The Company can only be either VAT registered (liable to VAT) or Non-VAT registered (liable to

Percentage Tax).
Value Added Tax (VAT). Paid monthly using BIR Form 2550, this is the tax charged on the
difference between your acquisition cost (including direct material expenses) and your selling
price. The key point here is that the basis will be only on the value you added to your
product cost. If you have a large profit margin, you will be paying more value added tax even
if you do not earn any net profit. Companies whose projected sales are expected not to
exceed P1,919,500 are exempted from paying VAT, but they are still required to pay
percentage tax on their sales.
There are also certain transactions that are
VAT exempt (e.g., VAT Exempt Transactions under Section 109 of the Tax Code such
as Lease of a residential unit with a monthly rental not exceeding PhP12,800, Services
rendered by individuals pursuant to an employer-employee relationship, and
Educational services rendered by private educational institutions, duly accredited by
the DepEd, the CHED, the TESDA, and those rendered by government educational
institutions )
or
VAT zero-rated.

Percentage tax. Paid monthly using BIR form 2551, this is the tax you pay if you are not a
VAT registered company. The amount payable is computed as a percentage of your sales.
Normally this tax is paid at an authorized bank within the area covered by the BIR revenue
district office (RDO).
Percentage Tax is a business tax imposed on persons or entities who sell or lease goods,
properties or services in the course of trade or business whose gross annual sales or receipts
do not exceed P1,919,500 (formerly P1,500,000) and are not VAT-registered.
Youre the one who should shoulder your percentage tax, since you are entitled to claim
percentage tax as part of your taxes and licenses expense, which is an allowable deduction to
your taxable income.

In summary, the Company is subject to 3% Percentage Tax if its gross annual receipts do not
exceed P1,919,500.