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    Tax 8613 (1-24) 55829

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    Nature | i “Atty. C. Llamado (October 2019) | vaT 1) A business tax. In effect, a sales tax. 2) Indirect tax ~ burden can be shifted by the seller to the buyer. 3) Imposed: (@) On the gross selling price if sale, barter, or exchange of goods or properties (©) On the gross receipts if sale of services, or inthe lease or use of properties inthe course of rade or business; (©) On the total value or landed cost, if impartation of goods, whether or notin the course of business 4) How Computed? Tax Credit Method: Output Tax less Input Tax Summary of Tax Consequences of VAT-Taxable and VAT-Exempt ‘Transactions [Kind of Trans A. VAT-Taxable transactions: 1. Sales or leases taxed at {(@) Seller is subject to VAT at 12%; (b) Sellers entitled to input tax credit; (©) Seller pays excess of output tax over input tax to the BIR; (@) Seller can carry-over excess input taxes to succeeding quarer(s). 2. ales or leases taxed at 0% (zero-rated) (a) Sellers subject to VAT at 0% (b) Seller is entitled to input tax credit; () Selir can claim refund or tax ereit for input taxes; B. Exempt transactions (@) Seller is exempt from VAT; () Seiler cannot separately bill output tax to his customers; (©) Sellers not entitled to input tax credit, (@) Selier shail be liable to VAT if he issues VAT invoice ot receipt, but without the benefit of input tax credit. Atty. C, Llasnado (October 2019) REGISTRATION FOR VAT Mandatory Regintration “optional Registration Ty Gross sales/eceipts on all lines of paw; |1) Any person who is not subject to mandatory ‘exempt businesses! for the past 12 months | registration because his actual or expected exceed 3,000,000. gross sales/receipts ftom non-exempt hnasinesses for the past 12 months do net ceed P3,000,000. By Expected salesTreceipts for the next 12/3) Any VAT-registered person who has other months from all lines of non-exempt | lines of basiness which are VAT-exempt, businesses exceed P3,000,000, ‘The VAT-xempt business must not be the main line of business. ote: La (1) en @), the registration shall be ctl fr ibe net 3 year ef 3) Franchise grantees of radio end/or TV | 3) Franchise gcantees of radio and/or TV broadcasting whose annual sales for the | broadcasting wnoss emnual sales < P10 M. Tas taxable year exceed 10,000,000, Note: Revistrtion is izevocable. Benefit: The VAT-registered person isenttled | Benefit: The exsiomers oF clients of the to input tex credits. : sngce wl be able to reduce their pavables by using the input tax 1 Feom thelr purchases from the __taxeayer. Notes: thoent or place of business 1) Registration. is txquited “on ever” separate or Cistivet establi where sales aasacticns oovur except 3 arehoase without 2) Bach VAT-regiered person shall be assigned one (1) TIN. ‘Tic branch shall use the 9+ digit TIN of the head office + a 3-igit branch cede 3) For those who ars nor registered, bet boconte lisble 10 VA A.non-VAT taxpayer whe inidally presurnad tht his grass satesreceipts plus other non ‘operating incom: for the taxable yses will ot exores the P3 009.000 VAT ibreshotd but thas actually excesded the same curing the éavable yes, shal immeielely update his registration to reflec the change in tax pavfse From oon-VAT to VAT taxpayer He i requited to update his registration ume ately within the mond following the month he exceeded the VAT ttyeshold. And he shell be lible to VAT prospectively starting on the first day cf the month following the month when the dbresiold is breasted, 4) Annual cesistration fe: PS00 for every separne or distixet place of business where sales ‘transactions oscar (Cooperatives ar. exempted ftom the registration fe 5) VAT Registration Cerificate ond Registretion Fee Reser must be posted in a conspicuous place in te place of basiness. " VATable businesses, RR E2018, Aly. C. Llamado (October 2019) Eflect of Failure to Register by Persons Required to Do So 1) Liable to VAT on their sales; 2) No input VAT credits on their purchases, 3) Cannot separately bill ouput VAT to customer. In other words, the taxpayer cannot shift the VAT burden to his custormers; 4) Fines and sanctions (OPLAN KANDADO: suspension of operations or closure of business > 5 days). Cancellation of Registration ‘A VAT registered person may cancel his VAT-tegistration if 1) He makes 1 written application showing that his gross sales or receipts (excluding ‘exempt sales) inthe next 12 months shall ot exceed ®3,000,000; or 2) He ceases business; 3) There isa change in ownership in the case ofa single proprietorship; 4) Dissolution of the partnership or corporation; '5) Merger or consolidation wth respect tothe dissolved corporation; 6) Failure to actually start business; 7) Business becomes exempts 8) A person who voluntarily registers and then applies for cancellation afer the lapse of 3 years; 9) AVAT-registered person whose gross sales or receipts for 3 consecutive years did not exceed #3,000,000 beginning January 1, 2018, Persons Subject to VAT 1) Those engaged in the selling or leasing of goods, properties, or services subject to VAT and registered regardless ofthe level of sales; 2) Those engaged in the selling or leasing of goods, properties or services subject £0 VAT, whose gross sales or receipts curing the year or ia any 12-month period >B3,000,000, whether or not registered: ‘Note: For purposes of the threshold of 3,000,000, husband and wife shall be ‘considered separate taxpayers. 3) These who ae VAT-registered and who have VAT-exempt businesses which they choose to register under the VAT-svstem, regardless of level of sales, 4) Franchise grantees of radio and/or TV broadcasting whose gross annual receipts do not exceed P10 Million, but are registered; 5) Importers of goods, whether or notin the course of trade ot busines, regardless of the amount of purchase, ‘Note: Unless specifically exempted by a, -k, non-profit organi ment entity is lib VAT on the sale jes. As long 1s the entity provides goods or services for a fee, remuneration or consideration, then such sae is subject to VAT. > The exempt busines(es) must be minor line of business of a VAT. registered person. Any. C. Lamavo (Oetober2019) ZERO-RATED TRANSACTIONS ~ Does not result in output VAT, but the taxpayer is entitled to ioput VAT which shall be available either asa tax credit oF asa refund, LF taxpayer i resistered. + IE-not registered, the sles of the taxpayer wil be considered VATT-exempt sles. 1) Zero-Rated Sales of Goods (4) Export sales of goods 1) Sale of goods to forsign country and paid for in accepable foreign currency; 2) Sale of raw materials or packaging materials toa non-resident buyer for delivery 10 ‘resident expor-oriened eneiprise, and paid for in accepablefreign currency; 3) Sale of raw muteils or packaging mairils to export-oriexted enterprises whose export sales exceed 70% of teal annual production; 4) Consiere expo sales under E.0. No, 226 (the Cronibus Investment Code), and osher special laws. (@) Sales to bonded manufacturing warchouses of export-oriented manafactrers (©) Sales to regisered expo lets opening bonded wading warehouses supplying raw materials in the manufacture of export products (© Sales toa BOL-ropstered prover whove prducs ar? 100% exported 5) Sale of goors suplies, equipment, an! ful To pxsons engaged in international shipping or iatematond ar traaapot operators. Psovided ha: she sale of euch goods and fuel shall pertain to the twonsport of goods and passengers from a Philmyine port directly to a foreign port, or vies-veess ‘vithout docking or Stopping at any other por” dhe Pippin NNote: The trnsastious under items (2), (3), ena (4) above shall be subject to the 12% VAT, end shell ne longer be considered exper soles eubject to (% VAT, von OF Satisfaction of tar following conditions: (0) The succesful establishment urd impleanation ofan enhanced VAT refund S)Stm Cua grants refurds of eved table incut exes swthun esvety (90) days from the fling of the VAT retisc application withthe Bases: @) All ponding VA refeia cluions as of Deormber 1, 2017 shail be fully paid in feast by Decaner 31. 2019+ (©) Bitectively 2ero-razed sales Local sales by VATT-reg'stered persons ‘0 pensons ex entiies desinsd tocenempt (Le ‘wasted exemption fro indirect tases) under a special law or inlcrational agreement, such as: (1) Emenprises regisred with tae SBMA, CDA, PEZA, and other export processing 2) ADB; FRR (8) Seles to ipo (4) Regios! 0° area hesdquarers of (@HQS! of eunatinal eaporations enjoying YALO-ating ont puases ot te tie of efletity othe TAIN; and (©) Other personsfent ties wo ae enille i 0% VAT on puree” tic missions and othe> ayencies or insumentalitice granted tax 4 See, 1O6{AXG), 4.1055, Rew Keg, No 16-2005 as anosset by Row Key. No, 13-2018, 4036 VAT on purchases is arotner way ef saying tt the purchaser is xe Foes te iapat VAT tha is normally charged bythe seller. 4 Atty. C. Llamado (October 2019) | M) Zero-Rated Sales of Services ‘The following services performed locally in the Philippines by VAT-registered persons shall be subject to 0% rate: (1) Processing, manufacturing, or epacking goods for other persons which goods are subsequently exported and which ae pid for in acceptable foreign eumency: (2) Services other than those in (1), rendered to a person engaged in business conducted ‘Outside the Philippines, or to a non-resident person not engaged in business and who is outside the Philippines, and which are paid for in acceptable foreign currency; 3) Services rendered to personslemtties whose exemption under special laws or intemational agreements effectively subjects the supply of such services to a 0% rate’, (4) Services rendered to persons engaged in intemational shipping or inefnational air transport operations, inchudng leases of property for use thereof, Provided, that the sale of services shall pertain to the tansport of goods and passengers from a Philippine port direetly to a foreign por, or vice-versa (8) Services performed by subcontractors or contractors in processing, converting, or ‘manufacturing goods for an enterprise whose export sales excoed 70% of total annual production; (6) Transport of passengers and cargo by domestic air or sea carriers from the Philippines country. Note: ‘Transport of passengers and cargo by domestic air or sea carriers from f to the nes is EXEMPT from business taxes including the VAT for lack of jurisdiction. ) Sale of power or fuel generated through renewable sources of energy such as solar, ‘wing, biomass, geothermal, and ocean energy. Note: Zerosrating does not extend to the sale of services related to maintenance or ‘operating of plants generating ssid energy. Note: The transactions under items (1) and (5) above ect tot and shall no longer subject to 0% VAT rate, upon the satisfaction of the following. ‘conditions: (1) The successful establishment and implementation of an enhanced VAT zefund system that grans refunds of creditable input taxes within ninety (90) ‘days from the filing of the VAT refund application with the Bureau; and (2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December 31, 2019." ° ectvely0-rated sales of services, 7 Sec. 108(B), NIRC; Sec. 4.108-5, Rev. Reg, No, 162005 as amended by Rev, Reg. No. 13-2018, ‘Aty.C. Liamado (October 2019) EXEMPT TRANSACTIONS = The sale shall not be subject o output VAT, but the seller is not allowed any ITC, = Seller cannot bill any output VAT to his customers. ~ Ifthe seller issues a VAT invoice or receipt without being VAT-tegistered, he shall be liable tothe output VAT without the benefit of any input VAT credit. (D Sale or importation of (2) agricultral and merine food products in tei orginal state, (6) livestock or poulty ofa kind generally used as, of yielding or producing foods for human consumption; and (c) breeding stack sad genetic materials therefor: Meat, fruit, fish. vegetables, and other agricultural and marine food products classified under this paragraph shall be considered in their Original state even if they have undergone the simple processes of Preparation or preservation forthe market, such as freezing, drving, ‘salting, broiling, roasting, smoking. oF stripping, including those using advanced technological meaus of packaging, such as shrink ‘wrapping in plastics, vacuum packing, tetra-pack, and other similar packaging methods; “Original state” ~ Polished and/or husked rice, comn grits, raw cane sugar and molasses, ‘ordinary salt, and copra shall be considered in their original state. “Livestock or Poulry” + Does not include fighting cocks, race horses, 200 animals, and other animals generally considered as pets. 9) Sale of bagasse is not exeanpt feom VAT. ») Fresh water's not an agrical-ural produc, but isc ‘thereof is not exon:pt fm VAT, ) Sale or importation of (a) fenilizers(b) seeds, seadlings, and “ingeslings; (c) fish. prawn, livestock and poultry feeds, including uredievts, wheter kveliy produced or imported, used in the manufactur: of finished feeds (except specialty feeds for race horses, fighting, ‘cocks, aquarium fish, zoo animals and other animals generally considered as pets); red a mineral, The sale ©) Lmportation of personcl_ and household silsti belunging to the residents of the Philippines returning frem abroad, end non-resident citizens coming to the Philippines: Provided, thar such goods are exempt fiom Philippine custo ns duties; (@) Importation of (a) professional inssrumests and implements:(b) tools of trade, occupation ‘sx-smployment. (©) wesring apparel: (2) eavestic onimsls; an! (¢) personal household effects (except any veisl, aera serine, and other goods for use nthe manufucture and merchandise of any kind in commercial quentivies), helonging to overseas Filipinos’, in quantities and of the class sliable to the profession, ak, c+ postion the persons {importing sai items, for their own use and aot forse, baie, or exchange, accompanying such persons, or ariving within areasonble time: (©) Services subject to percentage tax under Title V of the Tax Code (Sees, 116-127, Tax le, inp Tax Cred * Overseas Fins sal refer e yrsons comin to selene Pippins or pina or hifi ‘and descendants who are now residents or citizens of other counties, e 6 ‘Atyy. C. Llamado (October 2019) © Services by agricultural contract growers"®, and milling for others of palay into rice, com into gris, and sugarcane into raw sugar (7) Medical, dental, hospital, and veterinary services except those rendered by professionals; Note: Lab services are exempt. Sale of drugs and medicines are VATable, generally, Therefore, ifthe hospital or clinic operates a drug store the sale of drugs and medicine shall be subject to VAT. However, the sale of the same to in-patients are considered part of hospital services, nd shal therefore be VAT-exempt. (®) Educational services rendered by private educational instintions, duly accredited by the Department of Education (DepEé"), the Commission on Highet Education (*CHED"), the Technical Education and. Skills Development Authority (*TESDA"), and those rendered by government educational institutions, (©) Services rendered by individuals pursuant to an employer-employee relationship: (10) Services rendered by regional or area headquarters (“RHQs”) established inthe 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, je i $ (11) Transactions which are exemspt under international agreements to which the Philippines isa signatory or under special laws, except those under PD 529"; (12) Sales by agricultural cooperatives duly registered with and in good standing with the Cooperative Development Authority (*CDA") to their members as well as sale oftheir produce, whether in its oiginal 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 oftheir produce; (13) Gross receipts from lending activites by credit or multi-purpose cooperatives duly Tepisisred with and in good landing withthe Cooperative Development Author: (14) 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) Notes: (@ Importation by non-agricultural, non-electric, and non-credit cooperatives of ‘machineries and equipment, including spare parts thereof tobe used by them are subject w VAT. "© Agricultural conract grower refers oa prsonentity producing for others poulty, livestock, or other ‘grcultual and marine fod product in their origina tte. 21 Pewoleum Exploration Coocessionsires under the Petroleum Act of 1949, 2 Sale by an agricultural cooperative of refined sugar i exempt from VAT and from the advance VAT (CIR vs. Negros Consolidated Farmers Multi-Purpose Cooperative, S.C. (First Division), G.R. No. 212735, December 5, 2018). 1 Atty. C. Llamado (October 2019) (©) All electric cooperatives registered with the National Electrification Administration NEA") shall be subject to VAT on sales relative to the generation and distribution of elect as wel a theirimporation of machineries and equipment inching Spare parts. Provided, however, that sale of power or fuel generate; sources of energy such as, but not limited to, biomass, solar, wind, nmi ‘eothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels, shall be subject to 0% VAT. (15) Expor sales by persons who are not VAT segistereds (16) The folowing sales of real properties sre VAT-exerpt: (@) Sale of real propertcs not primarily held for sale to customers or held for lease in the ordinary course of trade or business, (Sale of teal properties uilized for low-cost housing and socialized housing as defined by RA. No. 7279, and other related laws, (¢) Sale of residential lot valued at One Million, Five Hundred Thousand Pesos {P1,500,000) and beiow; (@ Sale of house aus lot and other residential dwellings valued at Two Million, Five Hundred Thousand Pesos (P2,00,000) and below. "Note: For purposes of (c) and (@), if two (2) or more adjacent residential lots, house and lots, oF other residential dwellings are sold or disposed in favour of one ‘buyer from the same seller, for the purpose of utilizing the same as one residential arca, the sales shall be exempt from VAT only if the aggregate value of the properties do not exceed 1,500,000 for residential lots, and P2,500,000 for residential house and lots or other residential dwellings. (17) 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 yea: ‘Note: Lease of residential units with a monthly rental per unit >#15,000, but the annual aggregate of such rentals does not exceed P3,000,000, shall still be exempt from ‘VAT, but shall be subject tothe 3% percentage tax. Ifthe annual aggregate exceeds 'P3,000,000, the same shall be subject to VAT. (18) Sale, importation, printing, or publication of bocks and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed prices for subscription and sale, and which isnot devoted principally to the publication of paid advertisements; Note: Sale of books, newspapers, magazines, etc. in electronic format are VAT-taxable. * Begining January 12071, the VAT exemption shal only aply tothe following sales of al prope: (©) oer rina efor aor ere een herr cour cao (@pReal property sized for socialized housing as defined by RA.No. 7279; and (@yHouse and Te, and othr residential Gwelings witha sling pics of not more then Two Millon Pesos P2,00,000) (TRAIN). The term “residentfal unis” shal ef to apartments and houses 8 lots used for residential purposes, and buildings or parts or unis thereof used solely as dwelling places (eg, dormitories, rooms, and bed spaces), except motels, motel rooms, hotels, totel oom, lodging houses, inns, and pension houses. ‘The term “uni” shall mean an apartment unit inthe case of apartment, house inthe case of residential houses; per person in the case of dormitories, boarding houses and bed spaces; and er room in case of rooms For ent. ‘Ay. C.Llamado (October 2019) | (19) Transport of passengers by international carriers; ‘Note: Transport of cargo by international carriers is also exempt from VAT because ‘they are subject to the OPT under Section 118 of the Tax Code. (20) Sale, importation, or lease of passenger or cargo vessels and aircraf, including engine, ‘equipment, and spare pars thereof for domestic or international transport operations; Provided, the importation or purchase mects the requirements of Maritime Industry Authority (MARINA), (21) Importation of fuel, goods, and supplies by persons engaged in international shipping or air transport operations; Provided, thatthe said fuel, goods, and supplies shal be used exclusively or shall pertain {o.the wansport of goods andor passenge from a pox in the Philipp v frcign por or vice-versa without docking or stopring at any other por in the Philippines unless the docking or stopping at any other Philippine pot is forthe purpose of unloading passengers and/or cargoes tat eiginated fiom abroad orto Toad passengers and/or cargoes bound for abroad (22) Services of banks, non-bank financial intermediaries perform i functions, and other non-bank financial intermediaries, such as money changers and awnshops subject to percentage tax under Sections 121 and 122, respectively, of the Tax C (23) Sales or lease of goods and services to Senlor Citizens and PWDs, as provided under R.A. Nos. 9994 and 10754; (24) Transfer of property pursuant to Section 40(CYQ) of the Tax Codes 25) Associatic membership fees, ud charges homeowners’ associations and condominium corporations, (26) Sale of gold to the BSP#S, (27) Sale of aru isines prescribed for diabetes, high cholesterol hypertension beginning January 1, 2019, as determined by the Department of Health. Note: Only the sale of such drugs is VAT-exempt. Iniportation of such drugs is YATABLE, (28) Other VAT-exempt sles: (@) Fees, per diems, allowances, and other income recsived by corporate directors from corporations of which they are mot employees; (b) Sales by PEZA and other ecozone registered enterppises enjoying the preferential tax rate of 5% in lieu of all taxes; () Sales of services by professionals and ether suppliers of services hired under a contract, for service ot job order with the departments and agencies of the government, is "Sale of gold and other metallic minerals to persons and ent the subject to 12% VAT ifthe gross selling price exceods the threshold of F3,000,000. Atty C, Liamade (October 2019) instramentalities, local government units, state colleges and universities, including GOCCs and government financial institutions (“GFls”) shall be exempt from VAT. Provided, (1) they derive gross receipts of not more than 250,000 in any 12-month period, (2) such incomes are received from 2 LONE PAYOR, and (3) such professionals have no other source of income.!® @ Amounts of money received in rst which do nt belong tothe recipient and wrich do ‘not redound to the benefit ofthe recipient are not subject to VAT. (©) Other sales which are VAT-exempt under special laws, GI) Sale or lease of goods or properties or the performance of services ather than the ransactions mentioned in the preceding paragraphs, the gross annual sales andlor feccipts do not exceed the amount of Three Million Pesos (P3,000,000), For purposes of the threshold of P3,000,000, the husband and wife shall be considered separate taxpayers, VAT-TAXABLE SALE OF GOODS/PROPERTIES 1) VATatable sales — the sale must be (2) an actual sale (b) in the course of trade os business, of ‘goods or properties within the commerce of man, ‘ 2) Transactions deemed sale ~ transactions which !ack one or beth of tne elements that makes a Sale VATable. Transactions (2) to (4) below are deemed sales sos to prevent the taxpayer from evading payment ofthe ouput VAT. ‘Transsction (¢), on the other hand. is treated ss an actual sale o enable the recipients of the ‘Boods or properties to avail of th input VAT credit: oa suck trasicactions “deemed sales.""® (4) Transfer, use, or consumption ner inthe course of intended for sale or for use in the course of business ess of yoous or properties originally Teansfer of goods cx properties notin the course of busines: cun tak» place when the VAT= registered person withdraws goods from his business fer bis personal use. (b) Distribution or transfer of goods or properties to: (1) Shareholders or investers as property dividends; or (Q) Creditors in payment of dedi or obligation. (©) Consignment of goods if actual sale is not mide within sixty (60) days following the date such goods were consigned, Consigned ged eure bythe consignee within the 60day period ae not demed sods (@) Transmission of propery to a trustee 1F: | RMC No. 69-2017, as umended by RMC No, 51-2018. "BIR Ruling No, 242-2018, Fb 21, 2018; CIR vs. Tours Specials, he, GR. No. 6616, March 1, 1980. ‘rom the point of vew ofthe new owner f such goodsproericy, it fs a“deema purchase” 10 ‘Atty. C, Llamado (October 2019), (1) the property transferred is one for sale, lease, or use in the ordinary course of trade or business, and @) the transfer constitutes a completed gift. The transfer is a completed gift if the transferor divests himself absolutely of control over the property, ie, an imevocable ‘tansfer of the corpus and/or an irrevocable designation of the beneficiary. (©) Retirement from or cessation of business with respect to inventories of taxable goods (Capital goods, stock-in-cade, supplies, materials) existing as of such retirement or cessation, whether or not the business is Continued by the new owner. Examples of transactions deemed sale, and therefore VAT-taxable: 8) "Change of ownership ofthe business", There is a change in he ownership ofthe business ‘when a single proprietorship incorporates, or the proprietor of a single proprietorship sells his entre business, b) Dissolution of a partnership, and creation of « new partnership which takes over the business. ©) Liquidating dividends where the assets ofthe corporation are distributed tothe sharcholders. Examples of transactions not subject to VAT! 1) Change in the control of a corporation; 2) Merger or consolidation of corporations; 3) Change inthe trade or corporate name. ouTPUT vAT = 1236 of the gross selling price (“GSP”), exclusive or net of VAT, of the goods sold, bartered, exchanged, or deemed sold in the Philippines, OR "/u12 of the total invoice price (inclusive or gross of VAT).!? ~ For O-rated sales, the output VAT is 0% of the GSP. ‘Tax Base: GSP, net of Sales Discounts, Sales Returns, and Allowances A) GSP = the total amount of money or its equivalent which the purchaser must pay” the seller in consideration of the sale, barter, or exchange. Any excise tax shall form part of the GSP. ‘When the GSP is unreasonably lower than the actual market value, the CIR shall by rules and regulations proscribed by the Secretary of Finanée, determine the appropriate tax base. However, when one ofthe partis isthe goverment, the output VAT shall be based ‘on the actual selling pice. “Unreosonably lower” = lower by more than 30% ofthe etl market vale. ° Giza) or (21112) of Invoice Amount, if 8) VAT isnot separately bill b) VAT iseroncously billed % Thacis, the entre GSP whether paid in cash, creditor installment. u ‘Atty C, Llamado (October 2019) B) For transactions deemed sale: 1) Tax Base = Market value ofthe goods atthe time of transaction Ina) Transfer, use, or consumption notin the course of trade or business; ») Distributions to shareholders or ereditors; ©) Consignment sales; 4) Transmission of property to trustee. 2) Tax Base = Lower of acquisition cost or current market price of the goods {In retirement from or cessation of business. (©) When there isa cessation of; = ‘The output tax on goods or properties originally intended for sale or for use in business, including capital goods existing at the time of the change in or cessation of status of a taxpayer asa VAT-registered person, shall be based on the acquisition cost or the current -market price of the goods, whichever is lower. Computation of Input VAT ("ITC") = The same rules above are applied, but to purchases. VAT on Sale of Real Properties Sale of real properties (a) held primarily for sule to customers or (b) held for lease in tne ordinary course of trade or business ofthe seller or (c) sed in trade or business, shall be subject tw Var: (1) Regardless of the amount cf the gross selling price ifthe zeal property isnot residential (e., commercial, industrial, te) (2) Mreal property is residential, it shall be subject to VAT if the GSP exceeds: (@) 1,500,000 for residential lots, oF {(&) 2,500,000 for residential house and lots or other residential dwellings. Notes: (@) Inthe sale, barter, or exchange of real properties subject to VAT, 1) the GSP shall be the highest of 4) Selling price in the sales document; ot ) Zonal value; or ©) Assessors’ value 2) If VAT is not billed separately in the sales documem, the selling price is deemed inclusive of VAT. 2) Ete GSP is based on the zonal or assessor's vale, the same is deemed exclsive of Al 2 ‘Atty. C. Liamado (October 2019) () LE Cash sale: VAT ~ 12% of highest of (Selling price, zonal value, or assessor's value) not ¢ installment plan ‘VAT = 12% of highest of (Selling price, zonal value, or assessor's valu) TE on Installment plan (1) VAT payments = 12% of installment payments BUT (@) Where GSP = Zonal or Assessor's value ‘Actual collection of the consideration Higher of (exclusive of VAT) x ZonalValue tae Base “Aged consideration appearing in the or Assessor's contract (exclusive of VAT) Value TaxBase x 12% 0 = VAT (©) Iftwo (2) or more adjacent residential lots, house and lots, or other residential dwellings are sold or disposed in favour buyer from the same seller, for the purpose of ltlizing the same as one residential area, the sales shall be VAT-taxableif the aggregate value of the properties exceed 1,500,000 for residential lots, and 2,500,000 for residential house and lots or other residential dwellings; (@) The sale of parking lots is subject to VAT regardless of the amount ofthe selling price since packing lots are not residential lors, (©) VAT may likewise be imposed in foreclosure sales. When the mortgagor fails to redeem the real property which was an ordinary asset in his hands, the VAT must be pa by the ‘mortgagor on or before the 20* day or25® day of the month following the month when the tight of redemption prescribes, B ‘Any. C, Llamado (October 2019) VAT-TAXABLE SALE OF SERVICES ~ Sale of services or lease or use of properties (real, tangible personal, intangible, or supply of knowledge, information, or assistance Requisites of a VAT-Taxable Sale of Services 1) The sale must be conducted in the ordinary course of trade or business; 2) For leases, the property must be leased or used inthe Philippines; 3) The seller or lessor is VAT-registere, o if no, the gross receipts ofthe seller or lessor oring the year or in any 12-month period exceed the minimum of gross receipts of 13,000,000; and 4) In the case of lease ofa residential unit, the monthly rental exceeds P15,000, and the ‘aggregate annual gross receipts of the lessor (from all residential units with monthly rentals exceeding P15,000) exceed P3,000,000 Taxable Services + _Allkinds of services in the Philippines for e consideration, a long as itis not exempted. by la + Includes’ 1) ‘Sales of transportation contactors on their transport of goods or cargoes including persons who tansport goods or cargoes for hire and other domestic common ‘arviers by land relaive to their wansport of goods oF cargoes; 2) Sales of domestic common cerviors by alr and sea relative to theis transport of passengers, goods, or cargoes from one place in the Philippines to another place in the Philippines; Notes: 8) Common carriers by land with respect to their gross receipts froma the ‘ransport of passengers, shall not be lable to VAT, but tothe percentage tax ‘under Seotion 117, ') Additional charge for excess baggage is subject to VAT. 3) Sales of electricity by generation, transmission, and/or distribution companies; 8) Gross receipis refers to the amouats charged by generation, transmission by any ‘entity including the National Grid Corporation of the Philippines, and distribution companies including electric cooperatives; 1) The universal charge passed on and collected by distibution companies and clectic cooperatives shall be excluded from the computation of the gross receipts . ©) Sale of power or fuel generated thru renewable sources of energy shall be subject t0 0% VAT. 4 I ‘Atty. C, Llamado (October 2019) | 4) Salesof franchise grantees of elect uilities, telephone and telegraph, radio and/or television broadcasting and all other franchise grantees, except 1) franchise grantees of radio and/or television broadcasting whose annual gross receipts ofthe preceding year do not exceed Ten Million Pesos (P10,000,000), 8) franchise grantees of ge and wate ules; subject to OPT (franchise tax) under See, 119 ©) amounts received for averseas dispatch, message, or conversation originating from the Philippines are subject to the 10% percentage tax under Setion 120 of he Tax Code, Note: PAGCOR is not subject to VAT on the sale of its services (PAGCOR vs. Commissioner (G.R. No, 172087, March 15, 2011) 5) Nomife insurance companies including surety, fidelity, indemnity, and bonding companies, Gross receipts = premiums collected whether paid in money, notes, credits, or any substitute for money, but does not include: ) Premiums from crop insurance b) Reinsurance premiums ©) Retumed premiums (premiums refunded within 6 ‘months after payment on account of rejection) 4d) DST and local taxes passed on by the insurance company +o the insured. ‘Note: Insurance and reinsurance commissions, whether life or non-life, are subject to VAT. ©) Lease of properties 8) Regardless of place where contract is executed as long as property leased is Focated in the Philippines. 'b) Any advance payment shall be subject to VAT ifthe same constitutes prepaid rental. Ifthe same constitutes a loan, option maney, or security deposi not be subject to VAT. (©) The VAT on the rentals or royalties payable to a non-tesident owner or none ‘saident lessor shall be withhek bythe ser orHeemecin ei ofthe no resident and remitted to the BIR, 7) Dealers in securities Gross receipts = Gross selling price ess cost of the securities sold. 1s Atty. C, Liamado (October 2019) 8) Pre-need companies Gross receipts = premiums or payments received from the plan holders 9) HMOs Gross receipts ~ service fees = enrollment fees + other charges received from their members| Computation of Output VAT: 12% of gross receipts, net of VAT OR "/112 of the total invoice amount, gross of VAT. “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, (b) deposits applied as payments for services rendered, and (©) advance payments actually oF constructively received during the taxable period for the services performed for to be performed for another person. Notes: (1) “Consmuctive receipt” occurs when the money consideration or its equivalent is placed a the control ofthe person who rendered the services without restrictions by the payor. @) Under the definition of “gross receipts,” any amount forming part of the contract price, not actus!ly cr constructively receivel, is not subject to VAT. Thus, receivables under the contract shall be tae in the nth or quarter when pavment isreceived, acivaliv or constructive! @) “Gross Receiprs” do mot include amounts earma syment to unrelated third parties or revcived as reimbursement for advance payrwat on behalf of another ‘which do not redcund to the benefit of the payor. Consequences of Issuing Erroneous VAT Invoice or VAT Official Receipt (@) Ifa person who is not VAT-repistered issues an invoice or receipt showing his TIN, followed by the word "VAT", the erroneous issuance shall resuit tothe following: (1) The non-VAT person shall be Fake : (the other applicable percentage taxes; {G) the VAT doe oa the transaction without the benelit of input ta credit; and (Gi) 50% surcharge undor Sec. 258(B) of the Tax Code (2) The VAT shall be recognized as an input tax credit to the purchaser, provided the ‘requisite information is showa on the invo‘ee or receipt. (@) IfaVAT-registered person issues. VAT invoice or VAT ofiicial receipt fora VAT-exempt transaction, and fails to display prominently cn the javeice ut receipt the words “VAT- exempt sale” the transaction shall become taxable and the 1ssuer shall be liable to pay VAT. thereon. ‘The purchaser shalt be entitled to ciaim an input tax eredit on his purchase, 16 | Atty. C. Liamado (October 2019) | VAT ON IMPORTATION Importer = 1) Any person who brings goods into te Philippines, whether or notin the course of trade or business; or 2) A nonexempt person who squires tacfree imported goods from VAT-exempt persons. Such non-exempt person shall be considered the importer thereof and liable for the VAT thereon, ‘Tax Base 1) Thetotal value used by the Bureau of Customs in determining the tiff and customs duties ‘the customs duties + excise taxes, ifany, + other charges, such as postage, commission ‘and similar charges, prior to the release of the goods from ctistoms custody, 2) In case the valuation used by the Bure of Customs in computing the duties is based on Nolume or quantity of the imported goods, the landed cos shall be the basis for computing the VAT, Landed cost consists of the invoice amount, customs duties, freight, insurance, and other charges. Ifthe goods imported are subject to excise ax, the excise tax shal form pat ofthe tax base; 2) The same rule applies to technical importation of goods sold by a person located in a Special Economie Zone to a customer located in a customs teritory (ie, Philippine territory), Payment of VAT on Importation, ‘Tie VAT on importation shall be paid by the importer prior to the release of the goods from ‘customs custody. "7 ‘ty. C-Liamado (October 2019) INPUT TAX CREDIT 1) Also called input VAT 2) VAT due er paid on the iroporation of goods or ‘VAT paid by a purchaser (lo the seller) on the local purchases of goods, properties, or services in the course of trade or business. Can be availed by a VAT-registered importer, or a VAT.-registered purchaser or goods 3) Includes transitional input tax ané the preswroptive input tax Sources /Classification of Input Tax Credits 1) YAT paid (to the supplier or vendor} by a VAT-registered person on his local purchases, and VAT paid (o the BIR) on importation of goods; 2) ITC from transtctions “deemed purchase” ~ The “deemed sale” transaction will also result in a "ecmed purchase” traxSastion which gives rise te input tax, 3) Transitional inpue tax ~ Persons allowed the transitional input tx: Those persons ' 18) becoming VAT-registered for the first time upon excceding the minimum gross sees (of P3,000,000 in any 12-month period ot 1) who voluntarily repister under the VAT sysem, ‘Transitional input VAT = Higher of (2% of the vatue of the beginning inventory, oF the sacturl input VAT paid on seh goods, materials, and supplies) Provided: Tavertocy sha! \Je goods exempt from VAT. 4) Presumptive input tax 8) Available to persons or firms engeged in the processing of sardines, mackerel, and sland inthe manufctaring of refined rapa, cooking oi, and packed noodle ased instant meals. +) The presumptive input tax shall be equivalent to their purchases «primary sgrivoltural product and which are used ss inpats i prodictior ss value in money of th mt 2 Agricul product des 01 nude sh and marine sour, 8 try. C, Llamado (October 2019) 5) Input tas on depreciable goods (deferred input tax credits) ‘The purchase or importation of depresiable capital goods totaling > P1,000,000 (exclusive of VAT) ina calendar month, regardless of the acquisition cost ofeach capital ‘ood, and regardless of the terms of payment, shall give rise to input tmx credits as follows: 1) Ifthe estimated useful life of capital good > 5 years, the input tax credit shall be spread over a period of 60 months, and the monthly input tax credit (*ITC") shall ‘commence in the month the capital good was acquired. 2) Ifthe estimated useful life ofa capital good <5 years, the input tax shall be spread ‘evenly by dividing the inpat tax by the actual number of months comprising the estimated useful life. The claim for ITC shall commence in the month that the capital good was acquired. 3) Ifthe depreciable capital good is soldtransferred within a period of five (5) years ‘or prior to the exhaustion of the amortizable input tax thereon, the entre ‘unamortized input tax on the capital goods sold/transferred can be claimed as input uring the month/quarter when the sale or transfer is made. Note: The amortization of the input VAT provided under Section 110(A)(2) of the Tax ‘Code shall only be allowed until December 31,2021. After such date, taxpayers ‘with unutilized input VAT on capital goods purchased or imported shall be allowed, to apply the same as scheduled until fully utilized. EXCEPTION: Input taxes on the purchase ofthe following non-éepreciable vehicles and all input taxes on the maintenance expenses thereon shall ot be allowed as input tax eredts against the ourpat VAT: (1 Purchases of vehicles for which no substantiation exist; {@) Purchases of a) yachts, (6 helicopters, (€ airplanes, or stcrafts, and (8 land vehicles for the use of an official or employee exceeding P2,400,000, unless the taxpayer's rain line of business is in transport operations or in leasing transportation equipment ‘and the vehicles are used in said operations. ©) Input tax on Construction in Progress (CIP) CIP -cost of construction work which is not yet completed. It will not be depreciated until the asset is placed in service. Input tax credit ean be recognized in the month payment is made. However, once the asset is completed and reclasified asa capital asset, no additional ITC can be claimed, 7) Ratable portion of anv input tax which cannot be directv attributed to either taxable ‘or exempt activity, 8) Issuance ofa VAT invoice by som: VAT person — provided the requisite information {shown on the invoice or receipt: 9) Issuance of a VAT invoice on an exempt transaction bv a VAT-resistered person ~ i site Information is shows on the Inyo i 9 Atty. C. Llamado (October 2019) How Is an ITC used? 1) Used asa credit against the output tax to compute the VAT payable; 3 ‘Any excess ITC shall be caried over tothe succeeding period; 3) Input tax atibuted to Orted sales bya VAT-egisered taxpayer may, at his option, ‘) Be applied against the output VAT from sales ofa VATable line of business, or carried lover to the succeeding period; ») Be refunded: or ©) The taxpayer can apply fora tax credit certificate (“TCC”) which can be used in the payment of other internal revenue taxes. $4) Input tx attributable to VAT-exerpt sales are expensed. Determination of ITC in a Taxable Month/Quarter Formula: All input taxes arising during the month/quarter + Input tax carried over from previous period + Deferred ITC Less: Claim for VAT refund or tax credit Less: Input tax attributable to exempt sales ‘Less:_Input tx attributable to final withholding tax Input tax eredit for the month/quarter ITCs for VAT-Registered Persons Who Are Also Engaged in Non-VAT Lines of Business Such taxpayers shall be entitled to the following ITCs: 1) Input VAT directly attributable to transactions or sales subject to VAT; 2) For input VAT that cannot be directly attributed to either VAT-taxable, VAT-exempt, O- tated, or Government transactions, only the ratable pertion pertaining tothe VAT taxable Sothedemmnen ern ere Formulas: Toul sdecgton VATauabiesies Untied __ puta ead Total salesireceipts * input taxes ‘VAT-taxable transactions Veins: = ier win Td tometer sie) mat ale Total sales/receipts etme Eeenrt oe Toalaeiespsca tins | Untied tnpteroeatieuntio were on . See - lee rade . ——femmisie” 4 Upibtel _gturoteaatn Total sales/receipis a sovernin 20 Atty. C, Llamado (October 2019) Notes: 2 Uppal foxes ()diectlyatibutable and ()ratably allocated, to VAT-exempt sales —not ‘llowed as ITCs, but shal be teated as ract of costs or expenses, 7) Tapa toxes (a) directly atwibutable and ()atbly allocate, to sles to the government ~ ‘not allowed as ITCs, BUT excess over the implied 7% input VAT wil be expassed >) Tapur tmes (a) directly atibutable and (b ratably allocated, to Orrated sales ~ shall be allowed as ITCs and fo o pa itoertifi 3c) REFUND or TAX CREDIT OF INPUT TAX ~ Shy VAT: registered persons may apply for issuance of a TCC or refund on the following Limitations 1D. The input taxes must not have been applied agunst output taxes, 2) The claim for refund or tax creit shall ot include the transitional input ta, a Jn the case of export sles, the payments must be made in acceptable foreign cumency. 4) Where the taxpayer is engaged in VATable (12%), O-rated, or exempt sales, and the amount of creditable input tax eannot be directly or entirely atibuted to any coe ete transactions, only the proportionate share of i 10.04 ‘Slaimed for refund or issuance of a TCC: f iss ‘Time for Filing Claim for Refund or Tax Credit ') For input taxes on zero-rated sales or lease of goods, properties, or services: rear Reton shoul beled within ewe 2) sear after the close of the txable quarter when such sales were made (Sec. 112, NIRC). ©) or unused input taxes upon retirement, change, or cession of status es a VAT:-repiered person. ‘The application should be filed slthip to (2) vears from the date of cancellation of his VAT registration (Sec. 112, NIRC). 2 ifthe inpind TC (7%) is ore han he actual TCe excess shall decease expenses or be recopnznd ‘as other income for income tax purposes. 2 Tneludes sales tothe government which ae subject tothe 5% Final VAT. Tet of cancelation fhe due of issuance ofthe ta clearances) bythe BIR alr fl setlement of Allax Leite relative tothe cessation of burnes or change in status ofthe epee 21 Atty. C. Lemado (October 2019) Place of Filing Application or Claim Claims for refunds/tax credit certificates shall be filed with the appropriate BIR office (Large Taxpayers’ Service (“LTS”) or Revenue Diswict Office (“RDO”) having jurisdiction over the Principal place of business of the taxpayer. However, direct exporters shall file their claim (or refundtax credit certificate with VAT Credit Audit Division (*VCAD") ‘The fling ofthe claim with one office shat! precliade the filing of the same claim with another office. Period Within Which Refund or Tax Credit of Input Taxes Shall Be Acted Upon Close of the Taxable Quarter (or Date of Cancellation of Registration) Date of filing the Quarterly VAT Return (or Final VAT | Return) | my [Application is Gly or pattiay | | ————_) E (raat Appeal to the Court of Tax Appeals 2 “Atty. C. Llamado (October 2019) Notes: (3) The application for refund/TCC must be supported by complete documents, Failure to submit the relevant documents in suppor of te claim upon filing ofthe application sll resultin the non-acceptance thereof. (®) Prior to the effectivity of TRAIN (January 1, 2018), in case the Commissioner failed to ‘act on the application within the prescriptive period, such inaction was deemed a denial ‘ofthe application which gave the applicant the right to appeal to the CTA.™* ‘At present, Section 112 (C) of the Tax Code, as amended by R.A. No. 10963, does not {ive the same avenue of appeal tothe taxpaye-applicant in cases where the Commissioner fails to act oa the application. However, uch inaction is now penalized under Section 269 of the Tax Code. The spectre of a criminal penalty under Section 269 hopefully encourages BIR officials to promptly act on a taxpayer's application within the 90-day period INCOME TAX ASPECT OF VAT ‘Treatment of VAT ‘Under the VAT system, sales and purchases accounts aze taken up in the books exclusive of the VAT. The gross selling price or gross receipt, and the cost of sales, including expenses, ‘hall be recorded in the books net of the VAT, whether or not the later is billed separately in the invoices or receipts. ‘This applies to the computation of income taxes. For purposes of the income tax, the sales, ‘cost of sales, and expenses shal be taken up consistently net of the VAT. 3 Prior oR A. No. 10963, he Commissioner (under Setion 112(C} ofthe Tax Code was given 120 days fom tho dite of smsson of complete dbcueat to act on the apietion for efund or issuace of | tex eet erate } % Thus, taxpayer could leh appeal in one of2 way, namely (Ofie te jit claim within ty (0) days fom te reept of the decision ofthe Commissioner denying the clin; oR (ile the judicial iim within thity 20) days from the expiration of the 120

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