Vat Exempt Transactions

These are transactions which does not result to any output tax and no input tax can be allowed. The following
are the transactions exempt from VAT:

1. Sale or importation of:

a. agricultural and marine food product in their original state;
b. livestock and poultry used as, or producing foods for human consumption;
c. breeding stock and genetic materials.

NOTE:
• Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits.
• Livestock or poultry does not include fighting cocks, race horses, zoo animals and other animals generally
considered as pets.
• Poultry shall include fowls, ducks, geese and turkey.
• Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout, lobster,
shrimps, prawns, oysters, mussels and clams.

Products that will be considered in their original state:

a. Products which undergone simple processes of preparation or preservation for the market (freezing,
drying, salting, broiling, roasting, smoking or stripping)
b. polished or husked rice
c. corn grits
d. raw cane sugar and molasses
e. ordinary salt
f. copra

2. Sale or importation of:

a. Fertilizers
b. Seeds, seedlings and fingerlings
c. Fish, prawn, livestock and poultry feeds
d. Ingredients used in the manufacture of finished feeds (except specialty feeds for race horses, fighting
cocks, aquarium fish, zoo animals and other animals generally considered as pets).

Note: Specialty feeds refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish,
zoo animals and other animals generally considered as pets.

3. Importation of personal and household effects belonging to the:

a. residents of the Philippines returning from abroad;
b. non-resident citizens coming to resettle in the Philippines; and
c. such goods must be exempt from customs duties.

4. Importation of professional instruments and implements, tools of trade, occupation or employment,

wearing apparel, domestic animals, and personal household effects, provided:
a. it belongs 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 herein referred to as overseas
Filipinos;
b. in quantities and of the class suitable to the profession, rank or position of the persons importing said
items;
c. for their own use and not for sale, barter or exchange; accompanying such persons, or arriving within a
reasonable time.
d. Provided, that the Bureau of Customs may, upon the production of satisfactory evidence that such
persons are actually coming to settle in the Philippines and that the goods are brought from their former
place of abode, exempt such goods from payment of duties and taxes:
e. Provided, further, that vehicles, vessels, aircrafts, machineries and other similar goods for use in
manufacture, shall not fall within this classification and shall therefore be subject to duties, taxes and
other charges.

5. Services subject to percentage tax

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6. Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar
cane into raw sugar.

“Agricultural contract” growers refer to those persons producing for others poultry, livestock or other
agricultural and marine food products in their original state.

7. Medical, dental, hospital and veterinary services except those rendered by professionals.

NOTES:
• Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drugstore, the sale of
drugs and medicines are subject to VAT.
• Hospital bills constitute medical services. The sales made by the drugstore to the in-patients which are
included in the hospital bills are part of medical bills and therefore exempt from VAT.
• The sales of the drug store to the out-patients are taxable because they are NOT PART of medical services
of the hospital.

8. Educational services rendered by:

a. private educational institutions, duly accredited by:

i. Department of Education (DepEd)

ii. Commission on Higher Education (CHED)
iii. Technical Education and Skills Development Authority (TESDA)

b. Government Educational Institutions

“Educational services” shall refer to academic, technical or vocational education provided by private
educational institutions duly accredited by the DepEd, the CHED and TESDA and those rendered by
government educational institutions and it does not include seminars, in-service training, review classes and
other similar services rendered by persons who are not accredited by the DepED, the CHED and/or TESDA.

9. Services rendered by individuals pursuant to an employer-employee relationship.

10. 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.

11. Transactions which are exempt under international agreements to which the Philippines is a signatory or
under special laws.

12. Agricultural cooperatives:

a. Sales to their members;

b. Sales to non-members if the cooperative is the producer (if not (e.g., trader), subject to VAT);
c. Importation of:
I. direct farm inputs, machineries and equipment, including spare parts thereof;
II. to be used directly and exclusively in the production and/or processing of their produce.

Sale to Sale to
Members Non-members
Agricultural food product in their original state Exempt Exempt
Other agricultural product non-food product (own produce) Exempt Exempt
Other agricultural product non-food product (not own produce) Exempt VATable

13. Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good
standing with the Cooperative Development Authority (CDA).

14. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered and in good standing with
the CDA; Provided, That the share capital contribution of each member does not exceed P15,000 and
regardless of the aggregate capital and net surplus ratably distributed among the members.

Importation by non-agricultural, non-electric and noncredit cooperatives of machineries and equipment

including spare parts thereof, to be used by them are subject to VAT.

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15. Export sales by persons who are not VAT-registered

16. Sale of:

a. Real properties not primarily held for sale to customers or held for lease in the ordinary course of trade
or business. However, even if the real property is not primarily held for sale to customers or held for
lease in the ordinary course of trade or business but the same is used in trade or business subject to VAT
of the seller, the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s
main business.

b. Real property utilized for low-cost housing as defined under RA No. 1992, otherwise known as the
“Urban Development and Housing Act of 1992”and other related laws. “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 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 7279, otherwise known
as the “Urban Development and Housing Act of 1992” and other laws.

c. Real property utilized for “socialized housing” as defined by Republic Act No. 7279, and other related
laws such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P450,000 or as may from
time to time be determined by HUDCC and the NEDA and other related laws.

“Socialized housing” refers to housing programs and projects covering houses and lots or home lots only
that are undertaken by the government or the private sector for the underprivileged and homeless
citizens, which shall include sites and services development, long-term financing, liberalized terms on
interest payments, and as such other benefits in accordance with the provisions of Republic Act 7279,
otherwise known as the “Urban Development and Housing Act” and RA No. 7835 and RA No. 8763,
“Socialized Housing” 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 Home Lending
Program (UHLP) or any equivalent housing program of the Government, the private sector or non-
government organizations.

d. Real properties primarily held for sale to customers or held for lease in the ordinary course of trade or
business, if:
i. Residential lot valued at P1,919,500.
ii. House and lot, and other residential dwellings valued at P3,199,200

NOTES:
• If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the purpose of
utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the aggregate value do
not exceed P1,915,000.

Adjacent residential lots, although covered by separate titles and/or separate tax declarations, when
sold to one and the same buyer, whether covered by one separate Deed of Conveyance, shall be
presumed as sale of one residential lot.

• Provided, that beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties
not primarily held for sale to customers or held for lease in the ordinary course of trade or business, sale
of real property utilized for socialized housing as defined under RA No. 7279, sale of house and lot and
other residential dwellings with selling price of not more than two million pesos (P2,000,000); Provided,
further, that every three (3) years thereafter, the amounts stated herein shall be adjusted to its present
value using the Consumer Price Index, as published by the Philippine Statistics Authority (PSA).

17. Lease of a residential unit with a monthly rental not exceeding 15,000, regardless of the amount of
aggregated rentals received by the lessor during the year.

RR No. 16-2021 as amended by RR No. 13-2018:

• LEASE of RESIDENTIAL UNITS where the monthly rental per unit exceeds P15,000 but the aggregate of
such rentals of the lessor during the year do not exceed P3,000,000 shall likewise be exempt from VAT,
however, the same shall be subjected to two (2) percentage tax.

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 • In cases where a lessor has SEVERAL RESIDENTIAL UNITS for LEASE, some are leased out for a monthly
rental per unit of not exceeding P15,000 while others are leased out for more than P15,000 per unit, his
tax liability will be:
a. The gross receipts from rentals not exceeding P15,000 per month per unit shall be exempt from VAT
regardless of the aggregate annual gross receipts.
b. The gross receipts from rentals exceeding P15,000 per month per unit shall be subject to VAT if the
annual gross receipts not including the gross receipts from units leased out for not more than
P15,000 exceed P3,000,000. Otherwise, the gross receipts shall be subject to three two (2)
percentage tax under section of the tax code.

18. Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which:
a. Appears at regular intervals;
b. With fixed prices for subscription and sale;
c. Not devoted principally to the publication of paid advertisements.

BIR Ruling dated January 31, 2018:

The terms “book”, “newspaper”, “magazine”, “review” and “bulletin” refer to printed materials in hard
copies and do not include those in digital or electronic format or computerized versions such as eBooks.

19. Transport of passengers and cargo by international carriers doing business in the Philippines.

20. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare
parts thereof for domestic or international transport operations, provided, that the exemption from VAT on
the importation and local purchase of passenger and/or cargo vessels shall be subject to the requirements
on restriction on vessel importation and mandatory vessel retirement program of MARINA.

21. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations; Provided that/the:
a. Fuel, goods and supplies shall be 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 of passengers and/or cargoes that originated from abroad, or to load passengers and/or
cargoes bound for abroad;
b. If fuel, goods or supplies is used for purposes other than that mentioned in the preceding paragraph,
such portion of fuel, goods and supplies shall be subject to 12% vat.

22. 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.

23. Sale or lease of goods and services to senior citizens and persons with disabilities, as provided under RA No.
9994 (Expanded Senior Citizens Act of 2010) and RA No. 10754 (An Act Expanding the Benefits and Privileges
of Persons with Disability), respectively.

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