VALUE-ADDED TAX

The Value-Added Tax (VAT) 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. (Sec. 4.105-2,
Revenue Regulations (RR) No. 16-05,
the Consolidated VAT Regulations)
NATURE OF VAT
Indirect tax: It is an indirect tax that
may be shifted or passed on to the
buyer, transferee or lessee of the
goods, properties or services.
(Commissioner of Internal Revenue vs.
SEAGATE Technology (Philippines); G.R.
No. 153866; February 11, 2005)
 TAX ON CONSUMPTION

VAT is ultimately a tax on consumption, even though

it is assessed on many levels of transactions on the basis
of a fixed percentage. It is the end user of consumer
goods or services which ultimately shoulders the
tax, as the liability therefrom is passed on to the end
users by the providers of these goods or services who in
turn may credit their own VAT liability (or input VAT) from
the VAT payments they receive from the final consumer
(or output VAT). The final purchase by the end consumer
represents the final link in a production chain that itself
involves several transactions and several acts of
consumption. (CIR vs. Magsaysay Lines; GR No. 146984;
July 28, 2006)
 If at the end of a taxable quarter the output
taxes charged by a seller are equal to the input
taxes passed on by the suppliers, no payment is
required.

It is when the output taxes exceed the input

taxes that the excess has to be paid.

TAX CREDIT
METHOD If, however, the input taxes exceed the output
taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the
input taxes result from zero-rated or effectively
zero-rated transactions or from the acquisition
of capital goods, any excess over the output
taxes shall instead be refunded to the taxpayer
or credited against the output tax. (CIR vs.
Seagate Technology (Phils.); GR No. 153866;
Feb. 11, 2005)
REGISTRATION REQUIREMENT
 Any person who, in the course of trade or
business, sells, barters or exchanges goods
or properties, or engages in the sale or
exchange of services, shall be liable to
register for value-added tax if:
1. His gross sales or receipts for the past
twelve (12) months, other than those
that are exempt under Section 109 (A) to
(BB), have exceeded Three Million pesos
(P3,000,000) (Prior to the TRAIN,
PERSONS P1,919,500); or
REQUIRED TO
2. There are reasonable grounds to
REGISTER FOR VAT believe that his gross sales or receipts
for the next twelve (12) months,
other than those that are exempt under
Section 109 (A) to (BB), have exceeded
Three Million pesos (P3,000,000) (Prior to
the TRAIN, P1,919,500); (Sec. 236[G])
3. Radio and television franchisees are
required to register for VAT if their gross
receipts for the preceding calendar year
exceeded P10,000,000. (Sec. 119)
 PERSONS AVAILING OF THE 8% FLAT
RATE

Individual taxpayers However, note that under RR

No. 13-18, if a taxpayer who
availing of the 8% flat rate initially availed of the 8% flat
of income tax are likewise rate, but whose sales during the
exempt from the year exceeded P3,000,000,
payment of the 12% VAT, he shall be liable for the 12%
and under Sec. 236(H) of VAT prospectively, starting the
the Tax Code, as amended, next month when his sales
are not allowed to avail exceeded P3,000,000 and shall
be required to update his VAT
of the optional VAT registration on or before the last
registration. day of the said month.
 ILLUSTRATION

Mr. JMLH signified his intention to be taxed at 8% in his 1st

Quarter Income Tax. For the first three quarters, his sales
amounted to P2,250,000. However, his sales for the month of
October, November and December were all P1,000,000 each.

In this case, Mr. JMLH exceeded the P3,000,000 threshold

during the month of October. Accordingly,
• He is subject to the 12% VAT beginning November (the
next month); and
• He is required to update his registration from Non-VAT to
VAT-registered on or before November 30.
 OPTIONAL REGISTRATION FOR VAT

Any person who is not required to register for value-added

tax may elect to register for value-added tax.
Any person who elects to register shall not be entitled to
cancel his registration for the next three (3) years.
Individual taxpayers availing of the 8% flat rate of income
tax are not allowed to avail of the optional VAT registration.

Radio and television franchisees who are not

required to register under letter (c) above. Once
registration is availed, it can no longer be
cancelled
 The basis shall be comprised only of those
sales which are not considered exempt
under Sec. 109(A) to (BB). Thus, any
such sales falling within the exemptions are
excluded from the gross sales for purposes
of determining if the taxpayer is required to
BASIS OF be registered for VAT.
DETERMINING For example, ABC Company had P2,000,000
sales of fresh fruits and P2,500,000 sales of
REGISTRABILITY fruit jams. The sale of fresh fruits is
considered exempt under Sec. 109(A).
Therefore, the basis of determining
mandatory registrability would only be
P2,500,000, the amount of sales not exempt
under Sec. 109(A) to (BB). Considering,
however, that the amount does not exceed
P3,000,000, ABC Company is not
mandatorily required to register for VAT.
 Under Sec.109(2), the main business must be
subject to VAT and the transactions which are
exempt do not constitute his main business.
As such, if the main business is exempt, then
such optional registration is not available
considering that Sec. 109(2) speaks of a “VAT-
registered person” who can exercise such
option.
MAIN BUSINESS
MUST BE
VATABLE
Moreover, under RMC No. 46-2008, the BIR
clarified that “[i]f the main business is exempt
from VAT, the VAT-exempt person cannot elect
that the said exempt business/es be placed
under the VAT system. The option to be
subject to VAT on its exempt transactions is
available only to a VAT-registered person
pursuant to Section 109(2) of the Code, as
amended by R.A. 9337.”
 The amount of sales is the one
determinative of the liability for VAT not
registration. As such, if the amount of
sales for the past 12 months exceeded
or at any time exceeds P3,000,000, the
taxpayer shall be subject to the VAT
R E G I S T RAT I O N I S even if he did not register for such type
NOT A REQUISITE of tax.
F O R VATA B I L I T Y B U T The registration requirement is actually a
T O C L A I M I N P U T VAT pre-requisite to claim input VAT.
Accordingly, even if a taxpayer becomes
liable for VAT for exceeding the threshold
amount of P3,000,000 but fails to
register, he shall be liable for the output
VAT on such sales, but he shall not be
entitled to any input VAT for his failure to
register.
IMPOSITION OF VAT
 1. Any person who, in the course of trade
or business,
a. sells, barters, or exchanges goods or
properties (seller or transferor)
b. leases goods or properties (lessor)
c. renders services (service provider)
PERSONS 2. Imports goods (importer) – the person
who brings goods into the Philippines,
LIABLE TO PAY whether or not made in the course of
THE VAT trade or business

As an indirect tax, VAT-registered sellers

may pass on or shift the burden of the VAT
to the buyers. However, the amount of VAT
is still to be remitted to the BIR by the
seller as he is the one statutorily liable for
its payment.
 “IN THE COURSE OF TRADE OR
BUSINESS”

This means “the regular conduct or pursuit of a

commercial or economic activity, including
transactions incidental thereto, by any person regardless
of whether or not the person engaged therein is a non-
stock, non-profit private organization (irrespective of the
disposition of its net income and whether or not it sells
exclusively to members or their guests), or government
entity.”

Non-resident persons who perform services in the

Philippines are deemed to be making sales in the course of
trade or business, even if the performance of services is
 The term “incidental” means
something necessary,
appertaining to, or depending
upon another which is termed
the principal, something
I N C I D E N TA L incident to the main purpose.
T RA N S AC T I O N S
[Davis vs Pine Lumber Co., 273
C.A.2d 218, 77 Cal. Rptr. 825;
Magsaysay Lines Inc., et.al. vs
Commissioner of Internal
Revenue (CTA Case No. 4353
dated April 27, 1992)].
 It does not follow that an isolated
transaction cannot be an incidental
transaction for purposes of VAT liability.
Indeed, a reading of Section 105 of the
1997 Tax Code would show that a
transaction "in the course of trade or
ONE TIME OR business" includes "transactions incidental
ISOL ATED thereto." In which case, the sale of a fully-
TRANS ACTION depreciated vehicle by a company
principally engaged in the conversion of
steam to electricity was held to be subject
to VAT since the vehicle was used in
business and recorded under
property, plant and equipment.
(Mindanao Geothermal II vs. Commissioner
of Internal Revenue)
 If the main line of business is VAT-
exempt, such as sale of copra, then
transactions incidental thereto are
considered VAT-exempt as well. e.g.,
sale of delivery truck by the one who
MAIN sells copra.
BUSINESS
MUST BE However, if the sale is VAT zero-
VATABLE rated, the incidental transactions
thereto, not considered zero-rated,
are treated as subject to 12% VAT.
This is because a zero-rated sale is
actually subject to VAT, although at
0% rate.
 Sale of service
Importations by non-residents
in the Philippines
• in fact, even if the • as long as the
importation is services are
personal and not
for business rendered in the
WHEN NOT purposes, the same Philippines, the
APPLICABLE will be considered same will be
subject to VAT, subject to
unless the importer withholding VAT.
is an exempt
importer (e.g., BOI- The last
registered paragraph of
enterprise or PEZA- Sec. 105
registered entities provides that
enjoying exemption they “shall be
from taxes on their
importations under considered as
their registration) being in the
 SE RVICES R E ND E R E D ON A “R E I M BUR SE M E N T-
AT-COST” BASI S – VATA BA LE

Even a non-stock, non-profit, organization or government entity is

liable to pay VAT on the sale of goods or services. The term "in the
course of trade or business" requires the regular conduct or pursuit of
a commercial or an economic activity regardless of whether or not
the entity is profit-oriented.

Hence, it is immaterial whether the primary purpose of a

corporation indicates that it receives payments for services
rendered to its affiliates on a reimbursement-on-cost basis
only, without realizing profit, for purposes of determining
liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration,
then the service rendered is subject to VAT. (CIR vs. CA and
Commonwealth Management Services (COMASERCO); GR No. 125355;
March 30, 2000)
 SUBSIDIZED EXPENSE – NOT SUBJECT TO VAT

In the case of CIR vs. Sony Philippines, Inc., Sony Philippines was assessed by the
BIR of deficiency VAT for being reimbursed by Sony International Singapore (SIS)
the advertising expenses it (Sony PH) incurred. The Supreme Court held that “[t]o
begin with, the said subsidy termed by the CIR as reimbursement was not even
exclusively earmarked for Sony's advertising expense for it was but an assistance
or aid in view of Sony's dire or adverse economic conditions, and was only
"equivalent to the latter's (Sony's) advertising expenses.”

Under Sec. 106, “there must be a sale, barter or exchange of goods or

properties before any VAT may be levied. Certainly, there was no such sale,
barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS
and not in payment for goods or properties sold, bartered or exchanged by Sony.”
 If the amount provided is exclusive of VAT, that
amount is simply multiplied by 12% to arrive at the
amount of VAT;

If the amount provided is inclusive of VAT, that amount

is divided by 112% and then multiplied by 12% to
arrive at the amount of VAT.
DETERMINATIO
N OF TAX The amount indicated in the official receipt or the
invoice amount is presumably inclusive of VAT. Thus,
if the official receipt or invoice price states P112,000
as the amount of sales, the VAT amount is 12/112 of
P112,000 which is P12,000.
On the other hand, if what is provided is “sales” or
“purchases” account, these are presumably exclusive
of VAT, since for accounting purposes, these accounts
are usually recorded net of VAT, the input VAT and
output VAT having their respective accounts.
 VAT ON SALE OF
GOODS/PROPERTIES
 The term "goods" or "properties" shall mean all
tangible and intangible objects which are capable
of pecuniary estimation and shall include:

The right or the

Real properties held privilege to use patent,
primarily for sale to copyright, design or
customers or held for model, plan, secret
lease in the ordinary formula or process,
course of trade or goodwill, trademark,
business; trade brand or other
S ALE OF like property or right;
GOODS/PROPERTIE The right or the
S privilege to use in the The right or the
Philippines of any privilege to use motion
industrial, commercial picture films, tapes
or scientific and discs; and
equipment;

Radio, television,
satellite transmission
and cable television
time.
 TAX BASE

Tax Base for sale of goods is the “gross selling price”

which is the total amount of money or its equivalent
which the purchaser pays or is obligated to pay to the
seller in consideration of the sale, barter or exchange of
the goods or properties, excluding the value-added tax.
The excise tax, if any, on such goods or properties shall
form part of the gross selling price.” (Sec. 106, NIRC)

In short, the gross selling price is the invoice price less

any allowable discounts and excluding the VAT.
 TAX BASE

In case of barter, sale or exchange of real property

subject to VAT, gross selling price shall mean the
consideration stated in the sales document or the fair
market value whichever is higher. The term “fair market
value” shall mean whichever is higher of:
(1)the fair market value as determined by the
Commissioner (zonal value);
(2)fair market value as shown in schedule of values of
the Provincial or City Assessors (real property tax
declaration). (Sec. 4.106-4, RR No. 16-05)
 Sales returns and allowances

Sales The sales discount granted is

discoun indicated in the invoice at the
ts, time of sale; and
ALLOWABLE provided:
DEDUCTIONS The grant of which does not
depend upon the happening of
a future event.
The discount is expressly
indicated in the invoice/OR.
(Sec. 4.106-9, RR No. 16-05)
 TIMING OF RECOGNITION

Under RR No. 16-05, the input VAT is creditable upon

consummation of the sale, which is upon the delivery
of the goods and issuance of the sales invoice.
Consequently, the VAT thereon accrues at the same
time regardless whether payment has already been
made, subject to the exception under sale of real
property on installments.
 Sale of real property by a real
estate dealer, the initial
payments of which in the year of
sale do not exceed 25% of the
gross selling price/contract
price.
SALE OF REAL
PROPERTY IN
INSTALLMENT
In this case, the VAT shall be due
on each installment payments
only reported on each of their
respective months/quarters and
not the whole VAT due on the
sale.
 If the initial payments exceed
25% of the gross selling
price/contract price, the
SALE ON A transaction shall be considered
DEFERRED- as a sale on a deferred-payment
PAYMENT BASIS basis and will be treated as a
cash sale which makes the
entire selling price taxable
in the month/quarter of sale.
 INITIAL PAYMENTS

Initial Down payment

payme
nts
shall All instalment payments made or is expected to be received
mean during the year of sale; and
the sum When the amount of mortgage is more than the cost to the
of the: seller, the excess shall form part of the initial payments (e.g., the
mortgage on the real property is P1,000,000, where the cost to
the seller is P800,000 – the excess of P200,000 is considered
part of the initial payments).
The term does not include any notes or other evidence of indebtedness issued by the
purchaser to the seller or the mortgage when the same is lower than the cost to the
seller.
TRANSACTIONS DEEMED SALE
As the term implies, entails no
actual sale, but by their
nature, are considered as NATURE
“sales” subject to VAT.
 RATIONALE

To recoup from the input VAT already claimed on such goods which
are not subsequently subjected to output VAT since they are not sold.

Note that the input VAT on purchase of raw materials can be claimed
on the month of purchase with the expectation that the goods will
relate to output VAT upon their sale; if the disposition of the finished
goods do not result in a VATable transaction, or if not deemed sale,
then the taxpayer would have benefited from the input VAT without
any corresponding output VAT liability.
 The Commissioner of Internal
Revenue shall determine the
appropriate tax base in cases where
a transaction is deemed a sale,
barter or exchange of goods or
properties, or where the gross selling
price is unreasonably lower than the
actual market value.

TAX BASE The gross selling price is

unreasonably lower than the actual
market value if it is lower by more
than 30% of the actual market
value of the same goods of the
same quantity and quality sold in the
immediate locality or the nearest
date of sale. In case of such, the
actual market value shall be the tax
base. (Sec. 4.106-7 (b), RR No. 16-
05)
 1.Transfer, use or
consumption not in the
course of business of goods
or properties originally
intended for sale or for use
T RA N S AC T I O N S
in the course of business.
DEEMED SALE

This can take place when VAT-

registered person withdraws
goods from his business for his
personal use. (Sec. 4.106-7[a]
[1] of RR No. 16-05)
 2.Distribution or transfer to:
a.Shareholders or investors as
share in the profits of the
VAT-registered persons

Property dividends which

constitute stocks in trade or
T RA N S AC T I O N S properties primarily held for sale
DEEMED SALE
or lease declared out of retained
earnings and distributed by the
company to its shareholders shall
be subject to VAT. (Sec. 4.106-1[a]
[2][i] of RR No. 16-05)

b.Creditors in payment of
debt;
 3.Consignment of goods if
actual sale is not made
within sixty (60) days
following the date such
goods were consigned

TRANS ACTIONS CONSIGNMENT OF GOODS

DEEMED S ALE
in itself is not a VAT taxable
transaction. Only if actual sale
is not made within sixty (60)
days following the date such
goods were consigned will it
be treated as a transaction
deemed sale subject to VAT.
 4. Retirement from or cessation of
business, with respect to
inventories of taxable goods
existing as of such retirement or
cessation. (Sec. 106[B])
TRANSACTION • The VAT shall also apply to goods
S DEEMED disposed of or existing as of a
SALE certain date if under
circumstances to be prescribed in
rules and regulations to be
promulgated by the Secretary of
Finance, upon recommendation of
the Commissioner, the status of a
person as a VAT-registered person
changes or is terminated.
 The VAT shall apply to goods or properties
originally intended for sale or use in
business, and capital goods which are
existing as of the occurrence of the
following:
1. Change of business activity from VAT
taxable status to VAT-exempt status;
2. Approval of a request for cancellation
of registration due to reversion to
exempt status;
3. Approval of request for cancellation or
SUBJECT TO registration due to a desire to revert to
OUTPUT TAX exempt status after the lapse of 3
consecutive years from the time of
registration by a person who voluntarily
registered despite being exempt under
Sec. 109(2) of the Tax Code;
4. Approval of request for cancellation of
registration of one who commenced
business with the expectation of gross
sales or receipts exceeding P3,000,000
(P1,919,500 prior to the TRAIN), but who
failed to exceed this amount during the
first 12 months of operation. (Sec. 4.106-
 The VAT shall not apply to goods or
properties existing as of the occurrence of
the following:
1. Change of control of a corporation by
the acquisition of the controlling interest
of such corporation by another
stockholder or group of stockholders. The
goods or properties used in business or
those comprising the stock-in-trade of the
corporation, having a change in corporate
control, will not be considered sold,
NOT SUBJECT bartered or exchanged despite the change
TO TAX in the ownership interest in the said
corporation.
2. Change in the trade or corporate name
of the business;
3. Merger or consolidation of
corporations. The unused input tax of
the dissolved corporation, as of the date
of the merger or consolidation, shall be
absorbed by the surviving or new
corporation. (Sec. 4.106-8 (b), RR No. 16-
05)
VAT ON IMPORTATIONS
 Importation is the act
of bringing goods and
IMPORTATION merchandise into the
Philippines from a
foreign country.
 Customs (BOC) in determining tariff and
customs duties, plus customs duties,
excise taxes, if any, and other charges,
such as postage, commission, and similar
charges, prior to the release of the goods
from customs custody.

In case the valuation used by the BOC in

computing customs duties is based on
volume or quantity, the landed cost shall
be the basis for computing VAT. “Landed
cost” consists of the invoice amount, customs
TAX BASE duties, freight, insurance and other charges.

If the goods imported are subject to excise

tax, the excise tax shall form part of the
tax base.

Note, however, that those amounts paid which

are contrary to law, morals or public policy
shall not be included in the VAT base and
likewise are not deductible for income tax
purposes, such as facilitation fees or bribe.

The same rule applies to technical

 The importation of goods is
exempt from VAT and customs
duties if made by an exempt
person (like an embassy or an
ambassador).

S ALE OF TAX-FREE
GODS TO NON- However, in the event he sells,
EXEMPT PERSONS transfers or otherwise disposes of
the goods in favor of a NON-
EXEMPT person, the importation
shall be taxable against the
purchaser, transferee or
recipient who shall be considered
as importer thereof.
 Importer refers to any
person who brings
goods into the
Philippines, whether
IMPORTER
or not made in the
course of trade or
business. (Sec. 4.107-
1(b), RR No. 16-05)
SALE OF SERVICE
The phrase "sale or exchange of
services" means the performance
of all kinds or services in the
Philippines for others for a fee,
remuneration or consideration SALE OF
[xxx]xxx whether or not the SERVICE
performance thereof calls for
the exercise or use of the
physical or mental faculties.
 If the services were performed
outside the Philippines, the same
is not subject to VAT.

Note, however, that even though

MUST BE the services are performed in the
PERFORMED IN Philippines but for a foreign
THE PHILIPPINES
client/customer, the same may
still be treated as zero-rated
subject to the BIR’s fulfillment of
the conditions under the TRAIN
Law for their removal from the
list of zero-rated sales.
 In sale of services, the VAT
accrues at the time of
payment independent of
whether the services has
been performed or not, or
in short, following the cash
basis of accounting.
TIME OF
As such, even if the
RECOGNITION services were already
performed, but the same
remain unpaid, no VAT is
due yet. On the other
hand, if payment is
already received but no
services has been
performed yet, the VAT is
already due.
 For sale of service is the “gross receipts”
which means “the total amount of money or
its equivalent representing the contract
price, compensation, service fee, rental or
royalty, including the amount charged for
materials supplied with the services and
deposits and advanced payments actually
or constructively received during the
taxable quarter for the services performed
or to be performed for another person,
excluding value-added tax,” (Sec. 108, NIRC)
except those amounts earmarked for
payment to unrelated third (3rd) party or
TAX BASE received as reimbursement for advance
payment on behalf of another which do not
redound to the benefit of the payor. (Sec.
4.108-4, RR No. 16-05, as amended by RR
No. 4-07)

Pass-through transactions: for the above

exceptions to apply, the receipt must be
issued for the third person who will
ultimately shoulder the expense, in order to
be excluded from the gross receipts of the
person receiving the reimbursement or the
 Constructive Receipt: occurs when
the money consideration or its
equivalent is placed at the control
of the person who rendered the
service without restrictions by the
payor. The following are examples of
constructive receipts:
1. Deposits in banks which are
made available to the seller of
CONSTRUCTIVE
RECEIPT
services without restrictions;
2. Issuance by the debtor of a notice
to offset any debt or obligation
and acceptance thereof by the
seller as payment for services
rendered; and
3. Transfer of the amounts
retained by the payor to the
account of the contractor. (Sec.
 LESSORS OF PROPERTY

Unless considered exempt under Sec. 109 of the Tax Code, Lessors
of Property shall be considered liable for VAT on the gross rentals,
regardless of the place where the contract of lease or licensing
agreement was executed if the property leased or used is
located in the Philippines.

VAT on rental and/or royalties payable to non-resident foreign

corporations or owners for the sale of service and use or lease of
properties in the Philippines shall be based on the contract price
agreed upon by the licensor and licensee. The licensee shall be
responsible for the payment of VAT on such rentals and/or royalties
in behalf of the non-resident foreign corporation or owner in the
manner prescribed under [withholding VAT on payments to non-
residents]. (Sec. 4.108-3(a), RR No. 16-05)
 If the advance payment constitutes
prepaid rental, then such payment
is taxable to the lessor in the month
when received, irrespective of the
accounting period employed by the
lessor.

The following do not constitute

advance payment of rentals subject to
VAT:
ADVANCE RENTALS 1. Loan to the lessor;
2. Ana option money for the
property; or
3. A security deposit for the faithful
performance of certain obligations
of the lessee, such advance
payment is not subject to VAT.
However, a security deposit
applied to rentals shall be subject
to VAT at the time of its
 As compared to the Local Government
Code which covers only lawyers and
those who are PRC licensed, for VAT
purposes, professionals include Actors,
Professional Athletes, Singers,
Broadcasters, Directors, etc.

General Professional Partnerships:

deposits received by the GPP should be
booked as income at that time and a VAT
Official Receipt issued, thus subject the
same to VAT upon receipt, regardless if
the GPP will only use the same for out of
PROFESSIONALS pocket expense to be paid to third
parties. (RMC No. 89-2012)

The same rule applies to other service

providers, other than GPPs. (RMC No. 16-
2013)

Expenses incurred from such deposits

made by clients, when paid for by the
GPP, must be in the name of the GPP in
order for the same to be claimed as an
expense for income tax purposes or claim
 While the enumeration of services
under Sec. 108 is merely by way
of example only and not exclusive,
the legislative intent is not to
impose VAT on gross receipts
of cinema/theater houses on
SALE OF CINEMA their admission tickets, only to
lessors of cinematographic films.
TICKETS
Instead, the same is subject to the
NOT SUBJECT TO 10% amusement tax under the
VAT Local Government Code, as
amended. Only lessors or
distributors of cinematographic
films are included in the coverage
of VAT. (CIR vs. SM Prime Holdings,
GR No. 183505 dated February 26,
2010)
 VAT on tollway operations cannot be
deemed a tax on tax due to the nature
of VAT as an indirect tax.

The seller remains directly and legally

liable for payment of the VAT, but the
buyer bears its burden since the
TOLL FEES amount of VAT paid by the former is
SUBJECT TO VAT added to the selling price. Once
shifted, the VAT ceases to be a
tax and simply becomes part of
the cost that the buyer must pay
in order to purchase the good,
property or service. (Diaz vs. the
SOF and the CIR, GR No. 193007 dated
July 19, 2011)
 DEALERS IN SECURTIES

Dealers in
Tax Base
Securities
• mean merchants • Gross Selling Price
of stock or less Cost of
securities regularly Securities Sold
engaged in the
purchase of
securities and their
resale.
 Lending Investors include all
persons other than banks, non-
bank financial intermediaries,
finance companies and other
financial intermediaries not
performing quasi-banking
LENDING functions who make a practice of
INVESTORS lending money for themselves or
others at interest.
Tax Base: gross receipts.
 Generally, telephone and telegraph,
radio and/or television broadcasting and
all other franchise grantees, except gas
and water utilities, shall be subject to
VAT in lieu of franchise tax.

However, franchise grantees of radio

and/or television broadcasting whose
annual gross receipts of the preceding
year do not exceed P10,000,000 shall
not be subject to VAT but to the 3%
FRANCHISE franchise tax imposed under Sec. 119
GRANTEES of the NIRC.

Franchise grantees of gas and water

utilities shall be subject to the 2%
franchise tax on their gross receipts
and not to VAT.

Gross receipts of other franchise

grantees, shall be subject to the VAT,
subject to the threshold requirement
and optional registration availment.
 SALE TO PAGCOR

PAGCOR is exempt from the payment of VAT because

PAGCOR’s charter, P.D. No. 1869, is a special law that grants
petitioner exemption from taxes. Although R.A. No. 9337
(amendment to the Tax Code) introduced amendments to
Section 108 of R.A. No. 8424 by imposing VAT on other services
not previously covered, it did not amend the portion of Section
108 (B)(3) that subjects to zero percent rate services performed
by VAT-registered persons to persons or entities whose
exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the
supply of such services to 0% rate. (PAGCOR vs. BIR; GR No.
172087; March 15, 2011)
 engaged in the business of property
insurance, as distinguished from insurance
on human lives, health, accident and
insurance appertaining thereto or connected
therewith which shall be subject to the
percentage tax under Sec. 123 of the NIRC.
(Sec. 4.108-3(i), RR No. 16-05)

Tax Base: premiums collected, whether

paid in money, notes, credits or any
substitute for money.
NON-LIFE 1. REINSURANCE PREMIUMS: are subject to
INSURANCE VAT.
2. COMMISSIONS: whether related to life or
COMPANIES non-life, insurance or reinsurance, are
subject to VAT.
3. VAT DUE FROM REINSURANCE
COMPANIES: is to be withheld by the local
insurance company and to be remitted to
the BIR in accordance with [the
withholding VAT.

Life Insurance Companies: premiums paid to

LIFE insurance companies are subject to the
2% premiums tax which is a percentage tax.
ZERO-RATED SALE OF GOODS
 ZERO-RATED SALE OF GOODS

Foreign
Sale to
Currency
Export Sales exempt
Denominated
persons
Sale
 Actual export sales paid for in acceptable
foreign currency and accounted for in
accordance with BSP rules and regulations.

Sale of goods, supplies, equipment and fuel to

persons engaged in international shipping or
international air transport operations.
EXPORT SALES
Sale of raw materials, inventories, supplies,
equipment, packaging materials, and goods,
to a registered export enterprise, to be
used directly and exclusively in its
registered project or activity for a maximum of
17 years from the date of registration, unless
otherwise extended under the Strategic
Investments Priorities Plan (SIPP). The same
zero-rating shall apply to registered export
enterprises located inside ecozones and
 Sale of raw materials or packaging
materials to a non-resident buyer for
delivery to a resident local export-
EXPORT SALES oriented enterprise to be used in
manufacturing, processing, packing or
repacking in the Philippines of the said buyer's
goods and paid for in acceptable foreign
currency and accounted for in accordance
These are no longer subject to zero-
with the rules and regulations of the Bangko
rating under the TRAIN, upon Sale of raw
Sentral ng Pilipinas (BSP)
materials or
satisfaction of the following packaging materials to export-
conditions:
1. Establishment of an enhanced
oriented enterprise whose export
VAT refund system; sales exceed seventy percent
2. Payment in cash of pending VAT (70%) of total annual production
claims by December 31, 2019.
Those considered export sales
under Executive Order No. 226,
The BIR issued RR No. 9-2021 otherwise known as the Omnibus
declaring that the above are already Investment Code of 1987, and other
subject to 12% VAT but eventually special laws
deferred its under RR No. 15-2021.
 Sale of gold to the Bangko Sentral
NOW VAT-EXEMPT ng Pilipinas
 These are no longer zero- FOREIGN CURRENCY
rated under the TRAIN Law.
DENOMINATED SALE
 ADDITIONAL ZERO-RATED SALES
UNDER THE TRAIN LAW

Sale Registered enterprises within a separate

and customs territory; and
deliver
y of Registered enterprises within tourism
goods enterprise zones as declared by the
to: Tourism Infrastructure and Enterprise Zone
Authority (TIEZA) subject to the provisions
of RA No. 9593, or the Tourism Act of 2009.
ZERO-RATED SALE OF SERVICE
 Services other than processing,
manufacturing or repacking of goods, 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);
Services rendered to persons or entities
whose exemption under special laws or
ZERO-RATED international agreements to which the
Philippines is a signatory effectively subjects
SALE OF the supply of such services to zero
percent (0%) rate;
SERVICE Sale of services, including provision of basic
infrastructure, utilities, and maintenance, repair
and overhaul of equipment, to a registered
export enterprise, to be used directly and
exclusively in its registered project or activity for
a maximum period of 17 years from the date of
registration, unless otherwise extended under the
Strategic Investments Priorities Plan (SIPP). The
same zero-rating shall apply to registered export
enterprises located inside ecozones and freeport
zones.
 Services rendered to persons engaged in
international shipping or air transport
operations, including leases of property for use
thereof: Provided, that these services shall be
exclusively for international shipping or air
transport operations. Thus, the services referred
to herein shall not pertain to those made to
common carriers by air and sea relative to their
transport of passengers, goods or cargoes from
one place in the Philippines to another place in
ZERO-RATED the Philippines, the same being subject to
twelve percent (12%) VAT under Sec. 108 of the
SALE OF Tax Code
SERVICE Transport of passengers and cargo by domestic air
or sea vessels from the Philippines to a foreign
country.

Sale of power or fuel generated through

renewable sources of energy
 The
following Processing, manufacturing or
are no repacking goods for other
longer persons doing business outside
zero- the Philippines which goods
rated are subsequently exported,
upon where the services are paid for in
meeting acceptable foreign currency and
the
ZERO-RATED condition
accounted for in accordance with
the rules and regulations of the
SALE OF s earlier
enumera Bangko Sentral ng Pilipinas (BSP);
SERVICE ted for
Services performed by
goods:
subcontractors and/or
contractors in processing,
converting, of manufacturing goods
for an enterprise whose export
sales exceed seventy percent
(70%) of total annual
production.
 CROSS BORDER DOCTRINE

Under the Destination Principle or the Cross Border Doctrine, goods and
services are taxed only in the country where these are consumed.

Considering that under Section 8 of the Special Economic Zone Act (RA
No. 7916), ECOZONES shall be managed and operated by the PEZA as a
separate customs territory, sales made into ecozones are, by legal fiction,
exports. Nevertheless, considering RR No. 21-2021, implementing the
amendments introduced by the CREATE Act, the “export” treatment of
sales by domestic entities into ecozones shall now be zero-rated or VAT-
exempt only if they are directly and exclusively used in the registered
activity of the registered business enterprise. The BIR goes further under
RMC No. 24-2002, that the Cross Border Doctrine is now rendered
ineffectual under the CREATE Act. Effectively, as well, there is no longer
any distinction whether the registered enterprise is covered by a BOI-
registration or a PEZA-registration, as the zero-rating or exemption would
now just apply to a ”registered business enterprise,” without any regard
as to whether it operates within an ecozone or not
A B C D

EXPORT SALE EXEMPT TECHNICAL

IMPORTATION

ECOZONE
Sale made by: To a: VAT Treatment
Non-registered Export Registered Business Enterprise Zero-rated if directly and exclusively used in
business (RBE) the registered activity of the Export RBE for a
enterprise that maximum period of 17 years unless extended
is VAT- under the SIPP. This rule still applies to existing
registered registered export enterprises. (Q&A No. 11,
RMC No. 24-2022)
Non-registered Domestic RBEs* 12% VAT. No entitlement to zero-rating on local
business purchases (Q&A No. 16, RMC No. 24-2022)
enterprise that
is VAT-
registered
*including Customs Brokerage, Trucking Services, Forwarding Services, Janitorial Services, Security Services, Insurance,
Banking and other Financial Services, Consumers’ Cooperatives, Credit Unions, Consultancy Services, Retail
Enterprises, Restaurants and Such other similar services as may be determined by the FIRB, even if they are duly
accredited or licensed by any Investment Promotion Agency [IPA]

CROSS BORDER DOCTRINE

The VATability of sales made to or by a registered enterprise may

now be summarized as follows:
Sale made by: To a: VAT Treatment
Export RBE Export RBE Seller is VAT-registered under ITH – zero-rated if the goods
and services are directly and exclusively used in the
registered project/activity.

Seller is under 5% GIT – VAT exempt. ((Q&A No. 18, RMC No.
24-2022)
Domestic RBE Export RBE Same as above
Domestic RBE Domestic Not covered by RMC No. 24-2002. However, considering that
RBE Domestic RBEs are not entitled to zero-rating on their local
purchases, if the domestic RBE seller is VAT-registered, then
the sale will be subject to 12% VAT.

CROSS BORDER DOCTRINE

The VATability of sales made to or by a registered enterprise may

now be summarized as follows:
All purchases of
goods and/or
services which
are not directly
and exclusively
used in the
registered
activity of the
CROSS BORDER
Registered
Business DOCTRINE
Enterprise,
regardless of
location, shall
not be subject to
zero-rating or
exemption.
 ZERO-RATED SALES

ZERO RATED SALE OF GOODS OR

PROPERTIES/SERVICES: (by a VAT-registered person) is a
taxable transaction for VAT purposes but shall not result in
any output tax. However, the input tax on purchase of
goods, properties or services, related to such zero-rated
sale, shall be available as:
1. A tax credit (input VAT); or
2. Refund or for the issuance of a Tax Credit Certificate. (Sec.
4.106-5, RR No. 16-05)
VAT-EXEMPT TRANSACTIONS
 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 genetic materials therefor.

“In their original state” – even if they have undergone

the simple processes of preparation or preservation for
the market, such as freezing, drying, salting, boiling,
roasting, smoking or stripping. Polished and/or husked
rice, corn grits, raw cane sugar and molasses ordinary
salt, and copra shall be considered in their original
S ALE OR state”
IMPORTATION OF:
“Livestock” shall include cows, bulls and calves, pigs,
sheep, goats and rabbits. “Poultry” shall include fowls,
ducks, geese and turkey. Either does not include fighting
cocks, race horses, zoo animals and other animals
generally considered as pets

“Marine food products” shall include fish and

crustaceans, such as, but not limited to eels, trout,
lobster, shrimps, prawns, oysters, mussels and clams.
 • 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 genetic materials
therefor.
“In their original state” – even if they have
undergone the simple processes of
preparation or preservation for the market,
such as freezing, drying, salting, boiling,
S A L E O R I M P O RTAT I O N
roasting, smoking or stripping. Polished
O F: and/or husked rice, corn grits, raw cane
sugar and molasses ordinary salt, and copra
shall be considered in their original state”
• 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). (Sec. 109[1][B])
 Personal and household effects
belonging to the residents of the
Philippines returning from abroad and
non-resident 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. (Sec.
109[1][C])
IMPORTATION OF:
Under RA No. 10863, or the Customs
Modernization and Tariff Act, the
following are considered conditionally
tax- and/or duty-exempt importations:
1. Personal and Household Effects
2. Home appliances and other
durables of OFWs
3. Balikbayan boxes
4. De Minimis Importations
 Professional instruments and implements, tools of
trade, occupation or employment, wearing apparel,
domestic animals, and personal and household
effects belonging to persons coming to settle in
the Philippines or Filipinos or their families and
descendants who are now residents or citizens of
other countries, such parties hereinafter referred to
as overseas Filipinos, in quantities and of the class
suitable to the profession, rank or position of the
persons importing said items, for their own use and
not for barter or sale, accompanying such persons, or
IMPORTATION OF: arriving within a reasonable time: Provided, That the
Bureau of Customs may, upon the production of
satisfactory evidence that such persons are actually
coming to settle in the Philippines and that the
goods are brought from their former place of abode,
exempt such goods from payment of duties and
taxes: Provided, further, that vehicles, vessels,
aircrafts, machineries and other similar goods
for use in manufacture, shall not fall within this
classification and shall therefore be subject to
duties, taxes and other charges. (Sec. 109[1][D])
 Importation of fuel, goods and supplies
by persons engaged in international
shipping or air transport operations:
Provided, That the fuel, goods and supplies
shall be used for international shipping
or air transport operations. Thus, said
fuel, goods and supplies shall be used
exclusively or shall pertain to the
transport of goods and/or passenger from a
port in the Philippines directly to a foreign
port, or vice versa, without docking or
stopping at any other port in the
IMPORTATION OF: Philippines unless the docking or stopping
at any other Philippine port is for the
purpose of unloading passengers and/or
cargoes that originated from abroad, or to
load passengers and/or cargoes bound for
abroad.

If any portion of such fuel, goods or

supplies is used for purposes other than
that mentioned in this paragraph, such
portion of fuel, goods and supplies shall be
 1. Persons subject to percentage tax
under Title V of the NIRC. (Sec. 109[1]
[E])
2. Agricultural contract growers and
milling for others of palay into rice,
corn into grits and sugar cane into
raw sugar. (Sec. 109[1][F])
3. Medical, dental, hospital and
veterinary services except those
SERVICES rendered by professionals. (Sec.
109[1][G])
RENDERED BY: 4. Educational services rendered by
private educational institutions, duly
accredited by the Department of
Education (DepEd), the Commission
of Higher Education (CHED), the
Technical Education and Skills
Development Authority (TESDA) and
those rendered by government
educational institutions. (Sec. 109[1]
[H])
 SERVICES RENDERED BY:

5. Individuals pursuant to an employer-employee

relationship. (Sec. 109[1][I])
6. 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. (Sec. 109[1][E])
7. Banks, non-bank financial intermediaries performing
quasi-banking functions, and other non-bank financial
intermediaries. (Sec. 109[1][V])
 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. (Sec.
109[1][L])
AGRICULTURAL
COOPERATIVES Sale by agricultural cooperatives to non-
members can only be exempted from VAT if
the producer of the agricultural products
sold is the cooperative itself. If the
cooperative is not the producer (e.g.,
trader), then only those sales to its
members shall be exempted from VAT,
except if what was sold is an agricultural
food product in its original state which is
exempt not under this paragraph but under
Sec. 109(a). (Sec.4.109-1[l] of RR No. 16-
05, as amended)
 LENDING COOPERATIVES

Gross receipts from lending activities by

credit or multi-purpose cooperatives
duly registered with the CDA. (Sec.
109[1][M])

Note that this type of cooperative’s

gross receipt is exempt from VAT
regardless if the customer/client is a
member or not.
 Non-agricultural, non-electric
and non-credit cooperatives
duly registered with the CDA;
Provided, That the share
OTHER capital contribution of each
COOPERATIVES member does not exceed
P15,000 and regardless of the
aggregate capital and net
surplus ratably distributed
among the members. (Sec.
109[1][N])
• Export sales of persons who are not
VAT-registered. (Sec. 109[1][O])

• Transactions which are exempt

under international agreements
to which the Philippines is a signatory EXEMPT
or under special laws, except those
granted under Presidential Decree
No. 529 (Petroleum Exploration
Concessionaires under the Petroleum
Act of 1949). (Sec. 109[1][K])
 LEASE OF RESIDENTIAL UNITS

Lease of a residential unit with a monthly rental not

exceeding P15,000 (P12,800 prior to the TRAIN) ((Sec.
109[1][Q]) is exempt from VAT and the 3% percentage tax.

Lease of residential units where the monthly rental per unit

exceeds P15,000 but the aggregate of such rentals of the
lessor during the year do not exceed P3,000,000 shall
likewise be exempt from VAT, however, the same shall be
subject to 3% percentage tax. (Sec. 4.109-1(q), RR No. 16-
05)
 LEASE OF RESIDENTIAL UNITS

In cases where a lessor has several residential units for lease,

some are leased out for a monthly rental per unit of not exceeding
P15,000 while others are leased out for more per unit, his tax
liability will be as follows:
1. Rentals not exceeding P15,000 per month - exempt from VAT
regardless of the aggregate annual gross receipts;
2. Rentals exceeding P15,000 per month per unit shall be:
a. Subject to VAT if the aggregate annual gross receipts from
said units only (not including the gross receipts from units
leased for not more than P15,000) exceeds P3,000,000;
b. Subject to the 3% percentage tax imposed under Sec. 116 of
the NIRC if the aggregate annual gross receipts DO NOT
EXCEED P3,000,000. (Sec. 4.109-1(q), RR No. 16-05)
 1. Sale of real properties NOT
primarily held for sale to
customers or held for lease in
the ordinary course of trade or
business;

However, even if the real

property is not primarily held for
S ALE OF REAL sale to customers or held for
PROPERTY
lease in the ordinary course of
trade or business but the same is
used in the trade or business
of the seller, the sale thereof
shall be subject to VAT being a
transaction incidental to the
taxpayer’s main business. (Sec.
4.109-1(p)(1) of RR No. 16-05, as
amended by RR No. 4-07)
 2.Real property utilized for
low-cost and socialized
housing as defined by RA
S ALE OF REAL
PROPERTY No. 7279, otherwise known
as the Urban Development
Act of 1992, and other
related laws;
 3. Residential lot valued at
P1,919,500* and below
4. Residential house and lot, and
other residential dwellings
valued at P3,199,200* and
below. (Sec. 109[1][P])

*Note that under RR No. 13-

S ALE OF REAL
PROPERTY 2018, the amounts mentioned
are “P1,500,000” and
“P2,500,000”, as adjusted in
2011 using the Consumer
Price Index values.
Accordingly, the amounts
exempted from VAT remain to be
at P1,919,500 and P3,199,200**
which are the adjusted prices in
2011.
 Beginning January 1, 2021, the VAT
exemption shall only apply to:
1. Sale of real properties not primarily held
for sale to customers or held for lease in
the ordinary course of trade or business,
2. Sale of real property utilized for socialized
housing as defined by Republic Act No.
7279,
3. Sale of house and lot, and other
S ALE OF REAL residential dwellings with selling price of
not more than Two Million Pesos
PROPERTY (P2,000,000.00): Provided, further, That
every three (3) years thereafter, the
amounts stated herein shall be adjusted
to its present value using the Consumer
Price Index, as published by the
Philippine Statistics Authority (PSA).

Accordingly, starting Jan. 1, 2021, sale of

residential lots will no longer be VAT-
exempt.
 Adjustment under the TRAIN
Law: Under the TRAIN Law, the
exemption for house and lot will
apply if the selling price thereof is
not more than P2,000,000. The BIR,
however is of the position that the
amount should be adjusted using
S ALE OF REAL the 2010 consumer price index as
PROPERTY well, as indicated in RR No. 4-2021,
which would mean that the
exemption is P2,599,300 using the
formula provided under RR No. 16-
2011. However, the BIR eventually
issued RR No. 8-2021 declaring that
the exempt amount remains to be
P3,199,200.
 BOOKS AND OTHER
PUBLICATIONS

Sale, importation, printing or publication of books,

and any newspaper, magazine, journal, review
bulletin, or any such educational reading
material covered by the UNESCO agreement
on the importation of educational, scientific
and cultural materials, including the digital
or electronic format thereof. Provided, that
the materials enumerated herein are not devoted
principally to the publication of paid
advertisements. (Sec. 109[R], as amended by the
CREATE Law)
 VESSELS AND AIRCRAFT

Sale, importation or lease of

passenger or cargo vessels
and aircraft, including engine,
equipment and spare parts
thereof for domestic or
international transport
operations. (Sec. 109[1][T])
 INTERNATIONAL CARRIERS

Transport of passengers by
international carriers. (Sec. 109[S] of
the Tax Code, as amended by RA No.
10378)
 THRESHOLD PROVISION

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 of which do not exceed the
amount of P3,000,000 (P1,919,500
prior to the TRAIN). (Sec. 109[1][W])
 The buyer is a:
1. Senior Citizen as provided
under RA No. 9994
(Expanded Senior Citizens
ADDITIONAL Act of 2010); or
UNDER THE TRAIN
L AW
2. A Person with Disability
(PWD) as provided under
RA No. 10754 (An Act
Expanding the Benefits
and Privileges of Persons
with Disability)
 Section 40(C)(2) of the Tax Code, as
amended;
• Association dues, membership fees,
and other assessments and charges
collected on a purely reimbursement
basis by homeowners’ associations
and condominium corporations
established under Republic Act No.
ADDITIONAL 9904 (Magna Carta for Homeowners
UNDER THE TRAIN and Homeowners’ Association) and
L AW Republic Act No. 4726 (The
Condominium Act), respectively;
• Sale of gold to the Bangko Sentral ng
Pilipinas;
• Sale of drugs and medicines
prescribed for diabetes, high
cholesterol, and hypertension to
beginning January 1, 2019 as
determined by the Department of
 1. Sale of or importation of prescription
drugs and medicines for cancer,
mental illness, tuberculosis, and kidney
diseases beginning January 1, 2021
(effectivity is moved from January 1,
2023).
2. COVID-related sale/importation:
a. The sale and importation of
equipment, its spare parts, and raw
ADDITIONAL
materials necessary for the
UNDER THE
CREATE L AW production of PPE Components;
b.All drugs, vaccines and medical
devices specifically prescribed and
directly used for the treatment of
COVID-19; and
c. Drugs for the treatment of COVID-19
approved by the FDA for use in
clinical trials, including raw materials
directly necessary for the production
 While the zero rating and the exemption are
computationally the same, they actually differ
in several aspects, to wit:

A zero-rated sale is a taxable transaction but

does not result in an output tax while an exempted
transaction is not subject to the output tax;
ZERO-RATED
The input VAT on the purchases of a VAT-registered
VS. EXEMPT person with zero-rated sales may be allowed as tax
credits or refunded while the seller in an exempt
transaction is not entitled to any input tax on his
purchases despite the issuance of a VAT invoice or
receipt.
Persons engaged in transactions which are zero-
rated, being subject to VAT, are required to
register while registration is optional for VAT-exempt
persons. (Commissioner of Internal Revenue vs. Cebu
Toyo Corporation; G.R. No. 149073; February 16,
2005])
INPUT VAT
 INPUT VAT or INPUT TAX means the
value-added tax due from or 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:

1. The transitional input tax;
INPUT VAT 2. The presumptive input tax
determined in accordance with Sec.
111 of the Tax Code.
3. Input taxes which can be directly
attributed to transactions subject to
VAT plus a ratable portion of any
input tax which cannot be directly
attributed to either the taxable or
exempt activity. (Sec. 4.110-1, RR No.
16-05)
 Who can avail of the input tax
credit? Sec. 4.110-2 of RR No. 16-05,
as amended, provides:
1. Importer upon payment of VAT prior
to the release of goods from customs
custody;
2. Purchaser upon of the domestic
goods or properties upon
consummation of the sale; or
3. Purchaser of services or the lessee or
licensee upon payment of the
AVAILMENT
compensation, rental royalty or fee.

Note that the above likewise provides

for the proper period of claiming input
VAT:
4. Importation – upon release of the
goods;
5. Purchase of goods – upon
consummation of the sale;
6. Purchase of service or lease – upon
 TRANSACTION REQUIRED SUPPORT
Domestic purchase of goods VAT Invoice
Importation of goods Import entry declaration and BOC receipt or other similar documents
proving the payment of VAT (such as a Statement of Settlement of Duties
and Tax [SSDT] and Single Administrative Document [SAD])
Purchase of real property Public instrument together with VAT invoice
Purchase of service VAT Official Receipt
Transitional input tax Inventory list submitted to the BIR
Deemed sale Invoice required under sec. 4.113-2 of RR No. 16-05
Purchase of service from non- BIR Form No. 1600 (withheld VAT)
residents
Advance VAT on sugar Payment order
5% Final VAT on sale to Withholding certificate
government

R E QU IR E D S U P P ORT IN G D OC M E N T S
 A cash register machine tape
issued to a registered buyer shall
constitute valid proof of
substantiation of tax credit only if
it shows information required
under Secs. 113 and 237 of the
NIRC.

BIR has consistently held that VAT

invoices are for sellers of goods
and VAT ORs for sellers of
REQUIRED services. (VAT Ruling No. 179-88
SUPPORTING dated May 24, 1988) Likewise, the
CTA has consistently denied
DOCUMENT refund of input tax which is not
compliant with the above
requirements.

Accordingly, input VAT on sale of

goods, even if supported by a VAT
OR, Statement of Account or
other supporting documents
cannot be claimed as a tax credit
without the VAT invoice which is
the proper supporting document.
 • A statement that the seller is a VAT-
registered person, followed by his Tax
Identification Number (TIN);
• The total amount which the purchaser pays or
is obligated to pay to the seller with the
indication that such amount includes the
VAT;
• VAT must be separately shown
• A statement indicating that the sale is “VAT-
exempt” or “zero-rated,” if applicable;
INFORMATION IN • In the case of sales in the amount of one
THE VAT SUPPORT thousand pesos (P1,000.00) or more where
the sale or transfer is made to a VAT-registered
person, the (1) name, (2) business style, if
any, (3) address and (4) TIN of the
purchaser, customer or client, shall be
indicated in addition to the information required
in (1) and (2).
• The date of transaction, quantity, unit cost
and description of the goods or properties or
nature of the service.
• Name of the buyer
 Where a VAT person
• Purchases or imports capital goods
(which are depreciable assets for income
tax purposes);
• The aggregate acquisition cost of
which (exclusive of VAT) exceeds One
Million pesos (P1,000,000), regardless
of the acquisition cost of each capital good
• In a calendar month

P U RC H A S E O F C A P I TA L
GOODS The input tax thereon shall be claimed as
credit against output tax in the following
manner; if the estimated useful life of a
capital good is:
• Five (5) years or more – the input tax
shall be spread evenly over a period of 60
months.
• Less than 5 years – the input tax shall be
spread evenly on a monthly basis by
dividing the input tax by the actual
number of months comprising the
estimated useful life of the capital good.
 Disposal of capital goods prior to the
exhaustion of the amortizable input tax
thereon – the entire amount of the
unamortized input tax on the capital
goods sold/transferred can be claimed
as input tax credit during the
month/quarter when the sale or transfer
was made.

P U RC H A S E O F C A P I TA L
TRAIN AMENDMENT: The amortization
GOODS
of the input VAT shall only be allowed
until December 31, 2021 after which
taxpayers with unutilized input VAT on
capital goods purchased or imported
shall be allowed to apply the same as
scheduled until fully utilized. If the
purchase was made on January 1, 2022,
the input VAT on the capital goods can
be claimed as tax credits in full in the
month of purchase.
 MIXED Related to: Utilization
TRANSACTION
S 12% VATable Input tax credit
sales
The utilization of the
input VAT depends to 0% VATable 1. Input tax credit; or
which such purchase sales 2. Refund or issuance
relates as follows:
of TCC

VAT-exempt Charged to
sales costs/expense
 Under Sec. 4.114-2(a) of RR No. 16-05, as
amended, implementing Sec. 114(C), the 5%
final VAT withholding rate shall represent the
net VAT payable of the seller. The remaining 7%
effectively accounts for the STANDARD INPUT
VAT for sale of goods or services to
government, in lieu of actual input VAT directly
attributable or ratably apportioned to such
sales.

1. If the actual input VAT (those directly

attributable to sale to government and the
amount ratably apportioned thereto
S ALES TO EXCEEDS 7% of the gross payments (sales to
GOVERNMENT government), the excess may form part of
the sellers’ expense or cost;
2. On the other hand, if the actual input VAT is
LESS THAN the 7%, the difference must be
closed to expense or cost, effectively making
it an additional income/revenue.

In all instances, the total input VAT credits that

will be claimed by the taxpayer relative to the
sales to government (composed of 5% Final
Withholding VAT and 7% Standard Input VAT,
both based on sales amount [not on
purchases]) is equivalent to the output VAT on
his sales to government.
 ILLUSTRATION

X Company had VATable sales amounting to P200,000 and

sales to government amounting to P100,000, both
exclusive of VAT. During the month, X Company paid rent
amounting to P75,000 and purchases directly attributable
to its regular sales and sales to government amounting to
P20,000 and P50,000, respectively.

Input VAT on sales to government: the amount

claimed as tax credits amounts to P12,000:
• Final Withheld VAT: P5,000 (P100,000 * 5%) shall be
creditable against output VAT payable in full.
• Standard Input VAT: P7,000 (P100,000 * 7%)
 ILLUSTRATION

The input VAT from purchases pertaining to sales to

government amounts to P9,000, computed as follows:

1. Input tax directly attributable: P50,000 * 12% = P6,000

2. Input tax allocated from rent (payment related to both
VATable and sales to government): P3,000
(P100,000/P300,000 * P9,000 input VAT on rent)

Since the actual input VAT pertaining to sales to

government is P9,000 (P6,000 + P3,000) and exceeds the
standard input VAT of P7,000, the difference of P2,000
will be recorded as expense or cost,
 ILLUSTRATION

Input VAT on VATable sales: the amount claimed

as tax credits amounts to P8,400.

• Input tax directly attributable to VATable sales:

P20,000 * 12% = P2,400
• Input tax allocated from rent: P6,000
(P200,000/P300,000 * P9,000 input VAT on rent)
 ILLUSTRATIO Output VAT @12%
N VATable sales 200,00 24,00
0 0

Sales to government 100,00 12,00 36,000

0 0
VAT Payable: P15,600,
computed as follows: Creditable Input VAT

Domestic Purchases of Goods 70,000 (8,400

* )

Payment of Rent 75,000 (9,000

)

Final Withheld VAT (5,000

)

Excess of Standard Input VAT over

Input VAT attributable to sales to
government
2,000 (20,40
0)

VAT Payable 15,600

 ILLUSTRATIO
N
Output VAT 36,000

Creditable Input VAT

Alternatively:
Pertaining to VATable 8,400
sales

Pertaining to Sales to 12,000 (20,400

Government )

VAT Payable 15,600

 ILLUSTRATIO
N

Output VAT on VATable sales

Still, alternatively: 24,000
only

Creditable input VAT (8,400)

pertaining to VATable sales
only

VAT Payable 15,600

 ILLUSTRATION

If, however, the purchases directly

attributable to sales to government
amounts only to P10,000:

The Input VAT that may be claimed as tax credit

relating to sales to government is still P12,000,
composed of the P5,000 Final Withheld VAT and
P7,000 standard input VAT.
 ILLUSTRATION

The actual input tax from purchases attributable to such

sales shall only be P4,200, computed as follows:

• Input tax directly attributable: P10,000 * 12% = P1,200

• Input tax allocated from rent (payment related to both
VATable and sales to government): P3,000

Since the actual input VAT now is less than the P7,000
standard input VAT, the difference of P2,800 is then
reported as additional income or a reduction in
cost/expense
 ILLUSTRATIO OUTPUT VAT @12
N %

VATable sales 200,0 24,00

00 0
VAT Payable: P15,600 Sales to government 100,0 12,00 36,000
00 0

Creditable Input VAT

Domestic Purchases of Goods 30,00 (3,600

0* )

Payment of Rent 75,00 (9,000

0 )

Final Withheld VAT (5,000

)

Excess of Standard Input VAT (2,80 (20,40

over Input VAT attributable 0) 0)
to sales to government
 Beginning January 1, 2021, the VAT
withholding system under this
subsection shall shift from final to
a creditable system.

There is no longer a need to

compare the standard input VAT
(7% of sales to government)
with the amount of input VAT
TRAIN actually attributable to the
AMENDMENT sales to government, since any
difference will no longer be
indicated in the VAT return and
would thus not affect the VAT
payable computation. This is the
effect of the shift from the final to
the creditable system, since the 5%
withheld VAT is CREDITABLE, there
is no longer a concept of the 7%
 ILLUSTRATION

Company had VATable sales to government

amounting to P100,000 and to other entities
amounting to P200,000, both exclusive of VAT.
During the month, X Company paid rent
amounting to P75,000 and purchases directly
attributable to its regular sales and sales to
government amounting to P20,000 and P50,000,
respectively. How much is the VAT payable?
 Output VAT @12%
Sales to other entities 200,00 24,000
0
Sales to government 100,00 12,000 36,000
0
ILLUSTRATIO Creditable Input VAT
N Domestic Purchases of Goods 70,000 (8,400)
Payment of Rent 75,000 (9,000)
Creditable Withheld VAT (5% of (5,000)
sales to government)
Excess of Standard Input
VAT over Input VAT
attributable to sales to NIL (22,40
government 0)
VAT Payable 13,600
 Sec. 114-2 of RR No. 16-05, as
amended, provides that private
corporations, individuals, estates
and trusts, shall withhold 12% VAT
with respect to the following
payments:

WITHHOLDING VAT 1. Lease or use of properties or

ON NON-RESIDENTS property rights owned by non-
residents;
2. Services rendered to local
insurance companies, with
respect to reinsurance premiums
payable to non-residents; and
3. Other services rendered in the
Philippines by non-residents.
 The VAT withheld and remitted to the
BIR:
• VAT-registered withholding agent -
may claim as input tax credit the
amount remitted to the BIR. The BIR
WITHHOLDING VAT Form No. 1600 shall serve as the proof
or documentary substantiation for the
ON NON-
claimed input tax or input VAT.
RESIDENTS
• Non-VAT taxpayer – passed-on VAT
evidenced by the duly filed BIR Form
No. 1600 shall form part of the cost or
purchased services, which may be
treated either as an “asset” or
“expense,” whichever is applicable.
 ERRONEOUS ISSUANCE OF
VAT OR/INVOICE

1. If a person who is not a VAT-registered person

issues an invoice or receipt showing his TIN,
followed by the word “VAT”, shall be liable for:
a. The VAT on said transaction without the
benefit of any input tax credit; and
b. 50% surcharge.

The VAT on said transaction may be creditable to

the VAT-registered buyer provided it is properly
substantiated.

2. If a VAT-registered person issues a VAT invoice or

VAT OR for a VAT-exempt transaction, but fails to
display prominently on the invoice or receipt the
term “VAT-exempt sale,” the issuer shall be liable
to account for the VAT
 TRANSITIONAL INPUT VAT

First time VAT taxpayers shall be entitled to the

transitional input tax on the inventory on hand
as of the effectivity of VAT registration, on the
following:
• Goods purchased for resale in their present
condition;
• Material purchased for further processing, but
which have not yet undergone processing;
• Goods which have been manufactured by the
taxpayer;
• Goods in process for sale; or
• Goods and supplies for use in the course of the
 AMOUNT OF TRANSITIONAL
INPUT TAX: shall be whichever is
higher between:
• 2% of the value of the beginning
inventory on hand or
• Actual VAT paid on such goods,
TRANSITIONAL materials and supplies.
INPUT VAT

VALUATION: The value of the goods

allowed for income tax purposes shall
be the basis for the computation of
the 2% transitional input tax,
including goods that are exempt from
VAT under Sec. 109 of the NIRC.
 Presumptive Input VAT is 4% of the
purchases of primary agricultural products
(which are supposedly VAT-exempt, being
agricultural food products in their original
state) and is available only for taxpayers
engaged in the following activities:
1. Processing of Sardines, Mackerel and Milk.
2. Manufacturing of Refined sugar, Cooking
PRESUMPTIVE oil and Packed noodle-based instant meals
INPUT VAT

LIMITED TO AGRICULTURAL PRODUCTS:

note that the last part of Sec. 111(B)(1)
provides for purchases of primary
agricultural products. Thus, the purchase of
sardines and mackerel, being marine
products may not be entitled to presumptive
input VAT.
 CLAIM FOR REFUND OF
EXCESS INPUT TAXES: may be
attributable to:
• Excess input tax attributable to
INPUT VAT
zero-rated sales which have not
REFUND been applied to any output tax;
• Unused input tax and the
taxpayer desires to cancel its/his
VAT registration.
 REQUISITES:
• There must be zero-rated or
effectively zero-rated sales;
• That input taxes were incurred or
paid;

INPUT VAT REFUND • That such input VAT payments are

REL ATED TO ZERO - directly attributable to zero-rated
RATED S ALES sales or effectively zero-rated sales;
• That the input VAT payments were
not applied against any output VAT
liability; and
• That the claim for refund was filed
within the two-year prescriptive
period.
 1. An administrative claim must be filed with the
CIR within two years after the close of the
taxable quarter when the zero-rated or effectively
zero-rated sales were made.
2. The CIR has 120 days from the date of
submission of complete documents in support
of the administrative claim within which to decide
whether to grant a refund or issue a tax credit
certificate. The 120-day period may extend
beyond the two-year period from the filing of
INPUT VAT the administrative claim if the claim is filed in the
later part of the two-year period. If the 120-day
REFUND period expires without any decision from the CIR,
REL ATED TO then the administrative claim may be considered to
be denied by inaction.
ZERO -RATED
3. A judicial claim must be filed with the CTA within
SALES 30 days from the receipt of the CIR’s decision
denying the administrative claim or from the
expiration of the 120-day period without any action
from the CIR.
4. All taxpayers, however, can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in
Aichi on 6 October 2010, as an exception to the
mandatory and jurisdictional 120+30 day periods.
(Mindanao II Geothermal Partnership vs.
 TRAIN AMENDMENT:
• The period allowed for the BIR to
grant or deny applications for
INPUT VAT refund is now 90 days (no
REFUND longer 120 days).
REL ATED TO • The BIR is now required to
ZERO -RATED
SALES provide the factual and legal
bases for denial, if such be the
case, as there is no more
“deemed denial” in case the
said period expires.
 Deadlines for the filing of the VAT
Return shall be:

Monthly VAT Return (BIR Form No.

2550M) – 20th day following the close
COMPLIANCE of the month;

REQUIREMENT
S Quarterly VAT Return (BIR Form No.
2550Q) – 25th day following the close
of the quarter.

TRAIN amendment: beginning January

1, 2023, the filing and payment
required under the Tax Code shall be
done within twenty-five (25) days
following the close of each taxable
quarter.
 SUMMARY LISTS

Summary Lists of Sales and Purchases: RR No. 1-

2012 required the mandatory submission of Summary
Lists of Sales and Purchases of ALL VAT-registered
taxpayers together with the quarterly VAT return.
END