Vat

Value-Added Tax
A form of sales or consumption tax. It is a tax on consumption levied on the sale,

barter, exchange or lease of goods or properties and services in the Philippines
and on importation of goods into the Philippines. It is an indirect tax, which may
be shifted or passed on to the buyer, transferee or lessee of goods, properties or
services.
Who are required to file VAT returns and/or pay VAT?
Any person or entity who, in the course of his trade or business, sells,
barters, exchanges,
leases goods or properties and renders services subject to
VAT, if the aggregate amount of
actual gross sales or receipts exceed
1,919,500.
A person required to register as VAT taxpayer but failed to register
Any person, whether or not made in the course of his trade or business, who
imports goods
Note: Importation of goods, whether for local consumption or for re-sale abroad is
vatable.
Where are VAT returns filed?
The Monthly VAT Declaration (BIR Form 2550M) and Quarterly VAT Return (BIR
Form 2550Q) shall be filed with any Authorized Agent Bank (AAB) in the place
where the taxpayer is registered or required to be registered. In cases of nopayment, the return shall be filed with the Revenue District Office (RDO)/LTDO and
LTAD where the taxpayer is registered or required to be registered. In places
where there are no AABs, it shall be filed with and the tax paid to the Revenue
Collection Officer or duly Authorized City or Municipal Treasurer of the place where
the RDO is located.
What is "output tax"?
Output tax means the VAT due on the sale, lease or exchange of taxable goods or
properties or services by any person registered or required to register under
section 236 of the Tax Code.
What is "input tax"?
Input tax means the VAT paid by a VAT-registered person in the course of his trade
or business on importation of goods or local purchase of goods or services,
including lease or use of property, from a VAT-registered person. It shall also
include the transitional input tax determined in accordance with Section 111 of
the Tax Code.
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and intangible objects,
which are capable of pecuniary estimation and shall include:
a) Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business
b) The right or the privilege to use patent, copyright, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property or right
c) The right or the privilege to use in the Philippines any industrial, commercial or
scientific equipment
d) The right or the privilege to use motion picture film, films, tapes and discs
e) Radio, television, satellite transmission and cable television time
What comprises "sale or exchange of services"?
The term "sale or exchange of services" means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by the following:
a) Construction and service contractors
b) Stock, real estate, commercial, customs and immigration brokers
c) Lessors of property, whether personal or real
d) Warehousing services
e) Lessors or distributors of cinematographic films
f) Persons engaged in milling, processing, manufacturing or repacking goods for
others
g) Proprietors, operators or keepers of hotels, motels, resthouses, pension houses,
inns, resorts
h) Proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers
i) Dealers in securities
j) Lending investors
k) Transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common
carriers by land, air and water relative to their transport of goods or cargoes
l) Services of franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section 119 of
the Tax Code
m) Services of banks, non-bank financial intermediaries and finance companies
n) Services of non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies
o) Similar services regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties
The phrase "sale or exchange of services" shall include:
a) The 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
b) The lease or the use of, or the right to use of any industrial, commercial or
scientific equipment
c) The supply of scientific, technical, industrial or commercial knowledge or
information
d) The supply of any assistance that is ancillary and subsidiary to and is furnished
as a means of enabling the application or enjoyment of any such property, or right
or any such knowledge or information
e) The supply of 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 non-resident

person
f) The supply of technical advice, assistance or services rendered in connection
with technical management or administration of any scientific, industrial or
commercial undertaking, venture, project or scheme
g) The lease of motion picture films, films, tapes and discs
h) The lease or the use of or the right to use radio, television, satellite
transmission and cable television time
What is a zero-rated sale?
It is a sale, barter or exchange of goods, properties and/or services subject to 0%
VAT pursuant to Sections 106 (A) (2) and 108 (B) of the Tax Code.
What transactions are considered as zero-rated sales?
The following services performed in the Philippines by VAT-registered persons shall
be subject to zero percent (0%) rate:
a) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported where the services
are paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)
b) Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP)
c) 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 zero percent (0%) rate
d) Services rendered to vessels engaged exclusively in international shipping
e) Services performed by subcontractors and/or contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales exceeds
seventy percent (70%) of total annual production
The following sales shall be subject to zero percent (0%) rate:
a) Sale of goods which are directly shipped by a VAT-registered resident to a place
outside the Philippines
b) Sale of goods which are considered as "deemed" export sales by a VATregistered person to certain entities who are also residents of the Philippines:
Sales to export-oriented enterprises which the Code considers as export sales at
the level of the supplier of raw materials
Sales to entities, the exemption of which, under a special law or an international
agreement with the Government of the Philippines, effectively zero rates such
sales
Sales of gold to the Bangko Sentral ng Pilipinas
Foreign currency denominated sales of goods
c) Sales considered as exportation of goods under a special law such as Executive
Order No. 226 (Omnibus Investments Code of 1987) and Republic Act No. 7916
(PEZA Law)
Where will taxpayers file their applications for VAT zero-rating?
Taxpayers may file their application with the Audit Information, Tax Exemption and
Incentives Division (AITEID) at the BIR National Office.
What is a Contractor's Final Payment Release Certificate and where
should taxpayers file their application for this?
The Contractor's Final Payment Release Certificate is issued by the BIR before a
government contractor is fully paid for his contract with the government.
Taxpayers may file their application at the BIR National Office at the Audit
Information, Tax Exemption and Incentives Division (AITEID)
What transactions are considered as deemed sales?
a) Transfer, use or consumption, not in the course of business, of goods or
properties originally intended for sale or for use in the course of business
b) Distribution or transfer to:
Shareholders or investors as share in the profits of the VAT-registered person; or
Creditors in payment of debt
c) Consignment of goods if actual sale is not made within sixty (60) days following
the date such goods were consigned
d) Retirement from or cessation of business, with respect to inventories of taxable
goods existing as of such retirement or cessation
What is VAT-exempt sale?
It is a sale of goods, properties or service and the use or lease of properties which
is not subject to output tax and whereby the buyer is not allowed any tax credit or
input tax related to such exempt sale.
What are the VAT-exempt transactions?
a) Sale of non-food agricultural products, marine and forest products in their
original state by the primary producer or owner of the land where the same were
produced
b) Sale of cotton and cotton seeds in their original state and copra
c) Sale or importation of agricultural and marine food products in their original
state, livestock and poultry of a kind generally used as, or yielding or producing
foods for human consumption and breeding stock and generic materials thereof
d) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn,
livestock and poultry feeds, including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds (except specialty feeds for
race horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets)
e) Sale or importation of coal and natural gas, in whatever form or estate, and
petroleum products (except lubricating oil, processed gas, grease, wax and
petrolatum) subject to the Excise Taxes imposed under Title VI of the Tax Code
f) Sale or importation of raw materials to be used by the buyer or importer himself
in the manufacture of petroleum products subject to excise tax, except lubricating
oil, processed gas, grease, wax and petrolatum
g) Importation of passenger and/or cargo vessels of more than five thousand tons,
whether coastwise or ocean-going, including engine and spare parts of said vessel
to be used by the importer himself as operator thereof
h) Importation of personal and household effects belonging to residents of the

Philippines returning from abroad and nonresident citizens coming to resettle in
the Philippines; Provided, that such goods are exempt from customs duties under
the Tariff and Customs Code of the Philippines
i) Importation of professional instruments and implements, wearing apparel,
domestic animals, and personal household effects (except any vehicle, vessel,
aircraft, machinery, other goods for use in the manufacture and merchandise of
any kind in commercial quantity) belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or exchange, accompanying
such persons, or arriving within ninety (90) days before or after their arrival, upon
the production of evidence satisfactory to the Commissioner of Internal Revenue,
that such persons are actually coming to settle in the Philippines and that the
change of residence is bona fide
j) Services subject to percentage tax under Title V of the Code
k) Services by the agricultural contract growers and milling for others of palay into
rice, corn into grits, and sugar cane into raw cane sugar
l) Medical, dental, hospital and veterinary services subject to the provisions of
Sec. 17 of RA 7716, as amended
m) Educational services rendered by private educational institutions, duly
accredited by the Dept. of Education Culture and Sports (DECS), and Commission
on Higher Education (CHED), and those rendered by the government educational
institutions
n) Sale by the artist himself of his works of art, literary works, musical
compositions and similar creations, or his services performed for the production of
such works
o) Services rendered by individuals pursuant to an employer-employee
relationship
p) Services rendered by regional or area headquarters established in the
Philippines by multinational corporations which act as supervisory
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines
q) Transactions which are exempt under international agreements to which the
Philippines is a signatory, or under special laws, except those under the following
laws:
P.D. No. 66 - Export Processing Zone Authority (EPZA) registered firms
P.D. No. 529 - Petroleum Exploration Concessionaires under the Petroleum Act of
1949
P.D. No. 1590 - Philippine Airlines (PAL) relative to domestic transport of goods or
cargoes
r) Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority (CDA) to their members as well as sale of their produce,
whether in its original state or processed form, to non-members; their importation
of direct farm inputs, machineries and equipment, including spare parts thereof, to
be used directly and exclusively in the production and/or processing of their
produce
s) Sales by electric cooperatives duly registered with the Cooperative
Development Authority (CDA) or National Electrification Administration (NEA),
relative to the generation and distribution of electricity, as well as their importation

of machineries and equipment, including spare parts, which shall be directly used
in the generation and distribution of electricity
t) Gross receipts from lending activities by credit or multi-purpose cooperatives
duly registered with the Cooperative Development Authority (CDA) whose lending
operation is limited to their members
u) Sales by non-agricultural, non-electric and non-credit cooperatives duly
registered with the Cooperative Development Authority: Provided, that the share
capital contribution of each member does not exceed Fifteen Thousand Pesos (P
15,000) and regardless of the aggregate capital and net surplus ratably distributed
among the members
v) Export sales by persons who are not VAT-registered
w) Lease of a residential unit with a monthly rental not exceeding Eight Thousand
Pesos (P 8,000.00), regardless of the amount of aggregate rentals received by the
lessor during the year, provided that the exemptions likewise applies to lease of
residential units where the monthly rental per unit exceeds P 8,000.00 but the
aggregate rentals of the lessor during the year do not exceed P 550,000.00.
x) Sale, importation, printing or publication of books and any newspaper,
magazine, review or bulletin which appears at regular intervals with fixed prices
for subscription and sale and which is not devoted principally to the publication of
paid advertisements
y) Sale or lease of goods or properties or the performance of services other than
the transactions mentioned in the preceding paragraphs, the gross annual sales
and/or receipts does not exceed the amount of P 550,000.00
z) Sale of real properties not primarily held for sale to customers or held for lease
in the ordinary course of trade or business or real property utilized for low-cost and
socialized housing as defined by Republic Act No. 7279, otherwise known as the
Urban Development and Housing Act of 1992 and other related laws, house and lot
and other residential dwelling valued at P 1,000,000 and below.

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Value-Added Tax

A form of sales or consumption tax. It is a tax on consumption levied on the sale,

A person required to register as VAT taxpayer but failed to register

any brand, machinery or other apparatus purchased from such non-resident

h) Importation of personal and household effects belonging to residents of the

relative to the generation and distribution of electricity, as well as their importation

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