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Income Tax Rates

I. For Individual Citizens and Resident Aliens Earning Purely Compensation Income and Individuals
Engaged in Business and Practice of Profession
A. Graduated Income Tax Rates under Section 24(A)(2) of the Tax Code of 1997, as
amended by Republic Act No. 10963 

Amount of Net Taxable Income Rate

Over But Not Over  
- P250,000 0%
P250,000 P400,000 20% of the excess over P250,000
P400,000 P800,000 P30,000 + 25% of the excess over P400,000
P800,000 P2,000,000 P130,000 + 30% of the excess over P800,000
P2,000,000 P8,000,000 P490,000 + 32% of the excess over P2,000,000
P8,000,000   P2,410,000 + 35% of the excess over P8,000,000

B. For Purely Self-Employed Individuals and/or Professionals Whose Gross Sales/Receipts

and Other Non-Operating Income Do Not Exceed the VAT Threshold of P3,000,000, the
tax shall be, at the taxpayer’s option:
1. 8% Income Tax on Gross Sales or Gross Receipts in Excess of P250,000 in Lieu
of the Graduated Income Tax Rates and the Percentage Tax; Or
2. Income Tax Based on the Graduated Income Tax Rates
C. For Individuals Earning Both Compensation Income and Income from Business and/or
Practice of Profession, their income taxes shall be:
1. For Income from Compensation: Based on Graduated Income Tax Rates; and
2. For Income from Business and/or Practice of Profession:
a. If the total Gross Sales/Receipts Do Not Exceed VAT Threshold of
P3,000,000, the Individual Taxpayer May Opt to Avail:
i. 8% Income Tax on Gross Sales/Receipts and Other Non-
Operating Income in Lieu of the Graduated Income Tax Rates
and the Percentage Tax; Or
ii. Income Tax Based on Graduated Income Tax Rates
b. If the total Gross Sales/Receipts Exceed VAT Threshold of P3,000,000
i. Income Tax Based on Graduated Income Tax Rates
D. On Certain Passive Income of Individual Citizens and Resident Aliens

Passive Income Tax Rate

1. Interest from currency deposits, trust funds and deposit substitutes 20%
2. Royalties (on books as well as literary & musical compositions) 10%
    - In general 20%
3. Prizes (P10,000 or less ) Graduated
Income Tax
Rates
    - Over P10,000 20%
4. Winnings (except from PCSO and Lotto amounting to P10,000 or less ) 20%
-   From PCSO and Lotto amounting to P10,000 or less exempt
5. Interest Income from a Depository Bank under the Expanded Foreign 15%
Currency Deposit System
6. Cash and/or Property Dividends received by an individual from a domestic  10%
corporation/ joint stock company/ insurance or mutual fund companies/
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Regional Operating Headquarter of multinational companies

7. Share of an individual in the distributable net income after tax of a 10%
partnership (except GPPs)/ association, a joint account, a joint venture or
consortium taxable as corporation of which he is a member or co-venture
8. Capital gains from sale, exchange or other disposition of real property 6%
located in the Philippines, classified as capital asset
9. Net Capital gains from sale of shares of stock not traded in the stock 15% 
exchange
10. Interest Income from long-term deposit or investment in the form of savings, Exempt
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form
prescribed by the Bangko Sentral ng Pilipinas (BSP)
Upon pre-termination before the fifth year, there should be imposed on the
entire income from the proceeds of the long-term deposit based on the
remaining maturity thereof:
Holding Period
- Four (4) years to less than five (5) years 5%
- Three (3) years to less than four (4) years 12%
- Less than three (3) years 20%

II. For Non-Resident Aliens Not Engaged in Trade or Business 

A. Tax Rate in General – on taxable income from all sources within the same manner as
Philippines individual
citizen and
resident alien
individual
B. Certain Passive Income Tax Rates
1. Interest from currency deposits, trust funds and deposit substitutes 20%
2. Royalties (on books as well as literary & musical compositions) 10%
    - In general 20%
3. Prizes (P10,000 or less ) Graduated
Income Tax
Rates
    - Over P10,000 20%
4. Winnings (except from PCSO and Lotto) 20%
   -  From PCSO and Lotto exempt
5. Cash and/or Property Dividends received from a domestic corporation/ joint 20%
stock company/ insurance/ mutual fund companies/ Regional Operating
Headquarter of multinational companies
6. Share of a non-resident alien individual in the distributable net income after 20%
tax of a partnership (except GPPs) of which he is a partner or from an
association, a joint account, a joint venture or consortium taxable as
corporation of which he is a member or co-venture
7. Interest Income from long-term deposit or investment in the form of savings, Exempt
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form
prescribed by the Bangko Sentral ng Pilipinas (BSP)
Upon pre-termination before the fifth year, there should be imposed on the
entire income from the proceeds of the long-term deposit based on the
remaining maturity thereof:
Holding Period
  - Four (4) years to less than five (5) years 5%
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  - Three (3) years to less than four (4) years 12%

  - Less than three (3) years 20%
8. Capital from the sale, exchange or other disposition of real property located 6%
in the Philippines classified as capital asset
9. Net Capital gains from sale of shares of stock not traded in the Stock  
Exchange
   - Not over P100,000 5%
   - Any amount in excess of P100,000 10%

III. For Non-resident Aliens Not Engaged in Trade or Business 

1. Gross amount of income derived from all sources within the Philippines 25%
2. Capital gains from the exchange or other disposition of real property located in the 6%
Philippines
3. Net Capital gains from the sale of shares of stock not traded in the Stock Exchange  
- Not  Over  P100,000 5%
- Any amount in excess of P100,000 10%

IV. For Alien Individuals Employed by Regional Headquarters (RHQ) or Area Headquarters and
Regional Operating Headquarters (ROH) of Multinational Companies, Offshore Banking Units
(OBUs), Petroleum Service Contractor and Subcontractor  

On the gross income consisting of salaries, wages, annuities, compensation, Graduated

remuneration and other emoluments, such as honoraria and emoluments Income Tax
derived from the Philippines Rates

V. For General Professional Partnerships 

Net Income of the Partnerships 0%

VI. For Domestic Corporations 

Rates of Tax on Certain Passive Income of Corporations Tax Rate

1. Interest from currency deposits, trust funds, deposit substitutes and similar 20%
arrangements received by domestic corporations
2. Royalties from sources within the Philippines 20%
3. Interest Income from a Depository Bank under Expanded Foreign Currency 15%
Deposit System
4. Cash and Property Dividends received by a domestic corporation from 0%
another domestic corporation
5. Capital gains from the sale, exchange or other disposition of lands and/or 6%
building
6. Net Capital gains from sale of shares of stock not traded in the stock 15% 
exchange

VII. *Beginning on the 4th year immediately following the year in which such corporation commenced
its business operations, when the minimum corporate income tax is greater than the tax
computed using the normal income tax.
VIII. For Resident Foreign Corporation 
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1) a. In General – on taxable income derived from sources within the 30%

Philippines
    b. Minimum Corporate Income Tax – on gross income 2%
    c. Improperly Accumulated Earnings – on improperly accumulated taxable 10%
income
2) International Carriers – on gross Philippine billings 2½%
3) Regional Operating Headquarters of Multinational Companies– on taxable 10%
income
4.) Regional or Area Headquarters of Multinational Companies exempt
5) Corporation Covered by Special Laws Rate specified
under the
respective
special laws
6) Offshore Banking Units (OBUs) 10%
In general – Income derived by OBUs from foreign currency transactions with Exempt
non-residents, other OBUs, local commercial banks and branches of foreign
banks authorized by BSP
    On interest income derived from foreign currency loans granted to residents 10%
other than offshore banking units or local commercial banks, local branches of
foreign banks authorized by BSP to transact business with OBUs
7) Income derived under the Expanded Foreign Currency Deposit System  
   Interest income derived by a depository bank under the expanded foreign 7½%
currency deposit system.
   On Income derived by depository banks under the expanded foreign exempt
currency deposit systems from foreign currency transactions with non-
residents, OBUs in the Philippines, local commercial banks including branches
of foreign banks that may be authorized by BSP
    On interest income derived from foreign currency loans granted by 10%
depository banks under the expanded foreign currency deposit systems to
residents other than offshore banking units in the Philippines or other
depository banks under the expanded system
8.) Branch Profit Remittances – on total profits applied or earmarked for 15%
remittance without any deduction for the tax component thereof (except those
activities which are registered with the Philippines Economic Zone Authority)
9.) Interest from currency deposits, trust funds, deposit substitutes and similar 20%
arrangements
10. Royalties derived from sources within the Philippines 20%

 Frequently Asked Questions

1) What is income?

Income means all wealth which flows into the taxpayer other than as a mere return of capital.

2) What is Taxable Income?

Taxable income means the pertinent items of gross income specified in the Tax Code as amended, less
the deductions, if any, authorized for such types of income, by the Tax Code or other special laws.
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3) What is Gross Income?

Gross income means all income derived from whatever source.

4) What comprises gross income?

Gross income includes, but is not limited to the following:

 Compensation for services, in whatever form paid, including but not limited to fees, salaries,
wages, commissions and similar items
 Gross income derived from the conduct of trade or business or the exercise of profession
 Gains derived from dealings in property
 Interest
 Rents
 Royalties
 Dividends
 Annuities
 Prizes and winnings
 Pensions
 Partner's distributive share from the net income of the general professional partnerships

5) What are some of the exclusions from gross income?

o Life insurance
o Amount received by insured as return of premium
o Gifts, bequests and devises
o Compensation for injuries or sickness
o Income exempt under treaty
o Retirement benefits, pensions, gratuities, etc.
o Miscellaneous items
 Income derived by foreign government
 Income derived by the government or its political subdivision
 Prizes and awards in sport competition
 Prizes and awards which met the conditions set in the Tax Code
 13th month pay and other benefits not exceeding P90,000
 GSIS, SSS, Medicare and other contributions
 Gains from the sale of bonds, debentures or other certificate of indebtedness with a maturity of
more than five (5) years
 Gains from redemption of shares in mutual fund

6) What are the allowable deductions from gross income?

a)  *Optional Standard Deduction - an amount not exceeding 40% of the gross sales/receipts for
individuals and gross income for corporations; or

b)  Itemized Deductions which include the following:

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- Expenses
- Interest
- Taxes
- Losses
- Bad Debts
- Depreciation
- Depletion of Oil and Gas Wells and Mines
- Charitable Contributions and Other Contributions- Research and Development
- Pension Trusts
* Not allowed to non-resident alien individual
* A General Professional Partnership (GPP) may avail of the OSD only once, either by the GPP or
the partners comprising the partnership

7) Who are not required to file Income Tax returns?

a. An individual earning purely compensation income whose taxable income does not exceed
P250,000.00

b. An individual whose income tax has been withheld correctly by his employer, provided that such
individual has only one employer for the taxable year

c. An individual whose sole income has been subjected to final withholding tax or who is exempt from
income tax pursuant to the Tax Code and other special laws.

d. An individual who is a minimum wage earner

e. Those who are qualified under “substituted filing”. However, substituted filing applies only if all of the
following requirements are present:

- the employee received purely compensation income (regardless of amount) during the taxable
year;
- the employee received the income from only one employer in the Philippines during the taxable
year;
- the amount of tax due from the employee at the end of the year equals the amount of tax
withheld by the employer;
- the employee’s spouse also complies with all 3 conditions stated above;
- the employer files the annual information return (BIR Form No. 1604-CF); and
- the employer issues BIR Form No. 2316 (Oct 2002 ENCS version) to each employee.

8.) Who are exempt from Income Tax?

a. Income from abroad of a non-resident citizen who is:

i. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his
physical presence abroad with a definite intention to reside therein

ii. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either
as an immigrant or for employment on a permanent basis

iii. A citizen of the Philippines who works and derives income from abroad and whose employment thereat
requires him to be physically present abroad most of the time during the taxable year
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iv. A citizen who has been previously considered as a non-resident citizen and who arrives in the
Philippines at any time during the year to reside permanently in the Philippines will likewise be treated as
a non-resident citizen during the taxable year in which he arrives in the Philippines, with respect to his
income derived from sources abroad until the date of his arrival in the Philippines.

b. Overseas Filipino Worker, including overseas seaman

An individual citizen of the Philippines who is working and deriving income from abroad as an overseas
Filipino worker is taxable only on income from sources within the Philippines; provided, that a seaman
who is a citizen of the Philippines and who receives compensation for services rendered abroad as a
member of the complement of a vessel engaged exclusively in international trade will be treated as an
overseas Filipino worker.

NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the Philippine

Embassy/consulate is not treated as a non-resident citizen; hence, his income is taxable.

c. General Professional Partnership

d. Government Service Insurance System (GSIS)

e. Social Security System (SSS)

f. Philippine Health Insurance Corporation (PHIC)

g. Local Water Districts (LWD)

9) What are the procedures in filing Income Tax returns (ITRs)?

a. For “with payment” ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704)

File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with the Authorized
Agent Bank (AAB) of the place where taxpayer is registered or required to be registered. In places where
there are no AABs, file the return directly with the Revenue Collection Officer or duly Authorized
Treasurer of the city or municipality in which such person has his legal residence or principal place of
business in the Philippines, or if there is none, filing of the return will be at the Office of the Commissioner.

b. For “no payment” ITRs -- refundable, break-even, exempt and no operation/transaction, including
returns to be paid on 2nd installment and returns paid through a Tax Debit Memo(TDM)

File the return with the concerned Revenue District Office (RDO) where the taxpayer is registered.
However, "no payment" returns filed late shall not be accepted by the RDO but instead, they shall be filed
with an Authorized Agent Bank (AAB) or Collection Officer/Deputized Municipal Treasurer (in places
where there are no AABs), for collection of necessary penalties.

10) How is Income Tax payable of individuals (resident citizens and non-resident citizens) computed?

A. Based on Graduated Income Tax Rate

Gross Income P ___________

Less: Allowable Deductions (Itemized or Optional) ___________
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Net Taxable Income P ___________

Multiply by Tax Rate (0% to 35%) ____________
Income Tax Due P ___________
Less: Tax Withheld (per BIR From 2316) ____________
Income Tax Payable P____________

B. Based on Preferential Tax Rate of 8%

i. Taxpayers source of income is purely from self-employment

Gross Sales/Receipts P ___________

Add: Non-operating Income ____________
Gross Taxable Income P ___________
Less: Amount allowed as deduction under Sec. 24 (A)(2)(b) of NIRC, as
     250,000.00
amended
Net Taxable Income P ___________
Multiply by Tax Rate                   8%
Income Tax Due P ___________
Tax Withheld (per BIR From 2307) ____________
Income Tax Payable P ___________

 ii. Mixed Income Earner

On Compensation  

Total Compensation Income P ___________

Less: Non-taxable Income ____________ 
th
          13  month pay and other benefits (max)         90,000.00
Taxable Compensation Income P ----------------
Multiply by Tax Rate (0% to 35%) ____________ 
Tax Due on Compensation P ___________
   
On Business Income  
Gross Sales/Receipts P ___________
Add: Non-operating Income ____________
Taxable Business Income P ___________
Multiply by Tax Rate                   8%
Tax Due on Business Income P ___________
   
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Total Income Tax Due (Compensation + Business) P ___________

Tax Withheld (per BIR From 2316/2307) ____________
Income Tax Payable P ___________

11) How is Income Tax Paid?

A. Through withholding 

a. Individual Payee: Rate

If the gross annual business or professional income did not exceed 5%
P3,000,000.00
If the gross annual business or professional income is more than 10%
P3,000,000.00
b. Non-individual Payee Rate
If the gross annual business or professional income did not exceed 10%
P720,000.00
If the gross annual business or professional income is more than 15%
P720,000.00

B. Pay the balance as you file the tax return, computed as follows:

Income Tax Due P ___________

Less: Withholding Tax ___________
Net Income Tax Due* P ___________

*Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the
first installment to shall be paid at the time the return is filed and the second installment on or before
October 15 following the close of the calendar year to the Authorized Agent Bank (AAB) within the
jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered

12) Is the Minimum Corporate Income Tax (MCIT) an addition to the regular or normal income tax?

No, the MCIT is not an additional tax. An MCIT of 2% of the gross income as of the end of taxable year
(whether calendar or fiscal year, depending on the accounting period employed) is imposed on a
corporation taxable under Title II of the Tax Code, as amended, beginning on the 4th taxable year
immediately following the taxable year in which such corporation commenced its business operations
when the MCIT is greater than the regular income tax.  The MCIT is compared with the regular income
tax, which is due from a corporation. If the regular income is higher than the MCIT, then the corporation
does not pay the MCIT but the amount of the regular income tax.

13) Who are covered by MCIT?

The MCIT covers domestic and resident foreign corporations which are subject to the regular income tax.
The term “regular income tax” refers to the regular income tax rates under the Tax Code. Thus,
corporations which are subject to a special corporate tax or to preferential rates under special laws do not
fall within the coverage of the MCIT.

For corporations whose operations or activities are partly covered by the regular income tax and partly
covered by the preferential rate under special law, the MCIT shall apply the regular income tax rate on its
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operations not covered by the tax incentives. Newly established corporations or firms which are on their
first 3 years of operations are not covered by the MCIT.

14) When does a corporation start to be covered by the MCIT?

A corporation starts to be covered by the MCIT on the 4th year following the year of the commencement
of its business operations. The period of reckoning which is the start of its business operations is the year
when the corporation was registered with the BIR. This rule will apply regardless of whether the
corporation is using the calendar year or fiscal year as its taxable year.

15) When is the MCIT reported and paid? Is it quarterly?

The MCIT is paid on an annual basis and quarterly basis. The rules are governed by Revenue
Regulations No. 12-2007.

16) How is MCIT computed?

The MCIT is 2% of the gross income of the corporation at the end of the taxable year.

The computation and the payment of MCIT, shall likewise apply at the time of filing the quarterly corporate
income tax as prescribed under Section 75 and Section 77 of the Tax Code, as amended.   Thus, in the
computation of the tax due for the taxable quarter, if the computed quarterly MCIT is higher than the
quarterly normal income tax, the tax due to be paid for such taxable quarter at the time of filing the
quarterly income tax return shall be the MCIT which is two percent (2%) of the gross income as of the end
of the taxable quarter.

“Gross income” means gross sales less sales returns, discounts and cost of goods sold. Passive income,
which have been subject to a final tax at source do not form part of gross income for purposes of
computing the MCIT.

Cost of goods sold includes all business expenses directly incurred to produce the merchandise to bring
them to their present location and use.

For trading or merchandising concern, cost of goods sold means the invoice cost of goods sold, plus
import duties, freight in transporting the goods to the place where the goods are actually sold, including
insurance while the goods are in transit.

For a manufacturing concern, cost of goods manufactured and sold means all costs of production of
finished goods such as raw materials used, direct labor and manufacturing overhead, freight cost,
insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse.

For sale of services, gross income means gross receipts less discounts and cost of services which cover
all direct costs and expenses necessarily incurred to provide the services required by the customers and
clients including:

o Salaries and employees benefits of personnel, consultants and specialists directly

rendering the service;
o Cost of facilities directly utilized in providing the service such as depreciation or rental of
equipment used;
o Cost of supplies
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Interest Expense is not included as part of cost of service, except in the case of banks and other financial
institutions.

“Gross Receipts” means amounts actually or constructively received during the taxable year. However, for
taxpayers employing the accrual basis of accounting, it means amounts earned as gross income.

17) What is the carry forward provision under the MCIT?

Any excess of the MCIT over the normal income tax may be carried forward and credited against the
normal income tax for the three (3) immediately succeeding taxable years.

18) How would the MCIT be recorded for accounting purposes?

Any amount paid as excess minimum corporate income tax should be recorded in the corporation’s books
as an asset under account title “Deferred charges-MCIT”

19) How long can we amend our income tax return?

There is no prescription period for amending the return. When the taxpayer has been issued a Letter of
Authority, he can no longer amend the return.

20) Can a benefactor of a senior citizen claim him/her as additional dependent in addition to his/her 3
qualified dependent children at Php25,000 each?

No, pursuant to Revenue Regulations 2-94, the benefactor of a senior citizen cannot claim the additional
exemption. Further, additional exemptions of individual taxpayers are removed under RA 10963 (Tax
Reform for Acceleration and Inclusion).

Quarterly Percentage Tax Rates Table

Coverage Taxable Base Tax Rate
Non-VAT registered persons under Section 109 Gross sales or receipts 3%
(BB)
Domestic carriers and keepers of garages Gross receipts 3%
International air/shipping carriers doing business Gross receipts on transport of cargo 3%
in the Philippines from the Philippines to a foreign
country
Franchise grantees: 2%
Gas and water utilities 3%
Radio and television broadcasting companies Gross receipts
whose annual gross receipts of the preceding Gross receipts
year do not exceed Php10,000,000 and did not
opt to register as VAT taxpayer

Overseas dispatch, message or conversation
originating from the Philippines
Banks and non-bank financial intermediaries
performing quasi-banking functions
Amount paid for the service 10%
Interest, commissions and discounts from lending
activities as well as income from financial leasing,
on the basis of remaining maturities of
instruments from which receipts are derived:
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•  If maturity period is five years or 5%

less
•  If maturity period is more than five 1%
years
Dividends and equity shares and net 0%
income of subsidiaries
Royalties, rentals of property, real or 7%
personal, profits from exchange and
all other items treated as gross income
under Sec. 32 of the Tax Code, as
amended
Net trading gains within the taxable 7%
year of foreign currency, debt
securities, derivatives and other
similar financial instruments
Other non-bank financial intermediaries Interest, commissions, discounts and 5%
all other items treated as gross income
under the Tax Code, as amended
Interest, commissions, discounts  from lending
activities, as well as income from financial leasing
on the basis of remaining maturities of
instruments from which such receipts are
derived:
•  If maturity period is five years or 5%
less
•  If maturity period is more than five 1%
years
Life Insurance Company/Agent/Corporation Total premiums collected 2%
(except purely cooperative companies or
associations)
Agents of foreign insurance companies (except reinsurance premium):
Insurance agents authorized under the Insurance Total premiums collected 4%
Code to procure policies of insurance for
companies not authorized to transact business in
the Philippines
Owners of property obtaining insurance directly Total premiums paid 5%
with foreign insurance companies
Proprietor, lessee or operator of the following:
Cockpits Gross receipts 18%
Cabarets, Night or Day Clubs, videoke bars, Gross receipts 18%
karaoke bars, karaoke televisions, karaoke boxes
and music lounges
Boxing exhibitions (except when the World or Gross receipts 10%
Oriental Championship is at stake in any division,
provided further that at least one of the
contenders for World Championship is a citizen
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of the Philippines and said exhibitions are

promoted by a citizen/s of the Philippines or by a
corporation/ association at least 60% of the
capital of which is owned by said citizen/s)
Professional basketball games (in lieu of all other Gross receipts 15%
percentage taxes of whatever nature and
description)
Jai-alai and race track Gross receipts 30%
Winnings on horse races ·       Winnings or 'dividends' 10%
·       Winnings from double 4%
forecast/quinella and trifecta bets
·       Prizes of owners of winning race 10%
horses

Percentage Tax for Transactions Involving Shares Rates Table 

Coverage Basis Tax Rate
Sale, barter, exchange or other disposition of shares of Gross selling price or gross 6/10 of 1%
stock listed and traded through the Local Stock value in money
Exchange other than the sale by a dealer of securities
Sale, barter or exchange or other disposition through: Gross selling price or gross value in money
 Initial Public Offering (IPO) – the issuing Proportion of disposed shares to total
corporation shall pay the imposed tax outstanding shares after the listing in the local
 Secondary Public Offering – the seller shall pay stock exchange:
the imposed tax  Up to 25% 4%
 Over 25% but not over 2%
33 1/3%
 Over 33 1/3% 1%

Value-Added Tax Rates 

 On sale of goods and properties - twelve percent (12%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged
 On sale of services and use or lease of properties - twelve percent (12%) of gross receipts
derived from the sale or exchange of services, including the use or lease of properties
 On importation of goods - twelve percent (12%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such as tax to be paid by the importer prior to the release of such goods from
customs custody; provided, that where the customs duties are determined on the basis of
quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if
any.
 On export sales and other zero-rated sales - 0%

Who are liable to register as VAT taxpayers?

Any person who, in the course of trade or business, sells, barters or exchanges goods or properties or
engages in the sale or exchange of services shall be liable to register if:
a. His gross sales or receipts for the past twelve (12) months, other than those that are exempt
under Section 109 (A) to (U), have exceeded Three Million Pesos (P3,000,000.00): or
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b. There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12)
months, other than those that are exempt under Section 109 (A) to (U), will exceed Three
Million Pesos (P3,000,000.00).
When is a new VAT taxpayer required to apply for registration and pay the registration fee?
New VAT taxpayers shall apply for registration as VAT Taxpayers and pay the corresponding registration
fee of five hundred pesos (P500.00) using BIR Form No. 0605 for every separate or distinct
establishment or place of business before the start of their business following existing issuances on
registration.
Thereafter, taxpayers are required to pay the annual registration fee of five hundred pesos (P500.00)
not later than January 31, every year.
What compliance activities should a VAT taxpayer, after registration as such, do promptly or
periodically?
The following compliance activities must be performed by a VAT-registered taxpayer:
a. Pay the annual registration fee of P500.00 for every place of business or establishment that
generates sales;
b. Register the books of accounts of the business/occupation/calling, including practice of
profession, before using the same;
c. Register the sales invoices and official receipts as VAT-invoices or VAT official receipts for use on
transactions subject to VAT. (If there are other transactions not subject to VAT, a separate set of
non-VAT invoices or non-VAT official receipts need to be registered for use on transactions not
subject to VAT);
d. Filing of the Monthly Value-added Tax Declaration on or before the 20th day following the end
of the taxable month (for manual filers)/on or before the prescribed due dates enunciated in RR
No. 16-2005 (for e-filers) using BIR Form No. 2550M and of the Quarterly VAT Return on or
before the 25th day following the end of the taxable quarter using BIR Form No. 2550Q,
reflecting therein gross receipts (for seller of service)/ gross sales (for seller of goods) and
output tax (VAT on sales); purchases of goods and services made in the course of trade or
business/exercise of profession and input tax (VAT on purchases), other allowable tax credits as
in the case of advance VAT payment and VAT withheld by government payors, and VAT payable
or excess input VAT, whichever is applicable, with the accredited agent banks (AABs) of the BIR
or Revenue Collection Officers (RCOs) of the BIR (in areas without AAB), for returns with
payment, or with the RDO/LTDO having jurisdiction over the taxpayer (home RDO/LTDO), for
returns without payment. (The monthly VAT Declaration and the Quarterly VAT Return shall
reflect the consolidated total for all the taxable lines of activity and all the establishments - head
office and branches);
e. Submit with the RDO/LTDO having jurisdiction over the taxpayer, on or before the deadline set
in the filing of the Quarterly VAT Return, the soft copy of the Quarterly Schedule of Monthly
Sales and Output Tax (if the quarterly sales exceed P2,500,000.00), and the soft copy of the
Quarterly Schedule of Monthly Domestic Purchases and Input Tax/ the soft copy of the Schedule
of Transactional/Individual Importation ( if the quarterly total purchases exceed P1,000,000.00),
reflecting therein the required data prescribed under existing revenue issuances.
What is the liability of a taxpayer becoming liable to VAT and did not register as such?
Any person who becomes liable to VAT and fails to register as such shall be liable to pay the output tax
as if he is a VAT-registered person, but without the benefit of input tax credits for the period in which he
was not properly registered.
Who may opt to register as VAT and what will be his liability?
a. Any person who is VAT-exempt under Sec. 109 of the Tax Code, as amended, may, in relation to
Sec. 109 (2) of the same Code, elect to be VAT-registered by registering with the RDO that has
15

jurisdiction over the head office of that person, and pay the annual registration fee of P500.00
for every separate and distinct establishment.
b. Any person who is VAT-registered but enters into transactions which are exempt from VAT
(mixed transactions) may opt that the VAT apply to his transactions which would have been
exempt under Section 109 of the Tax Code, as amended.
c. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business
covered by the law granting the franchise may opt for VAT registration. This option, once
exercised, shall be irrevocable. (Sec. 119, Tax Code).
d. Any person who elects to register under optional registration shall not be allowed to cancel his
registration for the next three (3) years.
The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the
beginning of the calendar quarter and shall pay the registration fee unless they have already paid at the
beginning of the year. In any case, the Commissioner of Internal Revenue may, for administrative reason
deny any application for registration. Once registered as a VAT person, the taxpayer shall be liable to
output tax and be entitled to input tax credit beginning on the first day of the month following
registration.
What are the instances when a VAT-registered person may cancel his VAT registration?
a. If he makes a written application and can demonstrate to the commissioner's satisfaction that
his gross sales or receipts for the following twelve (12) months, other than those that are
exempt under Section 109 (A) to (U), will not exceed Three Million Pesos (P3,000,000.00); or
b. If he has ceased to carry on his trade or business, and does not expect to recommence any trade
or business within the next twelve (12) months.
When will the cancellation for registration be effective?
The cancellation for registration will be effective from the first day of the following month the
cancellation was approved.
What is the invoicing/receipt requirement of a VAT-registered person?
A VAT registered person shall issue :
a. A VAT invoice for every sale, barter or exchange of goods or properties; and
b. A VAT official receipt for every lease of goods or properties and for every sale, barter or
exchange of services.
May a VAT-registered person issue a single invoice/ receipt involving VAT and Non-VAT transactions?
Yes. He may issue a single invoice/ receipt involving VAT and non-VAT transactions provided that the
invoice or receipt shall clearly indicate the break-down of the sales price between its taxable, exempt
and zero-rated components and the calculation of the Value-Added Tax on each portion of the sale shall
be shown on the invoice or receipt.
May a VAT- registered person issue separate invoices/ receipts involving VAT and Non-VAT
transactions?
Yes. A VAT registered person may issue separate invoices/ receipts for the taxable, exempt, and zero-
rated component of its sales provided that if the sales is exempt from value-added tax, the term "VAT-
EXEMPT SALE" shall be written or printed prominently on the invoice or receipt and if the sale is subject
to zero percent (0%) VAT, the term "ZERO-RATED SALE" shall be written or printed prominently on the
invoice or receipt.
How is the Value-Added Tax presented in the receipt/ invoice?
The amount of the tax shall be shown as a separate item in the invoice or receipt.
Sample:
Sales Price P 100,000.00
16

VAT 12,000.00
Invoice Amount  112,000.00
What is the information that must be contained in the VAT invoice or VAT official receipt?
1. Name of Seller
2. Description of the goods or properties or nature of the service
3. Unit cost
4. Quantity
5. Date of transaction
6. TIN of buyer, if VAT- registered and amount exceeds P1,000.00
7. Address of Buyer
8. Business Style of Buyer
9. Name of Buyer
10. Statement that the seller is a VAT-registered person, followed by his TIN
11. Business Address of the Seller
12. Business Style of the Seller
13. Purchase price plus the VAT, provided that
o The amount of tax shall be shown as a separate item in the invoice or receipt;
o If the sale is exempt from VAT, the term "VAT-EXEMPT SALE" shall be written or printed
prominently on the invoice or receipt;
o If the sale is subject to zero percent (0%) VAT, the term "ZERO-RATED SALE" shall be
written or printed prominently on the invoice receipt; and
o If the sale involves goods, properties or services some of which are subject to and some
of which are zero-rated or exempt from VAT, the invoice or receipt shall clearly indicate
the breakdown of the sales price between its taxable, exempt and zero-rated
components, and the calculation of the VAT on each portion of the sale shall be shown
on the invoice or receipt.
14. Authority to Print Receipt Number at the lower left corner of the invoice or receipt.
What is the liability of a VAT-registered person in the issuance of a VAT invoice/ receipt for VAT-
exempt transactions?
If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction but
fails to display prominently on the invoice or receipt the words "VAT-EXEMPT SALE", the transaction
shall become taxable and the issuer shall be liable to pay the VAT thereon. The purchaser shall be
entitled to claim an input tax credit on his purchase.
What is "output tax"?
Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or services
by any person registered or required to register under Section 236 of the Tax Code.
What is "input tax"?
Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local purchase
of goods, properties or services, including lease or use of property in the course of his trade or business.
It shall also include the transitional input tax determined in accordance with Section 111 of the Tax
Code, presumptive input tax and deferred input tax from previous period.
Does amortization of input VAT still allowable?
Yes , but is only allowed until December 31, 2021 after which taxpayers with unutilized input VAT on
capital goods purchased or imported shall be allowed to apply the same as scheduled until fully utilized:
Provided, That in the case of purchase of services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.
What will be the basis of the date of cancellation?
17

It is the date of issuance of tax clearance by the BIR, after full settlement of all tax liabilities relative to
cessation of business or change of status of concerned taxpayer
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and intangible objects, which are capable of
pecuniary estimation and shall include, among others:
a. Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business;
b. The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
c. The right or privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
d. The right or the privilege to use motion picture films, films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.
What comprises "sale or exchange of services"?
The term "sale or exchange of services" means the performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration, whether in kind or in cash, including those
performed or rendered by the following:
a. Construction and service contractors;
b. Stock, real estate, commercial, customs and immigration brokers;
c. Lessors of property, whether personal or real;
d. Persons engaged in warehousing services;
e. Lessors or distributors of cinematographic films;
f. Persons engaged in milling, processing, manufacturing or repacking goods for others;
g. Proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts,
theatres, and movie houses;
h. Proprietors or operators of restaurants, refreshment parlors, cafes, and other eating places,
including clubs and caterers;
i. Dealers in securities;
j. Lending investors;
k. Transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative to their
transport of goods or cargoes;
l. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from
one place in the Philippines to another place in the Philippines;
m. Sale of electricity by generating, transmission by any entity including the National Grid
Corporation of the Philippines (NGCP), and distribution companies including electric
cooperatives shall be subject to twelve percent (12%) VAT on their gross receipts.;
n. Franchise grantees of electric utilities, telephone and telegraph, radio and/or television
broadcasting and all other franchise grantees, except franchise grantees of radio and/or
television broadcasting whose annual gross receipts of the preceding year do not exceed Ten
Million Pesos (P10,000,000.00), and franchise grantees of gas and water utilities;
o. Non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity
and bonding companies; and
p. Similar services regardless of whether or not the performance thereof calls for the exercise of
use of the physical or mental faculties.
The phrase "sale or exchange of services" shall likewise include:
a. The lease of use of or the right or privilege to use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like property or right;
18

b. The lease or the use of, or the right to use of any industrial, commercial or scientific equipment;
c. The supply of scientific, technical, industrial or commercial knowledge or information;
d. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of
enabling the application or enjoyment of any such property, or right or any such knowledge or
information;
e. The supply of services by a nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such non-resident person;
f. The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking, venture,
project or scheme;
g. The lease of motion picture films, films, tapes and discs; and
h. The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.
What is a zero-rated sale?
It is a sale, barter or exchange of goods, properties and/or services subject to 0% VAT pursuant to
Sections 106 (A) (2) and 108 (B) of the Tax Code. It 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 such zero-rated sales, shall be available as tax credit or refund in accordance with existing
regulations.
What transactions are considered as zero-rated sales?
The following services performed in the Philippines by VAT-registered person shall be subject to zero
percent (0%) rate:
a. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
b. Services other than processing, manufacturing or repacking rendered to a person engaged in
business conducted outside the Philippines or to a non-resident person engaged in business who
is outside the Philippines when the services are performed, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
c. Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such
services to zero percent (0%) rate;
d. Services rendered to persons engaged in international shipping or air transport operations,
including leases of property for use thereof; Provided, that these services shall be exclusively for
international shipping or air transport operations.  (Thus, the services referred to herein shall
not pertain to those made to common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to another place in the
Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code,
as amended);
e. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of
total annual production;
f. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a
foreign country. (Gross receipts of international air carriers and international sea carriers doing
business in the Philippines derived from transport of passengers and cargo from the Philippines
19

to another country shall be exempt from VAT; however they are still liable to a percentage tax of
three percent (3%) based on their gross receipts derived from transport of cargo from the
Philippines to another country as provided for in Sec. 118 of the Tax Code, as amended); and
g. Sale of power or fuel generated through renewable sources of energy such as, but not limited
to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other shipping
sources using technologies such as fuel cells and hydrogen fuels; Provided, however that zero-
rating shall apply strictly to the sale of power or fuel generated through renewable sources of
energy, and shall not extend to the sale of services related to the maintenance or operation of
plants generating said power.
The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
a. Export sales
1. The 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, paid 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);
2. The sale of raw materials or packaging materials to a non-resident buyer for delivery to
as a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods, paid for in acceptable
foreign currency, and accounted for in accordance with the rules and regulations of the
BSP;
3. The sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
4. Transactions considered export sales under Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987, and other special laws; and
5. The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations; Provided, That the goods, supplies,
equipment, and fuel shall be used exclusively for international shipping or air transport
operations; Provided, that the same is limited to goods, supplies, equipment and fuel
that shall be used in the transport of goods and passengers 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 unless the docking or stopping at any other Philippine port
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 the mentioned in
this paragraph, such portion of fuel, goods and supplies shall be subject to twelve
percent (12%) output VAT.
b. Sales to Persons or Entities Deemed Tax-exempt under Special Law or International Agreement
Sale of goods or property to persons or entities who are tax-exempt under special laws or international
agreements to which the Philippines is a signatory, such as, Asian Development Bank (ADB),
International Rice Research Institute (IRRI), subject such sales to zero rate.
What are the transactions which are no longer subject to zero-percent (0%)?
1. Sale of gold to BSP
2. Foreign-currency denominated sales
Upon the successful establishment and implementation of an enhanced VAT refund system by the
Department of Finance (DOF), what are the transactions that will now be subject to twelve percent
(12%) and no longer be subject to zero percent (0%)?
20

1. The sale of raw materials or packaging materials to a non-resident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods, paid for in acceptable foreign currency,
and accounted for in accordance with the rules and regulations of the BSP;
2. The sale of raw materials or packaging materials to an export-oriented enterprise whose export
sales exceed seventy percent (70%) of total annual production;
3. Transactions considered export sales under Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, and other special laws
4. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP); and
5. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of
total annual production.
What transactions are considered deemed sales?
The following transactions are considered as deemed sales:
Transfer, use or consumption, not in the course of business, of goods or properties originally intended
for sale or for use in the course of business. Transfer of goods or properties not in the course of business
can take place when VAT-registered person withdraws goods from his business for his personal use;
a. Distribution or transfer to:
o Shareholders or investors as share in the profits of the VAT-registered person; or
o Creditors in payment of debt or obligation
b. Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned. Consigned goods returned by the consignee within the 60-day period are
not deemed sold;
c. Retirement from or cessation of business, with respect to all goods on hand, whether capital
goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation,
whether or not the business is continued by the new owner or successor. The following
circumstances shall, among others, give rise to transactions "deemed sale";
o Change of ownership of the business. There is a change in the ownership of the business
when a single proprietorship incorporated; or the proprietor of a single proprietorship
sells his entire business
o Dissolution of a partnership and creation of a new partnership which takes over the
business.
What is VAT-exempt sale?
It is a sale of goods, properties or service and the use or lease of properties which is not subject to
output tax and whereby the buyer is not allowed any tax credit or input tax related to such exempt sale.
What are the VAT-exempt transactions?
a. Sale or importation of agricultural and marine food products in their original state, livestock and
poultry of a kind generally used as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefore;
b. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds, including ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals and other animals considered as pets);
c. Importation of personal and household effects belonging to residents of the Philippines
returning from abroad and non-resident citizens coming to resettle in the Philippines; Provided,
21

that such goods are exempt from custom duties under the Tariff and Customs Code of the
Philippines;
d. Importation of professional instruments and implements, tools of trade, occupation or
employment, wearing apparel, domestic animals, and personal and household effects ( except
vehicles, vessels, aircrafts machineries and other similar goods for use in manufacture which are
subject to duties, taxes and other charges) belonging to persons coming to settle in the
Philippines or Filipinos or their families and descendants who are now residents or citizens of
other countries, such parties hereinafter referred to as overseas Filipinos, in quantities and of
the class suitable to the profession, rank or position of the persons importing said items, for
their own use and not barter or sale, accompanying such persons, or arriving within a
reasonable time; Provided, That the Bureau of Customs may, upon the production of
satisfactorily evidence that such persons are actually coming to settle in the Philippines and that
the goods are brought from their place of residence, exempt such goods from payment of duties
and taxes.
e. Services subject to percentage tax under Title V of the Tax Code, as amended;
f. Services by agricultural contract growers and milling for others of palay into rice, corn into grits,
and 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 the
Department of Education (DepED), the Commission on Higher Education (CHED) and the
Technical Education and Skills Development Authority (TESDA) and those rendered by the
government educational institutions;
i. Services rendered by individuals pursuant to an employer-employee 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 international agreements to which the Philippines is a
signatory or under special laws except those granted under P.D. No. 529 - Petroleum Exploration
Concessionaires under the Petroleum Act of 1949;
l. Sales by agricultural cooperatives duly registered and in good standing with the Cooperative
Development Authority (CDA) to their members, as well as 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;
m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered
and in good standing with the Cooperative Development Authority;
n. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in
good standing with CDA; Provided, that the share capital contribution of each member does not
exceed Fifteen Thousand Pesos (P15,000.00) and regardless of the aggregate capital and net
surplus ratably distributed among the members;
o. Export sales by persons who are not VAT-registered;
p. The following sales of real properties:
i. Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business.
ii. Sale of real properties utilized for low-cost housing as defined by RA No. 7279,
otherwise known as the "Urban Development and Housing Act of 1992" and other
related laws, such as RA No. 7835 and RA No. 8763;
22

iii. Sale of real properties utilized for specialized housing as defined under RA No. 7279, and
other related laws, such as RA No. 7835 and RA No. 8763, wherein price ceiling per unit
is Php 450,000.00 or as may from time to time be determined by the HUDCC and the
NEDA and other related laws;
iv. Sale of residential lot valued at One Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house and lot and other residential dwellings valued at
Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below, as adjusted using
latest Consumer Price Index values.   (If two or more adjacent 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 of the lots do not exceed One
Million Five Hundred Thousand Pesos (P1,500,000.00).  Adjacent residential lots,
although covered by separate titles and/or separate tax declarations, when sold or
disposed to one and the same buyer, whether covered by one or separate Deed of
Conveyance, shall be presumed as a sale of one residential lot.)
q. Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand Pesos
(P15,000.00), regardless of the amount of aggregate rentals received by the lessor during the
year; Provided, that not later than January 31, 2009 and every three (3) years thereafter, the
amount of P10,000.00 shall be adjusted to its present value using the Consumer Price Index, as
published by the Philippine Statistics Authority (Formerly known as NSO);
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;
s. Transport of passengers by international carriers;
t. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine equipment
and spare parts thereof for domestic or international transport perations; 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 Maritime Industry Authority (MARINA);
u. Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations; Provided, that the 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 unless the docking or stopping at any other Philippine port is for the purpose of
unloading passengers and/or cargoes that originated form 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 that the mentioned in the paragraph, such portion of fuel, goods and
supplies shall be subject to 12% VAT;
v. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and
other non-bank financial intermediaries, such as money changers and pawnshops, subject to
percentage tax under Sections 121 and 122, respectively of the Tax Code; and
w. Sale or lease of goods and services to senior citizens and persons with disabilities, as provided
under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act
Expanding the Benefits and Privileges of Persons with Disability), respectively;
x. Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the Tax Code, as
amended);
y. Association dues, membership fees, and other assessments and charges collected on a purely
reimbursement basis by homeowners’ associations and condominium established under
23

Republic Act No. 9904 (Magna Carta for Homeowners and Homeowner’s Association) and
Republic Act No. 4726 (The Condominium Act), respectively;
z. Sale of gold to the Banko Sentral ng Pilipinasn (BSP) (previously zero-rated transaction);
aa. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
(beginning on January 1, 2019 as determined by the Department of Health); and
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 receipts do not exceed
the amount of Three Million Pesos (Php 3,000,000.00).  Note: Self-employed individuals and
professionals availing of the 8% on gross sales and/or receipts and other non-operating income,
under Sections 24 (A)(2)(b) and 24 (A)(2)(c)(2) of the NIRC shall also be exempt from the
payment of twelve (12%) VAT.
What is the difference between a low-cost and a socialized housing?
“Low-cost housing” refers to housing projects intended for homeless low-income family beneficiaries,
undertaken by the Government or private developers, which may either be a subdivision or a
condominium registered and licensed by the Housing and Land Use Regulatory Board/Housing (HLURB)
under BP Blg. 220, PD No. 957 or any other similar law, wherein the unit selling price is within the selling
price per unit as set by the Housing and Urban Development Coordinating Council (HUDCC) pursuant to
RA No. 7279 otherwise known as the “Urban Development and Housing Act of 1992” and other laws.
“Socialized housing” refers to housing programs and projects covering houses and lots or home lots only
undertaken by the Government or private sector for the underprivileged and homeless citizens which
shall include sites and services development, long-term financing, liberated terms on interest payments,
and such other benefits in accordance with the provision or RA No. 7279, otherwise known as the
“Urban Development and Housing Act of 1992” and RA No. 7835 and RA No. 8763.  It shall also refer to
projects intended for the underprivileged and homeless wherein the housing package selling price is
within the lowest interest rates under the Unified Lending Program (UHLP) or any equivalent housing
program of the Government, the private sector or non-government organizations.

II.   RELIEF-Related Queries

What is "RELIEF"?
RELIEF means Reconciliation of Listing for Enforcement. It supports the third party information program
of the Bureau through the cross referencing of third party information from the taxpayers' Summary
Lists of Sales and Purchases prescribed to be submitted on a quarterly basis.
Who are required to submit Summary List of Sales?
VAT taxpayers with quarterly total sales/receipts (net of VAT), exceeding Two Million Five Hundred
Thousand Pesos (P2,500,000.00) are required to submit a Summary List of Sales.
Who are required to submit Summary List of Purchases?
VAT taxpayers with quarterly total purchases (net of VAT) of goods and services, including importation
exceeding One Million Pesos (P1,000,000.00) are required to submit Summary List of Purchases.
What are the Summary Lists required to be submitted?
 Quarterly Summary List of Sales to Regular Buyers/ Customers Casual Buyers/ Customers and
Output Tax
 Quarterly Summary of List of Local Purchases and Input tax; and
 Quarterly Summary List of Importation.
When is the deadline for submission of the above Summary Lists?
The Summary List of Sales/Purchases, whichever is applicable, shall be submitted on or before the
twenty-fifth (25th) day of the month following the close of the taxable quarter -- calendar quarter or
fiscal quarter.
What are the penalties for failure to submit the Summary Lists?
24

 For failure to file, keep or supply a statement, list or information required on the date
prescribed shall pay and administrative penalty of One Thousand Pesos (P1,000.00) for each
such failure, unless it is shown that such failure is due to reasonable cause and not to willful
neglect; and
 An aggregate amount to be imposed for all such failures during a taxable year shall not exceed
Twenty-Five Thousand Pesos (P25,000.00).

III.   What is the treatment for Withholding of VAT on Government Money Payments?
The government or any of its political subdivisions, instrumentalities or agencies, including government-
owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of
goods and/or services taxed at twelve percent (12%) VAT pursuant to Sections 106 and 108 of the Tax
Code, deduct and withhold a Final VAT due at the rate of five percent (5%) of the gross payment.
The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller. The
remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or
services to government or any of its political subdivisions, instrumentalities or agencies including GOCCs
in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. Should actual
input VAT attributable to sales to government exceed seven percent (7%) of gross payments, the excess
may form part of the sellers' expense or cost. On the other hand, if actual input VAT attributable to sale
to government is less than seven percent (7%) of gross payment, the difference must be closed to
expense or cost.
The government or any of its political subdivisions, instrumentalities or agencies including GOCCs, as
well as private corporation, individuals, estates and trusts, whether large or non-large taxpayers, shall
withhold twelve percent (12%) VAT with respect to the following payments:
Lease or use of properties or property rights owned by non-residents; and
Other services rendered in the Philippines by non-residents.

IV.   In what grounds can the Commissioner of Internal Revenue suspend the business operations of a
taxpayer?
The Commissioner or his authorized representative is empowered to suspend the business operations
and temporarily close the business establishment of any person for any of the following violations:
a. In the case of a VAT-registered Person:
o Failure to issue receipts or invoices;
o Failure to file a value-added-tax return as required under Section 114; or
o Understatement of taxable sales or receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable quarter.
b. Failure to any Person to Register as Required under Section 236
o The temporary closure of the establishment shall be for the duration of not less than
five (5) days and shall be lifted only upon compliance with whatever requirements
prescribed by the Commissioner in the closure order.
1.) What is meant by capital asset?
Capital assets shall refer to all real properties held by a taxpayer, whether or not connected with his
trade or business, and which are not included among the real propertiesconsidered as ordinary assets
under Sec. 39(A)(1) of the Code. [Sec. 2(a) of RR No. 7-2003] 
2.) What is meant by ordinary asset?
Ordinary assets shall refer to all real properties specifically excluded from the definition of capital assets
under Sec. 39(A)(1) of the Code, namely:
1. Stock in trade of a taxpayer or other real property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year; or
25

2. Real property held by the taxpayer primarily for sale to customers in the ordinary course of his
trade or business; or
3. Real property used in trade or business (i.e., buildings and/or improvements) of a character
which is subject to the allowance for depreciation provided for under Sec. 34(F) of the Code; or
4. Real property used in trade or business of the taxpayer.
Real properties acquired by banks through foreclosure sales are considered as ordinary assets. [Sec. 2(b)
of RR No. 7-2003]
3.) What is meant by "Stock classified as Capital Asset"?
“Stock Classified as “Capital Asset” means all stocks and securities held by taxpayers other than dealers
in securities. [Sec. 2(a) of RR No. 6-2008]
4.) What is meant by "Dealer in Securities"?   
“Dealer in Securities” refers to a merchant of stocks or securities, whether an individual, partnership or
corporation, with an established place of business, regularly engaged in the purchase of securities and
the resale thereof to customers; that is one, who as merchant buys securities and re-sells them to
customers with a view to the gains and profits that may be derived therefrom. "Dealer in securities"
means any person who buys and sells securities for his/her own account in the ordinary course of
business (Sec. 3.4, SRC). [Sec. 2(b) of RR No. 6-2008]
5.) What is meant by real property?
Real property shall have the same meaning attributed to that term under Article 415 of Republic Act No.
386, otherwise known as the Civil Code of the Philippines. [Sec. 2(c) of RR No. 7-2003]
6.) What does a real estate dealer refer to?
A real estate dealer shall refer to any person engaged in the business of buying and selling or exchanging
real properties on his own account as a principal and holding himself out as a full or part-time dealer in
real estate. [Sec. 2(d) of RR No. 7-2003]
7.) What does a real estate developer refer to?
Real estate developer shall refer to any person engaged in the business of developing real properties
into subdivisions, or building houses on subdivided lots, or constructing residential or commercial units,
townhouses and other similar units for his own account and offering them for sale or lease. [Sec. 2(e) of
RR No. 7-2003]
8.) What does a real estate lessor refer to?
Real estate lessor shall refer to any person engaged in the business of leasing or renting real properties
on his own account as a principal and holding himself out as a lessor of real properties being rented out
or offered for rent. [Sec. 2(f) of RR No. 7-2003]
9.) Who are considered engaged in the real estate business?
Taxpayers who are considered engaged in the real estate business shall refer collectively to real estate
dealers, real estate developers and/or real estate lessors. A taxpayer whose primary purpose of
engaging in business, or whose Articles of Incorporation states that its primary purpose is to engage in
the real estate business shall be deemed to be engaged in the real estate business. [Sec. 2(g) of RR No.
7-2003]
10.) Who are considered not engaged in the real estate business?
“Taxpayers not engaged in the real estate business” refer to persons other than real estate dealers, real
estate developers and/or real estate lessors. [Sec. 2(g) of RR No. 7-2003]
11.) Who are considered habitually engaged in the real estate business?
Real estate dealers or real estate developers who are registered with the Housing and Land Use
Regulatory Board (HLURB) or HUDCC. If the taxpayer is not registered with the HLURB or HUDCC as a
real estate dealer or developer, he/it may nevertheless be deemed to be engaged in the real estate
business through the establishment of substantial relevant evidence (such as consummation during the
preceding year of at least six (6) taxable real estate sale transactions, regardless of amount; registration
26

as habitually engaged in real estate business with the Local Government Unit or the Bureau of Internal
Revenue, etc.). However, banks shall not be considered as habitually engaged in the real estate business
for purposes of determining the applicable rate of withholding tax imposed under Sec. 2.57.2(J) of RR
No. 2-98, as amended. [Sec. 3(a) (4) of RR No. 7-2003]
12.) How can you determine whether a particular real property is a capital asset or an ordinary asset?
a) “Real properties shall be classified with respect to taxpayers engaged in the real estate business as
follows:
i)  All real properties acquired by the real estate dealer shall be considered as ordinary assets.
ii) All real properties acquired by the real estate developer, whether developed or undeveloped as of the
time of acquisition, and all real properties which are held by the real estate developer primarily for sale
or for lease to customers in the ordinary course of his trade or business or which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year and all real
properties used in the trade or business, whether in the form of land, building, or other improvements,
shall be considered as ordinary assets.
iii) All real properties of the real estate lessor, whether land, building and/or improvements, which are
for lease/rent or being offered for lease/rent, or otherwise for use or being used in the trade or business
shall likewise be considered as ordinary assets.
iv) All real properties acquired in the course of trade or business by a taxpayer habitually engaged in the
sale of real property shall be considered as ordinary assets. A property purchased for future use in the
business, even though this purpose is later thwarted by circumstances beyond the taxpayer’s control,
does not lose its character as an ordinary asset. Nor does a mere discontinuance of the active use of the
property change its character previously established as a business property.” [Sec. 3(a) of RR No. 7-
2003]
b) In the case of taxpayer not engaged in the real estate business, real properties, whether land,
building, or other improvements, which are used or being used or have been previously used in trade or
business of the taxpayer shall be considered as ordinary assets. [Sec. 3(b) of RR No. 7-2003]
c) In the case of taxpayers who changed its real estate business to a non-real estate business, real
properties held by these taxpayers shall remain to be treated as ordinary assets. [Sec. 3(c) of RR No. 7-
2003]
d) In the case of taxpayers who originally registered to be engaged in the real estate business but failed
to subsequently operate, all real properties acquired by them shall continue to be treated as ordinary
assets. [Sec. 3(d) of RR No. 7-2003]
e) Real properties formerly forming part of the stock in trade of a taxpayer engaged in the real estate
business, or formerly being used in the trade or business of a taxpayer engaged or not engaged in the
real estate business, which were later on abandoned and became idle, shall continue to be treated as
ordinary assets. Provided however, that properties classified as ordinary assets for being used in
business by a taxpayer engaged in business other than real estate business are automatically converted
into capital assets upon showing of proof that the same have not been used in business for more than
two (2) years prior to the consummation of the taxable transactions involving said properties. [Sec. 3(e)
of RR No. 7-2003]
f) “Real properties classified as capital or ordinary asset in the hands of the seller/transferor may change
their character in the hands of the buyer/transferee. The classification of such property in the hands of
the buyer/transferee shall be determined in accordance with the following rules:
i) Real property transferred through succession or donation to the heir or donee who is not engaged in
the real estate business with respect to the real property inherited or donated, and who does not
subsequently use such property in trade or business, shall be considered as a capital asset in the hands
of the heir or donee.
27

ii) Real property received as dividend by the stockholders who are not engaged in the real estate
business and who do not subsequently use such real property in trade or business, shall be treated as a
capital asset in the hands of the recipients even if the corporation which declared the real property
dividends is engaged in real estate business.
iii)The real property received in an exchange shall be treated as ordinary asset in the hands of the
transferee in the case of a tax-free exchange by taxpayer not engaged in real estate business to a
taxpayer who is engaged in real estate business, or to a taxpayer who, even if not engaged in real estate
business, will use in business the property received in the exchange.” [Sec. 3(f) of RR No. 7-2003]
g) In the case of involuntary transfers of real properties, including expropriations or foreclosure sale, the
involuntariness of such sale shall have no effect on the classification of such real property in the hands
of the involuntary seller, either as capital asset or ordinary asset as the case may be. [Sec. 3(g) of RR No.
7-2003]
13.) What is the basis in the valuation of real property? 
The value of the real property will be based on the selling price, fair market value or zonal value as
determined by the Commissioner of Internal Revenue or the fair market value as shown in the schedule
of values of the Provincial or City Assessor, whichever is higher.
If there is no zonal value, the taxable base shall be the gross selling price per sales documents or the fair
market value that appears in the latest tax declaration, whichever is higher.
If there is an improvement, the FMV, based on the latest tax declaration at the time of the sale or
disposition, duly certified by the City/Municipal Assessor shall be used. No adjustments shall be added
on the said value, provided that the tax declaration bears the upgraded fair market value of the said
property pursuant to Section 219 of Republic Act No. 7160, otherwise known as the Local Government
Code of 1991 and the last paragraph of the Local Assessment Regulations No. 1-92 dated October 6,
1992.
However, in case the tax declaration presented was issued three (3) or more years prior to the date of
sale or disposition of the real property, the seller/transferor shall be required to submit a certification
from the City/Municipal Assessor whether or not the same is still the latest tax declaration covering the
said real property. Otherwise, the taxpayer shall secure its latest tax declaration and shall submit a copy
thereof duly certified by the said Assessor. (RAMO 1-2001)
14.) What is meant by "Net Capital Gains"?
"Net Capital Gains" means the excess of the gains from sales or exchanges of capital assets over the
losses from such sales or exchanges. [Sec 2(o) of RR 6-2008]
15.) What are the rules for the determination of amount and recognition of gain or loss in the sale,
barter, or exchange of shares of stock not traded through the Local Stock exchange?
A. “Determination of Selling Price. — In determining the selling price, the following rules shall apply:
a.1) In the case of cash sale, the selling price shall be the total consideration per deed of sale.
a.2) If the total consideration of the sale or disposition consists partly in money and partly in kind, the
selling price shall be sum of money and the fair market value of the property received.
a.3) In the case of exchange, the selling price shall be the fair market value of the property received.”
[Sec. 7 (c) (c.1) RR No. 6-2008]
a.4) “Where property, other than real property referred to in Section 24(D), is transferred for less than
an adequate and full consideration in money or money's worth, then the amount by which the fair
market value of the property exceeded the value of the consideration shall be deemed a gift, and shall
be included in computing the amount of gifts made during the calendar year: Provided, however, that a
sale, exchange, or other transfer of property made in the ordinary course of business (a transaction
which is a bona fide, at arm’s length, and free from any donative intent) will be considered as made for
an adequate and full consideration in money’s worth.” (Sec. 16, RR No. 12-2018)
B.) Definition of "fair market value" of the Shares of Stock.
28

b.1) “In the case of listed shares which were sold, transferred or exchanged outside of the trading
system and/or facilities of the Local Stock Exchange, the closing price on the day when the shares are
sold, transferred, or exchanged. When no sale is made in the Local Stock Exchange on the day when the
Listed shares are sold, transferred, or exchanged, the closing price on the day nearest to the date of
sale, transfer or exchange of the shares shall be the fair market value.” [Sec. 7 (c.2.1) RR No. 6-2008]
b.2) “In the case of shares of stock not listed and traded in the local stock exchanges, the value of the
shares of stock at the time of sale shall be the fair market value. In determining the value of the shares,
the Adjusted Net Asset Method shall be used whereby all assets and liabilities are adjusted to fair
market values. The net of adjusted asset minus the liability values is the indicated value of the equity.
The appraised value of real property at the time of sale shall be the higher of –
1.  The fair market value as determined by the Commissioner of Internal Revenue, or
2.  The fair market value as shown in the schedule of valued fixed by the Provincial and City Assessors, or
3.  The fair market value as determined by Independent Appraiser.” (Sec. 2, RR No. 6-2013)
b.3) In the case of a unit of participation in any association, recreation or amusement club (such as golf,
polo, or similar clubs), the fair market value thereof shall be its selling price or the bid price nearest
published in any newspaper or publication of general circulation, whichever is higher. [Sec. 7 (c.2.3) RR
No. 6-2008]
C.) Determination of Gain or Loss from Sale or Disposition of Shares of Stock. — The gain from the sale
or other disposition of Shares of Stock. — The gain from the sale or other disposition of shares of stock
shall be the excess of the amount realized therefrom over the basis or adjusted basis for determining
gain, and the loss shall be the excess of the basis or adjusted basis for determining loss over the amount
realized. The amount realized from the sale or other disposition of property shall be the sum of money
received plus the fair market value of the property (other than money) received, if any. [Sec. 7 (c.3) RR
No. 6-2008]
16.) What are the applicable tax rates of Capital Gains Tax (CGT) under the National Internal Revenue
Code of 1997, as amended by Republic Act No. 10963/ TRAIN Law?
A.  For Real Properties                  –             Six percent (6%)
B. For Shares of Stocks Not Traded in the Stock Exchange:
Effective January 1, 2018 to present (Republic Act No. 10963 or TRAIN Law)
A.  For Individual                     -              15 % 
B.  For Corporation:
        B.1 Domestic                        -              15 %
        B.2 Foreign:
                   B.2.1   Not Over P100,000                                              -              5.0 %
                   B.2.2   On any amount in excess of P100,000                    -              10 %
Effective January 1, 1998 to December 31, 2017 (Republic Act No. 8424/NIRC)
 Not over P 100,000 – Five percent (5%)
 On any amount in excess of P 100,000 – Ten percent (10%)
17.) Who/what are considered exempt from the payment of Final Capital Gains Tax?
 Dealer in securities, regularly engaged in the buying and selling of securities
 An entity exempts from the payment of income tax under existing investment incentives and
other special laws
 An individual or non-individual exchanging real property solely for shares of stocks resulting in
corporate control
 A government entity or government-owned or controlled corporation selling real property
 If the disposition of the real property is gratuitous in nature
 Where the disposition is pursuant to the CARP law
18.) Who are conditionally exempt from the payment of Final Capital Gains Tax?
29

Natural persons who dispose their principal residence, provided that the following criteria are met:
 The proceeds of the sale of the principal residence have been fully utilized in acquiring or
constructing new principal residence within eighteen (18) calendar months from the date of sale
or disposition;
 The historical cost or adjusted basis of the real property sold or disposed will be carried over to
the new principal residence built or acquired;
 The Commissioner of Internal Revenue has been duly notified, through a prescribed return,
within thirty (30) days from the date of sale or disposition of the person’s intention to avail of
the tax exemption;
 Exemption was availed only once every ten (10) years;
 In case there is no full utilization of the proceeds of sale or disposition, the portion of the gain
presumed to have been realized from the sale or disposition will be subject to Capital Gains Tax.
 In case of sale/transfer of principal residence, the Buyer/Transferee shall withhold from the
seller and shall deduct from the agreed selling price/consideration the 6% capital gains tax
which shall be deposited in cash or manager’s check in interest-bearing account with an
Authorized Agent Bank (AAB) under an Escrow Agreement between the concerned Revenue
District Officer, the Seller and the Transferee, and the AAB to the effect that the amount so
deposited, including its interest yield, shall only be released to such Transferor upon certification
by the said RDO that the proceeds of the sale/disposition thereof has, in fact, been utilized in
the acquisition or construction of the Seller/Transferor’s new principal residence within
eighteen (18) calendar months from date of the said sale or disposition. The date of sale or
disposition of a property refers to the date of notarization of the document evidencing the
transfer of said property. In general, the term “Escrow” means a scroll, writing or deed,
delivered by the grantor, promisor or obligor into the hands of a third person, to be held by the
latter until the happening of a contingency or performance of a condition, and then by him
delivered to the grantee, promise or obligee.
19.)  What is an Electronic Certificate Authorizing Registration (eCAR)?
The eCAR is an electronically generated Certificate Authorizing Registration issued by the Commissioner
or his duly authorized representative attesting that the transfer and conveyance of land,
buildings/improvements or shares of stock arising from sale, barter or exchange have been reported and
the taxes due inclusive of the documentary stamp tax, have been fully paid.
20.)  What is Electronic Certificate Authorizing Registration System (eCAR System)?
The eCAR System is a stand-alone system developed and owned by the BIR for the automated creation
of eCAR which is the basis for transferring the real and personal properties from the transferor to the
transferee after payment of the correct taxes and other dues that allows monitoring through audit trails
and generated reports.
21.) Are manually issued Certificate Authorizing Registration (CAR) that are outstanding and not yet
presented to the Registry of Deeds (RD) still valid?
All manually issued CARs that are outstanding and not yet presented to the RD are no longer valid. The
said CARs shall be replaced with an eCAR by the concerned Revenue District Offices or Large Taxpayers
Divisions. For CAR involving multiple properties in which some of the properties are already transferred
in RD, only those untransferred property/ies shall be issued with an eCAR.
A certification fee shall be charged for each released eCAR issued/reprinted after affixture of Thirty
Pesos (P30.00) Documentary Stamp Tax (DST) on Certificates (RA 10963 or TRAIN Law) and the
prescribed Certification Fee of One Hundred Pesos (P100.00) under Executive Order No. 197 to the
taxpayer/authorized representative.