VALUE-ADDED TAX: VAT SUBJECT TRANSACTIONS
BASIC CONCEPTS
CHARACTERISTICS
1. National Tax i.e., Imposed by the Nat’l Gov’t
2. Indirect Tax i.e., There is tax shifting, which means that the burden of
payment of taxes is passed from the incidence to the impact. Ang incidence
ay kung sino ang nagbabayad ng tax sa BIR, whoever files the return na
sakaniya ang incidence. Sa VAT, na kay yung incidence kasi siya ang nagfafile ng VAT return. However, the impact of taxation is shifted from the seller to
the buyer. By virtue of merely existing, for every purchase of goods and
services, we pay an additional VAT.
3. Ad Valorem Tax i.e., The tax base is the monetary value of the transaction,
kung magkano yung goods & services that were rendered. Specifically, we
have Gross Sales, then, multiply to the rate.
4. Proportional Tax i.e., The rate is a proportional rate, which means kahit
magkano pa yan, the VAT rate is fixed.
VAT RATE: 12%
BASE: GROSS SALES
VAT RETURN: 2550Q
5. Privilege/ Transactional Tax i.e., Kailangan munang makapabenta in the
ordinary course of business, without a transaction, there can be no VAT
liability.
6. Business Tax i.e., As a general rule, VAT is a business tax.
GENERAL COMPUTATION
OUTPUT VAT → Sales
LESS: INPUT VAT → Purchases
VAT PAYABLE
PERSONS LIABLE
Any persons who, in the course of trade or business, sells, barters,
exchanges, leases goods of properties, renders services (including
digital services), and any person who imports goods shall be subject to the
VAT. (Set. 105, par. 1, NIRC)
- In blue, hindi ibig sabihin na nakabenta ay subject sa VAT dapat in the course
of trade or business.
- In green, importation of goods no longer qualifies by the phrase in the course
of trade or business. This needs not be in the course of trade or business in
order to be subjected to VAT.
- As a general rule, VAT is a business tax with the exception of VAT
Importation because it does not require that the importation is in the course of
trade or business.
All tangible or
intangible objects
which are capable
of pecuniary
estimation.
GOODS/ PROPERTIES
Real properties held primary for sale or for lease
in the course of trade or business.
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.
Right or the privilege to use in the Philippines of any
industrial, commercial or scientific equipment.
Right or the privilege to use motion picture films,
tapes, and discs; and
Radio, television, satellite transmission and
cable television time.
SERVICES
The lease or the use of or the right or privilege to
use patent, copyright, design or model, plan,
secret formula or process, goodwill, trademark,
trade brand or other like property or right.
The lease or the use of, or the right to use of any
industrial, commercial or scientific equipment.
The supply of scientific, technical, industrial or
commercial knowledge or information.
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;
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 non-resident person.
The supply of technical advice.
The supply of digital services.
The lease of motion picture films, films, tapes and
discs; and
The lease or the use of or the right to use radio,
television, satellite transmission and cable
television time.
Any service that
is supplied over
the internet or
other electronic
network.
DIGITAL SERVICES
Online search engine.
Online marketplace or e-marketplace.
Cloud service.
Online media and advertising.
Online platform.
Digital goods (absorbed under digital services)
e.g., Bibili ng skin sa ML; Magvovote sa Ms. U
IN THE COURSE OF TRADE OR BUSINESS
It means the regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any person regardless
of whether or not the person engaged therein is non-stock, non-profit private
organization or government entity.
- “Regular conduct or pursuit” – habitual, frequent work.
- “Transactions incidental thereto” – e.g., Nagbebenta ng Albums in the
regular course of business; minsan nagbebenta rin ng merch; shelves kung
saan nakapatong yung mga albums, speakers, and the likes. Ano ang subject
sa VAT? ALL.
e.g., Mindanao II Geothermal Partnership v. CIR
 It does not follow that an isolated transaction cannot be an
incidental transaction for purposes of VAT liability.
 In the course of its business, Mindanao II bought and eventually
sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part
of Mindanao II’s PPE.
 Therefore, the sale of the Nissan Patrol is an incidental transaction
made in the course of Mindanao II’s business which should be
liable for VAT.
ARE NRs SUBJECT TO VAT?
The rule of regularity, to the withstanding, services rendered in the
Philippines by non-resident foreign persons shall be considered as being
in the course of trade or business.
Sect. 105, par 4, NIRC
- “The rule of regularity, to the withstanding” – Hindi titingnan if regular ba
siya o hindi kahit isolated siya; automatic subject to VAT.
TRANSACTIONS
DEEMED SALE
(TDS)
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.
- If the original intention ay ibenta sa business, then, hindi
binenta sa business that would be subject to VAT, e.g., Instead
na ibenta yung goods, kinain nalang.
- Bakit subject pa rin sa VAT? Nung binili yung goods, syempre
may purchase. Ang original intention ay paninda siya.
Therefore, nagkaroon don ng Input VAT. However, cinonsume
yung goods for personal use. Hindi hahayaan ng BIR na nagclaim ng Input VAT don sa purchases pero hindi maggegenerate ng Output VAT. So may Input VAT sa pagbili, then,
magkakaroon ng Output VAT dahil sa pag-consume ng goods
even though it’s not in the course of trade or business.
Shareholders or investors as share in the
profits of the VAT-registered persons.
- e.g., Nagkaroon ng property dividends ang
ginamit ay yung mga paninda. Kasi yung mga
paninda, binili, meyron yung Input VAT so
dapat kapag ilalabas as property dividends,
meyron ding Output VAT.
- Another e.g., Binenta sa SH as if yung
Distribution paninda, then, instead na magbayad sila ng
or transfer cash, yun ang ginamit na pang-distribute as
dividends. Instead na cash ang pinangbayad
to:
sakanila as dividends, property nalang.
Creditors in payment of debt.
- Property nalang din ang pinangbayad. Yung
property pagkabili may Input VAT, so dapat sa
paglabas niya may Output VAT.
- It’s as if binili ni creditor yung property then
yung cash na pinangbayad ni creditor, binalik
sakaniya at pinangbayad sa utang.
Consignment of goods if actual sale is not made within 60
days following the date such goods were consigned.
- Sa FARAP, consignment of goods is not a sale. Kapag
consigned goods part pa rin ng inventory ng owner. The
consignee, hindi part ng inventory niya yung goods, kay
consignor pa rin yun. Walang transfer of ownership. Therefore,
walang bentahan na nangyari by virtue of consignment.
- Pero ang sabi ni BIR, bigyan ng limit. Kapag hindi pa naibenta
ni consignee within 60 days i-VAT na. In FS purposes,
inventory pa rin pero for tax purposes, kunwari naibenta na.
Example:
VAT-EXEMPT TRANSACTIONS
- Transfer of property pursuant to Section 40 (C) (2) (mergers and
consolidations).
- Corporation having change in control, mergers, & consolidation - Tax
free exchanges.
- “Whether resulting in corporate control or not” – subject to VAT.
CONSIGNEE
STATUS
VAT?
WHY?
WHEN?
A
Sold on 2/14
Yes
Actual Sale
Feb
VAT BASE: Gross Sales
TAX RATE: 12%
B
C
D
Sold on 6/15
Unsold
Returned 2/16
Yes
Yes
-
TDS
TDS
-
March
March
-
Change of ownership of the
business.
Dissolution
of
a
partnership and creation of
a new partnership which
takes over the business.
Change of business activity from VAT taxable status to VAT
exempt status.
Approval of a request for cancellation of registration.
Retirement from or
cessation of business, with
respect to inventories of
taxable goods existing as of
such retirement or cessation.
TDS – Hindi sale pero nevertheless subject sa VAT. In civil code, hindi siya
sales kasi para masabing sale kailangan may price certain at determinate
thing; the seller delivers, the buyer pays. But for tax purposes, mas malawak
ang pag-apply ng VAT kasi may mga TDS.
NOTE: DINE IN – services, subject to VAT; TAKEOUT – goods, subject to
VAT.
SPECIAL SELLERS
PRIVILEGE STORES (tiangge)
- Are they subject to VAT? Depende kung gaano katagal nag-ooperate in 1 yr.
- Must not operate for a cumulative period not exceeding 15 days.
- For each separate location, considered at 1 day.
- Not liable for business tax, but for income tax.
DIGITAL SERVICE PROVIDERS
- Refer to a resident or non-resident supplier of digital services; subject to VAT.
NON-RESIDENTS
DSPs
RESIDENT DSPs
No
physical
presence in the
Phil.
Transactions
with NRDSPs
shall
be
subject
to
VAT,
if
consumers
are:
NON-VAT
- NRDSPs required
to be VAT-registered
shall be liable for the
remittance of VAT.
VAT-REGISTERED
The
VATregistered person
shall be liable to
withhold the VAT
due on its purchase
of digital services.
- Within 10 days
following the end of
the
month
the
withholding
was
made.
- Known as the
Reverse
Charge
Mechanism
in
Digital
Service
(withholding).
Follow the regular VAT rules e.g., Shopee, Lazada
VAT BASE COMPUTATION
Compute for Output VAT:
Selling price, net of VAT, 120K
Selling price, gross of VAT, 240K
Sales per books, 100K
Selling price including erroneous VAT, 110K
120K X 12% = 14.4K
240K /112% X 12% = 25,714
100K X 12% = 12K
110K X 112% X 12% = 11,786
*If net of VAT (VAT exclusive), simply multiply by the tax rate 12%
* If gross of VAT (VAT inclusive), alisin muna yung VAT divided by 112% =
Sales X12% para malaman ang Output VAT
*Sales per books – pag nagrerecord, separate ang pag-credit sa sales, sa
pag-credit sa Output VAT. Therefore, masasabi na ang sales na nakalagay sa
books ay net of VAT.
*If AR: silent, VAT inclusive; kasi when we record the entry: Dr. AR (entire
amount) Cr. Sales Cr. Output VAT. So sa amount ng AR, kasama yung Output
VAT.
CONCEPT: Under EOPTA, the tax base for computation of Output VAT on
rendition of goods is GROSS SALES.
GROSS SALES (GOODS)
- Total amount of money or its equivalent which the purchaser pays or is
obligated to pay, excluding VAT. The excise tax, if any, on such goods or
properties shall form part of the gross sales.
- Kailangan ba bayad na? Not really, kasi pays or is obligated to pay. Basta
may obligation na magbayad kahit hindi pa nababayaran, part na agad ng
gross sales.
- Hindi importante kung kelan nagbayad for purposes of determining the VAT
liability, ang mahalaga kelan ba nadeliver yung goods?
GROSS
SALES
PRIOR TO
EOPTA
Gross sales (on sale of goods & properties) is
called Gross Selling Price (GSP).
EOPTA
Adopts the accrual basis of accounting of
recognizing sales for both sales of goods &
services, including transactions to government.
*Accrual basis – Income is recognized when earned; Expenses are
recognized when incurred.
- Kelan nae-earn ang income? When the transaction has been consummated.
DEDUCTIONS FROM GROSS SALES
Determined and grated at the time of sale.
Expressly Indicated in the invoice.
DISCOUNTS
The amount thereof forming part of the gross sales duly
(DIREC)
REcorded in the books of accounts/
Not dependent upon the happening of a future event or
Condition.
SALES
For which a proper credit or refund was made during
RETURNS
the month or quarter to the buyer for sales previously
AND
recorder as taxable sales.
ALLOWANCES
GROSS RECEIPTS (PRIOR TO EOPTA)
It means 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
applied as payments for services rendered and advance payments
actually or constructively received during the taxable period for the services
performed or to be performed for another person, excluding VAT.
- Ang tawag dati sa Gross Sales (Services) ay Gross Receipts, sa gross
receipts, for services performed or to be performed. Hindi importante na
narender na yung service. Ang importante ay nabayaran na ba yung services?
If nabayaran na yung services regardless or not it has been performed, it would
trigger VAT liability.
COMPARISON
- Now, it’s gross sales. Before, gross receipts.
- Before EOPTA, kailangan mabayaran na. Now, naperform na dapat yung
service kahit hindi pa bayad.
- EOPTA, accrual basis. Before, cash basis.
- If the problem is silent, apply the current law.
- If not silent, as to the date of the transaction, if in 2024, apply the EOPTA.
If 2023/2022/2021, apply the law prior to EOPTA.
Amount charged for materials supplied with
the services.
Deposits applied as payments for services.
Advance payments actually or constructively
received.
*In red, wala na sa EOPTA kasi pang cash basis items.
INCLUSIONS IN
GROSS RECEIPTS
(BEFORE EOPTA)
- 2/10 n/30 – if you pay within 10 days may 2% discount, deadline is 30 days.
The 2% discount is dependent upon the happening of a future event.
Unfortunately, the 2% discount for prompt payment is not deductible from
gross sales because it is dependent upon the happening of future event or
condition.
FORMULA
GROSS SALES
LESS: DEDUCTIONS
Sales returns
XX
Sales disc (@point of sale)
XX
GROSS SALES
X VAT rate
OUTPUT VAT
LESS:
INPUT VAT on purchases of goods/ services XX
CVW by the government
XX
CVW on payments to non-resident persons
XX
CV on uncollected receivables under EOPTA XX
VAT PAYABLE UNDER EOPTA
IF
PRESUMED
GROSS
SALES
THEN
EXCEPTION
XX
(XX)
XX
12%
XX
(XX)
XX
GS is lower by > 30% of the actual MV
of the same goods of the same goods
of the same quantity and quality.
CIR shall determine the appropriate tax
base.
If one of the parties in the transaction
us the government, use SP.
GROSS SALES (SERVICES)
It means 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 during the taxable
quarter for the services performed for another person, which the purchaser
pays or is obligated to pay to the seller.
EXCLUSIONS FROM
GROSS SALES
Amounts earmarked for payment to unrelated
third party.
- If hindi naman talaga mapupunta sayo yung
bayad but to another person, wag mo isama sa
iva-VAT on your part.
- e.g., Gumawa ka ng VAT return for your client,
nacompute mo na ang VAT payable ni client for
the quarter is 50K. Ang ginawa ni client ay
nagbayad sa’yo ng 100K (50K sa BIR; 50K
Professional Fee). Natanggap mo yung 100K as
bayad, would the entire 100K be subjected to
vat? No, because there is a portion of the 100K
which earmarked for payment to the BIR
(unrelated party). Yung 50K lang na PF ang
gross sales mo, yun lang ay may VAT.
Received as reimbursement for advance
payment on behalf of another which do not
redound to the benefit of the payor.
- e.g., Ikaw muna yung nag-abono na 50K na
binayaran sa BIR, and eventually, nireimburse ni
Client. The payment for the reimbursement of the
50K you initially paid to the BIR shall not form
part of your gross sales.
Medicard Philippines, Inc. v. CIR
 Medicard is a Health Maintenance Org (HMO).
 Yung mga members ng HMO, they are being connected to the
health professionals and healthcare providers.
 Ang ginagawa lang ng mga members, nagbabayad lang sila ng
membership fees. Para kapag nagpunta sila ng hospital, sagot na
ng HMO (Medicard).
 Sabi ni Medicard, 80% ay naka earmarked, allot, set aside for
payment to hospitals and professionals. Then, 20% lang yung
service charge ni Medicard out of the membership fees.
 What did the BIR do? The BIR subjected to VAT the entire
membership fee. However, sabi ni Medicard hindi sakanila
napupunta yung 80%, 20% lang ang service charge nila.

Ano ang sabi ng SC? Applying the rules sa exclusions from gross
sales, the SC said, that payments to hospitals are excluded
because these are amounts earmarked to an unrelated party,
VATable lamang si Medicard ay vatable lamang on the 20% service
charge only.
LONG-TERM CONTRACTS
- The invoice shall be issued on the month in which the service, or use or
lease of properties is rendered or supplied.
TRANSACTION
SALE OF GOODS
SALE OF SERVICES
LEASE OF G/P
TRANSACTION
SALE OF GOODS
SALE OF SERVICES
LEASE OF G/P
VAT BASE
GROSS SALES
GROSS SALES
GROSS SALES
UNDER EOPTA
GROSS SALES
GROSS SALES
GROSS SALES
BEFORE EOPTA
GROSS SP
GROSS RECEIPTS
GROSS RECEIPTS
ADDITIONAL NOTES:
- If may nakita sa problem, “including the VAT” (underline this), and use this
formula to solve for Output VAT:
FORMULA
VAT-Inclusive Sales
÷
VAT-Exclusive Sales
X VAT Rate
OUTPUT VAT
XX
1.12
XX
12%
XX
- If VAT-exclusive na siya, sundan na yung problem. ‘Wag gawing VATinclusive.
- “If 75% of the sales are normally on account” – panggulo lang kasi accrual
basis under EOPTA. Under accrual basis, receivable man o receipt, as long
as may sale na. Then, it is already subjected to VAT.
- “Service provider & Trader” – Wala nang distinction, pareho na silang
naka-accrual basis. But before EOPTA, si Service provider, cash basis.
Trader, accrual basis. For cash basis, use T-account lang ng AR to get the
collection (Beg. AR + Credit Sales – End. AR).
- “Gross sales” – Credit sales + Cash sales.
SPECIAL VAT BASE: REAL PROPERTY
TRANSACTION
VAT BASE
FULLY PAID
SP or FMV, higher
DEFERRED BASIS
SP or FMV, higher
INSTALLMENT BASIS
Installment received
INSTALLMENT BASIS
DEFERRED BASIS
SELLER
Real Estate Dealer
Real Estate Dealer
INITIAL
≤ 25% of GSP
> 25% of GSP
PAYMENTS
Installment Received,
BASE
including interests and
FMV or SP, higher
penalties
*FMV – Under RPVARA (RA 12001), FV in accordance with the Schedule of
Market Values (SMV). Before, zonal or assessed, whichever is higher.
*Initial Payments – to determine if instalment or deferred basis. We look at
the ratio of the initial payments to the gross selling price. If the initial payments
do not exceed 25% of the GSP, instalment basis, therefore, hahati-hatiin yung
VAT sa kada bayad ng taxpayer. If the initial payments exceed the 25% of
GSP, we treat as if payment has been received in full. The entire FMV or SP,
whichever is higher would be subjected to 12% VAT.
*Nagkakaroon lang ng piecemeal recognition of VAT, if the initial payments do
not exceed 25% of GSP for a Real Estate Dealer. Otherwise, if hindi siya Real
Estate Dealer, we follow the ordinary rules of VAT – accrual basis. Under
accrual basis, once the sale has been consummated, lahat VATable.
VAT on sale on instalment basis:
Full VAT
COLLECTION (each year of sale)
SELLING PRICE
X FMV or SP, ∆X12%
- Selling Price = Consideration.
- First part, kunin ang Full VAT.
Consideration
FMV
Higher Amount
X VAT Rate
FULL OUTPUT VAT
XX
XX
XX
12%
XX
- Compute the percentage if instalment basis (≤ 25% of GSP) or deferred
basis (> 25% of GSP):
COLLECTION (@ year of sale)
SELLING PRICE
- Then, apportion based on the amount of collection over SP, if instalment
basis:
FULL OUTPUT X
COLLECTION (each year of sale)
SELLING PRICE
= OUTPUT TAX (Installment Basis)
- What if deferred basis? FMV or SP, higher, subject agad sa VAT yung Full
Output VAT at the year of sale, no need to recognize further.
-However, major na pagkakamali is initial payments.
INITIAL PAYMENTS
- Payments which the seller receives before or upon the execution of the
instrument of sale, during the taxable year.
- Not really the pinakaunang bayad lang, it’s everything that the seller will
receive at the year of sale.
FORMULA
Down Payment
ADD:
Installments on year of sale
Excess of Mortgage over cost
INITIAL PAYMENTS
XX
XX
XX
(XX)
XX
SPECIAL VAT BASE RULES
TRANSACTION
VAT BASE
SECURITIES
Gross Sales (net of cost)
ELECTRICITY
Gross Sales (amounts charged)
NON-LIFE INSURANCE
Gross Sales (whether money,
notes, or credits)
MILLERS
Gross Sales (if miller receives
milled products, market value)
SPECIAL VAT BASE RULES
TRANSACTION DEEMED SALE
VAT BASE
TUC (Transfer, Use &
Market Value
Consumption) not in OCB
(Ordinary Course of Business)
Creditors/ Shareholders
Market Value
60-day consignment
Market Value
Retirement/ Cessation
Acquisition cost or market value,
whichever is lower
- In case of non-redemption of properties sold during involuntary sales of
ordinary assets, VAT shall be imposed.
TIMING: When the right of redemption prescribes.
- e.g., Sa real estate mortgage, may tinatawag na right of redemption na kapag
naforeclose yung property that was the subject of the real estate mortgage,
the mortgagor has the right to redeem the property na naforeclose within 1 yr
from the date of sale. Kelan magkakaroon ng VAT? Kapag nag-expire na yung
1 yr right of redemption after the foreclosure sale because that is only the time
when the sale has become absolute. Within that 1 yr period na pwede pang
bawiin wag munang lagyan ng VAT, pag nag-expire na doon masasubject sa
VAT.
ADDITIONAL NOTES:
- If there is inventory from the books of a dealer in securities:
SP, Inventory
Other Income
LESS: AC, Inventory
GROSS SALES
X VAT RATE
FULL OUTPUT VAT
XX
XX
(XX) → Acquisition Cost
XX
12%
XX
REAL PROPERTY VALUATION AND ASSESSMENT REFORM ACT
RA No. 12001
DATE OF EFFECTIVITY: JULY 4, 2024
SAVING CLAUSE
The zonal values, as determined by the BIR and approved by the SOF for
internal revenue tax purposes, and the existing SMVs prepared by the
provincial assessors, together with the municipal assessors, and the city
assessors among others, shall continue to be in force and effect until
repealed, superseded, modified, revised, set aside, or replaced by the
values provided under the new SMVs, which shall be within two years upon
the effectivity of this Act.
Sect 31, RPVARA
OUTPUT VAT CREDIT
A seller of goods or services may deduct the output VAT pertaining to
uncollected receivables from its output VAT on the next quarter.
REQUISITES
The VAT is separately shown on the invoice.
The sale is on credit or on account.
There is a written agreement on the period to pay the
receivable i.e., Credit document showing the credit term.
The sale or exchange has taken place after the effectivity
of RR No.3-2024 (April 27, 2024)
The sale is reported in the Summary List of Sales (SLS)
and not reported as part of “various” sales.
The seller reported in the quarterly VAT Return the
output VAT indicated in the invoice within the period
prescribed.
- Kung output VAT credit siya supposedly nabayaran mo
yug output VAT before; dapat nadeclare siya noon, and
eventually hindi nagbayad kaya magcle-claim ka ng
Output VAT credit.
The period agreed upon has expired or lapsed.
- e.g., n/30, at the 31st day at hindi pa bayad, pwede nang
i-claim yung Output VAT credit next quarter. Hindi
kailangan maningil, basta lumipas yung deadline.
The VAT component of the uncollected receivable was
not claimed as a deduction from gross income.
SUMMARY OUTPUT VAT CREDIT (SCCARRED)
1. Separate showing of VAT invoice
2. Credit sales
3. Credit term indicated
4. April 27, 2024
5. Reported in the SLS
6. Reported in the VAT return
7. Expired period to pay
8. Deduction from gross income does not include VAT
NOTES ON OUTPUT VAT CREDIT
- Availing of this benefit is merely an option i.e., Hindi required na kapag
lumagpas ng 30 days magkaka-automatic Output Tax Credit na. Kasi
eventually alam ni taxpayer na macocollect pa, madedelay lang nang konti.
- The seller may not necessarily automatically claim the output VAT credit
on the uncollected receivable especially so if the likelihood of collectability
is high.
CONSEQUENCES IF THE SELLER CLAIMS OUTPUT VAT CREDIT
- Buyer’s Input VAT shall not be allowed if seller claims output VAT credit.
- Seller shall stamp “Claimed Output VAT Credit” on the invoice.
- Stamped invoice shall be provided to the buyer.
- In case of recovery of uncollectible receivables, the Output VAT pertaining
thereto shall be added to the output VAT of the taxpayer during the period
of recovery i.e., Reversal of Output VAT credit, at this point mapapayagan na
ulit si buyer mag claim ng Input VAT credit.
NOT QUALIFIED TO AVAIL OF OUTPUT VAT CREDIT
1. Those tagged as cannot be located (CBL) taxpayer.
2. Those with filed complaints at the DOJ under the Run After Fake
Transaction (RAFT) and Run After Tax Evaders (RATE) programs.
3. Other taxpayers that may be identified by the CIR.
VAT ON IMPORTATION
DESTINATION PRINCIPLE / CROSS BORDER DOCTRINE
As a general rule, the VAT system uses the destination principle as a basis
for the jurisdictional reach of the tax. Goods and services are taxed only in
the country where they are consumed. Thus, exports are zero-rated, while
imports are taxed.
IMPORTATION
Act of bringing in of goods from a foreign territory into Philippine territory,
whether for consumption, warehousing, or admission.
BEGINS: When the carrying vessel or aircraft enters the Philippine
territory with the intention to unload therein i.e., Hindi nagsisimula ang
importation kung kelan dumaong, but kapag pumasok na ng territory ng
Pilipinas,
ENDS:
- The duties, taxes, and other charges have been paid or secured to be
paid at the port of entry and legal permit for withdrawal has been granted.
- In case the goods are deemed free of duties, taxes and other charges, the
goods have legally left the jurisdiction of the Bureau of Customs (BOC)
i.e., Kapag nakalabas na ng customs custody.
NOTES ON IMPORTATION
STATUTORY TAXPAYER: Importer i.e., Kung sino ang nasa loob ng
Pilipinas.
CLASSIFICATION: Direct Tax i.e., VAT is an indirect tax, but VAT on
Importation is direct tax dahil the impact is shouldered by the person paying
the tax, si importer din.
- Whether for business or personal use.
- Whether importer is VAT or non-VAT registered.
- Paid to BOC.
- Paid before release from customs custody (deadline).


DOCUMENTS ON IMPORTATION
SAD (current name)/ EIRD (before) – Single Administrative
Document/ Import Entry and Internal Revenue Declaration i.e.,
Nakalagay rito yung description ng goods.
SSDT – Statement of Settlement of Duties and Taxes i.e.,
Nakalagay na ikaw ay nakapagbayad na ng duties at taxes. Ang
basis ay SAD/EIRD, nakalagay rito kung magkano yung presyo ng

goods and magiging basis ng computation sa SSDT na siyang
babayaran sa BOC.
ATRIG – Authority to Release Imported Goods i.e., Hindi
malalabas sa ports yung imported goods hanggang hindi
nababayaran yung duties and taxes, kailangan may SSDT muna.
That’s only the time na maiissue yung customs clearance (ATRIG).
TAX BASE (DUTI CEO)
DUTIable Value
Customs Duties
Excise Taxes
ADD: Other Legal Charges
VAT BASE ON IMPORTATION
X VAT Rate
VAT ON IMPORTATION
XX
XX
XX
XX
XX
12%
XX
- In case the valuation used by the BOC is based on volume or quantity of
the imported goods: Landed Cost.

LANDED COST consists of the invoice amount, customs duties,
freight, insurance, other charges, and excise taxes, if any.
OTHER NOTES: Sir Tabag
If the customs duties are determined by the BOC based on the
value (also known as “ad valorem”)
Value for tariff and customs duties (as determined by the BOC)
ADD:
Customs Duties
Excise taxes, if any
Legal charges exclude facilitation fee (bribe)
TAX BASE
MULTIPLY: VAT RATE
VAT ON IMPORTATION

XX
XX
XX
XX
XX
12%
XX
If the customs duties are determined by the BOC based on the
quantity or volume (also known as “specific”)
INVOICE AMOUNT
ADD:
Customs duties
Freight
Insurance
Legal charges
LANDED COST
ADD: Excise Tax, if any
TAX BASE
MULTIPLY: VAT RATE
VAT ON IMPORTATION
CREATE: Freeport Zones refer to an isolated and policed area adjacent to a
port of entry, which shall be operated and managed as a separate customs
territory.
- Considered as a Foreign Territory by Fiction of Law only for purposes of
tax and customs administration not for any other purpose.
- Kaya if magkakaroon ng transaction from Freeport zones to outside of the
Freeport zone, this is treated as technical importation na as if galing labas ng
bansa, papasok ng Pilipinas. Eventually, if magkakaroon naman ng exports,
constructive exports naman.
ZERO-RATED TRANSACTIONS
* Dutiable Value – value na ginagamit ng BOC to compute customs duties.
Normally may mga steps ito and priorities. For purposes of computation, cost,
insurance & freight ang included.
* Customs Duties – kung magkano ang binayaran sa BOC.
*Facilitation fee - not other legal charges.

CUSTOMS TERRITORY
The ECOZONES shall be managed and operated by the PEZA as separate
customs territory.
XX
XX
XX
XX
XX
XX
XX
XX
12%
XX
TECHNICAL IMPORTATION
VAT on Importation applies to technical importation of goods sold by a
person located in a Special Economic Zone to a customer located in a
customs territory.
EXPORT SALES
- Shipment of goods from PH to FC.
- Paid for in acceptable foreign currency.
- Tatlo ang kailangang patunayan: Nakabenta, actual shipment from PH to FC,
and dapat bayad in foreign currency.
DOCUMENTS TO PROVE EXPORT
SALE → Invoice
ACTUAL SHIPMENT → Bill of lading or airway bill
PAYMENT IN FOREIGN CURRENCY → Certificate in Inward Remittance i.e.,
Galing sa bank na accredited by BSP.
SERVICES TO NON-RESIDENTS
Other services rendered to i.e., Hindi kasama ang processing,
manufacturing, and repacking. Hindi dapat involved sa manufacturing yung
services.
- A person engaged in business conducted outside PH.
- A non-resident person not engaged in business who is outside PH when the
services are performed.
 Paid for in acceptable foreign currency.
- Normally, kapag non-resident ang nagbabayad, foreign currency
ang iniimpose ng batas para maging zero-rated, e.g., Call centers
– nagrerender sila ng other services (customer service) sa mga
foregin clients. Pag binabayaran ang call center agents in foreign
currency, zero-rated sales yun on the part of the call center
companies.
ZERO-RATED SALE OF SERVICES
For sales of services to a NRFC to qualify for zero-rating, it must be
established that the NRFC client was:
1. Established under the laws of a foreign country → Foreign Articles of
Incorporation; and,
2. Not engaged in trade or business in PH → SEC Certificate of NonRegistration
- Kapag engaged in business in the Philippines, then, resident siya. It is as if
walang export of services. It is as if the services were rendered to a person in
the Philippines. Dapat wala siyang presence sa Pilipinas para mag-qualify
under zero-rated sale of services.
ZERO-RATED SALE

ACTUAL EXPORTS i.e., Nilabas talaga yung goods and services;
export sales, sale, actual shipment of goods from PH to FC, &
services (other than processing, manufacturing or repacking)
rendered to a person outside the Philippines. For actual exports,
since non-residents ang nakikibang, may requirement na paid for
in foreign currency.

CONSTRUCTIVE EXPORTS i.e., Hindi talaga nilabas ng Pilipinas
pero ang treatment ay as if nilabas ng Pilipinas.

EFFECTIVELY ZERO-RATED SALES

OTHER ZERO-RATED SALES
K-TANUNGAN
Sale by a VAT-registered entity within the customs territory to a PEZAregistered entity situated in the ECOZONE is: Subject to zero-rated rate of
VAT if the goods and services are directly attributable to the registered project
of the PEZA-registered entity.
REGISTERED BUSINESS ENTERPRISES (RBEs) (CREATE MORE)
- Sale and delivery of goods to registered enterprises within a separate
customs territory as provided under special laws.
 Binanggit na kapag nagbenta from within the customs territory to a
separate customs territory (free port zone/ special economic zone),
destination principle applies. However, hindi na ito ang rule
applicable. This has been qualified or restricted by CREATE and
CREATE MORE.
- The VAT exemption on importation and VAT zero-rating on local purchases
shall only apply to goods and services directly attributable to the registered
project or activity by a registered enterprise. (CREATE MORE)
DIRECTLY ATTRIBUTABLE
Incidental to and reasonably necessary for the registered project or activity
of the RBE including janitorial, security, financial, consultancy, marketing
and promotion services, and services rendered for administrative
operations such as human resources, legal, and accounting. (CREATE
MORE)
REGISTERED BUSINESS ENTERPRISES (Before CREATE MORE)
The 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.
DIRECT & EXCLUSIVE USE (Before CREATE MORE)
DIRECT & EXCLUSIVE USE: necessary for the registered project or activity
without which the registered project or activity cannot be carried out.
- Mas restrictive and konti scope compared sa directly attributable. Mas
malawak zero-rating under CREATE MORE.
- Prior to CREATE MORE, yung necessary lang. Under CREATE MORE,
kasama yung incidental.
- RBEs – ang buyer dito ay taga-PEZA o BOI, nasa Pilipinas pa rin physically.
Therefore, hindi kailangan pabayarin ng foreign currency.
EXPORT-ORIENTED
ENTERPISE (EOE)
(CREATE MORE)
Goods sold to and services performed for an
EOE whose export sales us at least 70% of the
total annual production (export sale & zerorated sale) of the preceding year.
- Since binebenta natin sa EOE at more than
70% chance naman na mailalabas ng bansa,
kaya sa EOE-Level palang, zero-rated na agad.
Such goods and services are directly
attributable to the export activity of the
export-oriented enterprise. (Limitation)
The Export Marketing Bureau of the DTI shall
determine compliance with the 70% threshold.
Any EOE that fails to meet the threshold shall be
disqualified from availing of VAT zero-rating in
the immediately succeeding year.
- Now, in order to provide more incentives to
EOE, nilawakan. Hindi lang RM o packaging
materials,
processing,
converting
or
manufacturing services, kahit anong goods and
services na as long as directly attributable.
- Directly attributable – not just necessary
including incidental.
- Necessary & incidental na gagamitin ng EOE,
zero-rated na benta sa kanila mas
advantageous na para sa EOE.
EXPORT-ORIENTED
ENTERPISE (EOE)
(Before CREATE
MORE)
Sale of:
RM or packaging materials.
Services performed by subcontractors, to an
EOE whose export sales exceed 70% of the total
annual production.
CONCEPT: Before CREATE MORE, it must
form part of the goods that will be eventually
exported para maging constructive exports.
Kung hindi siya RM or packaging materials,
maiiwan siya sa Pilipinas, why subject it to zerorate?
- Yung buyer dito taga Pilipinas, exporter lang.
Therefore, hindi siya required magbayad ng
foreign currency.
NON-RESIDENT BUYER TO EOE
- Sale of RM or packaging materials to a non-resident buyer.
- For delivery to a resident local EOE.
- To be used in manufacturing, processing, packing or repacking in the PH of
the said buyer’s goods.
- Paid for in acceptable foreign currency.
- Accounted for in accordance with the rules and regulations of the BSP.
 RM o Packaging materials ang ibinenta sa NR buyer pero wag
ideliver sakaniya, ibigay sa resident EOE. Ang gagawin ng EOE,
ipro-process, ipa-pack, ire-repack. Then, si NR dapat ang bayad
foreign currency.
 Kung ang buyer ay NR, pagbayarin ng foreign currency.
OMNIBUS INVESTMENTS CODE
- Those considered export sales under EO No. 226, otherwise known as the
Omnibus Investment Code of 1987, and other special laws.
OMNIBUS INVESTMENTS CODE
UNDER EO 226
CURRENT STATUS
Sales to bonded manufacturing Zero-rated. Reinstated under
warehouses of export-oriented CREATE MORE.
manufacturer.
Sales to registered export traders REPEALED by RR No. 21-2021
operating
bonded
trading subject to VAT
warehouses supplying RMs in the
manufacture of export products.
Sales to diplomatic missions.
Zero-rated. Treaty provisions
applicable.
Sales to export processing zones. Repealed by RR No. 21-2021
Sales to Subic Bay Metropolitan
Authority (SBMA).
PROCESSING FOR EXPORT
- Processing, manufacturing or repacking of goods.
- For other persons doing business outside PH.
- Goods are subsequently exported.
- Paid for in acceptable foreign currency.
 Basically, in-outsource sa Pilipinas, meaning, dito gagawin sa
Pilipinas.
ZERO-RATING TIMELINES
UNDER RR No. 21-2021
Q3 2021
EOE – RM, packaging materials
processing,
converting
or
No zero-rating for EOEs
manufacturing
Non-resident buyer for delivery to
No zero-rating
EOE
Sale under Omnibus Investment
No zero-rating
Code (OIC)
EXCEPT: Diplomatic
missions still zero-rated
BEFORE
Processing, manufacturing or
repacking goods for persons
doing business outside PH.
*If silent, apply the current law.
No zero-rating
UNDER CREATE MORE
NOVEMBER 28, 2024
EOE – directly
attributable to the
registered activity
Non-resident buyer for
delivery to EOE
No zero-rating
EXCEPT: Diplomatic
missions and bonded
warehouses
No zero-rating
Simplified: Excluded – subject to VAT; Included – still zero-rated
RR NO. 21-2021 ON CONSTRUCTIVE EXPORTS
EXCLUDED
INCLUDED
Export-Oriented Enterprise (EOE)
Non-Resident Buyer to EOE
Registered Business Enterprise
Processing for Exports
Omnibus Investment Code
except Diplomatic missions
CREATE MORE ON CONSTRUCTIVE EXPORTS
EXCLUDED
INCLUDED
Processing for Exports
Registered Business Enterprise
Omnibus Investment Code
Export-Oriented Enterprise (EOE)
except Diplomatic missions and
Non-Resident Buyer to EOE
bonded warehouses
EFFECTIVELY ZERO-RATED SALES
Goods and services sold to persons or entities whose exemption from direct
and indirect taxes under special laws or international agreements e.g., UN,
ADB, International Rice Research Institute & World Health Organization.
CIR v. SEAGATE TECHNOLOGY
- May nagbenta kay ADB na normal producer of goods. Sabi sa ADB charter
na signed ng bansang Pilipinas, ay exempt si ADB from direct and indirect
taxes. Pero si seller, taxable.
- The transaction is subject to VAT. Pero yung papasahan ay exempt from
indirect taxes.
- Pag exempt sa indirect taxes, bawal pasahan ng VAT.
- Taxable yung transaction pero bawal pasahan ng VAT yung bumibili,
therefore, 0 ang ipasa na VAT, known as Effectively Zero-rated sale.
- Sabi ng SC, it is important to determine if the tax exemption granted
specifically includes the indirect tax; otherwise, it is presumed that the tax
exemption embraces only those taxes for which the buyer is directly liable.
TRANSACTIONS
INTERNATIONAL
TRANSPORTERS
BUYER
CONDITION
Sale of goods, equipment,
fuel, and services.
Persons
engaged
in
international shipping or
air transport operations.
Shall be used exclusively
for international shipping
or
air
transport
operations.
OFFSHORE GAMING LICENSEES
- Sales of goods and services to offshore gaming licensees subject to
gaming tax.
GAMING TAX
BASE: The entire gross gaming revenue or receipts.
RATE: 5%
OTHER ZERO-RATED SALES
TRANSPORT FROM PH TO FC
- Transport of passengers and cargo by domestic air or sea vessels from
PH to FC i.e., Kapag hindi domestic, not counted as zero-rated.
ZERO-RATED SALE OF SERVICES
- Sale of power or fuel generated through renewable sources of energy.
SUMMARY OF ZERO-RATED SALES (SEWER STORE)
1. Services rendered to non-residents.
2. Export sales.
3. Bonded manufacturing Warehouses of export-oriented enterprises.
4. Export-oriented enterprises.
5. Registered business enterprise.
6. Special laws and international agreements.
7. Transport operations (1)International Carrier (2)Domestic Carrier from PH to
FC.
8. Offshore gaming operations.
9. REnewable energy.
SUMMARY OF TRANSACTIONS DEEMED SALE (TDS) (SCORE CO 60)
1. Distribution to Shareholders.
2. Distribution to Creditors.
3. Not in the course of business Originally intended for use in business.
4. REtirement or cessation.
5. COnsignment: unsold within 60 days.