Transfer and Business Taxation

3. Excise taxes imposed on products that

are harmful to health, goods that are
nonessential and products that deplete
natural resources. It is imposed in addition
to VAT.

CHAPTER 7 BUSINESS TAXES

Business trade or commercial activity regularly
engaged in as a means of livelihood or with a
viewpoint of obtaining profit.

BUSINESS REGISTRATION

Transaction subject to business tax

It is a commercial activity sale of goods and

services related to trade, profession or business in
the Philippines are generally subject to business
taxes except when the law provides they are
exempt.

Initial registration application must be with the

RDO where principal place of business is located
before the start of the business.
1.
2.
3.
4.

Service is rendered by a NRF person shall be

considered as being rendered in the course of
business w/o regard to the rule of regularity
Some Non-business transactions
a) Sale of share of stock through stock
exchange subject to of 1% of OPT
based on selling price or gross value in
money.
b) Overseas dispatch, communication from the
Philippines subject to 10% OPT.
c) Horse race winning subject to 10% OPT, jai
alai is subject to 30% OPT.

Annual registration Fee: PHP 500.00 for every

separate or distinct establishment.
Branch a fixed establishment in a locality which
conducts sales operation of the business as an
extension of the principal office.

Subject to income tax NOT BUSINESS

TAX.

Warehouse premises where the inventories of

goods for sale is kept and from which such goods
are withdrawn for delivery.

BUSINESS TAXES
-

TIN application form

Sketch of business site
Exemption certificate
Photocopy of the following
Mayors permit and municipal
license
DTI certificate or SEC certificate
Articles
of
partnership
or
incorporation
Marriage contracts for individuals
Unit or agency charter for govt.
agencies

Annual registration it shall renew its registered

annually before the end of January

Casual Sale an occasional sale of goods or

services by a person who is not engaged in
business or sale of assets that are not used in
business.
-

Noncompliance will render the business

illegal.

Impositions on onerous transfer of property,

service or rights in the ordinary course of
business.

Facility may include but not limited to sales

outlets, places of production, warehouse or storage
places.

Classification of business taxes:

1. Valued added tax (VAT) 12% additional
tax on the sales price of goods and / or
services by VAT registered seller.
2. Other percentage taxes (OPT) taxes
imposed to Non VAT registered
businesses. (most common 3% based on
gross sale or receipts)

Exempt from registration fee:

1. Individuals earning purely compensation
income
2. Overseas workers
3. Self employed individuals; gross sales or
receipts do not exceed PHP 100,000 per
year.
1

4. Cooperatives

Allowed
to
collect No
output
vat
output
vat
from allowed, business tax
customers
and
a charged as operating
current liability to BIR
expense
Allowed to claim input No input vat allowed,
vat on purchases from it is charged as part
VRS. It is a current of cost of purchases.
asset / and advance
payment of VAT
Cancellation of vat registration

Threshold Amounts:
National
internal
revenue code

Amount in
Pesos
(2005)

Section 109 (P) P 1,500,000.00

Section 109 (P)
2,500,000.00
Section
109
10,000.00
(Q)
Section 109 (V)
1,500,000.00

Adjusted
threshold
amounts
(Jan. 01, 2012)
P 1,919,500.00
3,199,200.00
12,800.00

Non vat person collecting vat shall pay the

following:

1,919,500.00

1. OPT applicable to his transactions

2. Vat due on transaction w/o benefit of input
tax
3. 50% surcharge

VAT OR NON-VAT REGISTRATION

Mandatory VAT registration
1. Expected annual gross sale or receipts
exceed P 1,919,500.00
2. If a taxpayer has realized gross receipts of
more than P 1,919,500.00 a year

CHAPTERB 8 BUSINESS TRANSACTIONS

-

***for the purpose of the threshold of P

1,919,500.00 the husband and the wife shall be
considered separate taxpayers

1. Vat transactions
a) Allowed with input vat
b) Not allowed with input vat
2. Zero-vat rated transactions
3. Vat exempt rated transactions
a) Exempt from OPT
b) Subject to OPT
4. Transactions with the government units

Persons that do not exceed P 1,919,500.00

per year has the option to register under
VAT system.

Subject to three (3) conditions:

a. Taxpayers dominant business is covered by
the VAT law and thus registered as VAT
taxpayer.
b. He has other business transactions which
are exempt from VAT but has opted to
register the same as well to be covered by
the VAT system
c. Optional VAT reg. shall be irrevocable for a
period of 3 years from the date of
registration.

Vat taxable transactions allowed w/ input vat

The ff. transactions are included under this
category:
1. Sales of vat registered business other than
zero rated, vat exempt or those under
OPT.
2. On consumptions or transfers by vatregistered business, deemed sales.
Output vat 12% of the business gross sale or
gross receipts whichever is applicable.

Comparison of VAT and Non-VAT business

Vat registered

Commercial
transactions
refer
to
regularity of undertaking for profit purposes.

Classifications of business transactions:

Optional VAT registration

-

Once registered under vat system such vat

registration shall be irrevocable for 3 years
from the quarter the vat reg. was made.

Non - Vat registered

2

Input vat 12% of its purchases from other vat

person.
Vat taxable transactions NOT allowed w/ input
vat
-

2.
3.
4.

Transactions of non vat business with

annual sales exceeding the adjusted
threshold of PHP 1,919,500.00

Vat taxable transactions not allowed to deduct

input vat:
a) Non vat business with sales of more than
PHP 1,919,500.00 per year.
b) Non vat franchise grantees of radio and
TV w/ annual gross receipts of more than
PHP 10,000,000.00
c) Importations except hose specifically
exempted
d) Local payment of rent of vessel or carriers
owned by NRF entity

5.

ZERO VAT RATED TRANSACTIONS

-

Sales that are subject to output vat rate of

0%
Mainly exports sales by vat reg. persons
w/c generate the needed reserves of foreign
currencies.
AIV on sellers purchases to such zero
rated sales shall be applied for a tax credit
certificate (TCC) or refund of creditable
input tax due.
TIV and PIV are not allowed for TCC or vat
refund, only as creditable input tax.

enterprise whose export sale

exceed 70% of total production.
e) Those considered export sales by
the law.
Sale of gold to BSP
Foreign currency denominated sales
Effectively zero rated sales
a) Sale of power or fuel generated
through renewable sources of
energy.
b) Sales and services to ff. persons
who were granted indirect tax
exemption under special laws
and/or int. agreement
SBMA and CDA
PEZA
Asian development bank
IRRI
Gross receipts of domestic corp.
a) Transport of passenger and cargo by
air or sea vessel from PH to FC
b) Services paid for in acceptable
foreign currency and accounted in
accordance w/ rule of BSP.

VAT - EXEMPT
TRANSACTIONS
-

AND

OPT

EXEMPT

These transactions are not subject to 12%

OV, nor subject to OPT and not entitled to
any credit for AIV.

Business transaction under vat exempt ad

OPT exempt:
1. Export sales of non vat reg. business
2. Importation of the ff.
a) Fuel, goods and supplies by
persons engaged in int. shipping or
air transport.
b) Personal and household effects
belonging to residents of PH
returning abroad and NRC coming
to settle in PH provided such is
exempted to custom duties
c) Professional
instruments
and
implements belonging to person
coming to settle in PH for their own
use and not for sale.
3. Sale and importation of
a) Agricultural and marine food
products in their original state

Zero rated transaction include the ff.

1. Export sales in acceptable foreign currency
a) Sale and actual shipment from PH
to foreign country
b) Sale of raw or packing materials to
NR buyer for delivery to resident
local place in PH
c) Sale of goods, supplies, fuel and
services (lease of property) to int.
shipping or air transport companies.
d) Sale of raw or packing materials
and services performed by subcon
and/or con to an export oriented
3

4.

5.

6.

7.

b) Animals generally considered as

pets
Printing or publishing books and any
newspaper not devoted to publication of
paid ads
Services of
a) Agricultural contract growers and
miller for others
b) Medical exempt services rendered
by professionals
c) Private educ. Institutions and by
govt. educ. Institutions
d) Regional or are headquarters
established in PH by MNCs
e) Transactions which are exempt
under int. agreements
Sale of cooperatives duly reg. with
cooperative development authority (CDA)
a) Sale by agricultural cooperatives
b) Gross
receipts
from
lending
activities
Sale / lease of real properties (ordinary
assets)
a) Sale of real properties for low cost
housing
b) Sale of real properties utilized for
socialized housing
c) Sale of residential lot at PHP
1,919,500.00 and below or house
and lot at PHP 3,199,200.00 and
below
d) Lease of residential units with
monthly rental per unit not
exceeding PHP 12,800.00
e) PHP 1,919,500.00

2% by franchise grantees of gas & water

utilities
5. 10% for overseas dispatch/message from
PH
6. 5% on insurance premium by insurance
business in PH
7. 10% on services by fire, marine or
miscellaneous insurance agents of FIC
8. 30%, 18%, 15%, 10% on GR of operators of
jai-alai and race tracts
9. to 4% on exchange or shares of stock
listed and traded in local stock exchange
10. Banks and nonbanks performing quasibanking functions
Transactions with the government units The
PH govt. or any political subdivisions before making
a payment on account shall deduct and withhold
the ff. business taxes.
1. Final VAT of 5% (if seller is vat reg.)
2. Percentage tax of 3% (if seller is non vat
subject to OPT of 3%)
Creditable withholding income taxes (CWIT)
1. 1% on purchases of goods
2. 2% on purchases of services
AIV > SIV if AIV is more than 7% of gross
payments (SIV), the excess form part of expense or
cost.
AIV < SIV if AIV is less than 7% of gross
payments (SIV), the difference is treated as taxable
other income.

VAT EXEMPT TRANSACTIONS subject to

specific OPT

CHAPTER 9 VALUE ADDED TAX

Value added tax (VAT) - Form of consumption
tax (from 0% - 12%) imposed on each sale or lease
of goods, properties or services in the course of
trade of business in the PH.

1. 3% on sale or lease of goods or properties

or services of non vat reg. person; the
annual sale does not exceed PHP
1,919,500.00
2. 3% on gross receipts for services rendered
by domestic common carriers by land for
passengers and keepers of garages
3. 3% on GR w/in for services by int. air and
shipping carriers
4. 3% on GR by franchise grantees of radio
and / or TV broadcasting that does not
exceed annually PHP 10,000,000.00 and

Buyers POV a tax on the purchase price

Sellers POV a tax only on the value-added to
the product or services sold.
***it is designed to be borne by consumers, with
sellers acting merely as tax collectors.
Rationale of VAT
4

Given amount
x 12 =VAT
1.12

1. Simplified tax administration promotes

efficiency and simplicity. It also curves tax
evasion and fraud.
2. Fostering honesty gives rise to a selfpolicing mechanism among the taxpayers in
the system.
3. Higher govt. revenues vat system has
wider tax base
4. Fostering national progress

Given amount
=VAT
9.333
Taxable base the amount or value on which the
VAT rate will be applied in computing output tax.
Gross selling price amount which the purchaser
gave up as a sacrifice includes:

Characteristics of VAT
1. It is imposed on business transactions
2. It follows the destination principle
whereby goods and services are taxed only
in the country where they are consumed.
3. It is an indirect tax, privilege tax and an
ad valorem tax it is shifted and passed
on to the buyer; imposed on sale, exchange
or barter of G&S; basis for determining tax
is value or sales price of G&S sold.
4. It is cumulative
5. It employs tax credit method and
basically a tax on gross margin

1. Purchase price
2. Charges for packing, delivery and insurance
3. Excise taxes if subject to it
Allowable deductions from GSP
1. Sales returns and allowances
2. Sales discounts can only be deducted if
all the ff. conditions are met:
a) Determined and granted at the time of
sale
b) Discount is expressly indicated
c) Amount shall form part of gross sales
d) Granting of discount does not depend
on the happening of future event

Rates of VAT
1. For Output VAT
a) Regular vat rate of 12%
b) Zero percent (0%) rate
2. For Input VAT
a) Regular vat rate of 12%
b) Zero percent (0%) rate
c) Transitional input vat of 2%
d) Presumptive input vat of 4%
e) FWT of 5%
f) SIV of 7%

Vat taxable person an individual, trust, estate,

partnership, corporation or association who makes
or intends to enter into transactions subject to vat.
Persons becoming liable to VAT
1. Persons commencing a business if he
expects to realize annual gross sales of
more than PHP 1,919,500.00 for the next 12
mos.
2. Vat exempt business becoming liable
to vat if less than PHP 1,919,500.00
classified as vat exempt and subject to
OPT. but if it exceeds the threshold in any
12 month period he becomes liable to vat.

Determination of VAT amount

1. Amount of vat separate item in invoice or
receipt
2. In case of erroneous vat is billed; it is
presumed to be comprised of the gross
selling price or GR including VAT.

*** he must register as vat w/in 10 business days

after the end of the last month when his sales
exceeds the threshold in 12 month period.

Formula:
1. If exclusive of vat, net of vat or before
vat

Persons subject to vat

1. Registered person under vat system
2. Non vat registered but required to be
registered under the vat system

Given amount x 12 =VAT

2. If inclusive of vat, gross of vat or after

vat
5

3. Franchise
grantees
of
radio/TV
broadcasting are subj. to vat if:
a) Opted to reg. under vat system
even if their annual GR in preceding
year does not exceed PHP
10,000,000.00
b) Non vat and it exceeds PHP
10,000,000.00

b) Special economic zones or free

ports in PH
c) Regional or area headquarters by
MNCs
d) Inventors certified by the PH
inventors society and exempt from
all kinds of taxes in 1st ten years
from date of 1st sale.
3. VAT exempt under treaty

*** These are subject to 3% OPT if total annual GR

do not exceed PHP 10,000,000.00

VAT exempt senior citizen

-

*** Mandatory registration applies w/in 30 days

4. Importer of goods any person who imports
goods whether or not in the course of
business, subject to VAT.

Vat of husband and wife

-

For the threshold of PHP 1,919,500 the

husband and wife shall be considered
separate
taxpayers.
However
the
aggregation rule for each taxpayer shall
apply.

Non-taxable Entity
-

Government and it political subdivisions

Government
-

No income but collecting monthly dues from

members is not subj. to VAT
It becomes taxable if it regularly conducts or
pursues a commercial or economic activity.

Value added tax declaration

National
govt.
performing
essential
governmental functions.
Govt. cannot tax itself because it cannot
enter into transactions in the course of
business comprising economic activity.
May be taxable if it sells G&S in the course
of business.

BIR form 2550M must be filed and paid on

or before the 20th day of the month.
For 2550Q be filed on or before the 25th of
the month ff. the close of the quarter.

CHAPTER 10
PROPERTIES

Exemption from VAT

-

Senior citizen or elderly Filipino citizen,

resident, and 60 years old or above. Dual
citizenship prove their Filipino
citizenship and have at least 6 months
residency in PH.
Granted 20% discount and VAT exempt
on their purchases of goods and services as
long as they can show SC ID.

Being free from VAT burden.

VAT

ON

GOODS

OR

Goods or Properties all tangible and intangible

objects which are capable of pecuniary estimation
and shall include:

VAT exempt persons

1. Persons engage in non vat
transactions
a) Sales or receipts are exempt
b) Annual GR do not exceed PHP
1,919,500.00 and as NON VAT
c) Non

stock
/
non-profit
organizations
2. Persons exempt from VAT under special
laws
a) CDA registered cooperatives

1. Real properties held primarily for sale

2. Right to use patent, copyright, design & etc.
3. Right to use industrial, commercial
equipment in PH
4. Right to use motion pictures films
5. Radio , TV satellite transmission and cable
Vat on sale of goods or properties
6

Must be related to business or trade

Should be consummated in
regardless of terms of payment

the

PH

DEEMED SALE TRANSACTIONS

-

Inventory
supplies

Taxable base is the market value of such

goods as of the occurrence of the
transaction considered as sale.
When GSP is lower than actual market
value, the commissioner shall determine the
tax base of 12%.
GSP is unreasonably lower than AMV if it is
lower by more than 30% of AMV.
Previous BIR ruling tax base on acquisition
cost or market price, whichever is lower.

1. Consumption of inventory goods

originally for sale but consumed for personal
use by the seller.
2. Distribution as profit share transfer of
inventory to shareholders as share in
profits.
3. Payment to creditors transfers of
inventory in payment of debt.
4. Consigned goods not sold w/in 60 days
it is deemed sales if not sold w/in 60 days ff.
the date such goods were consigned.
5. Retirement from business merchandise
inventory left at retirement of business is
deemed sale for vat purposes.

promotion

and

office

Goods given for free in order to promote

sales efforts are NOT considered deemed
sale transactions.
Office supplies w/c are not primarily for sale
but consumed for business purposes are
NOT deemed sale transactions.

Sale of scrap materials and fully

depreciated fixed assets sold at minimal
prices or lower than purchase price are
subject to VAT.

Sale of real property classified as capital

asset is not subject to VAT but to capital
gains tax of 6% based on sales price or
FMW whichever is higher.

In general: sale of real property held as ordinary

asset is a transaction subject to VAT; except the ff.
1. Residential lot w/ SP at PHP 1,919,500.00
and below
2. Sale of house and lot with SP at PHP
3,199,200.00 and below.
Summary Application

Vat shall also apply to inventory goods

disposed of or existing a certain date if
status as vat reg. changes or terminated

Incorporation of single proprietorship

It gives rise to transaction deemed sale of
assets which is based on acquisition cost or
current market price of goods, whichever is
lower.

Real property
sold
Casual sale
Regular sales:

Threshold
sales price
-

Business tax

Commercial
property
Residential lot

VAT

P 1,919,500.00
or less
P 3,199,200.00
or less

Exempt

Residential
house and lot

Mergers and consolidation

-

for

Sale of real property

Changes or Cessation of status of a VAT

registered person

used

Sales of scrap materials

The ff. are transactions as deemed sale:

The unused Input vat shall be absorbed by

the surviving corporation.

Transfers of assets from mergers and

consolidation are NOT transaction deemed
sale. These are just transfers in form but
not in substance.

none

Exempt

VAT component on sale of real properties

1. GSP in sale or real property means
consideration stated in sales document or
the FMV; whichever is higher.
7

FMV means whichever is higher of:

a. FMV determined by commissioner
(zonal value)
b. FMV shown in the provincial city
assessors (RP tax declaration
2. If VAT is not billed separately, the SP, CP or
consideration stated therein shall be
deemed to be inclusive of VAT.
If GSP based on zonal value or MV
it shall be deemed inclusive of VAT
If the FMV is higher than SP, the
FMV shall be VAT exclusive.

Transmission of Property
1. To a trustee shall not be subject to VAT if
the property is merely held in trust.
2. Transferred is one for sale, lease or use in
ordinary course of trade and constitute a
complete gift, it is subject to VAT, as
deemed sale transaction
3. Transfer is completed gift, if transferor
diverts himself absolutely of the control over
the property.

INSTALLMENT SALE OF REAL PROPERTY

Initial payment is 25% or less.
Instalment received
Add:

Interest
Other charges

Taxable Base

P xxx

Agricultural and Marine Food Products

P xxx
xxx

xxx
P xxx

Initial payment exceeds 25% threshold.

The importation and sale of agricultural and

marine food product at their original state
are both exempt from VAT and OPT.

Original State it is considered even if they have

undergone simple processes of preparation or
preservation for the market, such as freezing,
drying, salting, broiling, roasting, smoking or
stripping.

*** Instalment w/ 25% threshold, the Output or Input

VAT shall be recognized upon receipt or
payment of every instalment payment.

If a difference is uncovered because the ZV

or MV at date of sale is higher than total
receipts, the additional VAT shall be paid
accordingly.

Non-food agricultural, marine and forest

products are now subject to VAT even if they are
in their original state.

If initial payment exceeds 25% of GSP

(exclusive of VAT) the whole SP or the
zonal/FMV whichever is higher, is the
taxable base of VAT.
No output VAT on the said sale to be
reported on the succeeding years of
collection except when remaining balance of
SP is subject to interest and other
charges.

CHAPTER 11 VAT ON SALE OF SERVICES

Sale or exchange of services:
1. Services
performed
for
valuable
consideration in relation to trade.
2. Lease or use of personal properties
3. Lease of real properties

Fair Market Value is higher than the selling

price

actual collection of the

consideration
( exclusive of VAT )
VAT=
x ZV FMV , H x 12
agreed consideration
(exclusive of VAT )

Service VAT Situs

-

ADDITIONAL VAT ON INSTALLMENT SALE OF

REAL PROPERTY

This tax situs is in accordance with

principle of consumption
If it is performed outside the PH even if
undertaken in relation to trade is beyond the
scope VAT.

Requisites of Service Transactions subject to

VAT
8

1. Service must be performed in the course of

trade in the PH
2. Service
is
rendered
for
valuable
consideration actually or constructively
received
3. Service rendered is not exempt from VAT

h) Supply of services by NR person or

his employee
2. Transfer of technology
a) Lease or use of any industrial or
commercial knowledge
b) Supply of scientific and technical or
commercial information
c) Supply of assistance that is ancillary
and subsidiary to
3. Lease or use of intangible property
4. Lease or use of tangible property
a) Lessors of property (personal or
real)
b) Warehousing services
c) Lessor of cinematographic films
d) Operators or keepers of hotels,
motels, resorts, inns
e) Operators of restaurants, cafes
f) Services of franchise grantees of
telephone, radio,
g) Lease or use of copyright, patent,
model plan, design

Taxable base on Services

-

For supply of services, taxable base is

gross receipts which is the:
a) Total amount of money representing
the contract price, service fee, rental
or royalty.
b) Amounts charged for materials with
services and deposits and advance
payments actually or constructively
received, exclusive VAT.

Gross receipts on services dont include

receivables. Includes amounts billed to clients
intended to recover cost and expenses with profits.
Constructive Receipts
-

VAT on Professional Fees

When money consideration is placed at the

control of the person who rendered service
w/o restrictions by the payor.

Earnings from a practice of profession will be

subject to 12% VAT if:
1. Professional is VAT registered person
2. Non VAT reg. but exceed PHP
1,919,500.00 per year

Reimbursement of Expenses
Segregation rule the reimbursement does not
form part of the taxable base only when the ff.
conditions are complied.

*** subject to 10% withholding of income tax if

aggregate amount per year is PHP 720,000 and
below and 15% withholding tax if exceeding PHP
720,000 per year.

1. Advance payment should be in the name of

the client
2. Amount of reimbursement for advances is
segregated
3. Services performed in the Philippines

Service Contractors
-

CATEGORIES OF SERVICES
1. Professional / technical services
a) Construction
and
service
contractors
b) Stock, real estate brokers
c) Persons engaged in
milling,
processing, packaging or re
packing
d) Dealers in securities
e) Lending investors
f) Transportation contractors
g) Non life insurance companies

Subject to 12% VAT; if with the govt. with

5% FWT and 2% on CWIT on sale of
services or 1% on sales of goods.

VAT on Security Agency Fees

1. The contract for security services must
provide for a breakdown of amount of:
a) The agency fee
b) The security guards salary
Only the agency fee is subject to 12% VAT
Real Estate Brokers

A person selling real property others for a

fee or commission income. Such income
subject to VAT if vat reg. or he exceeds the
PHP 1,919,500 threshold

Dealers in Securities
-

A merchant of stocks or securities with an

established place of business
Subject to VAT based on GR = GSP cost
of securities sold

Hotels, Restaurants, and Caterers

Lending investors
-

Vat on travel agencies are based on GR

which will not include cost of airline and
reimbursement of expenses.
if travel agency purchased tickets on a net
basis, VAT shall be on the margin of SP to
passenger and net purchase price.
However if margin exceeds 9% of GSP of
ticket, BIR treats it as resale w/c is
taxable on GSP.

Taxable base does not include the ff.

Who make a practice of lending money for

themselves or for others for an interest

1. service charges billed separately and

distributed to waiters and employees
2. actual cost of long distance and overseas
calls
3. local taxes

Transportation services
1. Transport of goods and cargoes by
land, air and water by domestic common
carriers is subject to 12% VAT.
2. Transport of passengers by air and sea
w/in PH is subject to VAT; by land is subject
to 3% OPT.

Media Advertising
1. Agency commissions
2. GR derived by media from its advertising
services

Freight Forwarders

Nonlife Insurance

1. Outbound movements cargoes from PH

to a foreign port
2. Local origin charges fees charged to
clients for services rendered in PH involving
outbound movement.
3. Inbound movement cargoes from a
foreign port to the Ph.
4. Local destination charges fees charged
to clients for services rendered in PH
involving inbound movements.
5. Offshore destination / origin charges
chargers of foreign forwarders billed to
forwarders for services rendered abroad
involving outbound or inbound movement
w/c in turn billed to clients.
6. Currency adjustment factor covering
losses incurred due to fluctuations in the
exchange rates
7. Accessorial charges standard charges
billed by int. air or sea carriers to forwarders
and in turn billed clients at cost.

1. If acquired from domestic or foreign

companies authorized to transact risk
business in PH 12% VAT based on
premium
2. If acquired from FC not authorized to
transact in PH
a) Through an authorized agent
10% of premium collected
b) Direct purchased 5% on
premium paid
Services of Non-resident persons
-

Subject to withholding tax and income tax

VAT withheld by payor can be claimed as
Input VAT. May be treated as asset or
expense whichever is applicable.

Lease of Commercial and Residential Units

General: subject to 12% VAT
Rules:

Travel Agencies

1. Monthly rental does not exceed PHP 12,800

per unit regardless of aggregate annual
10

rentals. The lessor is exempt from VAT

and OPT.
2. Monthly rental exceeds PHP 12,800 per unit
but aggregate annual rentals does not
exceed PHP 1,919,500. The lessor is
subject to 3% OPT.
3. If monthly rentals exceed PHP 12,800 per
unit and aggregate annual rentals exceed
PHP 1,919,500. The lessor is subject to
12% VAT.

Organizations
1. PEZA or SBMA registered enterprises
2. International Organizations
3. Other organizations

CHAPTER 12 INPUT VAT CREDITS AND

REFUNDS
-

Withholding Tax on Lease of Commercial

Properties
-

Subject to 5% withholding income tax

Books, Magazine and Newspaper

-

It appear in regular interval, with fixed prices

ad not devoted principally to publication of
ads are VAT exempt.

Rules for creditable input vat

1.
2.
3.
4.
5.

Agricultural Contract Growers and Millers of

Agricultural Products
Agricultural contract growers persons
producing for others poultry, livestock or other
product in their original state.

Proper documentation
Delivery receipts not allowed
No double input tax credit is allowed
Ignore erroneous vat rare
Allowed by law as creditable input vat

Sources of input vat

1. Purchases of goods/properties or services
to vat reg. business
2. Purchases to non vat reg. but issued vat
invoice or receipt
3. Importation of goods locally
4. Transitional input vat
5. Presumptive input vat
6. Standard input vat on sale to govt.

1. Toll hatching
2. Toll processing or toll dressing

Medical Services vat exempt

Educational Services academic, technical, or
vocational
education
provided
by
private
educational institutions accredited by CHED, DECS
or TESDA.

PURCHASES OF GOODS/PROPERTIES
PAYMENT OF SERVICES

OR

Input VAT on Depreciable Capital goods

Works of Art, literary works and musical

compositions now subject to VAT

Employee Services
-

VAT due from or paid by a VAT reg. person

in the course of trade on local purchases.
Primarily to reduce the amount of output vat
in computing vat payable
The excess Input vat shall be carried over to
the succeeding quarter or may be applied
for tax refund.

From employee employer relationship is

exempt and additional compensation in form
of commission income from employer is not
subject to VAT

Capital goods are properties with

estimated useful life greater than one year
and w/c are treated as depreciable assets.

Rules to account for IP:

1. If aggregate acquisition cost per month,
exclude VAT is P 1,000,000 and below, the
input vat is deductible at full amount from
output vat.
2. If aggregate acquisition cost per month
exceeds P 1,000,000 regardless of AC of
each capital goods, the input vat shall be

Franchise Grantees
ZERO RATED OR EFFCECTIVELY ZERO
RATED SERVICES
11

spread over 60 months or its useful life

whichever is shorter.

c) Cooking oil
d) Packed noodles based instant
meals

Input vat of construction in progress

-

Adjustment to input vat credit

As a purchase of service the value shall be

determined based on progress billings.

1. Increased by input vat carried over

2. Reduced by the ff.
a) Claim for refund
b) Purchase returns and allowances
and others
c) Input vat on uncollected portion of
instalment receivable

Input vat in purchase of services

Input vat on importation
-

Value added tax shall be based on the

landed cost + excise taxes if there is any.

Input vat of zero rated person

Importation act of bringing goods into the PH

from foreign country.

Various Nature of Importation

All subject to 12% VAT
Importation by a VAT
person for business
use
Importation by a VAT
person for personal
use
Importation by a non VAT person for
business use
Importation by a non VAT person for
personal use

Creditable as input vat

Yes

Subject to ff. conditions:

1. Vat registered
2. Claim is made w.in 2 years after close of
taxable quarter when claim is made
3. Must be attributable to zero rated sales

No

VAT refund or tax credit certificate

No

1. Those w/ zero rated sales

2. Those who would cancel
registration

No

vat

1. PIV
2. TIV
3. AIV on capital goods, importation or
purchases of continuing vat-reg. person t
the extent of their sales not subject to zero
rated.

Allowed on the inventory on hand of a

person who for the 1st time becomes liable
to VAT or elects to be VAT registered.
2% of the value of such inventory or the AIV
paid on such inventory whichever is higher.

Tax credit certificate or vat refund period

Presumptive input vat

-

their

Not allowed for VAT refund or tax credit

certificate

Transitional input vat

-

May be applied for tax refund or issuance of

TCC w/c may be used for payment of
internal revenue taxes.

Allowed as input tax on purchases of vat

reg. person despite that there is no actual
vat payment made on vat exempt
transactions
PIV is 4% on purchases of vat exempt
primary agricultural and marine food
products at their original state w/c are used
as inputs to the processing of:
a) Sardines, mackerel
b) Milk, refined sugar

12

Claim is made w.in 2 years after close of

taxable quarter when claim is made
Commissioner shall grant w/in 120 days
from date of submission of complete
documents
The taxpayer may appeal at CTA w/in 30
days from receipt of denial
If commissioner does not give decision w/in
120 days, taxpayer may file an appeal to

CTA w/o waiting for expiration of 120 day

period if the 2 year period is about to lapse.

Subject to 12% VAT transport of passenger by

air and sea w.in the PH by Domestic Corporation
Subject to OPT transport of passengers by land

CHAPTER 13 MIXED TRANSACTIONS

-

Subject to zero rated vat transport of

passengers or cargoes outside the PH by a
Domestic Corporation.

Business dealings of a VAT reg. person

engaged in commercial activities subject to
VAT, zero rated vat and vat exempt
transactions.

Mixed transactions of Domestic insurance

companies

Allocation of input vat

-

1. For nonlife insurance premium 12% VAT

2. For life insurance premium 5%

Allocation of input vat when an amount

could not be traced directly to regular vat
rate, zero rated vat or vat exempt.
The input vat shall be allocated
proportionately on the basis of sales
volume.

Exceptions:
a) Life insurance premiums is refunded w/in 6
months
b) Premiums collected outside PH from NR
person

Formula:

Mixed transaction on sale and lease of real

vat taxable sales

properties
untraceable Input Vat x
=creditable input
VAT
total sales

On sale of real property

1. Commercial property 12& VAT
2. Residential property

untraceable Input Vat x

sales
eligible for tax refundTCC
SP/unit
( zerorated
)=input vat creditResidential
total sales
lot P
1,919,500

Tax treatment
Exempt from
VAT and OPT
12% VAT

and below
Exceeds
P 1,919,500
vatexempt sales
untraceable Input Vat x
=cost of salesoperating
expense
Residential
P
3,199,200 Exempt from
total sales
house and lot
and below
VAT and OPT
Residential
Above
12% VAT
sales
house and lot
P 3,199,200
Residential lot

govt .
untraceable Input Vat x ( total sales )=compare SIV
Mixed transactions w/ sales to government
-

1. Lease of commercial property, 12% VAT if

aggregate amount of annual GR exceeds
PHP 1,919,500; otherwise subject to 3%
OPT.
2. Residential unit

AIV shall not be credited against output vat

arising from sales to govt. entities.
SIV of 7% and 5% of FWT would be the
creditable input vat for sales to govt.

Rent
month
P12,800
below
Exceeds
P12,800

SIV > AIV = INCOME

SIV < AIV = EXPENSE
Mixed transaction
corporations

of

Domestic

On the lease of real property

transport

13

per Aggregated
GR per year
or Regardless of
amount
P
1,919,500
and below

Tax treatment
Exempt from
VAT and OPT
3% OPT

Exceeds

Exceeds

12% VAT

P12,800

14

P 1,919,500