Value-Added Tax (VAT)

I. Nature of VAT and Underlying Laws
II. Persons Liable to VAT
III. VAT-taxable transactions
IV. Transactions Deemed Sale
V. Changes in or cessation of VAT status
VI. Persons Exempt from VAT
VII. Exempt Transactions
VIII. Withholding VAT
IX. Input Taxes
X. Substantiation Requirements
XI. Treatment of Excess Input Tax
XII. Filing of VAT returns and Payment of VAT

 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.
 The seller is the one statutorily liable for the
payment of the tax but the amount of the tax may
be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services.
 In the case of importations, the importer is liable for
the VAT.
Under Revenue Regulation (RR) No. 16-2005

Title IV of NIRC of 1997
Section 105. Persons Liable. – Any person, who in
the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders
services, and any person who imports goods shall
be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.

1. Any person who, in the course of trade or
business,
 sells, barters, or exchanges goods or properties
(seller or transferor)
 leases goods or properties (lessor)
 renders services (service provider)
2. Imports goods (importer) – the person who
brings goods into the Philippines, whether or
not made in the course of trade or business

 In the course of trade or business: 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 not regular.

RMC No. 62-2005 dated October 18, 2005
Q37: How is VAT payable computed?
A37: The VAT payable is computed by deducting the allowable
input tax credit of a VAT registered taxpayer from his
output tax.
The amount of input tax not claimed as a credit against
output tax during the period shall be carried over to the
succeeding taxable period/s.

12% VAT 0% VAT VAT Exempt
Gross Sales/ Receipts XXX XXX XXX
Less: Sales Returns XXX
Sales Allowances XXX
Allowable Sales Discounts XXX XXX XXX XXX
Net XXX XXX XXX
12% 0% -
OUTPUT TAX XXX [A] 0 [A] -
Input tax carried over from previous period XXX XXX -
Domestic Purchases XXX
Importations XXX
Capital goods subject to
depreciation
XXX
Total XXX
12% XXX* XXX* -
INPUT TAX XXX [B] XXX [B] -
VAT PAYABLE/REFUNDABLE XXX [A-B] (XXX)[A-B] -
Note: All amounts in the formula are assumed to be net of VAT
*no longer subject to limitation (70% of output tax)

 Taxable
– General Rate: 12%
– Special Rate: 0%
 Exempt

 Sale of goods or properties
 Sale of services
 Importation of goods

VAT is imposed and collected on:
 Every sale, barter or exchange, or
 Transactions deemed sale of taxable goods or
properties.
Goods or Properties: all tangible and intangible
objects which are capable of pecuniary estimation

VAT base = the gross selling price or gross value in money of
the goods or properties sold, bartered, or
exchanged.
Gross selling price means total amount of money or its
equivalent which the purchaser pays or is obligated to pay to
the seller in consideration of the sale, barter or exchange of the
goods or properties, excluding VAT.
Gross selling price shall include:
1. Charges for packaging, delivery & insurance
2. Excise taxes if goods are subject to excise tax
Tax Base – Sale of Goods

Samson Bags sold travel bags to Santamaria Merchandising
with the following details:
Selling price of bags: PhP1,200,000.00 (w/o VAT)
Delivery cost: PhP10,000.00
Insurance over the bags: PhP50,000.00
The delivery cost and insurance are borne by Samson Bags.
Compute the 12% VAT.
Tax Base – Sale of Goods

Allowable deductions from gross selling price
 Sales Returns and Allowances - deduct from gross sales or
receipts in the month or quarter in which a refund or credit is
made for sales previously recorded as taxable sales.
 Sales Discount - may only be deducted from gross sales or
receipts within the same month/quarter it was given provided:
a. It is determined and granted at the time of sale
b. The discount is expressly indicated in the invoice
c. Amount thereof should form part of gross sales duly
recorded in the books
d. The granting of the discount does not depend on the
happening of a future event.
Tax Base – Sale of Goods

Output Tax
For sale of goods, the VAT shall be based on gross
sales. Thus, the following entries may be followed:
a. At the time of billing/sale
Dr Accounts Receivable xxx
Cr Sales xxx
Output Tax xxx
Journal Entries – Output Tax

b. Upon collection of receivable
Dr Cash xxx
Cr Accounts Receivable xxx
c. Sales returns
Dr Sales Returns and Allowances xxx
Output Tax xxx
Cr Cash/Accounts Receivable xxx
Journal Entries – Output Tax

On July 22, 2014, Samson Bags issued billing
statement to Santamaria Travels for the bags in
the total amount of PhP100,000.00, inclusive of
12% VAT. Santamaria Travels paid the
PhP100,000.00 on July 31, 2014.
Present the journal entries on July 22, 2014 and
July 31, 2014.
Journal Entries – Output Tax

On July 22, 2014, Samson Bags issued billing
statement to Santamaria Travels for the bags in
the total amount of PhP100,000.00, inclusive of
12% VAT. Santamaria Travels paid only
PhP80,000.00 on July 31, 2014 and returned one
(1) bag for being defective.
Present the journal entries on July 22, 2014 and
July 31, 2014.
Journal Entries – Output Tax

On July 22, 2014, Samson Bags issued billing
statement to Santamaria Travels for the bags in
the total amount of PhP10,900,000.00.
Santamaria Travels paid only PhP10,000,000.00
on July 31, 2014 and returned three (3) bags for
being defective.
Present the journal entries on July 22, 2014 and
July 31, 2014.
Journal Entries – Output Tax

 Sale of real properties held primarily for sale to customers or held for lease in
the ordinary course of trade or business of the seller shall be subject to VAT
 “Real estate dealer” – includes any person engaged in the business of buying,
developing, selling, exchanging real properties as principal and holding himself
out as a full or part-time dealer in real estate.
 Sale of
• residential lot with gross selling price exceeding P1,919,500
• residential house and lot or other residential dwellings with gross selling
price exceeding P3,199,200
where the instrument of sale (whether the instrument is nominated as a
deed of absolute sale, deed of conditional sale, or otherwise) is executed on
or after Nov. 1, 2005 shall be subject to 10% VAT, and starting Feb.1, 2006,
to 12% VAT.
TRAIN LAW:
Effective January 1, 2021 – sale of lot is taxable regardless of amount
Sale of residential dwellings – 2.0M

► RR No. 3-2012 dated February 20, 2012 amending RR No. 16-05, as
amended by RR No. 16-2011
 Sale of residential with gross selling price exceeding
P1,919,500.00, residential house & lot and other residential
dwellings with gross selling price exceeding P3,199,200.00,
where the instrument of sale (whether the instrument is
nominated as a deed of sale, deed of conditional sale or
otherwise) is executed and notarized on or after January 1,
2012 and shall be subject to 12% VAT.
However, for instruments executed and notarized on or after
November 1, 2005 but prior to January 1, 2012, the threshold
amounts should appropriately be P1.5M and P2.5M, respectively,
and selling price exceeding the thresholds shall be subject to 10%
VAT, and starting February 1, 2006, to 12% VAT.
Tax Base – Sale of Real Properties

► RR No. 13-2012 dated October 12, 2012, amending RR No. 16-05
 Whether or not subject to 12% VAT, adjacent residential
lots, house and lots or other residential dwellings although
covered by separate titles and/or separate tax declarations,
when sold or disposed to one and the same buyer, whether
covered by on or separate Deed/s of Conveyance, shall be
presumed as a sale of one residential lot, house and lot or
residential dwelling.
This however, does not include the sale of parking lot which may
or may not be included in the sale of condominium units. The sale
of parking lots in a condominium is a separate and distinct
transaction and is not covered by the rules on threshold amount
not being a residential lot, house and lot or a residential dwelling.
Thus, should be subject to VAT regardless of amount of selling
price.
Tax Base – Sale of Real Properties

Sale of real property on installment plan
► Means the 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.
► Output tax on the seller shall be recognized on the installment
payments received, including the interests and penalties for late
payment, actually and/or constructively received.
Sale of real property by a real estate dealer on a deferred payment basis
not on the installment plan
► Means sale of real property, the initial payments of which in the year of
sale exceed 25% of the gross selling price.
► Output tax shall be recognized by the seller and input tax shall accrue
to the buyer at the time of the execution of the instrument of sale.

“Initial payments” means
 Payment or payments which the seller receives before or upon
execution of the instrument of sale and payments which he
expects or is scheduled to receive in cash or property (other
than evidence of indebtedness of the purchaser) during the
taxable year when the sale or disposition of the real property
was made.
 It covers any down payment made and includes all payments
actually or constructively received during the year of sale, the
aggregate of which determines the limit set by law.
 Exclude amount of mortgage on the real property sold except
when such mortgage exceeds the cost or other basis of the
property to the seller, in which case, the excess shall be
considered part of the initial payments.
 Exclude notes or other evidence of indebtedness issued by the
purchaser to the seller at the time of the sale.

RMC No. 3-96 dated January 15, 1996
There are two ways of determining the percentage of the initial
payment over the contract price:
► Add the down payment and the scheduled principal
amortization during the year of sale and divide the sum by
the total contract price, or
► Add the down payment and the scheduled amortizations
(principal plus interest) during the year of sale and divide
the sum by the aggregate of the down payment and the
total amortization for the entire contract, including
interest.
If either test results to more than 25% then it is a sale on the deferred
payment plan; otherwise, it is a sale on the installment plan.

Ms. A. purchased a house and lot from Filinvest Inc. in 2014 with the
following details:
Total purchase price: PhP20,000,000
Years to pay: 5 years with 10% interest per annum
Schedule of payments:
-Downpayment on February 28, 2014: PhP2,000,000
-Monthly principal amortization in 2014 (beg. March): PhP200,000
-Monthly amortization with interest in 2014 (beg. March): PhP380,000
-Total amortization with interest for whole contract: PhP22,800,000

Gross Selling Price
► Consideration stated in the sales document or the fair
market value, whichever is higher.
► If the VAT is not billed separately in the document of sale,
the selling price or the consideration stated therein shall
be deemed to be inclusive of VAT.
► FMV shall mean the higher of:
 FMV determined by Commissioner (zonal value)
 FMV shown in schedule of values of the Provincial and City
Assessors (real property tax declaration)

Gross Selling Price (cont’d)
► In the absence of zonal value, gross selling price refers to
the market value shown in the latest real property tax
declaration or the consideration, whichever is higher.
► If gross selling price is based on zonal value or market
value of property, the zonal or market value shall be
deemed exclusive of VAT.
► Thus, the zonal value/market value, net of the output VAT,
should still be higher than the consideration in the
document of sale, exclusive of the VAT.

Example:
Selling price in the sales document P4,000,000
(exclusive of VAT)
Zonal value P5,000,000
Market value in the latest RPT declaration P6,000,000
Question: What should the VAT base be?
VAT base: Should be P6,000,000

Example:
Selling price in the sales document P10,000,000
Zonal value P 8,000,000
Market value in the latest RPT declaration P 6,000,000
Question: What should the VAT base be?

Solution:
VAT base should be:
Note: Selling price did not show VAT separately. So deemed inclusive
of VAT.
1.12
8,928,571 (highest amount)
10,000,000
=

Sale of real property on installment plan
► In case of installment sale, the seller shall be subject to output
VAT on the installment payments received, including the
interests and penalties for late payment, actually and/or
constructively received, subject to the provisions of Sec. 4.106-
4* of RR 16-2005 as amended. (*Section 4.106-4 refers to the
definition of gross selling price)
► The buyer of the property can claim the input tax in the same
period that the seller recognized the output tax.
► Installment payments, including interests and penalties, actually
and/or constructively received starting February 1, 2006 shall
be subject to 12% output VAT

Sale of real property on installment plan
► If zonal value/fair market value > consideration/selling
price (exclusive of the VAT):
* Appearing in the Contract to Sell / Contract of Sale.
** Zonal Value or FMV at time of execution of Contact to Sell / Contract of
Sale at the inception of the Contract.
VAT = x
Zonal value
or FMV**
x 12%
Actual Collection of the Consideration (exclusive of the VAT)
Agreed consideration* (exclusive of the VAT)

Sale of real property on installment plan
► Since output VAT (based on the market value of the
property) > output VAT (based on consideration/selling
price in the sales document, exclusive of the VAT), input
VAT will be:
Input VAT = Separately billed output VAT in the sales
document issued by the seller
► Thus, the output VAT which is based on the market value
must be:
 billed separately by the seller in the sales document
 with specific mention that the VAT billed separately is based
on the market value of the property.

Example:
Facts:
ABC Corporation sold land to XYZ Company on July 1, 2012.
Selling Price = P10 million plus VAT
Monthly Installment = P100,000 plus VAT
Zonal Value at time of sale = P15 million
Problem:
Compute output VAT due on installment payment.

Solution:
► Selling price is the amount of consideration in a contract of sale
between the buyer and seller or the total price of the sale which
may include cash or property and evidence of indebtedness
issued by the buyer, excluding the VAT.
x 12%
Actual Collection (exclusive of the VAT)
Agreed consideration (exclusive of the VAT)
x Zonal value

Sale of real property by a real estate dealer on a deferred payment
basis not on the installment plan
► The transaction shall be treated as cash sale which makes the
entire selling price taxable in the month of sale.
► Output tax shall be recognized by the seller and input tax shall
accrue to the buyer at the time of the execution of the instrument
of sale.
► Payments subsequent to "initial payments" shall no longer be
subject to output VAT.
► Pre-selling of real estate properties by real estate dealers shall be
subject to VAT in accordance with the rules prescribed above.

1. The following data are taken from the books of accounts of a
VAT-registered taxpayer for the month of July 2013:
Sales (inclusive of 12% VAT): PhP2,000,000
VATable purchases (inclusive of 12% VAT): PhP800,000
Excess input VAT as of end of 2nd quarter: PhP25,000
Compute the VAT payable for the month of July 2013.

2. The following data are taken from the books of accounts of a
VAT-registered taxpayer for the 3rd quarter of 2013:
Sales (inclusive of 12% VAT): PhP20,000,000
VATable purchases (inclusive of 12% VAT): PhP5,000,000
Excess input VAT as of end of 2nd quarter: PhP2,500,000
Compute the VAT payable for the 3rd quarter of 2013.

1. Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in the
course of business;
e.g. Withdrawal of goods from business for personal use of a
VAT-registered person

2. Distribution or transfer to:
a) Shareholders or investors as share in the profits of the
VAT-registered person
 Property dividends which constitute stocks in trade or
properties primarily held for sale or lease declared out
of retained earnings on or after January 1, 1996 and
distributed by the company to its shareholders shall be
subject to VAT based on the zonal value or fair market
value at the time of distribution, whichever is
applicable.
b) Creditors in payment of debt or obligation.

3. Consignment of goods if actual sale is not made within 60 days
following the date such goods were consigned;
• Consigned goods returned by the consignee within
the 60-day period are not deemed sold.

4. Retirement from or cessation of business, with respect to all
goods on hand, whether capital goods, stock-in-trade, supplies
or materials as of the date of such retirement or cessation,
whether or not the business is continued by the new owner or
successor. The following circumstances shall, among others, give
rise to transactions “deemed sale”:
• Change of ownership of the business. There is a
change in the ownership of the business when a
single proprietorship incorporates; or the proprietor
of a single proprietorship sells his entire business.
• Dissolution of a partnership and creation of a new
partnership which takes over the business.

RR No. 16-2005
 Transmission of property to a trustee shall not be subject to VAT if the
property is to be merely held in trust for the trustor and/or beneficiary.
(RR 7-95)
 However, if the property transferred is one for sale, lease or use in the
ordinary course of trade or business and the transfer constitutes a
completed gift, the transfer is subject to VAT as a deemed sale
transaction pursuant to Sec.4.106-7(a)(1) of these Regulations.
 The transfer is a completed gift if the transferor divests himself
absolutely of control over the property, i.e., irrevocable transfer of
corpus and/or irrevocable designation of beneficiary.

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.
 e.g., A VAT-registered person engaged in a taxable
activity like wholesaler or retailer who decides to
discontinue such activity and engages instead in life
insurance business or in any other business not subject
to VAT;
2. Approval of a request for cancellation of registration
due to reversion to exempt status.

3. Approval or a request for cancellation of registration
due to a desire to revert to 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 (as amended by RA 9337)
Changes in or cessation of VAT status
Sec. 109 (2): A VAT-registered person may elect that Subsection (1) not
apply to its sale of goods or properties or services. Provided, That an
election made under this Section shall be irrevocable for a period of 3 years
from the quarter the election was made. (Subsection (1) enumerates
transactions that are exempt from VAT).

1. Change of control of a corporation by the acquisition of the
controlling interest of such corporation by another stockholder
(individual or corporate) or group of stockholders.
•The goods or properties used in business (including
those held for lease) or those comprising the stock-in-
trade of the corporation having a change in corporate
control will not be considered sold, bartered or
exchanged despite the change in the ownership interest
of the corporation.
•Exchange of goods or properties including the real
estate properties used in business or held for sale or for
lease by the transferor, for shares of stocks, whether
resulting in corporate control or not, is subject to VAT.
The VAT shall not apply to goods or properties which are originally intended
for sale or for use in the course of business existing as of the occurrence of
the following: (as amended by RR No. 10-2011 dated July 1, 2011)

Example:
 A Corporation is a merchandising concern and has an inventory of
goods for sale amounting to P1 million
 N Corporation, a real estate developer, will exchange its real
properties for the shares of A Corp. As a result, N Corp. will
acquire corporate control.
A Corporation
(Mdsg business)
P1 million inventory
N Corporation
(Real estate developer)
Shareholders of A Corp.
Shares of A Corp.
Real estate held for sale /lease
• Exchange will lead to Corporate
Control by N of A Corp.

 A Corp’s inventory of goods is not subject to VAT
despite the change in corporate control because A
Corp. still owns these goods. The personality of
the corporation is separate and distinct from its
stockholders.
 However, N Corp’s exchange of real estate
properties held for sale or for lease, for shares of
stock, whether resulting to corporate control or
not, is subject to VAT. This is because there is an
actual exchange of properties.

2. Change in the trade name 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 merger or consolidation, shall be
absorbed by the surviving or new corporation.

 Transactions deemed sale:
− The Commissioner of Internal Revenue shall determine the
appropriate tax base in deemed sale transactions or where
the gross selling price is unreasonably lower than the actual
market value.
− 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 on or nearest the date of
sale.
− Nonetheless, if one of the parties in the transaction is the
government as defined and contemplated under the
Administrative Code, the output VAT on the transaction shall
be based on the actual selling price.
Tax Base – Deemed Sales

− For transactions deemed sale, the output tax shall be
based on the market value of the goods deemed sold as of
the time of the occurrence of the transactions enumerated
in Sec. 4.106-7(a)(1),(2), and (3).
− In the case of a sale where the gross selling price is
unreasonably lower than the fair market value, the actual
market value shall be the tax base.
 For retirement or cessation of business, tax base shall be
acquisition cost or the current market price of the goods or
properties, whichever is lower.
Tax Base – Deemed Sales

In General:
► VAT is imposed on goods brought into the Philippines,
whether for use in business or not.
► The tax is based on the total value used by the Bureau of
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 of the imported goods,
the landed cost shall be the basis for computing VAT.
► Landed cost consists of the invoice amount, customs 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.
► The same rule applies to technical importation of goods sold
by a person located in a Special Economic Zone to a customer
in a customs territory.

► No VAT shall be collected on importation of goods which are
specifically exempted under Sec. 109 of the Tax Code
► Section 109(A): sale or importation of agricultural and marine
food products in their original state, livestock and poultry, etc.
► Section 109(B): sale or importation of fertilizers, seeds,
seedlings and fingerlings, fish, prawn, livestock and poultry
feeds
► Importation of personal and household effects belonging to
the residents of Philippines returning from abroad and
nonresident citizens coming to settle in the Philippines
► The VAT on importation shall be paid by the importer prior to the
release of such goods from customs custody.

Transfer of Goods by Tax-exempt Persons:
► In the case of goods imported into the Philippines by VAT-exempt
persons, entities, or agencies which are subsequently sold, transferred
or exchanged in the Philippines to non-exempt persons or entities, the
latter shall be considered the importers thereof, and shall be liable for
the VAT due on such importation. The tax due on such importation shall
constitute a lien on the goods, superior to all charges/liens, irrespective
of the possessor of said goods.
VAT on Subsequent Sale of Tax-Free Importations

 Services: the performance of all kinds of services in
the Philippines for others for a fee, remuneration
or consideration whether in kind or in cash.
 This includes the use or lease of properties

VAT base = Gross Receipts
“Gross receipts” refers to
► 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 applied as payments for services rendered and
► Advance payments
► Actually or constructively received during the taxable period
► For the services performed or to be performed for another
person,
► Excluding VAT
Tax Base – Sale of Services

"Gross receipts" refers to
 Excludes:
1) amounts earmarked for payment to unrelated third (3rd)
party, or
2) amounts received as reimbursement for advance payment
on behalf of another which do not redound to the benefit
of the payor.
Tax Base – Sale of Services

 "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.
 Examples:
a. deposit in banks which are made available to the seller
of services without restrictions;
b. 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
c. transfer of the amounts retained by the contractee to
the account of the contractor.
Tax Base – Sale of Services

► A payment is a payment to a third (3rd) party if:
− the same is made to settle an obligation of another
person, e.g., customer or client, to the said third party,
− which obligation is evidenced by the sales
invoice/official receipt issued by said third party to the
obligor/debtor (e.g., customer or client of the payor of
the obligation).
► An advance payment is an advance payment on behalf of another if:
− the same is paid to a third (3rd) party
− for a present or future obligation of said another party
− which obligation is evidenced by a sales invoice/official
receipt issued by the obligee/creditor to the
obligor/debtor (i.e., the aforementioned "another party")
for the sale of goods or services by the former to the
latter.
Tax Base – Sale of Services

► Unrelated party' shall not include:
− taxpayer's employees, partners, affiliates (parent,
subsidiary and other related companies),
− relatives by consanguinity or affinity within the fourth (4th)
civil degree, and
− trust fund where the taxpayer is the trustor, trustee or
beneficiary (even if covered by an agreement to the
contrary.)
Tax Base – Sale of Services

The BIR, in VAT Ruling No. 186-90 dated August
17, 1990, suggested the following entries:
a. At the time of billing/sales
Dr Accounts Receivable xxx
Cr Income xxx
Deferred Output Tax xxx
b. Upon collection of receivable and to record
output VAT
Dr Cash xxx
Deferred Output Tax xxx
Cr. Accounts Receivable xxx
Output Tax xxx
Journal Entries – Sale of Services

 Includes services performed or rendered by
[Section 108(A), Tax Code] :
a) construction and service contractors
b) stock, real estate, commercial, customs and
immigration brokers (Amended by RA No. 9010,
effective January 1, 2003 and included in RA 9337)
c) lessors of property, whether personal or real
Sale or Exchange of Services

d) warehousing services
e) lessors or distributors of cinematographic films
f) persons engaged in milling, processing, manufacturing or repacking
goods for others
g) proprietors, operators, or keepers of hotels, motels, resthouses,
pension houses, inns, resorts, theaters and movie houses
h) proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers
i) dealers in securities
j) lending investors

k) transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for
hire and other domestic common carriers by land relative to
their transport of goods or cargoes
l) 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 the Philippines
m) sales of electricity by generation, transmission
and/or distribution companies

n) franchise grantees of electric utilities, telephone and
telegraph, radio and/or television broadcasting and all
other franchise grantees except those under Section 119
of this Code, (Section 119 refers to franchise grantees of
radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed P10 million,
and franchise grantees of gas and water utilities).
o) non-life insurance companies (except their crop
insurances) including surety, fidelity, indemnity and
bonding companies
p) similar services regardless of whether or not the
performance thereof calls for the exercise or use of the
physical or mental faculties

Effective January 1, 2003, pursuant to R.A. No. 9010 & RR No. 1-2002, as
amended by RR No. 3-2003, the following became subject to VAT:
► persons engaged in the practice of profession or calling by individuals
subject to professional tax under the Local Government Code or R.A. No.
7160 and professional services rendered by general professional
partnerships;
► actors, actresses, talents, singers and emcees;
► radio and television broadcasters and choreographers;
► musical, radio, movie, television and stage directors;
► professional athletes;
► customs, real estate, stock, immigration and commercial brokers;
Sale or Exchange of Services

► The list of exemptions under RA No. 9337 (effective Nov. 1,
2005) does not include services rendered by doctors duly
registered with PRC and by lawyers duly registered with IBP.
These were deleted from the previous list of exemptions.
► Thus, services rendered by these professionals are now
subject to VAT.
VAT on Doctors and Lawyers

RMC No. 6-2003 dated January 15, 2003
Profession or calling subject to professional tax under the local
government code
► refers to profession requiring passage in a government
examination before a person can engage in the exercise
thereof such as the one which requires license from the PRC
or other government agencies, or the practice of law in the
Philippines authorized by the Supreme Court.
VAT on Professionals

► Out-of-pocket expenses/advances for clients are not considered
professional fees subject to VAT, provided the following conditions
are met:
– They are mere reimbursements of costs and are
chargeable to the client.
– The official receipts for the expenses are billed in the
name of the client and therefore can be claimed only
by the client as an item of deduction.
– The partnership advances only the amount for future
liquidation by the client.
– The collection of out-of-pocket expenses must be
recorded as liquidation of advances for and on behalf
of clients.
VAT on Professionals

RMC No. 9-2006 dated January 25, 2006
Characteristics of Brokers (and other similar businesses)
► Incurs reimbursable expenses and/or advances payments, on
behalf of customers, to answer for certain expenses such as
arrastre, wharfage, documentation, trucking, handling
charges, storage fees, duties and taxes, etc.
► In billing Customers for their services, the brokers include in
said billing these reimbursable expenses and/or advance
payments made.
VAT on Brokers and Others Similarly Situated

RMC No. 9-2006 dated January 25, 2006 (cont’d)
► These are recorded as RECEIVABLE FOR CASH ADVANCES ON
BEHALF OF CUSTOMERS.
► However, treatment for tax purposes by the payor (broker) of
the advanced payments or reimbursable expenses on behalf
of a customer may differ depending on manner of receipting
or issuing Receipt for said advanced payments/reimbursable
expenses by both the third-party service provider and the
broker.
VAT on Brokers and Others Similarly Situated

VAT Treatment
► If the reimbursable expenses and/or advanced payments for certain
expenses (e.g., arrastre, wharfage, documentation, trucking,
handling charges, storage fees, duties and taxes, etc.) made by
brokers on behalf of their Customers are receipted with the
brokers’ VAT official receipt, the same shall be subject to 12% VAT.
► If the said reimbursable expenses and/or advanced payments are
lumped/billed together with the brokerage fees in one VAT official
receipt issued by the brokers to their Customers, regardless of
whether such reimbursable expenses and/or advanced payments
have been specifically broken down or itemized in the brokers VAT
official receipt, the same shall be subject to 12% VAT.
VAT on Brokers and Others Similarly Situated

• “Real estate lessor” includes any person engaged in the business of leasing
or subleasing real property.
• Lease of property shall be subject to VAT 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.
• 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.
• “Non-resident lessor/owner” refers to any person, natural or juridical, an
alien, or a citizen who establishes to the satisfaction of the Commissioner of
Internal Revenue the fact of his physical presence abroad with a definite
intention to reside therein, and who owns/leases properties, real or personal,
whether tangible or intangible, located in the Philippines.
VAT on Lessors of Property

 VAT base = gross receipts from the lease of
properties
 In a lease contract, the advance payment by the
lessee may be:
• A loan to the lessor from the lessee, or
• An option money for the property, or
• A security deposit to insure the faithful performance of
certain obligations of the lessee to the lessor, or
• Pre-paid rental

 If the advance payment is actually a loan to the lessor, or an
option money for the property, or a security deposit for the
faithful performance of certain obligations of the lessee, such
advance payment is not subject to VAT.
 Security deposits in lease contracts are subject to VAT when
applied to rental at the time of its application.
 If the advance payment constitutes a prepaid rental, then such
payment is taxable to the lessor in the month when received,
irrespective of the accounting method employed by the lessor.

 All receipts from service, hire, or operating lease of transportation
equipment not subject to the percentage tax on domestic common
carriers and keepers of garages imposed under Sec. 117 of the Tax
Code shall be subject to VAT.
 “Common carrier” refers to persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public and shall
include transportation contractors.

 Common carriers by land with respect to their gross receipts from
the transport of passengers including operators of taxicabs, utility
cars for rent or hire driven by the lessees (rent-a-car companies),
and tourist buses used for the transport of passengers shall be
subject to the percentage tax imposed under Sec. 117 of the Tax
Code, but shall not be liable for VAT.
 Domestic common carriers by air and sea are subject to 12% VAT
on their gross receipts from their transport of passengers, goods,
or cargoes from one place in the Philippines to another place in the
Philippines.

► Sale of electricity by generation, transmission, and distribution companies
shall be subject to 12% VAT on their gross receipts;
► Provided, That sale of power or fuel generated through renewable sources of
energy such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels shall be subject to 0%
VAT.
RR No. 16-2005
VAT on Sale of Electricity

Includes:
a. Total amount charged by generation companies for the sale of
electricity and related ancillary services; and/or
b. Total amount charged by transmission companies for transmission of
electricity and related ancillary services; and/or
c. Total amount charged by distribution companies and electric
cooperatives for distribution and supply of electricity, and related
electric service.
VAT on Sale of Electricity
“Gross Receipts” for the purpose of computing VAT on the sale of electricity
shall refer to the following:
Excludes: The universal charge passed on and collected by distribution
companies and electric cooperatives

► Services of franchise grantees of telephone and telegraph, radio and/or
television broadcasting, toll road operations and all other franchise
grantees, except gas and water utilities, shall be subject to VAT in lieu of
franchise tax, pursuant to Sec. 20 of RA No. 7716, as amended.
► However, franchise grantees of radio and/or television broadcasting
whose annual gross receipts of the preceding year do not exceed P10
million shall not be subject to VAT, but to the 3% franchise tax imposed
under Sec. 119 of the Tax Code, subject to the optional registration
provisions under Sec. 9.236-1(c).
VAT on Franchise Grantees

► Franchise grantees of gas and water utilities shall be subject to 2%
franchise tax on their gross receipts derived from the business covered
by the law granting the franchise pursuant to Sec. 119 of the Tax Code.
► Gross receipts of all other franchisees, other than those covered by Sec.
119 of the Tax Code, regardless of how their franchises may have been
granted, shall be subject to the 12% VAT imposed under Sec. 108 of the
Tax Code.
VAT on Franchise Grantees

RMC No. 8-2012 dated February 29, 2012 (in relation to Supreme
Court En Banc Decision, G.R. No. 172087 dated March 15, 2011)
► The SC En Banc Decision revokes certain provisions of RR No.
16-05 imposing a 10% VAT on the Philippine Amusement and
Gaming Corporation (PAGCOR) since PAGCOR is exempt from
VAT under RA No. 9337.
VAT on PAGCOR

The gross receipts on non-life insurance companies shall mean
total premiums collected, whether paid in money, notes, credits or
any substitute for money.
Non-life reinsurance premiums are not subject to VAT. (RR No.
04-2007 dated February 7, 2007)
Insurance and reinsurance commissions, whether life or non-life,
are subject to VAT.
The VAT due from the foreign reinsurance company is to be
withheld by the local insurance company and to be remitted to the
BIR by filing the monthly remittance return of VAT withheld (BIR
Form 1600).

VAT Ruling No. 6-2001 dated February 16, 2001
For non-life insurance companies, the computation of VAT on
premium should not include DST, fire service tax and local
government tax. The BIR shall not consider it a violation of
law and regulations for non-life insurance companies if the
tax base or the premium on its invoice will be separately
indicated to identify the amount of taxes properly pertaining
to VAT, DST, fire service tax and local taxes.

Pre-need Companies
 Are corporations registered with the Securities and Exchange
Commission and authorized/licensed to sell or offer for sale
pre-need plans, whether a single plan or multi-plan.
 They are engaged in business as seller of services providing
services to plan holders by managing the funds provided by
them and making payments at the time of need or maturity of
the contract.
 As service providers, the compensation for their services is
the premiums or payments received from the plan holders.
 Tax base = compensation for their services which is the
premiums of payments received from their planholders

 The phrase “sale or exchange of services” shall include:
1. The lease or the use of or the right or privilege to use
any copyright, patent, design or model, plan, secret
formula or process, goodwill, trademark, trade brand
or other like property or right;
2. The lease or the use of, or the right to use any
industrial, commercial, or scientific equipment;
3. The supply of scientific, technical industrial or
commercial knowledge or information;

4. The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enabling
the application or enjoyment of any such property, or
right as is mentioned in subparagraph (2) or any such
knowledge or information as is mentioned in
subparagraph (3);
5. The supply of services by a non-resident person or his
employee in connection with the use of property or
rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased
from such nonresident person;

6. The supply of technical advice, assistance or services
rendered in connection with technical management or
administration of any scientific, industrial or
commercial undertaking, venture, project or scheme;
7. The lease of motion picture films, films, tapes, and
discs; and
8. The lease or the use of, or the right to use, radio,
television, satellite transmission and cable television
time.

► RMC No. 65-2012 dated October 31, 2012 – Clarifying the Taxability
of Association Dues, Membership Fees and other
Assessments/Charges Collected by Condominium Corporations
 The previous interpretation that the assessment dues are
funds which are merely held in trust by a condominium
corporation lacks legal basis and is now abandoned.
 Thus, the gross receipts of condominium corporation
including association dues, membership fees, and other
assessment charges are subject to VAT, income tax and
income payments to it are subject to applicable withholding
taxes under existing regulations.
Treatment of Reimbursements

1. Those engaged in transactions exempt from VAT
2. Those who entered into transactions incidental to VAT-
exempt activities
3. Those who entered into isolated transactions
Persons Exempt from VAT

In General
 “VAT exempt transactions” refer to the sale of goods or
properties and/or services and the use or lease of properties
that is not subject to VAT (output tax) and the seller is not
allowed any tax credit of VAT (input tax) on purchases.
 The person making the exempt sale of goods, properties, or
services shall not bill any output tax to his customers
because the said transaction is not subject to VAT.
Exempt Transactions

A. Sale or importation of agricultural and marine food products in
their original state, livestock and poultry of a kind generally used
as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefor.
B. Sale or importation of fertilizers; seeds, seedlings and fingerlings;
fish, prawn, livestock and poultry feeds, including ingredients,
whether locally produced or imported, used in the manufacture of
finished feeds (except specialty feeds for race horses, fighting
cocks, aquarium fish, zoo animals and other animals generally
considered as pets);

C. Importation of personal and household effects belonging to
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;

D. Importation of professional instruments and implements, wearing
apparel, domestic animals, and personal household effects
(except any vehicle, vessel, aircraft, machinery, other goods for
use in the manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to settle in
the Philippines, for their own use and not for sale, barter or
exchange, accompanying such persons, or arriving within ninety
(90) days before or after their arrival, upon the production of
evidence satisfactory to the Commissioner of Internal Revenue,
that such persons are actually coming to settle in the Philippines
and that the change of residence is bona fide;

E. Services subject to percentage tax under Title V;
F. Services by agricultural contract growers and milling for others of
palay into rice, corn into grits and sugar cane into raw sugar;
G. Medical, dental, hospital and veterinary services except those
rendered by professionals;
• Laboratory services are exempted. If the hospital or clinic operates
a pharmacy or drug store, the sale of drugs and medicine is subject
to VAT.
However, sales of drugs to in-patients of hospitals are considered part of
hospital services, which are exempt from VAT. (BIR Ruling DA 122-05
dated April 6, 2005)

H. Educational services rendered by private
educational institutions, duly accredited by the
Department of Education (DepEd), the
Commission on Higher Education (CHED), the
Technical Education and Skills Development
Authority (TESDA) and those rendered by
government educational institutions;
I. Services rendered by individuals pursuant to an employer-employee
relationship;
J. Services rendered by regional or area headquarters established in
the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific Region and do
not earn or derive income from the Philippines;

K. Transactions which are exempt under international agreements to
which the Philippines is a signatory or under special laws, except
those under Presidential Decree No. 529;
L. Sales by agricultural cooperatives duly registered and in good
standing 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;

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. (RR 4-2007)
M. Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered and in good standing with the
Cooperative Development Authority [deleted - whose lending
operation is limited to their members]

N. Sales by non-agricultural, non-electric and non-credit cooperatives
duly registered with and in good standing with the CDA: Provided,
That the share capital contribution of each member does not
exceed P15,000 and regardless of the aggregate capital and net
surplus ratably distributed among the members;
• Importation by these entities of machineries and
equipment, including related spare parts thereof to be
used by them, are subject to VAT.
O. Export sales by persons who are not VAT-registered;

P. The following sales of real properties:
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
sale to customers or held for 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.
2. Sale of real properties utilized for low-cost housing as
defined by RA No. 7279, otherwise known as the "Urban
Development and Housing Act of 1992" and other related
laws such as RA 7835 and RA 7863

3. Sale of real properties utilized for socialized housing as
defined under RA No. 7279 and other related laws, such as
RA No. 7835 and RA No. 8763, wherein the price ceiling per
unit is P225,000* or as may from time to time be determined
by the HUDCC and the NEDA and other related laws
RMC No. 36-2011 dated August 26, 2011
 Clarified that the P400,000 price ceiling for socialized housing applies
to house and lot packages, and that if only lots are sold, the price
ceiling should only be P160,000/lot (40% of P400,000)
*Threshold is now P450,000 for house and lot and for lot only,
PhP180,000

4. Sale of residential lot valued at P1,919,500.00 and below, or
house & lot and other residential dwellings valued at
P3,199,200.00 and below where the instrument of
sale/transfer/disposition was executed and notarized on or
after Jan. 1, 2012;
However, for instruments executed and notarized on or after
Nov. 1, 2005 but prior to Jan. 1, 2012, the threshold amounts
should appropriately be P1.5M and P2.5M, respectively.
Provided, 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 National Statistics
Office (NSO); Provided, further, that such adjustment shall be
published through revenue regulations to be issued not later
than March 31 of each year;

4. (cont.) If two or more adjacent residential lots are sold or
disposed in favor of one buyer, for the purpose of utilizing
the lots as one residential lot, the sale shall be exempt from
VAT only if the aggregate value of the lots do not exceed
P1,919,500.00. Adjacent residential lots, although covered by
separate titles and/or separate tax declarations, when sold or
disposed to one and the same buyer, whether covered by one
or separate Deed of Conveyance, shall be presumed as a sale
of one residential lot.

Q. Lease of residential units with a monthly rental per unit not
exceeding P12,800.00, regardless of the amount of
aggregate rentals received by the lessor during the year;
Provided, every three (3) years thereafter, the amount shall
be adjusted to its present value using the Consumer Price
Index, as published by the NSO; Provided, further, that
such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each
year;
R. Sale, importation, printing or publication of books and any
newspaper, magazine, review or bulletin which appears at
regular intervals with fixed prices for subscription and sale
and which is not devoted principally to the publication of
paid advertisements;

S. Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations;
Provided, that the exemption from VAT on the importation and
local purchase of passenger and/or cargo vessels shall be limited
to those of 150 tons and above including engine and spare parts
of said vessels;
Provided, further, that the vessels to be imported shall comply
with the age limit requirement, at the time of acquisition counted
from the date of the vessel’s original commissioning, as follows:
(i) 15 years old for passenger and/or cargo vessels, (ii) 10 years
old for tankers, and (iii) 5 years old for high-speed passenger
crafts

Importation of life-saving equipment, safety and rescue equipment
and communication and navigational safety equipment, steel plates
and other metal plates including marine-grade aluminum plates,
used for shipping transport operations
Importation of capital equipment, machinery, spare parts, life-
saving and navigational equipment, steel plates and other metal
plates including marine-grade aluminum plates to be used in the
construction, repair, renovation or alteration of any merchant
marine vessel operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the provisions of Section
19 of Republic Act No. 9295, otherwise known as ‘The Domestic Shipping
Development Act of 2004

T. Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations;
U. Services of banks, non-bank financial intermediaries performing
quasi-banking functions, and other non-bank financial
intermediaries; and
V. 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 do not exceed
the amount of P1,919,500.

► A VAT registered person may elect that the exemptions in Section
4.109-1(B) of RR 4-2007 (VAT Exempt Transactions) not apply to
his sales of goods or properties or services.
► Once the election is made, it shall be irrevocable for a period of 3
years counted from the quarter when the election was made except
for franchise grantees of radio and TV broadcasting whose annual
gross receipts for the preceding year do not exceed ten million
pesos (P10,000,000) where the option becomes perpetually
irrevocable.
Note: The wording in RA 9337 and RR 16-2005 is such that the person
must have already been VAT registered. He can then opt to subject exempt
sales to VAT.

1. Any person who is VAT exempt under Section 4.109 B 1 (v) of
RR 16-2005 (i.e., P1.5 million and below exemption), who is not
required to be VAT registered, may elect to be VAT registered.
2. Any person who is VAT-registered but enters into transactions
which are exempt from VAT (mixed transactions) may opt that
the VAT apply to his transactions which would have been
exempt under Section 109(1) of the Tax Code, as amended.
[Sec. 109(2)]
3. Franchise grantees of radio and/or television broadcasting
whose annual gross receipts of the preceding year do not
exceed ten million pesos (P10,000,000.00) derived from the
business covered by the law granting the franchise may opt for
VAT registration. This option, once exercised, shall be
irrevocable. (Sec. 119, Tax Code)
 Any person who elects to register under these subsections (1) and (2)
above shall not be allowed to cancel his registration for the next three
(3) years.
Optional Registration of VAT-Exempt Persons

 Transactions incidental to VAT-exempt activities
are also VAT-exempt.
 Isolated transactions can be exempt from VAT.

Zero-rated Sales

Zero-rated sales Exempt
Sales which are subject to VAT at
0% rate.
Sales which are not subject to VAT
Input taxes allocable/ attributable
to the zero-rated sale may be
claimed as input tax credit
Input taxes allocable/ attributable
to the VAT exempt sale cannot be
claimed as input tax credit but
shall form part of costs.

► An automatically zero-rated sale refers to a sale of goods,
properties and services by a VAT-registered seller/supplier
that is regarded as either an export sale or a foreign currency
denominated sale under Section 106 of the Tax Code of 1997.
► An effectively zero-rated sale, on the other hand, refers to the
local sale of goods, properties and services by a VAT-
registered person to an entity that was granted indirect tax
exemption under special laws or international agreements.
Since the buyer is exempt from indirect tax, the seller cannot
pass on the VAT and therefore, the exemption enjoyed by the
buyer shall extend to the seller, making the sale effectively
zero-rated.
(RMC 50-2007)
Types of Zero-Rated (0%) Sales

RR 4-2007 (Section 4.106-6)
► Effectively Zero-rated Sale of Goods and Properties — The
term "effectively zero-rated sale of goods and properties"
shall refer to the local sale of goods and properties by a
VAT-registered person to a person or entity who was
granted indirect tax exemption under special laws or
international agreement.
RR 4-2007 (Section 4.108-6)
► Effectively Zero-Rated Sale of Services — The term
"effectively zero-rated sales of services" shall refer to the
local sale of services by a VAT-registered person to a
person or entity who was granted indirect tax exemption
under special laws or international agreement.
Types of Zero-Rated (0%) Sales

*The supplier was required to apply for effective zero-rating of their sales in
order for the transaction to be zero-rated. Without an approved application,
the transaction was merely considered exempt.
Automatic Zero- Rating Effective Zero-Rating
Before RA 9337 (before
Nov.1 2005)
No application for zero-
rating needed
Application for effective
zero-rating needed*
except for select sales
such as sales to PEZA,
sales to BOI registered
100% manufacturer-
exporter.
RA 9337 up to before
RR 4-2007 (Nov. 1,
2005 to April 5, 2007)
No application for zero-
rating needed.
Application for effective
zero-rating needed.* (No
more exceptions for sales
to PEZA, etc.).
RR 4-2007 (April 6,
2007)
No application for zero-
rating needed.
No application for
effective zero-rating
needed.

The following sales of goods or properties by VAT-registered
persons shall be subject to zero percent (0%) rate:
a. Export Sales
1. The sale and actual shipment of goods from the Philippines
to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence
or determine the transfer of ownership of the goods so
exported, paid for in acceptable foreign currency or its
equivalent in goods or services, and accounted for in
accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP).

a. Export Sales (cont’d)
2. The sale of raw materials or packaging materials to a non-
resident buyer for delivery to a resident local export-oriented
enterprise to be used in manufacturing, processing, packing
or repacking in the Philippines of the said buyer's goods,
paid for in acceptable foreign currency, and accounted for in
accordance with the rules and regulations of the BSP.
3. The sale of raw materials or packaging materials to an
export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production. Any
enterprise whose export sales exceed 70% of the total annual
production of the preceding taxable year shall be considered
an export-oriented enterprise.
Zero-Rated Sales of Goods or Properties

a. Export Sales (cont’d)
4.Sale of gold to the BSP.
5.Transactions considered export sales under Executive
Order No. 226, otherwise known as the Omnibus
Investments Code of 1987, and other special laws.
Zero-Rated Sales of Goods or Properties

► For purposes of zero-rating export sales of registered export
traders shall include commission income.
► Exportation of goods on consignment shall not be deemed
export sales until the export products consigned are in fact
sold by the consignee.
► Provided, finally, that sales of goods, properties or services
made by a VAT-registered supplier to a BOI-registered
manufacturer/ producer whose products are 100% exported
are considered export sales.
► A certification to this effect must be issued by the Board of
Investment (BOI) which shall be good for one year unless
subsequently re-issued by the BOI.
Zero-Rated Sales of Goods or Properties

a. Export Sales (cont’d)
6. The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations;
– Provided, that the same is limited to goods, supplies, equipment
and fuel pertaining to or attributable to the transport of goods
and passengers from a port in the Philippines directly to a
foreign port, or vice versa, without docking or stopping at any
other port in the 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;
– Provided, further, that 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
subject to twelve percent (12%) output VAT starting February 1,
2006.
Zero-Rated Sales of Goods or Properties

b. Foreign Currency Denominated Sale
"Foreign Currency Denominated Sale" means the sale to a non-
resident of goods, except those mentioned in Secs. 149
(Automobiles) and 150 (Non-essential goods) of the Tax Code,
assembled or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the BSP.
Sales of locally manufactured or assembled goods for household
and personal use to Filipinos abroad and other non-residents of
the Philippines as well as returning Overseas Filipinos under the
Internal Export Program of the government paid for in
convertible foreign currency and accounted for in accordance
with the rules and regulations of the BSP shall also be
considered export sales.
Zero-Rated Sales of Goods or Properties

c. Sales to Persons or Entities Deemed Tax-exempt Under
Special Law or International Agreement
Sale of goods or property to persons or entities who are tax-
exempt under special laws or international agreements to
which the Philippines is a signatory, such as, Asian
Development Bank (ADB), International Rice Research
Institute (IRRI), etc., shall be effectively subject to VAT at
zero-rate.
Zero-Rated Sales of Goods or Properties

The following sales of services by VAT-registered persons shall be
subject to zero percent (0%) rate:
a. Processing, manufacturing or repacking goods for other
persons doing business outside the Philippines, which
goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP;
b. Services other than processing, manufacturing or repacking
rendered to a person engaged in business conducted
outside the Philippines or to a non-resident person not
engaged in business who is outside the Philippines when
the services are performed, the consideration for which is
paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP;

c. Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of
such services to zero percent (0%) rate;
Zero-Rated Sales of Services

d. Services rendered to persons engaged in international
shipping or air transport operations, including leases of
property for use thereof; Provided, however, that 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 the Philippines, the
same being subject to twelve percent (12%) VAT under Sec.
108 of the Tax Code starting Feb. 1, 2006;
e. Services performed by subcontractors and/or contractors
in processing, converting, or manufacturing goods for an
enterprise whose export sales exceed seventy percent
(70%) of the total annual production;
Zero-Rated Sales of Services

f. Transport of passengers and cargo by domestic air or sea
carriers from the Philippines to a foreign country. Gross
receipts of international air carriers doing business in the
Philippines and international sea carriers doing business in
the Philippines are still liable to a percentage tax of three
percent (3%) based on their gross receipts as provided for in
Sec. 118 of the Tax Code but shall not to be liable to VAT;
and
Zero-Rated Sales of Services

g. Sale of power or fuel generated through renewable
sources of energy such as, but not limited to, biomass,
solar, wind, hydropower, geothermal and steam, ocean
energy, and other emerging sources using technologies
such as fuel cells and hydrogen fuels; Provided, however,
that zero-rating shall apply strictly to the sale of power or
fuel generated through renewable sources of energy, and
shall not extend to the sale of services related to the
maintenance or operation of plants generating said power.
Zero-Rated Sales of Services

Withholding VAT

TOP PERFORMERS PRELIM EXAM
1. Mike Dela Serna – 94
2. Gavino Nunez – 93
Philamae Arcenal – 93
3. Mary Jane Libardo – 91
4. Lowell Lloyd Canete – 90
5. Maria Lourdes Bello – 89
6. Joney Cobacha – 87
7. Gene Paolo Lomugdang – 86
8. Aldrin Estimo – 84
9. Karl Aldwin Osorio - 81

TOP PERFORMERS PRELIM EXAM
1. Sarah Jean Eluna – 85
2. Joel Masiglat – 83
3. Christian Balabat - 81

a. On Payments to Nonresidents (creditable
withholding VAT)
b. On Payments by Government (final withholding
VAT)

1. Payments to non-residents, with respect to lease or use of
property or property rights in the Philippines owned by
such non-residents, are subject to withholding VAT. The
VAT shall be based on the contract price.
2. Other services rendered in the Philippines by non-residents
Services rendered in the Philippines, such as providing
assistance in establishing tender price of a project and
designing materials, by a non-resident, shall be subject to
the 10% (now 12%) withholding VAT. (Undated BIR Ruling
No. DA-487-11-11-98)

• The party required to withhold is the payor, regardless of whether or not
he is VAT-registered.
• The VAT is passed on to the resident withholding agent.
• The payor shall claim this as input tax upon filing of his own VAT return,
subject to the rule of allocation of input tax.
• VAT withheld shall be remitted within 10 days following the end of the
month the withholding was made
• The duly filed BIR Form 1600 is the proof or documentary substantiation
for the claimed input tax.

► VAT withheld and paid for the non-resident recipient (remitted using BIR
Form No. 1600), which VAT is passed on to the resident withholding agent
by the non-resident recipient of the income, may be claimed as input tax
by said VAT-registered withholding agent upon filing his own VAT return,
subject to the rule on allocation of input tax among taxable sales, zero-
rated sales and exempt sales. The duly filed BIR Form No. 1600 is the
proof or documentary substantiation for the claimed input tax or input
VAT.
► If the resident withholding agent is a non-VAT taxpayer, said passed-on
VAT by the non-resident recipient of the income, evidenced by the duly
filed BIR Form No. 1600, shall form part of the cost of purchased services,
which may be treated either as an “asset” or “expense,” whichever is
applicable, of the resident withholding agent.
► VAT withheld shall be remitted within 10 days following the end of the
month the withholding was made.
On Certain Payments to Non-residents
(Creditable Withholding VAT)

 The Government or any of its political subdivisions,
instrumentalities or agencies, including government owned or
controlled corporations (GOCCs) shall, before making payment on
account of its purchase of goods and/or services taxed at 12% shall
deduct and withhold a final VAT of 5% of the gross payment.
 The five percent (5%) final VAT withholding rate shall represent the
net VAT payable of the seller.
 The remaining seven percent (7%) effectively accounts for the
standard input VAT for sales of goods or services to government or
any of its political subdivisions, instrumentalities or agencies
including GOCCs, in lieu of the actual input VAT directly
attributable or ratably apportioned to such sales.
On Certain Payments by Government
(Final Withholding VAT)

 Should actual input VAT attributable to sale to
government exceed seven percent (7%) of gross
payments, the excess may form part of the
sellers’ expense or cost.
 If actual input VAT attributable to sale to
government is less than 7% of gross payment, the
difference must be closed to expense or cost.
 The certificate or statement to be issued is the
Certificate of Final tax Withheld at source (BIR
Form No. 2306), a copy of which is to be issued to
the payee.
On Certain Payments by Government
(Final Withholding VAT)

Input Tax

 Input tax – means the VAT due on or paid by a VAT-registered
person on importation of goods or local purchases of goods,
properties, or services, including lease or use of properties, in the
course of his trade or business. It shall also include the
transitional and presumptive input tax.
 It includes input taxes which can be directly attributable to
transactions subject to the VAT
 Plus a ratable portion of any input tax which cannot be directly
attributed to either the taxable or exempt activity.
 Input taxes must be evidenced by VAT invoice or VAT receipt, as
applicable.

► Purchase or importation of goods
– For sale; or
– For conversion into or intended to form part of a finished product
for sale, including packaging materials; or
– For use as supplies in the course of business; or
– For use as raw materials supplied in the sale of services; or
– For use in trade or business for which deduction for depreciation
or amortization is allowed under the Tax Code*
*VAT on purchases of automobiles, aircrafts and yachts are now allowable as
input VAT credits under RR 16-2005. Previously, these were disallowed under
RR 7-95.
Sources of Input Tax

 Purchase of real properties for which VAT has actually been
paid
 Purchase of services in which VAT has been actually paid.
 Transactions “deemed sale” under Section 106(B) of the Tax
Code
 Transitional input tax
 Presumptive input tax
 Creditable Withholding VAT on payments to non-residents
Sources of Input Tax

 A person who becomes liable to VAT or any person who elects to
be a VAT registered person shall, subject to the filing of an
inventory according to rules and regulations prescribed by the
Secretary of Finance, upon recommendation of the Commissioner,
be allowed input tax on his beginning inventory of goods, materials
and supplies equivalent to 2% of the value of such inventory or the
actual VAT paid on such goods, materials and supplies, whichever
is higher.
Transitional Input Tax

Persons or firms engaged in the processing of sardines, mackerel, and
milk, and in manufacturing refined sugar cooking oil and packed noodle-
based instant meals.
– The term “processing” shall mean pasteurization, canning and
activities which through physical or chemical process alter the
exterior texture or form or inner substance of a product in such
manner as to prepare it for special use to which it could not have
been put in its original form or condition.
– the allowed input tax is equivalent to 4% of the gross value in money
of their purchase of primary agricultural products which are used as
inputs to their production.
Presumptive Input Tax

► For purchases of goods
—Input Tax = Total VAT Invoice Amount (gross of EWT) x 12%
► For purchases of Services
—Input Tax = Total VAT O.R. Amount (gross of EWT) x 12%
► For importation of goods (if any VAT is paid)
—Input Tax = VAT Base* x 12%
* Value used by BOC in determining tariffs and customs duties +
customs duties, excise taxes and other charges. If BOC value is
based on volume or quantity, base is Total Landed Cost = invoice
amount + customs duties, freight, insurance and other charges, and
excise tax, if any
General Rule – Input Tax

a. Purchases of goods from VAT-registered persons
Dr Materials/Supplies, etc. xxx
Input Tax xxx
Cr Accounts Payable / Cash xxx
b. Purchases from non-VAT persons
Dr Materials/Supplies, etc.
xxx
Cr Accounts Payable/Cash
xxx
Journal Entries – Input Tax

c. Purchase returns to VAT suppliers
Dr Accounts Payable/Cash xxx
Cr Materials/Supplies, etc. xxx
Input Tax xxx
d. Purchase returns to non-VAT suppliers
Dr Accounts Payable/Cash xxx
Cr Materials/Supplies, etc. xxx
Journal Entries – Input Tax

e. Purchase of service from a VAT-registered person
i. Upon billing of the supplier
Dr Cost/Expenses xxx
Deferred Input Tax xxx
Cr Accounts Payable xxx
ii. Upon payment
Dr Accounts Payable xxx
Input Tax xxx
Cr Cash xxx
Deferred Input Tax xxx
Journal Entries – Input Tax

RR No. 16-2005
Input tax on purchases or importation of capital goods which
are depreciable assets for income tax purposes, the aggregate
acquisition cost of which (exclusive of VAT) in a calendar month
exceeds P1 million, regardless of acquisition cost of each
capital good, shall be claimed as credit against output tax, as
follows:
1. If estimated useful life of a capital good is 5 years or more
Monthly input tax = Total Input Tax
60 months
Input Tax on Capital Goods

2. If estimated useful life is less than 5 years
If the aggregate acquisition cost (exclusive of VAT) of the
existing or finished depreciable capital goods purchased or
imported during any calendar month does not exceed P1
million:
► the total input taxes will be allowable as credit against output
tax in the month of acquisition
Months
in
Life
Useful
Estimated
Tax
Input
Total
Tax
Input
Monthly 
Input Tax on Capital Goods

 The aggregate acquisition cost of a depreciable asset in any
calendar month refers to
– the total price, excluding the VAT, agreed upon for one
or more assets acquired and
– not on the payments actually made during the calendar
month.
 Thus, an asset acquired on instalment for an acquisition cost of
more than P1,000,000, excluding the VAT, will be subject to the
amortization of input tax despite the fact that the monthly
payments/instalments may not exceed P1,000,000.
 Capital goods or properties refers to goods or properties with
estimated useful life greater than one (1) year and which are treated
as depreciable assets under Sec. 34(F) of the Tax Code, used
directly or indirectly in the production or sale of taxable goods or
services.
Input Tax on Capital Goods

Asset Life
(years)
Cost (excluding
VAT)
Input tax
amortization
period (months)
Addition to input
tax per month
A 10 600,000 60 1,200
(600,000/60 x
12%
B 4 500,000 48 1,250
(500,000/48 x
12%)
C 5 400,000 60 800
(400,000/60 x
12%
Total 1,500,000 3,250

RR 16-2005 Start of Time to Claim
► Claim for input tax shall commence in the calendar month of
acquisition.
► If the depreciable capital good is sold/transferred within a
period of 5 years or prior to the exhaustion of the
amortizable input tax, the entire 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.
Input Tax on Capital Goods

Purchase of capital goods (input tax claimable over 60 months or
useful life whichever is shorter)
i. Upon purchase of capital goods
Dr Capital Goods xxx
Deferred Input Tax – Capital Goods xxx
Cr Accounts Payable xxx
ii. Upon claiming or amortization of input tax on a monthly basis
Dr Input tax – Capital Goods xxx
Cr Deferred Input Tax-Capital Goods xxx
Note: Taxpayer should maintain a subsidiary record in ledger form for
the acquisition, purchase or importation of depreciable assets or capital
goods
Journal Entries – Input Tax on Capital Goods

VAT Liability/Excess Input Tax Credits
At the end of each VAT month/quarter, the following entry should be
effected to reflect the VAT payable or excess input tax credits for the
month/quarter:
To record VAT payable
Dr Output Tax xxx
Cr Input Tax-Capital Goods xxx
Input Tax xxx
VAT Payable/Cash xxx
Journal Entries – Excess Input Tax

 In case there are VAT and non-VAT activities, tax credit shall
be allowed as follows:
– Total input tax which can be directly attributed to
transactions subject to VAT; and
– A ratable portion of any input tax which cannot be directly
attributed to either activity.
Mixed Transactions

Input Tax Attributed to Exempt Activity
Input Tax Attributed to VATable Activity*
* This rule applies if there are no sales to the Government (RA No.
9337 and RR 16-2005)
Exempt Sales
Total Sales
Common Input Tax X
Taxable Sales
Total Sales
Common Input Tax X
Mixed Transactions

 Input taxes that can be directly attributable to VAT taxable
sales of goods and services to the Government or any of its
political subdivisions, instrumentalities or agencies, including
GOCCs shall NOT be credited against output taxes arising
from sales to non-Government entities.
 Claims for VAT refund/Tax Credit Certificate (TCC) with the
Bureau of Internal Revenue, Board of Investment, and One-
Stop-Shop and Duty Drawback Center of the Dept. of Finance
should be deducted from the allowable input tax that are
attributable to zero-rated sales.
Mixed Transactions

► Input taxes prorated to sales to Government
Common Input Tax = Taxable sales to Government
Total Sales
This cannot be credited against sales to non-Government
entities.
Special Rule - Mixed Transactions

VAT Liability/Excess Input Tax Credits
At the end of each VAT month/quarter, the following entry should be
effected to reflect the VAT payable or excess input tax credits for the
month/quarter:
To record VAT payable
Dr Output Tax xxx
Cr Input Tax-Capital Goods xxx
Input Tax xxx
VAT Payable/Cash xxx
Journal Entries – Excess Input Tax

Substantiation Requirements

Proper Time for Claiming Input Tax:
The input tax credit on importation of goods or local purchase of goods
or properties or services by a VAT-registered person shall be
creditable:
• To the importer upon payment of VAT prior to the release
of goods from customs custody.
• To the purchaser of the domestic goods or properties
upon consummation of the sale.
• To the purchaser of services or the lessee or licensee upon
payment of the compensation, rental, royalty or fee.

Proper Time for Claiming Input Tax:
To the purchaser of real property under:
a. Cash/Deferred Payment Basis - Upon
consummation
of sale
b. Installment Basis - Upon every
installment*
payment
*Means the 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 GSP.

Please note that even if the said events have already transpired (e.g.,
consummation of sale) but the required supporting documents are not
on hand, the input taxes may not be claimed.
Thus, please take note of the required supporting documents.

The required support for claiming input tax are as follows:
Required Support
Transactions
VAT Invoice
1. Input taxes on domestic
purchases of goods or properties
made in the course of trade or
business

Transactions Required Support
2. Input tax on purchases
of real property
a. Cash /Deferred basis
b. Installment basis
Public Instrument (i.e., deed
of absolute sale, deed of
conditional sale,
contract/agreement to sell,
etc.) together with the VAT
Invoice for the entire selling
price and Non-VAT ORs for
the initial and succeeding
payments
Public Instrument and VAT
OR for every payment

Transactions Required Support
3. Input tax on domestic purchases
of services
VAT OR
4. Input tax on importation
of goods
Import entry or other
equivalent document
showing actual
payment of VAT on
the imported goods.

Transactions Required Support
5. Transitional
input tax
Inventory of goods as
shown in a detailed
list to be submitted to
the BIR.
6. Input tax on “deemed
sale” transactions
Required invoices

Transactions Required Support
7. Input tax from payments made
to non-residents (such as for
services, rentals, or royalties)
Monthly Remittance
Return of Value Added
Tax Withheld (BIR Form
1600) filed by the
resident payor in behalf
of the non-resident
evidencing remittance
of VAT due which was
withheld by the payor.

Transactions Required Support
8. Advance VAT on sugar Payment order
showing payment of
the advance VAT

Section 113 of the Tax Code
1. VAT invoice – for every sale, barter or exchange of goods
or properties
2. VAT OR – for every lease of goods or properties, and every
sale, barter or exchange of services

1. A statement that the seller is a VAT-registered person,
followed by his Taxpayer’s Identification Number (TIN) OR
per RR 16-2005, TIN-VAT
2. The total amount that the purchaser pays or is obligated to
pay to the seller with the indication that such amount
includes the VAT, provided that the amount of VAT shall be
shown as a separate item in the invoice/OR.

RR No. 18-2011, released November 21, 2011
► All VAT-registered persons who are required under Section 237 of
the Tax Code to issue sales or commercial invoices or official
receipts should separately bill the VAT corresponding thereto.
► Administrative penalties: upon conviction, for each act or
omission, a fine of not less than P1,000 but not more than
P50,000 and imprisonment of not less than 2 years but not more
than 4 years.

3. For exempt transactions, the term “VAT-Exempt Sale” shall
be written or printed prominently on the invoice/OR
4. For zero-rated transactions, the term “Zero-Rated Sale” shall
be written or printed prominently in the invoice/OR
5. The date of transaction, quantity, unit cost and description
of the goods or properties or nature of services
6. In the case of sales in the amount of P1,000 or more where
the sale or transfer is made to a VAT-registered person, the
name, business style, if any, address and Taxpayer
Identification Number (TIN) of the purchaser, customer or
client.

7. If the sale involves goods, properties or services some of
which are subject to and some of which are VAT zero-rated
or VAT-exempt:
• the invoice or receipt shall clearly indicate the
breakdown of the sales price between its taxable,
exempt and zero-rated components, and
• the calculation of the VAT on each portion of the sale
shall be shown on the invoice or receipt;
• Provided, that the seller has the option to issue
separate invoices or receipts for the taxable, exempt,
and zero-rated components of the sale.

RMC 62-2005 dated October 18, 2005
Q16: How is the Value Added Tax presented in the
receipt/invoice?
A16: The amount of the tax shall be shown as a separate item
in the invoice or receipt.
Sample: Per RMC 62-2005 Now
Sales Price P100,000 P100,000
VAT 10,000 12,000
Invoice Amount P110,000 P112,000
Invoicing Requirements

► The invoice or receipt shall be prepared at least in duplicate,
the original to be given to the buyer and the duplicate to be
retained by the seller as part of his accounting records.
Note: See Section 113 (Invoicing requirements), 237 (Issuances
of receipts or sales or commercial invoices) and 238 (Printing of
receipts or sales or commercial invoices) of the Tax Code, as
amended, for the other information required to be indicated in
the invoice/OR.
Invoicing Requirements

RMC 62-2005 dated October 18, 2005 (cont’d)
Q17: What is the information that must be contained in the
VAT invoice or VAT official receipt?
A17:
1. Name of the Seller
2. Business Style of the Seller
3. Business Address of the Seller
4. A statement that the seller is a VAT-registered
person, followed by his TIN
5. Name of Buyer
6. Business Style of Buyer
7. Address of Buyer
Invoicing Requirements

RMC 62-2005 dated October 18, 2005 (cont’d)
8. TIN of buyer if VAT-registered and amount exceed P1,000
9. Date of transaction
10. Quantity
11. Unit cost
12. Description of the goods or properties or nature of the
service
13. Purchase price plus the VAT, provided that:
– The amount of tax shall be shown as a separate item in
the invoice or receipt;
– If the sale is exempt from VAT, the term “VAT-EXEMPT
SALE” shall be written or printed prominently on the
invoice or receipt;
Invoicing Requirements

RMC 62-2005 dated October 18, 2005 (cont’d)
– If the sale is subject to zero percent (0%) VAT, the term
“ZERO-RATED SALE” shall be written or printed
prominently on the invoice receipt;
– If the sale involves goods, properties or services some
of which are subject to and some of which are zero-
rated or exempt from VAT, the invoice or receipt shall
clearly indicate the breakdown of the sales price
between its taxable, exempt and zero-rated
components, and the calculation of the VAT on each
portion of the sale shall be shown on the invoice or
receipt.
14. Authority to Print Receipt Number at the lower left corner
of the invoice or receipt.
Invoicing Requirements

Consequences of issuing Erroneous VAT Invoice/OR
A. Issuance of VAT Invoice/OR by a non-VAT person
1. The non-VAT person shall be liable to:
 the percentage taxes applicable to his transactions;
 VAT due on the transactions without the benefit of
any input tax credit; and
 a 50% surcharge
2. VAT shall be recognized as an input tax credit to the
purchaser provided the requisite information is
indicated in the VAT invoice/OR.

B. Issuance by a VAT registered person of a VAT Invoice/OR
for an exempt transaction – if he fails to prominently
display the words “VAT-exempt sale”
• The transaction shall become taxable
• The issuer shall be liable to VAT
• The purchaser shall be entitled to claim an input tax
on his purchase

Treatment of Excess Input Tax

 Carry-over
 Claim for Refund
 Tax Credit

Claim for Refund / Tax Credits
• Any VAT taxpayer may apply for the issuance of a tax credit
certificate or refund of any input tax attributable to:
• zero-rated and effectively zero-rated sales;
• Cancellation of VAT registration
to the extent that such input tax has not been applied against
the output tax

Any VAT taxpayer may apply for the issuance of a
tax credit certificate or refund of any input tax (to
the extent not applied against output tax)
attributable to:
1. Zero-rated and effectively zero-rated sales;
 File application within 2 years after close of taxable
quarter when such sales were made

2. Cancellation of VAT registration
 Registration is cancelled due to retirement from, cessation
of business, or due to changes in or cessation of status as
VAT taxpayer
 File application within 2 years from date of cancellation
 TCC may be used in payment of his other internal revenue
liabilities
 He shall be entitled to a refund if he has no internal
revenue tax liabilities against which the tax credit may be
utilized.

Administrative Requirements

 Bookkeeping Requirements
 Registration Requirements
 Filing of Returns
 Payment of VAT
 Summary Lists
 Information Returns
 SAWT and MAP
Administrative Requirements

Revenue Memorandum Circular No. 51-87
1. Subsidiary Sales Journal – the daily sales should be
recorded in this journal which should at least contain
separate columns for the following:
– Sales - Export
– Sales - Zero-rated
– Sales - Exempt
– Sales - Taxable
– Deemed Sales
– Output Taxes
Subsidiary Sales and Purchases Journal

Revenue Memorandum Circular No. 51-87 (cont’d)
2. Subsidiary Purchases Journal – the daily purchases, both
local and imported, and other transactions affecting
purchases and input taxes should be recorded in this journal
which should at least contain separate columns for the
following:
– Purchases of goods for sale
– Purchases of supplies
– Purchases of raw materials
– Purchases of services
– Purchases of capital goods
– Purchases from non-VAT persons
– Input taxes
– Input tax deemed paid
Subsidiary Sales and Purchases Journal

 The subsidiary sales and purchases journal shall
be registered for VAT purposes with the Collection
Agent of the city or municipality where the
principal place of business or head office of the
VAT taxpayer is located.
Subsidiary Sales and Purchases Journal

RR No. 16-2005
 A subsidiary record in ledger form should be
maintained for the acquisition, purchase or
importation of depreciable assets or capital
goods which shall contain, among others,
 Information on the total input tax thereon,
 Monthly input tax claimed in VAT declaration or
return.
Subsidiary Record: Depreciable Assets/Capital Goods

For VAT taxpayers
► FIVE HUNDRED PESOS (P500) for every separate or distinct
establishment or place of business (i.e., P500 for the
principal office and for each of the branches, if any).
► Except for a warehouse without sale transactions.
► Due: Before the start of business and every year thereafter
on or before January 31.
Annual Registration Fee

 “Separate or distinct establishment” shall mean any branch or
facility where sale transactions occur.
 “Branch” means a fixed establishment in a locality which
conducts sales operation of the business as an extension of the
principal office.
 “Principal place of business” refers to the place where the head
or main office is located as appearing in the corporation’s
Articles of Incorporation. In the case of an individual, the
principal place of business shall be the place where the head or
main office is located and where the books of accounts are
kept.
 “Warehouse” means the place or premises where the inventory
of goods for sale are kept and from which such goods are
withdrawn for delivery to customers, dealers, or persons acting
in behalf of the business.
Definitions

 Any person who maintains a head or main office and branches
in different places shall register with the RDO which has
jurisdiction over the place wherein the main or head office or
branch is located.
 However, the registration fee shall be paid to any accredited
bank in the Revenue District where the head office or branch
is registered provided that in areas where there are no
accredited banks, the same shall be paid to the RDO,
collection agent, or duly authorized treasurer of the
municipality where each place of business or branch is
situated.
 Each VAT-registered person shall be assigned only one TIN.
The branch shall use the 9-digit TIN of the Head Office plus a
3-digit Branch Code.
Where to Register

► 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 if:
i. His gross sales or receipts for the past 12 months, other than those that are
exempt under Sec. 109 (1)(A) to (U) of the Tax Code, have exceeded P1.5
million; or
ii. There are reasonable grounds to believe that his gross sales or receipts
for the next twelve (12) months, other than those that are exempt under
Sec. 109(1)(A) to (U) of the Tax Code, will exceed P1.5 million.
► Franchise grantees of radio and television broadcasting, whose gross annual
receipt for the preceding taxable year exceeded P10 million, shall register
within thirty (30) days from the end of the taxable year.
► If he fails to register, he is liable to output VAT but cannot claim input VAT, for
the period in which not properly registered.
Mandatory VAT Registration

Filing and Payment – VAT

A. Monthly VAT Declaration (BIR Form No. 2550M) and Payment of VAT
• Refers to first 2 months of taxpayer’s quarters
• Filing deadline: Generally not later than the 20th day
following the end of each month, except for EFPS
taxpayers
• Filing deadline for EFPS: Deadline depends on the industry
classification of the taxpayer – but applicable only for
filing of the monthly VAT return.
• Payment: 20 days from the end of the month.
• For the electronic payment of tax for the returns required
to be filed earlier under the staggered filing system, the
taxpayer upon e-filing shall, still using the facilities of
EFPS, likewise give instruction to the Authorized Agent
Bank (AAB) to debit its account for the amount of tax on
or before the due date for payment thereof as prescribed

B. Withholding VAT Return (BIR Form 1600)
 Deadline of filing and payment: 10th day of the following
month
C. Quarterly VAT Return (BIR Form No. 2550Q)
• Deadline for filing and payment: Should be filed within 25
days following the close of each taxable quarter.
• The quarterly return shall reflect the cumulative totals of
the sales, purchases, output tax and input tax for the
three (3) months of the applicable quarter.
• The VAT payable (output tax less input tax) for each
quarter shall be reduced by the total amount of the tax
previously paid for the preceding 2 months
• EFPS: same deadline. [Sec. 114(A), Tax Code]

C. Quarterly VAT Return (BIR Form No. 2550Q)
• Taxable quarter means the quarter that is synchronized
to the income tax quarter of the taxpayer (i.e. calendar
quarter or fiscal quarter).
• There should only be one (1) consolidated quarterly VAT
return or monthly VAT declaration to be filed for the
operations of the head office and its branches subject to
VAT, for every return period.
• Use latest version of Quarterly VAT return.