CHAPTER 8  Palay into rice

 Corn into grits; and

VALUE ADDED TAX  Sugar cane into raw sugar
VAT EXEMPT SALES (SECTION 109 NIRC, AS AMENDED RA 10963 – TRAIN LAW) G. Medical, dental, hospital and veterinary services except those rendered by
professionals.
A. Sale or importation of: H. Educational services rendered by private educational institutions, duly
1) Agricultural and marine “food products in their original state” accredited by the Department of Education (DepEd), the Commission on Higher
2) Livestock; and Education (CHED), the Technical Education and Skills Development Authority
3) Poultry of a kind generally used as, or yielding or producing foods for (TESDA) and those rendered by government educational institutions.
human consumption and breeding stock and genetic materials I. Services rendered by individuals pursuant to an employer-employee
therefore. relationship.
B. Sale or importation of: J. Services rendered by regional or area headquarters established in the
1) Fertilizers Philippines by multinational corporations which act as supervisory,
2) Seeds, seedlings and fingerlings communications and coordinating centers for their affiliates, subsidiaries or
3) Fish, prawn, livestock and poultry feeds, including ingredients, whether branches in the Asia-Pacific Region and do not earn or derive income from the
locally produced or imported, used in the manufacture of finished Philippines.
feeds K. Transactions which are exempt under international agreements to which the
C. Importation of personal and household effects belonging to: Philippines is a signatory or under special laws, except those under Presidential
1) The residents of the Philippines returning from abroad; and Decree No. 529 (Petroleum Exploration Concessionaries under the Petroleum
2) Nonresident citizens coming to resettle in the Philippines Act of 1949)
L. Sales by agricultural cooperatives duly registered with the Cooperative
Kinds of personal and household effects that may be exempt from payment of
Development Authority to their members as well as sale of their produce,
customs duties:
whether in its original state or processed form, to non-members, their
 Returned personal and household effects; and importation of direct farm inputs, machineries and equipment, including spare
 Personal and household effects purchased abroad. parts thereof, to be used directly and exclusively in the production and/or
D. Importation of professional instruments and implements, tools of trade, processing of their produce.
occupation or employment, wearing apparel, domestic animals, and personal
TABLE 8-2: Sales by To Members To Non-Members
and household effects belonging to persons coming to settle in the Philippines
Agricultural Cooperatives
or Filipinos or their families and descendants who are now residents or citizens Sale of cooperative’s own Exempt Exempt
of other countries, such parties herein referred to as overseas Filipinos, in produce (Processed or at its
quantities and of the class suitable to the profession, rank or position of the original state)
persons importing said items, for their own use and not for barter or sale, Other than the Exempt VAT
accompanying such persons, or arriving within a reasonable time. Provided, that cooperative’s own produce
the Bureau of Customs may, upon the production of satisfactory evidence that (i.e. from “traders”)
such persons are actually coming to settle in the Philippines and that the goods
are brought from their former place of abode, exempt vehicles, vessels,
aircrafts, and machineries and other similar goods for use in manufacture, shall M. Gross receipts from “lending activities” by credit or multi-purpose
not fall within this classification and shall therefore be subject to duties, taxes, cooperatives duly registered with the Cooperative Development Authority”.
and other charges. Exemption is not only limited to the gross receipts on loans extended to its
E. Services subject to Percentage Tax under Title V of the Tax Code members but also to other persons who are not members.
F. SERVICES BY
1) “Agricultural contract growers” and
2) Milling for others of:
TABLE 8-3: Gross receipts From Members From Non-Members U. Importation of fuel, goods and supplies by persons engaged in international
by Credit or Multi-purpose shipping or air transport operations; Provided that the fuel, goods and supplies
cooperatives shall be used for international shipping or air transport operations. Thus, said
From lending activities Exempt Exempt fuel, goods and supplies shall be used exclusively or shall pertain to the transport
From non-lending activities VAT VAT of goods and/or vice versa, without docking or stopping at any other port in the
Philippines, unless the docking or stopping at any other port in the Philippines is
for the purpose of unloading passengers and/or cargoes that originated from
N. Sales by non-agricultural, non-electric and non-credit cooperatives duly
abroad; Provided, further, that if any portion of such fuel, goods, or supplies is
registered with the Cooperative Development Authority, provided, that the
used for purposes other than that mentioned in this paragraph, such portion of
share capital contribution of each member does not exceed fifteen thousand
fuel, goods, or supplies shall be subject to 12% VAT.
pesos (P15,000) and regardless of the aggregate capital and net surplus ratably
V. Services of banks, non-bank financial intermediaries performing quasi-banking
distributed among the members. Importation by non-agricultural, non-electric,
functions, and other non-bank financial intermediaries, such as money changers
and non-credit cooperatives of machineries and equipment and including spare
and pawnshops, subject to percentage tax under Sections 121 and 122,
parts thereof, to be used by them are subject to VAT.
respectively of the Tax Code.
O. “Export sales” by persons who are not VAT-registered.
W. Sale or lease of goods and services to senior citizens and persons with
P. SALE OF:
disabilities, as provided under RA No. 9994 (Expanded Senior Citizens Act of
1) Real property not primarily held for sale to customers or held for lease
2010) and RA No. 10754 (An Act Expanding the Benefits and Privileges of Persons
in the ordinary course of trade or business.
with Disability (PWD), respectively.
2) Real property utilized for low-cost housing and socialized housing
X. Transfer of property pursuant to Section 40 (C) (2) of the Tax Code, as amended
defined by RA No. 7279, otherwise known as the Urban Development
(Upon effectivity of RA 10963 – TRAIN Law only; new provision).
and Housing Act of 1992, and other related laws.
Y. Association dues, membership fees, and other assessments and charges
3) Real property utilized for ”socialized housing” as defined by RA No.
collected on a purely reimbursement basis by homeowners’ associations and
7279, and other related laws such as RA No. 7835 and RAW No. 8673,
condominium corporations established under RA No. 9904 (Magna Carta for
wherein the price ceiling per unit is P450,000 or as may from time to
Homeowners’ and Homeowners Association) and RA No. 4726 (Condominium
time be determined by HUDCC and the NEDA and other related laws.
Act), respectively. This provision shall take effect only beginning January 1, 2018
4) Residential lot valued at P1,500,000 and below beginning January 1,
or upon effectivity of RA 10963 – TRAIN Law (new provision).
2018 (previously – P1,919,500) or house and lot, and other residential
Z. Sale of Gold to the Bangko Sentral ng Pilipinas (BSP). This provision shall take
dwellings valued at P2,500,000 and below beginning January 1, 2018
effect only beginning January 1, 2018 or upon effectivity of RA 10963 – TRAIN
(previously – P3,199,200).
Law (previously subject to 0% VAT).
Q. Lease of Residential Unit
AA. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
R. Sale, importation, printing or publication of books and any newspaper,
hypertension beginning January 1, 2019 (new provision).
magazine, review or bulletin which appears at regular intervals with fixed prices
BB. Sale or lease of goods or properties or the performance of services other than
for subscription and sale and which is not devoted principally to the publication
the transactions mentioned in the preceding paragraphs, the gross annual sales
of paid advertisements.
and/or receipts do not exceed the amount of P3,000,000 as amended
S. Transport of passengers by international carriers doing business in the
(previously P1,919,500)
Philippines.
T. 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
subject to the requirements on restriction on vessel importation and mandatory
vessel retirement program of MARINA (RR-15-2015; RR 13-2018).
COMPUTATION OF VAT PAYABLE b) Distribution or transfer to:

The corresponding liability on value added tax, as presented in the previous chapter, is  Shareholders or investors as share in the profits Basis:
generally computed as follows: of a VAT-registered person; and
 Distribution or transfer to creditors in payment FMV
Output VAT (Sales or Receipts x 12%) Pxx of debt or obligation
Less: Input VAT (Purchases of Goods/Services x 12%) (xx)
Advance VAT Payment (xx) c) Consignment of goods if actual sale is not made within sixty (60) days following
VAT Payable (Excess Input VAT) Pxx the date such goods were consigned. Goods returned within the 60-day period
are not deemed sold.
SOURCES OF OUTPUT VAT d) Retirement from or cessation of status as VAT registered person with respect to
Output VAT may come from: all “goods on hand” (as of date of retirement or cessation), whether or not the
 Actual Sale business is continued by the new owner or successor. Goods on hand refer to
 Transaction deemed sales capital goods, stock in trade and supplies and materials. The basis is the lower
 Zero (0%) rated sales between acquisition cost or market value.

I. ACTUAL SALE (cash or on account)
Sales where there are actual exchanges between buyer(s) and a seller(s) in the
ordinary course of trade or business.
Basis of the 12% output VAT:
 Sale of goods – gross selling price
 Sale of services – gross receipts
 Sale by a dealer in securities – gross income
 Sale of real properties – higher between selling price, fair value
provided by the city/provincial assessor, and the zonal value provided
by the CIR
II. TRANSACTIONS DEEMED SALES
Certain transactions which are not actually sales because of the absence of
actual exchange between the buyer and the seller, are considered or included
in the term “sale” for VAT purposes.
In a transaction deemed sale, the input VAT was already used by the seller as a
credit against the output VAT. However, since there was not actual sale, no
output VAT is actually charged to customers. Consequently, the State will be
deprived of its right to collect the output VAT.
THE FOLLOWING TRANSACTIONS ARE CONSIDERED DEEMED SALE:
a) Transfer, use or consumption not in the ordinary course of business of goods or
properties ordinarily intended for sale or use in the course of business. The basis
is the FMV of the goods consumed.
VAT provided above shall apply to goods or properties originally intended for
sale or use in business, and capital goods which are existing as of the occurrence
of the following:
1. Change of business activity from VAT taxable status to VAT-exempt
status.
2. Approval of a request for cancellation of registration due to reversion
of exempt status.
3. Approval of a request for cancellation of registration due to a desire to
revert to exempt status after the lapse of three (3) consecutive years
from the time of registration by a person who voluntarily registered
despite being exempt under Sec. 109 (2) of the Tax Code.
4. Approval of a request for cancellation of registration of one who
commenced business with the expectation of gross sales or receipts
exceeding P3,000,000, as amended, but who failed to exceed this
amount during the first 12 months of operation.
VAT (TRANSACTION DEEMED SALE) SHALL NOT BE IMPOSED ON GOODS OR PROPERTIES
EXISTING AS OF THE OCCURRENCE OF THE FOLLOWING:
1. Change of control of a corporation by the acquisition of the controlling interest
of such corporation by another stockholder or group of stockholders. The goods
or properties used in business or those comprising the stock-in-trade of the
corporation, having a change in corporate control, will not be considered sold,
bartered or exchanged despite the change in the ownership interest in the said
corporation.
2. Change in trade or corporate name of the taxpayer.
 3. Merger or consolidation of corporations. The unused input tax of the dissolved the taxpayer. Claims for input VAT refund of direct exporters shall be exclusively filed
corporation, as of the date of merger or consolidation, shall be absorbed by the with the VAT Credit Audit Division (VCAD).
new or surviving corporation.
III. ZERO RATED SALES (0% VAT) In proper cases, the Commissioner of Internal Revenue shall grant refund for
creditable input VAT within 90 days (previously 120 days), from the date of submission
EXPORT SALE BY A VAT REGISTERED ENTITY of the official receipts or invoices and other documents in support of the application filed.
Provided, that should the Commissioner find that the grant of refund is not proper, the
A “zero rated sale” of goods, properties and/or services by a VAT registered Commissioner must state in writing the legal and factual basis of the denial.
person is a taxable transaction for VAT purposes, but shall not result in any output
tax. However, the input tax on purchases of goods, properties or services, related to EXPORT SALE BY A NON-VAT REGISTERED ENTITY
such zero-related sale, shall be available as tax credit or refund in accordance with
existing regulations. Export sale by a non-VAT registered entity is a VAT-exempt transaction. A VAT
exempt sale refers to sale of goods, properties or services or the use or lease of
Gross Sales Pxx properties that is not subject to VAT (output tax) and the seller/supplier is not
x VAT Rate 0% allowed any tax credit of VAT (input tax) on purchases related to such exempt
OUTPUT VAT P0 transaction.
INPUT VAT (xx) *
VAT PAYABLE (REFUNDABLE) (PXX) ** Gross Sales Pxx
x VAT Rate N/A Vat Exempt
Purpose of Zero-Rating: OUTPUT VAT P0
 The zero rated seller becomes internationally competitive by allowing the INPUT VAT N/A Not Allowed
refund or credit of input taxes that are attributable to export sales. VAT PAYABLE -

Rationale for zero rating of export sales:
 The Philippine VAT system adheres to the cross border doctrine/destination
principle, according to which, no VAT shall be imposed to form part of the cost
of goods destined for consumption outside of the territorial border of the taxing
authority.
* The Input VAT attributable to Zero Rated (0%) Sale may be:
a. Refunded; or
b. Claimed as deduction/tax credit against output VAT on domestic sales; or
c. Claimed as Tax Credit (TCC) against any other internal revenue taxes.
** Refund of Input VAT on Zero-Rated (0%) Sale (refer to p. 251-252)
ZERO RATED SALE OF GOODS
The following sales by VAT-registered persons shall be subject to 0% VAT:
EXPORT SALES
A. Actual Export and Deemed Export Sales:
(1) 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 and
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 VAT registered person whose sales of goods, properties or services are zero- Deemed Export Sales:
rated or effectively zero-rated may apply for the issuance of a tax refund of input VAT
attributable on such sales. The input VAT that may be subject of the claim shall exclude PRIOR to 2018 TRAIN Law
the portion of the input VAT that has been applied against the output VAT. The application Sale of goods which are considered as Items (2), (3), and (4) are now subject to
“Deemed Export Sales” by a VAT- 12% VAT but upon satisfaction of the
should be filed within 2 years after the close of the taxable quarter when such sales were
registered person to certain entities following:
made.
(2) Sale of raw materials or packaging a. Successful establishment and
materials to a non-resident buyer for implementation of an enhance
Claims for refunds shall be made with the appropriate BIR Office [Large
delivery to a resident local export refund system that grants refunds of
Taxpayer’s Service (LTS)], RDO having jurisdiction over the principal place of business of
 oriented enterprise to be used in creditable input tax within 90 days repealed by TRAIN Law. Consequently, until a law or revenue regulation is passed or
manufacturing, processing, packing, or from the filing of the VAT refund issued contrary to or incompatible with the pronouncement by the DOF, the VAT zero-
repacking in the Philippines of the said application with the BIR; The 90 day rating incentive being enjoyed by PEZA locators or entities shall remain in full force and
buyer’s goods, paid for in acceptable period to process and decide, effect.
currency, and accounted for in pending the establishment of the
accordance with the rules and enhanced VAT Refund System shall ZERO RATED SALE OF SERVICES
regulations of the BSP; only be up to the date of approval of
the Recommendation Report on The following Sale of Services “performed in the Philippines” shall be subject to ZERO
(3) Sales to Export-Oriented enterprises
such application for VAT refund by percent (0%) VAT:
which the code considers as export
the Commissioner or his duly
sales at the level of the supplier of raw authorized representative; Provided; 1. Processing, manufacturing or repacking Under TRAIN Law, transactions #1
materials. The sale is considered zero that all claims for refund/tax credit
rated only if the sale of raw materials is goods for other persons doing business and #2 are now subject to 12% VAT
certificate filed prior to Jan. 1, 2018
made to an export oriented-enterprise outside the Philippines which goods are but only upon satisfaction of the
will be governed by the 120-day following:
whose export sales exceed 70% of processing period; and
subsequently exported, where the services
actual annual production. b. All pending VAT refund claims as of are paid for in acceptable foreign currency a. Successful establishment and
(4) Export Sales under EO No. 226, Dec. 31, 2017 shall be fully paid in and accounted for in accordance with the implementation of an enhance
otherwise known as the Omnibus cash by Dec. 31, 2019 rules and regulations of the Bangko Sentral refund system that grants
Investment Code of 1987 and other ng Pilipinas (BSP). refunds of creditable input tax
special laws. within 90 days from the filing of
2. Services performed by subcontractors
the VAT refund application with
(5) Sale of gold to BSP VAT EXEMPT and/or contractors in processing, the BIR; and
(6) SALE of goods, supplies, equipment 0% VAT converting, or manufacturing goods for an b. All pending VAT refund claims
and fuel to persons engaged in enterprise whose export sales exceed as of Dec. 31, 2017 shall be fully
international shipping or international seventy percent (70%) of total annual paid in cash by Dec. 31, 2019.
air transport operations
production.
ART. 23 EXECUTIVE ORDER 226 (refer to p. 254)
3. Services other than those mentioned in item #1 above rendered to a person
B. Effectively Zero Rated Sales. Sales to entities which exempt under a special law engaged in business conducted outside the Philippines or to a NRP-NETB who is
or under international agreements to which the Philippines is a signatory outside the Philippines when the services are performed, the consideration for
effectively subjects such sales to zero rate. which is paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP.
Example (International Agreements): 4. Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively
 Sale of Goods to Asian Development Bank (ADB)
subjects the supply of such services to zero percent (0%) rate.
 International Rice Research Institute (IRRI)
5. Services rendered to persons engaged in international shipping or international
Meaning of the term “effectively zero-rate sale” (RR 16-2005) air transport operations, including leases of property for use thereof.
6. Transport of passengers and cargo by domestic air or sea vessels from the
Shall refer to local sale of goods and properties by a VAT registered person or Philippines to a foreign country.
entity who was granted indirect tax exemption under special laws or 7. Sale of power or fuel generated through renewable sources of energy such as,
international agreements. but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy,
and other emerging energy sources using technologies such as fuel cells, and
STATUS QUO ON VAT ZERO-RATING OF SALES TO PEZA ENTITIES
hydrogen fuels.
DOF Memorandum Circular No. 2018-003 declared “status quo” on VAT-zero
rating incentive on the sale of goods/services to separate customs territories. It further
provides that Section 8 of the PEZA Law, which provides that special economic zones are
to be operated and managed as a separate customs territory, was not amended or
INPUT VAT prior to exhaustion of input VAT thereon,
the entire unamortized input VAT on the
Input VAT means the VAT due on or paid by a VAT-registered taxpayer on capital goods sold can be claimed as input
importation of goods or local purchase of goods, properties or services, including lease or tax credit during the month or quarter
use of property in the course of his trade or business. It shall also include the transitional when the sale is made. If the life of the
input tax determined in accordance with Section 111 of the Tax Code, presumptive input capital good or depreciable asset is not
tax and deferred input tax from previous period. more than 1 year or 12 months, the asset
is not treated as a capital good subject to
SOURCES OF INPUT VAT depreciation. Hence, allocation of input
INPUT VAT may come from: VAT is not applicable. The total amount of
input VAT shall be claimed in the month
 Local purchase of goods and services of acquisition.
 Acquisition of Capital Goods
 Importation Under the TRAIN Law:
 Presumptive Input VAT
 Transitional Input VAT  The rule on amortizing the input VAT on capital goods shall only be allowed until
 Standard Input VAT Dec. 31, 2021. Consequently, amortization of input VAT on capital goods
purchased/imported beginning Jan. 1, 2022 shall no longer be allowed.
I. Local Purchase of goods and services such as purchase or acquisition of:  Taxpayers with unutilized input VAT as of Dec. 31, 2021 shall be allowed to apply
a) Goods for sale the same as scheduled until fully utilized.
b) Goods for conversion into finished product (including packaging
materials). TABLE 8-8: RULES ON RECOGNITION OF INPUT VAT FOR CAPITAL GOODS
c) Goods for use as supplies Aggregate Acquisition for the month > P1M, exclusive of VAT, and
d) Goods for use as materials supplied in the sale of services Life > 1 year Input Tax shall be spread evenly over such useful
e) Goods for use in trade or business for which depreciation or life but not to exceed 60 months.
amortization is allowed (Capital Goods). Life ≤ 1 year Not a capital asset. Input tax is not allocated.
f) Real properties for which VAT has actually been paid Aggregate Acquisition cost for the month ≤ P1M, exclusive of VAT (regardless of useful
g) Services for which VAT has actually been paid life). The related input VAT is not allocated. Consequently, the total amount of input
VAT shall be treated as tax credit against output VAT in the month of acquisition.
INPUT VAT ON CAPITAL GOODS (Depreciable Goods) UNDER TRAIN LAW: For capital goods acquired beginning Jan. 1, 2022, the entire
Capital goods refer to goods or properties with estimated useful life of greater related input VAT shall be claimed during the month the capital goods are purchased,
than 1 year and which are treated as depreciable assets, used directly or indirectly in the irrespective of acquisition cost.
production or sale of taxable goods or services. Input taxes on the purchase of capital
goods by a VAT registered person shall be allowed as a tax credit against output VAT based II. IMPORTATION
on the following rules:
Value added tax is a tax on the value added by every seller to the purchase price or
cost in the sale or lease of goods, properties or services in the ordinary course of trade or
INPUT VAT ON CAPITAL GOODS
business as well as on importation of goods into the Philippines, whether for personal or
Aggregate Purchase Price during the month (excl. of VAT)
More than P1M Not more than P1M business use. VAT is a business tax, hence, it should only be imposed to transactions arising
Input tax shall be spread or allocated Input tax is not allocated. The total from the ordinary course of trade or business. The only exception to this rule is the imposition
evenly during the estimated useful life of amount of input VAT shall be treated as of VAT in importation.
the depreciable asset but it shall not tax credit against the output VAT in the VAT on importation is imposed regardless of whether such importation is for
exceed 60 months. Allocation shall month of acquisition. personal or business use. Although importation is not a sale of goods, or sometimes not even
commence in the calendar month when a business activity, VAT is imposed because VAT is a consumption tax levied on sales to be
the capital good was acquired. If the borne by consumers with sellers acting simply as tax collectors. And, as the origin of
capital is sold within the 5 year period or
importation is from a foreign seller, the VAT (consumption tax) is instead paid directly by the purchases of primary “agricultural products” which are used as inputs to their
importer. production. The term “processing” shall mean pasteurization, canning and activities
which through physical or chemical process alter the exterior texture or form or inner
IMPORTATION OF GOODS BY TAX EXEMPT PERSONS substance of a product in such manner as to prepare it for special use to which it could
In the case of goods imported into the Philippines by VAT-exempt persons, entities not have been put in its original form or condition.
or agencies which are subsequently sold, transferred or exchanged in the Philippines to ENTITLED TO PRESUMPTIVE VAT: PERSONS OR FIRMS ENGAGED IN THE:
non-exempt persons or entities, the latter shall be considered the importers thereof and PROCESSING OF: MANUFACTURING OF:
shall be liable for the VAT due on such importation.  Sardines  Refined Sugar
 Mackerel  Cooking oil
COMPUTATION OF VAT ON IMPORTATION  Milk  Packed noodle based
instant meals
1) In General, based on the total value used by the Bureau of Customs in IV. TRANSITIONAL INPUT TAX
determining the tariff and customs duties (dutiable value) plus customs duties, Person who becomes liable to VAT or any person who elects to be a VAT-registered
excise taxes, if any, and other legitimate charges, prior to removal of goods from person shall, subject to the filing of an inventory according to rules and regulations
the customs custody. prescribed by the Secretary of Finance, upon recommendation of the Commissioner, be
allowed input tax on his beginning inventory of goods, materials, and supplies,
FORMULA:
equivalent to 2% of the value of such inventory or the actual VAT paid on such goods,
Total value for tariff and customs Pxx ** Should only refer to materials, and supplies, whichever is higher, which shall be creditable against the output
duties (as determined by the BOC) legitimate expenses prior to tax.
ADD: Customs Duties xx release from BOC such as: TAXPAYERS WHO CAN AVAIL TRANSITIONAL INPUT VAT:
Excise Tax xx  Insurance, Freight, Postage a) Taxpayers who becomes liable to VAT
** Other charges prior to release xx  Interest, Commission b) Taxpayers who elects to be VAT registered
Tax base Pxx  Bank charge, Brokerage
x Tax rate 12%  Wharfage, Arrastre, Stamps
V. STANDARD INPUT TAX (refer to p. 268)
 Processing Fee
VAT ON IMPORTATION Pxx The government or any of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (GOCCs) shall, before making
2) Where the customs duties are determined on the basis of Quantity or Volume payment on account of each purchase of goods and/or services taxed at 12% VAT, deduct
of Goods, the landed cost should be used as a basis in computing VAT which and withhold a Final VAT due at the rate of 5% of the gross payment.
includes invoice cost, freight, insurance, customs duties, excise taxes, if any, and The government or any of its political subdivisions, instrumentalities or agencies
other legitimate charges, prior to removal of goods from the customs custody. including GOCCs, as well as private corporation, individuals, estates and trusts, whether
FORMULA: large or non-large taxpayers, shall withhold 12% VAT, starting Feb. 1, 2006, with respect
Invoice Amount Pxx ** Should only refer to to the following payments:
legitimate expenses prior to
ADD: Customs Duties xx 1) Lease or use of properties or property rights owned by non-residents; and
release from BOC such as:
Excise Tax xx  Insurance, Freight, Postage 2) Other services rendered in the Philippines by non-residents.
** Other charges prior to release xx  Interest, Commission The 5% withholding VAT shall be remitted within 10 days from the close of the
Landed Cost Pxx  Bank charge, Brokerage month the withholding was made.
x Tax rate 12%  Wharfage, Arrastre, Stamps TRAIN Law:
VAT ON IMPORTATION Pxx  Processing Fee  Beginning 2021, the VAT withholding system shall shift from final to a creditable
VAT system
III. PRESUMPTIVE INPUT TAX OF 4% ON SALE OF GOODS  Payments for purchases of goods and services arising from projects funded by
Persons or firms engaged in the processing of sardines, mackerel and milk, and in Official Development Assistance (ODA), shall not be subject to withholding of
manufacturing refined sugar and cooking oil, shall be allowed a presumptive input tax, VAT.
creditable against the output tax, equivalent to 4% of the gross value in money of their  The payor shall be considered the withholding agent.
Basis of Value Added Tax II. Sale of Services
The law that governs the implementation of VAT is RA 9337, The VAT Reform Cash received (actually and constructively, receivables not included)*** Pxx
Act, passed by Congress in May 2005 and amended by RA 93961. It was implemented on Deposits/Advance payments for future projects xx
November 1, 2005. Under this law, a single rate equivalent to 12% (except for 0% sales) Materials charged for services xx
is based on the following: Gross receipts xx
NATURE OF TRANSACTION TAX BASE x VAT Rate 12%
a. Sale of goods or properties Gross Selling Price Output VAT xx
b. Sale of services Gross receipts LESS: Input VAT (xx)
c. Importation Total landed cost
VAT Payable/(Excess Input VAT) Pxx
d. Dealers in Securities Gross Income
***Receivables (for sale of services), although earned, are not included in the
computation of VAT Payable.
I. Sale of Goods or Properties
Gross Sales Pxx III. Dealer in Securities and Lending Investors
LESS: Sales discounts (xx)
Gross Selling Price Pxx
Sales returns (xx)
LESS: Acq. Cost of securities sold for the month/quarter (xx)
Net Sales xx Balance xx
ADD: Excise tax, if any xx ADD: Other income subject to basic tax xx
Tax Base xx Gross Income xx
x VAT Rate 12% x VAT Rate 12%
Output VAT xx
Output VAT xx
LESS: Input VAT (xx)
LESS: Input VAT (xx)
VAT Payable/(Excess Input VAT) Pxx
VAT Payable/(Excess Input VAT) Pxx

In computing the taxable base during the month or quarter, the following shall be
GROSS SELLING PRICE
allowed as deductions from the gross selling price:
The total amount of money or its equivalent If the VAT is not billed
a) Discounts determined and granted at the time of sale, which are expressly separately in the document
which the purchases pays or is obligated to pay to the seller
indicated in the invoice, the amount thereof forming part of the gross sales duly of sale, the selling price or
in consideration of the sale, barter, or exchange of the the consideration therein,
recorded in the books of accounts. Sales discount indicated in the invoice at the
goods or properties, excluding VAT. The excise tax, if any, shall be deemed to be
time of sale, the grant of which is not dependent upon the happening of a future
on such goods or properties shall form part of the gross inclusive of VAT.
event, may be excluded from the gross sales within the same month/quarter it
selling price.
was given.
In the case of sale, barter or exchange of real property subject to VAT, gross
b) Sales returns and allowances for which a proper credit or refund was made or
selling price shall mean the consideration stated in the sales document or the FMV,
a credit memo was issued during the month/quarter to the buyer for sales
whichever is HIGHER.
previous recorded as taxable sales.
Fair Market Value
Excess Input Tax If the gross selling price is
The term shall mean whichever is HIGHER of: 1)
Sec. 4. 110-7 of RR 16-2005 as amended by RR2-2007 provides that If the input based on zonal or FMV of
FMV as determined by the CIR or 2) FMV as shown in the
tax inclusive of input tax carried over from the previous quarter exceeds the output tax, property, the zonal or
schedule of values of the Provincial and City Assessors (RPT market value shall be
the excess input tax shall be carried over to the succeeding quarter or quarters, provided,
declaration). However, in the absence of zonal value/FMV deemed exclusive of VAT.
however, that any input tax attributable to zero-rated sales by a VAT-registered person
as determined by the CIR, the gross selling price refers to
may at his option be refunded or applied for a tax credit certificate which may be used in
the market value shown in the latest real property tax
the payment of internal revenue taxes, subject to the limitations as may be provided for
declaration or the consideration, whichever is HIGHER.
by law, as well as, other implementing rules.
GROSS RECEIPTS
Refers to the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits 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 the
VAT.
Constructive receipt occurs when the money consideration or its equivalent is
placed at the control of the person who rendered the service without restrictions by the
payor. The following are examples of constructive receipts:
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 payer to the account of the contractor.

ADVANCE PAYMENT
An advance payment is an advance payment on behalf of another if the same is
paid to a 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 for the sale of goods or services by the former to the latter.