BUSINESS AND TRANSFER
TAXATION
Overview of the Handouts:
I. INTRODUCTION TO CONSUMPTION
TAX
II. VALUE ADDED TAX ON
IMPORTATION
III. INTRODUCTION TO BUSINESS
TAXATION
IV. EXEMPT SALES OF GOODS,
PROPERTIES & SERVICES
V. PERCENTAGE TAX
VI. INTRODUCTION TO VALUE ADDED
TAX
VII. THE REGULAR OUTPUT VAT
VIII. OUTPUT VAT: ZERO RATED SALES
I. INTRODUCTION TO
CONSUMPTION TAX
Consumption- occurs when one acquires
goods or services by purchase, exchange, or
other means.
Consumption Tax- tax upon the utilization of
goods or services
- Tax on the purchase or
consumption of the buyer
or on the sale of seller.
Rationale of Consumption Tax
1) Promotes Savings - a residual income
that remains after consumption.
- promotes capital
formation and investment.
2) Helps in wealth redistribution – a tax
on consumption makes the rich pay
more.
3) Supports the Benefit Received
Theory – everyone receives from the
government; everybody should be
taxed.
 Consumption Tax is leveled on
necessities such as foods, education,
health, shelter, or housing.
Types of Consumption
1) Domestic Consumption
consumption on purchases of Philippine
residents.
2) Foreign Consumption – consumption
or purchases of non – residents.
 Destination Principle – goods and
services destined for use
consumption in the Philippines are
subject to consumption tax.
- goods and
services destined for use or consumption in
abroad are not subject to consumption tax.
 Cross Border Doctrine – states that
those destined toward foreign territories
Business and Transfer Taxation
should not be charged within JPIA-HA
consumption tax.
Types of Taxable Domestic Consumption
1) Importation
 12% of the total import cost
 “Value Added Tax (VAT)” on
Importation – paid prior to the
withdrawal of goods from the
warehouse.
 “Withholding VAT” – import on
VAT on services (12%)
 Goods = VAT on Importation = BOC
 Services = Withholding VAT = BIR
2) Sales – Consumption Tax on Purchases
of Residents is collected from the seller.
 Seller
o Statutory taxpayers
o The one named by the law to
pay tax.
 Buyer
o Economic taxpayers
o The one who actually pays
the tax.
 Invoice price
o Consumption Tax
o Purchase Price
Business Tax
 Tax levied on sales or receipts of a
resident seller only when the seller is
engaged in business.
 Other term for “Consumption Tax”
 Often viewed as a “privilege tax”
 A tax on the privilege to do business.
Basis of Business Tax
1) Sales – for businesses which sells
goods or properties.
2) Receipts – for businesses that sells
services.
Types of Business Taxpayers
1) VAT Taxpayers – required to pay VAT
2) Non – VAT Taxpayers – those who pay
percentage tax.
Characteristics of VAT on Sales
1) Tax on Value Added – a tax on the
mark – up or price increases.
2) Top – up on Sales – amount added to
– the selling price to arrive at the invoice
price which will be billed to the
consumer.
Invoice Price – VAT, Selling Price
3) Tax Credit Method
o VAT on Sales less VAT on
or Purchase = + Excess (Payable)
o Output VAT – Input VAT = VAT
Payable (Excess – deduction)
4) Explicit Consumption Tax – VAT is
disclosed in the invoice / Official
Receipt.
5) Quarterly Tax
 o BIR FORM 2550M – 25th of next c) Automobiles JPIA-HA
month d) Non – essential commodities
o BIR FORM 2550Q – 25th of next e) Metallic or non-metallic materials
month after the quarter.
Methods of Computing VAT II. VALUE ADDED TAX ON
1) Direct Method IMPORTATION
o (Sales – Purchases) x VAT RATE Importation
2) Tax Credit Method o Refers to the purchase of goods
o Output VAT – Input VAT = VAT by a resident buyer to a non-
PAYABLE resident seller.
Special Features of Tax Credit Method o A form of domestic consumption
1) Invoice – based crediting Types of Consumption Tax on Importation
o Input VAT is to be substantiated 1) VAT on Importation
with invoices. o Import of goods.
2) Non – observance of the matching of o Payable to BOC
costs or expenses and sales. o Paid prior to withdrawal of goods
VAT Registered Taxpayers from warehouse.
o Businesses which exceed 3M o 12%
sales / receipts in a 12-month 2) Final Withholding VAT
period. o Purchase of Service from non-
o Mandatory required to register as resident
VAT Taxpayer o 12%
VAT Registrable Taxpayers Exempt Consumption
o Exceeded 3M sales but did not register o Basic Necessities
as VAT Taxpayers. o Priority goods and services (for
o Cannot claim input VAT development)
Percentage Tax Exempt Importation for Human
o Generally, 3% Consumption
o Imposed upon gross sales or gross 1) Agricultural and Marine Food
receipts of non-VAT Taxpayers. Products (Original State)
o Paid by the Seller. o Are natural objects of human
Characteristics of Percentage Tax consumption
1. Tax on sales / gross receipts o Taxing these tends to limit normal
2. Presented as an expense deductible processes of life.
against sales. o Exempt products are:
3. Implicit Consumption Tax (need to be a) Fruits
disclosed) b) Vegetables, tea, ginsen
4. Monthly or Quarterly Tax c) Edible form products
Who Pays Percentage Tax d) Marine Foods
1) Non – VAT Taxpayers e) Poultry and Livestock
2) Taxpayers who sell services specifically f) Milk, eggs, meat for human
subject to percentage tax consumption
Important Points Livestock – cows, bulls, calves, pig, sheep,
1) VAT Taxpayers goats, rabbits
o Invoice Price = Sales + VAT Marine Food – fish, crustaceans
Percentage Taxpayers Poultry – fowls, ducks, geese, turkey
o Invoice Price = Sales Original State
2) VAT and Percentage Tax are mutually o Means unprocessed.
exclusive. o Simple process still considered being in
Except: VAT Taxpayers has activities original state:
mandated by law to be subject to a) Preparation (boiling, roasting, etc.)
percentage tax. b) Preservation (freezing, drying, etc.)
Excise Tax c) Packaging
 Imposed in addition to VAT or i. Shrink wrapping in plastic
Percentage Tax ii. Vacuum packing
 Imposed on Production, not equal on iii. Tetra – packing
sales. iv. Others
 Levied on: Agricultural and Marine Products
a) Sin Products Considered in Original State
b) Petroleum Products a) Husked Rice

Business and Transfer Taxation

 b) Corn Grits o Conditions: JPIA-HA
c) Raw Cane Sugar a) Appear at regular intervals with
d) Roasted Coffee beans fixed prices
e) Ordinary Salt b) Not be devoted principally to the
f) Copra publication of paid advertisement
g) Dried Fish Note: Exemption does not extend on
h) Sundried Fruits other school supplies
i) Ground Meat 6) Importation of fuel, goods, and
j) Smoked fish supplies by persons engaged in
Processed Agricultural and Marine Food international shipping or air
Products transport operations
o Undergone changes in their chemical o They are intended for consumption
compositions. abroad
o Have undergone complex processing or o If mixed, allocate
treatment. 7) Importation of cooperatives of direct
o Examples: farm inputs, machineries and
a) Refined Sugar equipment, including their spare
b) Wine or Vinegar parts
c) Butter o Conditions for exemption:
d) Canned Sardines or Mackarel a) Must be an agricultural
e) Vegetable or Coconut Oil cooperative
f) Soy b) In good standing with CDA
o Subject to VAT on Importation c) Involves direct farm inputs,
2) Importation of Fertilizers, seeds, machineries and equipment
seedlings, fingerlings, fish, prawn, o Used directly and exclusively in the
livestock, and poultry feeds production
o Exempt o Cooperative must be
o Specialty feeds – taxable AGRICULTURAL
o Inputs for agricultural products 8) Special Laws
- Feeds= “ingredients” – not taxable 9) International Treaty
and if can be used for human 10) Importation of Vessels, Aircrafts,
consumption, then taxable and spare parts
- Herbicides, pesticides are not Presumption of Vatability
included o States that “importation is generally
3) Importation of personal and subject to VAT unless it can be
household effects proven as exempt”
o Conditions: Subsequent Sale by Exempt Person to Non-
a) Belongs to Philippine Resident Exempt
intending to resettle in the o The non – exempt buyer will be
Philippines subject to VAT on importation
b) Goods are exempt from custom Tax Basis of VAT on Importation
duties. o 12% of the total landed cost of the
o They are no longer taxable for they were importation
already taxed before a) Dutiable Value
o Reasonable in number b) Custom Duty
4) Importation of Professional c) Excise Tax
Instruments and Implements, wearing d) Other in- land act
apparel, domestic animal, and o Berthing Fee
personal household effects. a) Bank Charge
o Conditions: b) Brokerage fee
a) Goods must accompany the person c) Wharfage fee
upon arrival d) Customs PST
b) Goods belong to persons who come to e) Import Processing fee
settle in Philippines Landed Cost – cost incurred prior to
c) There is evidence of change in withdrawal of goods from the warehouse.
residency Dutiable Value – total value used by BOC in
d) Not a vehicle, machinery or equipment determining the tariff and custom duties.
5) Importation of books, newspapers, a) Cost of goods sold
magazine, review or bulletin b) Freight
o Based upon the necessity of education c) Insurance
and information d) Other charges and costs

Business and Transfer Taxation

Technical Importation
o Importations from Economic Zones
are subject to VAT
o Ecozones are considered foreign
territories
 Sales from ecozones are exempt from
VAT
Withholding VAT on Import of Service
o 12% payment to BIR
o The sale by non-resident to a resident is
always presumed made in the course of
business
o The real object of taxation is purchase
of service by a non-resident.
Payment of the Withholding VAT
o BIR Form 1600
o Monthly – 10th day of the following
month except December, January 25 of
the next year
Treatment of the VAT on importation and
the Withholding VAT
1) If resident citizen is VAT-registered
o VAT on Importation or Withholding VAT
can be claimed as Input VAT, creditable
against output VAT
2) If resident citizen is non-VAT registered
o VAT on importation or withholding VAT
shall be part of the cost of purchase
o Shall be treated as asset or expense
3) If not engaged in business
o VAT on importation or withholding VAT
is merely added to the costs of
importation
 0% VAT - can still claim input VAT,
thus can also claim tax credit /
deduction.
 Exempt Vat – cannot claim input VAT.
III. INTRODUCTION TO BUSINESS
TAXATION
Business Tax – a consumption tax payable by
persons engaged in business
Business – habitual engagement in a
commercial activity
Habitual Engagement – there is regularity in
transactions and normally manifested in
registration
 Non – registration does not exonerate
one who is actually engaged in regular
trade or business from being liable to
pay business tax.
Not Considered Businesses
1) Sale by non – dealers
o Make casual sale of goods or properties
2) Privilege Stores
a) Tiangge
b) Stalls or markets not permanently
fixed to the ground
c) Put up during special events
d) Not 15 days operation (cumulative
and the 15 days is annual count)
Business and Transfer Taxation
Exemptions to Rules of Regularity JPIA-HA
1) Business Principally for subsistence
or livelihood
o Gross sales of net more than 100,000
per year
o Self – employed (marginal income
earners)
2) Sales by non-residents are
considered made in the course of the
business
o In essence, it is a form of import
purchase by the resident buyer
Commercial Activity – engagement in sales
of goods and services for profit
Not Businesses under the “Commercial
Activity Rule”
1) Government Agencies and
Instrumentalies – primary motive:
provide public services
2) Non-profit organizations or associations
– do not generate income
3) Employment – “compensation” only
4) Directorship in a corporation
Other Persons Considered Engaged in
Business
1) Consultants
2) Sales agents or brokers
3) Television or movie talents and artists
4) Cooking Instructors
5) Martial Art Instructors
Nature of Business Taxes
1) Consumption Tax
2) Indirect Tax – imposed to seller rather
than the buyer
3) Privilege Tax – privilege to do business
Person – individual, trust, estate, partnership,
corporation, joint venture, cooperative, or
association.
Taxable Person – Taxable unit in business
taxation
Registration of Business
1) Register to the appropriate RDO with
BIR form
2) Pay annual registration fee of P500
o BIR Form 0605 (on or before
January 31)
o Through accredited bank in the ROD
or RD
 In the case of storage places,
application = 30 days from the date of
using the premise as storage
3) Get Registration Certificate – issued
after complying with requirements
4) Post Registration Certificate in the
principal place of business and at each
branch.
Types of Business as to Activities
1) Sale of goods or properties
o Tangible and intangible
o Includes:
 a) Sale of real property (ordinary
course)
b) Lease
c) Right / privilege to use properties
(intangible) or rights
d) Right / privilege to use an
Philippine industrial, commercial
or scientific equipment
e) Right to use motion picture film
2) Sale or exchange of Services –
providing services for a fee,
remuneration, or consideration
Tax Bases of Business Taxpayers
1) Goods = Gross sales, inclusive of VAT
and Excise tax (it uses accrual basis)
o Allowable deductions:
a) Discounts = trade discount
b) Sales Returns and Allowances – Not
deductible
2) Services – Gross Receipts (Uses cash
basis)
Constructive Receipt – money consideration
is put / placed at the control of the service
provider without restrictions by the payor.
Agency Monies – payment to an unrelated
third party or received as reimbursement for
advanced payment on behalf of other.
Insurance Proceeds on Damaged Assets-
not viewed as sales or receipts.
Categories of Business Sales
1. Exempt Sales
a) VAT Exempt Importation
b) VAT Exempt Sales
i. Basic Necessities
ii. Exempt by law
iii. Casual Sales
iv. Export Sales of Non-VAT
registered person
2. Sales Subject to Percentage Tax
a) Common Carriers transport
passengers by land and keepers of
garage
b) International Carriers (Cargos, excess
baggage, mails)
c) Franchise Grantees
i. Radio/Television broadcasting
(<10m = 3%)
ii. Gas and Water Utilities (2%)
d) Telephone Companies on overseas
communication (exempt: government ,
international organization, diplomatic
services)
e) Banks and non-banks financial
intermediaries
f) Life Insurance Companies
g) Agents of foreign Insurance Companies
h) Certain Amusement Places
i) Jai-alai and cockpit operator on
winnings
Business and Transfer Taxation
JPIA-HA
j) Brokers in effecting sales of stocks
through PSE
IV. EXEMPT SALES OF GOODS,
PROPERTIES & SERVICES
Exempt Sales
1. Agricultural and Marine Food
Products in Original State
a) For human consumption (includes
breeding stocks and genetic
materials)
b) Inputs for agricultural products feeds
except specialty feeds
c) Services of agricultural contract growers
Original State
o Unprocessed
o Simple process of preparation,
preservation, packaging
State Altering
o Use of heat (cooking products)
o Use of complex process such as
chemical treatment or curing in solution
o Marinating
o Mixing flavoring / ingredients
2. Sale of Certain Farm or Fishery
Inputs
Exemption is qualified and limited to:
a. For plants or fruit cultivation – fertilizers,
seeds, and seedlings
b. For animal husbandry – livestock, feeds
and ingredients for livestock and poultry
feeds
c. For fishery operation – fingerlings, fish,
prawn
3. Sale of Livestock / Poultry Feeds or
ingredients in the manufacture of
feeds
o Must be unfit for human consumption
otherwise it is vatable
of
4. Services by agricultural contract
growers and nulling for others of
palay into rice, corn into grits, and
sugar cane into raw sugar.
Agricultural Contract Growers – refers to
persons producing for others
Agricultural and Marine Food products in their
original state.
5. Education Services
o Rendered by private educational
institution
 Accredited by:
a) DepEd
b) CHED
c) TESDA
o Rendered by government educational
institutions
o Includes books, newspapers,
magazines, reviews or bulletins.
o Except: seminars, trainings, review
classes.
6. Health or Hospital Services
o Medicinal, dental, hospital, and
veterinary services
o Except : rendered by professionals,
sales of drugs by hospital, drugstore, if
part of the hospital bill
 Under Train Law 2019 – medicines for
diabetes, high cholesterol & high blood
– exempt
7. Employment
7.1 Services performed in pursuant to an
employer – and – employee
relationship
Job / Profession that are VATABLE
1) Professional Practitioners
2) Consultants
3) Talents
4) Artists of TV
5) Brokers and Agents
7.2 Director’s Fees
o Not earned in the course of business
o Do not arise from an undertaking that is
intended to be pursued in the course of
business which includes:
a) Continuity of Activity
b) Objective to earn unrestricted amounts
of profits
c) Unrestricted offering of goods or
services
8. Regional Area Headquarter of a
Multinational Company
o Act as supervisory, communications and
coordinating centers for their affiliates
o Do not derive income from the
Philippines
 Regional Operating Headquarters are
Taxable
9. Casual Sales
o Sale by a non-dealer
 Sale of Properties held for use are
Vatable
10. Sale by dealers that complied with
price ceilings
o Socialized Housing
a) House and Lot Package – 450,000
b) Residential Lot Only – 180,000
o Low Cost Housing
a) Price Unit Ceiling – 750,000 (RA 7279)
o Sale of Residential Lot- 3,000,000 and
below
o Sale of Residential dwelling – 3,199,200
& below
 Sale of adjacent lots house and lots,
and other residential dwelling within 12
month period is treated as one for the
purpose of the ceiling
11. Lease of residential unit with
monthly rental not exceeding 12,800
Business and Transfer Taxation
JPIA-HA
o Its purpose for being exempt is to
provide tax incentives for keeping
the rentals low
12. Transport of Passengers by
International Carriers
o Receipts from:
a. Outgoing Flight – 0% VAT
b. Incoming Flight – Exempt
c. Domestic Flight – 12% VAT
13. Sale of Cooperatives
o Electronic Cooperatives – VATABLE
o Transaction to members- EXEMPT
o Transaction to non – members =
exceed 10m ; VATABLE
14. Export Sales of Non-VAT Taxpayers
o 0% VAT and;
o Exempt OPT
15. Sale to exempt parties under
international agreements or Special
Laws (Exempt VAT & OPT)
Example:
a. PEZA registered enterprises
b. Asian Development Bank
c. International Rice Research Institute
d. Philippine National Red Cross
e. Embassies of foreign government
f. Philippine Amusement and Gaming
Corporation
To VAT Taxpayers
o Exempt sales must be specifically
designated as such by indicating or pre-
printing the caption “Exempt” at the
invoice or receipt.
Failure to Comply = 12% VAT or 3% OPT
o Can be applied by VAT – registered who
entered in transaction exempt for tax
o Must be made within 10 days before the
beginning of the taxable quarter
o Could decrease pricing competitiveness
o Subject to pre-dominance test
Option is allowed if 50% of its gross
sales comes from business subject to
VAT
Sales to Senior Citizen & PWD
o Subject to 20% discount on certain
business establishment
a. Lodging
b. Restaurants
c. Recreational Centers
d. Other places of culture, leisure, and
amusements
e. Hospitals
f. Drugstores and health services
g. Transport Fares
Exempt Sales under Goods
a. Senior Citizen & PWD
b. Sale of Exempt Goods
i. Agricultural & Marine
 ii. Fertilizers
iii. Books, newspapers, magazine for
educational services
iv. Medicine for diabetes & hypertension
v. Passenger or Cargo Vessels
c. Sale of Goods by Cooperative
d. Sale of Residential Properties
i. Low – costing = 750,000
ii. Socialized
House & Lot – 450,000
Lot – 180,000
e. Export Salles by Non-VAT Persons
f. Treaty
Example: PEZA
g. Tax free exchange
o Gain on control to another entity
o Merger
o Consolidation
h. Sale of gold to BSP
Exempt Sales on Services
a. Schools Accredited by:
o DepEd
o CHED
o TESDA
b. Employees – because it is not a
business
c. Agricultural Contract Growers
d. Residential Leasing – 15,000 per month
e. Cooperative Services
o Members = exempts
o Non – members = 10m – exempt
f. Hospital
g. Home – owners association
condominium dues
h. Lease of passenger or cargo vessels
i. Treaty – exempt
j. Regional Area Headquarters
k. International Carriers
o Transport of passengers only
l. Printers or publishers
o For educational purposes like books,
magazines, etc.
m. Senior Citizen and PWD
Other Exempt Sales of Goods or Services
a. Sales exempt by special laws
i. Sales by Ecozone Locators
ii. Sale of Amusement Service by theaters
and cinemas
b. Sales by not engaged in business
c. Sales of Assets held for use.
V. PERCENTAGE TAX
Percentage Tax – is a national tax measured
by a certain percentage at the gross selling
price or gross receipts.
Services Subject to Percentage Tax
1. Banks and Non – banks financial
intermediaries
Business and Transfer Taxation
Exempt: BSP – legally mandated functionJPIA-HA
Bank – refers to entities engaged in the
lending of funds obtained in the form of
deposits.
Example:
a. Commercial Bank
b. Savings Bank
c. Mortgage Banks
d. Development Banks
e. Rural Banks
f. Stocks and Saving Associations
g. Branches and Agencies of Foreign
Banks
h. Cooperative Banks
i. Islamic Banks
j. Others determined by monetary board
of BSP
Non – Bank Financial Intermediaries - refer
to persons or entities whose principal function
include the lending, investing, or placement of
fund, or evidences of indebtedness, or equity
deposited with them
Quasi – Banking Function – borrowing of
funds from 20 or more personal or corporate
lenders at any one time through issuance,
endorsements, or acceptance of debt
instrument.
Tax Rates on Bank and Quasi – Banks
1) Interest Income, Commissions, and
discounts from lending activities, and income
from financial leasing on the basis of remaining
maturities of instruments from which the
receipts were derived
/ a) Maturity period of five years or less = 5%
b) Maturity period of more than five years = 1%
2) Dividend and equity shares in the net
income of subsidiaries = 0%
3) On royalties, rentals of property, real or
personal profits from exchange and all other
items treated as gross income under section
32 of NIRC = 7%
4) On net trading gains within the taxable year
on foreign currency, debt securities,
derivatives, and other similar financial
instruments (RA 9337) = 7%
Items of gross income
o Gross income subject to RIT
o For banks, gross income subject to FT
Net trading gains
o Cumulative total of the net trading gain
or loss
o Reported figures in the previous month
Net trading loss
o Shall be deductible only on the gains
from trading on the same category
o Cannot be carried over as deduction in
the following years
Tax on other Financial Intermediaries
without Quasi – Banking Functions
1) Interest income, commissions and
discounts from lending activities income from
financial leasing, on the basis of remaining
maturity of instruments from which the receipts
were denied
o Maturity period is five years or less = 5%
o Maturity period is more than five years =
1%
2) From all other items treated as gross
income under the NIRC = 5%
2. Percentage Tax on International
Carriers
o 3% of quarterly gross receipts on:
a. Transport of cargoes
b. Baggage
c. Mails from Philippines to another
country
o Does not apply to offline international
carriers
3. Percentage Tax on Domestic Carriers
and keepers of garage (Common
Carrier Tax)
Common Carrier
o Engaged in business of carrying or
transporting passengers of goods by
land, water, or air
o Exempt from local tax
o Example:
a. Cars for rent driven by lessee
b. Transportation of contractors
c. Person who transport passengers
4. Amusement Places
o Amusement taxes (20 day after the end
of quarter)
o Places of taxing exhibitions = 10%
o Places of professional basketball games
= 15%
o Cockpits, night, or day clubs = 18%
o Jai – alai and race – tracks = 30%
o Operators of amusement places =
VATABLE
Exempt:
a. World or Oriental Championship
b. At least one the contender is a Filipino
c. Promoter is Filipino Citizen
d. Promoter is a corporation 60% of which
is owned by Filipino Citizen
Gross Receipts – receipts of proprietor,
lessee operator plus income from television,
radio, and motion picture rights.
5.Sale of Shares through PSE or IPO
o Stock transaction tax
o 60% of 1%
o Meets 10% of the minimum public
ownership in the PSE
Shares sold through IPO
o Proportion of Shares sold, bartered, or
exchanged = 4% tax rate
Business and Transfer Taxation
o Up to 25% = 2% tax rate JPIA-HA
o Over 35% but not over 33 1/3% = 1%
tax rate
Clearly held Corporations – atleast 50% of
the value of outstanding capital stock is
owned directly or indirectly by not more than
20 individuals.
Determination of the Proportion of
stocks sold in an IPO
1) Primary Offering
o Unissued shares of the closely held
corporation to be sold in the IPO
o Primary shares / Outstanding shares
after IPO
2) Secondary Offering
o Issued shares being sold through IPO
o Secondary shares / Outstanding shares
before IPO
Follow through Offering – subsequent sale
after than IPO
6. Franchises
o Generally franchises are VATABLE
o Subject to OPT
 Radio or television broadcasting
companies (annual gross = 10m or less)
= 3%
 Gas and Water Utilities = 2%
Vatable Franchises
1) Electricity
2) Telecommunication
Except: Overseas Communications =
10%
3) Transportation
Except: Common Carriers by land =
3%
4) Private Franchises
7. Life Insurance Companies
o 2% on the premiums collected
(previous tax)
Life Insurance Company – is a company
which deals with the insurance on human lives
and insurance appertaining there to or
connected therewith.
Not included in gross receipts of an
insurance company:
a. Premiums refunded within 6 months
b. Re – insurance premiums
c. Premiums of life insurance of non -
residents received from abroad
d. Excess of premiums on variable
contracts.
Types of Insurance Business
1) Direct Insurance Business – underwrites
insurance policy and negotiate them to
policy holders through insurance agents
2) Reinsurers – assumes part of the rise of
insurers ; insurers of the insurers
3) Retrocessionaries – insurers of the
reinsurers
Cooperative – companies conducted by the c.4 Philippine Red Cross JPIA-HA
members thereof with the money collected c.5 Foreign Embassies
from among themselves and solely for their 3) Exempt Sales
own protection and not for profit. Other Sales Subject to VAT
8. Overseas Communication 1) Sales to registrable persons
o 10% OPT 2) Sales of Non-VAT Taxpayers who
o Exempt: issues VAT invoice or receipt
a. Government 3) Exempt Sales billed by VAT
b. Diplomatic Services Taxpayers as regular sales.
c. International Organizations
d. News Services VII. THE REGULAR OUTPUT VAT
9. Winnings from horse race or jai – alai Sources of Regular Output VAT (Sales
o In general, 1-% Subject to VAT)
o Doble/ forecast/ quirella & trifecta bets = 1. Sale of VATABLE Goods
4% o 12% VAT on gross selling price / gross
o Owners of winning race horses = 10% sales
o Payable within 20 days from date o VAT is reported on the month of sale
withheld  Unreasonably lower price
Exempt from OPT  The selling price is lower by more
o VAT Taxpayers than 30% if the actual market value
o Self – Employed (Professional who of the goods
 VAT basis will be FAIR VALUE
opted the 8% income tax – BIR Form
Except: Government = uses actual
1701 A)
selling price
o Cooperatives
2. Sale of VATABLE Services
o 12% VAT on gross receipts
VI. INTRODUCTION TO VALUE
o Reported in the month of collection
ADDED TAX (VAT)
VAT Threshold 3. Sale of VATABLE Properties
o 12% VAT = 3m and up – all other than o Under regularities:
radio & television Gross Selling Price – Actual Selling
o 12% VAT = 10m and up – franchise Price or Fair Value, whichever is higher
o Under NIRC
grantees (radio and tv)
 Subsidiaries = Separate Entity Gross Selling Price – Zonal Value or
 Branch = Not separate Entity Fair Value per assessor’s office,
Optional VAT Registration – lock-in period of whichever is higher
3 years Sale of Ordinary Assets
o 12% VAT
VAT Model o The transaction is incidental to the tax-
Output VAT xxx payers main business
Less: Input VAT xxx Sale of Capital Assets
VAT Due xxx o Exempt from VAT
Less: Tax Credits xxx 4. Transactions deemed as Sales (for VAT
VAT Still Due xxx Taxpayers Only)
o Consumption in nature but are not
Sales Subject to Special VAT Rules coursed through a purchase transaction
1) Sales to the Government (GOCCs) o Generally VAT is based on market value
o 12% normal rate of goods
List of Transactions Deemed as Sales
7% input VAT 5% Withholding 1) Transfer, use, or consumption not in the
ordinary course of business
VAT Payable is 0 a. Goods/ Properties held for sale are no
o Presumed input VAT (7%) is closed to longer sold but are disposed of other
“Cost of Sales” rears
2) Zero – rated Sales (0%) b. Properties intended for use are no
Examples longer used but are transferred,
a. Foreign Assumption – export sales disposed, or exchanged through other
b. International Transport Operations means
c. VAT Exempt Persons 2) Distribution or transfer to:
c.1 PEZA a. Shareholders / investors share in the
c.2 International Rice Research Institute profit of VAT – registered person
c.3 Asian Development Bank

Business and Transfer Taxation

 b. Creditors in payment of debt /  PEZA JPIA-HA
obligation  Cagayan Special
3) Consignment of goods not withdrawn in Economic Zone
60 days – VATABLE  Clark Special Economic
4) Retirement of Cessation of Business Zone
o Results in the transfer of all business  Zamboanga Special
goods and properties to the personal Economic Zone
account of the owner  Poro Point Special
o When it is acquired by the new Economic and
owners Freepoint Zone
5) Cessation of Status as VAT-registered  Aurora Special Economic
person Zone (ASZ)
a. Change of business activity (VAT c. Sale of goods, supplies, equipment,
taxable to VAT exempt) and fuel to persons engaged in
b. Approval of a request of cancellation international shipping or international
of registration due to: air transport operations.
b.1 Reversion to exempt states o Considered foreign
b.2 Desire to revert to exempt status consumption
after lapse of 3 years by persons 2) Effectively Zero – Rated Sales
who voluntary registered despite o Exempt under special laws /
being exempt treaty
b.3 Of one who command business o Examples: Sales to:
with the expectation of 3m gross  Asian Development
sales but failed to achieve it. Bank
Determination of Fair Value  International Rice
o Determination by CIR in cases of: Research Institute
a. Transaction is a deemed sales  United States Agency
b. Gross selling price is reasonably for International
lower Development (USAID)
Invoicing Requirement for subsequent sale with personel and
of goods or properties deemed as sales contractors
o Not VATABLE  Foreign Embassies
o Requirements: (including qualified
a. Sales invoice number where employees and
output tax was imposed developments
b. Corresponding tax paid  Philippine National Red
Cross
VIII. OUTPUT VAT – ZERO RATED  PAGCOR and its
SALES licenses or contractors
Zero – Rated Sales  United Nation, and
o Foreign consumption & equivalents Various Organization
o International Agreements  World Health
o Export Sales Organization
VAT Taxpayer – 0%  UNICEF
Non – VAT Taxpayer – Exempt
Zero Rated Sales of Goods Requirement to avail 0% VAT
1) Export Sales a. Apply to appropriate BIR Office
a. Direct Export a.1 Audit, Information, Tax Exemption
i. Sale / Shipment of goods from and Incentives Division (AITEIO) under
Philippines to abroad, in Assessment Office Service
respective of shipping b. For Large Taxpayers:
arrangement b.1 Large Taxpayer Audit Card and
ii. Requirements: Investigation Division I and II BIR National
paid for in acceptable foreign Office.
currency or equivalent
accounted for in accordance with the Zero Rated Sales of Services
rules and regulations of BSP 1) Services to non – residents
b. Sale to Economic Zones / Tourism a. Services other than manufacturing,
Zones processing, repacking
b. Requirement:
 Technical importation
 Examples of Ecozones:

Business and Transfer Taxation

 b.1 services must be performed in  JPIA-HA
Sale by Export Oriented
the Philippines Enterprise – Export Sales
b.2 paid in acceptable foreign should be 70% of total
currency or its equivalent production per annum
b.3 payment is accounted for under  Export Sales under E.O.
the rules and regulations of BSP 226 & Special Laws
2) Effectively Zero - Rated Services
a. Exempt Under Special Laws / Treaty
b. Same as Zero – Rated Sales of
Goods.
3) Services Rendered to persons
engaged in International shipping or air
transport operations, including leases of
property for use thereof.
4) Transport of passengers and cargo by
Domestic, Air, or Sea carriers from the
Philippines to Foreign Country
i. Outgoing Flight = 0% VAT
ii. Incoming Flight = Exempt
5) Sale of Power or Fuel Generated
Through Renewable Sources of Energy
o Examples of Renewable Sources of
Energy
 Biomass
 Solar
 Wind
 Hydropower
 Geothermal and steam
 Ocean energy
o Not included are services to these
sources of energy
Types of Electricity Business
1. Generation Companies
o Authorized by Energy Regulatory
Commission
o Operates facility used in production of
electricity
2. Transmission Companies
o Conveys electricity through high voltage
backbone system or transition assets.
3. Distribution Companies
o Electric Cooperatives which operates
distribution system
6) Services Rendered to Ecozones or
Tourism Enterprise Zones
Enhanced VAT System
o DOF – VAT refund center in BIR and
BOC
 Refund should be generated within
90 days
 5% of total VAT Collection will be
appropriated as funds for VAT refund
o Could result to changes of 0% VAT to
12% VAT
 Not included in the possible charges
are
 Export Sales – sale of raw
materials or packaging
materials

Business and Transfer Taxation

 JPIA-HA

Source: Business and Transfer Taxation by

Rex B. Banggawan

Business and Transfer Taxation