TAXATION

• VAT


  A business tax, in effect a sales tax
• VAT


  • Indirect tax - burden can be shifted by the seller to the buyer
  • Imposed on the gross selling price if sale, barter, or exchange of goods or properties
  • Imposed on the gross receipts if sale of services, or in the lease or use of properties
  • Imposed on the total value or landed cost, if importation of goods, whether or not in the course of business
• How VAT is computed

  Tax Credit Method: Output Tax less Input Tax
• Tax consequences of VAT-taxable and VAT-exempt transactions


  • VAT-Taxable transactions: Seller subject to 12% VAT, entitled to input tax credit, pays excess of output tax over input tax, can carry-over excess input taxes
  • Zero-rated sales: Seller subject to 0% VAT, entitled to input tax credit, can claim refund or tax credit for input taxes
  • Exempt transactions: Seller exempt from VAT, cannot separately bill output tax, not entitled to input tax credit
• Mandatory VAT registration


  • Sellers whose gross sales/receipts on ALL lines of non-exempt businesses for the past 12 months exceed ₱3,000,000
  • Sellers whose expected sales/receipts for the next 12 months from ALL lines of non-exempt businesses exceed ₱3,000,000
  • Franchise grantees of radio and/or TV broadcasting whose annual sales for the last taxable year exceed ₱10,000,000
• Optional VAT registration


  • Any person who is not subject to mandatory registration because his actual or expected gross sales/receipts from non-exempt businesses for the past 12 months do not exceed ₱3,000,000
  • Any VAT-registered person who has other lines of business which are VAT-exempt, where the VAT-exempt business is not the main line of business
  • Franchise grantees of radio and/or TV broadcasting whose annual sales ≤ ₱10 million
• VAT registration


  • Registration is irrevocable for 3 years
  • Each VAT-registered person shall be assigned one TIN, with branch using head office TIN plus 3-digit branch code
  • Non-VAT taxpayer who exceeds ₱3M threshold must update registration immediately and is liable to VAT prospectively
  • Annual registration fee of ₱500 for each place of business, cooperatives are exempted
• Effects of failure to register by persons required to VAT-register

  • Liable to VAT on their sales
  • Cannot separately bill output VAT to customer
  • No input tax credits on their purchases
  • Fines and sanctions (e.g. suspension of operations or closure of business ≥ 5 days)
• Reasons for cancellation of VAT registration

  • Gross sales/receipts in next 12 months shall not exceed ₱3,000,000
  • Ceases business
  • Change in ownership (sole proprietorship)
  • Dissolution of partnership or corporation
  • Merger or consolidation
  • Failure to actually start business
  • Business becomes exempt
  • Voluntary registration and application for cancellation after 3 years
  • Gross sales/receipts for 3 consecutive years did not exceed ₱3,000,000 since 2018
• Persons subject to VAT


  • Those engaged in selling/leasing of goods, properties, or services subject to VAT and registered regardless of sales level
  • Those engaged in selling/leasing of goods, properties or services subject to VAT, whose gross sales/receipts >₱3,000,000
  • VAT-registered persons with VAT-exempt businesses which they choose to register under VAT system
  • Franchise grantees of radio/TV broadcasting whose gross annual receipts ≤ ₱10 million but are registered
  • Importers of goods, whether or not in the course of business, regardless of purchase amount
• Zero-rated transactions - goods


  • Export sales of goods
  • Effectively zero-rated sales (local sales to tax-exempt persons/entities)
  • Sale of raw materials, inventories, supplies, equipment, packaging to registered export enterprises
  • Sales to offshore gaming licensees subject to gaming tax
• Zero-rated transactions - services

  • Processing, manufacturing, or repacking goods for export, paid in foreign currency
  • Services rendered to persons engaged in business outside Philippines or non-residents, paid in foreign currency
  • Services rendered to persons/entities whose exemption effectively subjects supply to 0% rate
  • Services rendered to persons engaged in international shipping/air transport
  • Services by subcontractors to export enterprises with >70% export sales
  • Transport of passengers/cargo by domestic air/sea carriers from PH to foreign country
  • Sale of power/fuel from renewable energy sources
  • Services to registered export enterprises for their registered project/activity
  • Services to offshore gaming licensees subject to gaming tax
• Transport of passengers and cargo by domestic air or sea carriers from a foreign country to the Philippines is EXEMPT from business taxes, including the VAT, for lack of jurisdiction
• Sale of power or fuel generated through renewable sources of energy

  • Solar
  • Wind
  • Biomass
  • Geothermal
  • Ocean energy
• Zero-rating does not extend to the sale of services related to maintenance or operating of plants generating said energy
• Sale of services to a registered export enterprise to be used directly and exclusively in its registered project or activity


  • Basic infrastructure
  • Utilities
  • Maintenance
  • Repair
  • Overhaul of equipment
• Services rendered to offshore gaming licensees (OGLs) subject to the gaming tax

  • By service providers
  • By accredited service providers
• The sale of services by VAT-registered persons, including accredited service providers, to OGLs subject to the gaming tax under Section 125-A of the Tax Code shall be subject to a 0% VAT rate
• The 0% VAT rate shall only apply if the OGL is paying the 5% gaming tax
• Where the services provided are used in non-gaming operations, the 0% rate shall not apply
• The transactions under items (1) and (5) shall be subject to the 12% VAT, and shall no longer be subject to 0% VAT rate, upon the satisfaction of the following conditions:
• VAT-exempt transactions


  • The sale shall not be subject to output VAT, but the seller is not allowed any ITC
  • Seller cannot bill any output VAT to his customers
  • If the seller issues a VAT invoice or receipt without being VAT-registered, he shall be liable to the output VAT without the benefit of any ITC
• VAT exemption under Section 109 of the Tax Code

  • Sale or importation of agricultural and marine food products in their original state
  • Sale or importation of livestock or poultry of a kind generally used as, or yielding or producing foods for human consumption
  • Sale or importation of breeding stock and genetic materials therefor
  • Sale or importation of fertilizers
  • Sale or importation of seeds, seedlings, and fingerlings
  • Sale or importation of 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)
  • Importation of personal and household effects belonging to the residents of the Philippines returning from abroad, and non-resident citizens coming to the Philippines
  • Importation of professional instruments and implements
  • Importation of tools of trade, occupation or employment
  • Importation of wearing apparel
  • Importation of domestic animals
  • Importation of personal household effects (except any vehicle, aircraft, machinery, and other goods for use in the manufacture and merchandise of any kind in commercial quantities), belonging to overseas Filipinos
  • Services subject to percentage tax under Title V of the Tax Code
  • Services by agricultural contract growers
  • Milling for others of palay into rice, corn into grits, and sugar cane into raw sugar
  • Medical, dental, hospital, and veterinary services except those rendered by professionals
  • Educational services rendered by private educational institutions, duly accredited by the Department of Education, the Commission on Higher Education, the Technical Education and Skills Development Authority, and those rendered by government educational institutions
  • Services rendered by individuals pursuant to an employer-employee relationship
  • 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
  • Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under PD 529
  • Sales by agricultural cooperatives duly registered with and in good standing with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; and 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
  • Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with and in good standing with the Cooperative Development Authority
  • Sales by non-agricultural, non-electric, and non-credit cooperatives duly registered with and in good standing with the Cooperative Development Authority: Provided, that the share capital contribution of each member does not exceed Fifteen Thousand Pesos (₱15,000)
  • Export sales by persons who are not VAT-registered
  • Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business
  • Sale of real properties utilized for low-cost housing and socialized housing as defined by R.A. No. 7279, and other related laws
  • Sale of house and lot, and other residential dwellings with a selling price of not more than ₱3,199,200
  • Lease of a residential unit with a monthly rental not exceeding Fifteen Thousand Pesos (₱15,000), regardless of the amount of aggregate rentals received by the lessor during the year
  • Sale, importation, printing, or publication of books and any newspaper, magazine, journal, review bulletin, or any such educational reading material covered by the UNESCO Agreement on the Importation of Educational, Scientific, and Cultural Materials, including the digital or electronic format thereof
  • Transport of passengers by international carriers
  • Sale, importation, or lease of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts thereof for domestic or international transport operations
  • Importation of fuel, goods, and supplies by persons engaged in international shipping or air transport operations
  • Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, such as money changers and pawnshops subject to percentage tax under Sections 121 and 122, respectively, of the Tax Code
  • Sales or lease of goods and services to Senior Citizens and PWDs, as provided under R.A. Nos. 9994 and 10754
• VAT-exempt transactions


  • (21) Importation of fuel, goods, and supplies by persons engaged in international shipping or air transport operations
  • (22) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, such as money changers and pawnshops subject to percentage tax
  • (23) Sales or lease of goods and services to Senior Citizens and PWDs
  • (24) Transfer of property pursuant to Section 40(C)(2) of the Tax Code
  • (25) Association dues, membership fees, and other assessments and charges collected by homeowners' associations, condominium corporations, and recreational clubs
  • (26) Sale of gold to the BSP
  • (27) Sale or importation of prescription drugs and medicines for diabetes, high cholesterol, hypertension, cancer, mental illness, tuberculosis, kidney diseases, and COVID-19 treatment
  • (28) Sale or importation of capital equipment, its spare parts and raw materials, necessary for the production of personal protective equipment components for COVID-19 prevention
  • (29) Sale or lease of goods or properties or the performance of services with gross annual sales and/or receipts not exceeding ₱3,000,000
• VAT exemption under Section 295 in Title XIII of the Tax Code


  • (1) VAT exemption on importation, and VAT zero-rating on local purchases shall only apply to goods and services directly and exclusively used in the registered project or activity by a registered business enterprise
  • (2) The importation of COVID-19 vaccines shall be exempt from import duties, taxes, and other fees
  • (3) Crude oil that is intended to be refined at a local refinery shall be exempt from the payment of applicable taxes and duties upon importation
• VAT exemption under Special Laws/Regulations/Rulings


  • (1) Fees, per diems, allowances, and other income received by corporate directors from corporations of which they are not employees
  • (2) Sales by PEZA and other ecozone registered enterprises
  • (3) Sales of services by professionals and other suppliers of services hired under a contract for service or job order with the government, its instrumentalities, LGUs, state colleges and universities, GOCCs and GFIs
  • (4) Amounts of money received in trust which do not belong to the recipient and which do not redound to the benefit of the recipient
  • (5) Services rendered within intra-company divisions
  • (6) Importation of personal computers, laptops, tablets, or similar equipment donated for distribution to public schools
• Transactions deemed sale


  Transactions which lack one or both of the elements that makes a sale VATable, but are treated as sales to prevent tax evasion
• Transactions deemed sale


  • (a) Transfer, use, or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business
  • (b) Distribution or transfer of goods or properties to shareholders, investors, or creditors
  • (c) Consignment of goods if actual sale is not made within sixty (60) days
  • (d) Transmission of property to a trustee if the property is for sale, lease, or use in the ordinary course of business and the transfer constitutes a completed gift
  • (e) Retirement from or cessation of business with respect to inventories of taxable goods
• Examples of transactions deemed sale, and therefore VAT-taxable
• Examples of transactions not subject to VAT
• Output VAT


  12% of the gross selling price, exclusive or net of VAT, of the goods sold, bartered, exchanged, or deemed sold in the Philippines, OR 12/112 of the total invoice price (inclusive or gross of VAT)
• Gross Selling Price (GSP)


  The total amount of money or its equivalent which the purchaser must pay the seller in consideration of the sale, barter, or exchange
• Tax base for transactions deemed sale

  Market value of the goods at the time of transaction
• Any excise tax shall form part of the GSP
• Completed gift


  Transferor divests himself absolutely of control over the property, i.e., an irrevocable transfer of the corpus and/or an irrevocable designation of the beneficiary
• GSP


  The entire amount, whether paid in cash, credit, or installment
• When the GSP is unreasonably lower than the actual market value, the CIR shall, by rules and regulations prescribed by the Secretary of Finance, determine the appropriate tax base
• Unreasonably lower


  Lower by more than 30% of the actual market value
• When one of the parties is the government, the output VAT shall be based on the actual selling price
• Tax Base (for transactions deemed sale)

  Market value of the goods at the time of transaction