Zero Rated Sales

- Excess of input VAT can be credited to output VAT

*Exempt Sales – claimable as deduction in the Income Tax Return

I. Zero Rated Sale of Goods

A. Export Sales
1. Direct Export – actual shipment of goods from PH to foreign country, regardless of shipping
arrangements

Requirements:

a. Paid for in acceptable foreign currency or its equivalent in goods or services

b. Accounted for in accordance to the rules and regulations of BSP

**Peso denominated sales = exempt transactions

** Sale to economic Zones – effectively zero-rated sales

By fiction of law, economic/tourism zones are considered foreign territories
Sales are technical exportation
2. Sale of goods or properties, supplies and equipment and fuel to persons engaged in
international shipping/air carriers and transport operations
o Zero-rating is limited to goods, supplies, equipment, and fuel pertaining to the transport
of goods and passengers from a port in the PH directly to a foreign port (vice versa) w/o
docking or stopping at any port in the PH, unless such docking or stopping is for the
purpose of unloading passengers and/or cargoes originating from abroad or to load
passengers and/cargoes bound for abroad

B. Effectively Zero-Rated Sales (Sec 106(a)(2)(b), NIRC)

1. sales to persons or entities where exemption under special laws or international agreements
to which the PH is a signatory
- e.g. sales to ADB, UN, US AID etc. = equal footing with states

Requirement – prior approval from BIR (Audit Info, Tax Exemption and Incentive Division, or BIR
national office – Large taxpayers)

No Approval = considered exempt

2. Embassies and their Personnel

o Zero-rating applies to foreign governments granting PH embassies and diplomats
indirect tax exemptions
o Qualified embassies and their qualified personnel and dependents are issued VAT
Exemption Certificates or VAT Exemption Identification Cards,

II. Zero Rated Sales of Services

1. Sale of Service to non- residents

- Applies to services other than processing, manufacturing, or repacking tendered to a persons
engaged in business conducted outside the PH or to a non-resident person not engaged in
business who is outside the PH when rendered
Requirements:
a. Service must be performed in the PH
b. Must be paid in acceptable foreign currency or its equivalent in goods/services
c. Payment must be accounted for under the RR of the BSP
2. Effectively zero-rated sales of services
3. Services rendered to persons engaged in international shipping/air transport operations
including leases of properties thereof
4. Transport of passengers and cargoes of Domestic Air/Sea Carriers
5. Sale of Power or fuel generated from renewable sources of energy
6. Services rendered to Eco zones