VALUE-ADDED TAX

Concept
• Tax on consumption levied on the sale, barter, exchange or lease of
goods or properties or services in the Philippines, and on importation
of goods into the Philippines

• It is an indirect tax.
When VATable?
• Sale, barter, exchange, or lease in the Philippines
– made in the ordinary course of trade or business

• Importation of goods into the Philippines

– whether or not made in the course of trade or business

• Taxable goods, properties, or services

• By a taxable person in the course of trade or furtherance of his/its

profession
Rule of Regularity
• 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 a
non-stock, non-profit private organization (irrespective of the
disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity

• Exceptions
Cross Border Doctrine/Destination Principle
• General Rule: VAT shall be imposed only on goods destined for
consumption within the territorial border of the taxing authority.

• Except: Freeport zones and economic zones

– By fiction of law, ecozones are foreign territories
VAT on sale of goods or properties
• Rate: 12%

• Base: Gross selling price

– Sales discounts - determined and granted at the time of the sale
– Sales returns and allowances

– Goods or properties other than real property – the total amount of

money or its equivalent which the purchaser pays or is obligated to pay
to the seller in consideration of the sale, barter or exchange of the goods
or properties, excluding VAT, plus excise tax

– Real property – the consideration stated in the sales document or the

FMV (whichever is higher of the zonal value or assessed value),
whichever is higher
VAT on sale of goods or properties
• Real properties primarily for sale to customers or held for lease in
the ordinary course of trade or business
• 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 right or privilege to use in the Philippines of any industrial,
commercial, or scientific equipment
• The right or privilege to use motion pictures films, tapes, and discs
• Radio, television, satellite transmission and cable transmission time
VAT on sale of goods or properties
• Real property
– Installment plan
• the initial payments of which in the year of sale do not
exceed 25% of the GSP
• installment payments, including interest and penalties,
actually and/or constructively received by the seller

– Deferred-payment basis
• Initial payments exceed 25% of GSP
• Cash sale: entire selling price

• Input VAT?
VAT on sale of goods or properties
• Sale of two or more adjacent lots in favor of one buyer from the same seller?
– RR No. 13-2012: Subject to VAT
• aggregate value of the adjacent properties exceeds
Php1,919,500 (for residential lots), and Php3,199,200 (for
residential house and lots or other residential dwellings)
• although covered by separate titles and/or separate tax
declarations

• Parking lots in a condominium?

– Subject to VAT, regardless of the amount
Transactions deemed Sale
• Transfer, use, consumption not in the course of business of goods or
properties originally intended for sale or for use in the course of
business

• Distribution or transfer to:

– Shareholders or investors as share in the profits of the VAT-
registered persons
– Creditors in payment of debt

• Consignment of goods if actual sale is not made within 60 days

following the date such goods were consigned

• Retirement from or cessation of business, with respect to inventories

of taxable goods existing as of such retirement or cessation
VAT on sale of service and use or lease of properties
• Performance of all kinds of services in the Philippines for others for
a fee, remuneration or consideration whether in kind or in cash

• Rate: 12%

• Base: Gross receipts

– Actual or constructive receipt
VAT on sale of service and use or lease of properties
• Lease or the use of or the right or privilege to use any copyright, patent,
design or model plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right

• Lease or the use of, or the right to use of any industrial, commercial or,
scientific equipment

• Supply of scientific, technical, industrial or commercial knowledge or

information

• 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 or any such knowledge or information

• Supply or services by a nonresident person or his employee in

connection with the use of property or rights belonging to, or the
installation or operation of any brand, machinery or other apparatus
purchased from such nonresident person
VAT on sale of service and use or lease of properties
• Supply of technical advice, assistance or services rendered in
connection with technical management or administration of any
scientific, industrial or commercial undertaking, venture, project or
scheme

• Lease of motion picture films, films, tapes and discs

• Lease or the use of or the right to use radio, television, satellite

transmission and cable television time
VAT on sale of service and use or lease of properties
• Condominium dues?
– RMC No. 65-2012: The association dues, membership fees, and other
assessments/charges collected by condominium corporations constitute
income payment or compensation for beneficial services that the
condominium corporations provide to their members and tenants.
Thus, the gross receipts of condominium corporations including
association dues, membership fees and other assessments and charges
are subject to VAT and income tax. Income payments made to
condominium corporations are subject to applicable withholding taxes
under existing regulations.

– TRAIN: Association dues, membership fees, and other assessments and

charges collected by homeowners associations and condominium
corporations shall be exempt
VAT on Importation
• Every importation, whether for use in business or not

• Rate: 12%

• Base:
– Total value used by the BOC in determining tariff and customs
duty, plus customs duties, excise tax, and other charges prior to
release of the goods from customs custody
– Landed cost: where the customs duties are determined on the
basis of the quantity or volume of the goods
Zero-rated sale of goods or properties
• Zero-rated sale vs. exempt sale

• Effectively-zero rated vs. automatically zero-rated

– CIR v. Seagate Technology (Philippines), Inc., GR No. 153866,
February 11, 2005
Zero-rated sale of goods or properties
EXPORT SALES
• The sale and actual shipment of goods from the Philippines to a foreign
country which must be paid in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP

• The sale of raw materials or packaging materials to non-resident buyer for

delivery to resident local export-oriented enterprise to be used in
manufacturing, processing, packaging, or repacking in the Philippines of
the said buyer’s goods, which must be paid in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP

• Sale of raw materials or packaging materials to an export-oriented

enterprise (enterprise whose export sales exceed 70% of total annual
production of the preceding taxable year)

• Sale of gold to the BSP

– TRAIN: exempt transaction
Zero-rated sale of goods or properties
EXPORT SALES
• Those “considered export sales under EO No. 226 (Omnibus Investment
Code of 1987)” and other special laws
– Sale to ecozones
• CIR v. Seagate Technology (Philippines), GR No. 153866, February 11,
2005
• CIR v. Toshiba Information Systems Philippines, GR No.150154, August
9, 2005
– TRAIN: specifically included as part of “export sales”

• Sale of goods, supplies, equipment and fuel to persons engaged exclusively

in international shipping or international air transport operations
– TRAIN: goods, supplies, equipment and fuel shall be used for international
shipping or air transport operations
Zero-rated sale of goods or properties
FOREIGN CURRENCY DENOMINATED SALE
• Sale to non-resident
• Of goods assembled or manufactured in the Philippines, except
automobiles and non-essential goods
• For delivery to a resident in the Philippines
• Paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP

• Note: already removed under the TRAIN

Zero-rated sale of goods or properties
“EFFECTIVELY ZERO-RATED SALES”
• Sales to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory
effectively subjects such sales to zero rate
Zero-rated sale of services
• Processing, manufacturing or repacking of goods for other persons
doing business outside the Philippines, which goods are
subsequently exported and paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of
the BSP

• Services other than those mentioned in the preceding paragraph

rendered to a person engaged in business conducted outside the
Philippines or to a non-resident person not engaged in business
who is outside the Philippines when the services are performed and
paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP
– CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.,
GR No. 153205, January 22, 2007
– Accenture, Inc. v CIR, GR No. 190102, July 11, 2012
Zero-rated sale of services
• Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Philippines is
a signatory effectively subjects the supply of such services to 0% rate

• Services rendered to persons engaged exclusively in international

shipping or air transport operations

• Services performed by subcontractors and/or contractors in

processing, converting, or manufacturing goods for an enterprise
whose export sales exceed 70% of the total annual production

• Transport of passengers and cargo by domestic air or sea carriers

from the Philippines to a foreign country
Zero-rated sale of services
• Sale of power or fuel generated through renewable sources of
energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal and steam, ocean energy, and other
emerging sources using technologies such as fuel cells and
hydrogen fuels

• TRAIN:
– Services rendered to registered enterprises within ecozones
VAT Exempt Transactions
SALE OR IMPORTATION OF AGRICULTURAL AND MARINE
FOOD PRODUCTS, LIVESTOCK AND POULTRY, BREEDING
STOCK AND GENETIC MATERIALS
• Livestock or poultry does not include fighting cocks, race horses,
zoo animals, and other animals generally considered as pets

• Original state: simple process of preparation or preservation for the

market
VAT Exempt Transactions
SALE OR IMPORTATION OF FERTILIZERS, SEEDS, SEEDLINGS,
ETC.,
• Except: Specially made feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered
as pets

IMPORTATION OF PERSONAL AND HOUSEHOLD EFFECTS

• Residents returning from abroad
• Non-residents coming to resettle in the Philippines
• Qualification: goods are exempt from customs duties
VAT Exempt Transactions
IMPORTATION OF PROFESSIONAL INSTRUMENTS AND
IMPLEMENTS, WEARING APPAREL, DOMESTIC ANIMALS, AND
PERSONAL HOUSEHOLD EFFECTS
• Except: vehicles, goods for use in manufacture, and merchandise of
any kind in commercial quantity

• Arriving within 90 days (vs. reasonable time)

• TRAIN: includes Filipinos or their families and descendants who are

now residents or citizens of other countries, in quantities and of the
class suitable to the profession, rank or position of the persons
importing said items

SERVICES SUBJECT TO PERCENTAGE TAX

• Not exceed Php1,919,500 (TRAIN: Php3M)
VAT Exempt Transactions
SERVICES BY AGRICULTURAL CONTRACT GROWERS AND
MILLING FOR OTHERS
• Of palay into rice, corn into grits, sugar can into raw sugar

MEDICAL, DENTAL, HOSPITAL AND VETERINARY SERVICES

• Except: rendered by professionals
• HMOs?
– CIR v. Philippine Health Care Providers, Inc., GR No. 168129, April 24, 2007
VAT Exempt Transactions
EDUCATIONAL SERVICES
• Private educational institutions accredited by CHED, DepEd,
TESDA
• Government educational institutions

SERVICES RENDERED PURSUANT TO EMPLOYER-EMPLOYEE

RELATIONSHIP

SERVICES RENDERED BY RHQS

TRANSACTIONS WHICH ARE EXEMPT UNDER INTERNATIONAL

AGREEMENTS
– Except: those granted under PD 529 or the Petroleum
Exploration Concessionaires
VAT Exempt Transactions
SALES BY AGRICULTURAL COOPERATIVES
• Accredited by CDA
• To members: producer or not
• Non-members: must be the producer
• Includes:
– Importation of direct farm inputs
– Used directly and exclusively in the production and/or processing of
their produce

GROSS RECEIPTS BY CREDIT OR MULTI-PURPOSE COOPERATIVES

• From lending activities
VAT Exempt Transactions
SALES OF REAL PROPERTIES
• Not primarily held for sale or held for lease in the ordinary course of
trade or business
– Used in trade/business?

• Utilized for low-cost and socialized housing

– Low-cost: subdivisions or condominiums registered and licensed by
HLURB
– Socialized: houses and lot, or home lots

• Residential
– Lot: up to Php1,919,500 (TRAIN: Php1,500,000)
– House and lot: up to Php3,199,200 (TRAIN: Php2,500,000)
VAT Exempt Transactions
LEASE OF RESIDENTIAL UNITS
• Monthly rental per unit: up to Php12,800 (TRAIN: Php15,000)
• Dwelling places

SALE, IMPORTATION, PRINTING, PUBLICATION OF BOOKS,

NEWSPAPER, MAGAZINE, REVIEW OR BULLETIN
• Appears at regular intervals
• Fixed price or subscription
• Not devoted principally to the publication of paid advertisements
• E-books?
VAT Exempt Transactions
TRANSPORT OF PASSENGERS BY INTERNATIONAL CARRIERS
• Cargo?

SALE, IMPORTATION, LEASE OF PASSENGER OR CARGO VESSELS

AND AIRCRAFT
• Includes: engine, equipment, spare parts
• for domestic or international transport operations

IMPORTATION OF FUEL, GOODS AND SUPPLIES BY PERSONS

ENGAGED IN INTERNATIONAL SHIPPING OR AIR TRANSPORT
OPERATIONS
• TRAIN: goods, supplies, equipment and fuel shall be used for international
shipping or air transport operations
• Sale?
VAT Exempt Transactions
SERVICES OF BANKS, NON-BANK FINANCIAL INTERMEDIARIES
PERFORMING QUASI-BANKING FUNCTIONS, OTHER NON-BANK
FINANCIAL INTERMEDIARIES
• Subject to percentage tax

SALE, LEASE, PERFORMANCE OF SERVICES

• Gross annual sales and/or receipts: exceeds Php1,919,500 (Php3M)
VAT Exempt Transactions - TRAIN
SALE, LEASE, GOODS AND SERVICES TO SENIOR CITIZENS & PWD
• RA 9994

TAX-FREE EXCHANGE TRANSACTIONS

• Section 40(C)(2) of the NIRC

ASSOCIATION DUES, MEMBERSHIP FEES

• Collected by homeowners associations and condominium
corporations

SALE OF GOLD TO THE BSP

• 1997 NIRC: export sale, zero-rated

SALE OF DRUGS AND MEDICINES

• Prescribed for diabetes, high cholesterol, and hypertension
(beginning January 1, 2019)
Input VAT
• Output VAT vs. Input VAT

• When creditable?
– Importer: upon payment of VAT prior to release of goods from
customs custody
– Purchaser of domestic goods or services: upon consummation of
sale
– Purchaser of services, lessee, licensee: upon payment of the
compensation, rental, royalty or fee

– Capital goods
• Aggregate acquisition cost within a calendar month does not exceed
Php1M: month of purchase
• Exceeds Php1M: 60 months (5 years) or actual number of months
(less than 5 years)
• TRAIN: amortization allowed only until December 31, 2021
Transitional Input VAT
• Became VAT-registered persons upon exceeding Php1,919,500 in any
12-month period
• Voluntarily registers as a VAT taxpayer even does not exceed
Php1,919,500
– except franchise grantees of radio and/ or television broadcasting whose
threshold I

• Whichever is HIGHER of
– 2% of value of beginning inventory on hand
– Actual VAT paid on such goods, materials and supplies

• Fort Bonifacio Development Corp. v CIR, GR no. 158885, April 2, 2009

Presumptive Input VAT
• Processing of sardines, mackerel and milk
• Manufacturing refined sugar, cooking oil, and packed noodle-based
instant meals

• 4% of the gross value in money of their purchases of primary

agricultural products which are used as inputs to their production
Withholding VAT
• Sale of goods and services to the government
– 5% withheld by the government
– 7% standard input VAT
• Actual > SIV: expense
• Actual < SIV: income

• Payment for lease or use of properties to non-resident owners

– 12%
Refund or Tax Credit
ZERO-RATED AND EFFECTIVELY ZERO-RATED
• 2 years from the close of the taxable quarter when the sales were
made
– Regardless when the input tax was actually paid
– Administrative claim
• 120 days to decide

• Judicial claim (120+30)

– 30-day period to appeal is mandatory and jurisdictional
– Except: BIR Ruling No. DA 489-03: December 10, 2003 to October
5, 2010
Refund or Tax Credit -TRAIN
• Refund, TCC not allowed
• 90 days, vs. 120 days
• BIR must act on the claim within 90 days, otherwise administrative
sanction
– No “deemed denial”
• Judicial claim: 30 days from receipt of decision
Administrative Provisions
• Mandatory registration for VAT
– Gross sales or receipts for the past 12 months exceeded
Php1,919,500 (Php3M)
– Reasonable grounds to believe that his gross sales or receipts will
exceed Php1,919,500 (Php3M)

• Effects of non-registration
– Liable to VAT as if VAT-registered
– Without the benefit of input tax

• Optional registration for VAT

– Irrevocable for 3 years
• Except: franchise grantees of radio and TV whose annual gross
receipts do not exceed Php10M
Administrative Provisions
• Substantiation requirements
– VAT invoice: goods or properties
– VAT official receipt: lease of goods, services

• Return and payment of VAT

– Monthly
– Quarterly (25th day of the month following the close of the
quarter)