VAT (Value Added Tax) is a tax on the refining sugar.

sugar. Marinated fish sales are descendants who are now residents or
value added by sellers to the purchase not exempt from VAT. Exemptions from citizens of other countries is allowed.
price or cost of goods, property, or tax must be clearly stated in the law's The Bureau of Customs may exempt
services in the ordinary course of trade language. these goods from payment of duties and
or business, as well as on importation of taxes if satisfactory evidence is provided
goods into the Philippines for personal B. The sale of importation of fertilizers, that the goods are brought from their
or business use. Sale of goods or seeds, seedlings, fingerlings, fish, prawn, former place of abode. However,
services is subject to VAT unless exempt, livestock, and poultry feeds, including vehicles, vessels, aircrafts, and
except for transactions for subsistence ingredients, is prohibited, except for machineries for manufacture are not
or livelihood. specialty feeds. Specialty feeds are non- classified and are subject to duties,
agricultural feeds for race horses, while taxes, and other charges.
A. The sale or importation of pets like fighting cocks, aquarium fish,
agricultural and marine food products in and zoo animals are subject to vat. E. Services subject to Percentage Tax
their original state, including meat, Certain feed ingredients, such as whey under Title V of the Tax Code, as
fruits, and vegetables, is considered powder and lactose, must be certified amended, in Chapter 9.
exempt from VAT under the tax code. as unfit for human consumption or
This exemption applies to products that certified by the FDA. F. Agricultural contract growers produce
have undergone simple processes such poultry, livestock, and other agricultural
as freezing, drying, salting, broiling, C. The importation of personal and and marine food products in their
roasting, smoking, or stripping, as well household effects belonging to returning original state, offering toll processing,
as those using advanced packaging Filipino residents and nonresident dressing, and manufacturing services.
methods. Raw sugar cane, which is citizens coming to resettle is exempt These services include weighing, killing,
produced by a simple process without from customs duties under the Tariff dressing, scalding, cut-ups, and
mechanical devices, is exempt from VAT and Custom Code of the Philippines. packaging. However, under RR 97-2010,
under the tax code. Raw sugar is it was clarified that "toll processing
defined as sugar with a polarimeter D. The Importation of professional services exempt from VAT" only pertain
reading of less than 99.5 degrees, while instruments, implements, tools, to services to clients from which animal
refined sugar is sugar with a polarimeter clothing, domestic animals, and growing was contracted. Therefore,
reading of 99.5 degrees and above. personal effects belonging to persons preparing and packaging hogs/chicken
Sugar refined mills engage in the coming to settle in the Philippines or ready for delivery can be considered
business of milling sugar into raw or Filipinos or their families and agricultural contract growing. However,
if done independently of growing the Department of Education, the L. Agricultural cooperatives registered
poultry, livestock, or other food Commission on Higher Education, the with the Cooperative Development
products, it can be considered vatable Technical Education and Skills Authority can sell their produce to
services not covered by agricultural Development Authority, and members and non-members, as well as
contract growing. government educational institutions. It import direct farm inputs, machinery,
excludes seminars, in-service training, and equipment for production and
G. The regulation covers medical, dental, review classes, and similar services from processing. The sale or importation of
hospital, and veterinary services, except individuals not accredited by these agricultural food products in their
those provided by professionals. bodies. original state is exempt from VAT,
Laboratory services are exempt, and the regardless of the seller and buyer, as
sale of drugs and medicines in hospitals I. Services rendered by individuals per Subsection.
or clinics is subject to VAT. Hospital bills pursuant to an employer-employee
are considered medical services, and relationship. M. The exemption is not limited to
sales made by drugstores to in-patients gross receipts from lending activities
are exempt from VAT. Medical J. Multinational corporations establish by credit or multi-purpose
practitioners include medical Regional or Area Headquarters (RHQs) in cooperatives registered with the
technologists, allied health workers, and the Philippines, serving as supervisory, Cooperative Development Authority.
other practitioners not under an communications, and coordinating
employer-employee relationship with centers for their Asia-Pacific affiliates, N. Non-agricultural, non-electric, and
hospitals or clinics. Professional subsidiaries, or branches without non-credit cooperatives registered
practitioners, including medical generating income from the Philippines. with the Cooperative Development
practitioners, CPAS, insurance agents, Authority can sell their products,
and those required to pass government K. Transactions exempt under provided their share capital
examinations, are subject to VAT if their international agreements or special laws contribution does not exceed P15,000,
annual gross professional fees exceed in the Philippines, except for those and imports of machineries and
P3,000,000. under Presidential Decree No. 529, are equipment are subject to VAT.
subject to special laws such as PAGCOR
H. The text defines "educational Charter, Biofuels Act, Philippine Red O. Export Sales by persons who are not
services" as academic, technical, or Cross, Expanded Senior Citizens Act, and vat registered.
vocational education provided by private Magna Carta for PWDS. Export sales may be exempt or subject
educational institutions accredited by to vat as shown in the figure below:
 VAT regardless of the amount of selling
P. The TRAIN Law outlines the price. If the sale of real property was (a) gross receipts from rentals not
exemption from VAT on the sale of real made in the ordinary course of trade or exceeding P15,000 per month per unit
property starting January 1, 2021. This business, it is classified as a capital asset are exempt from VAT regardless of the
exemption applies to the sale of and not subject to VAT but to capital aggregate annual gross receipts; and (b)
properties not primarily held for sale or gains tax. gross receipts from rentals exceeding
lease in the ordinary course of trade or P15,000 per month per unit are subject
business, as well as the sale of real In summary, the TRAIN Law to VAT if the annual gross receipts
property utilized for socialized housing. outlines the exemptions and limitations exceed P3,000,000 from said units only,
Socialized Housing refers to programs on the sale of real property, including not including the gross receipts from
and projects undertaken by the the sale of residential houses and lots, units leased out for not more than
government or private sector for the socialized housing, residential lots, P15,000.
underprivileged and homeless citizens, commercial lots/units, and other non-
including sites and services exempt real properties. R. The CREATE Law allows the sale,
development, long-term financing, and importation, printing, and publication
liberalized terms on interest payments. Q. The lease of a residential unit with a of books, newspapers, magazines,
monthly rental per unit not exceeding journals, review bulletins, and other
The adjusted threshold for selling P15,000 is exempt from VAT, but the educational reading materials covered
houses and lots and other residential monthly rental per unit must not exceed by the United Nations Educational,
dwellings with a selling price of not P3,000,000. The percentage tax rate Scientific and Cultural Organization
more than P3,199,200 is set at under Section 116 of the Tax Code as (UNESC0) Agreement. However, these
P3,199,200, adjusted annually using the amended is 3% prior to July 1, 2021, 1% activities are exempt from VAT under
2010 consumer price index (CPI). from July 1, 2021 to June 30, 2023, and BIR Ruling No. 083-2014, which only
However, the provision of increasing the 3% starting July 1, 2023. The revised covers printed matters in hard copy
threshold to P4,200,000 was vetoed by threshold of P15,000 and P3,000,00 and does not apply to electronic
President Duterte. applies only upon the effectivity of formats. Other activities, such as
RA10963 (TRAIN Law) beginning January printing brochures, bookbinding,
The exemption does not include 1, 2018. In cases where a lessor has engraving, stereotyping, electrotyping,
the sale of parking lots in the sale of several residential units for lease, their and lithographing, are subject to VAT.
condominium units, which are separate tax liability will be: The taxpayer must register their
transactions and should be subject to business as a VAT business entity and
issue a separate VAT invoice/receipt to mentioned, it will be subject to a 12% is subject to 0% vat, effective from
record these transactions. VAT. RA10963-TRAIN Law.

V. The Tax Code imposes a percentage AA. Starting January 1, 2021, the
S. The Philippines does not impose tax on services provided by banks, non- exemption from VAT for the sale or
business tax on the transport of bank financial intermediaries, and other importation of prescription drugs and
passengers by international carriers, non-bank financial intermediaries like medicines for diabetes, high
while cargo transport is subject to a money changers and pawnshops. cholesterol, and hypertension will only
percentage tax under Section 118 of the apply to manufacturers, distributors,
Tax Code, also known as Common W. The Expanded Senior Citizens Act of wholesalers, and retailers listed in the
Carrier's Tax on International Carriers. 2010 and the Act Expanding the Benefits Department of Health's approved
and Privileges of Persons with Disability drugs and medicines list.
T. The sale, importation, or lease of (PWD) both allow the sale or lease of
passenger or cargo vessels and aircraft, goods and services. BB. Starting January 1, 2021, the
including engines, equipment, and spare Department of Trade and Industry (DTI)
parts, for domestic or international X. Transfer of property pursuant to is required to certify that capital
transport operations, subject to Section 40(C)(2) of the Tax Code, as equipment, spare parts, and raw
MARINA's restrictions on vessel amended (Upon effectivity of RA10963- materials for the production of
importation and mandatory retirement TRAIN Law only; new provision). personal protective equipment (PPE)
program. components and drugs for COVID-19
Y. The provision allows homeowners' prevention are not locally available,
U. The text outlines the importation of associations and condominium insufficient in quantity, or not in
fuel, goods, and supplies for corporations to collect association dues, accordance with the required quality
international shipping or air transport membership fees, and other or specification. The Department of
operations in the Philippines. The fuel assessments and charges on a Health (DOH) will issue a list of
must be used exclusively for reimbursement basis, effective from prescription drugs and medical devices
transporting goods and passengers from January 1, 2018 or upon the effectivity covered by this provision within 60
a Philippine port to a foreign port of RA10963-TRAIN Law. days of the CREATE effectivity and
without docking or stopping at any every three months thereafter. For
other port. If any portion of the fuel is Z. Starting January 1, 2018, the sale of exemptions, suppliers or importers
used for purposes other than those gold to the Bangko Sentral ng Pilipinas must submit a certified true copy of
the "License to Operate" issued by the Sale of Service (including lease of properties) from or cessation of status as VAT registered
Gross receipts are the total amount of Money 5t person with respect to "goods on hand" (as of
DOH-FDA and a sworn declaration from
or equivalent, including contract price, the date of retirement or cessation) is also
the manufacturer-buyer that the items compensation, service fee, rental, royalty, considered sale.
will be used for the manufacture of PPE materials, deposits, and advance payments
components and drugs for COVID-19 received during the taxable period, excluding The VAT system applies to goods or properties
VAT. originally intended for sale or use in business
treatment. The exemption claimed and capital goods existing as of the occurrence
under this subsection will be subject to INCIDENTAL TRANSACTIONS of changes in business activity, such as a VAT
post audit by the Bureau of Internal In the course of trade or business refers to the registered person reverting to VAT-exempt
Revenue (BIR) or the Bureau of regular conduct or pursuit of commercial or status, a request for cancellation of registration
economic activities by any person, regardless due to reversion to exempt status, or a person
Customs (BOC). of whether they are a non-stock, non-profit, commenced business with the expectation of
private organization, or government entity. gross sales or receipts exceeding this amount
CC. The gross annual sales and receipts during the first twelve months of operation.
of a business must not exceed 2. Transactions Deemed Sale
Section 106(B) of the tax code allows certain VAT (TRANSACTION DEEMED SALE)
P3,000,000, which includes total transactions to be considered "sale" for value SHALL NOT BE IMPOSED ON GOODS
revenues from selling goods or added tax purposes. Vat is a credit-invoice OR PROPERTIES EXISTING AS OF THE
method value-added tax, calculated by OCCURRENCE OF THE FOLLOWING:
services, including nonrefundable
deducting input from output vat. In transactions Change of control in a corporation,
advance deposits/payments, net of considered sales, input vat is used as a credit change in tax payer's trade or corporate name,
discounts, sales returns, and against output vat, but no output vat is charged. or merger or consolidation of corporations
allowances, covering the fiscal or To avoid this, certain transactions should be result in the unused tax of dissolved
considered sales. corporations being absorbed by the new or
calendar year. Sales incidental to the surviving corporation.
THE FOLLOWING TRANSACTIONS
business's registered operations are ARE CONSIDERED DEEMED SALE:
also included under Section 105 of the The VAT system applies to transactions 3. Zero rated Sales (0% VAT)
Tax Code, as amended. involving the transfer, use, or consumption of EXPORT SALE BY A VAT REGISTERED
goods or properties intended for sale or use in ENTITY
the course of business. The basis for computing A VAT registered person's "zero-rated sale" of
COMPUTATION OF VAT PAYABLE goods, properties, or services is taxable for
the applicable VAT is the fair market value of
1. Actual Sale Sales involving actual VAT purposes, but input tax on related
the goods consumed. Distribution or transfer to
exchanges between buyers and sellers, purchases can be refunded or taxed.
shareholders or investors as share in the profits
regardless of whether they are non-
of a VAT-registered person, and distribution or
stock, non-profit, private, or Zero-rated sellers gain international
transfer to creditors in payment of debt or
government entities, are subject to competitiveness by allowing refunds or credits
obligation are also considered sales.
12% vat unless exempt. for input taxes attributed to export sales.
Consignments of goods if actual sale is not
made within 60 days following the date of
consignment are not deemed sold. Retirement
RATIONALE FOR ZERO RATING OR sale of their products or services to another
EXPORT SALES: B). The Export Sale (Zero-Rated Sale) of registered export enterprise, forming part of the
The Philippine VAT system follows the "Cross Services refers to services rendered to final export product or service of the latter.
Border Doctrine," meaning no VAT is imposed individuals or entities outside the Philippines, Registered Business Enterprises (RBEs) are
on goods destined for consumption outside the including those engaged in business outside entities organized under Philippine laws and
taxing authority's territorial border. However, the country, those subject to exemption from registered with an IPA, excluding service
vat zero-rating is not limited to export sales but direct or indirect taxes under special laws or enterprises such as customs brokerage,
also registered activities of business international agreements, and those sold to trucking, janitorial, security services,
enterprises. Input vat attributed to zero-rated Registered Export Enterprises (REEs) for a insurance, banking, and other financial
sales can be refunded, claimed as a deduction maximum of 17 years from the date of services. Income delivered within economic
or tax credit against domestic sales, or used as registration. VAT-registered suppliers to zones is subject to taxes under the National
a tax credit against other internal revenue taxes. REEs enjoying fiscal incentives under the Internal Revenue Code (NIRC) of 1997. Direct
Taxpayers engaged in both zero-rated and non- CREATE Act are treated as VAT zero-rated, and exclusive use in a registered project or
zero-rated sales can claim a refund or tax credit but only for goods and/or services used in the activity includes raw materials, supplies,
certificate. registered project or activity. The enjoyment equipment, goods, packaging materials, and
of VAT and duty incentives is reckoned from other expenditures directly attributable to the
EXPORT SALE BY A NON-VAT the registered export enterprise's date of project or activity.
REGISTERED ENTITY registration and throughout the period
A non-VAT registered entity's export indicated in its Certificate of Registration. INPUT VAT
sale is a vat-exempt transaction, not subject to Input Vat refers to the tax paid by a Vat-
VAT. The seller/supplier cannot claim input tax Services rendered to persons engaged in registered taxpayer on importation or local
credit on such transactions. The vat paid by the international shipping or air transport purchase of goods, properties, or services. It
purchaser is treated as operating expense or operations, including leases of property for includes transitional input determined by
cost. use thereof, are also subject to VAT. Gross section 111 of the Tax Code, presumptive input
ZERO RATED SALE receipts of international air or shipping tax, and deferred input tax from previous
A). The Tax Code, as amended, allows 0% VAT carriers derived from transport of passengers periods. This includes purchases for sale,
for certain sales by vat-registered persons. and cargo from the Philippines to a foreign conversion, supplies, services, real properties,
These sales include export sales of goods or country are exempt from VAT, but still liable and services.
properties from the Philippines to foreign to a percentage tax of 3% based on their gross
countries, goods, supplies, equipment, and fuel receipts. Zero-rating applies strictly to the
used exclusively for international shipping or sale of power or fuel generated through
air transport operations, sales to persons or renewable sources of energy. INPUT VAT ON CAPITAL GOODS
entities subject to zero rates under special laws (Depreciable Goods)
or international agreements, and sales of raw The RMC 24-2021 defines export enterprises Capital goods, with a useful life of over a year,
materials, inventories, supplies, equipment, as individuals, partnerships, corporations, or are depreciable assets used in taxable goods or
packaging materials, and goods to a registered other entities organized under Philippine laws services. RR 16-2005 allows input taxes on
Export Enterprise (REE) for a maximum period and registered with an Investment Promotion capital goods purchase as a tax credit against
of 17 years from the date of registration, unless Agency (IPA) for manufacturing, assembling, output VAT.
otherwise extended under the Strategic or processing activities, and services like
Investment Priority Plan. IT/BPO. These enterprises direct exportation or
INPUT VAT ON CAPITAL GOODS asset completion when it is reclassified as a COMPUTATION OF VAT
AGGREGATE Purchase during the month depreciable capital asset and depreciated. IMPORTATION
(exclusive of vat) The Input Vat on Importation can be
The Train Law allows for the 2. IMPORTATION calculated in two ways: 1) based on the value
allocation of input tax on capital goods Construction in progress (CIP) refers to the of the imported article (also known as "ad-
aggregate purchases during the month, cost of construction work that is not yet valorem" tax), where the BOC determines
excluding VAT. The tax is spread evenly during completed and is considered a purchase of customers' duties based on the value of the
the estimated useful life of the depreciable service for claiming input tax. The value of CIP imported article, and excludes illegal
asset, but not exceeding 60 months. Allocation is determined based on progress billings and payments like facilitation fee/expense (bribe).
begins in the calendar month when the capital does not qualify as capital goods until the Other charges by the BOC should be
good was acquired. If the asset is sold within construction is completed. In contracts for legitimate, such as customs duties, brokerage,
five years or before exhaustion of input tax, the service sales where only labor is supplied by wharfage, arrest, stamps, and processing fee.
entire unamortized input tax can be claimed as the contractor and materials are purchased by The tax base for vat purposes should exclude
input tax credit during the sale. If the asset's the contractee, input tax credit on labor is illegal payments.
life is less than one year or twelve months, recognized on the month payment was made
input tax is not allocated. The total amount of based on progress billings. Once input tax has 3). Presumptive Input Tax of 4% on sale of
input tax is treated as tax credit against output been claimed while the construction is in goods
tax in the month of acquisition. The rule of progress, no additional tax can be claimed upon The government has introduced a
amortizing input tax on capital goods is only asset completion when it is reclassified as a presumptive input tax for businesses involved
allowed until December 31, 2021, and depreciable capital asset and depreciated. in processing sardines, mackerel, milk, refined
taxpayers with utilized input tax as of sugar cooking oil, and packed noodle-based
December 31, 2021, can apply the same until PERSON LIABLE/COVERED: instant meals. This tax is 4% of the gross value
fully utilized. The text defines importers as individuals, of the primary agricultural products used in
entities, or agencies who bring goods into the production, which includes pasteurization,
CONSTRUCTION IN PROGRESS Philippines, including those who acquire tax- canning, and activities that alter the product's
Construction in progress (CIP) refers to the free imported goods from exempt entities, and texture, form, or inner substance to prepare it
cost of construction work that is not yet the non-exempt person, purchaser, or transferee for special use. The tax is applicable to
completed and is considered a purchase of is considered the importer for VAT purposes. businesses involved in the processing of
service for claiming input tax. The value of CIP sardines, mackerel, milk, refined sugar,
is determined based on progress billings and cooking oil, and packed noodle-based instant
does not qualify as capital goods until the IMPORTATION OF GOODS BY TAX meals.
construction is completed. In contracts for EXEMPT PERSONS
service sales where only labor is supplied by The Philippines' VAT-exempt individuals 4. Transitional Input Tax
the contractor and materials are purchased by or entities are responsible for the VAT due on Individuals who become liable to value-
the contractee, input tax credit on labor is goods imported by them, which are later sold, added tax or choose to be VAT-registered can
recognized on the month payment was made transferred, or exchanged to non-exempt receive an input tax on their inventory of
based on progress billings. Once input tax has entities, making them the importers of the goods, materials, and supplies, equivalent to
been claimed while the construction is in goods. 2% of the value or the actual value added tax
progress, no additional tax can be claimed upon paid, whichever is higher. This tax is creditable
against the output tax. Taxpayers who can avail
of this tax include those who become liable to Section 114 (C) of the Tax Code states that amended, and are non-vat registered. For
VAT and those who elect to be VAT registered. nonresident owners must pay a 12% commercial units, gross receipts from leases
withholding tax on lease or use of properties or are subject to 12% VAT if the property is
5. CREDITABLE WITHHOLDING VAT property rights. However, payments for goods located in the Philippines. Advance payments
Starting January 1, 2021, the tax code will and services from projects funded by Official for rentals, such as prepaid rent, are subject to
shift from a final to a creditable vat system, Development Assistance (ODA) are exempt VAT. However, advance payments for loans,
with the payor being the withholding agent. from these taxes. The payor or person in option money, or security deposits are not. For
This means that the 5% vat withheld by the control of the payment is considered the residential units, VAT exempt sales can be
government or its political subdivisions, withholding agent for this purpose. found on page 258.
instrumentalities, or agencies, including
government-owned or controlled corporations CARRY-OVER of Excess Input Vat SALE OF REAL PROPERTY
(GOCCS), will be creditable against the seller's RR 2-2007 states that if the input tax, Real property sales primarily in business
output vat. The seller must recognize the actual including the input tax carried over from the are subject to value added tax, with output vat
amount of input vat on its sale to the previous quarter, exceeds the output tax, the based on the difference between selling price
government, eliminating the need to account excess will be carried over to the succeeding and fair market value. Fair market value refers
for the difference between standard input vat quarter or quarters. However, VAT-registered to the higher value between the BIR's zonal
and actual input vat. The BIR issued RMC 36- taxpayers can choose to refund or apply for a value and the Provincial and City Assessors'
2021 to provide guidelines on this transition. tax credit certificate for zero-rated sales. The schedule of values. Sale of real property
Tax Code, as amended, also states that if the subject to vat can be classified as cash basis,
PRIOR To 2021 output tax exceeds the input tax, the excess will installment basis, or deferred payment basis,
The government or its political be paid by the VAT-registered person. which is crucial for determining the seller's
subdivisions, instrumentalities, or agencies, However, input tax attributable to zero-rated output vat percentage.
including government-owned or controlled sales can be refunded or credited against other
corporations (GOCCs), must deduct and internal revenue taxes, subject to Section 112. Installment Payment Basis
withhold Final VAT at a rate of 5% of the gross In the sale of real properties on an
payment for each purchase of goods and/or Section 110(C) determines the creditable input installment plan, the real estate dealer is subject
services taxed at 12% val. The 5% final VAT tax, reducing the sum of the excess input tax to VAT on installment payments, including
withholding rate represents the not VAT carried over from the preceding month or interest and penalties, received by the seller.
payable of the seller, while the remaining 7% quarter and the input tax creditable to a VAT The sale is considered an "Installment Sale" if
accounts for the standard input VAT for sales of registered person during the taxable month or the initial payment does not exceed 25% of the
goods or services to the government or quarter. This includes claims for refunds or tax selling price. The buyer can claim the input vat
GOCCS. If actual input VAT attributable to credits for value-added tax, purchase returns, during the same period as the seller recognizes
sales to the government exceeds 7% of gross allowances, and input tax attributable to the output tax. Initial payments include all
payments, the excess may form part of the exempt sales. payments received by the seller or before the
sellers' expense or cost. If actual input VAT execution of the instrument of sale, except for
attributable to sales to the government is less LEASE OF REAL PROPERTY the purchaser's evidence of indebtedness. The
than 7%, the difference must be closed to Leases of properties for lease to customers in amount of mortgage on the property sold is
income. the ordinary course of trade or business are excluded from the initial payment, except when
subject to VAT unless the lessor's gross annual it exceeds the property's cost or other basis.
VAT Withheld from Nonresidents receipts do not exceed P3,000,000, as
RR 4-2007 states that if the sale of real trustor and beneficiary. However, if the fidelity, indemnity companies bonding
property is on an installment plan where the property is for sale, lease, or use in trade or companies, and similar services regardless of
zonal value/fair market value is higher than the business and the transfer is a completed gift, it whether the performance requires the exercise
consideration or selling price, the vat will be is subject to vat as a deemed sale transaction. of physical and mental faculties.
based on the ratio of actual collection of the This is true even if the transferor divests
consideration against the agreed consideration themselves completely. The term "sale or exchange of service" also
applied to the property's market value at the includes the lease or use of copyright patents,
time of the execution of the Contract to Sell or VAT ON SALE OF SERVICES design models, plans, secret formulas,
Contract of Sale at the inception of the sale. Vat on sale of service is a tax on goodwill, trademarks, trade brands, industrial,
The input vat that can be claimed by the buyer payments for services rendered as an exercise commercial, or scientific equipment, scientific
must be separately-billed output vat in the sales of profession or calling. It is an indirect tax that knowledge or information, assistance, services
document issued by the seller. can be passed on to the client or customer and by non-resident persons or their employees,
accrues at the time the service fee is collected. technical advice, assistance, lease of motion
Deferred Payment Basis Payments may be collected in advance or after picture films, tapes and discs, and lease of
The sale of real properties on a Deferred- the service is rendered. The "sale or exchange radio, television, satellite transmission, and
Payment basis, where initial payments exceed of services" is subject to 12% vat based on cable television time.
25% of the gross selling price, is treated as a gross receipts derived by any person engaged in
cash sale, making the entire selling price the sale of such services or lease of properties. Lease of properties is subject to vat regardless
taxable in the month of sale. Output tax is of the place where the contract of lease or
recognized by the seller, while input tax Section 108(A) of the Tax Code as amended by licensing agreement was made if the property is
accrues to the buyer at the execution of the 10963 (TRAIN Law) defines the term "sale or leased or used in the Philippines. The term
instrument of sale. Exchanges of real estate exchange of services" as the performance of all "gross receipts" under the TRAIN Law
properties for shares of stocks, whether kinds of services in the Philippines for fee, represents the total amount of money or its
resulting from corporate control or not, are remuneration, or consideration. This includes equivalent representing the contract price,
subject to VAT. However, if the transferee is those performed by construction and service compensation, service fee, rental, or royalty,
another real estate dealer, no output VAT is contractors, stock, real estate, commercial, including materials supplied with the services
imposable on the transfer. customs and immigration brokers, lesors of and deposits and advanced payments actually
property, warehouse services, cinematographic and constructively received during the taxable
PRE-SELLING OF REAL ESTATE films, persons engaged in milling, processing, period for services performed or to be
PROPERTIES manufacturing, repacking of goods, pension performed for another person, excluding value
Real estate dealers, who engage in houses, inns, resorts, other eating places, added tax.
buying, developing, selling, and exchanging proprietors, operators of hotels, motels, rest NON-LIFE INSURANCE
real properties as principals, are subject to houses, restaurants, refreshment parlors, cafes, Non-life insurance transactions in the
value added tax in accordance with the rules dealers in securities, lending investors, Philippines are subject to value added tax,
discussed above, ensuring fair treatment for transportation contractors, sales of electricity, including marine, free and casualty insurance,
their pre-selling of properties. telephone and telegraph, radio/and television surety, fidelity, indemnity, bonding companies,
PROPERTY IN-TRUST AND broadcasting, franchise grantees of electric and mutual benefit associations. These
TRANSACTION DEEMED SALE utilities, telephone and telegraph, radio/and transactions are not subject to Premiums Tax
The transfer of property to a trustee is television broadcasting, and non-life insurance under Section 123 of the Tax Code.
not subject to vat if it is held in trust for the (except their crop insurances), including surety, Nonresident foreign persons rendering non-life
insurance services in the Philippines are also does not apply on CIP. Input taxes will be
subject to 12% VAT. Non-life insurance recognized on labor when payment is made on
companies include individuals, partnerships, progress billings, and on materials at the time
associations, and corporations, including FRANCHISE GRANTEES materials are purchased.
professional reinsurers, mutual-benefit Franchise grantees are taxed on
associations, and government-owned electric utilities, telephone and telegraph RECREATIONAL CLUBS
corporations. Gross receipts from non-life services, toll road operations, and radio and Recreational clubs or dubs, operating
insurance include total premium collections, television broadcasting, except for radio and solely for leisure and non-profit purposes, are
insurance and reinsurance commissions, and television broadcasting companies with annual subject to VAT on gross receipts such as
vat due from foreign reinsurance companies. gross receipts below P10M, which are subject membership fees, assessment dues, rental
The local insurance company withholds vat due to a 3% Franchise Tax. income, and service fees.
from foreign reinsurance companies and remits
it to the BIR through the Monthly Remittance DEALERS IN SECURITIES AND VAT Exemption and Discounts to Senior
Return of Value Added Tax Witheld (BIR Form LENDING INVESTORS Citizens and PWDS
160). A dealer in securities is a merchant The Expanded Senior Citizens Act of
with an established business, regularly engaged 2010 grants senior citizens and persons with
in the purchase and resale of securities to disabilities (PWDs) tax exemptions and
PRE-NEED COMPANIES customers, and aims to derive gains and profits discounts on certain items. Senior citizens, who
Pre-need companies are registered from the transactions. This involves regularly are 60 years old or older, can apply for dual
with the Securities and Exchange Commission buying and selling securities to customers. citizenship if they prove their Filipino
and licensed to sell or offer pre-need plans, citizenship and have at least six months of
either single or multi-plan. They manage funds MILLERS residency in the Philippines. Resident citizens
provided by plan holders and make payments at Millers are taxed on their services, are Filipino citizens with permanent legal
contract maturity. Compensation for their except for those milling for others. The basis residence in the Philippines, including those
services comes from premiums or payments for VAT is gross receipts for services during a who have migrated to a foreign country and
received from plan holders. They engage in month or quarter, or the actual market value of returned with a definite intention to reside
business as service providers. their share in the milled products. The owner of there. Persons with disabilities are individuals
the miller's share in the milled product, except with limitations or different abilities due to
HEALTH MAINTENANCE rice, corn grits, and raw sugar, is also subject to mental, physical, or sensory impairments. The
ORGANIZATIONS (HMO3) VAT. Act also provides a 20% discount on basic
HMOS are licensed entities in the CONSTRUCTION AND SERVCE necessities and prime commodities. The Magna
Philippines that provide managed care services CONTRACTORS Carta Law for PWDs also applies to senior
for plan holders/members for fixed prepaid Construction in Progress (CIP) is the citizens and PWDs.
membership fees. Their gross receipts are the cost of construction work not yet completed,
amount of money or equivalent received during considered a purchase of services. Input VAT RULE FOR RESTAURANTS (RR-7-2010)
the taxable period for services performed for on CIP is recognized and claimed in the month The 20% discount and VAT exemption
another person, excluding VAT. Compensation of purchase for goods or payment for services, for restaurants apply to various types of food,
for their services is presumed to be the total if supported by a proper VAT invoice or official drinks, dessert, and other consumable items,
enrollment fee from members plus other receipt. The P1,000,000 threshold on capital including value meat and promotional meals,
charges received. goods requiring an amortization of input taxes offered for public consumption. Condiments
and side products fall under the category of deduction from their gross income. The seller's meat, dairy products not falling under basic
other consumable items served by journal entries should be as follows: necessities, canned sardines, tuna, noodles,
establishments. The discount applies to dine-in, onions, garlic, geriatric diapers, herbicides,
take-out, take-home, drive-thru, delivery SELLER IS NOT SUBJECT TO VAT poultry, swine, and cattle feeds, veterinary
orders, called-in, or phoned-in orders. Bulk The 20% sales discount granted to products, nipa shingle, plyboard, construction
orders are not eligible for the 20% discount and non-VAT sellers, subject to Percentage Tax nails, batteries, electrical supplies, light bulbs,
VAT exemption. under Sec 116, is calculated by subtracting the and steel wire. Retailers, including
Set meals, group meals, or group walk-ins, undisputed amount of P1,00 from the gross supermarkets, grocer/convenience stores, and
including purchases of whole cakes and pizza, sales or receipts. The discount is reported as a shops, are not exempt from VAT. The total
are not eligible for the 20% discount and VAT deduction from the sellers' gross income, not as purchase amount must not exceed P1,300 per
exemption. Pasalubong food items, such as a total of gross sales or receipts. calendar week without carrying over the unused
biscotto, ginamos, and mango preserves, are amount. A purchase booklet issued by OSCA
not eligible for the 20% discount and VAT INPUT CAT ATTRIBUTABLE TO SALE must be presented to the retailer upon purchase
exemption. TO SCs and PWDs of basic necessities and prime commodities.
The VAT exempt sale input tax is
Meals primarily prepared for children and not considered a cost or expense account for 5% Special Discount to PWDs (RR 9-2019)
for the senior citizen's personal consumption business establishments and is not eligible for PWDs can receive a 5% discount on
are not eligible for the 20% discount. Alcoholic an input tax credit. basic necessities and prime commodities, up to
beverages are generally not subject to the 20% P1,300 per week, without exemption from
discount and VAT exemption, especially if EXEMPTION FROM PERCENTAGE TAX value-added tax. The discount is valid for
purchased in bulk, buckets, or cases. However, The Magna Carta Law of Senior purchases not exceeding P1,300 per week, and
alcoholic beverages purchased in bars, clubs, or Citizens and PWDs offers vat exemption for must be spent on items for personal exclusive
carpets are exempt from VAT but subject to certain goods and services, but does not cover consumption within the week. The discount is
18% amusement tax under Section 125 of the the payment of Percentage Tax. not applicable to unused items. At least four
NIRC. types of items are eligible for the discount.
GRANT OF 5% SPECIAL DISCOUNT
Cigarettes and cigarettes are not considered FOR SENIOR CITIZENS (RR-7-2010 as Deduction from the gross Income of the
food or essential items subject to the 20% amended by RR-8-2010 and RMC 38-2012) Seller
discount. Toll fees are not the same as fares, so The DTI-DA Administrative Order The seller/establishment can claim a
they are not subject to the 20% Senior Citizen No. 10-02, series of 2010, grants a special discount of 20% or 5% to SCs and PWDs as a
Discount. discount of 5% on the regular retail price of deduction from gross income, based on the net
basic necessities and prime commodities for cost of goods or services. However, the cost of
Sample Computation of Discount and senior citizens. These discounts are for personal the discount must be allowed as a deduction,
Amount Due and exclusive consumption and enjoyment. and the total tax deduction net of value-added
The VAT on the sale of goods and Basic necessities include rice, corn, bread, fish, tax must be included in gross sales receipts and
services with sales discounts granted to senior pork, beef, and poultry meat, eggs, milk, complied with the National Internal Revenue
citizens and PWDs is calculated using a vegetables, coffee, sugar, cooking oil, salt, Code.
formula. The seller's gross sales or receipts are soap, firewood, charcoal, and candles. Prime
undercounted, and the discount is reported as a commodities include fresh fruits, flour, dried,
processed, and canned pork, beef, and poultry
Prohibition on the availment of double establishment's gross income for the same based on their gross sales or receipts. The
discounts taxable year. monthly vat return must be filed and paid
Senior citizens and persons with The gross selling price and the sales discount within 20 days of the end of each month, while
disabilities (PWD) can only claim a single 20% must be separately indicated in the official the quarterly vat return must be filed and paid
discount on transactions, and the same rule receipt or sales invoice issued by the within 25 days of the close of each taxable
applies to 5% discounts on basic necessities establishment for the sale of goods or services quarter. The term "taxable quarter" refers to the
and prime commodities. These discounts to qualified National Athletes and Coaches. quarter that aligns with the taxpayer's income
cannot be combined with higher discounts Only the actual amount of sales discount not tax quarter. Starting January 1, 2023, filing and
granted by commercial establishments or exceeding 20% of the gross selling price or payment must be done 25 days after the end of
existing laws. SC/PWD can avail of either the gross receipts can be deducted from the gross each taxable quarter. If a person's registration
promotional discount or the 20%/5% discount, income, net of VAT, and must be subject to has been called, they must file and pay the tax
whichever is higher. However, the discount proper documentation. due within 25 days of the cancellation of
must not be less than 20%/5%. registration. Only one consolidated return must
COMPUTATION OF VAT AND Prohibition on the availment of double be filled for their principal place of business or
DISCOUNT granted to National Athletes discounts head office and all branches.
and Coaches (RA10966, as amended) The privileges mentioned are not
Under RR 13-2022, qualified National applicable if the National Athletes and Coaches
Athletes and Coaches are entitled to a 20% claim a higher promotional discount from a
sales discount on goods and services sold for commercial establishment or other existing
their actual and exclusive use or enjoyment. laws, or when combined with other discount
This discount is exclusive of VAT on the sale of programs. Senior citizens or persons with
these goods and services. The discount is disabilities (PWD) can only claim a single 20%
applicable to transportation services, hotels, discount on a sale transaction.
resorts, restaurants, medicine and drug
purchases, recreation centers, sports equipment MIXED BUSINESS TRANSACTION
purchases, and admission fees. A Vat registered person can engage in
mixed business transactions, which include
Vat on the sale of goods and services with sales subject to vat, zero-rated vat, and vat exempt
discounts granted by business establishments is transactions. The main concern in mixed
computed using a formula. Establishments business transactions is the allocation or
granting discounts to qualified National apportionment. A vat registered person can
Athletes and Coaches can deduct the sales receive input tax credit for total input tax
discount from their gross income, subject to directly attributed to vat transactions and the
conditions provided under RR 13-2020. For ratable portion of input tax not directly
percentage tax sellers, the sales discount is attributed to either activity, based on sales
included for computing the Percentage Tax and volume.
is included as part of the gross sales and
receipts for income taxation purposes. FILING OF VAT RETURNS (Sec. 114(A))
However, the sales discount granted must be The Tax Code requires individuals to
accounted as a deduction from the file and pay monthly and quarterly vat returns