction is now penalized under Section 269
of the Tax Code. The spectre of a criminal penalty under Section 269 hopefully
encourages BIR officials to promptly act on a taxpayer’s application within the 90-day
period.
(c) When a claim for refund/TCC is denied by the BIR, the amount of the claim is a valid loss
which may be properly deducted from gross income for income tax purposes. Provided,
the taxpayer was not compensated for the loss, and the BIR/DOF categorically stated in
its denial letter that the taxpayer’s claim cannot be given due course.53
51
Prior to R.A. No. 10963, the Commissioner (under Section 112(C) of the Tax Code) was given 120 days
from the date of submission of complete documents to act on the application for refund or issuance of a
tax credit certificate.
52
Thus, a taxpayer could file the appeal in one of 2 ways, namely:
(1) File the judicial claim within thirty (30) days from the receipt of the decision of the Commissioner
denying the claim;
OR
(2) File the judicial claim within thirty (30) days from the expiration of the 120-day period if the
Commissioner fails to act within the 120-day period. In this regard, the taxpayer was required to
observe the 120+30 day rule before lodging a petition for review with the CTA (RMC No. 54-2014).
53
CIR vs. Maersk Global Service Centers (Philippines) Ltd., CTA (En Banc) Case No. 1786, June 13, 2019.
27
INCOME TAX ASPECT OF VAT
Treatment of VAT
Under the VAT system, sales and purchases accounts are taken up in the books exclusive of
the VAT. The gross selling price or gross receipt, and the cost of sales, including expenses,
shall be recorded in the books net of the VAT, whether or not the latter is billed separately in
the invoices or receipts.
This applies to the computation of income taxes. For purposes of the income tax, the sales,
cost of sales, and expenses shall be taken up consistently net of the VAT.
28
FILING OF VAT RETURN and PAYMENT OF VAT
1) Monthly VAT Return or Declaration
All persons liable for VAT shall pay a monthly VAT based on the taxable receipts and
creditable purchases for the month.
BIR Form 2550M – filed not later than the 20th day following the end of the taxable month.
– shall be filed only for the first 2 months of each quarter.
2) Quarterly VAT Return or Declaration
All persons liable for VAT shall file a quarterly return which shall include sales and
purchase information for the quarter, including the information for the first 2 months of the
quarter for which monthly VAT returns have been filed.
BIR Form 2550Q – filed not later than the 25th day following the end of the taxable
quarter.
–
payments made in the 2 previous monthly VAT returns shall be
credited against the quarterly VAT payable to arrive at the net VAT
payable (or excess input tax) for the quarter.
3) Returns Under the Electronic Filing and Payment System (“EFPS”)
Taxpayers enrolled in the EFPS shall be required to file their monthly VAT declarations
within 21, 22, 23, 24, or 25 days following the end of each month, depending on their
industry classification.
Payment of the tax due via the EFPS shall be five (5) days later than the deadlines for filing.
Note: Beginning January 1, 2023, the filing and payment of VAT shall be done within 25 days
following the close of each taxable quarter.54
4) Advance Payment of VAT
The following are subject to the advance payment of VAT:
(a) Withdrawal of refined sugar from the mill/refinery by the owner/seller.
The operator of the sugar mill or refinery shall not allow any withdrawal of refined
sugar from its premises without the advance payment of VAT by the owner of the
sugar, except when the refined sugar is owned and withdrawn by a cooperative.
The advance VAT shall be determined based on schedules provided by the BIR.
(b) Sale of flour
54
Sec. 114(A), NIRC, as amended by the TRAIN.
29
a) VAT on the sale of flour milled from imported wheat shall be paid prior to the
release from the Bureau of Customs’ custody of the wheat which is imported
and declared for flour milling; and
b) 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.
(c) Transport of naturally grown and planted timber products Owners/sellers of naturally grown and planted timber products, whether natural or
juridical, who are holders of permits issued by, or agreements entered into with, the
Department of the Environment and Natural Resources (“DENR”), are liable to pay
the advance VAT on naturally grown and planted timber products harvested prior
to its transport for purposes of consummating a sale.
An owner of naturally grown and planted timber products, who can present a
Certificate of Registration (BIR Form No. 2303) showing that the owner is subject
only to the other percentage tax of 3%, shall be exempt from the payment of
advance VAT. However, if the aggregate value of the products to be transported
exceeds ₱3,000,000, the same shall be subject to advance VAT.
(d) Sale of jewelry, gold, and other metallic minerals to (1) Non-resident
individuals not engaged in business and (2) Non-resident foreign corporations
(5) Short Period Return
A final quarterly VAT return shall be filed by:
a) Any person who retires from business with due notice to the BIR office where the
taxpayer’s head office is registered or
b) Any person whose VAT registration has been cancelled,
within 25 days from the end of the month when the business ceases to operate or when the
VAT registration has been officially cancelled.
Thus, if a taxpayer’s Certificate of Registration is cancelled on November 20, 2020, he
shall file his final quarterly VAT return and pay the tax on or before December 25, 2020.
However, subsequent monthly declaration/quarterly returns are still required to be filed if
the results of the winding up of the affairs or business of the taxpayer reveal taxable
transactions.
Where to File and Pay
Only one (1) consolidated quarterly VAT return or monthly VAT declaration covering the results
of operations of the head office as well as the branches for all lines of business subject to VAT
shall be filed by the taxpayer, for every return period, with the BIR office where said taxpayer is
required to be registered.
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a) Where payment is involved:
The monthly VAT declaration and quarterly return shall be filed with, and the VAT due
thereon paid to:
(1) an authorized agent bank (“ABB”) under the jurisdiction of the Revenue District/BIR
Office where the taxpayer (head office of the business establishment) is required to be
registered;
or
(2) In cases where there are no duly accredited agent banks within the municipality or city,
the monthly VAT declaration and quarterly VAT return, shall be filed with and any
amount due shall be paid to the RDO, Collection Agent, or duly authorized Treasurer
of the Municipality/City where such taxpayer (head office of the business
establishment) is required to be registered.
b) Where no payment is involved:
The quarterly VAT return and the monthly VAT declaration shall be filed with the
RDO/Large Taxpayers District Office (“LTDO”)/Large Taxpayers Assistance Division
(“LTAD”), Collection Agent, duly authorized Municipal/City Treasurer of the
municipality or city where the taxpayer (head office of the business establishment) is
registered or required to be registered.
c) Taxpayer filing via the EFPS shall comply with the provisions of the EFPS Regulations.
Quarterly Summary Lists
All persons liable for VAT are required to submit a quarterly Summary List of Sales, and a
quarterly Summary List of Purchases.
The lists shall be recorded using the BIR’s Reconciliation of Listing for Enforcement
(“RELIEF”) System application.55
When and Where to File the Summary Lists
The quarterly summary list of sales or purchases, whichever is applicable, shall be
submitted through compact disc-recordable (“CDR”) medium to the RDO or LTDO or
LTAD having jurisdiction over the taxpayer, on or before the 25th day of the month
following the close of the taxable quarter (calendar or fiscal quarter).
However, taxpayers under the jurisdiction of the Large Taxpayers Service (“LTS”),
and those enrolled under the EFPS shall, through the electronic filing facility56,
submit their summary lists of sales/purchases to the RDO/LTDO/LTAD, on or before
the 30th day of the month following the close of the taxable quarter.
55
The RELIEF application can be downloaded from the BIR website.
56
esubmission.gov.ph facility.
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ISSUANCE OF VAT INVOICE AND RECEIPT
A VAT-registered person shall issue:57
1) A VAT invoice for every sale, barter, or exchange of goods or properties; and
2) A VAT official receipt for every lease of goods or properties, and for every sale, barter,
or exchange of services.
Only VAT-registered persons are required to print their TIN followed by the word “VAT”
in their invoice or official receipts. Said documents shall be considered as a “VAT invoice”
or “VAT official receipt”. All purchases covered by invoices/receipts other than the
VAT invoice/VAT official receipt shall not give rise to any input tax.
If a taxable person is also engaged in exempt operations, he may issue separate invoices or
receipts for the taxable and exempt operations. A “VAT invoice” shall be issued only for
sales or leases of goods, properties, or services subject to VAT.
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 sale price between its taxable, exempt, and zero-rated
components, and the calculation of the VAT on each portion of the sale shall be shown on
the invoice or receipt. The seller may issue separate invoices or receipts for the taxable,
exempt, and zero-rated components of the sale.
57
Sec. 113(A), NIRC.
32
WITHOLDING OF VAT
Mandatory Withholding of VAT
1) The Government or any of its political subdivisions, instrumentalities or agencies
including government-owned or controlled corporations (“GOCCs”) shall, before
making a payment on account of each purchase of goods and/or services taxed at
twelve percent (12%) VAT under the Tax Code, deduct and withhold a final VAT
due at the rate of five percent (5%) of the gross payment thereof.
5% Final VAT = VAT withheld by the government buyer
7% of the gross payment represents the input tax for the sales to the government in lieu
of the actual input VAT directly attributable to such sales.
(i) If the actual input VAT exceeds the 7% of gross payments, such excess may form
part of the seller’s expenses.
(ii) If the actual input VAT is less than the 7% of gross payments, the difference must
be closed to expenses (decrease expense).
Notes:
(a) Payments for the purchase of goods and services arising from projects funded by the
Official Development Assistance (“ODA”)58 as defined under R.A. No. 8182 as
amended, shall not be subject to the final withholding tax system described above.
(b) Effective January 1, 2021, the VAT withholding system shall shift from a final to a
creditable system.
2) A resident payor (government or private) shall withhold the twelve percent (12%)
VAT with respect to payments for:
(a) the lease or use of properties or property rights owned by non-residents; and
(b) other services rendered in the Philippines by non-residents.59
The VAT withheld in (1) and (2) shall be remitted within ten (10) days following the end of the
month the withholding was made.
The VAT withheld and paid for the non-resident recipient may be claimed as a credit by the said
VAT-registered withholding agent upon filing his own VAT return, subject to the rule on the
allocation of input tax among taxable sales, zero-rated sales, and exempt sales. Also called
creditable VAT withheld.
58
ODA is a loan or a grant administered with the objective of promoting the sustainable social and
economic development of the Philippines. ODA resources must be contracted with governments of
foreign countries with whom the Philippines has diplomatic and/or trade relations, or bilateral
agreements, or which are members of the United Nations, their agencies, and international or multilateral
lending institutions (R.A. No. 8182).
59
Sec. 114 (C), NIRC.
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Optional Withholding of VAT
Under Sec. 9.245 of Rev. Regs.No. 2-98 (as inserted by Rev. Regs. No. 14-2003), a VATregistered person supplying goods or services has the option to remit his 12% VAT through the
withholding and remittance of the same by the payor.
Such option must be manifested by filing the “Notice of Availment of the Option to Pay the Tax
Through the Withholding Process”, and by executing the “Waiver of the Privilege to Claim Input
Tax Credits”, both of which must be furnished to the payor and the RDOs of both payor and payee.
The option, once chosen, remains as the manner of remitting the tax unless said option is cancelled
by the payee.
The VAT withheld shall be remitted by the payor, using BIR Form No. 1600-VT (Monthly
Remittance of VAT Withheld), to the appropriate collection agents (authorized agent bank (“AAB”)
or revenue collection office (“RCO”)) of the BIR.
Note: If payee has more than one payor, the payee is still required to file the quarterly
VAT return (BIR Form No. 2550Q) reflecting therein the consolidated total of all
the taxable transactions for the taxable period, and applying as tax credit the taxes
withheld by the payors.
34