VALUE ADDED TAX (VAT) EXEMPT SALES

(Section 109 NIRC, as amended under RA 10963- TRAIN Law; RR 13-2018)

A. Sale or importation of:

1. Agricultural and marine “food products in their original state”
2. Livestock; and
3. Poultry of kind generally used as yielding or producing foods for human consumption and
breeding stock and genetic materials therefore.
Note: Original state means undergone the simple processes of preparation or preservation such as freezing, drying, salting, broiling,
roasting, smoking or stripping, including the advanced technological means of packaging, such as shrink wrapping in plastics, vacuum
packaging, tetra pack and other packaging methods.

Examples of Agricultural and Marine Food Products in their original state.

Agricultural Marine Livestock Poultry
-Polished/husked rice Fish Cows Fowls
-Corn grits Crustaceans such as: Bulls Ducks
 Lobster, shrimps
-Raw cane sugar &  Prawns, oysters Calves Geese
molasses  Mussel, clams
-Copra  Trout, eels Pigs Turkey
Sheep
Goats
Rabbits
Note: Livestock or poultry does not include fighting cocks, race horses, zoo animals and other animals generally considered as pets.

B. Sale or importation of:

1. Fertilizers (organic)
2. Seeds, Seedlings and fingerlings
3. Fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds.
C. Importation of personal and household effects belonging to:
1. The residents of the Philippines returning abroad; and
2. Non-resident citizens among to resettle in the Philippines
D. Importation of professional instruments and implements, tools of trade, occupation or employment,
wearing apparel, domestic animals and personal and household effects belonging to the persons
coming to settle in the Philippines or Filipinos or their families and descendants who are now
residents or citizens of other countries.
E. Services subject to Percentage Tax under Title V of the Tax Code (Sections 116-127 of the Tax Code).
F. Services by
A. “Agricultural contract growers” and
B. Milling for others of:
o Palay into rice
o Corn into corn grits
o Sugar cane into raw sugar
G. Medical, dental, hospital and veterinary services except those rendered by professionals.
H. “Educational services rendered by private educational institutions, duly accredited by Department of
Education (DepEd), the Commission on Higher Education (CHED), the Technical and Skills
Development Authority (TESDA) and those rendered by government educational institutions.
I. Services rendered by individuals pursuant to an employee-employer 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 the international agreements to which the Philippines is a
signatory or under the special laws, except those under Presidential Decree No. 529 (Petroleum
Exploration Concessionaries under the Petroleum Act of 1949)
L. Sale by agricultural cooperatives duly registered 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, 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 MEMBERS TO NON-MEMBERS

Sale of cooperative’s own produce (processed or at Exempt Exempt
its original state)
 Other than the cooperative’s own produce (i.e. from Exempt VAT*
“traders”)
*Exempt if referring to agricultural products at its original state.

It is to be reiterate however, that sale or importation of agricultural food products in their original
state is exempt from VAT irrespective of the seller and buyer thereof, pursuant to subsection (a) [Sec.
4. 109-1 (B) (I), RR 4-2007]

M. Gross receipts from “lending activities” by credit or multi-purpose cooperatives duly registered with
the Cooperative Development Authority”. Exemption is not only limited to the gross receipts on loans
extended to its members but also to other persons who are not members.
GROSS RECEIPTS BY CREDIT OR MULTI-PURPOSE FROM MEMBERS FROM NON-
COOPERATIVES MEMBERS
From lending activities Exempt Exempt
From non-lending activities VAT VAT

N. “Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the
Cooperative Development Authority (CDA), provided that the share capital contribution of each
member does not exceed fifteen thousand pesos (P 15,000) and regardless of the aggregate capital
and net surplus ratably distributed among the members”. Importation by non-agricultural, non-
electric and non-credit cooperatives of machineries and equipment including spare parts thereof, to
be used by them are subject to VAT.
GROSS RECEIPTS / SALES BY FROM MEMBERS FROM NON-
MEMBERS
Electric Cooperatives VAT VAT
Agricultural Cooperatives Refer to letter “L” Refer to letter “L”
“Lending Activities” by lending and multi-purpose Refer to letter “M” Refer to letter “M”
cooperatives
Non-agricultural, non-electric, non-lending/credit
cooperatives
 Contribution per member < P 15,000 Exempt Exempt
 Contribution per member > P 15,000 VAT VAT

O. “Export sales” by persons who are not VAT registered.

Export sales may be exempt or subject to VAT as shown in the figure below:

BUSINESS TAXES OF EXPORT SALES

By a Non-VAT Vat Exempt

Export Sales Reg Export Sales
Export Sales
By a VAT Reg Vatable @ 0%
Export Sales
P. Sale of: Export Sales
1. Real property not primarily held for sale to customers or held for lease in the ordinary course of
trade or business.
2. Real property utilized for low-cost housing and socialized housing defined by Republic Act No.
7279, otherwise known as the Urban Development and Housing Act of 1992 and other related
laws.
3. Real property utilized for “socialized housing” as defined by Republic Act No. 7279 and other
related laws such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P
450,000 or as may from the time to be determined by HUDCC and the NEDA and other related
laws.
4. Residential lot valued at P 1,500,000 and below beginning January 1, 2018 (previously P
1,919,500) or house and lot and other residential dwellings valued at P 2,500,000 and below
beginning January 1, 2018 (previously P 3,199,200)

Sale of Adjacent lots

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 do not
exceed P 1,5000,000 (as amended). Adjacent residential lots, although covered by separate titles and/or
separate tax declarations, when sold to one and the same buyer whether covered by one separate Deed of
Conveyance, shall be presumed as sale of one residential lot.
Provided, that beginning January 1, 2021, the VAT exemption shall only apply to 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 property utilized for socialized housing as defined under RA No. 7279, sale of house and
lot and other residential dwellings with selling price of not more than two million pesos (P 2,000,000):
Provided, further, that every three (3) years after, the amounts state therein shall be adjusted to its present
value using the Consumer Price Index, as published by the Philippine Statistics Authority (PSA).

SALE OF REAL PROPERTIES

Sale not in the ordinary course of trade or business VAT Exempt

Sale of
Residential lot
 Selling price < P 1,500,000* per lot (as amended) VAT Exempt
 Selling price > P 1,500,000* per lot (as amended) VAT

Residential house and lot and other residential dwellings

 Selling price < P 2,500,000/ P 2,000,000** per lot (as amended) VAT Exempt
 Selling price > P 2,500,000/ P 2,000,000** per lot (as amended) VAT

Sale of real property classified as low cost housing VAT Exempt

Sale of real property classified as socialized housing VAT Exempt
*Apply rules on adjacent lots;
**The threshold will be decrease to P 2,000,000 beginning January 1, 2021
Under the TRAIN Law, beginning January 1, 2021, the VAT Exemption shall only apply to :
1. Sale of real property not primary held for sale to customers or held for lease in the ordinary course of trade or business.
2. Sale of real property utilized for socialized housing as defined under RA 7279
3. Sale of house and lot and other residential dwellings with selling price of not more than P 2,000,000.

SALE OF PARKING LOTS IN THE SALE OF CONDOMINIUM UNITS ( RR-13-2012)

Exemption from VAT 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 lot 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 selling price (RR-13-2012).

IMPOSITION OF VAT ON FORECLOSURE SALES OF REAL PROPERTY CHARACTERIZED AS ORDINARY

ASSET
In case of non-redemption of properties sold during involuntary sales, regardless of the type of
proceedings and personality mortgagees/selling persons or entities, if the property is an ordinary asset, the
value added tax under Section 106 of the Tax Code (as amended) shall be imposed (RR-16-2005)
The VAT shall be based on whichever is higher of the consideration (bid price of the highest bidder)
or the fair market value or the zonal value as determined in accordance with Section 106 (E) of the Tax Code.
The said tax shall be paid to the Bureau by the VAT-registered owner/mortgagor on or before the 20 th or 25th
day, whichever is applicable, of the month following the month when the right of redemption prescribes (RR-
9-2012)

Q. Lease of Residential Unit

Lease of a residential unit with a monthly rental per unit not exceeding fifteen thousand pesos (P15,000)
(as amended under TRAIN Law: previously P 12,800) regardless of the amount of aggregated rentals received
by the lessor during the year (RR 16-2011; RR 13-2018).
Lease of residential units where the monthly rental per unit exceeds P 15,000 but the aggregate such
rentals of the lessor during the year do not exceed P 3,000,000 (as amended under TRAIN Law: previously P
1,919,500) shall likewise be exempt from VAT, however, the same shall be subjected to three percent (3%)
percentage tax under Section 116 of the Tax Code (RR-16-2011: RR 13-2018).

LEASE OF RESIDENTIAL AND COMMERCIAL UNITS

Lease of Residential Units

Lease of
Commercial Units
Monthly Rental Monthly Rental
< P 15,000 > P 15,000

Annual receipts of the lessor Generally subject to VAT regardless of

of the lessor > P 3,000,000 monthly rental.

Subject to 3% OPT if the lessor is Non-VAT

  The revised threshold of P 15,000 and P 3,000,000 shall apply only upon effectivity of RA 10963 (TRAIN Law)
beginning January 1, 2018.

In cases where a lessor has several residential units for lease, some are leased out for a monthly rental
per unit of not exceeding P 15,000 (as amended) while others are leased out for more than P 15,000 per unit,
his taxability will be:
a. The gross receipts from rentals not exceeding P 15,000 per month per unit shall be exempt from VAT
regardless of the aggregate annual gross receipts.
b. The gross receipts from rentals exceeding P 15,000 per month per unit shall be subject to VAT if the
annual gross receipts exceed P 3,000,000 as amended, from said units only – not including the gross
receipts from units leased out for not more than P 15,000. Otherwise, the gross receipts shall be
subject to three percent (3%) percentage tax under Section 116 of the tax Code ( RR 16-2011; RR 13-
2018).

Residential Unit shall refer to:

 Apartments and houses and lots used for residential purposes.
 Buildings or parts or units thereof used solely as dwelling places (i.e dormitories, rooms, bed spaces) except motels, motel rooms,
hotels and hotel rooms.
Units shall refer to:
 Apartment unit in case of apartments
 House in case of residential houses
 Per room in case of dormitories, boarding houses and bed spaces and;
 Per room in case of rooms per rent

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.
Under the BIR Rulings No. 083-2014, the term “book”, newspaper, magazine, review, bulletin” only covers printed
matters in hard copy and does not apply to electronic format or versions including but not limited to:
- E-books
- E-journals
- Electronic copies
- Online library sources
- CDs and software.
Furthermore, the activities that exempt from VAT under this provision are as follows:
1. Sale
2. Importation
3. Printing
4. Publication of books, newspapers, magazines, reviews and bulletins. Moreover, newspapers, magazines,
reviews and bulletins should appear at regular intervals with fixed prices for subscription and sale and which
is not devoted principally for the publication of paid advertisements.
Thus, a corporation’s other transactions (such as the printing of brochures, bookbinding, engraving, stereotyping,
electrotyping, lithographing of various reference books, trade books, journals and other literary works) are subject
to VAT. The taxpayer is required to register its business as a VAT business entity and issue a separate VAT
invoice/receipt to record such transactions.
S. Transport of passengers by international carriers doing business in the Philippines.
T. Sale, importation or lease of passengers or cargo vessels and aircraft, including engine, equipment
and spare parts thereof for domestic or international transport operations, provided, that the
exemption from 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)
U. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations. Provided that the fuel, goods and supplies shall be used for international shipping or air
transport operations. Thus, said fuel, goods and supplies shall be used exclusively or shall pertain to
the transport of goods and/or passenger from a port in the Philippines directly to a foreign port, or
vice versa, without docking or stopping at any other port in the Philippines 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 or supplies
shall be subject to 12% VAT.
 V. Services of banks, non-banks financial intermediaries performing quasi-banking functions and other
non-bank financial intermediaries such as money changers and pawnshops, subject to percentage tax
under Section 121 and 122, respectively of the Tax Code.
W. Sale or lease of goods and services to senior citizens and persons with disabilities, a provided under
RA No. 9994 (Expanded Senior Citizens Act of 2010) and RA No. 10754 (An Act Expanding the
Benefits and Privileges of Persons with Disability (PWD), respectively.
X. Transfer of property pursuant to Section 40 (C)(2) of the Tax Code, as amended.
Y. Association due, membership fees and other assessments and charges collected on purely
reimbursement basis by homeowners associations and condominium corporations established under
RA No. 9904 (Magna Carta for Homeowners’ and Homeowners Association) and RA No. 4726
(Condominium Act), respectively. This provision shall take effect only beginning January 1, 2018 or
upon the effectivity of RA No. 10963- TRAIN Law.
Z. Sale of Gold to Bangko Sentral ng Pilipinas (BSP)
AA. Sale of drugs and medicines prescribed for diabetes, high cholesterol and hypertension. (Beginning
January 1, 2019)
BB. 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 gross receipts do not exceed
the amount of P 3,000,000.

Self-Employed Individuals and Professionals

Self-employed individuals and professionals availing of the 8% tax on gross sales and/or receipts and
other non-operating income under Sections 24 (A)(20)(b) and 24 (A)(2)(c) of the Tax Code shall be exempt
from the payment of 12% VAT.

References:
Tabag, E., Garcia, E.J. (2019). Transfer and Business Taxation, PRTC, Sampaloc Manila.
Republic Act No. 8424. National Internal Revenue Code (NIRC)
Republic Act No. 10963 TRAIN Law